SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
/X/ Filed by the Registrant
/ / Filed by a Party other than the Registrant
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14(a)-12
CROMPTON & KNOWLES CORPORATION
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(Name of Registrant as Specified In Its Charter)
Payment of Filing Fee (Check the appropriate box):
/ / No fee required.
/ / Fee computed on table below per Exchange Act Rules 14(a)-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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/X/ Fee paid previously with preliminary materials.
A fee of $210,656 was paid with the preliminary proxy statement filed July
2, 1999, and an additional fee of $89,706 was paid with the Form S-4 of CK
Witco Corporation (Registration Statement No. 333-83901) filed on July 28,
1999.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount previously paid:
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(2) Form, Schedule or Registration Statement no.:
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(3) Filing Party:
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(4) Date Filed:
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[LOGO] [LOGO]
MERGER PROPOSED--YOUR VOTE IS VERY IMPORTANT
The Boards of Directors of Crompton & Knowles Corporation and Witco
Corporation have agreed to merge Crompton and Witco. This strategic business
combination will create a leading global specialty chemical company. The
combined company, named "CK Witco Corporation," will have a total market
capitalization of approximately $2.2 billion. Headquartered in Connecticut, it
will have approximately 11,000 employees and hold global market leadership
positions in additives, polymers and polymer processing equipment, and other
specialty chemicals.
In the merger, each share of Witco common stock will be converted into the
right to receive 0.9242 shares of common stock of CK Witco Corporation, with a
market value of $17.91 based on Crompton's closing stock price on July 26, 1999.
Each share of Crompton common stock will be automatically converted into a share
of common stock of CK Witco Corporation. After completion of the merger, the
current stockholders of Crompton will own approximately 55% of the combined
company and the current stockholders of Witco will own approximately 45% of the
combined company. The merger will be tax-free to Crompton stockholders and Witco
stockholders, except for, in the case of Witco stockholders, the receipt of cash
instead of fractional shares of the combined company.
In order to complete the merger, we must obtain necessary regulatory
approvals and the approvals of the stockholders of both of our companies. Each
of us will hold a special meeting of our stockholders to consider and vote on
this merger proposal. Whether or not you plan to attend your company's special
meeting, please take the time to vote by completing and mailing the enclosed
proxy card to us. If you sign, date and mail your proxy card without indicating
how you want to vote, your proxy will be counted as a vote FOR the merger and
the transactions contemplated by the merger agreement. If you do not return your
card, or if you do not instruct your broker how to vote any shares held for you
in "street name," the effect will be a vote against the merger. Approval of the
merger by the Crompton stockholders will also constitute approval of an
amendment to Crompton's 1998 Long Term Incentive Plan to increase the number of
shares of common stock reserved for issuance under that plan by 5 million
shares.
The places, dates and times of the special meetings are as follows:
FOR CROMPTON STOCKHOLDERS: FOR WITCO STOCKHOLDERS:
One Station Place, Metro Center One American Lane,
Stamford, Connecticut 06902 Greenwich, Connecticut 06831
September 1, 1999, 9:00 a.m., local time September 1, 1999, 9:00 a.m., local time
We enthusiastically support this combination of two of the premier
franchises in the specialty chemical industry and join with all the other
members of our Boards of Directors in recommending that you vote in favor of the
merger.
/s/ Vincent A. Calarco /s/ E. Gary Cook
Vincent A. Calarco E. Gary Cook
Chairman, President and Chief Executive Chairman, President and Chief Executive
Officer Officer
Crompton & Knowles Corporation Witco Corporation
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED THE SECURITIES TO BE ISSUED UNDER THIS JOINT PROXY
STATEMENT-PROSPECTUS OR DETERMINED IF THIS JOINT PROXY STATEMENT-PROSPECTUS IS
ACCURATE OR ADEQUATE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
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JOINT PROXY STATEMENT-PROSPECTUS DATED JULY 29, 1999
AND FIRST MAILED TO STOCKHOLDERS ON JULY 30, 1999
[LOGO]
CROMPTON & KNOWLES CORPORATION
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON SEPTEMBER 1, 1999
To the Stockholders
of Crompton & Knowles Corporation:
We will hold a special meeting of stockholders of Crompton & Knowles
Corporation, a Massachusetts corporation, on Wednesday, September 1, 1999, 9:00
a.m., local time, at One Station Place, Metro Center, Stamford, Connecticut
06902, for the following purposes:
1. To consider and vote upon a proposal to approve the Agreement and Plan of
Reorganization, dated as of May 31, 1999, by and among Witco Corporation, a
Delaware corporation, CK Witco Corporation (formerly known as Park Merger
Co.), a Delaware corporation and wholly owned subsidiary of Crompton, and
Crompton, and the completion of the transactions contemplated by the merger
agreement. These transactions include: (a) the reincorporation of Crompton
as a Delaware corporation by means of a merger of Crompton with and into CK
Witco, followed immediately thereafter by the merger of Witco into CK Witco
and (b) the issuance of stock of the combined company to Witco stockholders
in connection with that merger. Approval of the merger agreement will also
constitute approval of an amendment to Crompton's 1998 Long Term Incentive
Plan to increase the number of shares of common stock reserved for issuance
under that plan by 5 million shares. The completion of the merger is a
condition to the effectiveness of such amendment. This proposal is more
fully described in the enclosed joint proxy statement-prospectus.
2. To transact any other business as may properly be brought before the special
meeting or any adjournments or postponements of the Crompton special
meeting.
We have fixed the close of business on July 23, 1999 as the record date for
determining those stockholders entitled to vote at the Crompton special meeting
and any adjournments or postponements of the Crompton special meeting.
Accordingly, only stockholders of record on that date are entitled to notice of,
and to vote at, the Crompton special meeting and any adjournments or
postponements of the Crompton special meeting.
If the Crompton stockholders approve the merger agreement at the Crompton
special meeting and the merger occurs, any stockholder (a) who files with
Crompton before the vote on the merger agreement written objection to the
merger agreement stating that he or she intends to demand payment for his or
her shares of Crompton common stock if the merger occurs, and (b) whose shares
of Crompton common stock are not voted in favor of the merger agreement, has
the right to demand in writing from CK Witco Corporation, the combined
company, within 20 days after CK Witco mails a written notice that the merger
has occurred, cash payment for his or her shares and an appraisal of those
shares' value. CK Witco and that stockholder will, in those cases, have the
rights and duties and are required to follow the procedures set forth in
sections 85 to 98, inclusive, of Chapter 156B of the General Laws of
Massachusetts, a copy of which is attached to the back of this joint proxy
statement-prospectus as Appendix G.
By Order of the Board of Directors
/s/ John T. Ferguson II
John T. Ferguson II
SECRETARY
Stamford, Connecticut
July 28, 1999
THE BOARD OF DIRECTORS OF CROMPTON UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR
APPROVAL OF THE MERGER AGREEMENT AND RELATED TRANSACTIONS.
THE AFFIRMATIVE VOTE OF AT LEAST A MAJORITY OF THE OUTSTANDING SHARES OF
CROMPTON COMMON STOCK ENTITLED TO VOTE ON THESE MATTERS IS REQUIRED TO APPROVE
THE MERGER AGREEMENT AND RELATED TRANSACTIONS. WHETHER OR NOT YOU PLAN TO
ATTEND THE CROMPTON SPECIAL MEETING IN PERSON, PLEASE COMPLETE, DATE, SIGN AND
RETURN THE ENCLOSED PROXY CARD IN THE ENCLOSED ENVELOPE. THE ENCLOSED ENVELOPE
REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES. IF YOU ATTEND THE CROMPTON
SPECIAL MEETING, YOU MAY VOTE IN PERSON IF YOU WISH, EVEN IF YOU HAVE
PREVIOUSLY RETURNED YOUR PROXY CARD.
TABLE OF CONTENTS
PAGE
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SUMMARY.................................................................................................... 1
SELECTED HISTORICAL FINANCIAL DATA OF CROMPTON AND WITCO................................................... 9
Unaudited Selected Pro Forma Combined Financial Data..................................................... 11
CROMPTON SPECIAL MEETING................................................................................... 12
General.................................................................................................. 12
Matters to be Considered................................................................................. 12
The Crompton 1998 Long Term Incentive Plan Amendment..................................................... 12
Summary of the Crompton 1998 LTI Plan.................................................................... 13
Proxies.................................................................................................. 16
Solicitation of Proxies.................................................................................. 16
Record Date and Voting Rights............................................................................ 16
Recommendation of Crompton Board......................................................................... 17
WITCO SPECIAL MEETING...................................................................................... 18
General.................................................................................................. 18
Matters to be Considered................................................................................. 18
Proxies.................................................................................................. 18
Solicitation of Proxies.................................................................................. 18
Record Date and Voting Rights............................................................................ 18
Recommendation of Witco Board............................................................................ 19
THE MERGER................................................................................................. 20
General.................................................................................................. 20
Background of the Merger................................................................................. 20
Recommendation of the Crompton Board and Reasons for the Merger.......................................... 22
Recommendation of the Witco Board and Reasons for the Merger............................................. 24
Opinion of Crompton's Financial Advisor.................................................................. 26
Opinions of Witco's Financial Advisors................................................................... 30
Treatment of Options..................................................................................... 41
Witco Preferred Stock.................................................................................... 42
Exchange of Certificates; Fractional Shares.............................................................. 42
Effective Time........................................................................................... 43
Representations and Warranties........................................................................... 43
Other Agreements......................................................................................... 44
Conduct of Business Pending the Merger................................................................... 45
Conditions to Consummation of the Merger................................................................. 47
Regulatory Approvals Required for the Merger............................................................. 48
Material Federal Income Tax Consequences................................................................. 49
Accounting Treatment..................................................................................... 51
Termination of the Merger Agreement...................................................................... 51
Termination Fees......................................................................................... 53
Extension, Waiver and Amendment of the Merger Agreement.................................................. 54
Employee Benefits and Plans.............................................................................. 54
Interests of Certain Persons in the Merger............................................................... 55
Crompton and Witco Option Agreements..................................................................... 57
Restrictions on Resales by Affiliates.................................................................... 58
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PAGE
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MANAGEMENT AND OPERATIONS AFTER THE MERGER................................................................. 60
Board of Directors....................................................................................... 60
Management............................................................................................... 60
Operations............................................................................................... 61
PRICE RANGE OF COMMON STOCK AND DIVIDENDS.................................................................. 62
Crompton................................................................................................. 62
Witco.................................................................................................... 63
INFORMATION ABOUT CROMPTON................................................................................. 64
General.................................................................................................. 64
Management and Additional Information.................................................................... 64
INFORMATION ABOUT WITCO.................................................................................... 65
General.................................................................................................. 65
Management and Additional Information.................................................................... 65
DESCRIPTION OF COMBINED COMPANY CAPITAL STOCK.............................................................. 66
COMPARISON OF STOCKHOLDERS' RIGHTS......................................................................... 67
Action by Written Consent of Stockholders................................................................ 67
Amendment of Charter Documents........................................................................... 67
Stockholder Voting....................................................................................... 68
Control Share Statutes................................................................................... 68
Stockholder Approval of Certain Business Combinations.................................................... 69
Appraisal Rights......................................................................................... 70
Amendment of By-Laws..................................................................................... 70
Limitation on Directors' Liability; Indemnification of Officers and Directors............................ 71
Classified Board of Directors............................................................................ 72
Cumulative Voting for Directors.......................................................................... 72
Removal of Directors..................................................................................... 72
Newly Created Directorships and Vacancies................................................................ 73
Special Meetings......................................................................................... 73
Inspection Rights........................................................................................ 74
Election of Directors.................................................................................... 74
Dividends................................................................................................ 74
Stockholder Rights Plan.................................................................................. 75
RIGHTS OF DISSENTING STOCKHOLDERS.......................................................................... 77
Crompton................................................................................................. 77
Witco.................................................................................................... 78
LEGAL MATTERS.............................................................................................. 78
EXPERTS.................................................................................................... 78
STOCKHOLDER PROPOSALS...................................................................................... 79
OTHER MATTERS.............................................................................................. 80
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS................................................................... 80
WHERE YOU CAN FIND MORE INFORMATION........................................................................ 80
FORWARD-LOOKING STATEMENTS................................................................................. 82
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PAGE
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UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION......................................................... 84
Appendix A Agreement and Plan of Reorganization................................. A-1
Appendix A-1 Amendment No. 1 to Agreement and Plan of Reorganization.............. A-1-1
Appendix B Crompton Stock Option Agreement...................................... B-1
Appendix C Witco Stock Option Agreement......................................... C-1
Appendix D Opinion of Salomon Smith Barney Inc.................................. D-1
Appendix E Opinion of Goldman, Sachs & Co....................................... E-1
Appendix F Opinion of Deutsche Bank Securities Inc.............................. F-1
Appendix G Dissenter Rights Provisions Under the MBCL........................... G-1
Appendix H Restated Certificate of Incorporation of CK Witco Corporation........ H-1
iii
SUMMARY
THIS BRIEF SUMMARY DOES NOT CONTAIN ALL OF THE INFORMATION THAT IS IMPORTANT TO
YOU. YOU SHOULD CAREFULLY READ THIS ENTIRE DOCUMENT AND THE OTHER DOCUMENTS TO
WHICH THIS DOCUMENT REFERS YOU TO FULLY UNDERSTAND THE MERGER. SEE "WHERE YOU
CAN FIND MORE INFORMATION."
THE MERGER (PAGE 20)
We propose a merger in which Crompton will first reincorporate in Delaware by
merging into its Delaware subsidiary, which we will refer to in this document as
"Newco." Immediately after this first merger, Witco will merge into Newco. The
name of the combined company will be "CK Witco Corporation." We refer to the
surviving company of these mergers in this document as "CK Witco" or the
"combined company." The combined company will be headquartered in the State of
Connecticut. We expect to complete the merger during the third quarter of 1999.
EXCHANGE OF SHARES (PAGE 43)
When we complete the merger, your shares of Crompton common stock and Witco
common stock will become shares of CK Witco.
CROMPTON STOCKHOLDERS. As a Crompton stockholder, each of your shares of
Crompton common stock will be automatically converted into one share of common
stock of the combined company. We refer to this one-for-one exchange in the
document as the "Crompton exchange ratio." You do not need to surrender your
shares or exchange them for new ones.
WITCO STOCKHOLDERS. As a Witco stockholder, each of your shares of Witco common
stock will automatically become the right to receive 0.9242 shares of common
stock of the combined company. We refer to this one-for-0.9242 exchange in this
document as the "Witco exchange ratio." You will be paid cash instead of any
fractional share of common stock of the combined company.
Because the number of shares of common stock of the combined company that you
will receive in the merger is fixed, subject to adjustments that will not alter
the economic value of the exchange ratio, the value of the shares of common
stock of the combined company you will receive in the merger will fluctuate as
the price of Crompton common stock changes.
You will have to surrender your Witco common stock certificates to receive new
stock certificates representing common stock of the combined company. This will
not be necessary, however, until you receive written instructions after we
complete the merger.
TAX-FREE TRANSACTION (PAGE 49)
CROMPTON STOCKHOLDERS. We expect that the reincorporation and the merger will
not cause you to recognize any gain or loss for purposes of U.S. federal income
tax.
WITCO STOCKHOLDERS. We expect that your exchange of shares of Witco common
stock for shares of common stock of the combined company generally will not
cause you to recognize any gain or loss for purposes of U.S. federal income tax.
You will, however, have to recognize income or gain in connection with any cash
received instead of fractional shares.
We will not be obligated to complete the merger unless we receive legal opinions
that the reincorporation and the merger will each be treated as a reorganization
for U.S. federal income tax purposes. If that is right, the U.S. federal income
tax treatment of the reincorporation and the merger will be as we have described
it in this document. These opinions will not bind the Internal Revenue Service,
however, which could take a different view.
THIS TAX TREATMENT MAY NOT APPLY TO ALL STOCKHOLDERS. DETERMINING THE ACTUAL TAX
CONSEQUENCES OF THE REINCORPORATION AND THE MERGER TO YOU CAN BE COMPLICATED.
THEY WILL DEPEND ON YOUR SPECIFIC SITUATION AND ON VARIABLES NOT WITHIN OUR
CONTROL. YOU SHOULD CONSULT YOUR OWN TAX ADVISOR FOR A FULL UNDERSTANDING OF THE
TAX CONSEQUENCES OF THE REINCORPORATION AND THE MERGER.
COMPARATIVE PER SHARE MARKET PRICE INFORMATION (PAGES 62 AND 63)
Stockholders can obtain quotes for shares of Crompton common stock and Witco
common stock in newspapers, on the Internet, or from their brokers. On May 28,
1999, the last trading day before we announced the merger, Crompton common stock
closed at $18.375 per share and Witco common stock closed at $17.50 per share.
On July 26, 1999, Crompton common stock closed at $19.375 per share and Witco
common stock closed at $18.1875 per share.
The market value of the consideration that Witco stockholders will receive in
the merger for each share of Witco common stock would be $16.98 based on
Crompton's closing stock price on May 28, 1999, and $17.91 based on Crompton's
closing stock price on July 26, 1999. Of course, the market price of Crompton
common stock will fluctuate prior to the merger, while the exchange ratio is
fixed. You should obtain current stock price quotations for Crompton common
stock and Witco common stock.
OPINIONS THAT THE EXCHANGE RATIO IS FAIR TO STOCKHOLDERS FROM A FINANCIAL POINT
OF VIEW (PAGES 26 AND 30)
CROMPTON STOCKHOLDERS. The Crompton board of directors received a written
opinion from its financial advisor, Salomon Smith Barney Inc., as to the
fairness, from a financial point of view, of the Crompton exchange ratio to the
holders of Crompton common stock. We have attached the full text of Salomon
Smith Barney's written opinion dated May 31, 1999 to this document as Appendix
D. You should read this opinion completely to understand the assumptions made,
matters considered and limitations on the review undertaken by Salomon Smith
Barney in providing its opinion. SALOMON SMITH BARNEY'S OPINION IS DIRECTED TO
THE CROMPTON BOARD AND DOES NOT CONSTITUTE A RECOMMENDATION AS TO HOW ANY
STOCKHOLDER SHOULD VOTE WITH RESPECT TO ANY MATTER RELATING TO THE MERGER.
WITCO STOCKHOLDERS. Among other factors considered in deciding to approve the
merger, the Witco board of directors received a written opinion from each of its
financial advisors, Goldman, Sachs & Co. and Deutsche Bank Securities Inc., that
as of the date of the merger agreement, the Witco exchange ratio was fair to the
holders of Witco common stock from a financial point of view. We have attached
the full text of each of these written opinions to this document as Appendices E
and F. You should read these opinions completely to understand the assumptions
made, matters considered and limitations on the reviews undertaken by Goldman
Sachs and Deutsche Bank, in providing their respective opinions. THESE OPINIONS
ARE DIRECTED TO THE WITCO BOARD AND DO NOT CONSTITUTE RECOMMENDATIONS AS TO HOW
ANY STOCKHOLDER SHOULD VOTE WITH RESPECT TO ANY MATTER RELATING TO THE MERGER.
CROMPTON AND WITCO STOCK OPTIONS (PAGE 41)
When we complete the merger, each stock option to buy Crompton or Witco common
stock granted under the Crompton or Witco stock option plans that is outstanding
and not yet exercised immediately before completing the merger will become an
option to purchase common stock of the combined company. Each stock option will
continue to be governed by the terms of the Crompton or Witco stock option
plans, which the combined company has agreed to assume. The number of shares of
common stock of the combined company subject to new stock options, as well as
their exercise price, will be adjusted to reflect the respective exchange ratios
in the merger. The Witco stock option plans and related agreements provide that
options are exercisable for a 30-day period following the completion of a
transaction, like the merger, but that the duration of these options will not
continue beyond this 30-day period. Therefore, following this 30-day period,
these options will cease to exist.
WITCO PREFERRED STOCK (PAGE 42)
As of the date of this joint proxy statement-prospectus, there are approximately
5,900 shares of Witco's $2.65 cumulative convertible preferred stock
outstanding. This preferred stock is currently redeemable by Witco for a
redemption price of $66.00 per share. The holders of this
2
preferred stock may convert their shares into common stock of Witco. Under the
merger agreement, Witco is obligated to redeem this preferred stock if requested
by Crompton simultaneously with the completion of the merger. Crompton has
requested that Witco effect this redemption, and Witco currently intends to
effect this redemption on September 1, 1999, immediately after the Crompton and
Witco stockholders' meetings. Upon completion of this redemption, all rights
under this preferred stock will cease and terminate, except for the right to
receive the applicable redemption price. To the extent this redemption is not
effected, this preferred stock will remain outstanding after the merger under
the same terms that are currently in effect, except that these shares will be
convertible into the common stock of CK Witco. Each share of this preferred
stock is entitled to one vote at the Witco special meeting. Unless the context
otherwise requires, all references in this document to Witco stockholders
include the holders of this preferred stock.
CROMPTON STOCKHOLDERS HAVE APPRAISAL RIGHTS (PAGE 70)
CROMPTON STOCKHOLDERS. Massachusetts law permits holders of Crompton common
stock to dissent from the merger and to have the fair value of their Crompton
common stock appraised by a court and paid to them in cash by the combined
company. TO DO THIS, HOLDERS OF THESE SHARES MUST FOLLOW REQUIRED PROCEDURES,
INCLUDING FILING NOTICES WITH CROMPTON, AND, IF THEY ARE ENTITLED TO VOTE,
EITHER ABSTAINING OR VOTING AGAINST THE MERGER. If you hold shares of Crompton
common stock and you dissent from the merger and follow the required procedures,
your shares of Crompton common stock will not become shares of common stock of
the combined company. Instead, your only right will be to receive the appraised
value of your shares in cash. We have attached the applicable provisions of
Massachusetts law related to dissenters' rights to this document as Appendix G.
WITCO STOCKHOLDERS. Under Delaware law, which applies to Witco, Witco
stockholders will not have appraisal rights as a result of the merger.
WE HAVE ATTACHED THE MERGER AGREEMENT TO THIS DOCUMENT AS APPENDIX A. PLEASE
READ THE MERGER AGREEMENT. IT IS THE LEGAL DOCUMENT THAT GOVERNS THE MERGER.
THE COMPANIES (PAGES 64 AND 65)
CROMPTON & KNOWLES CORPORATION
ONE STATION PLACE, METRO CENTER
STAMFORD, CONNECTICUT 06902
(203) 353-5400
Crompton & Knowles is a global producer and marketer of specialty chemicals,
polymers and polymer processing equipment. We have approximately 5,400 employees
in research, manufacturing, sales and administration facilities around the
world, and our products are sold in 120 countries. In 1998, we had total sales
of approximately $1.8 billion.
WITCO CORPORATION
ONE AMERICAN LANE
GREENWICH, CONNECTICUT 06831
(203) 552-2000
Witco is a global manufacturer and marketer of specialty chemical products for
use in a wide variety of industrial and consumer applications. Most of our
products are sold to industrial customers for use as additives, ingredients or
intermediates that impart particular characteristics to customers' end products.
We have approximately 5,700 employees worldwide. In 1998, we had total sales of
approximately $1.9 billion.
THE STOCKHOLDERS' MEETINGS (PAGES 12 AND 18)
CROMPTON STOCKHOLDERS. The Crompton special meeting will be held on
September 1, 1999 at 9:00 a.m., local time, at One Station Place, Metro Center,
Stamford, CT 06902. At the Crompton special meeting, you will be asked:
1. to approve a merger agreement that provides for, among other things,
(a) the reincorporation of Crompton in Delaware by merging into Newco,
3
followed immediately thereafter by the merger of Witco into Newco, and
(b) the issuance of stock of the combined company to Witco stockholders in
connection with the merger.
Approval of the merger agreement will also constitute approval of an
amendment to the Crompton 1998 Long Term Incentive Plan to increase the
number of shares of common stock reserved for issuance under that plan
by 5 million shares. The completion of the merger is a condition to the
effectiveness of such amendment; and
2. to act on other matters that may properly be submitted to a vote at the
Crompton special meeting.
WITCO STOCKHOLDERS. The Witco special meeting will be held on September 1, 1999
at 9:00 a.m., local time, at our corporate headquarters located at One American
Lane, Greenwich, Connecticut 06831. At the Witco special meeting, you will be
asked:
1. to approve a merger agreement that provides for the merger of Witco with
Newco; and
2. to act on other matters that may properly be submitted to a vote at the
Witco special meeting.
RECORD DATE; VOTE REQUIRED (PAGES 16 AND 18)
CROMPTON STOCKHOLDERS. You can vote at the Crompton special meeting if you
owned Crompton common stock at the close of business on July 23, 1999. On that
date, there were 65,465,642 shares of Crompton common stock outstanding and
entitled to vote. You can cast one vote for each share of Crompton common stock
that you owned on that date. In order to approve the merger agreement and
related transactions, the holders of a majority of the outstanding shares of
Crompton common stock must vote in favor of doing so.
WITCO STOCKHOLDERS. You can vote at the Witco special meeting if you owned
Witco common stock or Witco cumulative convertible preferred stock at the close
of business on July 23, 1999. On that date, there were 57,644,086 shares of
Witco common stock and 5,858 shares of Witco cumulative convertible preferred
stock outstanding and entitled to vote. You can cast one vote for each share of
Witco common stock and one vote for each share of Witco cumulative convertible
preferred stock, in each case that you owned on that date. In order to approve
the merger agreement and related transactions, the holders of a majority of the
outstanding shares of Witco common stock and Witco cumulative convertible
preferred stock, voting together as a single class, must vote in favor of doing
so.
OUR RECOMMENDATIONS TO STOCKHOLDERS (PAGES 17 AND 19)
CROMPTON STOCKHOLDERS. The Crompton board of directors believes that the merger
is fair to you and in your best interests, and unanimously recommends that you
vote "FOR" the proposal to approve the merger agreement and related
transactions.
WITCO STOCKHOLDERS. The Witco board of directors believes that the merger is
fair to you and in your best interests, and unanimously recommends that you vote
"FOR" the proposal to approve the merger agreement and related transactions.
4
OUR REASONS FOR THE MERGER (PAGES 22 AND 24)
Our companies want to merge because we believe that by combining them we can
create a premier specialty chemical franchise and provide significant benefits
to our stockholders and customers alike. Both our companies believe that
specialty chemical companies succeed by being leaders in the business sectors in
which they compete. We believe that the unique fit of our two companies in a
broad range of customer and geographic markets will provide us with new
opportunities for growth. At the same time, in a consolidating industry, we
believe that being larger should increase our strategic options and lower our
average cost of capital.
MANAGEMENT AND OPERATIONS AFTER THE MERGER
(PAGE 60)
The present managements of our companies will share the responsibility of
managing the combined company. The Board of Directors of the combined company
will be comprised of 14 directors. Seven of the directors of the combined
company are current Crompton directors, and seven directors are current Witco
directors. Vincent A. Calarco, currently Crompton's Chairman, President and
Chief Executive Officer, will serve as President and Chief Executive Officer of
the combined company, and E. Gary Cook, currently Witco's Chairman, President
and Chief Executive Officer, will serve as Chairman of the combined company.
While no assurances can be made, we expect to achieve efficiencies in the merger
that should cause the merger to be immediately cash accretive and accretive to
earnings per share in the year 2001. We also expect to achieve an estimated $60
million of annual pre-tax cost savings by the second full year of combined
operations.
CONDITIONS TO COMPLETION OF THE MERGER (PAGE 47)
The completion of the merger depends on a number of conditions being met,
including approval of the merger agreement by both Crompton stockholders and
Witco stockholders and receipt of regulatory approvals.
Where the law permits, a party to the merger agreement could elect to waive a
condition to its obligation to complete the merger although that condition has
not been satisfied. We cannot be certain when (or if) the conditions to the
merger will be satisfied or waived or that the merger will be completed.
TERMINATION OF THE MERGER AGREEMENT; EXPENSES (PAGES 51 AND 54 )
We can agree at any time to terminate the merger agreement without completing
the merger, even if the stockholders of both our companies have approved it.
Also, either of us can decide, without the consent of the other, to terminate
the merger agreement in a number of other situations, including the final denial
of a required regulatory approval, specified circumstances relating to a
competing transaction, or the failure to complete the merger by December 31,
1999.
Each of Crompton and Witco has agreed to pay a fee of $30 million to the other
party in the event that the merger agreement is terminated under specified
circumstances relating to a competing transaction.
WAIVER AND AMENDMENT (PAGE 55)
We may jointly amend the merger agreement, and each of us may waive our right to
require the other party to adhere to the terms and conditions of the merger
agreement, to the extent legally permissible. However, we may not do so after
our stockholders approve the merger if the law requires stockholder approval of
the amendment unless we obtain that approval.
ACCOUNTING TREATMENT (PAGE 51)
We expect the merger to be accounted for as a "purchase" under generally
accepted accounting principles.
REGULATORY APPROVALS (PAGE 48)
We cannot complete the merger until, under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, we submit required filings to the
Department of Justice and we satisfy waiting period requirements. Crompton and
5
Witco submitted the required filings on
June 21, 1999, and the waiting period under this Act expired on July 21, 1999.
We may also be required to obtain approvals from, and give notices to, other
regulatory agencies.
As of the date of this document, we have not yet received all the required
approvals. While we do not know of any reason why we would not be able to obtain
the necessary approvals in a timely manner, we cannot be certain when or if we
will get them.
CROMPTON AND WITCO STOCK OPTION AGREEMENTS (PAGE 58)
Each of Crompton and Witco, as an inducement to the other party to enter into
the merger agreement, entered into a stock option agreement granting the other
party an option to purchase, under circumstances in which the termination fee
would be payable by the issuer of the option, shares of its common stock. The
most shares that can be purchased if either of the options is exercised is 19.9%
of the outstanding shares of the granting party's common stock. The option is
also subject to a profit limitation of $30 million. The purchase price under the
option granted by Crompton is $18.375 per share and the purchase price under the
option granted by Witco is $17.50 per share. In addition to the option to
purchase common stock, under certain circumstances, the person holding the
option, or the person holding shares purchased under the option, may require the
person that granted the option to repurchase the option (and/or any shares
purchased under the option) pursuant to the exercise of that option.
Neither of us can exercise our option unless specified events occur. These
events generally are business combination or acquisition transactions and
related activities involving our companies and third parties (other than the
merger we are proposing in this document), such as a merger or the sale of a
substantial amount of assets or stock. We do not know of any event that has
occurred as of the date of this document that would permit either of us to
exercise our option.
We granted the options to each other in order to increase the likelihood that we
would complete the merger. The option agreements could discourage other
companies from trying or proposing to combine with either of us before we
complete the merger.
INTERESTS OF CERTAIN PEOPLE IN THE MERGER THAT ARE DIFFERENT FROM YOUR INTERESTS
(PAGE 55)
Some of our officers have interests in the merger that are different from, or in
addition to, their interests as stockholders in our companies. These interests
exist because of employment and/or severance agreements that the officers have
entered or will enter into with Crompton, Witco and/or the combined company and
rights that the officers have under applicable benefit and compensation plans
maintained by Witco. These agreements and plans will provide the officers with
severance benefits if their employment with the combined company is terminated
after the merger and other rights in connection with the merger.
Also, following the merger, the combined company will indemnify, and provide
directors' and officers' insurance for, the directors and officers of Crompton
and Witco for events occurring before the merger, including events that are
related to the merger agreement. Additional interests of some of our directors
and officers are described under "Management and Operations after the Merger."
The members of our boards of directors knew about these additional interests,
and considered them, when they approved the merger agreement and the merger.
6
COMPARATIVE PER SHARE DATA
The following table sets forth certain historical per share data of Crompton and
Witco and combined per share data on an unaudited pro forma combined basis. Pro
forma earnings per share and book value per share have been calculated assuming
that one share of CK Witco common stock is issued in exchange for one share of
Crompton common stock and .9242 share of CK Witco common stock is issued in
exchange for one share of Witco common stock. Pro forma cash dividends declared
per common share represent historical Crompton cash dividends declared per
common share in the periods indicated. The information set forth below should be
read in conjunction with the selected historical financial data and the
unaudited pro forma combined financial information included elsewhere in this
joint proxy statement-prospectus, and the separate historical financial
statements of Crompton and Witco and the notes thereto, incorporated by
reference herein. You should not rely on this pro forma data as being indicative
of the results that would have been actually obtained if the merger had been in
effect for the above-mentioned periods or the future results of the combined
company.
THREE MONTHS ENDED
YEAR ENDED ------------------------------------
DECEMBER 26, MARCH 28, MARCH 27,
1998 (CROMPTON) 1998 (CROMPTON) 1999 (CROMPTON)
AND DECEMBER 31, AND MARCH 31, AND MARCH 31,
1998 (WITCO) 1998 (WITCO) 1999 (WITCO)
----------------- ----------------- -----------------
(UNAUDITED) (UNAUDITED)
Historical-Crompton(1)
Net earnings per common share-Basic...................... $ 2.20 $ 0.40 $ 0.87
Net earnings per common share-Diluted.................... 2.14 0.39 0.86
Book value per common share.............................. 0.96 0.26 0.77
Cash dividends declared per common share................. 0.05 -- --
Historical-Witco(1)
Net earnings per common share-Basic...................... $ 1.02 $ 0.36 $ 0.15
Net earnings per common share-Diluted.................... 1.02 0.35 0.15
Book value per common share.............................. 11.41 11.23 10.91
Cash dividends declared per common share................. 1.12 0.28 0.28
Pro Forma-CK Witco (Unaudited)(2)
Earnings per common share before extraordinary
loss-Basic............................................. $ 1.79 $ 0.53
Earnings per common share before extraordinary
loss-Diluted........................................... 1.76 0.52
Book value per common share (3).......................... 8.75
Cash dividends declared per common share (4)............. 0.05 --
- ------------------------
(1) See Notes to Selected Historical Financial Data of Crompton and Witco.
(2) See Notes to Unaudited Pro Forma Combined Financial Information.
(3) Per-share data was calculated assuming a conversion rate of one share of CK
Witco common stock for each share of Crompton common stock and .9242 share
of CK Witco common stock for each share of Witco common stock as provided
for in the merger agreement.
(4) Represents historical dividends per common share for Crompton.
7
SELECTED HISTORICAL FINANCIAL DATA
We are providing the following historical financial information to help you
analyze certain financial aspects of the merger. We derived this information
from audited financial statements of each company for each of their most recent
five fiscal years and from unaudited financial statements of each company for
their respective first quarters for 1999 and 1998. The information is only a
summary and you should read it together with our historical financial statements
and related notes contained in the annual reports and other information that we
have filed with the Securities and Exchange Commission. See "Where you can Find
More Information" on page 80.
You should also read all of the summary financial information we provide in
the following tables together with this historical financial information and
with the more detailed pro forma financial information we provide in this
document, which you can find beginning at page 84.
8
SELECTED HISTORICAL FINANCIAL DATA OF CROMPTON AND WITCO
CROMPTON & KNOWLES CORPORATION
Years Ended Three Months Ended
-------------------------------------------------------------------- ------------------------
December 31, December 30, December 28, December 27, December 26, March 28, March 27,
1994 1995 1996 1997 1998 1998 1999
------------ ------------ ------------ ------------ ------------ ----------- -----------
(in thousands, except per share data)
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Net sales.................. $1,536,211 1,744,834 1,803,969 1,851,180 1,796,119 477,219 396,292
Earnings (loss) before
extraordinary loss and
cumulative effect of
accounting changes....... $ (162,927)(1) 139,922(2) (22,054)(3) 92,071(4) 183,223(5) 31,943 59,203(6)
Net earnings (loss)........ $ (162,927) 131,643 (22,495) 86,829 161,755 29,992 59,203
Earnings per common share
basic:
Earnings (loss) per common
share before
extraordinary loss and
cumulative effect of
accounting changes....... $ (2.67)(1) 2.13(2) (0.31)(3) 1.25(4) 2.48(5) 0.43 0.87(6)
Net earnings (loss) per
common share............. $ (2.67) 2.01 (0.31) 1.18 2.20 0.40 0.87
Weighted average number of
shares outstanding....... 60,908 65,572 72,026 73,373 73,696 74,103 67,717
Earnings per common share
diluted:
Earnings (loss) per common
share before
extraordinary loss and
cumulative effect of
accounting changes....... $ (2.67)(1) 2.11(2) (0.31)(3) 1.22(4) 2.42(5) 0.42 0.86(6)
Net earnings (loss) per
common share............. $ (2.67) 1.99 (0.31) 1.15 2.14 0.39 0.86
Weighted average number of
shares outstanding....... 60,908 66,269 72,026 75,358 75,700 76,414 69,219
CONSOLIDATED BALANCE SHEET
DATA:
Total assets............... $1,488,345 1,655,845 1,657,190 1,548,820 1,408,893 1,566,849 1,396,803
Long-term debt............. $1,102,225 974,156 1,054,982 896,291 646,857 878,442 686,700
Cash dividends declared per
common share............. $ 0.46 0.52 0.27 0.05 0.05 -- --
- ------------------------------
(1) Includes an after-tax write-off of $162.5 million for impairment of certain
intangible assets and a charge of $34.9 million related to a deferred tax
valuation allowance.
(2) Includes a gain of $78.9 million related to a deferred tax valuation
allowance, a net after-tax gain of $4.4 million related to certain
non-recurring items.
(3) Includes an after-tax charge of $68.1 million for merger and related costs
and an after-tax special environmental charge of $18.5 million.
(4) Includes an after-tax special environmental charge of $9.0 million, an
after-tax charge for severance and other costs of $7.8 million, and an
after-tax gain of $16.8 million related to the settlement of certain
post-retirement liabilities.
(5) Includes an after-tax gain of $92.1 million from the sale of a 50% interest
of the seed treatment business, an after-tax charge of $21.1 million related
to facility closure costs, and an after-tax charge of $5.0 million for the
conversion of certain inventories from LIFO to FIFO.
(6) Includes an after-tax gain of $26.8 million related to the sale of the
specialty ingredients business.
9
WITCO CORPORATION
Three Months Ended
Years Ended December 31, March 31,
----------------------------------------------------- --------------------
1994 1995 1996 1997 1998 1998 1999
--------- --------- --------- --------- --------- --------- ---------
(in thousands, except per share data)
CONSOLIDATED STATEMENT OF OPERATIONS
DATA:
Net sales........................... $1,841,414 1,985,077 2,263,327 2,187,402 1,941,529 507,374 480,591
Earnings (loss) from continuing
operations before cumulative
effect of accounting change....... $ 94,420(1) 100,346(2) (247,174 (3) 90,078(4) 58,935(5) 20,445(6) 8,506(7)
Net earnings (loss)................. $ 107,067 104,445 (315,087) 94,877 58,935 20,445 8,506
Earnings per common share basic:
Earnings (loss) per common share
from continuing operations before
cumulative effect of accounting
change............................ $ 1.74(1) 1.78(2) (4.37 (3) 1.58(4) 1.02(5) 0.36(6) 0.15(7)
Net earnings (loss) per common
share............................. $ 1.97 1.85 (5.57) 1.66 1.02 0.36 0.15
Weighted average number of shares
outstanding....................... 54,812 56,312 56,591 57,130 57,518 57,443 57,561
Earnings per common share diluted:
Earnings (loss) per common share
from continuing operations before
cumulative effect of accounting
change............................ $ 1.69(1) 1.77(2) (4.37 (3) 1.55(4) 1.02(5) 0.35(6) 0.15(7)
Net earnings (loss) per common
share............................. $ 1.91 1.84 (5.57) 1.63 1.02 0.35 0.15
Weighted average number of shares
outstanding....................... 56,507 56,656 56,591 58,042 57,958 58,334 57,735
CONSOLIDATED BALANCE SHEET DATA:
Total assets........................ $1,919,345 2,750,604 2,391,705 2,297,652 2,338,869 2,237,413 2,396,342
Long-term debt...................... $ 346,545 683,830 700,820 645,101 688,192 640,435 681,045
Cash dividends declared per common
share............................. $ 1.06 1.12 1.12 1.12 1.12 0.28 0.28
- ------------------------------
(1) Includes an after-tax gain of $3.1 million related to the disposition of
businesses.
(2) Includes a net after-tax gain of $33.7 million related to settlements with
certain insurers, an after-tax gain of $33.0 million related to the
disposition of businesses, an after-tax restructuring charge of $20.6
million, and an after-tax charge of $11.0 million for environmental
remediation costs and litigation.
(3) Includes an after-tax restructuring charge of $239.3 million, other
after-tax charges of $71.3 million for environmental remediation costs,
litigation and other matters, and a net after-tax gain of $2.6 million
related to settlements with certain insurers.
(4) Includes an after-tax restructuring charge of $8.0 million, a net after-tax
gain of $0.6 million related to settlements with certain insurers, and an
after-tax gain of $1.2 million from the disposition of businesses.
(5) Includes after-tax restructuring credits--net of $21.1 million, an after-tax
charge of $13.4 million for environmental remediation costs, litigation and
other matters, and after-tax gains of $3.2 million related to the
disposition of businesses and an investment.
(6) Includes an after-tax restructuring charge of $1.4 million, and an after-tax
gain of $2.5 million from the disposition of an investment.
(7) Includes an after-tax restructuring charge of $1.6 million, and an after-tax
gain of $1.3 million from the disposition of businesses.
10
UNAUDITED SELECTED PRO FORMA COMBINED FINANCIAL DATA
The unaudited selected pro forma combined financial data gives effect to the
merger using the purchase method of accounting. The pro forma statement of
operations data reflects the combination of statement of operations data of
Crompton for the year ended December 26, 1998 and the three months ended March
27, 1999 with statement of operations data of Witco for the year ended December
31, 1998 and the three months ended March 31, 1999, respectively. The pro forma
balance sheet data reflects the combination of balance sheet data of Crompton as
of March 27, 1999 with the balance sheet data of Witco as of March 31, 1999. The
selected pro forma combined financial data should be read in connection with the
unaudited pro forma combined financial information and notes beginning on page
84. You should not rely on this pro forma data as being indicative of the
results that would have been actually obtained if the merger had been in effect
for the above-mentioned periods or the future results of the combined company.
The unaudited pro forma combined financial data included in this joint proxy
statement-prospectus do not include any expenses that we expect to incur in
connection with completing the merger and integrating the operations of Crompton
and Witco. It will not be possible to determine the actual amount of these costs
and expenses, which may be material, until the related operational and
transitional plans are completed.
See "Where You Can Find More Information" and "Unaudited Pro Forma Combined
Financial Information."
THREE MONTHS
ENDED
YEAR ENDED MARCH 27, 1999
DECEMBER 26, 1998 (CROMPTON)
(CROMPTON) AND
AND DECEMBER 31, MARCH 31, 1999
1998 (WITCO) (WITCO)
----------------- --------------
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
PRO FORMA STATEMENT OF OPERATIONS DATA:
Net sales(1)................................................................. $ 3,797,742 891,066
Earnings before extraordinary loss........................................... $ 226,770 63,522
EARNINGS PER COMMON SHARE--BASIC:
Earnings before extraordinary loss........................................... $ 1.79 0.53
Weighted average number of shares outstanding................................ 126,854 120,915
EARNINGS PER COMMON SHARE--DILUTED:
Earnings before extraordinary loss........................................... $ 1.76 0.52
Weighted average number of shares outstanding................................ 128,961 122,516
PRO FORMA BALANCE SHEET DATA:
Total assets................................................................. $ 4,297,891
Long-term debt............................................................... $ 1,455,955
Cash dividends declared per common share..................................... $ --
- ------------------------
(1) See Note 13 to Notes to Unaudited Pro Forma Combined Financial Information.
11
CROMPTON SPECIAL MEETING
GENERAL
This joint proxy statement-prospectus is first being mailed by Crompton to
the holders of Crompton common stock, par value $.10 per share, on or about July
30, 1999, and is accompanied by the notice of the Crompton special meeting and a
form of proxy that is solicited by the Board of Directors of Crompton for use at
the Crompton special meeting, to be held on Wednesday, September 1, 1999, at
9:00 a.m., local time at One Station Place, Metro Center, Stamford, CT 06902,
and at any adjournments or postponements of that meeting.
MATTERS TO BE CONSIDERED
The purpose of the Crompton special meeting is
(a) to approve the merger agreement, dated May 31, 1999 (the "MERGER
AGREEMENT"), among Witco, Crompton and Newco, and the transactions
contemplated by the merger agreement, including the merger of Crompton
with and into Newco (the "FIRST STEP MERGER") and, immediately
thereafter, the merger of Witco with and into Newco (the "SECOND STEP
MERGER," and, with the first step merger, the "MERGER") and the related
transactions, including:
(1) the reincorporation of Crompton as a Delaware corporation by means of
the first step merger, and
(2) the issuance of stock of CK Witco to Witco stockholders in connection
with the second step merger.
Approval of the merger agreement will also constitute approval of an
amendment to the Crompton 1998 Long Term Incentive Plan to increase the
number of shares of common stock reserved for issuance under that plan by
5 million shares. The completion of the merger is a condition to the
effectiveness of such amendment; and
(b) to consider any other matters that may properly be submitted to a vote
at the Crompton special meeting.
Crompton stockholders may also be asked to vote upon a proposal to adjourn
or postpone the Crompton special meeting. Crompton could use any adjournment or
postponement of the Crompton special meeting for the purpose, among others, of
allowing additional time for soliciting additional votes to approve the merger
agreement and the related transactions.
THE CROMPTON 1998 LONG TERM INCENTIVE PLAN AMENDMENT
On October 14, 1998, the Crompton board approved the Crompton 1998 Long Term
Incentive Plan subject to the approval of Crompton stockholders. The Crompton
stockholders approved the Crompton 1998 LTI Plan at the 1999 Annual Meeting of
the Stockholders on April 27, 1999. Of the 5,206,058 shares of common stock
approved for issuance under the Crompton 1998 LTI Plan, 4,210,315 shares remain
available for future grants as of the close of business on the record date.
The Crompton board believes that it is in the best interests of Crompton to
be able to continue to create equity incentives to assist in attracting,
retaining and motivating its key employees. Further, CK Witco is expected to
issue options to purchase shares of its common stock under the Crompton 1998 LTI
Plan in connection with and following the merger. The shares remaining reserved
for issuance under the Crompton 1998 LTI Plan are insufficient for such
purposes, and the board therefore recommends that all Crompton stockholders vote
in favor of increasing the number of shares authorized for issuance thereunder
as provided by the amendment.
12
SUMMARY OF THE CROMPTON 1998 LTI PLAN
The following is a general description of material features of the Crompton
1998 LTI Plan, as proposed to be amended. A copy of the Crompton 1998 LTI Plan
may be obtained from the Secretary of Crompton. You are encouraged to read this
plan.
ELIGIBILITY. Officers and other key employees of Crompton and its
subsidiaries who, in the opinion of the compensation committee, are responsible
for the management, growth, and profitability of the business of Crompton and
its subsidiaries, and, in the case of stock options, non-employee directors, are
eligible to be granted stock options, stock appreciation rights, restricted
stock awards, and long-term performance awards under the plan.
ADMINISTRATION. The plan is administered by the compensation committee. The
committee has full power to select, from among the officers and other key
employees eligible for awards, the individuals to whom awards are granted, to
make any combination of awards to any participant, and to determine the specific
terms of each grant, subject to the provisions of the plan.
STOCK OPTIONS. The plan permits the granting of transferable stock options
(subject to the provisions of the plan) that either qualify as incentive stock
options under Section 422 of the Internal Revenue Code or do not so qualify. The
option exercise price for each share covered by the option will, unless a higher
price is determined by the committee, be the fair market value of such share on
date of grant. The term of each option will be fixed by the committee but may
not exceed ten years from date of grant in the case of an incentive stock option
or ten years and one month in the case of a non-qualified option. The committee
will determine at what time or times each option may be exercised. An optionee
may elect to defer to a future date receipt of the shares to be acquired upon
exercise of a stock option (subject to the notice provisions in the plan). The
committee cannot grant options to any one individual with respect to more than
twenty-five percent (25%) of the shares of common stock reserved for
distribution pursuant to options or other awards under the plan. Any grant to a
non-employee director, which must be a non-qualified option, cannot cover more
than 7,500 shares in any year.
STOCK APPRECIATION RIGHTS. The committee may grant stock appreciation
rights, either standing alone or in conjunction with options, entitling the
holder upon exercise to receive an amount in any combination of cash or common
stock (as determined by the committee) equal in value to the increase since date
of grant in the fair market value of shares covered by such right. A stock
appreciation right shall be transferable only when and to the extent that a
related stock option would be transferable under the plan.
RESTRICTED STOCK. The committee may award shares of common stock which are
subject to certain conditions set forth in the plan and such other conditions
and restrictions as the committee may determine, which may include the
attainment of performance goals, but which are deliverable to a participant
without the payment of any consideration.
LONG TERM PERFORMANCE AWARDS. The committee may grant long term performance
awards under the plan. Such awards will be based on corporate, business unit, or
individual performance over designated performance periods of at least two
years. The committee is authorized to grant up to 200,000 shares per year/per
individual for long term performance awards.
"UNFUNDED" STATUS. It is presently intended that the plan will constitute
an "unfunded" plan for incentive and deferred compensation. The committee may
authorize the creation of trusts or other arrangements to facilitate or ensure
payment of Crompton's obligations, provided that such trusts and arrangements
are consistent with the "unfunded" status of the plan (unless the committee
otherwise determines).
13
AMENDMENT AND TERMINATION. The Crompton board may terminate or suspend the
plan at any time, but such termination or suspension shall not adversely affect
any stock options, stock appreciation rights, restricted stock awards, or long
term performance awards then outstanding without the participant's consent. The
board may amend the plan but may not, without the prior approval of the
stockholders, make any amendment which would, except as otherwise provided in
the plan, increase the number of shares reserved for grants, decrease the
minimum purchase price for stock options, change the class of employees eligible
to receive awards, or extend the maximum term for options. The committee may
amend the term of any award or option theretofore granted, retroactively or
prospectively, but no such amendment shall impair the rights of any holder
without the holder's consent.
CHANGE IN CONTROL PROVISIONS. The plan provides that in the event of a
change in control (as defined in the plan), unless otherwise determined by the
committee or the board prior to such change in control, or to the extent
expressly provided by the committee or the board in the event of a potential
change in control (as defined), all stock options and related stock appreciation
rights (to the extent outstanding for at least six months in the case of persons
subject to Section 16(b) of the Securities Exchange Act) will become immediately
exercisable, the restrictions and deferral limitations applicable to outstanding
restricted stock awards will lapse and the shares in question will fully vest,
the value of all outstanding options, stock appreciation rights and restricted
stock awards (except as otherwise determined by the committee) will be cashed
out on the basis of the highest price paid (or offered) during the preceding
60-day period, and outstanding long term performance awards will be vested and
paid out on a prorated basis, based on the target values of such awards and the
number of months elapsed compared to the total number of months in the
performance period.
FEDERAL INCOME TAX ASPECTS
The following is a brief summary of the principal Federal income tax
consequences of transactions under the plan, based on Federal income tax laws as
presently in effect. This summary is not intended to be exhaustive and does not
describe state, local, or foreign tax consequences.
INCENTIVE STOCK OPTIONS. No taxable income will be realized by an optionee
upon the grant or exercise of an incentive stock option. If shares of common
stock are issued to an optionee pursuant to the exercise of an incentive stock
option and if no disposition of such shares is made within two years after date
of grant or within one year after the transfer of such shares to such optionee,
then, upon the sale of such shares, any amount realized in excess of the option
price will be taxed to such optionee as a long-term capital gain and any loss
sustained will be a long-term capital loss and no deduction will be allowed to
the optionee's employer for Federal income tax purposes. If no disqualifying
disposition is made, the difference between the fair market value of the shares
at the time of exercise and the exercise price will be taken into account in
computing the alternative minimum tax liability of the optionee.
Under the Internal Revenue Code, long term capital gains may be subject to
different tax rates than those that apply to ordinary income. Capital losses
must be offset against any capital gains, with only the lesser of the excess of
capital losses over capital gains or $3,000 ($1,500 in the case of a married
individual filing a separate return) being deductible against ordinary income.
If shares of common stock acquired upon the exercise of an incentive stock
option are disposed of prior to the expiration of either holding period
described above, the optionee will in most instances realize ordinary income in
the year of such disqualifying disposition in an amount equal to the excess (if
any) of the fair market value of the shares at exercise (or, if less, the amount
realized on the disposition of the shares) over the exercise price thereof, and
the optionee's employer will be entitled to deduct such amount. Any further gain
realized by the participant will be taxed as short-term or long-term capital
gain, as the case may be, and will not result in any deduction by the employer.
14
If an incentive stock option is exercised at a time when it no longer
qualifies as an incentive stock option, the option will be treated as a
non-qualified option. Subject to certain exceptions for disability or death, an
incentive stock option generally will not be eligible for the tax treatment
described above if it is exercised more than three months following the
termination of employment.
NON-QUALIFIED OPTIONS. No income will be realized by an optionee at the
time a non-qualified option is granted. Except as noted below, ordinary income
will be realized by the optionee upon
exercise in an amount equal to the difference between the exercise price and the
fair market value of the shares on the date of exercise, and the optionee's
employer will be entitled to a tax deduction in the same amount. At disposition,
appreciation (or depreciation) after the date of exercise will be treated as
either short-term or long-term capital gain (or loss) depending on how long the
shares have been held.
STOCK APPRECIATION RIGHTS. No income will be realized by an optionee in
connection with the grant of a stock appreciation right. When a stock
appreciation right is exercised, the optionee will in most instances be required
to include as ordinary income in the year of exercise an amount equal to the
amount of cash and the fair market value of any shares received upon exercise.
The optionee's employer will be entitled to a deduction for Federal income tax
purposes at the same time equal to the amount included in such optionee's income
by reason of the exercise. If the optionee receives shares of common stock upon
the exercise of a stock appreciation right, the tax treatment after such
exercise is the same as that described above with respect to shares acquired
pursuant to the exercise of a non-qualified option.
RESTRICTED STOCK. A recipient of restricted stock will in most instances be
subject to tax at ordinary income rates on the amount, if any, by which the fair
market value of the restricted stock exceeds the cost, if any, of the stock at
the time the stock is no longer subject to forfeiture. However, a recipient who
makes an election under Section 83(b) of the Internal Revenue Code within 30
days of the date of grant will have ordinary income as of such date equal to the
amount, if any, by which the fair market value of the shares of restricted stock
exceeds the cost, if any, of the stock, determined without regard to the
restrictions. If the shares subject to such election are forfeited, the
recipient will not be entitled to a deduction, refund, or loss for tax purposes.
In the case of a sale of shares after the expiration of the forfeiture period,
the holding period to determine whether the recipient has long-term or short-
term capital gain or loss begins upon such expiration, and the tax basis for
such shares will be equal to the fair market value thereof on such date.
However, if the recipient elects to be taxed as of the date of grant, the
holding period commences on such date and the tax basis will be equal to the
fair market value of the shares on the date of grant, determined without regard
to the restrictions. The recipient's employer will in most instances be entitled
to a deduction equal to the amount treated as compensation to the recipient.
Dividends on restricted stock will be taxed as ordinary income when paid to the
recipient and in most instances will be treated as additional compensation
deductible by the participant's employer at such time.
LONG TERM PERFORMANCE AWARDS. Long term performance awards once vested will
in most instances be taxed as ordinary income unless receipt of payment is
subject to restrictions or deferral limitations, in which case rules similar to
those applicable to restricted stock will apply.
SPECIAL RULES APPLICABLE TO CORPORATE INSIDERS. In most instances, persons
subject to Section 16(b) of the Exchange Act will not be taxed until six months
after exercise of a non-qualified option, with the excess of the fair market
value of the stock at the end of the six-month period over the exercise price
being taxed as ordinary income and the holding period for such stock beginning
at the end of the six-month period. Similar rules apply with respect to the
exercise of stock appreciation rights settled in stock. However, an optionee who
makes an election under Section 83(b) of the Internal Revenue Code, as described
above under the caption "Restricted Stock", will be taxed on the excess of the
fair market value at exercise over the exercise price.
15
PAYMENTS IN RESPECT OF A CHANGE IN CONTROL. The plan provides for
acceleration or payment of awards and related shares in the event of a change in
control or potential change in control. Such acceleration or payment may cause
part or all of the consideration involved to be treated as a "parachute payment"
under the Internal Revenue Code which could subject the recipient to a 20%
excise tax and which might not be deductible by the recipient's employer.
PROXIES
You can use the accompanying form of proxy to vote at the Crompton special
meeting if you are unable or do not wish to attend in person. You may revoke
your proxy at any time before it is exercised, by submitting to the Secretary of
Crompton written notice of revocation or a properly executed proxy having a
later date, or by attending the Crompton special meeting and electing to vote in
person. Written notices of revocation and other communications with respect to
the revocation of Crompton proxies should be addressed to Crompton & Knowles
Corporation, One Station Place, Metro Center, Stamford, Connecticut 06902,
Attention: Corporate Secretary. All shares represented by valid proxies received
pursuant to this solicitation, and not revoked before they are exercised, will
be voted in the manner specified in these proxies. IF YOU MAKE NO SPECIFICATION,
YOUR PROXY WILL BE VOTED IN FAVOR OF THE MATTERS TO BE VOTED UPON AT THE
CROMPTON SPECIAL MEETING.
The Crompton board is unaware of any other matters that may be presented for
action at the Crompton special meeting. If other matters do properly come before
the Crompton special meeting, however, it is intended that shares represented by
proxies in the accompanying form will be voted, or not voted, by the persons
named in the proxies in their discretion. No proxy that is voted against
approval of the merger agreement will be voted in favor of any adjournment or
postponement of the Crompton special meeting for the purpose of soliciting
additional proxies.
SOLICITATION OF PROXIES
Crompton will bear the entire cost of soliciting proxies from Crompton
stockholders, except that Crompton and Witco have each agreed to pay one-half of
the printing costs of this joint proxy statement-prospectus and related proxy
materials. In addition to the solicitation of proxies by mail, Crompton will
request that banks, brokers and other record holders send proxies and proxy
material to the beneficial owners of the stock held by them and secure their
voting instructions if necessary. Crompton will reimburse those record holders
for their reasonable expenses in so doing. Crompton has also made arrangements
with D. F. King & Co., Inc. to assist it in soliciting proxies from banks,
brokers and nominees, and has agreed to pay customary fees plus expenses for
those services. If necessary, Crompton may also use several of its regular
employees, who will not be specially compensated, to solicit proxies from
stockholders, either personally or by telephone, telegram, facsimile or special
delivery letter.
RECORD DATE AND VOTING RIGHTS
Crompton has fixed July 23, 1999 as the record date for determining those
Crompton stockholders entitled to notice of and to vote at the Crompton special
meeting in accordance with the provisions of the Massachusetts Business
Corporation Law, the Crompton bylaws and the rules of the New York Stock
Exchange, Inc. Accordingly, only holders of shares of Crompton common stock of
record at the close of business on the Crompton record date will be entitled to
notice of and to vote at the Crompton special meeting. At the close of business
on the Crompton record date, there were 65,465,642 shares of Crompton common
stock held by approximately 4,290 holders of record. The presence, in person or
by proxy, of shares of Crompton common stock representing a majority of Crompton
shares outstanding and entitled to vote on the Crompton record date is necessary
to constitute a quorum at the Crompton special meeting. Each share of Crompton
common stock outstanding on the Crompton record date entitles its holder to one
vote.
16
Shares of Crompton common stock held by persons attending the Crompton
special meeting but not voting, and shares of Crompton common stock for which
Crompton has received proxies but with respect to which holders of those shares
have abstained from voting, will be counted as present at the Crompton special
meeting for purposes of determining the presence or absence of a quorum for the
transaction of business at the Crompton special meeting. Brokers who hold shares
of Crompton common stock in nominee or "street" name for customers who are the
beneficial owners of those shares are prohibited from giving a proxy to vote
shares held for those customers on the matters to be considered and voted upon
at the Crompton special meeting without specific instructions from those
customers. These so-called "broker non-votes" will be counted for purposes of
determining whether a quorum exists.
Under applicable Massachusetts law and the Crompton Restated Articles of
Organization, approval of the merger agreement and the related transactions
requires the affirmative vote of the holders of a majority of the outstanding
shares of Crompton common stock entitled to vote at the Crompton special
meeting.
BECAUSE APPROVAL OF THE MERGER AGREEMENT AND THE RELATED TRANSACTIONS
REQUIRES THE AFFIRMATIVE VOTE OF THE HOLDERS OF A MAJORITY OF THE OUTSTANDING
SHARES OF CROMPTON COMMON STOCK ENTITLED TO VOTE AT THE CROMPTON SPECIAL
MEETING, ABSTENTIONS AND BROKER NON-VOTES WILL HAVE THE SAME EFFECT AS VOTES
AGAINST APPROVAL OF THE MERGER AGREEMENT AND THE RELATED TRANSACTIONS.
ACCORDINGLY, THE CROMPTON BOARD URGES CROMPTON STOCKHOLDERS TO COMPLETE, DATE
AND SIGN THE ACCOMPANYING PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED,
POSTAGE-PAID ENVELOPE.
As of the Crompton record date, directors and executive officers of Crompton
owned 2,497,574 shares of Crompton common stock, entitling them to exercise
approximately 3.82% of the voting power of the Crompton common stock entitled to
vote at the Crompton special meeting. On the basis of the unanimous approval of
the merger agreement by the Crompton board, we currently expect that each
director and executive officer of Crompton will vote the shares of Crompton
common stock beneficially owned by him or her for approval of the merger
agreement and the related transactions. Also, as of the Crompton record date,
directors and executive officers of Witco owned no shares of Crompton common
stock.
Additional information with respect to beneficial ownership of Crompton
common stock by individuals and entities owning more than 5% of that stock and
more detailed information with respect to beneficial ownership of Crompton
common stock by directors and executive officers of Crompton is incorporated by
reference to the Annual Report on Form 10-K of Crompton for the year ended
December 26, 1998. See "Where You Can Find More Information."
RECOMMENDATION OF CROMPTON BOARD
The Crompton board has unanimously approved the merger agreement and the
related transactions. The Crompton board believes that the merger agreement and
the related transactions are in the best interests of Crompton and Crompton
stockholders, and recommends that Crompton stockholders vote "FOR" approval of
the merger agreement and the related transactions. See "The
Merger--Recommendation of the Crompton Board and Reasons for the Merger."
17
WITCO SPECIAL MEETING
GENERAL
This joint proxy statement-prospectus is first being mailed by Witco to the
holders of Witco common stock, par value $5.00 per share, and the holders of
Witco's $2.65 cumulative convertible preferred stock, par value $1.00 per share,
on or about July 30, 1999, and is accompanied by the notice of the Witco special
meeting and a form of proxy that is solicited by the board of directors of Witco
for use at the Witco special meeting, to be held on Wednesday, September 1,
1999, at 9:00 a.m., local time, at our corporate headquarters located at One
American Lane, Greenwich, Connecticut 06831, and at any adjournments or
postponements of that meeting.
MATTERS TO BE CONSIDERED
The purpose of the Witco special meeting is to approve the merger agreement
and the transactions contemplated by that agreement, including the merger, and
any other matters that may be properly submitted to a vote at the Witco special
meeting. Witco stockholders may also be asked to vote upon a proposal to adjourn
or postpone the Witco special meeting. Witco could use any adjournment or
postponement of the Witco special meeting for the purpose, among others, of
allowing additional time for soliciting additional votes to approve the merger
agreement.
PROXIES
You may use the accompanying form of proxy to vote at the Witco special
meeting if you are unable or do not wish to attend in person. You may revoke
your proxy at any time before it is exercised by submitting to the Assistant
Secretary of Witco written notice of revocation, a properly executed proxy
having a later date, or by attending the Witco special meeting and electing to
vote in person. Written notices of revocation and other communications with
respect to the revocation of Witco proxies should be addressed to Witco
Corporation, One American Lane, Greenwich, Connecticut 06831, Attention:
Alexandra I. Graf, Assistant Secretary. All shares represented by valid proxies
received pursuant to this solicitation, and not revoked before they are
exercised, will be voted in the manner specified in those proxies. IF YOU MAKE
NO SPECIFICATION, YOUR PROXY WILL BE VOTED IN FAVOR OF APPROVAL OF THE MERGER
AGREEMENT.
The Witco board is unaware of any other matters that may be presented for
action at the Witco special meeting. If other matters do properly come before
the Witco special meeting, however, the shares represented by proxies in the
accompanying form will be voted, or not voted, in the discretion of the persons
named in the proxies. No proxy that is voted against approval of the merger
agreement will be voted in favor of any adjournment or postponement of the Witco
special meeting for the purpose of soliciting additional proxies.
SOLICITATION OF PROXIES
Witco will bear the entire cost of soliciting proxies from Witco
stockholders, except that Crompton and Witco have each agreed to pay one-half of
the printing costs of this joint proxy statement-prospectus and related proxy
materials. In addition to the solicitation of proxies by mail, Witco will
request that banks, brokers and other record holders send proxies and proxy
material to the beneficial owners of stock held by them and secure their voting
instructions, if necessary. Witco will reimburse those record holders for their
reasonable expenses in so doing. Witco has also made arrangements with Georgeson
& Company Inc. to assist it in soliciting proxies from banks, brokers and
nominees, and has agreed to pay customary fees plus expenses for those services.
RECORD DATE AND VOTING RIGHTS
In accordance with the provisions of the Delaware General Corporation Law,
the Witco bylaws and the rules of the New York Stock Exchange, Witco has fixed
July 23, 1999 as the record date for
18
determining those Witco stockholders entitled to notice of, and to vote at, the
Witco special meeting. Accordingly, only Witco stockholders of record at the
close of business on the Witco record date will be entitled to notice of and to
vote at the Witco special meeting. At the close of business on the Witco record
date, there were 57,644,086 shares of Witco common stock outstanding held by
approximately 3,867 holders of record, and there were 5,858 shares of Witco
$2.65 cumulative convertible preferred stock outstanding held by approximately
91 holders of record. The presence, in person or by proxy, of shares of Witco
common stock and cumulative convertible preferred stock representing a majority
of those shares, together as a single class, outstanding and entitled to vote on
the record date is necessary to constitute a quorum at the Witco special
meeting. Each share of Witco common stock and cumulative convertible preferred
stock outstanding on the Witco record date entitles its holder to one vote.
Shares of Witco common stock and cumulative convertible preferred stock held
by persons attending the Witco special meeting but not voting, and shares of
Witco common stock and cumulative convertible preferred stock for which Witco
has received proxies but with respect to which holders of those shares have
abstained from voting, will be counted as present at the Witco special meeting
for purposes of determining the presence or absence of a quorum for the
transaction of business at the Witco special meeting. Brokers who hold shares of
Witco common stock or cumulative convertible preferred stock in nominee or
"street" name for customers who are the beneficial owners of those shares are
prohibited from giving a proxy to vote shares held for those customers on
matters to be considered and voted upon at the Witco special meeting without
specific instructions from those customers. These so-called "broker non-votes"
will be counted for purposes of determining whether a quorum exists.
Under applicable Delaware law and the Witco Restated Certificate of
Incorporation, approval of the merger agreement requires the affirmative vote of
the holders of a majority of the outstanding shares of Witco common stock and
cumulative convertible preferred stock, voting together as a single class,
entitled to vote at the Witco special meeting.
BECAUSE APPROVAL OF THE MERGER AGREEMENT REQUIRES THE AFFIRMATIVE VOTE OF
THE HOLDERS OF AT LEAST A MAJORITY OF THE OUTSTANDING SHARES OF WITCO COMMON
STOCK AND CUMULATIVE CONVERTIBLE PREFERRED STOCK, VOTING TOGETHER AS A SINGLE
CLASS, ENTITLED TO VOTE AT THE WITCO SPECIAL MEETING, ABSTENTIONS AND BROKER
NON-VOTES WILL HAVE THE SAME EFFECT AS VOTES AGAINST APPROVAL OF THE MERGER
AGREEMENT. ACCORDINGLY, THE WITCO BOARD URGES WITCO STOCKHOLDERS TO COMPLETE,
DATE AND SIGN THE ACCOMPANYING PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED,
POSTAGE-PAID ENVELOPE.
As of the Witco record date, directors and executive officers of Witco owned
approximately 527,391 shares of Witco common stock entitling them to exercise
approximately one percent of the voting power of the Witco stock entitled to
vote at the Witco special meeting. On the basis of the unanimous approval of the
merger agreement by the Witco board, we currently expect that each director and
executive officer of Witco will vote the shares of Witco stock owned by him or
her for approval of the merger agreement and the transactions contemplated by
the merger agreement. As of the Witco record date, directors and executive
officers of Crompton owned no shares of Witco stock.
Additional information with respect to the beneficial ownership of Witco
stock by individuals and entities owning more than 5% of that stock and more
detailed information with respect to beneficial ownership of Witco stock by
directors and executive officers of Witco is incorporated by reference to the
Annual Report on Form 10-K of Witco for the year ended December 31, 1998. See
"Where You Can Find More Information."
RECOMMENDATION OF WITCO BOARD
The Witco board has unanimously approved the merger agreement and the
related transactions. The Witco board believes that the merger agreement is in
the best interests of Witco and Witco stockholders and recommends that the Witco
stockholders vote "FOR" approval of the merger agreement and the related
transactions. See "The Merger--Recommendation of the Witco Board and Reasons for
the Merger."
19
THE MERGER
THE FOLLOWING IS A SUMMARY OF MATERIAL TERMS AND PROVISIONS OF THE MERGER
AGREEMENT AND THE RELATED OPTION AGREEMENTS, DATED AS OF MAY 31, 1999. THE
MERGER AGREEMENT IS ATTACHED AS APPENDIX A TO THIS JOINT PROXY
STATEMENT-PROSPECTUS. THE OPTION AGREEMENTS ARE ATTACHED AS APPENDICES B AND C
TO THIS JOINT PROXY STATEMENT-PROSPECTUS. WE ENCOURAGE YOU TO READ ALL OF THE
MERGER AGREEMENT AND THE OPTION AGREEMENTS.
GENERAL
The Crompton board and the Witco board each have unanimously approved the
merger agreement. CK Witco, as the combined company following consummation of
the merger, will be the surviving corporation. With certain limited exceptions
described below, each share of Crompton common stock issued and outstanding at
the effective time of the merger will be automatically converted into one share
of common stock of CK Witco, and each share of Witco common stock issued and
outstanding at the effective time will be converted into the right to receive
0.9242 shares of common stock of CK Witco. The combined company will be named
"CK Witco Corporation" and will trade on the NYSE under the symbol "CNW."
This section of the joint proxy statement-prospectus describes certain
aspects of the merger, including the principal provisions of the merger
agreement and the option agreements.
BACKGROUND OF THE MERGER
The senior managements of Crompton and Witco have, over time, regularly
considered the possibility of, and each of Crompton and Witco have in the past
engaged in, acquisitions and strategic combinations with a variety of specialty
chemical companies. In considering and engaging in these transactions, Crompton
and Witco have taken into account various factors, including their potential
strategic fit with these institutions based on their businesses, their
management and employee cultures and the geographic location and breadth of
their businesses. In addition, in light of recent trends toward consolidation in
the specialty chemical industry nationally and internationally, the senior
managements of Crompton and Witco have from time to time had informal
discussions with senior managements of other comparably-sized specialty chemical
companies, including each other, regarding potential business combination
transactions.
In February 1999, Vincent A. Calarco, Chairman, President and Chief
Executive Officer of Crompton, met informally with E. Gary Cook, Chairman,
President and Chief Executive Officer of Witco, to discuss their two companies.
Messrs. Calarco and Cook met again on several occasions to discuss a possible
strategic combination of their two companies. On May 5, 1999, Crompton and Witco
entered into a confidentiality agreement covering the exchange of information in
connection with their mutual consideration of this potential business
combination. After executing the confidentiality agreement, Crompton and Witco
exchanged limited financial information and other information with respect to
the business operations conducted by each organization. Thereafter, at the
request of Messrs. Calarco and Cook, a limited number of additional members of
the senior managements of Crompton and Witco held preliminary meetings to
discuss issues relating to a possible business combination between the two
companies.
Messrs. Calarco and Cook and certain members of their senior management
teams continued discussions with respect to a possible business combination,
including the specific terms of a potential transaction. On May 13, 1999, senior
management of Crompton met with the Crompton board and briefed the board on the
preliminary discussions that they had held to this point with Witco. At the
conclusion of this meeting, the Crompton board authorized senior management of
Crompton to continue discussions with Witco. Between May 16, 1999 and May 19,
1999, Mr. Cook had individual discussions with the chairmen of the various
committees of the Witco board regarding a possible "merger of equals"
transaction with Crompton. On May 20, Goldman, Sachs & Co. presented an initial
20
analysis of the proposed transaction to some of these directors. Following a
discussion session, the directors at the presentation encouraged Mr. Cook to
continue discussions, subject to review by the entire Witco board.
On May 22, 1999, senior management of Crompton reviewed with the Crompton
board the status of the discussions with Witco and the issues related to a
possible business combination and met with Mr. Cook. After considering these
matters, the Crompton board determined that senior management of Crompton should
continue discussions with Witco and conduct due diligence analysis and, further
to those discussions and review, negotiate the terms of definitive
documentation.
Between May 21, 1999 and May 24, 1999 Mr. Cook had individual discussions
with all of the Witco directors regarding a potential transaction with Crompton,
each of whom encouraged Mr. Cook to continue discussions with Crompton.
Following these meetings, discussions became more focused between Messrs.
Calarco and Cook and additional members of their senior management teams
regarding a possible business combination and the various possible structures
for that combination. During the course of these meetings, senior managements of
Crompton and Witco proposed that each party conduct due diligence investigations
in the near future with respect to the other's operations. Further, Crompton's
and Witco's outside legal advisors began to draft and negotiate the
documentation with respect to a possible business combination.
Discussions continued between Messrs. Calarco and Cook and certain members
of their senior management teams with respect to a possible business
combination. Contemporaneous with these discussions, Crompton retained Goldman
Sachs and Salomon Smith Barney Inc. as its financial advisors in connection with
the possible business combination with Witco. Witco retained Goldman Sachs as
its financial advisor in connection with the possible business combination with
Crompton.
Discussions and negotiations continued from May 24, 1999 through May 31,
1999 with respect to the possible business combination. During this period, each
party conducted due diligence and senior managements of Crompton and Witco were
separately briefed on the findings that their teams had reached during this
period. The senior management teams continued to meet to discuss the financial
and other terms of the possible business combination, including the exchange
ratio. On May 26, 1999, Witco retained Deutsche Bank Securities Inc. as a
financial advisor in connection with the possible business combination with
Crompton. Deutsche Bank did not participate in any of the discussions or
negotiations among representatives of Witco and Crompton regarding the possible
business combination with Crompton.
The Crompton board held two special meetings, one on May 28, 1999 and the
second on May 31, 1999, at which senior management of Crompton reviewed its
discussions and negotiations with Witco regarding a business combination, as
well as the results of its due diligence investigation of Witco. Senior
management, and each of Salomon Smith Barney and Goldman Sachs reviewed detailed
financial information with respect to Witco and the potential transaction with
the Crompton board. At the May 31 meeting, Salomon Smith Barney rendered its
oral opinion (which was subsequently confirmed in writing) that, as of May 31,
1999, and based on and subject to the matters described in its opinion, the
Crompton exchange ratio was fair, from a financial point of view, to the holders
of Crompton common stock. Also at the May 31 meeting, the Crompton board
reviewed with counsel to Crompton the terms of the merger agreement and the
option agreements and the legal standards applicable to its decision to approve
these agreements and the transactions contemplated by these agreements. After
questions by and discussion among the members of the Crompton Board, and after
consideration of the factors described under "--Recommendations of the Crompton
Board and Reasons for the Merger," the Crompton board voted unanimously, on May
31, 1999, to approve the merger agreement and the transactions contemplated by
that agreement, as well as the option agreements.
21
The Witco board held two special meetings, one on May 28, 1999 and the
second on May 31, 1999. In addition, the Witco board members held several
informal meetings to review the proposed transaction, including a meeting on May
27, 1999, where Mr. Calarco presented his views on the proposed transaction. At
the May 28, 1999 meeting, senior management of Witco reviewed its discussions
and negotiations with Crompton regarding a business combination, as well as the
results of its due diligence investigation of Crompton, and Goldman Sachs
presented detailed financial information with respect to Crompton and the
potential transaction to the Witco board. Also at the May 28, 1999 meeting, the
Witco board reviewed with counsel to Witco the terms of the merger agreement and
the option agreements as negotiated through that time and other related matters,
including the legal standards applicable to its decision to approve these
agreements and the transactions contemplated by these agreements. Following the
May 28, 1999 meeting, the Witco board designated an informal subcommittee of the
board consisting of four directors, including Mr. Cook, to negotiate the final
terms of the merger agreement and report back at a subsequent meeting of the
Witco board. At the May 31, 1999 meeting, Mr. Cook and counsel described to the
Witco board the final terms of the proposed merger agreement that had been
negotiated with Crompton. Goldman Sachs then re-summarized the detailed
presentation made at the May 28, 1999 meeting, and Deutsche Bank presented
detailed financial information with respect to Crompton and the potential
transaction to the Witco board. Following its presentation, each of Goldman
Sachs and Deutsche Bank rendered its oral opinion (each of which was
subsequently confirmed in writing) that, as of May 31, 1999, the Witco exchange
ratio was fair to holders of Witco common stock from a financial point of view.
After questions by and discussion among the members of the Witco board, and
after consideration of the factors described under "--Recommendations of the
Witco Board and Reasons for the Merger," the Witco board voted unanimously, on
May 31, 1999, to approve, among other things, the merger agreement, the
transactions contemplated by that agreement and the option agreements.
Crompton and Witco entered into the merger agreement and the option
agreements on May 31, 1999.
RECOMMENDATION OF THE CROMPTON BOARD AND REASONS FOR THE MERGER
THE CROMPTON BOARD BELIEVES THAT THE MERGER IS FAIR TO, AND IN THE BEST
INTERESTS OF, CROMPTON AND CROMPTON STOCKHOLDERS. ACCORDINGLY, THE CROMPTON
BOARD HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND UNANIMOUSLY RECOMMENDS
THAT CROMPTON STOCKHOLDERS VOTE "FOR" APPROVAL OF THE MERGER AGREEMENT AND THE
RELATED TRANSACTIONS.
The Crompton board believes that the unique fit of two strong leaders in a
broad range of customer and geographic markets will provide new opportunities
for growth.
In reaching its decision to approve the merger agreement and the option
agreements, the Crompton board consulted with management of Crompton, as well as
with its financial and legal advisors, and considered a variety of factors,
including the following:
- The Crompton board's familiarity with and review of Witco's business,
operations, financial condition, earnings and prospects.
- The anticipated effectiveness of the merger in allowing Crompton to
enhance stockholder returns by identifying and achieving efficiencies and
cost savings and by creating a premier specialty chemical company with
diverse business lines capable of competing globally.
- The business, operations, financial condition, earnings and prospects of
each of Crompton and Witco. In making its determination, the Crompton
board took into account the results of Crompton's due diligence review of
Witco's business.
- The scale, scope, strength and diversity of operations and product lines
that could be achieved by combining Crompton and Witco, as illustrated by
the fact that, based on information
22
available as of the date of the merger agreement, the combined company
would be a $3.2 billion global specialty chemical company with
international sales of $1.4 billion making up 44% of the total.
- The ability to capitalize on numerous opportunities for revenue growth by
offering more products to existing customers more quickly.
- The complementary nature of the businesses of Crompton and Witco and the
anticipated improved stability of the combined company's businesses and
earnings in varying economic and market climates relative to Crompton on a
stand-alone basis made possible by the merger as a result of greater
geographic and business line diversification.
- The anticipated financial impact of the proposed transaction on the
combined company's future financial performance, including, without
limitation, that the transaction is expected to be immediately accretive
to Crompton's cash flow per share, and additive to earnings per share in
2001. The combined company's ability to achieve these results depends on
various factors, a number of which will be beyond its control, including
economic conditions, unanticipated changes in business conditions and the
regulatory environment, and, therefore, there can be no assurance that
these results will be achieved. See "Forward-Looking Statements."
- The expectation that the merger would result in synergies for the combined
company's operations, including an advantageous cost structure relative to
competitors and to Crompton on a stand-alone basis, as well as the
possibility of enhancing revenues through cross-selling of the products
and services of the two companies. The Crompton board noted that, although
no assurances could be given that any particular level of cost synergies
will be achieved, the managements of Crompton and Witco had identified net
pre-tax merger savings of approximately $60 million per year by the second
full year of combined operations. See "Management and Operations after the
Merger" and "Forward-Looking Statements."
- The belief of senior management of Crompton and its board that Crompton
and Witco share a common vision with respect to delivering stockholder
value and that their managements and employees possess complementary
skills and expertise.
- The Crompton board's belief that, as a result of its scale, the combined
company will have the flexibility to pursue a more comprehensive range of
strategic options.
- The structure of the merger and the terms of the merger agreement and the
option agreements, which are reciprocal in nature, including the fact that
the fixed exchange ratio provides certainty as to the number of shares of
the common stock of the combined company to be issued in the merger and
that the merger is intended to qualify as a "reorganization" for U.S.
federal income tax purposes.
- The proposed arrangements with members of management of Crompton and
Witco, including the fact that Mr. Calarco will serve as President and
Chief Executive Officer of the combined company and Mr. Cook will serve as
Chairman of the combined company. See "Management and Operations after the
Merger."
- The opinion of Salomon Smith Barney to the Crompton board that, as of the
date of the merger agreement and based on and subject to the matters
described in its opinion, the Crompton exchange ratio was fair from a
financial point of view to the holders of Crompton common stock. See
"--Opinion of Crompton's Financial Advisor."
- The likelihood of the merger being approved by the appropriate regulatory
authorities. See "--Regulatory Approvals Required for the Merger."
23
This discussion of the information and factors considered by the Crompton
board is not intended to be exhaustive but includes all material factors
considered by the Crompton board. In reaching its determination to approve and
recommend the merger, the Crompton board did not assign any relative or specific
weights to those factors, and individual directors may have given differing
weights to different factors. The Crompton board is unanimous in its
recommendation that Crompton stockholders vote for approval of the merger
agreement and related transactions.
RECOMMENDATION OF THE WITCO BOARD AND REASONS FOR THE MERGER
THE WITCO BOARD BELIEVES THAT THE MERGER IS FAIR TO, AND IN THE BEST
INTERESTS OF, WITCO STOCKHOLDERS. ACCORDINGLY, THE WITCO BOARD HAS UNANIMOUSLY
APPROVED THE MERGER AGREEMENT AND UNANIMOUSLY RECOMMENDS THAT WITCO STOCKHOLDERS
VOTE "FOR" APPROVAL OF THE MERGER AGREEMENT AND THE RELATED TRANSACTIONS.
The Witco board believes that the unique fit of two strong leaders in a
broad range of customer and geographic markets will provide new opportunities
for growth.
In reaching its decision to approve the merger agreement and the option
agreements, the Witco board consulted with management of Witco, as well as its
financial and legal advisors, and considered a variety of factors, including the
following:
- The fact that the transaction is a merger rather than a sale, and Witco's
stockholders will continue to benefit from future appreciation in the
value of the combined company.
- The Witco board's belief that the increased scale of the combined company
(1) provides Witco with greater access to capital than Witco would have if
it did not merge with Crompton, (2) places Witco in a better position as
the specialty chemicals industry continues to consolidate and build
critical mass, and (3) provides greater flexibility to pursue a more
comprehensive range of strategic options.
- The Witco board's conclusion that the combined company will be in a
significantly stronger position than Witco alone to face the short term
challenges to completing Witco's restructuring efforts and ensuring that
Witco's stockholders have the opportunity to realize the underlying value
of Witco's businesses.
- The business, operations, financial condition, earnings and prospects of
each of Witco and Crompton. In making its determination, the Witco board
took into account the results of Witco's due diligence review of
Crompton's business.
- The scale, scope, strength and diversity of operations and product lines
that could be achieved by combining Witco and Crompton, as illustrated by
the fact that, based on information available as of the date of the merger
agreement, the combined company would be a $3.2 billion global specialty
chemical company with international sales of $1.4 billion making up 44% of
the total.
- The opportunity to capitalize on numerous opportunities for revenue growth
by offering more products to existing customers more quickly and on a
global basis.
- The complementary nature of the business of Witco and Crompton and the
anticipated improved stability of the combined company's business and
earnings in varying economic and market climates relative to Witco on a
stand-alone basis made possible by the merger as a result of greater
geographic and business line diversification.
- The anticipated financial impact of the proposed transaction on the
combined company's future financial performance, including, without
limitation, that the transaction is expected to be immediately accretive
to Witco's earnings. The combined company's ability to achieve these
24
results depends on various factors, a number of which will be beyond its
control, including economic conditions, future price/earnings ratios
attributed to the combined company, unanticipated changes in business
conditions and the regulatory environment, and, therefore, there can be no
assurance that these results will be achieved. See "Forward-Looking
Statements."
- The expectation that the merger will result in synergies for the combined
company's operations, including an advantageous cost structure relative to
competitors and to Witco on a stand-alone basis, as well as the
possibility of enhancing revenues through cross-selling of the products
and services of the two companies.
- The structure of the merger which is intended to qualify as a tax-free
"reorganization" for U.S. federal income tax purposes and the terms of the
merger agreement and related agreements, which are reciprocal in nature
and provide Crompton and Witco the appropriate flexibility to protect
stockholder interests.
- The proposed arrangements with respect to employees and the management of
the combined company, including the fact that half of the directors
serving on the combined company's board will be current members of
Crompton's board and half will be current members of Witco's board, that
management depth will be enhanced, and that Mr. Cook will serve as
chairman of the combined company and Mr. Calarco will serve as president
and chief executive officer of the combined company. See "Management and
Operations after the Merger."
- The opinions of Goldman Sachs and Deutsche Bank, respectively, to the
Witco board that, as of the date of the merger agreement, based on and
subject to the considerations set forth in their respective opinions, the
Witco exchange ratio was fair from a financial point of view to the
holders of Witco common stock. See "--Opinions of Witco's Financial
Advisors."
- The likelihood of the merger being approved by the appropriate regulatory
authorities. See "--Regulatory Approvals Required for the Merger."
This discussion of the information and factors considered by the Witco board
is not intended to be exhaustive but includes all material factors considered by
the Witco board. In reaching its determination to approve and recommend the
merger, the Witco board did not assign any relative or specific weights to those
factors, and individual directors may have given differing weights to differing
factors. The Witco board is unanimous in its recommendation that Witco
stockholders vote for approval of the merger agreement and related transactions.
25
OPINION OF CROMPTON'S FINANCIAL ADVISOR
Crompton retained Salomon Smith Barney and Goldman Sachs to act as its
financial advisors in connection with the proposed merger, and requested that
Salomon Smith Barney evaluate the fairness, from a financial point of view, to
the holders of Crompton common stock of the Crompton exchange ratio. On May 31,
1999, at a meeting of the Crompton board held to evaluate the proposed merger,
Salomon Smith Barney delivered to the Crompton board an oral opinion that, as of
that date and based on and subject to the matters described in its opinion, the
Crompton exchange ratio was fair, from a financial point of view, to the holders
of Crompton common stock. Salomon Smith Barney confirmed its oral opinion by
delivery of a written opinion dated May 31, 1999.
In arriving at its opinion, Salomon Smith Barney:
- reviewed the merger agreement and related documents;
- held discussions with senior officers, directors and other representatives
and advisors of Crompton and senior officers and other representatives and
advisors of Witco concerning the businesses, operations and prospects of
Crompton and Witco;
- examined publicly available business and financial information relating to
Crompton and Witco;
- examined financial forecasts and other information and data for Crompton
and Witco that the managements of Crompton and Witco provided to or
discussed with Salomon Smith Barney, including information relating to
strategic implications and operational benefits anticipated to result from
the merger;
- reviewed the financial terms of the merger as described in the merger
agreement;
- reviewed current and historical market prices and trading volumes of
Crompton common stock and Witco common stock;
- reviewed the financial condition and historical and projected earnings and
other operating data of Crompton and Witco;
- reviewed the capitalization of Crompton and Witco;
- considered, to the extent publicly available, the financial terms of other
similar recent transactions that it considered relevant in evaluating the
merger;
- analyzed financial, stock market and other publicly available information
relating to the businesses of other companies whose operations it
considered relevant in evaluating those of Crompton and Witco;
- evaluated the potential pro forma financial impact of the merger on the
combined company; and
- conducted other analyses and examinations and considered other financial,
economic and market criteria as it deemed appropriate in arriving at its
opinion.
In rendering its opinion, Salomon Smith Barney assumed and relied, without
independent verification, upon the accuracy and completeness of all financial
and other information and data that it reviewed or considered. With respect to
these financial forecasts and other information and data, the managements of
Crompton and Witco advised Salomon Smith Barney that they were reasonably
prepared on bases reflecting the best currently available estimates and
judgments of the respective managements as to the future financial performance
of Crompton and Witco and the strategic implications and operational benefits
anticipated to result from the merger.
Salomon Smith Barney assumed, with Crompton's consent, that the merger will
be treated as a tax-free reorganization for federal income tax purposes. Salomon
Smith Barney's opinion relates to the relative values of Crompton and Witco.
Salomon Smith Barney did not express any opinion as to what
26
the value of the common stock of the combined company actually will be when
issued in the merger or the price at which the common stock of the combined
company will trade after the merger. Salomon Smith Barney did not make and was
not provided with an independent evaluation or appraisal of the assets or
liabilities, contingent or otherwise, of Crompton or Witco, and Salomon Smith
Barney did not make any physical inspection of the properties or assets of
Crompton or Witco.
Salomon Smith Barney expressed no view as to, and its opinion does not
address, the relative merits of the merger as compared to any alternative
business strategies that might exist for Crompton or the effect of any other
transaction in which Crompton might engage. Salomon Smith Barney's opinion was
necessarily based on information available, and financial, stock market and
other conditions and circumstances existing and disclosed, to Salomon Smith
Barney as of the date of its opinion. Although Salomon Smith Barney evaluated
the Crompton exchange ratio from a financial point of view, Salomon Smith Barney
was not asked to and did not recommend the specific consideration payable in the
merger, which was determined through negotiation between Crompton and Witco. No
other instructions or limitations were imposed by Crompton on Salomon Smith
Barney with respect to the investigations made or procedures followed by Salomon
Smith Barney in rendering its opinion.
THE FULL TEXT OF SALOMON SMITH BARNEY'S WRITTEN OPINION DATED MAY 31, 1999,
WHICH DESCRIBES THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE
REVIEW UNDERTAKEN, IS ATTACHED TO THIS DOCUMENT AS APPENDIX D AND IS
INCORPORATED INTO THIS DOCUMENT BY REFERENCE. SALOMON SMITH BARNEY'S OPINION IS
DIRECTED TO THE CROMPTON BOARD AND RELATES ONLY TO THE FAIRNESS OF THE CROMPTON
EXCHANGE RATIO FROM A FINANCIAL POINT OF VIEW, DOES NOT ADDRESS ANY OTHER ASPECT
OF THE MERGER OR ANY RELATED TRANSACTION AND DOES NOT CONSTITUTE A
RECOMMENDATION TO ANY STOCKHOLDER WITH RESPECT TO ANY MATTER RELATING TO THE
PROPOSED MERGER.
In preparing its opinion, Salomon Smith Barney performed a variety of
financial and comparative analyses, including those described below. The summary
of these analyses is not a complete description of the analyses underlying
Salomon Smith Barney's opinion. The preparation of a fairness opinion is a
complex analytic process involving various determinations as to the most
appropriate and relevant methods of financial analysis and the application of
those methods to the particular circumstances and, therefore, a fairness opinion
is difficult to summarize. Accordingly, Salomon Smith Barney believes that its
analyses must be considered as a whole and that selecting portions of its
analyses and factors or focusing on information presented in tabular format,
without considering all analyses and factors or the narrative description of the
analyses, could create a misleading or incomplete view of the processes
underlying its analyses and opinion.
In its analyses, Salomon Smith Barney considered industry performance,
general business, economic, market and financial conditions and other matters
existing as of the date of its opinion, many of which are beyond the control of
Crompton and Witco. No company, transaction or business used in those analyses
as a comparison is identical to Crompton, Witco or the proposed merger, nor is
an evaluation of those analyses entirely mathematical; rather, the analyses
involve complex considerations and judgments concerning financial and operating
characteristics and other factors that could affect the values of the companies,
business segments or transactions being analyzed.
The estimates contained in Salomon Smith Barney's analyses and the valuation
ranges resulting from any particular analysis are not necessarily indicative of
actual values or predictive of future results or values, which may be
significantly more or less favorable than those suggested by its analyses. In
addition, analyses relating to the value of businesses or securities do not
purport to be appraisals or to reflect the prices at which businesses or
securities actually may be sold. Accordingly, Salomon Smith Barney's analyses
and estimates are inherently subject to substantial uncertainty.
The following is a summary of the material financial analyses performed by
Salomon Smith Barney in connection with the rendering of its opinion dated May
31, 1999. THE FINANCIAL ANALYSES SUMMARIZED
27
BELOW INCLUDE INFORMATION PRESENTED IN TABULAR FORMAT. IN ORDER TO FULLY
UNDERSTAND SALOMON SMITH BARNEY'S FINANCIAL ANALYSES, THE TABLES MUST BE READ
TOGETHER WITH THE TEXT OF EACH SUMMARY. THE TABLES ALONE DO NOT CONSTITUTE A
COMPLETE DESCRIPTION OF THE FINANCIAL ANALYSES. CONSIDERING THE DATA SET FORTH
BELOW WITHOUT CONSIDERING THE FULL NARRATIVE DESCRIPTION OF THE FINANCIAL
ANALYSES, INCLUDING THE METHODOLOGIES AND ASSUMPTIONS UNDERLYING THE ANALYSES,
COULD CREATE A MISLEADING OR INCOMPLETE VIEW OF SALOMON SMITH BARNEY'S FINANCIAL
ANALYSES.
CONTRIBUTION ANALYSIS.
Salomon Smith Barney compared the relative contributions of Crompton and
Witco to the estimated net income and cash earnings of the combined company for
fiscal years 1998 through 2000 based on publicly available research analysts'
estimates and through 2001 based on the current management plans of Crompton and
Witco. Salomon Smith Barney also compared the relative contributions of Crompton
and Witco to the projected free cash flow of the combined company for fiscal
years 2000 and 2001 based on current management plans. Fiscal year 2000 and 2001
data for Witco excluded Witco's oleochemical and derivatives business. Salomon
Smith Barney then derived an implied exchange ratio based on the relative
contributions of each of Crompton and Witco. This analysis indicated the
following implied exchange ratios based on these relative contributions:
Implied Exchange Ratios
Based on
Relative Contributions
------------------------------------------
Research Analysts' Estimates 1998 1999 2000
- ----------------------------------------- --------- --------- ---------
Net Income............................... 0.4618x 0.5339x 0.6617x
Cash Earnings............................ 0.9478x 1.0944x 1.1926x
Current Management Plans 1998 1999 2000 2001
- ----------------------------------------- --------- --------- --------- ---------
Net Income............................... 0.4716x 0.4672x 0.6797x 0.9454x
Cash Earnings............................ 0.9560x 1.0588x 1.2300x 1.3520x
Free Cash Flow........................... N.M. N.M. 0.7788x 1.0129x
DISCOUNTED CASH FLOW ANALYSES.
Salomon Smith Barney performed separate discounted cash flow analyses on the
current stand-alone management plans of Crompton and Witco in order to estimate
the projected free cash flows that each could generate for the remaining seven
months of fiscal year 1999 and fiscal years 2000 through 2003, both before and
after taking into account pre-tax cost savings and other potential synergies
anticipated by the managements of Crompton and Witco to result from the merger.
The range of estimated terminal values for Crompton and Witco was calculated by
applying terminal value multiples of 6.5x to 7.5x to fiscal year 2003 projected
earnings before interest, taxes, depreciation and amortization. The cash flows
and terminal values were discounted to present value using discount rates
ranging from 9.5% to 10.5%. Salomon Smith Barney then derived a range of implied
exchange ratios based on this analysis. This analysis indicated the following
low and high implied exchange ratios:
Implied Exchange
Ratio
Discounted Cash --------------------
Flow Analyses Low High
- -------------------------------------------------------- --------- ---------
Without Synergies....................................... 0.913x 1.444x
With Net Synergies...................................... 1.112x 1.699x
28
SELECTED COMPANIES ANALYSIS.
Using publicly available information, Salomon Smith Barney analyzed the
market values and trading multiples of Crompton, Witco and the following 10
selected publicly traded companies in the specialty chemical industry:
- - Rohm and Haas Company - Nalco Chemical Company
- - Great Lakes Chemical Corporation - Hercules Incorporated
- - Sigma-Aldrich Corporation - Lubrizol Corporation
- - H. B. Fuller Company - Albermarle Corporation
- - Ferro Corporation - International Specialty Products,
Inc.
Salomon Smith Barney compared market values as a multiple of estimated
calendar years 1999 and 2000 price to earnings, and also compared adjusted
market values (calculated as market value, plus debt, less cash) as multiples of
latest 12 months sales, latest 12 months earnings before interest and taxes and
latest 12 months and estimated calendar years 1999 and 2000 earning before
interest, taxes, depreciation and amortization. Salomon Smith Barney also
compared price to earnings as a multiple of five-year growth rates for the
selected companies. All multiples were based on closing stock prices on May 28,
1999, except as otherwise indicated. Estimated financial data for the selected
companies, Crompton and Witco were based on publicly available research
analysts' estimates. This analysis indicated the following implied market value
multiples adjusted market value multiples and five-year growth rates:
Implied Multiples
of Witco
Median of Implied -------------------------- Implied Multiples
Multiples of On 10-Day of
Selected Companies 5/28/99 Average Crompton
--------------------- ----------- ------------- -----------------
Implied Market Values
- -------------------------------
Estimated calendar year 1999
price to earnings............ 15.5x 19.4x 18.9x 10.5x
Estimated calendar year 2000
price to earnings............ 14.2x 15.2x 14.8x 9.4x
Adjusted Market Values
- -------------------------------
Latest 12 months sales......... 1.6x 1.0x 1.0x 1.1x
Latest 12 months earnings
before interest and taxes.... 12.4x 17.4x 17.1x 8.lx
Latest 12 months earnings
before interest, taxes,
depreciation and
amortization................. 8.6x 8.6x 8.4x 6.1x
Estimated calendar year 1999
earnings before interest,
taxes, depreciation and
amortization................. 7.8x 7.6x 7.5x 6.1x
Estimated calendar year 2000
earnings before interest,
taxes, depreciation and
amortization................. 6.9x 6.7x 6.5x 6.0x
Price to earnings growth
rate......................... 1.5x 1.7x 1.6x 0.9x
Five-year growth rate.......... 11.3% 11.5% 11.5% 11.5%
29
Under the terms of its engagement, Crompton has agreed to pay Salomon Smith
Barney upon completion of the merger an aggregate financial advisory fee of $4.0
million. Crompton has also agreed to reimburse Salomon Smith Barney for its
reasonable travel and other out-of-pocket expenses, including the reasonable
fees and expenses of its legal counsel, and to indemnify Salomon Smith Barney
and related persons against liabilities, including liabilities under the federal
securities laws, arising out of its engagement.
In the ordinary course of business, Salomon Smith Barney and its affiliates
may actively trade or hold the securities of Crompton and Witco for their own
account or for the account of customers and, accordingly, may at any time hold a
long or short position in those securities. Salomon Smith Barney has in the past
provided and been compensated for investment banking services to Crompton
unrelated to the proposed merger. In addition, Salomon Smith Barney and its
affiliates, including Citigroup Inc. and its affiliates, maintain relationships
with Crompton, Witco and their respective affiliates.
Crompton selected Salomon Smith Barney based on its experience, expertise
and familiarity with Crompton and its business. Salomon Smith Barney is an
internationally recognized investment banking firm and, as a customary part of
its business, evaluates businesses and their securities in connection with
merger and acquisitions, negotiated underwritings, competitive bids, secondary
distributions of listed and unlisted securities, private placements and
valuations for estate, corporate and other purposes.
Pursuant to a letter agreement dated May 11, 1999, Crompton engaged Goldman
Sachs to act as its financial advisor in connection with a possible business
combination with Witco. Pursuant to the terms of this letter agreement, Crompton
has agreed to pay Goldman Sachs a fee equal to $12.0 million minus the lesser of
$7.0 million and the transaction fee to be paid to Goldman Sachs by Witco
pursuant to the Witco engagement letter. Crompton also has agreed to reimburse
Goldman Sachs for its reasonable out-of-pocket expenses, including attorneys'
fees, and to indemnify Goldman Sachs against certain liabilities, including
certain liabilities under the federal securities laws.
Goldman Sachs provides a full range of financial advisory and securities
services and, in the course of its normal trading activities, may from time to
time effect transactions and hold securities, including derivative securities,
of Crompton or Witco for its own account and for the accounts of customers.
In the letter agreement dated May 11, 1999, Crompton acknowledged that
Goldman Sachs is rendering services simultaneously to Crompton and Witco.
Crompton also acknowledged that potential conflicts of interest may arise as a
result of Goldman Sachs rendering services to both Crompton and Witco. Crompton
waived any claim of conflict of interest with respect to Witco in connection
with Goldman Sachs' engagement by Crompton or Witco or any other activities
undertaken by Goldman Sachs in connection with its rendering services to
Crompton or Witco pursuant to the letter agreement or the engagement letter
between Goldman Sachs and Witco.
OPINIONS OF WITCO'S FINANCIAL ADVISORS
THE GOLDMAN SACHS OPINION.
On May 31, 1999, Goldman Sachs delivered its oral opinion to the Witco board
that, as of such date, the Witco exchange ratio was fair from a financial point
of view to the holders of Witco common stock. Goldman Sachs subsequently
confirmed its oral opinion by delivery of its written opinion dated May 31,
1999.
THE FULL TEXT OF THE WRITTEN OPINION OF GOLDMAN SACHS, DATED MAY 31, 1999,
WHICH SETS FORTH ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE
REVIEW UNDERTAKEN IN CONNECTION WITH THE OPINION, IS ATTACHED AS APPENDIX E AND
IS INCORPORATED BY REFERENCE IN THIS JOINT PROXY STATEMENT-PROSPECTUS. YOU
SHOULD READ THE OPINION IN ITS ENTIRETY.
30
In connection with its opinion, Goldman Sachs reviewed, among other things,
- the merger agreement;
- annual reports to stockholders and annual reports on Form 10-K of Witco
and Crompton for the last five fiscal years;
- interim reports to stockholders and quarterly reports on Form 10-Q of
Witco and Crompton;
- other communications from Witco and Crompton to their respective
stockholders; and
- internal financial analyses and forecasts for Witco and Crompton prepared
by their respective managements, including certain cost savings and
operating synergies projected by the managements of Witco and Crompton to
result from the merger (the "Synergies").
Goldman Sachs also held discussions with members of the senior management of
Witco and Crompton regarding the strategic rationale for, and the potential
benefits of, the merger and the past and current business operations, financial
condition and future prospects of their respective companies. In addition,
Goldman Sachs:
- reviewed the reported price and trading activity for Witco common stock
and Crompton common stock;
- compared financial and stock market information for Witco and Crompton
with similar information for publicly traded securities of other
companies;
- reviewed the financial terms of recent business combinations in the
chemicals industry specifically and in other industries generally; and
- performed other studies and analyses Goldman Sachs considered appropriate.
Goldman Sachs relied upon the accuracy and completeness of all of the
financial and other information reviewed by it and assumed such accuracy and
completeness for purposes of rendering its opinion. In that regard, Goldman
Sachs has assumed, with the consent of Witco's board, that the internal
financial forecasts prepared by the respective managements of Witco and
Crompton, including the Synergies, have been reasonably prepared on a basis
reflecting the best currently available judgments and estimates of Witco and
Crompton, and that such Synergies will be realized in the amounts and the time
periods contemplated thereby. Goldman Sachs did not make an independent
evaluation or appraisal of the assets and liabilities of Witco or Crompton or
any of their respective subsidiaries and were not furnished with any such
evaluation or appraisal. Goldman Sachs' opinion does not address the relative
merits of the merger as compared to any alternative business transaction that
might be available to Witco. The advisory services and opinion of Goldman Sachs
were provided for the information and assistance of the board of directors of
Witco in connection with its consideration of the merger, and the opinion does
not constitute a recommendation as to how any holder of Witco common stock
should vote with respect to the merger.
The following is a summary of the material financial analyses used by
Goldman Sachs in connection with providing its opinion to the Witco board of
directors on May 31, 1999.
31
THE FOLLOWING SUMMARIES OF FINANCIAL ANALYSES INCLUDE INFORMATION PRESENTED
IN TABULAR FORMAT. YOU SHOULD READ THESE TABLES TOGETHER WITH THE TEXT OF EACH
SUMMARY.
(1) EXCHANGE RATIO HISTORY. Goldman Sachs calculated the ratio of the
average market price of Witco common stock to the average market price of
Crompton common stock over selected periods ending on May 28, 1999.
Period Average Exchange Ratio
- ---------------------------------------------------------------------- -----------------------
May 28, 1999 Closing Price............................................ .9524
10 days ending May 28, 1999........................................... .9242
20 days ending May 28, 1999........................................... .9386
30 days ending May 28, 1999........................................... .9285
60 days ending May 28, 1999........................................... .9022
1 Year ending May 28, 1999............................................ 1.0583
(2) PUBLIC MARKET COMPARISON. Goldman Sachs reviewed and compared selected
financial information for Witco and Crompton to corresponding financial
information, ratios and public market multiples for the following ten
publicly-traded chemical companies:
- Rohm & Haas Company;
- Great Lakes Chemical Corporation;
- Sigma-Aldrich Corporation;
- H.B. Fuller Company;
- Nalco Chemical Company;
- Ferro Corporation;
- The Lubrizol Corporation;
- Hercules Incorporated;
- Albermarle Corporation; and
- International Specialty Products Inc.
The selected companies were chosen because they are publicly-traded chemical
companies with operations that for purposes of analysis may be considered
similar to Witco and Crompton. Goldman Sachs calculated and compared various
financial multiples and ratios. The multiples and ratios were calculated using
the closing price for the common stock of Witco and Crompton and each of the
selected companies on May 28, 1999 and, except as otherwise indicated below,
were based on the most recent publicly available information. Goldman Sachs'
analyses of the selected companies compared the following to the results for
Witco and Crompton:
- closing share price on May 28, 1999 as a percentage of fifty-two week high
share price;
- estimated 1999 and 2000 price/earnings ratios (provided by IBES);
- estimated 1999 price/earnings ratios to earnings per share growth
(provided by IBES);
- estimated 5 year growth rate (provided by IBES);
- levered market capitalization (i.e., the market value of common equity
plus the book value of debt less cash) as a multiple of last 12 months
sales;
- levered market capitalization as a multiple of last 12 months earnings
before interest and taxes, or EBIT;
- levered market capitalization as a multiple of last 12 months earnings
before interest, taxes, depreciation and amortization, or EBITDA;
- levered market capitalization as a multiple of estimated 1999 EBITDA
(EBITDA estimates provided by Goldman Sachs or Donaldson, Lufkin &
Jenrette research);
32
- levered market capitalization as a multiple of estimated 2000 EBITDA
(EBITDA estimates provided by Goldman Sachs or Donaldson, Lufkin &
Jenrette research);
- dividend yield; and
- dividend payout ratio.
The results of these analyses are summarized as follows:
Selected Publicly-Traded
Chemical Companies
(Including Witco and Crompton)
Ratio/Multiple Range Median Mean Witco Crompton
- --------------------------------------------------------- --------------- ----------- ----- --------- -----------
May 28, 1999 Share Price as a Percentage of 52-Week High
Share Price............................................ 39%-93% 81.1% 76.4% 39% 63%
Estimated 1999 Price/Earnings Ratio...................... 10.5x-19.6x 15.5x 15.8x 19.4x 10.5x
Estimated 2000 Price/Earnings Ratio...................... 9.1x-17.1x 14.2x 13.7x 15.2x 9.4x
Estimated 1999 Price/Earnings Ratio to Earnings Per Share
Growth................................................. 0.8x-2.0x 1.5x 1.5x 1.7x 0.9x
Estimated 5 Year Growth Rate............................. 8.0%-13.5% 11.3% 11.0% 11.5% 11.5%
Levered Market Capitalization as a Multiple of Last 12
Months Sales........................................... 0.9x-2.6x 1.6x 1.6x 1.0x 1.1x
Levered Market Capitalization as a Multiple of Last 12
Months EBIT............................................ 8.1x-17.4x 12.4x 12.4x 17.4x 8.1x
Levered Market Capitalization as a Multiple of Last 12
Months EBITDA.......................................... 5.9x-10.6x 8.6x 8.3x 8.6x 6.0x
Levered Market Capitalization as a Multiple of Estimated
1999 EBITDA............................................ 5.1x-10.6x 7.8x 7.8x 7.6x 6.1x
Levered Market Capitalization as a Multiple of Estimated
2000 EBITDA............................................ 4.7x-8.7x 6.9x 7.0x 6.7x 6.0x
Dividend Yield........................................... 0.0%-7.4% 1.8% 2.2% 7.4% 0.3%
Dividend Payout Ratio.................................... 0.0%-124.4% 25.8% 34.6% 124.4% 2.9%
(3) DISCOUNTED CASH FLOW ANALYSIS FOR WITCO. Goldman Sachs performed a
discounted cash flow analysis for Witco using Witco's management estimates.
Goldman Sachs calculated a present value of estimated free cash flows for the
years 1999 through 2001 using discount rates ranging from 9.0% to 11.0%. Goldman
Sachs calculated terminal values of Witco common stock using multiples ranging
from 6.0x to 8.0x of estimated 2001 EBITDA. These terminal values were then
discounted to present value using discount rates ranging from 9.0% to 11.0%.
This analysis produced implied equity values per share of Witco common stock
ranging from $18.75 to $30.02.
(4) DISCOUNTED CASH FLOW ANALYSIS FOR THE COMBINED COMPANY. Goldman Sachs
performed a discounted cash flow analysis for the combined company using
estimates from the managements of Witco and Crompton. Goldman Sachs calculated a
present value of estimated free cash flows using estimated free cash flow for
the years 1999 through 2001 using discount rates ranging from 9.0% to 11.0%.
Goldman Sachs calculated terminal values of Newco common stock to Witco using
multiples ranging from 6.0x to 8.0x of estimated 2001 EBITDA. These terminal
values were then discounted to present value using discount rates from 9.0% to
11.0%. This analysis produced implied equity values per share of Newco to Witco
ranging from $18.23 to $28.33.
33
(5) CONTRIBUTION ANALYSIS. Goldman Sachs reviewed selected historical and
estimated future operating and financial information for Witco, Crompton and the
combined company resulting from the merger based on Witco and Crompton
managements' respective financial forecasts. Goldman Sachs also analyzed the
relative income statement contribution of Witco and Crompton to the combined
company, before taking into account any transaction costs of the merger or the
possible benefits that may be realized following the merger, based on actual
results for the year 1998 and estimated results for the years 1999 through 2001
and financial data and forecasts and assumptions provided to Goldman Sachs by
Witco and Crompton managements. The results of these analyses are summarized as
follows:
Witco Crompton
Contribution Contribution
to Combined to Combined Implied
Company Company Exchange Ratio
--------------- --------------- -----------------
1998 EBITDA....................................... 42.5% 57.5% 0.65x
1999 estimated EBITDA............................. 46.4% 53.6% 0.80x
2000 estimated EBITDA............................. 50.0% 50.0% 0.93x
2001 estimated EBITDA............................. 53.4% 46.6% 1.05x
1998 EBIT......................................... 34.0% 66.0% 0.34x
1999 estimated EBIT............................... 37.6% 62.4% 0.48x
2000 estimated EBIT............................... 42.6% 57.4% 0.66x
2001 estimated EBIT............................... 48.7% 51.3% 0.88x
1998 Net Income................................... 20.7% 79.3% 0.44x
1999 estimated Net Income......................... 28.8% 71.2% 0.61x
2000 estimated Net Income......................... 37.0% 63.0% 0.78x
2001 estimated Net Income......................... 44.9% 55.1% 0.95x
(6) POTENTIAL FUTURE SHARE PRICE ANALYSIS. Goldman Sachs performed an
analysis of the present value of implied future prices of shares of Witco common
stock for Witco as a stand-alone company and for Witco as part of the combined
company. For the stand-alone analysis, Goldman Sachs used Witco management
estimates. Goldman Sachs calculated implied future prices of shares of Witco
common stock using estimated earnings per share for Witco for the years 1999
through 2001 and multiples of earnings per share ranging from 14.0x to 22.0x.
These implied future prices of shares of Witco common stock were then discounted
to present values using discount rates ranging from 9.0% to 12.0%. This analysis
produced present values of implied future prices of shares of Witco common stock
in 1999 ranging from $10.47 to $16.36; in 2000 ranging from $15.58 to $24.57;
and in 2001 ranging from $21.28 to $34.25. For the combined company analysis,
Goldman Sachs used Witco and Crompton management estimates, an exchange ratio of
0.9242x and assumed synergies of $0, $25 million and $50 million in the years
1999, 2000 and 2001, respectively. Goldman Sachs calculated implied future
prices of Newco shares using estimated earnings per share for the combined
company for the years 1999 through 2001 and multiples of earnings per share
ranging from 14.0x to 22.0x. These implied future prices of Newco shares were
then discounted to present values using discount rates ranging from 9.0% to
12.0%. This analysis produced present values to holders of Witco common stock of
implied future shares prices of Newco shares in 1999 ranging from $12.61 to
$20.01; in 2000 ranging from $16.98 to $27.56; and in 2001 ranging from $19.81
to $32.93.
34
(7) PRO FORMA MERGER ANALYSIS. Goldman Sachs prepared pro forma analyses
of the financial impact of the merger using management estimates for Witco and
Crompton. For each of the years 1999, 2000 and 2001, Goldman Sachs compared the
earnings per share of Witco common stock on a standalone basis to the earnings
per share of the common stock of the combined company on a pro forma basis.
Goldman Sachs performed this analysis excluding any of the possible benefits
that may be realized following the merger. Based on such analyses, the merger
would be accretive to holders of Witco common stock on an earnings per share
basis in each of 1999, 2000 and 2001.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Selecting
portions of the analyses or of the summary set forth above, without considering
the analyses as a whole, could create an incomplete view of the processes
underlying Goldman Sachs' opinion. In arriving at its fairness determination,
Goldman Sachs considered the results of all such analyses. No company or
transaction used in the above analyses as a comparison is directly comparable to
Witco or Crompton or the contemplated merger.
The analyses were prepared solely for purposes of providing an opinion to
the Witco board of directors as to the fairness from a financial point of view
to the holders of Witco common stock of the Witco exchange ratio. The analyses
do not purport to be appraisals or necessarily reflect the prices at which
businesses or securities actually may be sold. Analyses based upon forecasts of
future results are not necessarily indicative of actual future results, which
may be significantly more or less favorable than suggested by such analyses.
Because such analyses are inherently subject to uncertainty, being based upon
numerous factors or events beyond the control the parties or their respective
advisors, none of Witco, Crompton, Goldman Sachs or any other person assumes
responsibility if future results are materially different from those forecast.
As described above, Goldman Sachs' opinion to the Witco board of directors
was one of many factors taken into consideration by the Witco board of directors
in making its determination to approve the merger. The foregoing summary does
not purport to be a complete description of the analyses performed by Goldman
Sachs.
Goldman Sachs, as part of its investment banking business, is continually
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and valuations for estate, corporate and other purposes. Goldman Sachs is
familiar with Witco having acted as its financial advisor in connection with,
and having participated in certain of the negotiations leading to, the merger
agreement. Richard M. Hayden, a former Managing Director and Limited Partner of
Goldman Sachs, is a director of Witco. Goldman Sachs also has provided certain
investment banking services to Crompton from time to time, including having
acted as agent on Crompton's share repurchase program. In addition, Goldman
Sachs is acting, with Witco's consent, as Crompton's financial advisor and
receiving fees as Crompton's financial advisor in connection with the merger.
Goldman Sachs may provide investment banking services to the combined company
and its subsidiaries in the future.
Goldman Sachs provides a full range of financial advisory and securities
services and, in the course of its normal trading activities, may from time to
time effect transactions and hold securities, including derivative securities,
of Witco or Crompton for its own account and for the accounts of customers.
Pursuant to a letter agreement dated May 28, 1999, Witco engaged Goldman
Sachs to act as its financial advisor in connection with the possible sale of,
or business combination involving, all or a portion of the stock or assets of
Witco. Pursuant to the terms of this letter agreement, Witco has agreed to pay
Goldman Sachs a fee based on the aggregate consideration paid in the merger. As
of the date of this joint proxy statement-prospectus, the fee would have been
$12.1 million. However, the aggregate consideration paid will vary based upon
the price of Crompton common stock at the closing date, and therefore the fee
paid to Goldman Sachs may be higher or lower than $12.1 million. Witco also has
agreed to reimburse Goldman Sachs for its reasonable out-of-pocket expenses,
including
35
attorneys' fees, and to indemnify Goldman Sachs against certain liabilities,
including certain liabilities under the federal securities laws.
In the letter agreement dated May 28, 1999, Witco acknowledged that Goldman
Sachs is rendering services simultaneously to Witco and Crompton. Witco also
acknowledged that potential conflicts of interest may arise as a result of
Goldman Sachs rendering services to both Witco and Crompton. Witco waived any
claim of conflict of interest with respect to Crompton in connection with
Goldman Sachs' engagement by Witco or Crompton or any other activities
undertaken by Goldman Sachs in connection with its rendering services to Witco
or Crompton pursuant to the letter agreement or the engagement letter between
Goldman Sachs and Crompton.
THE DEUTSCHE BANK OPINION.
Pursuant to an engagement letter dated May 26, 1999, Witco retained Deutsche
Bank to review the fairness of the Witco exchange ratio to the holders of Witco
common stock. Deutsche Bank rendered an oral opinion to the Witco board of
directors on May 31, 1999, to the effect that, based upon and subject to the
limitations and considerations set forth in such opinion, as of such date, the
Witco exchange ratio was fair, from a financial point of view, to the holders of
Witco common stock. Deutsche Bank subsequently confirmed its oral opinion by
delivery of its written opinion dated May 31, 1999.
The full text of Deutsche Bank's opinion, which sets forth the assumptions
made, general procedures followed, matters considered and limits on the review
undertaken, is included as Appendix F to this document. The summary of Deutsche
Bank's opinion set forth below is qualified in its entirety by reference to the
full text of such opinion. STOCKHOLDERS ARE URGED TO READ THE DEUTSCHE BANK
OPINION CAREFULLY AND IN ITS ENTIRETY.
In connection with rendering its opinion, Deutsche Bank:
- reviewed the merger agreement;
- analyzed certain publicly available financial statements and other
information of Witco and of Crompton;
- analyzed certain internal financial statements and other financial and
operating data concerning Witco prepared by the management of Witco and
concerning Crompton prepared by the management of Crompton;
- analyzed certain financial projections prepared by the management of Witco
and certain financial projections prepared by the management of Crompton
including estimates of synergies and cost savings anticipated by
management to result from the merger;
- discussed the past and current operations and financial condition and the
prospects of Witco with senior executives of Witco and of Crompton with
senior executives of Crompton;
- reviewed the reported prices and trading activity for Witco common stock
and Crompton common stock;
- compared the financial performance of Witco and the prices and trading
activity of Witco common stock and the financial performance of Crompton
and the prices and trading activity of the Crompton common stock with that
of certain other comparable publicly-traded companies and their
securities;
- reviewed the pro forma effects of the merger on the combined company's
projected net income per share, cash flow per share, earnings before
interest and taxes ("EBIT"), earnings before interest, taxes, depreciation
and amortization ("EBITDA"), and certain financial ratios; and
- reviewed the pro forma contribution of Witco and Crompton, respectively,
with regard to aggregate value, historic and projected revenues, net
income, cash income, EBIT and EBITDA.
36
Deutsche Bank also performed such other analyses and examinations and
considered such other factors as it deemed appropriate.
In its review and analysis and in arriving at its opinion, Deutsche Bank
assumed and relied upon, without independent verification, the accuracy and
completeness of the information furnished by Witco and Crompton and other public
information reviewed by it for the purposes of its opinion.
With respect to the financial projections, Deutsche Bank assumed that they
had been reasonably prepared on bases reflecting the best currently available
estimates and judgments of the future financial performance of Witco and of
Crompton, as applicable. Deutsche Bank has not made any independent valuation or
appraisal of the assets or liabilities of Witco or Crompton, nor has it been
furnished with any such appraisals. Deutsche Bank's opinion was necessarily
based on economic, market and other conditions as in effect on, and the
information made available to it as of, May 31, 1999. Deutsche Bank assumed,
with management's consent, that the merger would constitute a tax-free
reorganization under the Internal Revenue Code. In addition, Deutsche Bank
assumed that obtaining any regulatory or third party approvals for the merger
would not have a materially adverse effect on Witco or Crompton or the
anticipated benefits of the merger.
Deutsche Bank did not participate in any of the discussions and negotiations
among representatives of Witco and Crompton regarding the merger. Deutsche Bank
was not asked to consider, and the Deutsche Bank opinion does not address, the
relative merits of the merger as compared to any alternative business strategy
that might exist for Witco. The Deutsche Bank opinion does not imply any
conclusion as to the trading range for the combined company's common stock
following the announcement or consummation of the merger. Deutsche Bank's
opinion was prepared for the information of the Witco board of directors; it
does not constitute a recommendation to any Witco stockholder as to how such
stockholder should vote with respect to the merger.
In connection with rendering its opinion, Deutsche Bank made a presentation
to the Witco board of directors on May 31, 1999, with respect to certain
analyses performed by Deutsche Bank in evaluating the fairness of the Witco
exchange ratio. The following is a summary of that presentation. The summary of
certain of the financial analyses includes information presented in tabular
format. IN ORDER TO UNDERSTAND FULLY THE FINANCIAL ANALYSES USED BY DEUTSCHE
BANK, THESE TABLES MUST BE READ TOGETHER WITH THE TEXT OF EACH SUMMARY. THE
TABLES ALONE DO NOT CONSTITUTE A COMPLETE DESCRIPTION OF THE FINANCIAL ANALYSES.
The following quantitative information, to the extent it is based on market
data, is, except as otherwise indicated, based on market data as it existed at
or prior to May 31, 1999 and is not necessarily indicative of current or future
market conditions.
IMPLIED PREMIUM/DISCOUNT ANALYSIS. Deutsche Bank performed analyses
summarizing the stock price premiums or stock price discounts implied by the
0.9242 exchange ratio. Deutsche Bank compared the discount or premium using the
0.9242 exchange ratio and the average closing prices of both companies' stock
over various periods. Deutsche Bank calculated that, by multiplying the 0.9242
exchange ratio by the closing price of Crompton common stock on May 28, 1999 of
$18.38 per share, the implied price of Witco common stock in the merger is
$16.99 per share. The following table compares the premiums or discounts using
the May 28, 1999 closing price, and the 10, 30, 90 and 360 trading day average
closing prices through May 28, 1999 for each company, and the premiums or
discounts represented by the $16.99 implied price per share to the closing price
per share of Witco
37
common stock on May 28, 1999, and the average closing price per share of Witco
common stock for each such other period.
Premium/(Discount) at Premium/(Discount) of
the 0.9242 exchange ratio $16.99 to Applicable Price
------------------------- ---------------------------
Closing Price on May 28, 1999.................................. (2.9)% (2.9)%
10 Trading Days Through May 28, 1999........................... 0.0% (2.1)%
30 Trading Days Through May 28, 1999........................... (0.5)% 1.8%
90 Trading Days Through May 28, 1999........................... 1.7% (5.2)%
360 Trading Days Through May 28,1999........................... (22.0)% 16.3%
DISCOUNTED CASH FLOW ANALYSIS OF WITCO. Deutsche Bank performed discounted
cash flow analyses with respect to Witco on a stand-alone basis, using Witco
management estimates for 1999 through 2001, and Deutsche Bank assumptions based
on those estimates for 2002 through 2008. Similarly, Deutsche Bank performed
discounted cash flow analyses with respect to Witco on a stand-alone basis using
consensus estimates by stock analysts for 1999 and 2000, and Deutsche Bank
assumptions based on those estimates for 2001 through 2008. Deutsche Bank, using
a multiple of estimated 2008 EBITDA ranging from 6x to 8x and a discount rate
ranging from 8% to 10%, calculated the following ranges of the implied equity
value per share of Witco common stock, in each of the two cases.
Implied Equity Value Per Share
of
Witco Common Stock
-------------------------------
Management Estimates......................................... $ 20.1 to $34.3
Analysts Consensus........................................... $ 19.1 to $33.0
DISCOUNTED CASH FLOW ANALYSIS OF CROMPTON. Deutsche Bank performed
discounted cash flow analyses with respect to Crompton on a stand-alone basis,
using Crompton management estimates for 1999 through 2003, and Deutsche Bank
assumptions based on those estimates for 2004 through 2008. Similarly Deutsche
Bank performed discount cash flow analyses with respect to Crompton on a stand-
alone basis using consensus estimates by stock analysts for 1999 and 2000, and
Deutsche Bank assumptions based on those estimates for 2001 through 2008.
Deutsche Bank, using a multiple of estimated 2008 EBITDA ranging from 5x to 7x
and a discount rate ranging from 8% to 10%, calculated the following ranges of
the implied equity value per share of Crompton common stock, in each of the two
cases.
Implied Equity Value Per Share
of
Crompton Common Stock
-------------------------------
Management Estimates......................................... $ 18.0 to $27.7
Analysts Consensus........................................... $ 18.2 to $27.5
COMPARISON OF WITCO AND CROMPTON COMMON STOCK MARKET PRICES. Deutsche Bank
compared the market price of Witco and Crompton common stock, on a one and three
year basis, to each other, the S&P 500 and the S&P Chemicals index. Over both
the one and three year period, Witco common stock underperformed Crompton common
stock, and both Witco and Crompton common stock underperformed the S&P 500 and
the S&P Chemicals index.
CONTRIBUTION ANALYSES. Deutsche Bank performed analyses of the relative
contributions of each of Witco and Crompton to the pro forma merged entity with
respect to certain market and financial data.
The following table compares the relative contributions of Witco and
Crompton, to the combined entity in certain categories (on a purely additive
non-GAAP basis). The computations in the table were based upon certain
forecasted financial information for each of Witco and Crompton. Deutsche Bank
utilized, for Witco, Witco management estimates for 1999 through 2001, and
assumptions made by Deutsche Bank for 2002 and 2003 based on such management
estimates for prior years. For Crompton,
38
Deutsche Bank utilized Crompton management estimates for 1999 through 2003. In
performing this analysis, Deutsche Bank did not take into account any
anticipated cost savings, revenue enhancements, one time costs, amortization of
goodwill, or other potential effects of the merger.
IN REVIEWING THE TABLE BELOW, NOTE THAT THE PRO FORMA OWNERSHIP OF THE
COMBINED COMPANY AT THE 0.9242 EXCHANGE RATIO WILL BE APPROXIMATELY 44.5% BY
FORMER WITCO STOCKHOLDERS, AND APPROXIMATELY 55.5% BY FORMER CROMPTON
STOCKHOLDERS.
1999 2000 2001 2002 2003
--------- --------- --------- --------- ---------
REVENUES
Witco........................................................... 53.6% 51.6% 53.2% 54.1% 54.8%
Crompton........................................................ 46.4% 48.4% 46.8% 45.9% 45.2%
EBITDA
Witco........................................................... 45.9% 50.0% 53.5% 55.3% 55.9%
Crompton........................................................ 54.1% 50.0% 46.5% 44.7% 44.1%
EBIT
Witco........................................................... 36.7% 42.6% 48.9% 51.2% 51.8%
Crompton........................................................ 63.3% 57.4% 51.1% 48.8% 48.2%
NET INCOME
Witco........................................................... 28.7% 37.0% 44.8% 46.6% 46.6%
Crompton........................................................ 71.3% 63.0% 55.2% 53.4% 53.4%
ONE YEAR IMPLIED HISTORICAL EXCHANGE RATIO. Deutsche Bank derived implied
historical exchange ratios by dividing the closing price per share of Witco
common stock by the closing price per share of Crompton common stock for each
trading day in the period from May 28, 1998 through May 28, 1999. Deutsche Bank
calculated that during these periods the high, low and median implied historical
exchange ratios were, respectively, 1.5654, 0.7250 and 1.0063. Deutsche Bank
compared these implied historical exchange ratios to the Witco exchange ratio of
0.9242.
ACCRETION/DILUTION ANALYSIS. Deutsche Bank performed an analysis of the
impact of the merger on the forecasted earnings per share ("EPS"), and cash flow
per share ("CFPS") (cash flow is defined as net income plus depreciation and
amortization, plus other non-cash charges) for each of Witco and Crompton,
utilizing the stand-alone estimates for the two companies referred to above. For
the combined company, Deutsche Bank made pro forma adjustments to the combined
forecasted stand-alone estimates based on management's estimates of $25 million
of synergies in 2000 and $50 million annually thereafter, and assuming
amortization of goodwill over 25 years.
The following table shows the accretion or dilution (on a per Witco share
basis) to the estimated EPS and CFPS of Witco resulting from the merger, based
upon the assumptions stated above.
1999 2000 2001 2002 2003
--------- --------- --------- --------- ---------
ACCRETION/(DILUTION)
Witco EPS.......................................................... 28.4% 15.4% 3.0% 0.2% 1.4%
Witco CFPS......................................................... (7.3)% (2.1)% (3.9)% (5.7)% (5.6)%
39
The following table shows the accretion or dilution (on a per Crompton share
basis) to the estimated EPS and CFPS of Crompton resulting from the merger,
based upon the assumptions stated above.
1999 2000 2001 2002 2003
--------- --------- --------- --------- ---------
ACCRETION/(DILUTION)
Crompton EPS.................................................... (35.0)% (15.2)% 4.5% 9.5% 10.9%
Crompton CFPS................................................... 6.6% 20.0% 29.0% 32.6% 33.5%
SHAREHOLDER HAS/GETS ANALYSES. Deutsche Bank performed analyses comparing
the market price of a share of Witco common stock as of May 28, 1999, to a range
of estimated stock values that such share may have after the merger, having been
converted into stock of the combined company at the 0.9242 exchange ratio.
Deutsche Bank derived the values for the combined company stock from the
estimated EPS of the combined company, multiplied by a range of EPS multiples,
from 9.5x (the Crompton price-to-2000 earnings ratio), to 15.1x (the Witco
price-to-2000 earnings ratio). Deutsche Bank derived the EPS of the combined
company in 2000 from the combined forecasted 2000 EPS for Witco of Witco's
management and for Crompton of Crompton's management, with pro-forma adjustments
based on estimates of synergies of $25 million in the year 2000.
Witco stockholder:
Has Gets
--------- ---------
May 28, 1999 stock price................................................... $ 17.50
Value in 2000 based upon estimated EPS of combined company:
At 9.5 multiple.......................................................... $ 13.03
At 11.0 multiple......................................................... $ 15.09
At 12.3 multiple......................................................... $ 16.87
At 14.0 multiple......................................................... $ 19.20
At 15.1 multiple......................................................... $ 20.71
Deutsche Bank performed analyses summarizing the pick-up or dilution per
share of Witco to the forecasted EPS of Witco as a result of the merger.
Deutsche Bank compared the stand-alone Witco management estimates for Witco's
EPS for 1999 through 2001 to estimated EPS for the combined company during the
same periods. Deutsche Bank derived the EPS of the combined company for 1999
through 2001 from the combined forecasted EPS for Witco of Witco's management
and for Crompton of Crompton's management for each of these years, with
pro-forma adjustments based on estimates of synergies of $25 million in the year
2000 and $50 million in 2001.
Witco stockholder
gets:
Pick-up/(Dilution)
---------------------
1999 EPS................................... 28.4%
2000 EPS................................... 15.4%
2001 EPS................................... 3.0%
* * *
The foregoing is a summary of the material financial analyses furnished by
Deutsche Bank to the Witco board of directors but it does not purport to be a
complete description of the analyses performed by Deutsche Bank or of its
presentation to the Witco board of directors. The preparation of financial
analyses and fairness opinions is a complex process involving subjective
judgments and is not necessarily susceptible to partial analysis or summary
description. Deutsche Bank made no attempt to assign specific weights to
particular analyses or factors considered, but rather made qualitative judgments
as to the significance and relevance of the analyses and factors considered.
Accordingly, Deutsche Bank believes that its analyses (and the summary set forth
above) must be considered as a
40
whole, and that selecting portions of such analyses and of the factors
considered by Deutsche Bank, without considering all of such analyses and
factors, could create a misleading or incomplete view of the processes
underlying the analyses conducted by Deutsche Bank and its opinion.
In its analyses, Deutsche Bank made numerous assumptions with respect to
Witco, Crompton, industry performance, general business, economic, market and
financial conditions and other matters, many of which are beyond the control of
Witco and Crompton. Any estimates contained in Deutsche Bank analyses are not
necessarily indicative of actual values or predictive of future results or
values, which may be significantly more or less favorable than those suggested
by such analyses. Estimates of values of companies do not purport to be
appraisals or necessarily to reflect the prices at which companies may actually
be sold. Because these estimates are inherently subject to uncertainty, Deutsche
Bank assumes no responsibility if future results or actual values differ
materially from the estimates. Deutsche Bank's analyses were prepared solely as
part of Deutsche Bank's analysis of the fairness of the Witco exchange ratio and
were provided to the Witco board of directors in that connection.
Deutsche Bank is an internationally recognized investment banking firm
engaged in, among other things, the valuation of businesses and their securities
in connection with mergers and acquisitions, restructurings, leveraged buyouts,
negotiated underwritings, competitive biddings, secondary distributions of
listed and unlisted securities, private placements and valuations for estate,
corporate and other purposes. Witco selected Deutsche Bank to act as its
financial advisor on the basis of Deutsche Bank's international reputation and
familiarity with Witco. Deutsche Bank, as financial advisor to the Witco board
of directors, will receive a fee for its services, as more fully described
below. In the past, Deutsche Bank and its affiliates have provided financial
advisory and financing services for Witco and have received fees for the
rendering of these services. In addition, in the ordinary course of its
business, Deutsche Bank and its affiliates may actively trade the securities of
Witco or Crompton for its own account and the accounts of its customers and,
accordingly, may at any time hold a long or short position in securities of
Witco or Crompton.
Pursuant to Deutsche Bank's engagement letter, Witco agreed to pay Deutsche
Bank $1.5 million, payable upon delivery of the written opinion dated May 31,
1999 to the Witco board of directors.
As noted under the caption "--Recommendation of the Witco Board and Reasons
for the Merger" the fairness opinion of Deutsche Bank was only one of several
factors considered by the Witco board of directors in determining whether to
approve the merger agreement and the merger.
TREATMENT OF OPTIONS
Each stock option to acquire Crompton common stock or Witco common stock
granted under Crompton's or Witco's stock option and incentive plans outstanding
and unexercised immediately prior to the effective time will be converted
automatically at the effective time into a stock option to purchase common stock
of the combined company and will continue to be governed by the terms of the
respective Crompton or Witco stock plan under which it was granted. The combined
company will assume the Crompton and Witco stock plans. In the case of Crompton
stock options, the number of shares of common stock of the combined company and
the exercise price per share of common stock of the combined company subject to
the new stock option will be the same as under the terms of the prior Crompton
stock option. In the case of Witco stock options, the number of shares of common
stock of the combined company subject to the new stock option will be equal to
the product of the number of shares of Witco common stock subject to the Witco
stock option and the Witco exchange ratio, rounded down to the nearest whole
share and the exercise price per share of common stock of the combined company
subject to the new stock option will be equal to the exercise price per share of
Witco common stock under the Witco stock option divided by the Witco exchange
ratio, rounded up to the nearest whole cent. In each case, the duration and
other terms of each new stock option of the combined company will be
substantially the same as the prior Crompton or Witco stock option. In any
41
event, stock options that are incentive stock options under the Code will be
adjusted in the manner prescribed by the Code.
The Witco stock option plans and related agreements provide that options are
exercisable for a 30-day period following shareholder approval of a transaction,
like the merger, but that the duration of these options will not continue beyond
this 30-day period. Therefore, following this 30-day period, these options will
cease to exist.
WITCO PREFERRED STOCK
As of the date of this joint proxy statement-prospectus, there are
approximately 5,900 shares of Witco's $2.65 cumulative convertible preferred
stock outstanding. This preferred stock is currently redeemable by Witco for a
redemption price of $66.00 per share. The holders of this preferred stock may
convert their shares into common stock of Witco. Under the merger agreement,
Witco is obligated to redeem this preferred stock if requested by Crompton
simultaneously with the completion of the merger. Crompton has requested that
Witco effect this redemption, and Witco currently intends to effect this
redemption on September 1, 1999, immediately after the Crompton and Witco
stockholders' meetings. Upon completion of this redemption, all rights under
this preferred stock will cease and terminate, except for the right to receive
the applicable redemption price. To the extent this redemption is not effected,
this preferred stock will remain outstanding after the merger under the same
terms that are currently in effect, except that these shares will be convertible
into the common stock of the combined CK Witco. Each share of this preferred
stock is entitled to one vote at the Witco special meeting.
EXCHANGE OF CERTIFICATES; FRACTIONAL SHARES
At or prior to the effective time, Crompton will deposit, or cause to be
deposited, with ChaseMellon Shareholder Services L.L.C. certificates
representing the shares of common stock of the combined company and cash in lieu
of any fractional shares to be issued pursuant to the merger agreement in
exchange for outstanding shares of Witco common stock. ChaseMellon will act as
the exchange agent for the benefit of the holders of certificates of Witco
common stock.
As soon as practicable after the effective time, a form of transmittal
letter will be mailed by ChaseMellon to Witco stockholders. This transmittal
letter will contain instructions with respect to the surrender of certificates
representing Witco common stock.
YOU SHOULD NOT RETURN YOUR WITCO COMMON STOCK CERTIFICATES WITH THE ENCLOSED
PROXY AND SHOULD NOT FORWARD THEM TO THE EXCHANGE AGENT UNTIL YOU RECEIVE A
LETTER OF TRANSMITTAL FOLLOWING THE EFFECTIVE TIME.
Until they surrender their Witco stock certificates for exchange after the
effective time, holders of those certificates will accrue but will not be paid
dividends or other distributions declared after the effective time with respect
to common stock of CK Witco into which their shares have been converted. When
they surrender their certificates, the combined company will pay any unpaid
dividends or other distributions, without interest. After the effective time,
there will be no transfers on the stock transfer books of Witco of shares of
Witco common stock issued and outstanding immediately prior to the effective
time. If certificates representing shares of Witco common stock are presented
after the effective time, they will be canceled and exchanged for a certificate
representing the applicable number of shares of common stock of the combined
company.
No fractional shares of common stock of the combined company will be issued
to any holder of Witco common stock upon consummation of the merger. For each
fractional share that would otherwise be issued, the combined company will pay
cash in an amount equal to the fraction multiplied by the average of the closing
sale prices of Crompton common stock on the NYSE as reported by THE WALL STREET
JOURNAL for the five trading days immediately preceding the date of the
effective time. No interest will be paid or accrued on cash payable to holders
of those certificates in lieu of fractional shares.
42
None of Crompton, Witco or any other person will be liable to any former
holder of Witco common stock for any amount properly delivered to a public
official pursuant to applicable abandoned property, escheat or similar laws.
If a certificate for Witco common stock has been lost, stolen or destroyed,
the exchange agent will issue the consideration properly payable under the
merger agreement upon receipt of appropriate evidence as to that loss, theft or
destruction, appropriate evidence as to the ownership of that certificate by the
claimant, and appropriate and customary indemnification.
Holders of Crompton common stock will not be required to exchange
certificates representing their shares of Crompton common stock or otherwise
take any action as a result of the consummation of the merger. THERE IS NO NEED
FOR CROMPTON STOCKHOLDERS TO SUBMIT THEIR CROMPTON COMMON STOCK CERTIFICATES TO
CROMPTON, WITCO, THE EXCHANGE AGENT OR TO ANY OTHER PERSON IN CONNECTION WITH
THE MERGER.
For a description of Crompton common stock and a description of the
differences between the rights of the holders of Witco common stock, holders of
Crompton common stock, and holders of common stock of the combined company, see
"Comparison of Stockholders' Rights."
EFFECTIVE TIME
The effective time of the first step merger will be the time and date set
forth in the articles of merger that will be filed with the Secretary of the
Commonwealth of Massachusetts and the certificate of merger that will be filed
with the Secretary of State of the State of Delaware on the closing date of the
first step merger. The effective time of the second step merger will be the time
and date set forth in the articles of merger that will be filed with the
Secretary of State of the State of Delaware on the closing date of the second
step merger. The closing date will occur on a date to be specified by the
parties. This date will be no later than five business days after the
satisfaction or waiver (subject to applicable law) of the latest to occur of the
conditions precedent to the merger set forth in the merger agreement, unless
otherwise agreed to by Crompton and Witco. Crompton and Witco each anticipate
that the merger will be consummated during the third quarter of 1999. However,
consummation of the merger could be delayed if there is a delay in obtaining the
required regulatory approvals or in satisfying other conditions to the merger.
There can be no assurances as to whether, and on what date, Crompton and Witco
will obtain those approvals or that Crompton and Witco will consummate the
merger. If the merger is not completed on or before December 31, 1999, either
Crompton or Witco may terminate the agreement, unless the failure to effect the
merger by that date is due to the failure of the party seeking to terminate the
merger agreement to perform or observe the covenants and agreements of that
party set forth in the merger agreement. See "--Conditions to Consummation of
the Merger" and "--Regulatory Approvals Required for the Merger."
REPRESENTATIONS AND WARRANTIES
The merger agreement contains reciprocal representations and warranties of
Crompton and Witco, as to, among other things,
- their corporate organization and standing and that of their subsidiaries;
- their corporate power and authority;
- their capitalization;
- the compliance of the merger agreement with (a) their articles and bylaws,
(b) certain material agreements and (c) applicable law;
- governmental and third-party approvals;
43
- their brokers' fees;
- the opinions of their financial advisors;
- their employee benefit plans and related transactions;
- their financial statements and filings with the Securities and Exchange
Commission (the "SEC");
- the filing and accuracy of their tax returns;
- the accuracy of information provided in this joint proxy
statement-prospectus;
- their compliance with applicable law;
- the absence of material legal proceedings and injunctions;
- the absence of certain changes in their business since December 31, 1998;
- action taken by their respective Boards of Directors related to the merger
and the merger agreement;
- the absence of undisclosed liabilities;
- labor relations;
- possession of, and compliance with, permits;
- the absence of environmental liabilities;
- no ownership of the common stock of the other party;
- no defaults under contracts;
- the inapplicability to the merger of state anti-takeover laws, the Rights
Agreement dated as of July 20, 1988, as amended, between Crompton and
Mellon Bank, N.A., as Rights Agent, and the Rights Agreement, dated March
2, 1995, as amended, between Witco and First Chicago Trust Company of New
York, as Rights Agent;
- their year 2000 risk management plans; and
- intellectual property.
These representations and warranties are subject to materiality
qualifications in many respects.
OTHER AGREEMENTS
Pursuant to the merger agreement, prior to the effective time, each of
Crompton and Witco has agreed to, and to cause their respective subsidiaries to:
- conduct its business in the ordinary course;
- use its reasonable best efforts to maintain and preserve intact its
business organization, employees and advantageous business relationships,
and to retain the services of its officers and key employees and maintain
relations with governmental authorities, customers, suppliers and other
third parties;
- use its reasonable best efforts to take any action in connection with the
receipt of any required regulatory approvals;
- use its reasonable best efforts to do all things necessary to consummate
the merger;
- give the other party access to all of its premises, properties, books,
records, contracts, tax records, documents, customers and suppliers;
44
- use its reasonable best efforts to cause the merger to constitute a
tax-free "reorganization" for U.S. federal income tax purposes;
- convene a meeting of its stockholders;
- prepare the joint proxy statement-prospectus;
- notify the other party of untrue representations and warranties that would
have a material adverse effect, and any material failure to comply with a
covenant;
- except as permitted by the merger agreement, refrain from (a) soliciting,
initiating, encouraging or facilitating a competing transaction, (b)
furnishing or disclosing non-public information in furtherance of a
competing transaction, or (c) negotiating, exploring or otherwise engaging
in discussions with any person with respect to any competing transaction;
- except as required by applicable law or the NYSE, coordinate announcements
or statements related to the merger.
Crompton has also agreed as follows:
SECTION 16 INFORMATION. Assuming that Witco delivers to Crompton the
Section 16 information described below in a timely fashion, Crompton has agreed
to adopt a resolution providing that the receipt by Witco insiders of Crompton
common stock in exchange for Witco common stock, and the receipt of stock
options on Crompton common stock upon conversion of stock options on Witco
common stock, is intended to be exempt from liability pursuant to Section 16(b)
under the Securities and Exchange Act of 1934 (the "EXCHANGE ACT"). "SECTION 16
INFORMATION" means information accurate in all respects regarding the Witco
insiders, the number of shares of Witco common stock held by each Witco insider
and expected to be exchanged for Crompton common stock in the merger, and the
number and description of the stock options on Witco common stock held by each
Witco insider and expected to be converted into stock options on Crompton common
stock in connection with the merger. "WITCO INSIDERS" means those officers and
directors of Witco who are subject to the reporting requirements of Section
16(a) of the Exchange Act and who are listed in the Section 16 information.
STOCK EXCHANGE LISTING. Crompton has agreed to cause the shares of common
stock of the combined company to be issued in the merger to be approved for
listing on the NYSE. It is a condition to the consummation of the merger that
those shares be authorized for listing on the NYSE, subject to official notice
of issuance.
CONDUCT OF BUSINESS PENDING THE MERGER
Except as expressly contemplated by the merger agreement or specified in a
schedule to the merger agreement, or as contemplated by the option agreements,
each of Crompton and Witco has agreed that, without the consent of the other
party, it and its subsidiaries will not, among other things:
INDEBTEDNESS
- other than in the ordinary course of business,
-- incur any indebtedness for borrowed money (other than short-term
indebtedness incurred to refinance short-term indebtedness and
indebtedness of Crompton or any of its subsidiaries to Crompton or any
of its subsidiaries, on the one hand, or of Witco or any of its
subsidiaries to Witco or any of its subsidiaries, on the other hand),
-- assume, guarantee, endorse or otherwise as an accommodation become
responsible for the obligations of any other individual, corporation or
other entity, or
-- make any loan or advance;
45
DIVIDENDS AND STOCK REPURCHASES
- make, declare or pay any dividend or make any other distribution on or,
directly or indirectly, redeem, purchase or otherwise acquire any shares
of its capital stock or any securities or obligations convertible into or
exchangeable for any shares of its capital stock, except:
-- for regular quarterly cash dividends with respect to Crompton common
stock and Witco common stock, with usual declaration, record and
payment dates, and in accordance with Crompton's and Witco's past
dividend policy, as the case may be, and
-- regular cash dividends by Witco with respect to its outstanding
cumulative convertible preferred stock, in accordance with the terms of
that preferred stock and subject to redemption;
CAPITAL STOCK
- adjust, split, combine or reclassify any capital stock;
- grant any stock appreciation right or grant any individual, corporation or
other entity any right to acquire any shares of its capital stock, other
than
-- the issuance of common stock upon the exercise of options outstanding
on the date of the merger agreement, or
-- issued in compliance with the merger agreement in accordance with their
terms;
- issue any additional shares of capital stock except:
-- pursuant to the exercise of stock options outstanding as of May 31,
1999 or issued in compliance with the preceding bullet point,
-- pursuant to the option agreements;
DISPOSITIONS AND ACQUISITIONS
- sell, transfer, mortgage, encumber or otherwise dispose of any of its
properties or assets that are material to any individual, corporation or
other entity, other than a subsidiary, or other than in the ordinary
course of business;
- except for transactions in the ordinary course of business or pursuant to
contracts or agreements in force at the date of the merger agreement, make
any material investment either by purchase of stock or securities,
contributions to capital, property transfers, or purchase of any property
or assets of any other individual, corporation or other entity, other than
a wholly owned subsidiary;
CONTRACTS
- except for transactions in the ordinary course of business, enter into or
terminate any material contract or agreement, or make any change in any of
its material leases or contracts, other than renewals of contracts and
leases without material adverse changes of terms;
EMPLOYEES
- increase in any material manner the compensation or fringe benefits of any
of its employees or officers, except for increases in the ordinary course
of business to employees who are not officers, or pay any pension or
retirement allowance not required by any existing plan or agreement to any
of its employees, or
46
- become a party to, amend or commit itself to any collective bargaining,
bonus, stock option, restricted stock, deferred compensation, pension,
retirement, profit-sharing or welfare benefit plan or agreement or
employment, termination or severance agreement or plan with or for the
benefit of any employee other than in the ordinary course of business with
respect to employees who are not officers or to the extent required by
applicable laws or collective bargaining agreements, or
- accelerate the vesting of, or the lapsing of restrictions with respect to,
any stock options or other stock-based compensation;
SETTLING CLAIMS
- settle any claim, action or proceeding involving money damages involving
an amount in excess of $2,500,000;
ADVERSE ACTIONS
- take any action that is intended or may reasonably be expected to result
in any of its representations and warranties set forth in the merger
agreement being or becoming untrue so as to result in a material adverse
effect, or in any of the conditions to the merger set forth in the merger
agreement not being satisfied, except, in every case, as may be required
by applicable law;
AMENDMENTS TO GOVERNING DOCUMENTS
- amend its articles or its bylaws;
ACCOUNTING
- implement or adopt any change in its accounting principles, practices or
methods, other than as may be required by GAAP or regulatory guidelines;
or
OTHER AGREEMENTS
- agree to take, or make any commitment to take, any of the actions listed
above.
CONDITIONS TO CONSUMMATION OF THE MERGER
Each party's obligation to effect the merger is subject to the satisfaction
or waiver, where permissible, of the following conditions at or prior to the
effective time:
- adoption of the merger agreement by the requisite affirmative votes of the
holders of (i) Crompton common stock and (ii) Witco common stock and Witco
cumulative convertible preferred stock, voting as a single class with the
Witco common stock, entitled to vote on the matter;
- authorization for listing on the NYSE of the shares of CK Witco common
stock that are to be issued to Witco stockholders upon consummation of the
merger, subject to official notice of issuance;
47
- expiration or termination of all waiting periods applicable to the
consummation of the merger under the Hart-Scott-Rodino Act and receipt of
all requisite consents, approvals, permits or authorizations;
- effectiveness of the registration statement of which this joint proxy
statement-prospectus forms a part and no stop order suspending its
effectiveness having been issued and no proceedings for that purpose
having been initiated or threatened by the SEC;
- no order, injunction or decree issued by any court or agency of competent
jurisdiction or other legal restraint or prohibition preventing the
consummation of the merger or any of the other transactions contemplated
by the merger agreement will be in effect;
- receipt by Crompton and Witco of the opinions of their respective counsel,
Wachtell, Lipton, Rosen & Katz and Cravath, Swaine & Moore, in form and
substance reasonably satisfactory to Crompton and Witco, respectively,
dated as of the closing date, that, on the basis of facts, representations
and assumptions set forth in their opinions that are consistent with the
state of facts existing at the effective time, each of the reincorporation
and the merger will constitute a "reorganization" under Section 368(a) of
the Internal Revenue Code of 1986 (the "CODE");
- the representations and warranties of the other party to the merger
agreement will be true and correct in all material respects as of the date
of the merger agreement and (except to the extent those representations
and warranties speak as of an earlier date) as of the closing date as
though made on the closing date. For purposes of this condition, those
representations and warranties will be deemed to be true and correct,
unless the failure or failures of those representations and warranties to
be so true and correct, individually or in the aggregate, and without
giving effect to any qualification as to materiality set forth in those
representations and warranties, would have a material adverse effect on
the party making the representation; and
- each party will have performed in all material respects all obligations
required to be performed by it under the merger agreement at or prior to
the closing date.
No assurance can be provided as to if, or when, the required regulatory
approvals necessary to consummate the merger will be obtained, or whether all of
the other conditions precedent to the merger will be satisfied or waived by the
party permitted to do so. If the merger is not completed on or before December
31, 1999, either Crompton or Witco may terminate the merger agreement, unless
the failure to complete the merger by that date is due to the failure of the
party seeking to terminate the merger agreement to perform or observe covenants
and agreements of that party set forth in the merger agreement.
REGULATORY APPROVALS REQUIRED FOR THE MERGER
Crompton and Witco cannot complete the merger until they have filed
notifications with the Antitrust Division of the Department of Justice and the
Federal Trade Commission under the Hart-Scott-Rodino Act of 1976, as amended,
and the applicable rules of the Federal Trade Commission, and specified waiting
periods have expired or terminated. Crompton and Witco filed the required
notification and report forms under the Hart-Scott-Rodino Act with the Federal
Trade Commission and the Antitrust Division on June 21, 1999. The waiting period
under this Act expired on July 21, 1999.
Crompton and Witco believe that the proposed merger is compatible with U.S.
antitrust laws. Nevertheless, there can be no assurance that completion of the
merger will not be delayed or prevented because of the requirements of the U.S.
antitrust laws. In addition, at any time before or after consummation of the
merger, the Antitrust Division, the Federal Trade Commission, other governmental
authorities or private persons could take action against the merger under the
antitrust laws, including seeking to enjoin consummation of the merger, rescind
the merger or cause Crompton or Witco to divest, in whole or in part, any of
their assets or businesses.
48
Crompton and Witco conduct business in a number of jurisdictions where
regulatory filings or approvals may be required or advisable in connection with
the consummation of the merger. The parties are currently in the process of
determining which filings and approvals are required or advisable, and the
additional filings and notices will be made promptly with the appropriate
authorities.
The obligations of Crompton or Witco to complete the merger are subject to
the condition that:
- there not be any injunction, decree or order issued by any court or agency
of competent jurisdiction or any other legal restraint or prohibition
preventing them from completing the transactions contemplated by the
merger agreement,
- all other consents, approvals, permits or authorizations required to be
obtained from any governmental authority, the absence of which would
prohibit the merger, shall have been obtained.
Crompton and Witco are not aware of any governmental approvals or actions
that may be required for consummation of the merger other than as described
above. If any other governmental approval or action is required, the parties
currently contemplate that they would seek that additional approval or action.
There can be no assurance, however, that the parties will obtain these
additional approvals or actions.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material anticipated U.S. federal income
tax consequences of the reincorporation and the merger to Crompton stockholders
and Witco stockholders who hold Crompton common stock or Witco common stock as a
capital asset. The summary is based on the Internal Revenue Code, Treasury
regulations issued under the Code, and administrative rulings and court
decisions in effect as of the date of this joint proxy statement-prospectus, all
of which are subject to change at any time, possibly with retroactive effect.
This summary is not a complete description of
all of the consequences of the reincorporation and the merger and, in
particular, may not address U.S. federal income tax considerations applicable to
Crompton stockholders and Witco stockholders subject to special treatment under
U.S. federal income tax law. Stockholders subject to special treatment include,
for example, foreign persons, financial institutions, dealers in securities,
traders in securities who elect to apply a mark-to-market method of accounting,
insurance companies, tax-exempt entities, holders who acquired their shares
pursuant to the exercise of an employee stock option or right or otherwise as
compensation, Crompton stockholders who dissent and receive the appraised fair
value of their Crompton common stock, and holders who hold Crompton common stock
or Witco common stock as part of a "hedge," "straddle" or "conversion
transaction." In addition, no information is provided in this document with
respect to the tax consequences of the reincorporation or the merger under
applicable foreign or state or local laws.
CROMPTON STOCKHOLDERS AND WITCO STOCKHOLDERS ARE URGED TO CONSULT WITH THEIR
TAX ADVISORS REGARDING THE TAX CONSEQUENCES OF THE REINCORPORATION AND THE
MERGER TO THEM, INCLUDING THE EFFECTS OF U.S. FEDERAL, STATE, LOCAL, FOREIGN AND
OTHER TAX LAWS.
In connection with the filing of the Registration Statement, Crompton has
received an opinion of Wachtell, Lipton, Rosen & Katz, special counsel to
Crompton, and Witco has received an opinion of Cravath, Swaine & Moore, special
counsel to Witco, each dated the date of this joint proxy statement-prospectus,
addressing the U.S. federal income tax consequences of the merger described
below. Wachtell, Lipton, Rosen & Katz and Cravath, Swaine & Moore have rendered
their respective opinions on the basis of facts, representations and assumptions
set forth or referred to in such opinions that are consistent with the state of
facts expected to exist at the effective time. In rendering such opinions,
Wachtell, Lipton, Rosen & Katz and Cravath, Swaine & Moore have required and
relied upon representations contained in certificates of officers of Crompton
and Witco. The opinions are to the effect that, for U.S. federal income tax
purposes, each of the reincorporation and the merger will
49
constitute a "reorganization" under Section 368(a) of the Code; Crompton and its
Delaware subsidiary will each be a party to the reorganization in respect of the
reincorporation; and Witco and the surviving corporation will each be a party to
the reorganization in respect of the merger.
Based upon such opinions, the following will be the material U.S. federal
income tax consequences of the reincorporation and the merger:
- neither Crompton nor Witco will recognize any gain or loss as a result of
the reincorporation or the merger;
- Crompton stockholders will recognize no gain or loss on the receipt of
shares of common stock of the combined company in exchange for their
Crompton common stock in the reincorporation;
- the aggregate tax basis of the shares of common stock of the combined
company received by Crompton stockholders in the reincorporation will
equal the aggregate tax basis of the shares of Crompton common stock
exchanged for that stock;
- the holding period of a share of common stock of the combined company
received in the reincorporation will include the holder's holding period
in the Crompton common stock exchanged for that stock;
- Witco stockholders who exchange all of their Witco common stock solely for
common stock of the surviving corporation pursuant to the merger will
recognize no gain or loss (except with respect to cash received in lieu of
a fractional share interest in common stock of the surviving corporation);
- the aggregate tax basis of the shares of common stock of the surviving
corporation received by Witco stockholders (including fractional shares
deemed received and redeemed as described below) will equal the aggregate
tax basis of the shares of Witco common stock surrendered in exchange for
that stock; and
- the holding period of a share of common stock of the surviving corporation
received in the merger (including a fractional share deemed received and
redeemed as described below) will include the holder's holding period in
the Witco common stock surrendered in exchange for that stock.
Cash received by a Witco stockholder in lieu of a fractional share interest
in common stock of the surviving corporation will be treated as received in
redemption of that fractional share interest, and a Witco stockholder should
generally recognize a capital gain or loss for U.S. federal income tax purposes
measured by the difference between the amount of cash received and the portion
of the tax basis of the shares of Witco common stock allocable to that
fractional share interest. This gain or loss should be a long-term capital gain
or loss if the holding period for that share of Witco common stock is greater
than one year at the effective time.
The obligations of Crompton and Witco to consummate the merger are
conditioned upon the receipt by Crompton and Witco of further opinions of
Wachtell, Lipton, Rosen & Katz and Cravath, Swaine & Moore, respectively, in
form and substance reasonably satisfactory to Crompton and Witco, respectively,
in each case dated the closing date, substantially to the effect that, on the
basis of facts, representations and assumptions set forth in each opinion that
are consistent with the state of facts existing at the effective time, each of
the reincorporation and the merger will constitute a "reorganization" under
Section 368(a) of the Code. In rendering those opinions, counsel may require and
rely upon representations contained in certificates of officers of Crompton,
Witco and others. None of the tax opinions to be delivered to the parties in
connection with the reincorporation and the merger as described in this document
is binding on the Internal Revenue Service or the courts, and the parties do not
intend to request a ruling from the IRS with respect to the reincorporation or
the merger.
50
Accordingly, there can be no assurance that the IRS will not challenge the
conclusions reflected in those opinions or that a court will not sustain such
challenge.
INFORMATION REPORTING AND BACKUP WITHHOLDING. Payments in respect of Witco
common stock may be subject to information reporting to the IRS and to a 31%
backup withholding tax. Backup withholding will not apply, however, to a payment
to a holder of Witco common stock or other payee if the stockholder or payee
completes and signs the substitute Form W-9 that will be included as part of the
transmittal letter, or otherwise proves to the surviving corporation and the
exchange agent that it is exempt from backup withholding.
ACCOUNTING TREATMENT
The merger will be accounted for as a "purchase." The purchase price will be
allocated to Witco's assets and liabilities based on their estimated fair market
values at the date of acquisition, and any excess of the purchase price over
those fair market values will be accounted for as goodwill to be amortized over
a 40 year period. The results of final valuations of property, plant and
equipment, intangible assets and acquired in-process research and development
costs have not yet been completed as well as final estimates for severance and
other charges, which may be material, related to the integration of operations
of the companies. We may revise the allocation of the purchase price when
additional information becomes available, including the charge to earnings for
acquired in-process research and development costs.
The unaudited pro forma financial information contained in this joint proxy
statement-prospectus has been prepared using the purchase accounting method to
account for the merger. See "Summary-- Unaudited Comparative Per Share Data" and
"Unaudited Pro Forma Combined Financial Information."
TERMINATION OF THE MERGER AGREEMENT
The merger agreement provides that the merger may be terminated at any time
prior to the effective time, whether before or after approval by the Crompton
stockholders and Witco stockholders:
- MUTUAL CONSENT--by mutual consent of Crompton and Witco;
- LEGAL IMPEDIMENTS--by either the Crompton board or the Witco board, if any
permanent injunction or other order or decree of a court or other
competent governmental authority preventing the merger has become final
and nonappealable, provided that the party seeking to terminate the merger
agreement has used its reasonable best efforts to remove the injunction,
order or decree;
- DELAY--by either the Crompton board or the Witco board, if the merger is
not completed on or before December 31, 1999, unless the failure to
complete the merger by this date is due to the failure of the party
seeking to terminate the merger agreement to perform or observe the
covenants and agreements of that party set forth in the merger agreement;
- BREACH--by either the Crompton board or the Witco board (PROVIDED that the
terminating party is not then in breach of any representation, warranty,
covenant or other agreement contained in the merger agreement) if there
has been a breach of any of the covenants or agreements or any of the
representations or warranties set forth in the merger agreement on the
part of Witco, in the case of a termination by Crompton, or Crompton or
Newco, in the case of a termination by Witco, which breach, individually
or in the aggregate, would constitute, if occurring or continuing on the
closing date, the failure of the conditions described under "--Conditions
to Consummation of the Merger," and which breach is not cured within 30
days following written notice to the party committing the breach, or which
breach, by its nature or timing, cannot be cured prior to the closing
date;
51
- STOCKHOLDER VOTE--by either the Crompton board or the Witco board, (1) if,
upon a vote at a duly held meeting to obtain the Witco stockholders
approval, the Witco stockholders approval is not obtained; or (2) if, upon
a vote at a duly held meeting to obtain the Crompton stockholders
approval, the Crompton stockholders approval is not obtained;
- RECOMMENDATION--by the Crompton board or the Witco board, if the other
party withdraws or modifies, or proposes to withdraw or modify, in a
manner adverse to the terminating party, its approval or recommendation of
the merger agreement and the transactions contemplated by the merger
agreement or approves or recommends, or proposes to approve or recommend,
any competing transaction;
- CROMPTON COMPETING TRANSACTION--by the Crompton board, if
(1) prior to obtaining the Crompton stockholders approval, Crompton has
received a publicly disclosed proposal for a competing transaction
that constitutes a qualifying proposal that was not solicited or
encouraged by Crompton or its representatives and that did not
otherwise result from the breach or a deemed breach of Crompton's
covenants relating to competing transactions,
(2) the Crompton board has determined in good faith and on a reasonable
basis, and based on the written advice of outside counsel that not to
so act would constitute a violation of such fiduciary obligations,
that it is necessary to (x) withdraw or modify its approval or
recommendation of the merger agreement and the transactions
contemplated by the merger agreement, (y) terminate the merger
agreement and (z) enter into an acquisition agreement in connection
with the qualifying proposal in order to comply with its fiduciary
obligations under applicable law,
(3) Crompton has notified Witco in writing of the determination described
in clause (2) above,
(4) at least ten business days following receipt by Witco of the notice
referred to in clause (3) above, and taking into account any proposal
made by Witco since receipt of that notice to amend or modify the
terms of the transactions contemplated by the merger agreement, the
qualifying proposal remains a qualifying proposal and the Crompton
board has again made the determination referred to in clause (2)
above,
(5) Crompton is in compliance with its covenants relating to competing
transactions,
(6) Crompton has paid in advance the fee described under "--Termination
Fees" to Witco, and
(7) the Crompton board concurrently approves, and Crompton concurrently
enters into, an acquisition agreement providing for the
implementation of the qualifying proposal; or
- WITCO COMPETING TRANSACTION--by the Witco board, if
(1) prior to obtaining the Witco stockholders approval, Witco has
received a publicly disclosed proposal for a competing transaction
that constitutes a qualifying proposal that was not solicited or
encouraged by Witco or its representatives and that did not otherwise
result from the breach or a deemed breach of Witco's covenants
relating to competing transactions,
(2) the Witco board has determined in good faith and on a reasonable
basis, and based on the written advice of outside counsel that not to
so act would constitute a violation of such fiduciary obligations,
that it is necessary to (x) withdraw or modify its approval or
recommendation of the merger agreement and the transactions
contemplated by the merger agreement, (y) terminate the merger
agreement and (z) enter into an acquisition
52
agreement in connection with the qualifying proposal in order to
comply with its fiduciary obligations under applicable law,
(3) Witco has notified Crompton in writing of the determination described
in clause (2) above,
(4) at least ten business days following receipt by Crompton of the
notice referred to in clause (3) above, and taking into account any
proposal made by Crompton since receipt of that notice to amend or
modify the terms of the transactions contemplated by the merger
agreement, the qualifying proposal remains a qualifying proposal and
the Witco board has again made the determination referred to in
clause (2) above,
(5) Witco is in compliance with its covenants relating to competing
transactions,
(6) Witco has paid in advance the fee described under "--Termination
Fees" to Crompton, and
(7) the Witco board concurrently approves, and Witco concurrently enters
into, an acquisition agreement providing for the implementation of
the qualifying proposal.
For purposes of the above, a "qualifying proposal" means any proposal made
by a third party to acquire all of the equity securities or all or substantially
all of the assets of Crompton or Witco, as the case may be, pursuant to a tender
offer, a merger, a consolidation, a recapitalization, a sale of its assets or
otherwise, that is
- for consideration that is substantial (as reasonably determined by that
party's Board of Directors) and is comprised solely of cash and not
subject to financing contingencies;
- on terms which a nationally recognized independent investment banking firm
has opined in writing (with only customary qualifications) to be superior
from a financial point of view to the holders of that party's common stock
to the transactions contemplated by the merger agreement, taking into
account all of the terms and conditions of the proposal and the merger
agreement (including the terms of any proposal by the other party to amend
or modify the terms of the transactions contemplated by the merger
agreement); and
- reasonably capable of being completed within seven months of the
termination of the merger agreement, taking into account all financial,
regulatory, legal and other aspects of the proposal.
Whether or not the merger is completed, all fees and expenses incurred in
connection with the merger and the transactions contemplated by the merger
agreement will be paid by the party incurring these expenses, except that
Crompton and Witco will equally bear the costs and expenses of printing and
mailing this joint proxy statement-prospectus and all filing and other fees paid
to the SEC in connection with the merger.
TERMINATION FEES
Crompton and Witco have each agreed to pay the other a termination fee of
$30 million in cash upon or after the termination of the merger agreement under
the circumstances and at the times described below.
- EVENTS REQUIRING PAYMENT OF TERMINATION FEE ON DATE OF TERMINATION
-- if the party required to pay the fee terminates the merger agreement
to enter into an acquisition agreement for a qualifying proposal; or
-- if the other party terminates the merger agreement because the party
required to pay the fee withdraws, or proposes to withdraw or modify,
in a manner adverse to the terminating party, its approval or
recommendation of the merger agreement and the transactions
contemplated by the merger agreement, or approves or recommends, or
proposes to approve or recommend, any competing transaction.
53
- EVENTS REQUIRING PAYMENT OF TERMINATION FEE ON DATE OF EXECUTING COMPETING
AGREEMENT OR CONSUMMATION OF COMPETING TRANSACTION
-- any competing transaction is proposed to the party required to pay the
fee or publicly disclosed and, in each case, is pending prior to the
earlier of (1) that party's stockholders meeting to approve the merger
and (2) the occurrence of the earliest event or circumstance
constituting the basis for the termination of the merger agreement;
-- thereafter either Crompton or Witco terminates the merger agreement as
a result of (1) the merger not being consummated by December 31, 1999,
(2) the stockholders of the party required to pay the fee not
approving the merger at a stockholders meeting held for that purpose,
or (3) a breach of any covenant, agreement, representation or warranty
by the party required to pay the fee that is not cured and that would
otherwise result in a condition precedent to closing not being
satisfied; and
-- within 12 months of the termination of the merger agreement, the party
required to pay the fee enters into a definitive agreement to
consummate, or otherwise consummates, the transactions contemplated by
any competing transaction.
EXTENSION, WAIVER AND AMENDMENT OF THE MERGER AGREEMENT
EXTENSION AND WAIVER. At any time prior to the effective time, Crompton and
Witco, by action taken or authorized by their respective boards of directors,
may, to the extent legally allowed:
- extend the time for the performance of any of the obligations or other
acts of the other party;
- waive any inaccuracies in the representations and warranties contained in
the merger agreement or in any document delivered pursuant to the merger
agreement; and
- waive compliance with any of the agreements or conditions contained in the
merger agreement.
However, after the stockholders of Crompton or Witco approve the transactions
contemplated by the merger agreement, Crompton or Witco, as the case may be, may
not, without further approval of those stockholders, enter into any extension or
waiver of the merger agreement that by law requires the further approval of
those stockholders.
AMENDMENT. Subject to compliance with applicable law, Crompton and Witco
may amend the merger agreement by action taken or authorized by their respective
boards of directors at any time before or after approval of the matters
presented in connection with the merger by Crompton stockholders or Witco
stockholders. However, after any approval of the transactions contemplated by
the merger agreement by Crompton stockholders or Witco stockholders, there may
not be, without further approval of those stockholders, any amendment of the
merger agreement that by law requires the further approval of those
stockholders.
EMPLOYEE BENEFITS AND PLANS
From and after the effective time, unless the combined company determines
otherwise, the employee benefit plans, arrangements or agreements maintained, or
contributed to, as of the date of the merger agreement, by each of Crompton and
Witco and disclosed to the other party in connection with the execution and
delivery of the merger agreement, in each case, as in effect as of the date of
the merger agreement, will remain in effect with respect to employees of
Crompton and Witco (or their subsidiaries) covered by those plans at the
effective time, until the combined company, subject to applicable law, the terms
of the merger agreement and the terms of those plans, adopts new benefit plans
or modifies or consolidates the existing plans. In the merger agreement,
Crompton and Witco have agreed that they will cooperate in reviewing, evaluating
and analyzing the Crompton benefit plans
54
and Witco benefit plans with a view towards developing appropriate new benefit
plans for the employees covered by those existing plans subsequent to the
merger. Vested rights of employees under Crompton benefit plans and Witco
benefit plans and other agreements, as the case may be, will be honored in
accordance with their terms and employees of the combined company who are
covered under collective bargaining agreements will be provided with the
benefits required by those agreements.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain members of Crompton's and Witco's management and the Crompton board
and the Witco board may have interests in the merger that are in addition to
their interests as Crompton stockholders or Witco stockholders generally.
Certain executive officers and directors of each of Crompton and Witco will
serve as executive officers and directors of the combined company following the
merger. In addition, completion of the merger will constitute a change in
control of Witco for purposes of determining the entitlement of certain
executive officers of Witco to certain severance and other benefits.
Furthermore, one or more members of the management of Witco have entered, or may
by the effective time enter into agreements relating to their employment with
the combined company that will provide employment and severance benefits
following the merger.
The Crompton board and the Witco board were aware of these interests and
considered them, among other matters, in approving the merger agreement and the
transactions contemplated by the merger agreement.
CHANGE IN CONTROL BENEFITS
The merger will constitute a change in control under each of the following
employee benefit plans of Witco with the consequences described below.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN OF WITCO. Some officers of Witco are
designated by the Witco board to participate in its supplemental executive
retirement plan. Following the merger, each participant will be fully vested in
an annual supplemental retirement benefit commencing at age 60 equal to 50% of
the sum of the participant's highest annual base salary during the past 36
months and highest bonus during the past 60 months, reduced by amounts paid
under some other Witco plans and 50% of his or her Social Security benefit. The
participant may elect to receive the actuarial equivalent of this benefit in a
lump sum within ten days after his termination of employment. In addition, in
the event of (1) termination of a participant's employment by the participant
for any reason within one year of the merger or (2) termination by the employer
for any reason (other than for cause) or a constructive termination of the
participant's employment within three years of the merger, the participant will
be entitled to a lump-sum payment equal to three times the sum of the
participant's (i) base salary in effect at termination or on the date of the
merger, if higher, (ii) highest annual cash bonus within the 60 months prior to
the date of termination and (iii) average value of the long-term incentive award
during the three-year period prior to the date of termination and (iv) various
other benefits, including a prorated bonus under Witco's Officers' Annual
Incentive Plan based on the target bonus for the year of the date of
termination, continued coverage under welfare plans for three years,
outplacement services and transfer of ownership of the participant's company
car. This supplemental executive retirement plan contains a golden parachute
excise tax gross-up provision under which the participant will be entitled to be
made whole after the payment of excise taxes under Section 4999 of the Code. In
addition, this plan may not be amended after the merger to decrease the
protections or benefits provided thereunder.
LONG TERM INCENTIVE PLAN OF WITCO. Upon the merger, all performance periods
end under Witco's long-term incentive plan and each participant will receive a
cash payment within 15 days of the merger equal to the product of (1) 150% of
his or her target award (denominated in shares of Witco common stock) multiplied
by a fraction, the numerator of which is the number of full and partial months
in the
55
performance period prior to the merger and the denominator of which is 36 and
(2) the greater of the highest price per share of Witco common stock paid during
the 60 days preceding the first public disclosure of the merger and 60 days
prior to the merger. In addition, all restrictions on restricted shares lapse on
the merger date.
DEFERRED COMPENSATION PLAN OF WITCO. Upon completion of the merger, each
participant under Witco's deferred compensation plan is entitled to receive a
cash settlement of all amounts in his or her account, provided that the
participant has not otherwise elected to defer payment to a subsequent date.
AGREEMENT WITH E. GARY COOK. On May 31, 1999, Witco, Newco and E. Gary Cook
entered into an employment agreement, pursuant to which Mr. Cook will be
employed as chairman of the board of CK Witco for the three-year period
commencing on the completion of the merger. Mr. Cook's employment agreement will
not go into effect until the merger is complete, and the employment agreement
will automatically be terminated if the merger agreement is terminated. In
exchange for his services as chairman of the board, Mr. Cook will receive, among
other things, an annualized base salary equal to the greater of (1) $810,000 and
(2) the annualized base salary of CK Witco's chief executive officer. Mr. Cook
will also be entitled to an annual incentive bonus that is no less than 75% of
the annual incentive bonus payment earned by CK Witco's chief executive officer.
In addition, CK Witco will grant Mr. Cook 300,000 shares of restricted stock of
CK Witco and a ten-year option to purchase 500,000 shares of CK Witco common
stock. The restricted stock will vest over two years subject to the satisfaction
of performance criteria, and the options will vest in equal installments over a
five year period. Mr. Cook will be eligible to receive additional stock option
grants in amounts at least equal to 75% of corresponding grants to CK Witco's
chief executive officer and other stock based awards in the discretion of the
board. Mr. Cook is also entitled to receive long-term incentive awards equal to
at least 75% of long term incentive awards granted to CK Witco's chief executive
officer. Mr. Cook's employment agreement also provides that all amounts and
benefits vest upon a change in control of CK Witco and contains a golden
parachute excise tax gross up provision pursuant to which he will be made whole
after the payment of excise taxes under Section 4999 of the Code. In the event
Mr. Cook's employment is terminated without cause or by Mr. Cook for good
reason, Mr. Cook will be eligible to receive, among other things, his base
salary, bonuses and other benefits for the remaining term of his agreement, and
the restricted stock award and stock option will vest immediately. Following the
termination of his employment agreement, Mr. Cook will be entitled to receive an
annual annuity payment of $1.5 million for life, which also vests upon the
completion of the merger. If Mr. Cook dies prior to the date of the 15th annual
payment, his beneficiaries will receive these annual payments up to the 15th
payment. Mr. Cook has agreed that, during the term of his employment and for six
months thereafter, he will refrain from competing against CK Witco. See
"Management and Operations After the Merger--Management."
STOCK-BASED RIGHTS. The merger agreement provides that, at the effective
time, each outstanding and unexercised stock option to acquire shares of
Crompton common stock or Witco common stock granted under the Crompton or Witco
stock plans will cease to represent the right to acquire shares of Crompton
common stock or Witco common stock and will be converted into and become a right
with respect to the common stock of the combined company, and the Crompton and
Witco stock plans will be assumed by the combined company in accordance with
their terms. See "--Treatment of Options." Pursuant to the terms of the Witco
equity-based plans and related agreements, all unvested stock options will vest
in full on the date of shareholder approval of the merger, and each option
holder will have 30 days commencing on the date of shareholder approval of the
merger to exercise outstanding stock options. Upon the expiration of the 30-day
period, all unexercised options will be surrendered and canceled in exchange for
a payment (in cash or shares, as determined by the committee) equal to the
excess, if any, of (1) the fair market value of a share of common stock on the
date of cancellation over (2) the option exercise price.
56
INDEMNIFICATION; DIRECTORS AND OFFICERS LIABILITY INSURANCE. The merger
agreement provides that, for a period of at least six years following the
effective time, in the event of any threatened or actual claim or proceeding in
which any person who is or has been a director, officer or employee of Witco,
Crompton, Newco or any of their respective subsidiaries or any of their
predecessors is, or is threatened to be, made a party based in whole or in part
on, or pertaining to, the fact that the person was a director, officer or
employee of Witco, Crompton, Newco or any of their respective subsidiaries or
any of their predecessors, or the merger agreement, the option agreements or the
transactions contemplated by these agreements, the combined company will,
subject to the conditions set forth in the merger agreement, indemnify that
person to the fullest extent permitted by law against any liability or expense
incurred in connection with any of these claims or proceedings. The merger
agreement further provides that Crompton and Newco will, subject to the
conditions set forth in the merger agreement, use their reasonable best efforts
to cause the persons serving as officers and directors of Crompton, Newco or
Witco or any of their respective subsidiaries immediately prior to the merger to
be covered for a period of at least six years following the effective time by
the directors' and officers' liability insurance policy of Crompton or Witco, as
the case may be (or any equivalent substitute for that policy), with respect to
acts and omissions occurring prior to the effective time. The combined company,
however, will not be required to expend more than 200% of the current amounts
expended by Crompton and Witco for their policies.
CROMPTON AND WITCO OPTION AGREEMENTS
GENERAL. Immediately after the execution of the merger agreement, Crompton
entered into a stock option agreement granting Witco an irrevocable option to
purchase from Crompton at any one time, or from time to time, up to 13,025,917
shares of Crompton common stock or a lesser or greater amount of shares that is
19.9% of the outstanding Crompton common stock at the time the option is
exercised, subject to certain adjustments. The exercise price of the Crompton
option is $18.375 per share, subject to certain adjustments. At the same time,
Witco entered into a stock option agreement granting Crompton an irrevocable
option to purchase from Witco at any one time, or from time to time, up to
11,471,159 shares of Witco common stock or a lesser or greater amount of shares
that is 19.9% of the outstanding Witco common stock at the time the option is
exercised, subject to adjustments. The exercise price of the Witco option is
$17.50 per share, subject to adjustments.
Except as otherwise noted below, the terms and conditions of the Crompton
option agreement and the Witco option agreement are identical in all material
respects. Crompton and Witco are sometimes referred to in this section as
"ISSUER" of their respective common stock upon the exercise of an option, and as
"OPTIONEES" holding an option on the common stock of the other party. Shares
issued pursuant to either of the option agreements are sometimes referred to in
this section as "ISSUER OPTION SHARES."
EXERCISE. The optionees may exercise their respective options, subject to
regulatory approval, if a triggering event has occurred prior to an exercise
termination event. For purposes of each option agreement:
(1) the term "TRIGGERING EVENT" means any occurrence following which
the optionee is entitled (without further contractual contingencies) to
receive a termination fee under the merger agreement, as described under the
caption "--Termination Fees".
(2) An "EXERCISE TERMINATION EVENT" includes:
(a) the effective time,
(b) termination of the merger agreement in accordance with the
provisions of the merger agreement if following the termination
a triggering event, by its terms, cannot occur, or
57
(c) such time after termination of the merger agreement when a
triggering event, by its terms, cannot thereafter occur.
As of the date of this joint proxy statement-prospectus, to the knowledge of
Crompton and Witco, no triggering event has occurred.
REPURCHASE OF THE OPTION. Each option agreement permits the optionee, at
any time following a triggering event, to require that the issuer repurchase the
option or any shares issued under the option for a cash fee equal to the
following, as applicable:
- OPTION REPURCHASE PRICE
-- the amount by which the higher of (1) the highest price per share of
issuer common stock to be paid or received in connection with the
triggering event or (2) the highest closing price for shares of issuer
common stock during the past six months exceeds the option exercise
price,
multiplied by
-- the number of shares of issuer common stock for which the option may
then be exercised.
- SHARE REPURCHASE PRICE
-- the higher of (1) the highest price per share of issuer common stock
to be paid or received in connection with the triggering event or (2)
the highest closing price for shares of issuer common stock during the
past six months,
multiplied by
-- the number of shares of issuer common stock repurchased.
PROFIT LIMITATION. Each option agreement limits the total profit that can
be realized from its exercise or repurchase to $30 million. Also, the grantee
will not be able to exercise the option at any given time if, as a result, the
grantee could sell all of its shares received under the option for a profit in
excess of $30 million.
ADJUSTMENT. Each option agreement contains provisions governing the
procedure for exercise of the option and payment for the shares purchased upon
that exercise and other provisions that adjust the number of shares and the
exercise price of the option upon the occurrence of certain changes to the
capital structure of the issuer or certain other events or transactions.
REGISTRATION RIGHTS. Each option agreement contains provisions granting the
optionee demand registration rights with respect to the shares of issuer common
stock received upon exercise of the option.
RESTRICTIONS ON RESALES BY AFFILIATES
Shares of the combined company's common stock to be issued to Witco
stockholders in the merger have been registered under the Securities Act of 1933
(the "SECURITIES ACT"). Shares of the combined company's common stock issued in
the merger may be traded freely and without restriction by those stockholders
not deemed to be affiliates (as that term is defined under the Securities Act)
of Witco. Any subsequent transfer of shares, however, by any person who is an
affiliate of Witco at the time the merger is submitted for vote of the holders
of Witco common stock will, under existing law, require either:
- the further registration under the Securities Act of the shares of the
combined company's common stock to be transferred,
58
- compliance with Rule 145 promulgated under the Securities Act (permitting
limited sales under certain circumstances), or
- the availability of another exemption from registration.
An "AFFILIATE" of Witco is a person who directly, or indirectly through one
or more intermediaries, controls, is controlled by, or is under common control
with, Witco. These restrictions are expected to apply to the directors and
executive officers of Witco and the holders of 10% or more of the Witco common
stock (and to certain relatives or the spouse of those persons and any trusts,
estates, corporations or other entities in which those persons have a 10% or
greater beneficial or equity interest). Stop transfer instructions will be given
by the combined company to the transfer agent with respect to the shares of its
common stock to be received by persons subject to these restrictions, and the
certificates for their shares will be appropriately legended.
Each of Witco and Crompton has agreed in the merger agreement to use its
reasonable best efforts to cause each person who is an affiliate (for purposes
of Rule 145 under the Securities Act) of that party to deliver to the other
party a written agreement intended to ensure compliance with the Securities Act.
59
MANAGEMENT AND OPERATIONS AFTER THE MERGER
BOARD OF DIRECTORS
At the effective time, the combined company board will consist of 14
persons, seven of whom will be Crompton directors and seven of whom will be
Witco directors.
These directors will be:
CROMPTON DIRECTORS:
James A. Bitonti
Vincent A. Calarco
Robert A. Fox
Roger L. Headrick
Leo I. Higdon, Jr.
C.A. (Lance) Piccolo
Patricia K. Woolf, Ph.D.
WITCO DIRECTORS:
Don L. Blankenship
Simeon Brinberg
E. Gary Cook
Richard M. Hayden
Harry G. Hohn
Nicholas Pappas
Bruce F. Wesson
MANAGEMENT
Mr. Cook, currently Chairman and Chief Executive Officer of Witco, will
serve as Chairman of the combined company. Mr. Calarco, currently Chairman and
Chief Executive Officer of Crompton, will serve as President and Chief Executive
Officer of the combined company.
Mr. Calarco is currently employed under an agreement that provides for his
employment as President and Chief Executive Officer for a term of three years,
with automatic annual one year extensions unless Crompton gives notice at least
60 days prior to the anniversary of the date of the agreement that the term will
not be extended. The agreement calls for a base salary of not less than
$750,000, eligibility for an annual cash bonus with a target of 100% of his base
salary and continued participation in employee benefit plans and other fringe
benefit arrangements substantially as in the past. In the event Mr. Calarco's
employment is terminated by Crompton other than for cause, disability, or death,
or by Mr. Calarco for good reason (as defined in the agreement), Crompton is
obligated to pay Mr. Calarco his salary to the date of termination, incentive
compensation in an amount no less than the bonus paid to him for the prior year
pro-rated to that date, and a lump sum termination payment equal to three times
the sum of his then current salary and the highest bonus paid to him during the
three years preceding his termination, to continue other employee benefits
provided under the agreement for a period of three years or until he obtains
other employment, and to make certain additional payments to cover any excise
tax imposed under the Code on the amounts payable as a result of his termination
and any legal fees incurred by Mr. Calarco in enforcing Crompton's obligations
under the agreement. It is expected that Mr. Calarco will enter into an
employment agreement with the combined company on terms that are not less
favorable than those contained in his current agreement with Crompton.
60
Additional information about those individuals listed above and the
directors of Crompton and Witco, is contained in Crompton's and Witco's
respective Annual Reports on Form 10-K for their most recent fiscal year--each
of which is incorporated by reference in this joint proxy statement-prospectus.
See "Where You Can Find More Information." From time to time prior to completion
of the merger, additional decisions will be made with respect to the management
and operations of the combined company following the merger, including the
selection of executive officers and other senior management of the combined
company.
OPERATIONS
While there can be no assurance as to the achievement of business and
financial goals, Crompton and Witco currently expect the combined company to
achieve approximately $60 million in annual pre-tax cost savings as a result of
the merger, with 50% to be realized by 2000 and 100% to be realized by 2001.
Crompton and Witco also expect that the combined company will incur charges
related to the integration of operations which may involve significant costs
including severance. However, our plans are not yet sufficiently advanced to
determine the amount of these costs. These statements constitute
"forward-looking statements" for purposes of the Private Securities Litigation
Reform Act of 1995, and actual results, which are dependent on a number of
factors, many of which are beyond the control of Crompton and Witco, may differ
materially. See "Forward-Looking Statements."
61
PRICE RANGE OF COMMON STOCK AND DIVIDENDS
CROMPTON
Crompton common stock is listed on the NYSE and traded under the symbol
"CNK." The following table sets forth, for the periods indicated, the high and
low reported prices per share of Crompton common stock on the NYSE Composite
Transactions reporting system, and cash dividends declared per share of Crompton
common stock.
PRICE RANGE OF
COMMON STOCK
----------------------
DIVIDENDS
HIGH LOW DECLARED
---------- ---------- -----------
1996
First Quarter......................................................... $ 15.50 $ 13.00 $ 0.135
Second Quarter........................................................ 18.38 13.88 0.135
Third Quarter......................................................... 17.00 13.13 --
Fourth Quarter........................................................ 20.13 16.13 --
1997
First Quarter......................................................... 23.25 17.88 --
Second Quarter........................................................ 24.75 18.50 0.05
Third Quarter......................................................... 27.13 22.31 --
Fourth Quarter........................................................ 27.38 23.38 --
1998
First Quarter......................................................... 31.06 25.75 --
Second Quarter........................................................ 32.81 23.00 0.05
Third Quarter......................................................... 26.88 13.38 --
Fourth Quarter........................................................ 21.56 12.88 --
1999
First Quarter......................................................... 21.38 15.06 --
Second Quarter........................................................ 20.94 14.94 0.05
Third Quarter (through July 26, 1999)................................. 19.06 20.44 --
The timing and amount of future dividends will depend upon earnings, cash
requirements, the financial condition of Crompton and its subsidiaries and other
factors deemed relevant by the Crompton board. The merger agreement restricts
the cash dividends payable on Crompton common stock pending completion of the
merger. See "The Merger--Conduct of Business Pending the Merger" and "--Other
Agreements."
The timing and amount of future dividends of the combined company will
likewise depend upon similar factors with respect to the combined company and
others as deemed relevant by its board of directors.
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WITCO
Witco common stock is listed on the NYSE and traded under the symbol "WIT."
The following table sets forth, for the periods indicated, the high and low
reported prices per share of Witco common stock on the NYSE Composite
Transaction reporting system, and cash dividends declared per share of Witco
common stock.
PRICE RANGE OF
COMMON STOCK
----------------------
DIVIDENDS
HIGH LOW DECLARED
---------- ---------- -----------
1996
First Quarter......................................................... $ 36.25 $ 29.13 $ .28
Second Quarter........................................................ 37.38 31.88 .28
Third Quarter......................................................... 34.63 28.13 .28
Fourth Quarter........................................................ 33.50 29.50 .28
1997
First Quarter......................................................... 35.00 29.44 .28
Second Quarter........................................................ 38.38 33.00 .28
Third Quarter......................................................... 47.63 38.00 .28
Fourth Quarter........................................................ 45.50 38.00 .28
1998
First Quarter......................................................... 43.94 37.63 .28
Second Quarter........................................................ 40.56 29.25 .28
Third Quarter......................................................... 31.13 19.50 .28
Fourth Quarter........................................................ 21.81 14.38 .28
1999
First Quarter......................................................... 18.44 11.50 .28
Second Quarter........................................................ 21.00 12.25 .28
Third Quarter (through July 26, 1999)................................. 19.50 17.94 --
The timing and amount of future dividends will depend upon earnings, cash
requirements, the financial condition of Witco and its subsidiaries and other
factors deemed relevant by the Witco board. The merger agreement restricts the
cash dividends payable on Witco common stock pending completion of the merger.
See "The Merger--Conduct of Business Pending the Merger" and "--Other
Agreements."
The timing and amount of future dividends of the combined company will
likewise depend upon similar factors with respect to the combined company and
others as deemed relevant by its board of directors.
63
INFORMATION ABOUT CROMPTON
GENERAL
Crompton & Knowles Corporation was incorporated in Massachusetts in 1900. We
are a global producer and marketer of specialty chemicals, polymers and polymer
processing equipment. We have engaged in the manufacture and sale of specialty
chemicals since 1954 and, since 1961, in the manufacture and sale of polymer
processing equipment.
Our products are currently marketed in approximately 120 countries and serve
a wide variety of end use markets, including tires, agriculture, automobiles,
textiles, plastics, lubricants, petrochemicals, construction, recreation,
mining, paper, packaging, home furnishings and appliances.
We have approximately 5,400 employees in research, manufacturing, sales and
administration facilities around the world. Our executive offices are located at
One Station Place, Metro Center, Stamford, Connecticut 06902.
MANAGEMENT AND ADDITIONAL INFORMATION
Certain information relating to the executive compensation, various benefit
plans (including stock option plans), voting securities, including the principal
holders of those securities, certain relationships and related transactions and
other matters as to Crompton is incorporated by reference from or set forth in
Crompton's Annual Report on Form 10-K for the year ended December 26, 1998,
incorporated herein by reference. Stockholders desiring copies of this document
and other documents may contact Crompton at its address or telephone number
indicated under "Where You Can Find More Information."
64
INFORMATION ABOUT WITCO
GENERAL
Witco Corporation, established in 1920, is a global manufacturer and
marketer of specialty chemical products for use in a wide variety of industrial
and consumer applications. Most of our products are sold to industrial customers
for use as additives, ingredients or intermediaries that impart particular
characteristics to such customers' end products. We have approximately 5,700
employees worldwide.
Witco was incorporated in 1958 under the laws of Delaware as Witco Chemical
Company, Inc., at which time it succeeded by merger to the business of Witco
Chemical Company, an Illinois corporation formed in 1920. Our executive offices
are located at One American Lane, Greenwich, Connecticut 06831-2559.
MANAGEMENT AND ADDITIONAL INFORMATION
Certain information relating to the executive compensation, various benefit
plans (including stock option plans), voting securities, including the principal
holders of those securities, certain relationships and related transactions and
other matters as to Witco is incorporated by reference or set forth in Witco's
Annual Report on Form 10-K for the year ended December 31, 1998, which is
incorporated in this joint proxy statement-prospectus by reference. Stockholders
desiring copies of this document and other documents may contact Witco at its
address or telephone number indicated under "Where You Can Find More
Information."
65
DESCRIPTION OF COMBINED COMPANY CAPITAL STOCK
At the effective time, the authorized capital stock of the combined company
will consist of: (a) 500,000,000 shares of common stock of the combined company,
and (b) 250,000 shares of preferred stock of the combined company. The holders
of common stock of the combined company will be entitled to receive dividends as
may be declared from time to time by the board of the combined company out of
funds legally available for those dividends. The holders of common stock of the
combined company will be entitled to one vote per share on all matters submitted
to a vote of stockholders and will not have cumulative voting rights. Holders of
common stock of the combined company will be entitled to receive, upon any
liquidation of the combined company, all remaining assets available for
distribution to stockholders after satisfaction of the combined company's
liabilities and the preferential rights of any preferred stock that may then be
issued and outstanding. The outstanding shares of common stock of the combined
company to be issued in the merger will be fully paid and nonassessable. The
holders of common stock of the combined company will have no preemptive,
conversion or redemption rights. The transfer agent and registrar for the common
stock of the combined company will be ChaseMellon Shareholder Services L.L.C.
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COMPARISON OF STOCKHOLDERS' RIGHTS
As a result of the merger, Crompton stockholders and Witco stockholders will
receive shares of common stock of the combined company in exchange for their
shares of Crompton common stock and Witco common stock, respectively. The
following is a summary of material differences with respect to the rights of
holders of Crompton common stock, Witco common stock and Newco common stock.
These differences arise in part from the differences between the Massachusetts
Business Corporation Law and the Delaware General Corporation Law. Additional
differences arise from the governing instruments of the two merging companies on
the one hand, and the governing instruments of the combined company on the other
hand.
ACTION BY WRITTEN CONSENT OF STOCKHOLDERS
Under the MBCL any action required or permitted to be taken at any meeting
of stockholders may be taken without a meeting if the holders of outstanding
stock representing the number of shares necessary to take such action at a
meeting at which all shares entitled to vote were present consent to the action
in writing. Neither the Crompton articles nor the Crompton by-laws provide
otherwise.
The DGCL provides that, unless otherwise provided in the certificate of
incorporation, any action required or permitted to be taken at an annual or
special meeting of stockholders may be taken without such a meeting, without
prior notice and without a vote, if a consent or consents in writing setting
forth the action to be taken is signed by all stockholders entitled to vote.
Both the Witco certificate and the certificate of the combined company provide
that any action required or permitted to be taken at any meeting of stockholders
must be effected at an annual or special meeting of stockholders. Neither
company permits such action to be effected by any consent in writing.
AMENDMENT OF CHARTER DOCUMENTS
Under the MBCL, amendments to a corporation's articles of organization
relating to certain changes in capital stock or in the corporate name require
the vote of at least a majority of each class of stock outstanding and entitled
to vote on that amendment. Amendments relating to other matters require a vote
of at least two-thirds of each class outstanding and entitled to vote on that
amendment or, if the articles of organization so provide, a greater or lesser
proportion but not less than a majority of the outstanding shares of each class
entitled to vote on those amendments. Under the MBCL, the articles of
organization or by-laws may provide that all outstanding classes of stock vote
as a single class, but the separate vote of any class of stock, the rights of
which would be adversely affected by the amendment, is also required. The
Crompton articles require the affirmative vote of the holders of at least 80% of
the voting power of the outstanding shares of capital stock of Crompton entitled
to vote generally in elections of directors, voting as a single class, to amend
the provisions of the Crompton articles regarding composition of the Crompton
board or the voting requirements for certain "business combinations" involving
an "interested stockholder" (as those terms are defined in the Crompton
articles).
Under the DGCL, charter amendments require (a) the approval of the
directors, (b) the vote of the holders of a majority of the outstanding stock,
and (c) a majority of each class of stock outstanding and entitled to vote on
those amendments as a class, unless the certificate of incorporation requires a
greater proportion. In addition, the DGCL requires a class vote when, among
other things, an amendment will alter or change the powers, preferences or
special rights of a class of stock so as to affect them adversely. The Witco
certificate requires the affirmative vote of the holders of at least 80% of the
voting power of the outstanding shares of capital stock of Witco entitled to
vote generally in elections of directors, voting as a single class, to amend the
provisions of the Witco certificate regarding composition of the Witco board,
the validity of action by the written consent of stockholders, the voting
requirements for certain "business combinations" involving an "interested
stockholder" (as such terms
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are defined in the Witco certificate), or the voting requirements for amendments
of the Witco certificate. The voting requirements for amending the certificate
of the combined company do not materially differ from those required to amend
the Witco certificate.
STOCKHOLDER VOTING
The MBCL provides that a merger between two or more Massachusetts
corporations must be approved by two-thirds of the shares of each class of stock
of each constituent corporation outstanding and entitled to vote on that merger,
or by such lesser proportion (but not less than a majority) of those shares as a
corporation's articles of organization may provide. When the merger is between
one or more Massachusetts corporations and one or more foreign corporations and
the surviving corporation is to be a foreign corporation, the foregoing vote is
required for the domestic corporation under the MBCL, but the foreign
corporation is required only to comply with the applicable provisions of its
jurisdiction of incorporation. In addition, the Crompton articles require, in
the event of a "business combination" involving an "interested stockholder" (as
those terms are defined in the Crompton articles), the affirmative vote of the
holders of at least 80% of the voting power of the then outstanding shares of
voting stock, voting together as a single class. An exception to this
requirement applies when a majority of the "continuing directors" (as defined in
the Crompton articles) approves the "Business Combination" and a set of specific
price-related conditions are met.
The DGCL generally requires a majority vote of the shares of stock of each
constituent corporation outstanding and entitled to vote in order to approve a
merger between two Delaware corporations or between a Delaware corporation and a
corporation organized under the laws of another state, and neither the Witco
certificate nor the certificate of the combined company provides otherwise.
However, both the Witco certificate and the certificate of the combined company
require that, in the event of a "business combination" involving an "interested
stockholder" (as those terms are defined in the Witco certificate and the Newco
certificate, respectively), the affirmative vote of the holders of at least 80%
of the voting power of the then outstanding shares of voting stock of the
applicable corporation, voting together as a single class. There are no
exceptions to this requirement.
CONTROL SHARE STATUTES
Massachusetts has adopted a "control share" statute under which a person who
acquires voting stock of a Massachusetts corporation that results in such
person's voting power exceeding certain specified amounts (20%, 33 1/3% and 50%)
would lose the right to vote that stock unless the stockholders of the
corporation authorize that person to do so. This authorization requires the
affirmative vote of the holders of a majority of all shares entitled to vote
generally in the election of directors, excluding the acquiring person's shares.
Any person making such a control share acquisition may file a statement with the
corporation demanding that the corporation call a stockholders' meeting to vote
on whether to reinstate that person's voting rights. Stockholders who vote not
to reinstate those voting rights may demand appraisal rights in the event that
the acquiring person's voting rights are reinstated. In the absence of an
affirmative election to opt out by amending its articles of organization or
by-laws, the control share statute applies to a Massachusetts corporation which
has (a) 200 stockholders of record, (b) its principal executive office or
substantial assets within Massachusetts and (c) either more than 10% of its
stockholders of record residing within Massachusetts or more than 10% of its
issued and outstanding shares held by Massachusetts residents. To date, Crompton
has not opted out of the control share statute.
The DGCL does not have a control share statute, and the governing
instruments of Witco and the combined company do not contain any comparable
provisions.
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STOCKHOLDER APPROVAL OF CERTAIN BUSINESS COMBINATIONS
Crompton is subject to the provisions of Chapter 110F of the Massachusetts
General Laws, an anti-takeover law. In general, this statute prohibits a
publicly held Massachusetts corporation with sufficient ties to Massachusetts
from engaging in a "business combination" with an "interested stockholder" (as
defined below) for a period of three years after the date of the transaction in
which the person becomes an interested stockholder, unless either (a) prior to
the date on which that stockholder becomes an interested stockholder the board
of directors approves either the business combination or the transaction which
resulted in the stockholder becoming an interested stockholder; (b) the
interested stockholder owns 90% of the corporation's outstanding voting stock
upon consummation of the transaction which made him an interested stockholder
(excluding shares held by certain affiliates of the corporation); or (c) on or
after the date that person becomes an interested stockholder, the business
combination is approved by both the board of directors and two-thirds of the
outstanding voting stock of the corporation (excluding shares held by the
interested stockholder). An "interested stockholder" is a person who, together
with affiliates and associates, owns (or at any time within the prior three
years did own) 5% or more of the corporation's voting stock. A "business
combination" includes mergers, stock and asset sales, and other transactions
resulting in a financial benefit to the stockholder. Crompton has not elected
not to be governed by Chapter 110F. Crompton may, however, at any time amend the
Crompton articles or Crompton by-laws to elect not to be governed by Chapter
110F by a vote of the holders of a majority of its voting stock, but such an
amendment would not be effective for twelve months and would not apply to a
business combination with any person who became an interested stockholder prior
to the date of the amendment.
Section 203 of the DGCL prohibits a Delaware corporation from engaging in a
"business combination" with an "interested stockholder" for three years
following the date on which such person becomes an interested stockholder. With
some exceptions, an "interested stockholder" is a person or group who or which
owns 15% or more of the corporation's outstanding voting stock, including any
rights to acquire stock pursuant to an option, warrant, agreement, arrangement
or understanding, or upon the exercise of conversion or exchange rights, and
stock with respect to which the person has voting rights only, or is an
affiliate or associate of the corporation which was the owner of 15% or more of
such voting stock at any time within the previous three years.
For purposes of Section 203, the term "business combination" is defined to
include:
- mergers with, or caused by, the interested stockholder;
- sales or other dispositions to the interested stockholder (except
proportionately with the corporation's other stockholders) of assets of
the corporation or a subsidiary equal to 10% or more of the aggregate
market value of the corporation's consolidated assets or its outstanding
stock;
- the issuance or transfer by the corporation or a subsidiary of stock of
the corporation or that subsidiary to the interested stockholder, except
for transfers in a conversion or exchange or a pro rata distribution or
other transactions, none of which increase the interested stockholder's
proportionate ownership of any class or series of the corporation's or
such subsidiary's stock;
- any transaction involving the corporation or any direct or indirect
majority-owned subsidiary of the corporation which has the effect of
increasing materially the proportionate share of the stock of any class of
the corporation or any such subsidiary which is owned by the interested
stockholder; and
- receipt by the interested stockholder (except proportionately as a
stockholder), directly or indirectly, of any loans, advances, guarantees,
pledges or other financial benefits provided by or through the corporation
or a subsidiary.
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The three-year moratorium imposed on business combinations by Section 203
does not apply if:
- prior to the time on which that stockholder becomes an interested
stockholder the board of directors approves either the business
combination or the transaction which resulted in the person becoming an
interested stockholder;
- the interested stockholder owns 85% of the corporation's voting stock upon
consummation of the transaction which made him an interested stockholder
(excluding shares held by affiliates of the corporation and certain
employee stock plans); or
- at or subsequent to the time that person becomes an interested
stockholder, the business combination is approved by both the board of
directors and 66 2/3% of the outstanding voting stock of the corporation
(excluding shares held by the interested stockholder).
Section 203 only applies to Delaware corporations which have a class of
voting stock that is listed on a national securities exchange, is quoted on an
interdealer quotation system such as Nasdaq, or is held of record by more than
2,000 stockholders. A Delaware corporation may elect in its original certificate
of incorporation, or by amending its certificate of incorporation or bylaws, not
to be governed by Section 203. Any such amendment must be approved by the
stockholders and may not be further amended by the board of directors. Both
Witco and the combined company are subject to the provisions of Section 203 and
neither has elected not to be governed by Section 203.
APPRAISAL RIGHTS
Under the MBCL, a stockholder of a Massachusetts corporation who complies
with statutory procedures is entitled to demand payment for his or her stock and
an appraisal in the event that the corporation has voted (a) to sell, lease or
exchange all or substantially all of its property and assets, (b) to adopt any
amendment of its articles of organization which adversely affects the rights of
that stockholder, or (c) to merge or consolidate with another corporation,
unless a vote of stockholders was not required to approve that merger or
consolidation.
The DGCL provides for dissenters' appraisal rights only in the case of a
statutory merger or consolidation of the corporation where the petitioning
stockholder has neither voted in favor of, or consented in writing to, the
transaction. In addition, no dissenters' appraisal rights are available when the
corporation is to be the surviving corporation and a vote of its stockholders is
not required under Section 251(f) of the DGCL. Unless otherwise provided for in
a corporation's certificate of incorporation, there are no dissenters' appraisal
rights for shares of stock listed on a national securities exchange or held by
more than 2,000 holders of record, unless those stockholders would be required
to accept anything other than shares of stock of the surviving corporation,
shares of another corporation so listed or held by such number of holders of
record, cash in lieu of fractional shares of such stock, or any combination
thereof.
AMENDMENT OF BY-LAWS
Under the MBCL, stockholders have the power to make, amend or repeal
by-laws. If authorized in the articles of organization of the corporation, the
by-laws may also provide that directors may make, amend or repeal by-laws,
except with respect to any provision of those by-laws that, by law, the articles
of organization or the by-laws, requires action by stockholders. Any by-law
adopted by the directors of the corporation may be amended or repealed by the
stockholders. The Crompton articles provide that a majority of the Crompton
board then in office shall have the power to make, alter, amend, or repeal the
Crompton by-laws, except when the MBCL requires action by the stockholders.
Amendment of the Crompton articles relating to the Crompton board requires the
affirmative vote of the holders of at least 80% of the voting power of the
outstanding shares of capital stock of Crompton entitled to vote generally in
the election of directors, voting together as a single class.
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Under the DGCL, the stockholders of a corporation entitled to vote and, when
provided in the certificate of incorporation, the directors of the corporation,
have the power to adopt, amend and repeal the by-laws of a corporation. Both the
Witco certificate and the certificate of the combined company grant their
respective directors the power to adopt, amend and repeal by-laws. In addition,
the Witco by-laws provide that they may not be altered, amended or repealed by
the Witco stockholders unless such action is approved by stockholders holding at
least 80% of the outstanding shares of Witco stock. The by-laws of the combined
company contain a similar provision.
LIMITATION ON DIRECTORS' LIABILITY; INDEMNIFICATION OF OFFICERS AND DIRECTORS
The MBCL permits a corporation to include in its articles of organization a
provision that limits or eliminates the personal liability of directors to the
corporation and its stockholders for monetary damages for breach of fiduciary
duty as a director. The Crompton articles include provisions eliminating the
personal liability of Crompton's directors for monetary damages resulting from
breaches of their fiduciary duty except (a) for any breach of the director's
duty of loyalty to Crompton or its stockholders, (b) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (c) under Sections 61 and 62 of the MBCL, or (d) with respect to any
transaction from which the director derived an improper personal benefit.
The MBCL also provides that indemnification of directors, officers,
employees and other agents of a corporation, and persons who serve at the
corporation's request as directors, officers, employees or other agents of
another organization, may be provided by that corporation to whatever extent is
specified in or authorized by (a) the articles of organization, (b) a by-law
adopted by the stockholders, or (c) a vote adopted by the holders of a majority
of the shares of stock entitled to vote on the election of directors. The
Crompton by-laws provide for indemnification of its directors and officers to
the full extent permitted by the MBCL. The Crompton by-laws also authorize the
Crompton board to purchase insurance on behalf of any such person or persons,
whether or not they are entitled to indemnification and whether or not Crompton
could indemnify them.
The DGCL allows a corporation to include in its certificate of incorporation
a provision that limits or eliminates the personal liability of directors to the
corporation and its stockholders for monetary damages for breach of fiduciary
duty as a director. It does not, however, permit a corporation to limit or
eliminate the personal liability of a director for (a) any breach of the
director's duty of loyalty to the corporation or its stockholders, (b) acts or
omissions not in good faith, or which involve intentional misconduct or a
knowing violation of law, (c) intentional or negligent payment of unlawful
dividends or unlawful stock purchases or redemptions, or (d) any transaction
from which the director derived an improper personal benefit. The Witco
certificate provides for limitations on directors' liability to Witco to the
fullest extent permitted by the DGCL.
The DGCL provides that a corporation may, and the Witco by-laws provide that
Witco shall, indemnify any person party to any action, suit or proceeding by
reason of the fact that he or she is or was a director, officer, employee or
agent of Witco or is or was serving at the request of Witco as a director,
officer, employee or agent of another organization. Witco may approve that
indemnification by, among other things, a majority vote of a quorum consisting
of directors who were not parties to such action, suit or proceeding. It is a
condition to that indemnification that such officer or director acted in good
faith and in a manner he or she reasonably believed to be in or not opposed to
the best interests of Witco. The Witco by-laws permit the Witco board to
purchase and maintain insurance on behalf of present or past directors,
officers, employees or agents.
The certificate and by-laws of the combined company do not materially differ
from Witco's governing instruments with respect to these matters.
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CLASSIFIED BOARD OF DIRECTORS
The MBCL generally requires that publicly-held Massachusetts corporations
have a classified board of directors consisting of three classes as nearly equal
in size as possible, unless those corporations elect to opt out of the statute's
coverage. Crompton has not opted out of this provision, and the Crompton board
is divided into three classes, each of which serves a three year term.
The DGCL permits, but does not require, a classified board of directors,
with staggered terms under which one-half or one-third of the directors are
elected for terms of two or three years, respectively. The Witco certificate and
the certificate of the combined company divide their respective boards of
directors into three classes, each of which serves a three year term.
CUMULATIVE VOTING FOR DIRECTORS
While the MBCL does not expressly prohibit cumulative voting, it is
generally understood that cumulative voting is not permitted in Massachusetts
corporations. The Crompton governing instruments do not provide for cumulative
voting.
The DGCL permits cumulative voting for directors to the extent provided for
in a Delaware corporation's certificate of incorporation. Neither the Witco
certificate nor the certificate of the combined company provides for cumulative
voting.
REMOVAL OF DIRECTORS
Under the MBCL, unless the articles of organization or by-laws provide
otherwise, directors selected by stockholders may be removed with or without
cause by the vote of the holders of a majority of the shares entitled to vote in
the election of directors. However, the directors of a class elected by a
particular class of stockholders may be removed only by the vote of the holders
of a majority of the shares of the particular class of stockholders entitled to
vote for the election of such directors. In addition, any director elected by
the stockholders may be removed from office for cause by vote of a majority of
the directors then in office. A director may be removed for cause only after
reasonable notice and an opportunity to be heard before the body proposing to
remove that director. Furthermore, the MBCL provides that stockholders of a
corporation having a classified board may remove directors only for cause, and
only by a vote of a majority of shares outstanding and entitled to vote.
Crompton currently maintains a classified board. Under the Crompton articles,
any director may be removed from office by stockholder vote at any time, with or
without assigning any cause, but only by the affirmative vote of the holders of
at least 80% of the voting power of the outstanding shares of Crompton capital
stock entitled to vote generally in the election of directors, voting together
as a single class. In addition, any director may be removed from office for
cause by vote of a majority of the directors then in office.
Under the DGCL, any director or the entire board of directors may be
removed, with or without cause, by the holders of a majority of the shares
entitled to vote at an election of directors, except (a) unless the certificate
of incorporation otherwise provides, in the case of a corporation having a
classified board stockholders may effect such removal only for cause, and (b) in
the case of a corporation having cumulative voting, if less than the entire
board is to be removed, no director may be removed without cause if the votes
cast against his removal would be sufficient to elect him if those votes were to
be cumulatively voted in an election of the entire board of directors. The Witco
certificate provides that any director may be removed from office by stockholder
vote at any time, but only for cause and only by the affirmative vote of the
holders of at least 80% of the voting power of the outstanding shares of Witco
capital stock entitled to vote generally in the election of directors, voting
together as a single class.
The certificate of the combined company is identical to the Witco
certificate with respect to this matter.
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NEWLY CREATED DIRECTORSHIPS AND VACANCIES
The MBCL provides that, unless otherwise provided in a corporation's
articles of organization, any vacancy in the board of directors (including a
vacancy resulting from the enlargement of the board) may be filled in the manner
prescribed in the by-laws or, in the absence of such a by-law, by the directors.
The Crompton articles provide that any such vacancy shall be filled solely by
the affirmative vote of a majority of the remaining directors then in office,
even though less than a quorum of the Crompton board. Under the Crompton
articles, any director elected in accordance with the preceding sentence shall
hold office for the remainder of the full term of the class of directors in
which the new directorship was created or the vacancy occurred, and until that
director's successor shall have been elected and qualified. No decrease in the
numbers of directors constituting the Crompton board shall shorten the term of
any incumbent director.
The DGCL provides that vacancies and newly created directorships may be
filled by a majority of the directors then in office (even though less than a
quorum) or a sole remaining director unless (a) otherwise provided in the
certificate of incorporation or by-laws of the corporation, or (b) the
certificate of incorporation directs that a particular class is to elect that
director, in which case any other directors elected by such class, or a sole
remaining director, shall fill that vacancy. In addition, if, at the time of
filling any vacancy or newly created directorship, the directors then in office
constitute less than a majority of the whole board, the Delaware Court of
Chancery may, upon application of stockholders holding at least ten percent of
the shares outstanding at the time and entitled to vote for those directors,
summarily order an election to be held to fill any such vacancies or newly
created directorships, or to replace the directors chosen by the directors then
in office. Those elections are to be conducted in accordance with the procedures
provided by the DGCL. Unless otherwise provided in the certificate of
incorporation or bylaws, when one or more directors resign from the board a
majority of directors then in office, including those who have so resigned, may
vote to fill the vacancy. The Witco certificate provides that vacancies created
by reason of death, removal or resignation may be filled by the affirmative vote
of a majority of the remaining directors then in office, even though less than a
quorum of the Witco board. The certificate of the combined company does not
materially differ from the Witco certificate with respect to this matter.
SPECIAL MEETINGS
Under the MBCL, special meetings of stockholders of a corporation with a
class of voting stock registered under the Exchange Act may be called by the
president or by the directors and, unless otherwise provided in the articles of
organization or by-laws, shall be called by the clerk, or, in case of the death,
absence, incapacity or refusal of the clerk, by any other officer, upon written
application of one or more stockholders who hold at least 40% in interest of the
capital stock entitled to vote in that special meeting. In case none of the
officers is able and willing to call a special meeting, the supreme judicial or
superior court, upon application of one or more stockholders who hold at least
40% in interest, or such other percentage as specified in the corporation's
articles of organization or by-laws, of the capital stock entitled to vote in
that special meeting, will have jurisdiction in equity to authorize one or more
of those stockholders to call a meeting by giving such notice as is required by
law. The Crompton by-laws provide that special meetings of Crompton stockholders
may be called by the President or the Crompton board. Special meetings of
Crompton stockholders may also be called by the clerk, or in the case of the
death, absence, incapacity or refusal of the clerk, by another officer, upon
written application of one or more stockholders who are entitled to vote and who
hold at least 40% of the interest of the capital stock entitled to vote at the
meeting. Each call of a meeting is to state the place, date, hour, and purpose
of the meeting.
Under the DGCL, special meetings of stockholders may be called by the board
of directors and by such other person or persons authorized to do so by the
corporation's certificate of incorporation or
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bylaws. Under the Witco by-laws, a special meeting of stockholders may be called
only by the Witco board and only pursuant to a resolution approved by a majority
of the entire Witco board.
Under the by-laws of the combined company, special meetings of stockholders
shall be called only by the Chairman of the board, or by the board pursuant to a
resolution approved by a majority of the total number of directors which the
corporation would have if there were no vacancies. Any special meeting of
stockholders of the combined company may be canceled by resolution of the board
upon public notice given prior to the date previously scheduled for such meeting
of stockholders.
INSPECTION RIGHTS
The MBCL generally provides that a stockholder may inspect a corporation's
articles of organization, its by-laws, records of its meetings of incorporators
and stockholders, a list of its stockholders, and its other stock and transfer
records for any proper purpose.
The DGCL provides that any stockholder, upon written demand stating the
purpose of the inspection, shall have the right to inspect for any proper
purpose the corporation's stock ledger, a list of its stockholders, and its
other books and records.
ELECTION OF DIRECTORS
The Crompton articles provide that the Crompton board will consist of not
less than six nor more than fifteen directors, with the exact number to be fixed
by majority resolution of the Crompton board. The Crompton articles also provide
that directors shall be elected by a plurality of the votes properly cast for
the election of directors and that any alteration of this provision requires the
affirmative vote of the holders of at least 80% of the voting power of the
outstanding shares, voting together as a class. The Crompton board currently
consists of eight directors.
The DGCL requires that the board consist of more than one member and that
directors shall be elected by a plurality of the votes of shares entitled to
vote and present in person or represented by proxy at the meeting. The Witco
certificate provides that the Witco board will consist of not less than twelve,
and no more than eighteen, directors. The number of directors may be changed
only by the Witco board pursuant to a resolution adopted by a majority of the
entire Witco board. The Witco certificate also provides that any alteration of
this provision requires the affirmative vote of the holders of at least 80% of
the voting power of the then-outstanding shares voting together as a class. The
Witco board currently consists of twelve directors.
The certificate of the combined company provides that the board will consist
of not less than eight and no more than fifteen directors. The number of
directors may be changed by the board pursuant to a resolution adopted by a
majority of the entire board. The certificate of the combined company also
provides that any alteration of this provision requires the affirmative vote of
the holders of at least 80% of the voting power of the outstanding shares voting
together as a class.
DIVIDENDS
Under the MBCL, the payment of dividends is generally permissible if that
action is not taken when the corporation is insolvent, does not render the
corporation insolvent and does not violate the corporation's articles of
incorporation. The Crompton articles provide that dividends on Crompton common
stock shall be payable when and as declared by the Crompton board.
Under the DGCL, a corporation generally is permitted to declare and pay
dividends out of surplus, or out of net profits for the current and/or preceding
fiscal year, provided such dividends will not reduce capital below the amount of
capital represented by all classes of stock having a preference upon the
distribution of assets. Under the Witco certificate, holders of $2.65 cumulative
convertible preferred stock shall be entitled to receive, as and when declared
by the Witco board, out of the assets
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of Witco that are by law available for payment of dividends, cumulative cash
dividends at the rate of $2.65 per annum. This dividend shall be fully paid or
set apart for payment before any dividend shall be declared and paid or set
apart for payment on Witco common stock. After these requirements have been met,
holders of Witco common stock shall be entitled to receive those dividends as
the Witco board may declare.
Under the certificate of the combined company, after the requirements with
respect to preferential dividends upon any issued and outstanding preferred
stock have been satisfied, the holders of common stock of the combined company
shall be entitled to receive those dividends as may be declared by the board.
STOCKHOLDER RIGHTS PLAN
CROMPTON. On July 20, 1988, Crompton declared a dividend of one preferred
stock purchase right on each outstanding share of Crompton common stock. The
Crompton preferred stock purchase rights, which expire on August 4, 2008, were
issued on August 5, 1988, to stockholders of record on that date and were
authorized to be issued in respect of each share of Crompton common stock
subsequently issued. Under certain circumstances, each preferred stock purchase
right will entitle the holder to purchase one one-hundredth of a share of
Crompton series A junior participating preferred stock, without par value, at an
exercise price of $150 per one one-hundredth of a share, subject to adjustment.
The Crompton preferred stock purchase rights will not be exercisable or
transferable apart from the Crompton common stock until the earlier to occur of
either: (a) ten days following Crompton becoming aware that a person or group
has acquired 20% or more of the outstanding Crompton common stock (the "CROMPTON
STOCK ACQUISITION DATE"), or (b) ten business days following commencement of a
tender or exchange offer which would result in the beneficial ownership by a
person or group of 20% or more of the outstanding Crompton common stock. The
Crompton preferred stock purchase rights do not have any voting rights or
entitlement to dividends.
If, after the Crompton stock acquisition date, Crompton is acquired in a
merger or other business combination transaction, or 50% or more of its
consolidated assets or earning power is sold, each holder of a Crompton
preferred stock purchase right shall thereafter have the right to receive, on
exercise of the right, that number of shares of common stock of the acquiring
company which at the time of such transaction would have a market value of two
times the exercise price of the Crompton preferred stock purchase right. In
addition, in the event a person or group shall become the beneficial owner of
20% or more of the outstanding Crompton common stock (a "CROMPTON ACQUIRING
PERSON"), except pursuant to a tender offer for all outstanding shares of
Crompton common stock, which offer increases such person's beneficial ownership
to 80% or more of the outstanding common shares, each holder of a Crompton
preferred stock purchase right other than a Crompton acquiring person shall have
the right, upon exercise of that right, to purchase shares of Crompton common
stock having a market value equal to two times the exercise price of the
Crompton preferred stock purchase right. Notwithstanding the foregoing, any
Crompton preferred stock purchase rights that are owned or acquired by a
Crompton acquiring person will be void and the Crompton acquiring person shall
have no right to exercise or transfer those rights. The Crompton preferred stock
purchase rights are redeemable at $.01 per right at any time prior to ten days
following the time that a person or group acquires beneficial ownership of 20%
or more of the outstanding Crompton common stock.
WITCO. On March 2, 1995, the Witco board declared a dividend of one Witco
preferred stock purchase right on each outstanding share of Witco common stock.
The Witco preferred stock purchase rights, which expire on March 2, 2005, were
issued on March 2, 1995 to Witco stockholders of record on that date and were
authorized to be issued in respect of each share of Witco common stock
subsequently issued. Under certain circumstances, each Witco preferred stock
purchase right will entitle the holder to purchase one one-thousandth of a share
of Witco series A participating cumulative preferred stock, without par value,
at an exercise price of $110 per one one-hundredth of a share,
75
subject to adjustment. The Witco preferred stock purchase rights do not have any
voting rights or entitlement to dividends.
If Witco is acquired in a merger or other business combination transaction
or 50% or more of its consolidated assets or earning power is sold, each holder
of a Witco preferred stock purchase right shall thereafter have the right to
receive, on exercise of the right, that number of shares of common stock of the
acquiring company which at the time of such transaction would have a market
value of two times the exercise price of the Witco preferred stock purchase
right. In addition, in the event a person or group shall become the beneficial
owner of 15% or more of the outstanding Witco common stock (a "WITCO ACQUIRING
PERSON"), each holder of a right other than a Witco acquiring person shall have
the right, upon exercise of a Witco preferred stock purchase right, to purchase
shares of Witco common stock having a market value equal to two times the
exercise price of the Witco preferred stock purchase right. Notwithstanding the
foregoing, any rights that are owned or acquired by a Witco acquiring person
will be void and the holder of those Witco preferred stock purchase rights shall
have no right to exercise or transfer those rights. The Witco preferred stock
purchase rights are redeemable at $.01 per right at any time prior to ten days
following the time that a person or group acquires beneficial ownership of 15%
or more of the outstanding Witco common stock.
76
RIGHTS OF DISSENTING STOCKHOLDERS
CROMPTON
Under the MBCL, holders of Crompton common stock who do not vote in favor of
the merger and who follow the procedures prescribed under Massachusetts law may
require the combined company to pay the fair value of his or her shares as
determined in an appraisal proceeding brought in accordance with Sections 85
through 98 of the MBCL. The text of Sections 85 through 98 of the MBCL is set
forth in full in Appendix G attached to this document. In order to exercise
those statutory appraisal rights, strict adherence to the statutory provisions
is required, and each stockholder who may desire to exercise those rights should
carefully review and adhere to those provisions.
Under the MBCL, procedures relating to dissenters' rights are stated to be
the exclusive remedy available to a stockholder objecting to the merger, except
for objections made on the grounds that the merger will be or is illegal or
fraudulent as to that stockholder. However, under Massachusetts case law,
dissenting stockholders may not be limited to the statutory remedy of judicial
appraisal where violations of fiduciary duty are found.
A dissenting stockholder of Crompton who desires to pursue the appraisal
rights available must:
- file a written objection to the merger with Crompton before the taking of
the stockholders' vote on the merger, stating the intention of the
stockholder to demand payment for shares owned by the stockholder if the
merger is approved and completed,
- refrain from voting shares owned by the stockholder in favor of the
merger, and
- within 20 days of the date of mailing of a notice by Crompton (as it
exists after the effective time) to objecting stockholders that the merger
has become effective, make written demand to the combined company for
payment for the stockholder's shares.
The initial written objection of a dissenting stockholder of Crompton should
be delivered to Crompton & Knowles Corporation, One Station Place, Metro Center,
Stamford, Connecticut, Attn: John T. Ferguson II, Vice President, General
Counsel and Secretary. The written demand, which must be made after the
effective time, should be delivered to Crompton (as it exists after the
effective time), c/o CK Witco Corporation, One Station Place, Metro Center,
Stamford, Connecticut 06902. It is recommended that this objection and demand be
sent by registered or certified mail, return receipt requested.
A dissenting Crompton stockholder who filed the required written objection
with Crompton prior to the stockholder vote need not vote against the merger,
but a vote in favor of the merger will constitute a waiver of that stockholder's
statutory appraisal rights. Crompton stockholders should note that returning a
properly signed proxy card that does not indicate a vote or an abstention on
approval of the merger, will constitute a vote in favor of the merger. A vote
against the merger does not, alone, constitute a written objection. Pursuant to
the applicable statutory provisions, notice that the merger has become effective
will be sent to each objecting Crompton stockholder within ten days after the
date on which the merger becomes effective.
The combined company and the dissenting stockholder initially will determine
the value of Crompton common stock in connection with the statutory appraisal
procedure. If, during the period of 30 days after the expiration of the period
during which the foregoing demand for payment may be made, the combined company
and the dissenting Crompton stockholder fail to agree on an appraisal value,
either of them may file a bill in equity in the Superior Court of Suffolk
County, Massachusetts, asking that the court determine the appraisal value. The
bill in equity must be filed within four months after the date of expiration of
the 30-day period. After a hearing, the court will enter a decree determining
the fair value of the Crompton common stock and will order the combined company
to make payment of the value, with interest, if any, to the stockholders
entitled to the payment, upon
77
transfer by them to the combined company of the certificate or certificates
representing the Crompton common stock held by those stockholders.
For appraisal proceeding purposes, value is determined as of the day before
the approval of the merger by stockholders, excluding any element of value
arising from the expectation or accomplishment of the merger.
WITCO
Under applicable Delaware law, holders of Witco common stock do not have any
appraisal rights in connection with the merger.
LEGAL MATTERS
The validity of the common stock of the combined company to be issued in
connection with the merger will be passed upon for the combined company by
Wachtell, Lipton, Rosen & Katz, 51 West 52(nd) Street, New York, New York 10019.
EXPERTS
The consolidated financial statements and schedule of Crompton & Knowles
Corporation and subsidiaries as of December 26, 1998 and December 27, 1997, and
for each of the years in the three-year period ended December 26, 1998, have
been incorporated by reference herein in reliance upon the reports of KPMG LLP,
independent certified public accountants, incorporated by reference herein, and
upon the authority of said firm as experts in accounting and auditing.
The consolidated financial statements of Witco and its subsidiary companies
appearing in the Witco Corporation and Subsidiary Companies' Annual Report (Form
10-K) for the year ended December 31, 1998, have been audited by Ernst & Young
LLP, independent auditors, as set forth in their report thereon included in that
document and incorporated in this joint proxy statement-prospectus by reference.
Such consolidated financial statements are incorporated in this joint proxy
statement-prospectus by reference in reliance upon that report given on the
authority of such firm as experts in accounting and auditing.
With respect to the unaudited condensed consolidated interim financial
information of Witco and its subsidiary companies for the three-month periods
ended March 31, 1999 and March 31, 1998, incorporated by reference in this joint
proxy statement-prospectus, Ernst & Young LLP have reported that they have
applied limited procedures in accordance with professional standards for a
review of such information. However, their separate report, included in Witco
Corporation and Subsidiary Companies' Quarterly Report on Form 10-Q for the
quarter ended March 31, 1999, and incorporated in this joint proxy
statement-prospectus by reference, states that they did not audit and they do
not express an opinion on that interim financial information. Accordingly, the
degree of reliance on their report on such information should be restricted
considering the limited nature of the review procedures applied. The independent
auditors are not subject to the liability provisions of Section 11 of the
Securities Act for their report on the unaudited interim financial information
because that report is not a "report" or a "part" of the registration statement
prepared or certified by the auditors within the meaning of Sections 7 and 11 of
the Securities Act.
78
STOCKHOLDER PROPOSALS
Stockholders of the combined company may submit proposals to be considered
for stockholder action at the 2000 Annual Meeting of Stockholders if they do so
in accordance with applicable regulations of the SEC. Any of these proposals
must be received by the Secretary of the combined company no later than November
29, 1999 in order to be considered for inclusion in the combined company's 2000
Annual Meeting proxy materials. If a stockholder desires to bring business
before the 2000 Annual Meeting of Stockholders that is not a proposal submitted
to the combined company for inclusion in the combined company's proxy statement,
notice must be received by the Secretary of the combined company on or before
January 27, 2000.
Crompton and Witco will hold 2000 Annual Meetings of Stockholders only if
the merger is not completed before the time of the meetings. In the event that
these meetings are held, any proposals of stockholders intended to be presented
at the 2000 Annual Meetings of Stockholders must be received by the Secretary of
Crompton and the Secretary of Witco no later than November 27, 1999, and
November 25, 1999, respectively, in order to be considered for inclusion in the
proxy materials relating to those meetings.
79
OTHER MATTERS
As of the date of this joint proxy statement-prospectus, the Crompton board
and the Witco board know of no matters that will be presented for consideration
at the Crompton special meeting or the Witco special meeting, respectively,
other than as described in this joint proxy statement-prospectus. If any other
matters do properly come before either special meeting or any adjournments or
postponements of those special meetings and are voted upon, the enclosed proxies
will be deemed to confer discretionary authority on the individuals named as
proxies to vote the shares represented by those proxies as to any of those other
matters. The individuals named as proxies intend to vote or not to vote in
accordance with the recommendation of the respective managements of Crompton and
Witco.
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Representatives of KPMG LLP will be present at the Crompton special meeting
and representatives of Ernst & Young LLP will be present at the Witco special
meeting. In each case, those representatives will have the opportunity to make a
statement if they desire to do so and are expected to be available to respond to
appropriate questions.
WHERE YOU CAN FIND MORE INFORMATION
Crompton has filed with the SEC a Registration Statement under the
Securities Act that registers the distribution to Witco stockholders of the
shares of the combined company's common stock to be issued in connection with
the merger. The Registration Statement, including the attached exhibits and
schedules, contains additional relevant information about Crompton and the
combined company's common stock. The rules and regulations of the SEC allow us
to omit certain information included in the registration statement from this
joint proxy statement-prospectus.
In addition, Crompton and Witco file reports, proxy statements and other
information with the SEC under the Exchange Act. You may read and copy this
information at the following locations of the SEC:
Public Reference Room Northeast Regional Office Midwest Regional Office
450 Fifth Street, N.W. 7 World Trade Center 500 West Madison Street
Room 1024 Suite 1300 Suite 1400
Washington, D.C. 20549 New York, New York 10048 Chicago, Illinois 60661-2511
You may also obtain copies of this information by mail from the Public
Reference Section of the SEC, 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549, at prescribed rates.
The SEC also maintains an Internet world wide web site that contains
reports, proxy statements and other information about issuers, like Crompton and
Witco, who file electronically with the SEC. The address of that site is
HTTP://WWW.SEC.GOV.
You can also inspect reports, proxy statements and other information about
Crompton and Witco at the offices of the NYSE, 20 Broad Street, New York, New
York 10005.
The SEC allows Crompton and Witco to "incorporate by reference" information
into this Joint Proxy Statement-Prospectus. This means that the companies can
disclose important information to you by referring you to another document filed
separately with the SEC. The information incorporated by reference is considered
to be a part of this joint proxy statement-prospectus, except for any
information that is superseded by information that is included directly in this
document.
80
This joint proxy statement-prospectus incorporates by reference the
documents listed below that Crompton and Witco have previously filed with the
SEC. They contain important information about our companies and their financial
condition.
CROMPTON SEC FILINGS PERIOD
- -------------------------------------------------------------------------- -------------------------------------
Annual Report on Form 10-K................................................ Year ended December 26, 1998, as
filed on March 26, 1999
Quarterly Report on Form 10-Q............................................. Quarter ended March 27, 1999, as
filed on May 11, 1999
Items 10-13 of Crompton's Definitive Proxy Statement to Crompton's
stockholders for the 1999 Annual Meeting of Crompton Stockholders....... Filed on March 30, 1999
The description of Crompton common stock set forth in the Crompton
registration statement filed on Form 8-A dated July 29, 1988, and any
amendment or report filed for the purpose of updating such description;
and
Current Reports on Form 8-K............................................... Filed:
* June 2, 1999 (as amended on June 8,
1999)
WITCO SEC FILINGS PERIOD
- -------------------------------------------------------------------------- -------------------------------------
Annual Report on Form 10-K................................................ Year ended December 31, 1998, as
filed on March 25, 1999
Quarterly Report on Form 10-Q............................................. Quarter ended March 31, 1999, as
filed on May 7, 1999
Items 10-13 of Witco's Definitive Proxy Statement to Witco's stockholders
for the 1999 Annual Meeting of Witco
Stockholders............................................................ Filed on March 25, 1999
The description of Witco common stock set forth in the Witco registration
statement filed on Form S-3 dated January 25, 1996, and the description
of the Witco preferred stock purchase rights set forth in the Witco
registration statement filed on Form 8-A dated March 3, 1995, including
any amendment or report filed with the SEC for the purpose of updating
such description; and
Current Reports on Form 8-K............................................... Filed:
* June 4, 1999 (as amended on June 8,
1999)
* July 7, 1999
Crompton and Witco incorporate by reference additional documents that either
company may file with the SEC between the date of this joint proxy
statement-prospectus and the dates of the Crompton special meeting and the Witco
special meeting. These documents include periodic reports, such as Annual
Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form
8-K, as well as proxy statements.
81
Crompton has supplied all information contained or incorporated by reference
in this joint proxy statement-prospectus relating to Crompton and Newco, as well
as all pro forma financial information, and Witco has supplied all relevant
information relating to Witco.
You can obtain any of the documents incorporated by reference in this
document through Crompton or Witco, as the case may be, or from the SEC through
the SEC's Internet world wide web site at the address described above. Documents
incorporated by reference are available from the companies without charge,
excluding any exhibits to those documents, unless the exhibit is specifically
incorporated by reference as an exhibit in this joint proxy
statement-prospectus. You can obtain documents incorporated by reference in this
joint proxy statement-prospectus by requesting them in writing or by telephone
from the appropriate company at the following addresses:
CROMPTON WITCO
- -------------------------------------------------------- --------------------------------------------------------
Investor Relations Investor Relations
Crompton & Knowles Corporation Witco Corporation
One Station Place, Metro Center One American Lane
Stamford, Connecticut 06902 Greenwich, Connecticut 06831
(203)-353-5400 (203) 552-2000
If you would like to request documents, please do so by August 20, 1999 to
receive them before the special meetings. If you request any incorporated
documents from us, we will mail them to you by first class mail, or another
equally prompt means, within one business day after we receive your request.
We have not authorized anyone to give any information or make any
representation about the merger or our companies that is different from, or in
addition to, that contained in this joint proxy statement-prospectus or in any
of the materials that we have incorporated into this joint proxy
statement-prospectus. Therefore, if anyone does give you information of this
sort, you should not rely on it. If you are in a jurisdiction where offers to
exchange or sell, or solicitations of offers to exchange or purchase, the
securities offered by this document or the solicitation of proxies is unlawful,
or if you are a person to whom it is unlawful to direct these types of
activities, then the offer presented in this document does not extend to you.
The information contained in this document speaks only as of the date of this
document unless the information specifically indicates that another date
applies.
FORWARD-LOOKING STATEMENTS
This joint proxy statement-prospectus (including information included or
incorporated by reference in this document) contains certain forward-looking
statements with respect to the financial condition, results of operations,
plans, objectives, future performance and business of each of Crompton and
Witco, as well as certain information relating to the merger, including, without
limitation,
- statements relating to the cost savings and accretion to reported earnings
estimated to result from the merger,
- statements relating to revenues of the combined company after the merger,
- statements relating to the restructuring charges estimated to be incurred
in connection with the merger, and
- statements preceded by, followed by or that include the words "believes,"
"expects," "anticipates," "estimates" or similar expressions.
82
These forward-looking statements involve certain risks and uncertainties.
Actual results may differ materially from those contemplated by the
forward-looking statements due to, among others, the following factors:
- expected cost savings from the merger may not be fully realized or
realized within the expected time frame,
- revenues following the merger may be lower than expected,
- competitive pressures among chemical companies may increase significantly,
- costs or difficulties related to the integration of the business of
Crompton and Witco may be greater than expected,
- general economic conditions, either internationally or nationally or in
the states in which Crompton or Witco are doing business, may be less
favorable than expected,
- legislative or regulatory changes may adversely affect the business in
which Crompton or Witco is engaged,
- technological changes (including year 2000 data systems compliance issues)
may be more difficult or expensive than anticipated, and
- changes may occur in the securities markets.
See "Where You Can Find More Information."
83
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The following unaudited pro forma combined financial information gives
effect to the merger using the purchase method of accounting. The information is
based upon the historical financial statements of Crompton and Witco and should
be read in conjunction with such historical financial statements, the related
notes, and other information contained elsewhere or incorporated by reference in
this joint proxy statement-prospectus. Certain items derived from Crompton's and
Witco's historical financial statements have been reclassified to conform to the
pro forma combined presentation.
The unaudited pro forma combined financial information is not necessarily
indicative of what the actual combined financial position or results of
operations would have been had the foregoing transaction been consummated on the
dates set forth therein, nor does it give effect to (a) any transaction other
than the merger, (b) Crompton's results of operations since March 27, 1999 or
Witco's results of operations since March 31, 1999, (c) all of the synergies,
cost savings, and one-time charges expected to result from the merger or (d) the
results of final valuations of property, plant and equipment, intangible assets
and acquired in-process research and development costs. We are currently
developing plans to integrate the operations of the companies, which may involve
various costs including severance and other charges, which may be material. We
may also revise the allocation of the purchase price when additional information
becomes available, including the charge to earnings for acquired in-process
research and development costs. Accordingly, the pro forma combined financial
information does not purport to be indicative of the financial position or
results of operations as of the date hereof, as of the effective time, or any
period ending at the effective time, or as of or for any other future date or
period.
84
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
AS OF MARCH 27, 1999 (CROMPTON) AND MARCH 31, 1999 (WITCO)
(IN THOUSANDS)
PRO FORMA PRO FORMA
CROMPTON WITCO ADJUSTMENTS COMBINED
----------- ---------- ----------- ----------
ASSETS
CURRENT ASSETS
Cash....................................... $ 18,238 32,691 -- 50,929
Accounts receivable........................ 207,942 354,164 -- 562,106
Inventories................................ 323,779 270,006 27,909 (2) 621,694
Other current assets....................... 82,309 59,451 (10,885) (10) 130,875
----------- ---------- ----------- ----------
Total current assets................. 632,268 716,312 17,024 1,365,604
NON-CURRENT ASSETS
Property, plant and equipment.............. 445,171 985,344 -- 1,430,515
Cost in excess of acquired net assets...... 147,892 -- 359,637 (2)(4)(5)(8)(10) 1,170,046
531,262 (1)
131,255 (3)
Goodwill and other intangible assets....... -- 599,979 (599,979) (1) --
Other assets............................... 171,472 94,707 68,717 (1) 331,726
7,000 (3)
(29,301) (4)
(5,443) (5)
24,574 (10)
----------- ---------- ----------- ----------
TOTAL ASSETS............................... $ 1,396,803 2,396,342 504,746 4,297,891
----------- ---------- ----------- ----------
----------- ---------- ----------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes and loans payable.................... $ 11,569 298,266 (3,824) (4) 306,011
Accounts payable........................... 118,173 443,875 (272,806) (1) 289,242
Accrued expenses........................... 135,493 -- 216,621 (1) 352,114
Income taxes payable....................... 84,791 -- 56,185 (1) 140,976
Other current liabilities.................. 18,551 -- -- 18,551
----------- ---------- ----------- ----------
Total current liabilities............ 368,577 742,141 (3,824) 1,106,894
NON-CURRENT LIABILITIES
Long-term debt............................. 686,700 681,045 134,100 (3) 1,455,955
(45,890) (4)
Postretirement health care liability....... 141,300 -- 61,611 (1) 217,891
14,980 (5)
Other liabilities.......................... 149,646 344,395 (61,611) (1) 474,583
1,772 (4)
18,000 (3)
22,381 (5)
STOCKHOLDERS' EQUITY
Preferred stock............................ -- 6 (5) (6) 1
Common stock............................... 7,733 288,308 (294,850) (6) 1,191
Additional paid-in capital................. 240,885 161,582 542,542 (8) 1,048,441
294,850 (6)
(191,418) (7)
Retained earnings.......................... 43,218 217,694 (217,694) (8) 43,218
Accumulated other comprehensive loss....... (49,475) (36,672) 33,324 (8) (49,475)
3,348 (5)
Treasury stock at cost..................... (190,973) (445) 191,418 (7) --
Deferred compensation...................... (808) (1,712) 1,712 (8) (808)
----------- ---------- ----------- ----------
Total stockholders' equity........... 50,580 628,761 363,227 1,042,568
----------- ---------- ----------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY................................... $ 1,396,803 2,396,342 504,746 4,297,891
----------- ---------- ----------- ----------
----------- ---------- ----------- ----------
85
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 26, 1998 (CROMPTON) AND DECEMBER 31, 1998 (WITCO)
(IN THOUSANDS EXCEPT PER SHARE DATA)
PRO FORMA PRO FORMA
CROMPTON WITCO ADJUSTMENTS COMBINED
------------ ---------- ----------- ----------
Net sales.................................................. $ 1,796,119 1,941,529 60,094(1) 3,797,742
Cost of products sold...................................... 1,146,200 1,469,864 (59,837)(1) 2,557,052(12)
1,641(2)
(816)(5)
Selling, general and administrative........................ 264,710 246,816 (272)(5) 539,963
28,709(1)
Depreciation and amortization.............................. 80,536 -- 115,619(1) 206,458
10,303(9)
Research and development................................... 52,775 74,177 (3,879)(1) 123,073
Other expenses (income)-net................................ -- 37,420 (37,420)(1) --
Special items:
Facility closure costs................................... 33,600 -- -- 33,600(12)
Restructuring credits-net................................ -- (34,764) -- (34,764)(12)
Environmental charge..................................... -- -- 22,025(1) 22,025(12)
------------ ---------- ----------- ----------
Operating profit........................................... 218,298 148,016 (15,979) 350,335
Interest expense........................................... 78,520 48,361 9,781(3) 134,098
(2,564)(4)
Other income............................................... (158,938) (1,957) (5,123)(1) (166,018)(12)
------------ ---------- ----------- ----------
Earnings before income taxes and extraordinary loss........ 298,716 101,612 (18,073) 382,255
Income taxes............................................... 115,493 42,677 (2,685) 10) 155,485(12)
------------ ---------- ----------- ----------
Earnings before extraordinary loss......................... $ 183,223 58,935 (15,388) 226,770(12)
------------ ---------- ----------- ----------
------------ ---------- ----------- ----------
EARNINGS PER COMMON SHARE--BASIC:
Weighted average shares outstanding........................ 73,696 57,518 126,854
Earnings before extraordinary loss......................... $ 2.48 1.02 1.79
EARNINGS PER COMMON SHARE--DILUTED:
Weighted average shares outstanding........................ 75,700 57,958 128,961(11)
Earnings before extraordinary loss......................... $ 2.42 1.02 1.76
86
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 27, 1999 (CROMPTON) AND MARCH 31, 1999 (WITCO)
(IN THOUSANDS EXCEPT PER SHARE DATA)
PRO FORMA PRO FORMA
CROMPTON WITCO ADJUSTMENTS COMBINED
---------- --------- ----------- -----------
Net sales............................................. $ 396,292 480,591 14,183(1) 891,066
Cost of products sold................................. 247,295 364,547 (16,795)(1) 595,763
784(2)
(68)(5)
Selling, general and administrative................... 60,590 64,558 6,766(1) 131,891
(23)(5)
Depreciation and amortization......................... 18,837 -- 30,175(1) 51,677
2,665(9)
Research and development.............................. 11,308 19,112 (842)(1) 29,578
Equity income......................................... (7,055) -- -- (7,055)
Other expenses (income)--net.......................... -- 1,522 (1,522)(1) --
Special item:
Restructuring charges--net...................... -- 2,682 -- 2,682(12)
---------- --------- ----------- -----------
Operating profit...................................... 65,317 28,170 (6,957) 86,530
Interest expense...................................... 13,154 12,862 2,445(3) 27,820
(641)(4)
Other income.......................................... (40,706) (443) (3,599)(1) (44,748)(12)
---------- --------- ----------- -----------
Earnings before income tax............................ 92,869 15,751 (5,162) 103,458
Income taxes.......................................... 33,666 7,245 (975) 10) 39,936(12)
---------- --------- ----------- -----------
Net earnings.......................................... $ 59,203 8,506 (4,187) 63,522(12)
---------- --------- ----------- -----------
---------- --------- ----------- -----------
EARNINGS PER COMMON SHARE--BASIC:
Weighted average shares outstanding................... 67,717 57,561 120,915
Net earnings.......................................... $ 0.87 0.15 0.53
EARNINGS PER COMMON SHARE--DILUTED:
Weighted average shares outstanding................... 69,219 57,735 122,516(11)
Net earnings.......................................... $ 0.86 0.15 0.52
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NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
(1) Reflects certain balance sheet and statement of operations reclassifications
made to conform to Crompton's and CK Witco's intended presentation.
(2) Reflects an adjustment to record inventories at fair value.
(3) Estimated costs expected to be incurred as a result of the merger of
approximately $131.3 million, net of a related tax benefit of $13.8 million,
and debt issue costs of approximately $7.0 million, are principally funded
from additional borrowings under available revolving credit facilities.
Interest expense on additional borrowings was calculated using the weighted
average interest rate on Crompton's revolving credit facility during the
periods presented.
(4) Reflects the adjustment to record the fair value of Witco's financial
instruments, including notes receivable, long-term debt, notes payable and
certain off-balance sheet financial instruments, and accordingly the related
adjustments to the statements of operations.
(5) Reflects an adjustment to record pension and postretirement liabilities at
fair value by eliminating any unrecognized gains and losses and any related
amortization recorded in the results of operations.
(6) Reflects the conversion of all outstanding Crompton common stock ($.10 par
value) into shares of CK Witco common stock at a conversion ratio of one
share of Crompton common stock for each share of CK Witco common stock ($.01
par value). Also reflects the conversion of Witco common stock ($5.00 par
value) into shares of CK Witco common stock at a conversion ratio of one
share of Witco common stock into .9242 shares of CK Witco common stock ($.01
par value) and the conversion of one share of Witco preferred stock ($5.00
par value) for one share of CK Witco preferred stock ($1.00 par value).
(7) Reflects the cancellation of Crompton's and Witco's treasury stock, as
provided for in the merger agreement.
(8) Reflects the adjustment to stockholders' equity for the purchase price which
was calculated by multiplying Witco's outstanding common shares of
57,565,023 at March 31, 1999, by a conversion ratio of .9242 and then
multiplied by Crompton's average common share price of $18.646 for a period
immediately before and after the announcement of the merger.
(9) Reflects the recording of incremental amortization of cost in excess of
acquired net assets over 40 years after assigning the fair value of assets
and liabilities acquired less any historical amounts recorded by Witco. The
results of final valuations of property, plant and equipment, intangible
assets and acquired in-process research and development costs have not yet
been completed as well as final estimates for severance and other charges,
which may be material, related to the integration of operations of the
companies. We may revise the allocation of the purchase price and the charge
to earnings for acquired in-process research and development when additional
information becomes available.
(10) Reflects the income tax effect on the adjustments in (2), (3), (4), (5) and
(9) above, applying the statutory rate, as appropriate.
(11) Assumes Witco's stock options are converted using the same conversion ratio
as for the outstanding common shares.
88
(12) The pro forma combined statement of operations includes the following
special items:
YEAR THREE
ENDED MONTHS
DECEMBER 26, ENDED
1998 (CROMPTON) MARCH 27, 1999
AND (CROMPTON) AND
DECEMBER 31, MARCH 31,
1998 (WITCO) 1999 (WITCO)
----------------- --------------
Cost of products sold--Conversion of certain inventories from LIFO to
FIFO.................................................................... $ 7,960 $ --
Facility closure costs.................................................... 33,600 --
Restructuring charges (credits)--net...................................... (34,764) 2,682
Environmental charge...................................................... 22,025 --
Other income--Gain on sale of businesses and investment................... (159,028) (44,260)
Income taxes--impact of above items....................................... 53,354 15,065
-------- --------------
Income from special items................................................. $ 76,853 $ 26,513
-------- --------------
-------- --------------
(13) On June 23, 1999, Witco announced an agreement to sell a significant
portion of the assets and liabilities of its Oleochemicals and Derivatives
business. Total assets and liabilities being sold from this business of
$239.9 million and $35.9 million, respectively, have been included in the
Witco historical balance sheet, while net sales and net earnings from this
business of $260.5 million and $6.4 million, respectively, for the year
ended December 31, 1998, and net sales and net earnings of $66.0 million and
$2.7 million, respectively, for the three months ended March 31, 1999, have
been included in the Witco historical statements of operations.
Assuming the divestiture of a significant portion of the assets and
liabilities of the Oleochemical and Derivatives business, the pro forma
combined total assets and liabilities would have been $4,248.9 and $3,206.3,
respectively, and the net sales and net earnings would have been $3,523.6
and $215.7, respectively, for the year ended December 31, 1998 and $821.9
and $60.3, respectively, for the three month period ended March 31, 1999.
89
APPENDIX A
EXECUTION COPY
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
CROMPTON & KNOWLES CORPORATION
PARK MERGER CO.
AND
WITCO CORPORATION
------------------
DATED AS OF MAY 31, 1999
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
TABLE OF CONTENTS
PAGE
-----
ARTICLE I
THE FIRST STEP MERGER
1.1 The First Step Merger.............................................................................. A-1
1.2 Effective Time..................................................................................... A-1
1.3 Effects of the First Step Merger................................................................... A-1
1.4 Conversion of Crompton Common Stock................................................................ A-1
1.5 Newco Common Stock................................................................................. A-2
1.6 Dissenting Shares.................................................................................. A-2
1.7 Options............................................................................................ A-2
1.8 Certificate of Incorporation....................................................................... A-3
1.9 By-Laws............................................................................................ A-3
1.10 Board of Directors; Management..................................................................... A-3
ARTICLE II
THE SECOND STEP MERGER
2.1 The Second Step Merger............................................................................. A-3
2.2 Effective Time..................................................................................... A-3
2.3 Effects of the Second Step Merger.................................................................. A-3
2.4 Conversion of Witco Common Stock................................................................... A-3
2.5 Newco Common Stock................................................................................. A-4
2.6 Options............................................................................................ A-4
2.7 Certificate of Incorporation....................................................................... A-5
2.8 By-Laws............................................................................................ A-5
2.9 Tax Consequences................................................................................... A-5
2.10 Management Succession.............................................................................. A-5
2.11 Board of Directors................................................................................. A-5
2.12 Name; Corporate Offices............................................................................ A-5
ARTICLE III
EXCHANGE OF SHARES
3.1 Newco to Make Shares Available..................................................................... A-6
3.2 Exchange of Shares................................................................................. A-6
A-i
PAGE
-----
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF CROMPTON AND NEWCO
4.1 Organization and Standing.......................................................................... A-8
4.2 Subsidiaries....................................................................................... A-8
4.3 Corporate Power and Authority...................................................................... A-9
4.4 Capitalization of Crompton......................................................................... A-9
4.5 Conflicts, Consents and Approval................................................................... A-9
4.6 Brokerage and Finder's Fees; Expenses.............................................................. A-10
4.7 Opinion of Financial Advisor....................................................................... A-10
4.8 Employee Benefit Plans............................................................................. A-10
4.9 Crompton SEC Documents............................................................................. A-13
4.10 Taxes.............................................................................................. A-13
4.11 Registration Statement............................................................................. A-14
4.12 Compliance with Law................................................................................ A-14
4.13 Litigation......................................................................................... A-14
4.14 No Material Adverse Change......................................................................... A-15
4.15 Board Meeting...................................................................................... A-15
4.16 Undisclosed Liabilities............................................................................ A-15
4.17 Labor Relations.................................................................................... A-15
4.18 Permits; Compliance................................................................................ A-15
4.19 Environmental Matters.............................................................................. A-15
4.20 Witco Stock Ownership.............................................................................. A-16
4.21 Contracts.......................................................................................... A-16
4.22 State Takeover Laws................................................................................ A-16
4.23 Crompton Rights Agreement.......................................................................... A-17
4.24 Year 2000.......................................................................................... A-17
4.25 Intellectual Property.............................................................................. A-17
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF MADISON
5.1 Organization and Standing.......................................................................... A-18
5.2 Subsidiaries....................................................................................... A-18
5.3 Corporate Power and Authority...................................................................... A-18
5.4 Capitalization of Witco............................................................................ A-18
5.5 Conflicts; Consents and Approvals.................................................................. A-19
5.6 Brokerage and Finder's Fees; Expenses.............................................................. A-20
5.7 Opinion of Financial Advisor....................................................................... A-20
5.8 Employee Benefit Plans............................................................................. A-20
5.9 Witco SEC Documents................................................................................ A-22
A-ii
PAGE
-----
5.10 Taxes.............................................................................................. A-22
5.11 Registration Statement............................................................................. A-23
5.12 Compliance with Law................................................................................ A-23
5.13 Litigation......................................................................................... A-23
5.14 No Material Adverse Change......................................................................... A-23
5.15 Board Meeting...................................................................................... A-23
5.16 Undisclosed Liabilities............................................................................ A-23
5.17 Labor Relations.................................................................................... A-24
5.18 Permits; Compliance................................................................................ A-24
5.19 Environmental Matters.............................................................................. A-24
5.20 Crompton Stock Ownership........................................................................... A-25
5.21 Contracts.......................................................................................... A-25
5.22 DGCL Section 203 and State Takeover Laws........................................................... A-25
5.23 Witco Rights Agreement............................................................................. A-25
5.24 Year 2000.......................................................................................... A-25
5.25 Intellectual Property.............................................................................. A-25
ARTICLE VI
COVENANTS RELATING TO CONDUCT OF BUSINESS
6.1 Conduct of Businesses Prior to the Effective Time.................................................. A-26
6.2 Forbearances....................................................................................... A-26
ARTICLE VII
ADDITIONAL AGREEMENTS
7.1 Mutual Agreements.................................................................................. A-27
7.2 Additional Agreements of Crompton.................................................................. A-28
7.3 Additional Agreements of Witco..................................................................... A-33
ARTICLE VIII
CONDITIONS PRECEDENT
8.1 Conditions to Each Party's Obligation to Effect the Second Step Merger............................. A-36
8.2 Conditions to Obligations of Crompton and Newco.................................................... A-36
8.3 Conditions to Obligations of Witco................................................................. A-37
A-iii
PAGE
-----
ARTICLE IX
TERMINATION AND AMENDMENT
9.1 Termination........................................................................................ A-37
9.2 Effect of Termination.............................................................................. A-39
9.3 Amendment.......................................................................................... A-39
9.4 Extension; Waiver.................................................................................. A-39
ARTICLE X
GENERAL PROVISIONS
10.1 Closing............................................................................................ A-39
10.2 Nonsurvival of Representations, Warranties and Agreements.......................................... A-40
10.3 Fees and Expenses.................................................................................. A-40
10.4 Notices............................................................................................ A-41
10.5 Interpretation..................................................................................... A-41
10.6 Counterparts....................................................................................... A-41
10.7 Entire Agreement................................................................................... A-41
10.8 Governing Law...................................................................................... A-42
10.9 Severability....................................................................................... A-42
10.10 Assignment; Third-Party Beneficiaries.............................................................. A-42
10.11 Certain Agreements of Crompton and Witco........................................................... A-42
10.12 Representations and Warranties of Newco............................................................ A-42
Exhibit A--Form of Certificate of Incorporation of Newco
Exhibit B--Form of By-Laws of Newco
Exhibit C--Form of Crompton Option Agreement
Exhibit D--Form of Witco Option Agreement
Exhibit E--Form of Affiliate Letter Addressed to Crompton
Exhibit F--Form of Affiliate Letter Addressed to Witco
Exhibit G--Board of Directors of the Combined Company
A-iv
INDEX OF DEFINED TERMS
DEFINED TERM SECTION
- -------------------------------------------------------------------------------- ------------
$2.65 Cumulative Convertible Preferred.......................................... 5.4(c)
Action.......................................................................... 4.13
Agreement....................................................................... preamble
Applicable Laws................................................................. 4.12
Certificate of Merger........................................................... 2.2
Claim........................................................................... 4.2(c)
Closing......................................................................... 10.1
Closing Date.................................................................... 10.1
Code............................................................................ 1.7
Combined Company................................................................ recitals
Commission...................................................................... 4.14
Common Certificate.............................................................. 2.4(b)
Confidentiality Agreement....................................................... 7.1(f)
Contract........................................................................ 4.22
Controlled Group Liability...................................................... 4.8(a)
Crompton........................................................................ preamble
Crompton Acquisition Agreement.................................................. 7.2(g)
Crompton Articles............................................................... 4.1
Crompton By-Laws................................................................ 4.1
Crompton Competing Transaction.................................................. 7.2(g)
Crompton Common Certificate..................................................... 1.4(b)
Crompton Common Stock........................................................... 1.4(a)
Crompton Disclosure Schedule.................................................... Article IV
Crompton Employee Benefit Plans................................................. 4.8(a)
Crompton Filed SEC Documents.................................................... 4.14
Crompton Option Agreement....................................................... recitals
Crompton Plan................................................................... 4.8(a)
Crompton Rights Agreement....................................................... 1.4(a)
Crompton SEC Documents.......................................................... 4.9
Crompton Stock Plans............................................................ 1.7
Crompton Stockholder Rights..................................................... 1.4(a)
Crompton Stockholders........................................................... 4.3
A-v
DEFINED TERM SECTION
- -------------------------------------------------------------------------------- ------------
Crompton Stockholders Approval.................................................. 7.2(a)
Deutsche Bank................................................................... 5.6
Delaware Secretary.............................................................. 1.2
DGCL............................................................................ 1.1
Dissenting Shares............................................................... 1.6
Effective Time.................................................................. 2.2
Environmental Laws.............................................................. 4.20(a)
ERISA........................................................................... 4.8(a)
ERISA Affiliate................................................................. 4.8(a)
Exchange Act.................................................................... 4.9
Exchange Agent.................................................................. 3.1
Exchange Fund................................................................... 3.1
Exchange Ratio.................................................................. 2.4(a)
First Effective Time............................................................ 1.2
First Merger Effective Time..................................................... 1.4(a)
First Merger Exchange Ratio..................................................... 1.4(a)
First Step Merger............................................................... recitals
GAAP............................................................................ 4.9
Goldman Sachs................................................................... 4.6
Governmental Authority.......................................................... 4.5(d)
Hazardous Materials............................................................. 4.20(a)
HSR Act......................................................................... 4.5(d)
Indemnified Parties............................................................. 7.2(c)
Injunction...................................................................... 8.1(e)
Insurance Amount................................................................ 7.2(d)
Intellectual Property........................................................... 4.26
IRS............................................................................. 4.8(b)
Joint Proxy Statement........................................................... 4.11
Massachusetts Secretary......................................................... 1.2
Material Adverse Effect......................................................... 4.1
MBCL............................................................................ 1.1
Merger.......................................................................... recitals
Multiemployer Plan.............................................................. 4.8(a)
Multiple Employer Plan.......................................................... 4.8(g)
New Benefit Plans............................................................... 7.2(e)
A-vi
DEFINED TERM SECTION
- -------------------------------------------------------------------------------- ------------
Newco........................................................................... preamble
Newco By-Laws................................................................... 1.9
Newco Certificate............................................................... 1.8
Newco Common Stock.............................................................. 1.4(a)
NLRB............................................................................ 4.17
NYSE............................................................................ 3.2(e)
Option Agreements............................................................... recitals
PBGC............................................................................ 4.8(f)
Permits......................................................................... 4.19
Qualified Witco Plan............................................................ 5.8(c)
Qualified Crompton Plan......................................................... 4.8(c)
Qualifying Witco Proposal....................................................... 7.3(c)
Qualifying Crompton Proposal.................................................... 7.2(g)
Registration Statement.......................................................... 4.11
Release......................................................................... 4.20(a)
Salomon Smith Barney............................................................ 4.6
Second Step Merger.............................................................. recitals
Section 16 Information.......................................................... 7.2(I)
Securities Act.................................................................. 4.9
Series Preferred Stock.......................................................... 5.4(b)
Substitute Option............................................................... 2.6
Systems......................................................................... 4.25
Tax............................................................................. 4.10
Witco........................................................................... preamble
Witco Acquisition Agreement..................................................... 7.3(c)
Witco By-Laws................................................................... 5.9
Witco Certificate............................................................... 5.1
Witco Common Stock.............................................................. 2.4(a)
Witco Competing Transaction..................................................... 7.3(c)
Witco Disclosure Schedule....................................................... Article V
Witco Filed SEC Documents....................................................... 5.14
Witco Employee Benefit Plans.................................................... 5.8(a)
Witco Insiders.................................................................. 7.2(I)
Witco Option Agreement.......................................................... recitals
Witco Plan...................................................................... 5.8(a)
A-vii
DEFINED TERM SECTION
- -------------------------------------------------------------------------------- ------------
Witco Preferred Stock........................................................... 5.4(c)
Witco Rights Agreement.......................................................... 2.4(a)
Witco SEC Documents............................................................. 5.9
Witco Stockholder Rights........................................................ 2.4(a)
Witco Stockholders.............................................................. 5.3
Witco Stockholders Approval..................................................... 7.3(a)
Witco Stock Plans............................................................... 2.6(a)
Withdrawal Liability............................................................ 4.8(a)
Year 2000 Compliant............................................................. 4.25
A-viii
AGREEMENT AND PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION, dated as of May 31, 1999 (this
"Agreement"), by and among CROMPTON & KNOWLES CORPORATION, a Massachusetts
corporation ("Crompton"), PARK MERGER CO., a Delaware corporation and wholly
owned subsidiary of Crompton ("Newco"), and WITCO CORPORATION, a Delaware
corporation ("Witco").
WHEREAS, the Boards of Directors of Witco, Crompton and Newco have
determined that it is in the best interests of their respective companies and
their stockholders to consummate the business combination transaction provided
for herein in which (a) Crompton will, subject to the terms and conditions set
forth herein, merge with and into Newco (the "First Step Merger") so that Newco
is the surviving corporation in the First Step Merger, and (b) immediately
thereafter, Witco will, subject to the terms and conditions set forth herein,
merge with and into Newco (the "Second Step Merger" and, together with the First
Step Merger, the "Merger"), so that Newco is the surviving corporation
(hereinafter sometimes referred to in such capacity as the "Combined Company")
in the Second Step Merger; and
WHEREAS, as a condition to, and immediately after the execution of, this
Agreement, Crompton and Witco are entering into a Crompton stock option
agreement in the form attached hereto as Exhibit C (the "Crompton Option
Agreement"); and
WHEREAS, as a condition to, and immediately after the execution of, this
Agreement, Crompton and Witco are entering into a Witco stock option agreement
in the form attached hereto as Exhibit D (the "Witco Option Agreement" and,
together with the Crompton Option Agreement, the "Option Agreements"); and
WHEREAS, the parties desire to make certain representations, warranties and
agreements in connection with the Merger and also to prescribe certain
conditions to the Merger.
NOW, THEREFORE, in consideration of the mutual covenants, representations,
warranties and agreements contained herein, and intending to be legally bound
hereby, the parties agree as follows:
ARTICLE I
THE FIRST STEP MERGER
1.1 THE FIRST STEP MERGER. Subject to the terms and conditions of this
Agreement, in accordance with the Massachusetts Business Corporation Law (the
"MBCL") and the General Corporation Law of the State of Delaware (the "DGCL"),
at the First Effective Time, Crompton shall merge with and into Newco. Newco
shall be the surviving corporation in the First Step Merger and shall continue
its corporate existence under the laws of the State of Delaware. Upon
consummation of the First Step Merger, the separate corporate existence of
Crompton shall terminate.
1.2 EFFECTIVE TIME. The First Step Merger shall become effective as set
forth in the articles of merger that shall be filed with the Secretary of
Commonwealth of the Commonwealth of Massachusetts (the "Massachusetts
Secretary") and the certificate of merger that shall be filed with the Secretary
of State of the State of Delaware (the "Delaware Secretary") on the Closing
Date. The term "First Effective Time" shall be the date and time when the First
Step Merger becomes effective, as set forth in the articles of merger and
certificate of merger referred to in this Section 1.2.
1.3 EFFECTS OF THE FIRST STEP MERGER. At and after the First Effective Time,
the First Step Merger shall have the effects set forth in Section 80 of the MBCL
and Sections 259 and 261 of the DGCL.
1.4 CONVERSION OF CROMPTON COMMON STOCK. (a) At the First Effective Time, by
virtue of the First Step Merger and without any action on the part of Crompton,
Newco or the holders of common stock of Crompton or Newco, each share of common
stock, par value $.10 per share, of Crompton issued and outstanding immediately
prior to the First Effective Time (together with the rights (the "Crompton
A-1
Stockholder Rights") attached thereto issued pursuant to that certain Rights
Agreement, dated July 20, 1988, as amended, between Crompton and The Chase
Manhattan Bank, N.A., as Rights Agent (the "Crompton Rights Agreement"),
"Crompton Common Stock"), other than Dissenting Shares and shares of Crompton
Common Stock held in Crompton's treasury or by Newco, shall be converted into
one share (the "First Merger Exchange Ratio") of common stock, par value $.01
per share, of Newco ("Newco Common Stock").
(b) All of the shares of Crompton Common Stock converted into Newco Common
Stock pursuant to this Article I shall no longer be outstanding and shall
automatically be cancelled and shall cease to exist as of the First Effective
Time, and each certificate previously representing any such shares of Crompton
Common Stock (a "Crompton Common Certificate") shall thereafter represent,
without the requirement of any exchange thereof, only the number of shares of
Newco Common Stock into which the shares of Crompton Common Stock represented by
such Crompton Common Certificate have been converted pursuant to this Section
1.4.
(c) At the First Effective Time, all shares of Crompton Common Stock that
are owned by Crompton as treasury stock and all shares of Crompton Common Stock
that are owned by Crompton or Newco shall be cancelled and shall cease to exist
and no stock of Newco or other consideration shall be delivered in exchange
therefor.
1.5 NEWCO COMMON STOCK. At and after the First Effective Time, each share of
Newco Common Stock issued and outstanding immediately prior to the First
Effective Time shall be cancelled and retired and shall resume the status of
authorized and unissued shares of Newco Common Stock, and no shares of Newco
Common Stock or other securities of Newco shall be issued in respect thereof.
1.6 DISSENTING SHARES. Notwithstanding anything in this Agreement to the
contrary, shares of Crompton Common Stock that are outstanding immediately prior
to the First Effective Time, the holders of which shall have delivered to
Crompton a written demand for appraisal of such shares in the manner provided in
Section 86 and 89 of the MBCL ("Dissenting Shares"), shall not be converted into
Newco Common Stock; instead, the holders thereof shall be entitled to payment of
the appraised value of such Dissenting Shares in accordance with the provisions
of Section 89 of the MBCL; PROVIDED, HOWEVER, that (a) if any holder of
Dissenting Shares shall subsequently deliver a written withdrawal of his demand
for appraisal of such shares (with the written approval of the Combined Company
if such withdrawal is not tendered within 60 days after the First Effective
Time), or (b) if any holder fails to establish such holder's entitlement to
appraisal rights under the MBCL, such holder shall forfeit the right to
appraisal of such shares of Crompton Common Stock and each of such shares shall
thereupon be deemed to have been converted into, as of the First Effective Time,
Newco Common Stock pursuant to Section 1.4, without interest thereon.
1.7 OPTIONS. At the First Effective Time, each option granted by Crompton to
purchase shares of Crompton Common Stock that is outstanding and unexercised
immediately prior thereto shall cease to represent a right to acquire shares of
Crompton Common Stock and shall be converted automatically into an option to
purchase a number of shares of Newco Common Stock equal to the number of shares
of Crompton Common Stock subject to such option immediately prior to the First
Effective Time at an exercise price per share of Newco Common Stock equal to the
exercise price per share of Crompton Common Stock in effect immediately prior to
the First Effective Time and otherwise subject to the terms of the appropriate
Crompton Employee Benefit Plan pursuant to which such options have been issued
(such plans, collectively, the "Crompton Stock Plans") and the agreements
evidencing grants thereunder. The adjustment provided herein with respect to any
options that are "incentive stock options" (as defined in Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code")) shall be and is intended
to be effected in a manner that is consistent with Section 424(a) of the Code.
The duration and other terms of the new option shall be the same as the original
option, except that all references to Crompton shall be deemed to be references
to Newco.
A-2
1.8 CERTIFICATE OF INCORPORATION. Subject to the terms and conditions of
this Agreement, at the First Effective Time, the Certificate of Incorporation of
the surviving corporation in the First Step Merger shall be substantially in the
form attached hereto as Exhibit A (the "Newco Certificate"), with such changes
thereto as shall be mutually agreed upon by Crompton and Witco, until thereafter
amended in accordance with the terms thereof and all applicable laws, statutes,
orders, rules, regulations, policies or guidelines promulgated, or judgments,
decisions or orders entered by any Governmental Authority (collectively,
"Applicable Laws").
1.9 BY-LAWS. Subject to the terms and conditions of this Agreement, at the
First Effective Time, the By-Laws of the surviving corporation in the First Step
Merger shall be in substantially the form attached hereto as Exhibit B (the
"Newco By-Laws"), with such changes as may be mutually agreed upon by Crompton
and Witco, until thereafter amended in accordance with the terms thereof and
Applicable Laws.
1.10 BOARD OF DIRECTORS; MANAGEMENT. From and after the First Effective
Time, until duly changed pursuant hereto or in accordance with the Newco
Certificate, the Newco By-Laws or Applicable Laws, the directors of Crompton
shall be the directors of Newco, and the officers of Crompton shall be the
officers of Newco. At the Effective Time, the directors of Newco shall be as set
forth in Section 2.11, and the officers of Newco shall be determined in
accordance with Section 2.10.
ARTICLE II
THE SECOND STEP MERGER
2.1 THE SECOND STEP MERGER. Subject to the terms and conditions of this
Agreement, in accordance with the DGCL, at the Effective Time, Witco shall merge
with and into Newco. Newco shall be the surviving corporation in the Second Step
Merger, and shall continue its corporate existence under the laws of the State
of Delaware. Upon consummation of the Second Step Merger, the separate corporate
existence of Witco shall terminate.
2.2 EFFECTIVE TIME. The Second Step Merger shall become effective as set
forth in the certificate of merger (the "Certificate of Merger") that shall be
filed with the Delaware Secretary on the Closing Date. The term "Effective Time"
shall be the date and time when the Second Step Merger becomes effective, as set
forth in the Certificate of Merger. The Effective Time shall occur immediately
after the First Effective Time has occurred.
2.3 EFFECTS OF THE SECOND STEP MERGER. At and after the Effective Time, the
Second Step Merger shall have the effects set forth in Sections 259 and 261 of
the DGCL.
2.4 CONVERSION OF WITCO COMMON STOCK. At the Effective Time, by virtue of
the Second Step Merger and without any action on the part of Crompton, Newco,
Witco or the holder of any of the following securities:
(a) Subject to Section 3.2(e), each share of the common stock, par value
$5.00 per share, of Witco issued and outstanding immediately prior to the
Effective Time (together with the rights (the "Witco Stockholder Rights")
attached thereto issued pursuant to that certain Rights Agreement, dated March
2, 1995, between Witco and First Chicago Trust Company of New York, as Rights
Agent (the "Witco Rights Agreement"), "Witco Common Stock"), other than shares
of Witco Common Stock held in Witco's treasury, shall be converted into the
right to receive 0.9242 shares (the "Exchange Ratio") of Newco Common Stock.
(b) All of the shares of Witco Common Stock converted into the right to
receive Newco Common Stock pursuant to this Article II shall no longer be
outstanding and shall automatically be cancelled and shall cease to exist as of
the Effective Time, and each certificate previously representing any such shares
of Witco Common Stock (a "Common Certificate") shall thereafter represent only
the right to receive (i) a certificate representing the number of whole shares
of Newco Common Stock and (ii) cash
A-3
in lieu of fractional shares into which the shares of Witco Common Stock
represented by such Common Certificate have been converted pursuant to this
Section 2.4 and Section 3.2(e). Common Certificates shall be exchanged for
certificates representing whole shares of Newco Common Stock and cash in lieu of
fractional shares issued in consideration therefor upon the surrender of such
Common Certificates in accordance with Section 3.2, without any interest
thereon. If, prior to the Effective Time, the outstanding shares of Witco Common
Stock or Crompton Common Stock (or, following the consummation of the First Step
Merger, the outstanding shares of Newco Common Stock) shall have been increased,
decreased, changed into or exchanged for a different number or kind of shares or
securities as a result of a reorganization, recapitalization, reclassification,
stock dividend, stock split, reverse stock split or other similar change in
capitalization (other than solely as a result of the First Step Merger), an
appropriate and proportionate adjustment shall be made to the Exchange Ratio.
(c) At the Effective Time, all shares of Witco Common Stock that are owned
by Witco as treasury stock and all shares of Witco Common Stock that are owned
by Witco shall be cancelled and shall cease to exist, and no stock of Newco or
other consideration shall be delivered in exchange therefor. All shares of Newco
Common Stock that are owned by Witco shall become treasury stock of Newco.
(d) Subject to Section 7.3(e), any outstanding $2.65 Cumulative Convertible
Preferred shall not be effected by the Merger and shall continue to have the
same rights and preferences as were in effect prior to Closing.
2.5 NEWCO COMMON STOCK. At and after the Effective Time, each share of Newco
Common Stock issued and outstanding immediately prior to the Effective Time
shall remain an issued and outstanding share of common stock of the Combined
Company and shall not be affected by the Second Step Merger.
2.6 OPTIONS. (a) At the Effective Time, each option granted by Witco to
purchase shares of Witco Common Stock that is outstanding and unexercised
immediately prior thereto shall cease to represent a right to acquire shares of
Witco Common Stock and shall be converted automatically into an option to
purchase shares of Newco Common Stock in an amount and at an exercise price
determined as provided below (and otherwise subject to the terms of the
appropriate Witco Employee Benefit Plan pursuant to which such options have been
issued (such plans collectively the "Witco Stock Plans") and the agreements
evidencing grants thereunder):
(i) The number of shares of Newco Common Stock to be subject to the
new option shall be equal to the product of the number of shares of Witco
Common Stock subject to the original option and the Exchange Ratio,
PROVIDED that any fractional shares of Newco Common Stock resulting from
such multiplication shall be rounded to the nearest whole share; and
(ii) The exercise price per share of Newco Common Stock under the new
option shall be equal to the exercise price per share of Witco Common
Stock under the original option divided by the Exchange Ratio, PROVIDED
that such exercise price shall be rounded down to the nearest whole cent
(as so adjusted, a "Substitute Option").
(b) The adjustment provided herein with respect to any options that are
"incentive stock options" (as defined in Section 422 of the Code) shall be and
is intended to be effected in a manner that is consistent with Section 424(a) of
the Code. The duration and other terms of the new option shall be the same as
the original option, except that all references to Witco shall be deemed to be
references to Newco.
(c) Within ten (10) days after the Effective Time, Newco shall register
under the Securities Act on Form S-8 or other appropriate form (and use its
reasonable best efforts to maintain the effectiveness thereof) shares of Newco
Common Stock issuable pursuant to all Substitute Options.
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(d) Effective at the Effective Time, Newco shall assume each Substitute
Option in accordance with the plan or arrangement under which it was issued and
the stock option agreement by which it is evidenced.
2.7 CERTIFICATE OF INCORPORATION. Subject to the terms and conditions of
this Agreement, at the Effective Time, the Newco Certificate shall be the
Certificate of Incorporation of the Combined Company, until thereafter amended
in accordance with the terms thereof and Applicable Laws.
2.8 BY-LAWS. Subject to the terms and conditions of this Agreement, at the
Effective Time, the Newco By-Laws shall be the By-Laws of the Combined Company
until thereafter amended in accordance with the terms thereof and Applicable
Laws.
2.9 TAX CONSEQUENCES. It is intended that each of the First Step Merger and
the Second Step Merger shall constitute a "reorganization" within the meaning of
Section 368(a) of the Code and that this Agreement shall constitute a "plan of
reorganization" for the purposes of Sections 354 and 361 of the Code.
2.10 MANAGEMENT SUCCESSION. At the Effective Time, E. Gary Cook shall be
Chairman of the Board of the Combined Company and Vincent A. Calarco shall be
the President and Chief Executive Officer of the Combined Company and otherwise
the officers of Newco immediately prior to the Effective Time shall be the
initial officers of the Combined Company and shall hold office until their
respective successors are duly elected and qualified, or their earlier death,
resignation or removal.
2.11 BOARD OF DIRECTORS. From and after the Effective Time, until duly
changed in accordance with Applicable Laws, the Newco Certificate and the Newco
By-Laws, the Board of Directors of Newco shall consist of the persons identified
in Exhibit G to this Agreement.
2.12 NAME; CORPORATE OFFICES. (a) At the Effective Time, the name of the
Combined Company shall be "C&K Witco Corporation."
(b) The corporate headquarters of the Combined Company shall be maintained
in the State of Connecticut.
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ARTICLE III
EXCHANGE OF SHARES
3.1 NEWCO TO MAKE SHARES AVAILABLE. At or prior to the Effective Time, Newco
shall deposit, or shall cause to be deposited, with ChaseMellon Shareholder
Services, L.L.C., or another bank or trust company reasonably acceptable to each
of Crompton and Witco (the "Exchange Agent"), for the benefit of the holders of
Common Certificates, for exchange in accordance with this Article III,
certificates representing the shares of Newco Common Stock and cash in lieu of
any fractional shares (such cash and certificates for shares of Newco Common,
together with any dividends or distributions with respect thereto, the "Exchange
Fund") to be issued pursuant to Section 2.4 and paid pursuant to Section 3.2(a)
in exchange for outstanding shares of Witco Common Stock.
3.2 EXCHANGE OF SHARES. (a) As soon as practicable after the Effective Time,
the Exchange Agent shall mail to each holder of record of one or more Common
Certificates a letter of transmittal (which shall specify that delivery shall be
effected, and risk of loss and title to the Common Certificates shall pass, only
upon delivery of the Common Certificates to the Exchange Agent) and instructions
for use in effecting the surrender of the Common Certificates in exchange for
certificates representing the shares of Newco Common Stock and any cash in lieu
of fractional shares into which the shares of Witco Common Stock represented by
such Common Certificate or Common Certificates shall have been converted
pursuant to this Agreement. Upon proper surrender of a Common Certificate for
exchange and cancellation to the Exchange Agent, together with such properly
completed letter of transmittal, duly executed, the holder of such Common
Certificate shall be entitled to receive in exchange therefor, as applicable,
(i) a certificate representing that number of whole shares of Newco Common Stock
to which such holder of Witco Common Stock shall have become entitled pursuant
to the provisions of Article II and (ii) a check representing the amount of any
cash in lieu of fractional shares that such holder has the right to receive in
respect of the Common Certificate surrendered pursuant to the provisions of this
Article III, and the Common Certificate so surrendered shall forthwith be
cancelled. No interest will be paid or accrued on any cash in lieu of fractional
shares or on any unpaid dividends and distributions payable to holders of Common
Certificates.
(b) No dividends or other distributions declared with respect to Newco
Common Stock shall be paid to the holder of any unsurrendered Common Certificate
until the holder thereof shall surrender such Common Certificate in accordance
with this Article III. After the surrender of a Common Certificate in accordance
with this Article III, the record holder thereof shall be entitled to receive
any such dividends or other distributions, without any interest thereon, which
theretofore had become payable with respect to shares of Newco Common Stock
represented by such Common Certificate.
(c) If any certificate representing shares of Newco Common Stock is to be
issued in a name other than that in which the Common Certificate surrendered in
exchange therefor is registered, it shall be a condition of the issuance thereof
that the Common Certificate so surrendered shall be properly endorsed (or
accompanied by an appropriate instrument of transfer) and otherwise in proper
form for transfer, and that the person requesting such exchange shall pay to the
Exchange Agent in advance any transfer or other taxes required by reason of the
issuance of a certificate representing shares of Newco Common Stock in any name
other than that of the registered holder of the Common Certificate surrendered,
or required for any other reason, or shall establish to the satisfaction of the
Exchange Agent that such tax has been paid or is not payable.
(d) After the Effective Time, there shall be no transfers on the stock
transfer books of Witco of the shares of Witco Common Stock that were issued and
outstanding immediately prior to the Effective Time. If, after the Effective
Time, Common Certificates are presented for transfer to the Exchange Agent, they
shall be cancelled and exchanged for certificates representing shares of Newco
Common Stock as provided in this Article III.
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(e) Notwithstanding anything to the contrary contained herein, no
certificates or scrip representing fractional shares of Newco Common Stock shall
be issued upon the surrender for exchange of Common Certificates, no dividend or
distribution with respect to Newco Common Stock shall be payable on or with
respect to any fractional share, and such fractional share interests shall not
entitle the owner thereof to vote or to any other rights of a stockholder of
Newco. In lieu of the issuance of any such fractional share, Newco shall pay to
each former stockholder of Witco who otherwise would be entitled to receive such
fractional share an amount in cash determined by multiplying (i) the average of
the closing-sale prices of Crompton Common Stock on the New York Stock Exchange,
Inc. (the "NYSE") as reported by THE WALL STREET JOURNAL, Northeastern edition,
for the five trading days immediately preceding the date of the Effective Time
by (ii) the fraction of a share (rounded to the nearest thousandth when
expressed in decimal form) of Newco Common Stock to which such holder would
otherwise be entitled to receive pursuant to Section 2.4.
(f) Any portion of the Exchange Fund that remains unclaimed by the
stockholders of Witco for 12 months after the Effective Time shall be paid to
the Combined Company. Any former stockholders of Witco who have not theretofore
complied with this Article III shall thereafter look only to Newco for payment
of the shares of Newco Common Stock, cash in lieu of any fractional shares, and
any unpaid dividends and distributions on the Newco Common Stock deliverable in
respect of each share of Witco Common Stock such stockholder holds as determined
pursuant to this Agreement, without any interest thereon. Notwithstanding the
foregoing, none of Crompton, Newco, Witco, the Exchange Agent or any other
person shall be liable to any former holder of shares of Witco Common Stock for
any amount delivered in good faith to a public official pursuant to applicable
abandoned property, escheat or similar laws.
(g) The Exchange Agent shall invest any cash included in the Exchange Fund,
as directed by Newco, on a daily basis. Any interest and other income resulting
from such investments shall be paid to the Combined Company upon termination of
the Exchange Fund pursuant to Section 3.2(f).
(h) In the event any Common Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
such Common Certificate to be lost, stolen or destroyed, the posting by such
person of a bond in such amount as Newco may determine is reasonably necessary
as indemnity against any claim that may be made against it with respect to such
Common Certificate, the Exchange Agent will issue in exchange for such lost,
stolen or destroyed Common Certificate the shares of Newco Capital Stock and any
cash in lieu of fractional shares deliverable in respect thereof pursuant to
this Agreement.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF CROMPTON AND NEWCO
Except as disclosed in a section of the Crompton disclosure schedule
delivered to Witco concurrently herewith (the "Crompton Disclosure Schedule")
reasonably related to the applicable representation and warranty being
qualified, Crompton and Newco hereby represent and warrant to Witco (subject to
Section 10.12) as follows:
4.1 ORGANIZATION AND STANDING. Each of Crompton and its subsidiaries is a
corporation duly organized, validly existing and in good standing under the laws
of its state of incorporation with full power and authority (corporate and
other) to own, lease, use and operate its properties and to conduct its business
as and where now owned, leased, used, operated and conducted. Each of Crompton
and its subsidiaries is duly qualified to do business and in good standing in
each jurisdiction in which the nature of the business conducted by it or the
property it owns, leases or operates makes such qualification necessary, except
where the failure to be so qualified or in good standing in such jurisdiction
have not had or could not reasonably be expected to have a Material Adverse
Effect on Crompton. The term "Material Adverse Effect" means, with respect to
Crompton, Witco or the Combined Company, as the case may be, a material adverse
effect on (a) the business, assets, results of operations or financial condition
of such party and its subsidiaries, taken as a whole, or (b) the ability of such
party to consummate the transactions contemplated hereby; PROVIDED, HOWEVER,
that Material Adverse Effect shall not be deemed to include the impact of (i)
the United States or global economic or chemical industry conditions generally,
and not specifically relating to such party, (ii) the United States or global
securities markets in general, and not specifically relating to such party,
(iii) changes in legal or regulatory conditions that affect generally, and not
specifically relating to such party, the businesses in which Crompton and Witco
are engaged, (iv) actions or omissions of Crompton, Witco or Newco taken with
the prior written consent of the other in contemplation of the transactions
contemplated hereby, and (v) disruptions to the business of Crompton or Witco,
as the case may be, directly attributable to the announcement of this Agreement
or the transactions contemplated hereby. Neither Crompton nor any of its
subsidiaries is in default in the performance, observance or fulfillment of any
provision of, in the case of Crompton, its Articles of Organization, as amended
and restated (the "Crompton Articles"), or By-Laws (the "Crompton By-Laws"), or,
in the case of any subsidiary of Crompton, its certificate of incorporation,
by-laws or other organizational documents.
4.2 SUBSIDIARIES. As of the date hereof, other than immaterial interests,
Crompton does not own, directly or indirectly, any equity or other ownership
interest in any corporation, partnership, joint venture or other entity or
enterprise. Section 4.2 of the Crompton Disclosure Schedule sets forth as to
each subsidiary of Crompton: (a) its name and jurisdiction of incorporation or
organization and (b) the percentage of securities owned directly or indirectly
by Crompton. Crompton owns, directly or indirectly, each of the outstanding
shares of capital stock (or other ownership interests having by their terms
ordinary voting power to elect a majority of directors or others performing
similar functions with respect to such subsidiary) of each of Crompton's
subsidiaries. Each of the outstanding shares of capital stock of each of
Crompton's subsidiaries is duly authorized, validly issued, fully paid and
nonassessable, and is owned, directly or indirectly, by Crompton free and clear
of all liens, pledges, security interests, claims or other encumbrances, other
than liens imposed by law. There are no outstanding subscriptions, options,
warrants, puts, calls, agreements, understandings, claims, or other commitments
or rights of any type relating to the issuance, sale or transfer of any
securities of any subsidiary of Crompton, nor are there outstanding any
securities that are convertible into or exchangeable for any shares of capital
stock of any subsidiary of Crompton; and no subsidiary of Crompton has any
obligation of any kind to issue any additional securities or to pay for
securities of any subsidiary of Crompton or any predecessor thereof. Since the
date of its incorporation, Newco has not carried on any business or conducted
any operations other than the execution of this Agreement and the performance of
its obligations hereunder and matters ancillary hereto.
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4.3 CORPORATE POWER AND AUTHORITY. Each of Crompton and Newco has all
requisite corporate power and authority to enter into this Agreement and,
subject to authorization of the Merger and the transactions contemplated hereby
by the holders of Crompton Common Stock ("Crompton Stockholders"), to consummate
the transactions contemplated by this Agreement. The execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby have
been duly authorized by all necessary corporate action on the part of each of
Crompton and Newco, subject to authorization of the Merger and the transactions
contemplated hereby by Crompton Stockholders. This Agreement has been duly
executed and delivered by each of Crompton and Newco, and constitutes the legal,
valid and binding obligation of each of Crompton and Newco, enforceable against
each of them in accordance with its terms, subject to applicable bankruptcy,
insolvency, moratorium or other similar laws relating to creditors' rights and
general principles of equity.
4.4 CAPITALIZATION OF CROMPTON. As of the date hereof, Crompton's
authorized capital stock consisted solely of (a) 250,000,000 shares of Crompton
Common Stock, of which (i) 65,456,873 shares were issued and outstanding, (ii)
11,875,878 shares were issued and held in treasury (which does not include the
shares reserved for issuance as set forth in clause (a)(iii) below) and (iii)
11,964,431 shares were reserved for issuance upon the exercise or conversion of
options, warrants, restricted stock awards or convertible securities granted or
issuable by Crompton, and (b) 250,000 shares of preferred stock, without par
value, none of which was issued and outstanding or reserved for issuance (except
for 67,000 shares designated as "Series A Junior Participating Preferred Stock,"
none of which was issued and outstanding). The authorized capital stock of Newco
consists of 500 shares of common stock, par value $.01 per share, and 500 shares
of preferred stock, par value of $.10 per share. Except as set forth above and
except for the shares of Crompton Common Stock reserved for issuance upon the
exercise of the option granted to Crompton pursuant to the Crompton Stock Option
Agreement, as of the date hereof, no shares of capital stock or other voting
securities of Crompton were issued, reserved for issuance or outstanding. Each
outstanding share of Crompton capital stock is, and all shares of Newco Common
Stock to be issued in connection with the Merger will be, duly authorized and
validly issued, fully paid and nonassessable, and each outstanding share of
Crompton capital stock has not been, and all shares of Newco Common Stock to be
issued in connection with the Merger will not be, issued in violation of any
preemptive or similar rights. As of the date hereof, other than as set forth
above or in the Crompton Filed SEC Documents, there are no outstanding
subscriptions, options, warrants, puts, calls, agreements, understandings,
claims or other commitments or rights of any type relating to the issuance, sale
or transfer by Crompton of any securities of Crompton, nor are there outstanding
any securities that are convertible into or exchangeable for any shares of
capital stock of Crompton; and Crompton has no obligation of any kind to issue
any additional securities or to pay for securities of Crompton or any
predecessor. Crompton has no outstanding bonds, debentures, notes or other
similar obligations the holders of which have the right to vote generally with
Crompton stockholders.
4.5 CONFLICTS, CONSENTS AND APPROVAL. Neither the execution and delivery
of this Agreement by Crompton or Newco nor the consummation of the transactions
contemplated hereby will:
(a) conflict with, or result in a breach of any provision of the
Crompton Articles or Crompton By-Laws or the Newco Certificate or the Newco
By-Laws;
(b) violate, or conflict with, or result in a breach of any provision
of, or constitute a default (or an event that, with the giving of notice,
the passage of time or otherwise, would constitute a default) under, or
entitle any party (with the giving of notice, the passage of time or
otherwise) to terminate, accelerate, modify or call a default under, or
result in the termination, acceleration or cancellation of, or result in the
creation of any lien, security interest, charge or encumbrance upon any of
the properties or assets of Crompton or any of its subsidiaries under, any
of the terms, conditions or provisions of any note, bond, mortgage,
indenture, deed of trust, license, contract, undertaking, agreement, lease
or other instrument or obligation to which Crompton or any of its
subsidiaries is a party, except for violations, conflicts or breaches that,
individually or in the
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aggregate, have not had or could not reasonably be expected to have a
Material Adverse Effect on Crompton;
(c) violate any order, writ, injunction, decree, statute, rule or
regulation, applicable to Crompton or any of its subsidiaries or their
respective properties or assets, except for violations that, individually or
in the aggregate, have not had or could not reasonably be expected to have a
Material Adverse Effect on Crompton; or
(d) require any action or consent or approval of, or review by, or
registration or filing by Crompton or any of its affiliates with any third
party, or any court, arbitral tribunal, administrative agency or commission
or other governmental or regulatory body, agency, instrumentality or
authority (a "Governmental Authority"), other than (i) authorization of the
Merger and the transactions contemplated hereby by the Crompton Stockholder
Approval, (ii) authorization for inclusion of the shares of Newco Common
Stock to be issued in the Merger and the transactions contemplated hereby on
the NYSE, subject to official notice of issuance, (iii) actions required by
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and
the rules and regulations promulgated thereunder (the "HSR Act"), (iv)
registrations or other actions required under U.S. federal and state
securities laws as are contemplated by this Agreement and (v) the filing of
the applicable articles or certificate of merger with the Secretary of State
of the State of Delaware and the Secretary of the Commonwealth of the
Commonwealth of Massachusetts.
(e) the only vote of holders of any class or series of Crompton Common
Stock or Newco Common Stock not heretofore obtained and necessary to approve
this Agreement, the First Step Merger and the other transactions
contemplated hereby, including the issuance of the Newco Common Stock as
part of the Merger, is the Crompton Stockholders Approval.
4.6 BROKERAGE AND FINDER'S FEES; EXPENSES. Except for Crompton's
obligation to each of Goldman, Sachs & Co. ("Goldman Sachs") and Salomon Smith
Barney Inc. ("Salomon Smith Barney") (a copy of the written agreement relating
to each such obligation shall be provided to Witco), Crompton has not incurred
and will not incur, directly or indirectly, any brokerage, finder's, investment
banking or similar fee in connection with the transactions contemplated by this
Agreement. Other than the foregoing obligations to each of Goldman Sachs and
Salomon Smith Barney, Crompton is not aware of any claim for payment of any
finder's fees, brokerage or agent's commissions or other like payments in
connection with the negotiation of this Agreement or in connection with the
transactions contemplated hereby. A BONA FIDE written estimate of the aggregate
amount of all fees and expenses expected to be paid by Crompton to all
accountants and investment bankers in connection with the Merger has been
provided to Witco on the date hereof.
4.7 OPINION OF FINANCIAL ADVISOR. The Board of Directors of Crompton has
received the opinion of Salomon Smith Barney to the effect that, as of the date
of this Agreement, the First Merger Exchange Ratio is fair to Crompton
Stockholders from a financial point of view.
4.8 EMPLOYEE BENEFIT PLANS. (a) The following terms have the definitions
given below:
"Controlled Group Liability" means any and all liabilities under (i)
Title IV of ERISA, (ii) Section 302 of ERISA, (iii) Sections 412 and 4971 of
the Code, (iv) the continuation coverage requirements of section 601 ET SEQ.
of ERISA and Section 4980B of the Code, and (v) corresponding or similar
provisions of foreign laws or regulations, in each case, other than pursuant
to the Crompton Employee Benefit Plans or the Witco Employee Benefit Plans,
as the case may be.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and the regulations thereunder.
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"ERISA Affiliate" means, with respect to any entity, trade or business,
any other entity, trade or business that is a member of a group described in
Section 414(b), (c), (m) or (o) of the Code or Section 4001(b)(1) of ERISA
that includes the first entity, trade or business, or that is a member of
the same "controlled group" as the first entity, trade or business pursuant
to Section 4001(a)(14) of ERISA.
A "Multiemployer Plan" means any "multiemployer plan" within the meaning
of Section 4001(a)(3) of ERISA.
"Crompton Employee Benefit Plans" means any material employee benefit
plan, program, policy, practices or other arrangement providing benefits to
any current or former employee, officer or director of Crompton or any of
its subsidiaries or any beneficiary or dependent thereof that is sponsored
or maintained by Crompton or any of its subsidiaries or to which Crompton or
any of its subsidiaries contributes or is obligated to contribute, whether
or not written, including, without limitation, any employee welfare benefit
plan within the meaning of Section 3(1) of ERISA, any employee pension
benefit plan within the meaning of Section 3(2) of ERISA (whether or not
such plan is subject to ERISA) and any bonus, incentive, deferred
compensation, vacation, stock purchase, stock option, severance, employment,
change of control or fringe benefit plan, program or agreement.
A "Crompton Foreign Plan" shall refer to each material plan, program or
contract that is subject to or governed by the laws of any jurisdiction
other than the United States, and that would have been treated as a Crompton
Employee Benefit Plan had it been a United States plan, program or contract.
A "Crompton Plan" means any Crompton Employee Benefit Plan other than a
Multiemployer Plan.
"Withdrawal Liability" means liability to a Multiemployer Plan as a
result of a complete or partial withdrawal from such Multiemployer Plan (as
such terms are defined in Part I of Subtitle E of Title IV of ERISA).
(b) Section 4.8 of the Crompton Disclosure Schedule sets forth a true
and complete list of all Crompton Employee Benefit Plans. With respect to
each Crompton Plan, Crompton has made available to Witco a true, correct and
complete copy of: (i) each writing constituting a part of such Crompton
Plan, including, without limitation, all plan documents, benefit schedules,
trust agreements, and insurance contracts and other funding vehicles; (ii)
the most recent Annual Report (Form 5500 Series) and accompanying schedule,
if any; (iii) the current summary plan description, if any; (iv) the most
recent annual financial report, if any; and (v) the most recent
determination letter from the Internal Revenue Service (the "IRS"), if any.
Crompton shall make available to Witco within thirty days following the date
of this Agreement a list and copies of the Crompton Foreign Plans, excluding
for this purpose statutorily required benefits.
(c) The IRS has issued a favorable determination letter with respect to
each Crompton Plan and the related trust that is intended to be a "qualified
plan" within the meaning of Section 401(a) of the Code (a "Qualified
Crompton Plan"), and there are no existing circumstances nor any events that
have occurred that could adversely affect the qualified status of any
Qualified Crompton Plan or the related trust. Each Crompton Plan that is
intended to meet the requirements of Section 501(c)(9) of the Code is
identified in Section 4.8 of the Crompton Disclosure Schedule, and each such
Crompton Plan meets such requirements and provides no disqualified benefits
(as such term is defined in Section 4976(b) of the Code).
(d) All contributions required to be made to any Crompton Plan by
Applicable Laws or by any plan document or other contractual undertaking,
and all premiums due or payable with respect to insurance policies funding
any Crompton Plan, for any period through the date hereof, have
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been timely made or paid in full and through the Closing Date will be timely
made or paid in full or, to the extent not required to be made or paid on or
before the date hereof or the Closing Date, as applicable, have been or will
be fully reflected on the financial statements. Each Crompton Employee
Benefit Plan that is an employee welfare benefit plan under Section 3(1) of
ERISA is either (i) funded through an insurance company contract and is not
a "welfare benefit fund" within the meaning of Section 419 of the Code or
(ii) unfunded.
(e) With respect to each Crompton Employee Benefit Plan, Crompton and
its subsidiaries have complied, and are now in compliance, in all material
respects, with all provisions of ERISA, the Code and all laws and
regulations applicable to the Crompton Employee Benefits Plans, and each
Crompton Employee Benefit Plan has been administered in all material
respects in accordance with its terms. There is not now, and there are no
existing, circumstances that could give rise to, any requirement for the
posting of security with respect to a Crompton Plan or the imposition of any
lien on the assets of Crompton or any of its subsidiaries under ERISA or the
Code. No prohibited transaction has occurred with respect to any Crompton
Plan from which exemption is unavailable. Neither Crompton, its subsidiaries
nor any of their ERISA Affiliates has engaged in a transaction in connection
with which Crompton, its subsidiaries or any of their ERISA Affiliates
reasonably could be subject to either a material civil penalty assessed
pursuant to Section 409 or 502(i) of ERISA or a material tax imposed
pursuant to Section 4975 or 4976 of the Code.
(f) With respect to each Crompton Plan that is subject to Title IV or
Section 302 of ERISA or Section 412 or 4971 of the Code: (i) there does not
exist any accumulated funding deficiency within the meaning of Section 412
of the Code or Section 302 of ERISA, whether or not waived; (ii) the fair
market value of the assets of such Crompton Plan equals or exceeds the
actuarial present value of all accrued benefits under such Crompton Plan
(whether or not vested), based upon the actuarial assumptions used to
prepare the most recent actuarial report for such Crompton Plan; (iii) no
reportable event within the meaning of Section 4043(c) of ERISA for which
the 30-day notice requirement has not been waived has occurred, and the
consummation of the transactions contemplated by this agreement will not
result in the occurrence of any such reportable event; (iv) all premiums to
the Pension Benefit Guaranty Corporation (the "PBGC") have been timely paid
in full; (v) no liability (other than for premiums to the PBGC) under Title
IV of ERISA has been or is expected to be incurred by Crompton; and (vi) the
PBGC has not instituted proceedings to terminate any such Crompton Plan and,
to Crompton's knowledge, no condition exists that presents a risk that such
proceedings will be instituted or that would constitute grounds under
Section 4042 of ERISA for the termination of, or the appointment of a
trustee to administer, any such Crompton Plan.
(g) No Crompton Employee Benefit Plan is a Multiemployer Plan or a plan
that has two or more contributing sponsors at least two of whom are not
under common control, within the meaning of Section 4063 of ERISA (a
"Multiple Employer Plan"). None of Crompton and its subsidiaries nor any of
their respective ERISA Affiliates has, at any time during the last six
years, contributed to or been obligated to contribute to any Multiemployer
Plan or Multiple Employer Plan. None of Crompton and its subsidiaries nor
any of their ERISA Affiliates has incurred any Withdrawal Liability that has
not been satisfied in full.
(h) There does not now exist, and there are no existing, circumstances
that could result in, any Controlled Group Liability that would be a
liability of Crompton or any of its subsidiaries following the Closing.
Without limiting the generality of the foregoing, neither Crompton nor any
of its subsidiaries nor any of their respective ERISA Affiliates has engaged
in any transaction described in Section 4069 or Section 4204 or 4212 of
ERISA.
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(i) Except as disclosed in the Crompton Filed SEC Documents, and except
for health continuation coverage as required by Section 4980B of the Code or
Part 6 of Title I of ERISA, neither Crompton nor any of its subsidiaries has
any liability for life, health, medical or other welfare benefits to former
employees or beneficiaries or dependents thereof.
(j) Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby (either alone or in
conjunction with any other event) will result in, cause the accelerated
vesting or delivery of, or increase the amount or value of, any payment or
benefit to any employee, officer or director of Crompton or any of its
subsidiaries. Without limiting the generality of the foregoing, no amount
paid or payable by Crompton or any of its subsidiaries in connection with
the transactions contemplated hereby either solely as a result thereof or as
a result of such transactions in conjunction with any other events will be
an "excess parachute payment" within the meaning of Section 280G of the
Code.
(k) There are no pending or threatened claims (other than claims for
benefits in the ordinary course), lawsuits or arbitrations which have been
asserted or instituted against the Crompton Plans, any fiduciaries thereof
with respect to their duties to the Crompton Plans or the assets of any of
the trusts under any of the Crompton Plans that could reasonably be expected
to result in any material liability of Crompton or any of its subsidiaries
to the PBGC, the U.S. Department of Treasury, the U.S. Department of Labor,
any Crompton Plan or any Multiemployer Plan.
(l) With respect to each Crompton Foreign Plan, Crompton and its
subsidiaries have complied, and are now in compliance, in all material
respects, with applicable local laws and regulations, and all amounts
required to be reserved on account of each Crompton Foreign Plan have been
so reserved in accordance with reasonable accounting practices prevailing in
the country where such Crompton Foreign Plan is established.
4.9 CROMPTON SEC DOCUMENTS. Each of Crompton and its subsidiaries has
timely filed with the Commission all forms, reports, schedules, statements,
exhibits and other documents required to be filed by it since January 1, 1997
under the Securities Exchange Act of 1934, as amended (together with the rules
and regulations promulgated thereunder, the "Exchange Act"), or the Securities
Act of 1933, as amended (together with the rules and regulations promulgated
thereunder, the "Securities Act") (such documents, as supplemented and amended
since the time of filing, collectively, the "Crompton SEC Documents"). The
Crompton SEC Documents, including, without limitation, any financial statements
or schedules included therein, at the time filed (and, in the case of
registration statements and proxy statements, on the dates of effectiveness and
the dates of mailing, respectively) (a) did not contain any untrue statement of
a material fact or omit to state a material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading, and (b) complied in
all material respects with the applicable requirements of the Exchange Act and
the Securities Act, as the case may be. The financial statements of Crompton
included in the Crompton SEC Documents at the time filed (and, in the case of
registration statements and proxy statements, on the date of effectiveness and
the date of mailing, respectively) complied as to form in all material respects
with applicable accounting requirements and with the published rules and
regulations of the Commission with respect thereto, were prepared in accordance
with generally accepted accounting principles ("GAAP") applied on a consistent
basis during the periods involved (except as may be indicated in the notes
thereto, or, in the case of unaudited statements, as permitted by Form 10-Q of
the Commission), and fairly present (subject in the case of unaudited statements
to normal, recurring and year-end audit adjustments) in all material respects
the consolidated financial position of Crompton and its consolidated
subsidiaries as at the dates thereof and the consolidated results of its
operations and cash flows for the periods then ended.
4.10 TAXES. Except as set forth in the Crompton Filed SEC Documents, (a)
Crompton has duly filed all U.S. federal and material state and local and
foreign income, franchise, excise, real and
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personal property and other tax returns and reports (including, but not limited
to, those filed on a consolidated, combined or unitary basis) required to have
been filed by Crompton, (b) all of the foregoing returns and reports are
complete and correct in all material respects, and Crompton has timely paid all
taxes shown as due on such returns or reports, (c) Crompton has paid or made
adequate provision (in accordance with GAAP) in the financial statements of
Crompton included in the Crompton SEC Documents for all taxes payable in respect
of all periods ending on or prior to December 26, 1998, (d) neither Crompton nor
any of its subsidiaries has requested any extension of time within which to file
any returns in respect of any year that have not since been filed, (e) no
deficiencies for any tax, assessment or governmental charge have been proposed,
asserted or assessed, in each case, in writing, by any taxing authority, against
Crompton or any of its subsidiaries for which there are not adequate reserves
(in accordance with GAAP), (f) as of the date of this Agreement, there are no
pending requests for waivers of the time to assess any such tax, other than
those made in the ordinary course and for which payment has been made or there
are adequate reserves (in accordance with GAAP), (g) the U.S. federal income tax
returns of Crompton and its subsidiaries have been audited by the IRS through
the fiscal year ending December 31, 1995, and (h) Crompton has not filed an
election under Section 341(f) of the Code to be treated as a consenting
corporation. Crompton is not aware of any fact or circumstance that would
prevent the First Step Merger or the Second Step Merger from qualifying as a
"reorganization" within the meaning of Section 368(a) of the Code. The term
"tax" shall include all U.S. federal, state and local and foreign taxes,
including interest and penalties thereon and additions thereto.
4.11 REGISTRATION STATEMENT. None of the information provided by Crompton,
Newco or any of their subsidiaries for inclusion in the registration statement
on Form S-4 to be filed with the Commission by Crompton under the Securities
Act, including the prospectus relating to shares of Newco Common Stock to be
issued in the Merger and the joint proxy statement and form of proxies relating
to the vote of Witco Stockholders with respect to the Merger and the vote of
Crompton Stockholders with respect to the Merger (collectively and as amended,
supplemented or modified, the "Joint Proxy Statement") contained therein (such
registration statement as amended, supplemented or modified, the "Registration
Statement"), at the time of the Registration Statement becomes effective or, in
the case of the Joint Proxy Statement, at the date of mailing, will contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they are made, not misleading. Each of
the Registration Statement and the Joint Proxy Statement, except for such
portions thereof that relate only to Witco and its subsidiaries, will comply as
to form in all material respects with the provisions of the Securities Act and
the Exchange Act.
4.12 COMPLIANCE WITH LAW. Each of Crompton and its subsidiaries is in
compliance with, and at all times since December 31, 1995 has been in compliance
with, all Applicable Laws relating to it or its business or properties except
for instances of noncompliance that, individually or in the aggregate, have not
had or could not reasonably be expected to have a Material Adverse Effect on
Crompton. This Section 4.12 does not relate to matters with respect to (x)
employee benefits, to the extent the subject of Section 4.8, (y) taxes, to the
extent the subject of Section 4.10 or (z) the environmental matters, to the
extent the subject of Section 4.19.
4.13 LITIGATION. Except as set forth in the Crompton Filed SEC Documents,
there is no suit, claim, action, proceeding or investigation (an "Action")
pending or, to the knowledge of Crompton, threatened against Crompton or any of
its subsidiaries that, individually or in the aggregate, have had or could
reasonably be expected to have a Material Adverse Effect on Crompton. Neither
Crompton nor any of its subsidiaries is subject to any outstanding order, writ,
injunction or decree that, individually or in the aggregate, have had or could
reasonably be expected to have a Material Adverse Effect on Crompton.
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4.14 NO MATERIAL ADVERSE CHANGE. Except as set forth in the Crompton SEC
Documents filed with the Securities and Exchange Commission (the "Commission")
and publicly available prior to the date of this Agreement (the "Crompton Filed
SEC Documents"), since December 31, 1998, each of Crompton and its subsidiaries
has conducted its business in the ordinary course, consistent with past
practice, and there has been no (a) event, change, effect or development that,
individually or in the aggregate, has had or could reasonably be expected to
have a Material Adverse Effect on Crompton, (b) declaration, setting aside or
payment of any dividend or other distribution with respect to its capital stock,
except as otherwise permitted by Section 6.2(b), or (c) material change in its
accounting principles, practices or methods.
4.15 BOARD MEETING. The Board of Directors of Crompton, at a meeting duly
called and held, has by the required vote of the directors then in office (a)
approved and determined that this Agreement and the transactions contemplated
hereby, including the Merger, taken together, are fair to and in the best
interests of Crompton and the Crompton Stockholders and (b) recommended that
Crompton Stockholders adopt this Agreement and declared that this Agreement is
advisable.
4.16 UNDISCLOSED LIABILITIES. Except (a) as and to the extent disclosed or
reserved against on the consolidated balance sheet of Crompton as of December
31, 1998 or the notes thereto included in the Crompton Filed SEC Documents or
otherwise disclosed in the Crompton Filed SEC Documents, (b) as incurred after
the date thereof in the ordinary course of business consistent with prior
practice and not prohibited by this Agreement or (c) for liabilities or
obligations that, individually or in the aggregate, have not had or could not
reasonably be expected to have a Material Adverse Effect on Crompton, neither
Crompton nor any of its subsidiaries have any liabilities or obligations of any
nature, whether known or unknown, absolute, accrued, contingent or otherwise and
whether due or to become due.
4.17 LABOR RELATIONS. There is no unfair labor practice complaint against
Crompton or any of its subsidiaries pending before the National Labor Relations
Board (the "NLRB"), and there is no labor strike, dispute, slowdown or stoppage,
or any union organizing campaign, actually pending or, to the knowledge of
Crompton, threatened against or involving Crompton or any of its subsidiaries.
Except as disclosed in the Crompton Filed SEC Documents, neither Crompton nor
any of its subsidiaries is a party to, or bound by, any collective bargaining
agreement, contract or other agreement or understanding with a labor union or
labor organization. To the knowledge of Crompton, there are no organizational
efforts with respect to the formation of a collective bargaining unit presently
being made or threatened involving employees of Crompton or any of its
subsidiaries.
4.18 PERMITS; COMPLIANCE. Each of Crompton and its subsidiaries is in
possession of, and in compliance with, all franchises, grants, authorizations,
licenses, permits, easements, variances, exemptions, consents, certificates,
approvals and orders (collectively, "Permits") necessary to own, lease and
operate its properties and to carry on its business as it is now being
conducted, except for any such Permits the failure of which to possess,
individually or in the aggregate, have not had or could not reasonably be
expected to have a Material Adverse Effect on Crompton.
4.19 ENVIRONMENTAL MATTERS. (a) The term "Environmental Laws" means all
U.S. federal, state or local or foreign Applicable Laws relating to pollution or
protection of human health or the environment, preservation or reclamation of
natural resources (including ambient air, surface water, groundwater, land
surface or subsurface strata ("Environment")), including laws relating to
emissions, discharges, Releases or threatened Releases of chemicals, pollutants,
contaminants, or industrial, toxic or hazardous substances or wastes
(collectively, "Hazardous Materials") into the environment, or otherwise
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of, or exposure to, Hazardous Materials, as well
as all authorizations, codes, decrees, demands or demand letters, injunctions,
judgments, licenses, notices or notice letters, orders, Permits, plans or
regulations issued, entered, promulgated or approved thereunder. "Release" means
any release, spill, emission, leak, dumping, injection, pouring, deposit,
disposal, discharge, dispersal,
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leaching or migration into, under or through the Environment or within any
building, structure, facility or fixture.
(b) Except as set forth in the Crompton Filed SEC Documents, there are,
with respect to Crompton, its subsidiaries or any predecessor entities,
divisions or any formerly owned, leased or operated properties or assets of
the foregoing, no past or present violations of Environmental Laws, Releases
of any material into the Environment, actions, omissions, activities
(including off-site disposal or arranging for disposal of Hazardous
Materials), circumstances, conditions, events, incidents or contractual
obligations that may give rise to any common law environmental liability or
any liability under any Environmental Law, other than those that,
individually or in, the aggregate, have not had or could not reasonably be
expected to have a Material Adverse Effect on Crompton and none of Crompton
and its subsidiaries has received any notice with respect to any of the
foregoing, nor is any Action pending or threatened in connection with any of
the foregoing.
(c) Except as set forth in the Crompton Filed SEC Documents, no
Hazardous Materials are contained on or about any real property currently
owned, leased or used by Crompton or any of its subsidiaries, and no
Hazardous Materials were released on or about any real property previously
owned, leased or used by Crompton or any of its subsidiaries during the
period the property was so owned, leased or used, except in the normal
course of Crompton's business, except for such Hazardous Materials contained
or released that, individually or in the aggregate, have not had and could
not reasonably be expected to have, a Material Adverse Effect on Crompton.
(d) Neither Crompton nor any of its subsidiaries has assumed, whether by
contract or operation of Applicable Law, any liabilities under Environmental
Law that, individually or in the aggregate, have had or could reasonably be
expected to have a Material Adverse Effect on Crompton.
(e) Except as set forth in the Crompton Filed SEC Documents, with
respect to Crompton and its subsidiaries (i) no changes in the terms or
conditions of any Permits are required under Environmental Law either prior
to or upon their renewal, and no modification, revocation, reissuance,
alteration, transfer, or amendment of such Permits, or any review by, or
approval of, any Governmental Authority of such Environmental Permits is
required in connection with the execution or delivery of this Agreement, the
consummation of the transactions contemplated hereby or the continuation of
business of Crompton or its subsidiaries following such consummation except
for any such matters that, individually or in the aggregate, have not had or
could not reasonably be expected to have a Material Adverse Effect on
Crompton, and (ii) neither Crompton nor any of its subsidiaries knows of or
reasonably anticipates any costs of any pollution control equipment or any
other compliance expenditures under Environmental Law in excess of those
currently budgeted, except for any excess costs that, individually or in the
aggregate, have not had or could not reasonably be expected to have a
Material Adverse Effect on Crompton.
4.20 WITCO STOCK OWNERSHIP. Neither Crompton nor any of its subsidiaries
owns any shares of Witco Common Stock or other securities convertible into Witco
Common Stock.
4.21 CONTRACTS. None of Crompton or any of its subsidiaries, or, to the
knowledge of Crompton, any other party thereto, is in violation of or in default
in respect of, nor has there occurred an event or condition that with the
passage of time or giving of notice (or both) would constitute a default by
Crompton under, any contract, agreement, guarantee, lease or executory
commitment (each a "Contract") to which it is a party, except such violations or
defaults under such Contracts that, individually or in the aggregate, have not
had or could not reasonably be expected to have a Material Adverse Effect on
Crompton.
4.22 STATE TAKEOVER LAWS. Prior to the date hereof, the Board of Directors
of Crompton has taken all action necessary to exempt under or make not subject
to any state takeover law or state law
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that Crompton is aware of that limits or restricts business combinations or the
ability to acquire or vote shares: (a) the execution of this Agreement, (b) the
Merger and (c) the transactions contemplated hereby.
4.23 CROMPTON RIGHTS AGREEMENT. Crompton has taken or will take all action
necessary, if any, in respect of the Crompton Rights Agreement so as to provide
that none of Witco and its affiliates will become an "Acquiring Person" and that
no "Shares Acquisition Date" or "Distribution Date" (as such terms are defined
in the Crompton Rights Agreement) will occur as a result of the execution of
this Agreement or the consummation of the Merger pursuant to this Agreement.
4.24 YEAR 2000. To the knowledge of Crompton, the software, operations,
systems and processes (collectively, "Systems") (including, to the knowledge of
Crompton, Systems obtained from third parties) that, in whole or in part, are
used, operated, relied upon, or integral to, Crompton's or any of its
subsidiaries, conduct of their business, are Year 2000 Compliant, except as
disclosed in the Crompton Filed SEC Reports. Crompton has plans that are
adequate to ensure that its Systems are Year 2000 Compliant and has a reasonable
belief that those plans will be fully implemented not later than December 1,
1999. "Year 2000 Compliant" means the ability to process (including calculate,
compare, sequence, display or store), transmit or receive data or data/time data
from, into and between the 20th and 21st centuries, and the years 1999 and 2000,
and leap year calculations without error or malfunction.
4.25 INTELLECTUAL PROPERTY. Except as disclosed in the Crompton Filed SEC
Reports: (a) Crompton and each of its subsidiaries owns, is licensed or
otherwise has the right to use, all Intellectual Property that is material to
the conduct of the business of Crompton and its subsidiaries, taken as a whole;
(b) no person is challenging, infringing on or otherwise violating any right of
Crompton or any of its subsidiaries with respect to any Intellectual Property
owned by and/or licensed to Crompton or its subsidiaries, except for such items
that, individually or in the aggregate, have not had or could reasonably be
expected to have a Material Adverse Effect on Crompton; and (c) neither Crompton
nor any of its subsidiaries has received any written notice of any pending claim
with respect to any Intellectual Property used by Crompton and its subsidiaries,
and, to its knowledge, no Intellectual Property used by Crompton and its
subsidiaries and to its knowledge no Intellectual Property owned and/or licensed
by Crompton or its subsidiaries is being used or enforced in a manner that would
result in the abandonment, cancellation or unenforceability of such Intellectual
Property, except for such items that, individually or in the aggregate, have not
had or could reasonably be expected to have a Material Adverse Effect on
Crompton. "Intellectual Property" shall mean trademarks, service marks, brand
names, certification marks, trade dress and other indications of origin, the
goodwill associated with the foregoing and registrations in any jurisdiction of,
and application in any jurisdiction to register, the foregoing, including any
extension, modification or renewal of any such registration or application;
inventions, discoveries and ideas, whether patentable or not, in any
jurisdiction; patents, application for patents (including, without limitation,
divisions, continuations, continuations in part and renewal applications), and
any renewals, extension or reissues thereof, in any jurisdiction; non-public
information, trade secrets and confidential information and rights in any
jurisdiction to limit the use or disclosure thereof by any person, proprietary
writings and other works, whether copyrightable or not, in any jurisdiction;
registrations or applications for registration of copyrights in any
jurisdiction, and any renewals or extension thereof; any similar intellectual
property or proprietary rights; and any claims or causes of action arising out
of or relating to any infringement or misappropriation of any of the foregoing.
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ARTICLE V
REPRESENTATIONS AND WARRANTIES OF WITCO
Except as disclosed in a section of the Witco disclosure schedule delivered
to Crompton concurrently herewith (the "Witco Disclosure Schedule") reasonably
related to the applicable representation and warranty being qualified, Witco
hereby represents and warrants to Crompton and Newco as follows:
5.1 ORGANIZATION AND STANDING. Each of Witco and its subsidiaries is a
corporation duly organized, validly existing and in good standing under the laws
of its state of incorporation with full power and authority (corporate and
other) to own, lease, use and operate its properties and to conduct its business
as and where now owned, leased, used, operated and conducted. Each of Witco and
its subsidiaries is duly qualified to do business and in good standing in each
jurisdiction in which the nature of the business conducted by it or the property
it owns, leases or operates makes such qualification necessary, except where the
failure to be so qualified or in good standing in such jurisdiction have not had
or could not be reasonably expected to have a Material Adverse Effect on Witco.
Neither Witco nor any of its subsidiaries is in default in the performance,
observance or fulfillment of any provision of, in the case of Witco, its
Restated Certificate of Incorporation, as amended (the "Witco Certificate"), or
By-Laws, as amended and restated (the "Witco By-Laws"), or, in the case of any
subsidiary of Witco, its certificate of incorporation, by-laws or other
organizational documents.
5.2 SUBSIDIARIES. As of the date hereof, other than immaterial interests,
Witco does not own, directly or indirectly, any equity or other ownership
interest in any corporation, partnership, joint venture or other entity or
enterprise. Section 5.2 of the Witco Disclosure Schedule sets forth as to each
subsidiary of Witco: (a) its name and jurisdiction of incorporation or
organization and (b) the percentage of securities owned directly or indirectly
by Witco. Witco owns, directly or indirectly, each of the outstanding shares of
capital stock (or other ownership interests having by their terms ordinary
voting power to elect a majority of directors or others performing similar
functions with respect to such subsidiary) of each of Witco's subsidiaries. Each
of the outstanding shares of capital stock of each of Witco's subsidiaries is
duly authorized, validly issued, fully paid and nonassessable, and is owned,
directly or indirectly, by Witco free and clear of all liens, pledges, security
interests, claims or other encumbrances, other than liens imposed by law that
could not reasonably be expected to have, in the aggregate, a Material Adverse
Effect on Witco. There are no outstanding subscriptions, options, warrants,
puts, calls, agreements, understandings, claims or other commitments or rights
of any type relating to the issuance, sale or transfer of any securities of any
subsidiary of Witco, nor are there outstanding any securities that are
convertible into or exchangeable for any shares of capital stock of any
subsidiary of Witco; and no subsidiary of Witco has any obligation of any kind
to issue any additional securities or to pay for securities of any subsidiary of
Witco or any predecessor thereof.
5.3 CORPORATE POWER AND AUTHORITY. Witco has all requisite corporate power
and authority to enter into this Agreement and, subject to authorization of the
Merger and the transactions contemplated hereby by the holders of Witco Common
Stock ("Witco Stockholders"), to consummate the transactions contemplated by
this Agreement. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by all necessary corporate action on the part of Witco, subject to authorization
of the Merger and the transactions contemplated hereby by Witco Stockholders.
This Agreement has been duly executed and delivered by Witco and constitutes the
legal, valid and binding obligation of Witco enforceable against it in
accordance with its terms, subject to applicable bankruptcy, insolvency,
moratorium or other similar laws relating to creditors' rights and general
principles of equity.
5.4 CAPITALIZATION OF WITCO. As of the date hereof, Witco's authorized
capital stock consisted solely of (a) 100,000,000 shares of Witco Common Stock,
of which (i) 57,644,017 shares were issued and outstanding, (ii) 17,615 shares
were issued and held in treasury (which does not include the shares
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reserved for issuance set forth in clause (a)(iii) below) and (iii) 10,400,000
shares were reserved for issuance upon the exercise or conversion of outstanding
options, warrants, restricted stock awards or convertible securities other than
purchase rights granted or issued by Witco, (b) 8,300,000 shares of series
preferred stock, without par value ("Series Preferred Stock"), of which no
shares were issued and outstanding, (c) 14,386 shares of $2.65 Cumulative
Convertible Preferred Stock, $1.00 par value per share (the "$2.65 Cumulative
Convertible Preferred," and, with the Series Preferred Stock, "Witco Preferred
Stock"), of which 5,892 were issued and outstanding, and (d) 3,000 shares
designated as "Series A Participating Cumulative Preferred Stock," none of which
was issued and outstanding. Except as set forth above and except for the shares
of Witco Common Stock reserved for issuance upon the exercise of the option
granted to Witco pursuant to the Witco Stock Option Agreement, as of the date
hereof, no shares of capital stock or other voting securities of Witco were
issued, reserved for issuance or outstanding. Each outstanding share of Witco
capital stock is duly authorized and validly issued, fully paid and
nonassessable, and has not been issued in violation of any preemptive or similar
rights. As of the date hereof, other than as set forth above or in the Witco
Filed SEC Documents, there are no outstanding subscriptions, options, warrants,
puts, calls, agreements, understandings, claims or other commitments or rights
of any type relating to the issuance, sale or transfer by Witco of any
securities of Witco, nor are there outstanding any securities that are
convertible into or exchangeable for any shares of capital stock of Witco; and
Witco has no obligation of any kind to issue any additional securities or to pay
for securities of Witco or any predecessor. Witco has no outstanding bonds,
debentures, notes or other similar obligations the holders which have the right
to vote generally with Witco Stockholders.
5.5 CONFLICTS; CONSENTS AND APPROVALS. Neither the execution and delivery of
this Agreement by Witco, nor the consummation of the transactions contemplated
hereby will:
(a) conflict with, or result in a breach of any provision of the Witco
Certificate or the Witco By-Laws;
(b) violate, or conflict with, or result in a breach of any provision of, or
constitute a default (or an event that, with the giving of notice, the passage
of time or otherwise, would constitute a default) under, or entitle any party
(with the giving of notice, the passage of time or otherwise) to terminate,
accelerate, modify or call a default under, or result in the termination,
acceleration or cancellation of, or result in the creation of any lien, security
interest, charge or encumbrance upon any of the properties or assets of Witco or
any of its subsidiaries under, any of the terms, conditions or provisions of any
note, bond, mortgage, indenture, deed of trust, license, contract, undertaking,
agreement, lease or other instrument or obligation to which Witco or any of its
subsidiaries is a party, except for violations, conflicts or breaches that,
individually or in the aggregate, have not had or could not reasonably be
expected to have a Material Adverse Effect on Witco;
(c) violate any order, writ, injunction, decree, statute, rule or regulation
applicable to Witco or any of its subsidiaries or any of their respective
properties or assets, except for violations that, individually or in the
aggregate, have not had or could not reasonably be expected to have a Material
Adverse Effect on Witco; or
(d) require any action or consent or approval of, or review by, or
registration or filing by Witco or any of its affiliates with any third party or
any Governmental Authority, other than (i) the Witco Stockholders Approval, (ii)
actions required by the HSR Act, (iii) registrations or other actions required
under U.S. federal and state securities laws as are contemplated by this
Agreement and (iv) the filing of the certificate of merger with the Secretary of
State of the State of Delaware.
(e) The only vote of holders of any class or series of Witco capital stock
necessary to approve this Agreement, the Merger and the other transactions
contemplated hereby, is the Witco Stockholders Approval.
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5.6 BROKERAGE AND FINDER'S FEES; EXPENSES. Except for Witco's obligations to
Goldman Sachs and Deutsche Bank Securities ("Deutsche Bank") (copies of the
written agreements relating to such obligations having previously been provided
to Crompton), Witco has not incurred and will not incur, directly or indirectly,
any brokerage, finder's, investment banking or similar fee in connection with
the transactions contemplated by this Agreement. Other than the foregoing
obligations to each of Goldman Sachs and Deutsche Bank, Witco is not aware of
any claim for payment of any finder's fees, brokerage or agent's commissions or
other like payments in connection with the negotiation of this Agreement or in
connection with the transactions contemplated hereby. A BONA FIDE written
estimate of the aggregate amount of all fees and expenses expected to be paid by
Witco to all accountants and investment bankers in connection with the Merger
has been provided to Crompton on the date hereof.
5.7 OPINION OF FINANCIAL ADVISOR. Witco has received the opinions of Goldman
Sachs and Deutsche Bank to the effect that, as of the date hereof, the Exchange
Ratio is fair to the holders of Witco Common Stock from a financial point of
view.
5.8 EMPLOYEE BENEFIT PLANS. (a) The following terms have the definitions
given below:
"Witco Employee Benefit Plans" means any material employee benefit plan,
program, policy, practices or other arrangement providing benefits to any
current or former employee, officer or director of Witco or any of its
subsidiaries or any beneficiary or dependent thereof that is sponsored or
maintained by Witco or any of its subsidiaries or to which Witco or any of its
subsidiaries contributes or is obligated to contribute, whether or not written,
including, without limitation, any employee welfare benefit plan within the
meaning of Section 3(1) of ERISA, any employee pension benefit plan within the
meaning of Section 3(2) of ERISA (whether or not such plan is subject to ERISA)
and any bonus, incentive, deferred compensation, vacation, stock purchase, stock
option, severance, employment, change of control or fringe benefit plan, program
or agreement.
A "Witco Foreign Plan" shall refer to each material plan, program or
contract that is subject to or governed by the laws of any jurisdiction other
than the United States, and that would have been treated as a Witco Employee
Benefit Plan had it been a United States plan, program or contract.
A "Witco Plan" means any Witco Employee Benefit Plan other than a
Multiemployer Plan.
(b) Section 5.8 of the Witco Disclosure Schedule sets forth a true and
complete list of all Witco Employee Benefit Plans. With respect to each Witco
Plan, Witco has made available to Crompton a true, correct and complete copy of:
(i) each writing constituting a part of such Witco Plan, including, without
limitation, all plan documents, benefit schedules, trust agreements, and
insurance contracts and other funding vehicles; (ii) the most recent Annual
Report (Form 5500 Series) and accompanying schedule, if any; (iii) the current
summary plan description, if any; (iv) the most recent annual financial report,
if any; and (v) the most recent determination letter from the IRS, if any. Witco
shall make available to Crompton within thirty days following the date of this
Agreement a list and copies of the Witco Foreign Plans, excluding for this
purpose statutorily required benefits.
(c) The IRS has issued a favorable determination letter with respect to each
Witco Plan and the related trust that is intended to be a "qualified plan"
within the meaning of Section 401(a) of the Code (a "Qualified Witco Plan"), and
there are no existing circumstances nor any events that have occurred that could
adversely affect the qualified status of any Qualified Witco Plan or the related
trust. Each Witco Plan that is intended to meet the requirements of Section
501(c)(9) of the Code is identified in Section 5.8 of the Witco Disclosure
Schedule, and each such Witco Plan meets such requirements and provides no
"disqualified benefits" (as defined in Section 4976(b) of the Code).
(d) All contributions required to be made to any Witco Plan by Applicable
Laws or by any plan document or other contractual undertaking, and all premiums
due or payable with respect to insurance policies funding any Witco Plan, for
any period through the date hereof, have been timely made or paid in full and
through the Closing Date will be timely made or paid in full or, to the extent
not
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required to be made or paid on or before the date hereof or the Closing Date, as
applicable, have been or will be fully reflected on the financial statements.
Each Witco Employee Benefit Plan that is an employee welfare benefit plan under
Section 3(1) of ERISA is either (i) funded through an insurance company contract
and is not a "welfare benefit fund" within the meaning of Section 419 of the
Code or (ii) unfunded.
(e) With respect to each Witco Employee Benefit Plan, Witco and its
subsidiaries have complied, and are now in compliance, in all material respects,
with all provisions of ERISA, the Code and all laws and regulations applicable
to the Witco Employee Benefits Plans and each Witco Employee Benefit Plan has
been administered in all material respects in accordance with its terms. There
is not now, and there are no existing, circumstances that could give rise to,
any requirement for the posting of security with respect to a Witco Plan or the
imposition of any lien on the assets of Witco or any of its subsidiaries under
ERISA or the Code. No prohibited transaction has occurred with respect to any
Witco Plan from which exemption is unavailable. Neither Witco, its subsidiaries
nor any of their ERISA Affiliates has engaged in a transaction in connection
with which Witco, its subsidiaries or any of their ERISA Affiliates reasonably
could be subject to either a material civil penalty assessed pursuant to Section
409 or 502(i) of ERISA or a material tax imposed pursuant to Section 4975 or
4976 of the Code.
(f) With respect to each Witco Plan that is subject to Title IV or Section
302 of ERISA or Section 412 or 4971 of the Code: (i) there does not exist any
accumulated funding deficiency within the meaning of Section 412 of the Code or
Section 302 of ERISA, whether or not waived; (ii) the fair market value of the
assets of such Witco Plan equals or exceeds the actuarial present value of all
accrued benefits under such Witco Plan (whether or not vested), based upon the
actuarial assumptions used to prepare the most recent actuarial report for such
Witco Plan; (iii) no reportable event within the meaning of Section 4043(c) of
ERISA for which the 30-day notice requirement has not been waived has occurred,
and the consummation of the transactions contemplated by this agreement will not
result in the occurrence of any such reportable event; (iv) all premiums to the
PBGC have been timely paid in full; (v) no liability (other than for premiums to
the PBGC) under Title IV of ERISA has been or is expected to be incurred by
Witco; and (vi) the PBGC has not instituted proceedings to terminate any such
Witco Plan and, to Witco's knowledge, no condition exists that presents a risk
that such proceedings will be instituted or which would constitute grounds under
Section 4042 of ERISA for the termination of, or the appointment of a trustee to
administer, any such Witco Plan.
(g) No Witco Employee Benefit Plan is a Multiemployer Plan or Multiple
Employer Plan. None of Witco and its subsidiaries nor any of their respective
ERISA Affiliates has, at any time during the last six years, contributed to or
been obligated to contribute to any Multiemployer Plan or Multiple Employer
Plan. None of Witco and its subsidiaries nor any of their ERISA Affiliates has
incurred any Withdrawal Liability that has not been satisfied in full.
(h) There does not now exist, and there are no existing, circumstances that
could result in, any Controlled Group Liability that would be a liability of
Witco or any of its subsidiaries following the Closing. Without limiting the
generality of the foregoing, neither Witco nor any of its subsidiaries nor any
of their respective ERISA Affiliates has engaged in any transaction described in
Section 4069 or Section 4204 or 4212 of ERISA.
(i) Except as disclosed in the Witco Filed SEC Documents, and, except for
health continuation coverage as required by Section 4980B of the Code or Part 6
of Title I of ERISA, neither Witco nor any of its subsidiaries has any liability
for life, health, medical or other welfare benefits to former employees or
beneficiaries or dependents thereof.
(j) Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby (either alone or in
conjunction with any other event) will result in, cause the accelerated vesting
or delivery of, or increase the amount or value of, any payment or benefit to
any
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employee, officer or director of Witco or any of its subsidiaries. Without
limiting the generality of the foregoing, no amount paid or payable by Witco or
any of its subsidiaries in connection with the transactions contemplated hereby
either solely as a result thereof or as a result of such transactions in
conjunction with any other events will be an "excess parachute payment" within
the meaning of Section 280G of the Code.
(k) There are no pending or threatened claims (other than claims for
benefits in the ordinary course), lawsuits or arbitrations that have been
asserted or instituted against the Witco Plans, any fiduciaries thereof with
respect to their duties to the Witco Plans or the assets of any of the trusts
under any of the Witco Plans that could reasonably be expected to result in any
material liability of Witco or any of its subsidiaries to the PBGC, the U.S.
Department of Treasury, the U.S. Department of Labor, any Witco Plan or any
Multiemployer Plan.
(l) With respect to each Witco Foreign Plan, Witco and its subsidiaries have
complied, and are now in compliance, in all material respects, with applicable
local laws and regulations, and all amounts required to be reserved on account
of each Witco Foreign Plan have been so reserved in accordance with reasonable
accounting practices prevailing in the country where such Witco Foreign Plan is
established.
5.9 WITCO SEC DOCUMENTS. Each of Witco and its subsidiaries has timely filed
with the Commission all forms, reports, schedules, statements, exhibits and
other documents required to be filed by it since January 1, 1997 under the
Exchange Act or the Securities Act (such documents, as supplemented and amended
since the time of filing, collectively, the "Witco SEC Documents"). The Witco
SEC Documents, including, without limitation, any financial statements or
schedules included therein, at the time filed (and, in the case of registration
statements and proxy statements, on the dates of effectiveness and the dates of
mailing, respectively) (a) did not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
in order to make the statements therein, in light of the circumstances under
which they were made, not misleading, and (b) complied in all material respects
with the applicable requirements of the Exchange Act and the Securities Act, as
the case may be. The financial statements of Witco included in the Witco SEC
Documents at the time filed (and, in the case of registration statements and
proxy statements, on the date of effectiveness and the date of mailing,
respectively) complied as to form in all material respects with applicable
accounting requirements and with the published rules and regulations of the
Commission with respect thereto, were prepared in accordance with GAAP applied
on a consistent basis during the periods involved (except as may be indicated in
the notes thereto or, in the case of unaudited statements, as permitted by Form
10-Q of the Commission), and fairly present (subject in the case of unaudited
statements to normal, recurring and year-end audit adjustments) in all material
respects the consolidated financial position of Witco and its consolidated
subsidiaries as at the dates thereof and the consolidated results of its
operations and cash flows for the periods then ended.
5.10 TAXES. Except as set forth in the Witco Filed SEC Documents, (a) Witco
has duly filed all U.S. federal and material state and local and foreign income,
franchise, excise, real and personal property and other tax returns and reports
(including, but not limited to, those filed on a consolidated, combined or
unitary basis) required to have been filed by Witco, (b) all of the foregoing
returns and reports are complete and correct in all material respects, and Witco
has timely paid all taxes shown as due on such returns or reports, (c) Witco has
paid or made adequate provision (in accordance with GAAP) in the financial
statements of Witco included in the Witco SEC Documents for all taxes payable in
respect of all periods ending on or prior to December 26, 1998, (d) neither
Witco nor any of its subsidiaries has requested any extension of time within
which to file any returns in respect of any year which have not since been
filed, (e) no deficiencies for any tax, assessment or governmental charge have
been proposed, asserted or assessed, in each case in writing, by any taxing
authority, against Witco or any of its subsidiaries for which there are not
adequate reserves (in accordance with GAAP), (f) as of the date of this
Agreement, there are no pending requests for waivers of the time to
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assess any such tax, other than those made in the ordinary course and for which
payment has been made or there are adequate reserves (in accordance with GAAP),
(g) the federal income tax returns of Witco and its subsidiaries have been
audited by the IRS through the fiscal year ending December 31, 1995 and (h)
Witco has not filed an election under Section 341(f) of the Code to be treated
as a consenting corporation. Witco is not aware of any fact or circumstance that
would prevent the First Step Merger or the Second Step Merger from qualifying as
a "reorganization" within the meaning of Section 368(a) of the Code.
5.11 REGISTRATION STATEMENT. None of the information provided by Witco or
any of its subsidiaries for inclusion in the Registration Statement at the time
it becomes effective or, in the case of the Joint Proxy Statement, at the date
of mailing, will contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading. The Registration Statement and the Joint Proxy Statement,
except for such portions thereof that relate only to Crompton and its
subsidiaries, will each comply as to form in all material respects with the
provisions of the Securities Act and the Exchange Act.
5.12 COMPLIANCE WITH LAW. Each of Witco and its subsidiaries is in
compliance with, and at all times since December 31, 1995 has been in compliance
with, all Applicable Laws relating to it or its business or properties, except
for instances of noncompliance that, individually or in the aggregate, have not
had or could not reasonably be expected to have a Material Adverse Effect on
Witco. This Section 5.12 does not relate to matters with respect to (x) employee
benefits, to the extent the subject of Section 5.8, (y) taxes, to the extent the
subject of Section 5.10 or (z) the environmental matters, to the extent the
subject of Section 5.19.
5.13 LITIGATION. Except as set forth in the Witco Filed SEC Documents, there
is no Action pending or, to the knowledge of Witco, threatened against Witco or
any of its subsidiaries that, individually or in the aggregate, have had or
could reasonably be expected to have a Material Adverse Effect on Witco. Neither
Witco nor any of its subsidiaries is subject to any outstanding order, writ,
injunction or decree which, individually or in the aggregate, have had or could
reasonably be expected to have a Material Adverse Effect on Witco.
5.14 NO MATERIAL ADVERSE CHANGE. Except as set forth in the Witco SEC
Documents filed with the Commission and publicly available prior to the date of
this Agreement (the "Witco Filed SEC Documents"), since December 31, 1998, each
of Witco and its subsidiaries has conducted its business in the ordinary course,
consistent with past practice, and there has been no (a) event, change, effect
or development that, individually or in the aggregate, has had or could
reasonably be expected to have a Material Adverse Effect on Witco, (b)
declaration, setting aside or payment of any dividend or other distribution with
respect to its capital stock, except as otherwise permitted by Section 6.2(b) or
(c) material change in its accounting principles, practices or methods.
5.15 BOARD MEETING. The Board of Directors of Witco, at a meeting duly
called and held, has by the required vote of the directors then in office, (i)
approved and determined that this Agreement and the transactions contemplated
hereby, including the Merger, taken together, are fair to and in the best
interests of Witco and Witco Stockholders and (ii) recommended that Witco
Stockholders adopt this Agreement and declared that this Agreement is advisable.
5.16 UNDISCLOSED LIABILITIES. Except (a) as and to the extent disclosed or
reserved against on the balance sheet of Witco as of December 31, 1998 or the
notes thereto included in the Witco Filed SEC Documents or otherwise disclosed
in the Witco Filed SEC Documents, (b) as incurred after the date thereof in the
ordinary course of business consistent with prior practice and not prohibited by
this Agreement, or (c) for liabilities or obligations that, individually or in
the aggregate, have not had or could not reasonably be expected to have a
Material Adverse Effect on Witco, neither Witco nor any of
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its subsidiaries have any liabilities or obligations of any nature, whether
known or unknown, absolute, accrued, contingent or otherwise and whether due or
to become due.
5.17 LABOR RELATIONS. There is no unfair labor practice complaint against
Witco or any of its subsidiaries pending before the NLRB and there is no labor
strike, dispute, slowdown or stoppage, or any union organizing campaign,
actually pending or, to the knowledge of Witco, threatened against or involving
Witco or any of its subsidiaries. Except as disclosed in the Witco Filed SEC
Documents, neither Witco nor any of its subsidiaries is a party to, or bound by,
any collective bargaining agreement, contract or other agreement or
understanding with a labor union or labor organization. To the knowledge of
Witco, there are no organizational efforts with respect to the formation of a
collective bargaining unit presently being made or threatened involving
employees of Witco or any of its subsidiaries.
5.18 PERMITS; COMPLIANCE. Each of Witco and its subsidiaries is in
possession, and in compliance with, of all Permits necessary to own, lease and
operate its properties and to carry on its business as it is now being
conducted, except for any such Permits the failure of which to possess,
individually or in the aggregate, have not had or could not reasonably be
expected to have a Material Adverse Effect on Witco.
5.19 ENVIRONMENTAL MATTERS. (a) Except as set forth in the Witco Filed SEC
Documents, there are, with respect to Witco, its subsidiaries or any predecessor
entities, divisions or any formerly owned, leased or operated properties or
assets of the foregoing, no past or present violations of Environmental Laws,
Releases of any material into the Environment, actions, omissions, activities
(including off-site disposal or arranging for disposal of Hazardous Materials),
circumstances, conditions, events, incidents, or contractual obligations that
may give rise to any common law environmental liability or any liability under
any Environmental Law, other than those that, individually or in the aggregate,
have not or could not reasonably be expected to have a Material Adverse Effect
on Witco, and none of Witco and its subsidiaries has received any notice with
respect to any of the foregoing, nor is any Action pending or threatened in
connection with any of the foregoing.
(b) Except as set in the Witco Filed SEC Documents, no Hazardous Materials
are contained on or about any real property currently owned, leased or used by
Witco or any of its subsidiaries and no Hazardous Materials were released on or
about any real property previously owned, leased or used by Witco or any of its
subsidiaries during the period the property was so owned, leased or used, except
in the normal course of Witco's business except for such Hazardous Materials
contained or released that, individually or in the aggregate, have not had and
could not reasonably be expected to have a Material Adverse Effect on Witco.
(c) Neither Witco nor any of its subsidiaries has assumed, whether by
contract or operation of Applicable Law, any liabilities under Environmental Law
that, individually or in the aggregate, have had or could reasonably be expected
to have a Material Adverse Effect on Witco.
(d) Except as set forth in the Witco Filed SEC Documents, with respect to
Witco and its subsidiaries (i) no changes in the terms or conditions of any
Permits are required under Environmental Law either prior to or upon their
renewal, and no modification, revocation, reissuance, alteration, transfer, or
amendment of such Permits, or any review by, or approval of, any Governmental
Authority of such Environmental Permits is required in connection with the
execution or delivery of this Agreement, the consummation of the transactions
contemplated hereby or the continuation of business of Witco or its subsidiaries
following such consummation except for any such matters that, individually or in
the aggregate, have not had or could not reasonably be expected to have a
Material Adverse Effect on Witco, and (ii) neither Witco nor any of its
subsidiaries knows of or reasonably anticipates any costs of any pollution
control equipment or any other compliance expenditures under Environmental Law
in excess of those currently budgeted, except for any excess costs that,
individually
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or in the aggregate, have not had or could not reasonably be expected to have a
Material Adverse Effect on Witco.
5.20 CROMPTON STOCK OWNERSHIP. Neither Witco nor any of its subsidiaries
owns any shares of Crompton Common Stock or other securities convertible into
Crompton Common Stock.
5.21 CONTRACTS. None of Witco, any of its subsidiaries, or, to the knowledge
of Witco, any other party thereto, is in violation of or in default in respect
of, nor has there occurred an event or condition that with the passage of time
or giving of notice (or both) would constitute a default by Witco under, any
Contract to which it is a party, except such violations or defaults under such
Contracts that, individually or in the aggregate, have not had or could not
reasonably be expected to have a Material Adverse Effect on Witco.
5.22 DGCL SECTION 203 AND STATE TAKEOVER LAWS. Prior to the date hereof, the
Board of Directors of Witco has taken all action necessary to exempt under or
make not subject to (a) Section 203 of the DGCL and (b) any other state takeover
law or state law that Witco is aware of that limits or restricts business
combinations or the ability to acquire or vote shares: (i) the execution of this
Agreement, (ii) the Merger and (iii) the transactions contemplated hereby.
5.23 WITCO RIGHTS AGREEMENT. Witco has taken or will take all action
necessary, if any, in respect of the Witco Rights Agreement so as to provide
that none of Crompton and its affiliates will become an "Acquiring Person" and
that no "Distribution Date" (as such terms are defined in the Witco Rights
Agreement) will occur as a result of the execution of this Agreement or the
consummation of the Merger pursuant to this Agreement or the acquisition or
transfer of shares of Witco Common Stock by Crompton.
5.24 YEAR 2000. To the knowledge of Witco, the Systems (including, to the
knowledge of Witco, Systems obtained from third parties) that, in whole or in
part, are used, operated, relied upon, or integral to, Witco's or any of its
subsidiaries, conduct of their business, are Year 2000 Compliant, except as
disclosed in the Witco Filed SEC Reports. Witco has plans that are adequate to
ensure that its Systems are Year 2000 Compliant and has a reasonable belief that
those plans will be fully implemented not later than December 1, 1999.
5.25 INTELLECTUAL PROPERTY. Except as disclosed in the Witco Filed SEC
Reports: (a) Witco and each of its subsidiaries owns, is licensed or otherwise
has the right to use, all Intellectual Property that is material to the conduct
of the business of Witco and its subsidiaries, taken as a whole; (b) no person
is challenging, infringing on or otherwise violating any right of Witco or any
of its subsidiaries with respect to any Intellectual Property owned by and/or
licensed to Witco or its subsidiaries, except for such items that, individually
or in the aggregate, have not had or could not reasonably be expected to have a
Material Adverse Effect on Witco; and (c) neither Witco nor any of its
subsidiaries has received any written notice of any pending claim with respect
to any Intellectual Property used by Witco and its subsidiaries, and, to its
knowledge, no Intellectual Property used by Witco and its subsidiaries and to
its knowledge no Intellectual Property owned and/or licensed by Witco or its
subsidiaries is being used or enforced in a manner that would result in the
abandonment, cancellation or unenforceability of such Intellectual Property,
except for such items that, individually or in the aggregate, have not had or
could not reasonably be expected to have a Material Adverse Effect on Witco.
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ARTICLE VI
COVENANTS RELATING TO CONDUCT OF BUSINESS
6.1 CONDUCT OF BUSINESSES PRIOR TO THE EFFECTIVE TIME. During the period
from the date of this Agreement to the Effective Time, except as expressly
contemplated or permitted by this Agreement (including the Witco Disclosure
Schedule and the Crompton Disclosure Schedule) or the Option Agreements, each of
Crompton and Witco shall, and shall cause each of their respective subsidiaries
to, (a) conduct its business in the usual, regular and ordinary course
consistent with past practice and (b) use reasonable best efforts to maintain
and preserve intact its business organization, employees and advantageous
business relationships and retain the services of its key officers and key
employees and maintain relationships with Governmental Authorities, customers,
suppliers and other third parties to the end that their goodwill and ongoing
business shall not be impaired in any material respect.
6.2 FORBEARANCES. During the period from the date of this Agreement to the
Effective Time, except as set forth in Section 6 of the Crompton Disclosure
Schedule or Section 6 of the Witco Disclosure Schedule, as the case may be, and,
except as expressly contemplated or permitted by this Agreement or the Option
Agreements, none of Crompton, Newco and Witco shall, and neither Crompton nor
Witco shall permit any of their respective subsidiaries to, without the prior
written consent of Crompton, in the case of actions proposed to be undertaken by
Witco, or of Witco, in the case of actions proposed to be undertaken by Crompton
or Newco:
(a) other than in the ordinary course of business consistent with past
practice, incur any indebtedness for borrowed money (other than short-term
indebtedness incurred to refinance short-term indebtedness and indebtedness of
Witco or any of its wholly owned subsidiaries to Witco or any of its
subsidiaries, on the one hand, or of Crompton or any of its subsidiaries to
Crompton or any of its wholly owned subsidiaries, on the other hand), assume,
guarantee, endorse or otherwise as an accommodation become responsible for the
obligations of any other individual, corporation or other entity, or make any
loan or advance;
(b) (i) adjust, split, combine or reclassify any capital stock;
(ii) make, declare or pay any dividend, or make any other distribution on,
or, directly or indirectly, redeem, purchase or otherwise acquire, any
shares of its capital stock or any securities or obligations
convertible into or exchangeable for any shares of its capital stock,
except for (w) dividends paid by any of the subsidiaries of each of
Crompton and Witco to Crompton or Witco or any of their subsidiaries,
respectively, (x) dividends paid in the ordinary course of business
consistent with past practice by any subsidiaries (whether or not
wholly owned) of each of Crompton and Witco, (y) regular quarterly
cash dividends with respect to Crompton Common Stock and Witco Common
Stock, with usual declaration, record and payment dates and in
accordance with Crompton's and Witco's past dividend policy, as the
case may be (which Crompton and Witco agree shall be coordinated), and
(z), subject to Section 7.3(a), regular cash dividends with respect to
the outstanding $2.65 Convertible Preferred in accordance with the
current terms thereof;
(iii) grant any stock appreciation rights or grant any individual,
corporation or other entity any right to acquire any shares of its
capital stock, other than the issuance of common stock upon the
exercise of options outstanding on the date of this Agreement or
issued in compliance with this Agreement in accordance with their
terms; or
(iv) issue any additional shares of capital stock except pursuant to (A)
the exercise of stock options or warrants outstanding as of the date
hereof and options issued thereafter in compliance with Section
6.2(b)(iii) and (B) the Option Agreements;
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(c) sell, transfer, mortgage, encumber or otherwise dispose of any of its
properties or assets that are material to any individual, corporation or other
entity other than a subsidiary, other than in the ordinary course of business
consistent with past practice;
(d) except for transactions in the ordinary course of business consistent
with past practice or pursuant to contracts or agreements in force at the date
of this Agreement, make any material investment either by purchase of stock or
securities, contributions to capital, property transfers, or purchase of any
property or assets of any other individual, corporation or other entity other
than a wholly owned subsidiary thereof;
(e) except for transactions in the ordinary course of business consistent
with past practice, enter into or terminate any material contract or agreement,
or make any change in any of its material leases or contracts, other than
renewals of contracts and leases without material adverse changes of terms;
(f) increase in any material manner the compensation or fringe benefits
payable or to become payable to any of its employees or officers, except for
increases in the ordinary course of business consistent with past practice in
salaries or wages to employees who are not officers, or grant or pay any pension
or retirement allowance not required by any existing plan or agreement to any
employees, officers or directors, or become a party to, amend or commit itself
to any collective bargaining, bonus, stock option, restricted stock, deferred
compensation, pension, retirement, profit-sharing or welfare benefit plan or
agreement or employment, termination or severance agreement or plan with or for
the benefit of any employee, officer or director, other than in the ordinary
course of business consistent with past practice with respect to employees who
are not officers or to the extent required by Applicable Laws or any collective
bargaining agreement or contractual obligation existing on the date hereof, or
accelerate the vesting of, or the lapsing of restrictions with respect to any
stock options or other stock-based compensation;
(g) settle any claim, action or proceeding involving money damages involving
an amount in excess of $2,500,000;
(h) amend its certificate of incorporation or articles of incorporation, as
the case may be, or its by-laws;
(i) take any action that is intended or may reasonably be expected to result
in any of its representations and warranties set forth in this Agreement being
or becoming untrue such that the condition in Section 8.2(a) or 8.3(a), as the
case may be, would not be satisfied or in any of the conditions to the Merger
set forth in Article VIII not being satisfied, or in a violation of any
provision of this Agreement, except, in every case, as may be required by
Applicable Laws;
(j) implement or adopt any change in its accounting principles, practices or
methods, other than as may be required by GAAP; or
(k) agree to, or make any commitment to, take any of the actions prohibited
by this Section 6.2.
ARTICLE VII
ADDITIONAL AGREEMENTS
Except as set forth in the Crompton Disclosure Schedule or the Witco
Disclosure Schedule, as the case may be, the parties hereto agree as follows
with respect to the period from and after the execution of this Agreement.
7.1 MUTUAL AGREEMENTS.
(a) GENERAL. Each of the parties shall use its reasonable efforts to take
all action and to do all things necessary, proper or advisable to consummate the
Merger and the transactions contemplated by this Agreement (including, without
limitation, using its reasonable best efforts to cause the conditions
A-27
set forth in Article VIII for which they are responsible to be satisfied as soon
as reasonably practicable and to prepare, execute and deliver such further
instruments and take or cause to be taken such other and further action as any
other party hereto shall reasonably request).
(b) HSR ACT. As soon as practicable, and in any event no later than twenty
(20) business days after the date hereof, each of the parties hereto will file
any Notification and Report Forms and related material required to be filed by
it with the U.S. Federal Trade Commission and the Antitrust Division of the U.S.
Department of Justice under the HSR Act with respect to the Merger, will use its
reasonable best efforts to obtain an early termination of the applicable waiting
period, and shall promptly make any further filings pursuant thereto that may be
necessary, proper or advisable; PROVIDED, HOWEVER, that neither Crompton nor
Witco nor any of their respective subsidiaries shall be required hereunder to
divest or hold separate any material portion of their business or assets.
(c) OTHER GOVERNMENTAL MATTERS. Each of the parties shall use its
reasonable best efforts to take any additional action that may be necessary,
proper or advisable in connection with any other notices to, filings with, and
authorizations, consents and approvals of any Governmental Authority that it may
be required to give, make or obtain.
(d) TAX-FREE TREATMENT. Each of the parties shall use its reasonable best
efforts to cause the Merger to constitute a tax-free "reorganization" under
Section 368(a) of the Code and to permit Wachtell, Lipton, Rosen & Katz and
Cravath, Swaine & Moore to issue their respective opinions provided for in
Section 8.1(f).
(e) PUBLIC ANNOUNCEMENTS. Except as otherwise required by Applicable Laws
or the rules of the NYSE, none of the parties shall, or shall permit any of its
subsidiaries to, issue or cause the publication of any press release or other
public announcement with respect to, or otherwise make any public statement
concerning, the transactions contemplated by this Agreement without the consent
of Witco, in the case of a proposed announcement or statement by Crompton or
Newco, or Crompton, in the case of a proposed announcement or statement by
Witco, in each case which consent shall not be unreasonably withheld or delayed.
(f) ACCESS. From and after the date of this Agreement until the Effective
Time (or the termination of this Agreement), Crompton and Witco shall permit
representatives of the other to have appropriate access at all reasonable times
to the other's premises, properties, books, records, contracts, tax records,
documents, customers and suppliers. Information obtained by Crompton and Witco
pursuant to this Section 7.1(f) shall be subject to the provisions of the
confidentiality agreement between them, dated May 5, 1999 (the "Confidentiality
Agreement"), which Confidentiality Agreement remains in full force and effect.
7.2 ADDITIONAL AGREEMENTS OF CROMPTON.
(a) CROMPTON STOCKHOLDERS MEETING. Crompton shall take all action in
accordance with Applicable Laws and the Crompton Articles and the Crompton
By-Laws necessary to convene a meeting of Crompton Stockholders as promptly as
practicable to consider and vote upon the approval of the Merger, this Agreement
and the transactions contemplated hereby, including the issuance of the Newco
Common Stock as part of the Merger (the "Crompton Stockholders Approval").
Without limiting the generality of the foregoing, Crompton agrees that its
obligations pursuant to the first sentence of this Section 7.2(a) shall not be
affected by (i) the commencement, public proposal, public disclosure or
communication to Crompton of any Crompton Competing Transaction, (ii) the
withdrawal or modification by the Board of Directors of Crompton of its approval
or recommendation of this Agreement and the transactions contemplated hereby or
(iii) any declaration by the Board of Directors of Crompton that this Agreement
and the transactions contemplated hereby are no longer advisable.
(b) PREPARATION OF JOINT PROXY STATEMENT. Crompton shall cooperate with
Witco to, and shall, as soon as is reasonably practicable, prepare and file the
Joint Proxy Statement with the Commission on a
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confidential basis. Crompton and Newco shall cooperate with Witco to, and shall,
prepare and file the Registration Statement with the Commission as soon as is
reasonably practicable following clearance of the Joint Proxy Statement by the
Commission and shall cooperate with Witco to, and shall, use all reasonable
efforts to have the Registration Statement declared effective by the Commission
as promptly as practicable and to maintain the effectiveness of the Registration
Statement through the Effective Time. If, at any time prior to the Effective
Time any information pertaining to Crompton contained in or omitted from the
Registration Statement makes such statements contained in the Registration
Statement false or misleading, Crompton shall promptly so inform Witco and will
make statements contained therein not false or misleading. Crompton shall use
all reasonable efforts to mail at the earliest practicable date to Crompton
Stockholders the Joint Proxy Statement, which shall include all information
required under Applicable Laws to be furnished to Crompton Stockholders in
connection with the Merger and the transactions contemplated thereby. Crompton
shall advise Witco promptly after it receives notice of (i) the Registration
Statement being declared effective or any supplement or amendment thereto being
filed with the Commission, (ii) the issuance of any stop order in respect of the
Registration Statement, and (iii) the receipt of any correspondence, comments or
requests from the Commission in respect of the Registration Statement. Crompton
also shall cooperate with Witco to, and shall, take such other reasonable
actions (other than qualifying to do business in any jurisdiction in which it is
not so qualified) required to be taken under any applicable state securities
laws in connection with the issuance of shares of Newco Common Stock in the
Merger.
(c) INDEMNIFICATION. In the event of any threatened or actual claim,
action, suit, proceeding or investigation, whether civil, criminal or
administrative, including, without limitation, any such claim, action, suit,
proceeding or investigation in which any individual who is now, or has been at
any time prior to the date of this Agreement, or who becomes prior to the
Effective Time, a director or officer or employee of Crompton, Witco, Newco or
any of their respective subsidiaries, including any entity specified in the
Crompton Disclosure Schedule or the Witco Disclosure Schedule (the "Indemnified
Parties"), is, or is threatened to be, made a party based in whole or in part
on, or arising in whole or in part out of, or pertaining to (i) the fact that he
or she is or was a director, officer or employee of Crompton, Witco, Newco or
any of their respective subsidiaries or any entity specified in the Crompton
Disclosure Schedule or the Witco Disclosure Schedule or any of their respective
predecessors or (ii) this Agreement, the Option Agreements or any of the
transactions contemplated hereby or thereby, whether, in any case, asserted or
arising before or after the Effective Time, the parties hereto agree to
cooperate and use their reasonable best efforts to defend against and respond
thereto. It is understood and agreed that after the Effective Time, Newco shall
indemnify and hold harmless, as and to the fullest extent permitted by
Applicable Law, each such Indemnified Party against any losses, claims, damages,
liabilities, costs, expenses (including reasonable attorney's fees and expenses
in advance of the final disposition of any claim, suit, proceeding or
investigation to each Indemnified Party to the fullest extent permitted by law
upon receipt of any undertaking required by Applicable Laws), judgments, fines
and amounts paid in settlement in connection with any such threatened or actual
claim, action, suit, proceeding or investigation, and, in the event of any such
threatened or actual claim, action, suit, proceeding or investigation (whether
asserted of arising before or after the Effective Time); and Newco, after
consultation with an Indemnified Party, shall retain counsel and direct the
defense thereof, PROVIDED, HOWEVER, that by virtue of the obligations herein set
forth, Newco shall not be liable to any Indemnified Party for any legal expenses
of other counsel or any other expenses incurred by any Indemnified Party in
connection with the defense thereof, except that if Newco fails or elects not to
assume such defense or counsel for the Indemnified Parties reasonably advises
the Indemnified Parties that there are issues that raise conflicts of interest
between Newco and the Indemnified Parties, the Indemnified Parties may retain
counsel reasonably satisfactory to them after consultation with Newco, and Newco
shall pay the reasonable fees and expenses of such counsel for the Indemnified
Parties, (i) Newco shall be obligated pursuant to this paragraph to pay for only
one firm of counsel for all Indemnified Parties, unless an Indemnified Party
shall have reasonably concluded, based on the advice
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of counsel and after consultation with Newco, that in order to be adequately
represented, separate counsel is necessary for such Indemnified Party, in which
case, Newco shall be obligated to pay for such separate counsel, (ii) Newco
shall not be liable for any settlement effected without its prior written
consent (which consent shall not be unreasonably withheld) and (iii) Newco shall
have no obligation hereunder to any Indemnified Party when and if a court of
competent jurisdiction shall ultimately determine, and such determination shall
have become final and nonappealable, that indemnification of such Indemnified
Party in the manner contemplated hereby is prohibited by Applicable Laws. Any
Indemnified Party wishing to claim Indemnification under this Section 7.2(c),
upon learning of any such claim, action, suit, proceeding or investigation,
shall notify Newco thereof, PROVIDED that the failure to so notify shall not
affect the obligations of Newco under this Section 7.2(c) except to the extent
such failure to notify materially prejudices Newco. Newco's obligations under
this Section 7.2(c) continue in full force and effect for a period of six years
from the Effective Time (or the period of the applicable statute of limitations,
if longer); PROVIDED, HOWEVER, that all rights to indemnification in respect of
any claim (a "Claim") asserted or made within such period shall continue until
the final disposition of such Claim.
(d) DIRECTORS' AND OFFICERS' INSURANCE. Crompton (and Newco, from and
after the First Effective Time) shall use its reasonable best efforts to cause
the individuals serving as officers and directors of Crompton, Newco or Witco,
their respective subsidiaries or any entity specified in the Crompton Disclosure
Schedule or the Witco Disclosure Schedule immediately prior to the First
Effective Time or Effective Time, as the case may be, to be covered for a period
of six years from the Effective Time (or the period of the applicable statute of
limitations, if longer) by the directors' and officers' liability insurance
policy maintained by Crompton or Witco, as the case may be (PROVIDED that Newco
may substitute therefor policies of at least the same coverage and amounts
containing terms and conditions that are not less advantageous than such policy)
with respect to acts or omissions occurring prior to the Effective Time that
were committed by such officers and directors in their capacity as such;
PROVIDED, HOWEVER, that in no event shall Newco be required to expend more than
200% of the current amount expended by Crompton or Witco, as the case may be
(the "Insurance Amount") to maintain or procure insurance coverage pursuant
hereto, and PROVIDED, FURTHER, that, if Newco is unable to maintain or obtain
the insurance called for by this Section 7.2(d), Newco shall use its best
efforts to obtain as much comparable insurance as available for the Insurance
Amount.
(e) EMPLOYEE BENEFITS. (i) From and after the Effective Time, the Crompton
Plans and the Witco Plans in effect as of the date of this Agreement shall
remain in effect with respect to employees of Newco or Witco (or their
subsidiaries), respectively, covered by such plans at the Effective Time until
such time as the Combined Company shall, subject to Applicable Laws, the terms
of this Agreement and the terms of such plans, adopt new benefit plans, or
modify or consolidate the existing plans, with respect to employees of Newco or
Witco and their subsidiaries, respectively (the "New Benefit Plans"). Crompton
and Witco shall cooperate in reviewing, evaluating and analyzing the Crompton
Plans and the Witco Plans with a view towards developing appropriate New Benefit
Plans for the employees covered thereby subsequent to the Second Step Merger. It
is the intention of Crompton and Witco to develop New Benefit Plans, as soon as
reasonably practicable after the Effective Time, which, among other things,
treat similarly situated employees on a substantially equivalent basis, taking
into account all relevant factors, including, without limitation, duties,
geographic location, tenure, qualifications and abilities and competitive
industry practices. Notwithstanding the foregoing, employees of the Combined
Company and its subsidiaries who are covered under a collective bargaining
agreement shall be provided with benefits as are from time to time required by
such collective bargaining agreement.
(ii) The foregoing notwithstanding, the Combined Company agrees to honor
in accordance with their terms all benefits vested as of the date hereof
under the Crompton Plans or the Witco Plans or under other contracts,
arrangements, commitments, or understandings described in the Crompton
Disclosure Schedule and the Witco Disclosure Schedule.
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(iii) Nothing in this Section 7.2(e) shall be interpreted as preventing
the Combined Company from amending, modifying or terminating any of the
Crompton Plans, the Witco Plans, or other contracts, arrangements,
commitments or understandings, in accordance with their terms and Applicable
Laws.
(f) NOTIFICATION OF CERTAIN MATTERS. Crompton shall give prompt notice to
Witco of (i) the occurrence or non-occurrence of any event the occurrence or
non-occurrence of which would cause any Crompton or Newco representation or
warranty contained in this Agreement to be untrue or inaccurate at or prior to
the Effective Time such that the condition set forth in Section 8.3(a) would not
be satisfied and (ii) any material failure of Crompton or Newco to comply with
or satisfy any covenant, condition or agreement to be complied with or satisfied
by it hereunder; PROVIDED, HOWEVER, that the delivery of any notice pursuant to
this Section 7.2(f) shall not limit or otherwise affect the remedies available
hereunder to Witco.
(g) NO SOLICITATION. (i) Crompton agrees that, during the term of this
Agreement, it shall not, and shall not authorize or permit any of its
subsidiaries or any of its or its subsidiaries' directors, officers, employees,
agents or representatives, directly or indirectly, to (A) solicit, initiate,
encourage or facilitate, or furnish or disclose non-public information in
furtherance of, any inquiries or the making of any proposal with respect to any
recapitalization, merger, consolidation or other business combination involving
Crompton, or acquisition of any capital stock or any material portion of the
assets (except for acquisition of assets in the ordinary course of business
consistent with past practice, transactions disclosed in the Crompton Disclosure
Schedule and the transactions contemplated by this Agreement) of Crompton, or
any combination of the foregoing (a "Crompton Competing Transaction") or (B)
negotiate, explore or otherwise engage in discussions with any person (other
than Witco or its directors, officers, employees, agents and representatives)
with respect to any Crompton Competing Transaction. Crompton will immediately
cease all existing activities, discussions and negotiations with any parties
conducted heretofore with respect to any of the foregoing and shall use its
reasonable best efforts to enforce any confidentiality or similar agreement
relating to a Crompton Competing Transaction. From and after the execution of
this Agreement, Crompton shall immediately advise Witco in writing of the
receipt, directly or indirectly, of any inquiries, discussions, negotiations, or
proposals relating to a Crompton Competing Transaction (including the specific
terms thereof), and promptly furnish to Witco a copy of any such proposal or
inquiry in addition to any information provided to or by any third party
relating thereto. Notwithstanding the foregoing, prior to receipt of the
Crompton Stockholders Approval, Crompton may, but only to the extent required by
the fiduciary obligations of its Board of Directors under Applicable Law, as
determined in good faith and on a reasonable basis by such Board of Directors
and based on the written advice of outside counsel that not to so act would
constitute a violation of such fiduciary obligations, in response to a publicly
disclosed proposal for a Crompton Competing Transaction that constitutes a
Qualifying Crompton Proposal that was not solicited or encouraged by Crompton or
its representatives and that did not otherwise result from the breach or a
deemed breach of this Section 7.2(g), and subject to compliance with the
notification provisions of this Section 7.2(g), for a 10-day period commencing
with the first notification to Witco under this Section 7.2(g) of receipt of
such Crompton Competing Transaction, (x) furnish non-public information with
respect to Crompton to the person proposing such Crompton Competing Transaction
and its representatives pursuant to a confidentiality agreement with terms no
less restrictive of such person than those set forth in the Confidentiality
Agreement and (y) participate in discussions or negotiations with such person
and its representatives regarding such Crompton Competing Transaction.
(ii) Neither the Board of Directors of Crompton nor any committee thereof
shall (A) withdraw or modify, or propose to withdraw or modify, in a manner
adverse to Witco, the approval or recommendation by the Board of Directors of
Crompton of this Agreement and the transactions contemplated hereby, (B)
approve, or permit or cause Crompton to enter into, any definitive agreement
providing for the implementation of any Crompton Competing Transaction (each a
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"Crompton Acquisition Agreement") or (C) approve or recommend, or propose to
approve or recommend, any Crompton Competing Transaction. Notwithstanding the
foregoing, prior to receipt of the Crompton Stockholders Approval, and only to
the extent required by the fiduciary obligations of the Crompton Board of
Directors under Applicable Law, as determined in good faith and on a reasonable
basis by such Board of Directors and based on the written advice of outside
counsel that not to so act would constitute a violation of such fiduciary
obligations, in response to a publicly disclosed proposal for a Crompton
Competing Transaction that constitutes a Qualifying Crompton Proposal that was
not solicited or encouraged by Crompton or its representatives and that did not
otherwise result from the breach or a deemed breach of this Section 7.2(g), (I)
the Board of Directors of Crompton may withdraw or modify its approval or
recommendation of the transactions contemplated by this Agreement and, in
connection therewith, approve or recommend such Qualifying Crompton Proposal and
(II) Crompton may enter into a Crompton Acquisition Agreement contemporaneously
with its termination of this Agreement pursuant to Section 9.1(h).
(iii) Nothing contained in this Section 7.2(g) shall prohibit Crompton from
taking and disclosing to its stockholders a position contemplated by Rule
14e-2(a) promulgated under the Exchange Act.
(iv) For purposes of this Agreement, "Qualifying Crompton Proposal" means
any proposal made by a third party to acquire all of the equity securities or
all or substantially all of the assets of Crompton, pursuant to a tender offer,
a merger, a consolidation, a recapitalization, a sale of its assets or
otherwise, that is (A) for consideration that is substantial (as reasonably
determined by the Board of Directors of Crompton) and is comprised solely of
cash and not subject to financing contingencies, (B) on terms which a nationally
recognized independent investment banking firm has opined in writing (with only
customary qualifications) to be superior from a financial point of view to the
holders of Crompton Common Stock to the transactions contemplated by this
Agreement, taking into account all of the terms and conditions of such proposal
and this Agreement (including the terms of any proposal by Witco to amend or
modify the terms of the transactions contemplated by this Agreement), and (C)
reasonably capable of being completed within 7 months of the termination of this
Agreement, taking into account all financial, regulatory, legal and other
aspects of such proposal.
(h) LISTING APPLICATION. Crompton shall, as soon as practicable following
the date hereof, prepare and submit to the NYSE a listing application covering
the shares of Newco Common Stock issuable in the Merger, and shall use its
reasonable best efforts to obtain, prior to the Effective Time, approval for the
listing of such shares of Newco Common Stock, subject to official notice of
issuance.
(i) EXEMPTION FROM LIABILITY UNDER SECTION 16(B). Assuming that Witco
delivers to Crompton the Section 16 Information in a timely fashion, the Board
of Directors of Crompton, or a committee of Non-Employee Directors thereof (as
such term is defined for purposes of Rule 16b-3(d) under the Exchange Act),
shall adopt a resolution providing that the receipt by the Witco Insiders of
Newco Common Stock in exchange for shares of Witco Common Stock, and of options
on Newco Common Stock upon conversion of options on Witco Common Stock, in each
case pursuant to the transactions contemplated hereby and to the extent such
securities are listed in the Section 16 Information, are intended to be exempt
from liability pursuant to Section 16(b) under the Exchange Act. "Section 16
Information" shall mean information accurate in all respects regarding the Witco
Insiders, the number of shares of Witco Common Stock held by each such Witco
Insider and expected to be exchanged for Newco Common Stock in the Merger, and
the number and description of the options on Witco Common Stock held by each
such Witco Insider and expected to be converted into options on Newco Common
Stock in connection with the Merger. "Witco Insiders" shall mean those officers
and directors of Witco who are subject to the reporting requirements of Section
16(a) of the Exchange Act and who are listed in the Section 16 Information.
(j) CROMPTON RIGHTS AGREEMENT. Prior to the earliest of the Effective Time
or any termination of this Agreement pursuant to Article IX, Crompton agrees
that it shall not, without Witco's consent,
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redeem the Crompton Stockholder Rights, amend or modify the Crompton Rights
Agreement or take any other action that could result in the Crompton Rights
Agreement being deemed inapplicable to any person other than Witco and Newco.
(k) TAKEOVER LAWS; GOVERNANCE DOCUMENTS. Crompton shall take no action
that would cause any Crompton Competing Transaction to be exempt from any
requirements imposed by any state takeover law or state law that purports to
limit or restrict business combinations or the ability to acquire or vote
shares, or any provision of the Crompton Articles or the Crompton By-Laws that
has a similar effect.
(l) AFFILIATES OF CROMPTON. Crompton shall use its reasonable best efforts
to cause each such person who may be at the Effective Time or was on the date
hereof an "affiliate" of Crompton within the meaning of Rule 145 under the
Securities Act, to execute and deliver to Witco no less than 35 days prior to
the date of the meeting of Crompton Stockholders to approve the Merger written
undertakings substantially in the form attached as Exhibit F to this Agreement.
7.3 ADDITIONAL AGREEMENTS OF WITCO.
(a) WITCO STOCKHOLDERS MEETING. Witco shall take all action in accordance
with Applicable Laws, the Witco Certificate and the Witco By-Laws, necessary to
convene a meeting of Witco Stockholders and any holders of $2.65 Cumulative
Convertible Preferred, voting as a single class, as promptly as practicable to
consider and vote upon the approval of the Merger, this Agreement and the
transactions contemplated hereby (the "Witco Stockholders Approval"). Without
limiting the generality of the foregoing, Witco agrees that its obligations
pursuant to the first sentence of this Section 7.3 (a) shall not be affected by
(i) the commencement, public proposal, public disclosure or communication to
Witco of any Witco Competing Transaction, (ii) the withdrawal or modification by
the Board of Directors of Witco of its approval or recommendation of this
Agreement and the transactions contemplated hereby or (iii) any declaration by
the Board of Directors of Witco that this Agreement and the transactions
contemplated hereby are no longer advisable.
(b) INFORMATION FOR THE REGISTRATION STATEMENT AND PREPARATION OF JOINT
PROXY STATEMENT. Witco shall as promptly as practicable furnish Crompton and
Newco with all information concerning it as may be required for inclusion in the
Registration Statement. Witco shall cooperate with Crompton in the preparation
of the Registration Statement in a timely fashion and shall use all reasonable
best efforts to have the Registration Statement declared effective by the
Commission as promptly as practicable. If, at any time prior to the Effective
Time, any information pertaining to Witco contained in or omitted from the
Registration Statement makes such statements contained in the Registration
Statement false or misleading, Witco shall promptly so inform Crompton and
provide Crompton with the information necessary to make statements contained
therein not false and misleading. Witco shall use all reasonable efforts to
cooperate with Crompton in the preparation and filing of the Joint Proxy
Statement with the Commission on a confidential basis. Witco shall use all
reasonable efforts to mail at the earliest practicable date to Witco
Stockholders the Joint Proxy Statement, which shall include all information
required under Applicable Laws to be furnished to Witco Stockholders in
connection with the Merger and the transactions contemplated thereby.
(c) NO SOLICITATION. (i) Witco agrees that, during the term of this
Agreement, it shall not, and shall not authorize or permit any of its
subsidiaries or any of its or its subsidiaries' directors, officers, employees,
agents or representatives, directly or indirectly, to (A) solicit, initiate,
encourage or facilitate, or furnish or disclose non-public information in
furtherance of, any inquiries or the making of any proposal with respect to any
recapitalization, merger, consolidation or other business combination involving
Witco, or acquisition of any capital stock or any material portion of the assets
(except for acquisition of assets in the ordinary course of business consistent
with past practice, transactions disclosed in the Witco Disclosure Schedule and
the transactions contemplated by this Agreement) of Witco, or any combination of
the foregoing (a "Witco Competing Transaction") or (B) negotiate, explore or
otherwise engage in discussions with any person (other than Crompton or Newco or
their
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respective directors, officers, employees, agents and representatives) with
respect to any Witco Competing Transaction. Witco will immediately cease all
existing activities, discussions and negotiations with any parties conducted
heretofore with respect to any of the foregoing and shall use its reasonable
best efforts to enforce any confidentiality or similar agreement relating to a
Witco Competing Transaction. From and after the execution of this Agreement,
Witco shall immediately advise Crompton in writing of the receipt, directly or
indirectly, of any inquiries, discussions, negotiations, or proposals relating
to a Witco Competing Transaction (including the specific terms thereof), and
promptly furnish to Crompton a copy of any such proposal or inquiry in addition
to any information provided to or by any third party relating thereto.
Notwithstanding the foregoing, prior to receipt of the Witco Stockholders
Approval, Witco may, but only to the extent required by the fiduciary
obligations of its Board of Directors under Applicable Law, as determined in
good faith and on a reasonable basis by such Board of Directors and based on the
written advice of outside counsel that not to so act would constitute a
violation of such fiduciary obligations, in response to a publicly disclosed
proposal for a Witco Competing Transaction that constitutes a Qualifying Witco
Proposal that was not solicited or encouraged by Witco or its representatives
and that did not otherwise result from the breach or a deemed breach of this
Section 7.3(c), and subject to compliance with the notification provisions of
this Section 7.3(c), for a 10-day period commencing with the first notification
to Crompton under this Section 7.3(c) of receipt of such Witco Competing
Transaction, (x) furnish non-public information with respect to Witco to the
person proposing such Witco Competing Transaction and its representatives
pursuant to a confidentiality agreement with terms no less restrictive of such
person than those set forth in the Confidentiality Agreement and (y) participate
in discussions or negotiations with such person and its representatives
regarding such Witco Competing Transaction.
(ii) Neither the Board of Directors of Witco nor any committee thereof shall
(A) withdraw or modify, or propose to withdraw or modify, in a manner adverse to
Crompton, the approval or recommendation by the Board of Directors of Witco of
this Agreement and the transactions contemplated hereby, (B) approve, or permit
or cause Witco to enter into, any definitive agreement providing for the
implementation of any Witco Competing Transaction (each a "Witco Acquisition
Agreement") or (C) approve or recommend, or propose to approve or recommend, any
Witco Competing Transaction. Notwithstanding the foregoing, prior to receipt of
the Witco Stockholders Approval, and only to the extent required by the
fiduciary obligations of the Witco Board of Directors under Applicable Law, as
determined in good faith and on a reasonable basis by such Board of Directors
and based on the written advice of outside counsel that not to so act would
constitute a violation of such fiduciary obligations, in response to a publicly
disclosed proposal for a Witco Competing Transaction that constitutes a
Qualifying Witco Proposal that was not solicited or encouraged by Witco or its
representatives and that did not otherwise result from the breach or a deemed
breach of this Section 7.3(c), (I) the Board of Directors of Witco may withdraw
or modify its approval or recommendation of the transactions contemplated by
this Agreement and, in connection therewith, approve or recommend such
Qualifying Witco Proposal and (II) Witco may enter into a Witco Acquisition
Agreement contemporaneously with its termination of this Agreement pursuant to
Section 9.1(i).
(iii) Nothing contained in this Section 7.3(c) shall prohibit Witco from
taking and disclosing to its stockholders a position contemplated by Rule
14e-2(a) promulgated under the Exchange Act.
(iv) For purposes of this Agreement, "Qualifying Witco Proposal" means any
proposal made by a third party to acquire all of the equity securities or all or
substantially all of the assets of Witco, pursuant to a tender offer, a merger,
a consolidation, a recapitalization, a sale of its assets or otherwise, that is
(A) for consideration that is substantial (as reasonably determined by the Board
of Directors of Witco) and is comprised solely of cash and not subject to
financing contingencies, (B) on terms which a nationally recognized independent
investment banking firm has opined in writing (with only customary
qualifications) to be superior from a financial point of view to the holders of
Witco
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Common Stock to the transactions contemplated by this Agreement, taking into
account all of the terms and conditions of such proposal and this Agreement
(including the terms of any proposal by Crompton to amend or modify the terms of
the transactions contemplated by this Agreement), and (C) reasonably capable of
being completed within 7 months of the termination of this Agreement, taking
into account all financial, regulatory, legal and other aspects of such
proposal.
(d) AFFILIATES OF WITCO. Witco shall use its reasonable best efforts to
cause each such person who may be at the Effective Time or was on the date
hereof an "affiliate" of Witco, within the meaning of Rule 145 under the
Securities Act, to execute and deliver to Crompton no less than 35 days prior to
the date of the meeting of Witco Stockholders to approve the Merger written
undertakings substantially in the form attached as Exhibit E to this Agreement.
(e) WITCO PREFERRED STOCK. At the request of Crompton, Witco (i) shall
promptly, but in no event later than 10 business days following the date of such
request, give notice of redemption of all of the then outstanding shares of
$2.65 Cumulative Convertible Preferred to the holders thereof, and (ii) shall
immediately prior to the Effective Time irrevocably deposit in trust, for the
account of such holders, funds sufficient to pay in full the redemption price in
respect of such shares of Witco Preferred Stock, in each case, in the manner
contemplated by and pursuant to the terms and procedures set forth in the
applicable certificate of designation, preferences, rights and limitations with
respect to such $2.65 Cumulative Convertible Preferred as in effect on the date
hereof. To the extent the $2.65 Cumulative Convertible Preferred are not so
redeemed, Crompton shall take all action required to provide that the $2.65
Cumulative Convertible Preferred shall be convertible into Newco Common Stock
immediately following the Effective Time in accordance with the terms and
procedures set forth in the applicable certificate of designation.
(f) WITCO RIGHTS AGREEMENT. Prior to the earlier of the Effective Time or
any termination of this Agreement pursuant to Article IX, Witco agrees that it
shall not, without Crompton's consent, redeem the Witco Stockholder Rights,
amend or modify the Witco Rights Agreement or take any other action that could
result in the Witco Rights Agreement being deemed inapplicable to any person
other than Crompton and Newco.
(g) TAKEOVER LAWS; GOVERNANCE DOCUMENTS. Witco shall take no action that
would cause any Witco Competing Transaction to be exempt from any requirements
imposed by DGCL Section 203, or any state takeover law or state law that
purports to limit or restrict business combinations or the ability to acquire or
vote shares, or any provision of the Witco Certificate or Witco By-Laws that has
a similar effect.
(h) NOTIFICATION OF CERTAIN MATTERS. Witco shall give prompt notice to
Crompton of (i) the occurrence or non-occurrence of any event the occurrence or
non-occurrence of which would cause any Witco representation or warranty
contained in this Agreement to be untrue or inaccurate at or prior to the
Effective Time such that the condition set forth in Section 8.2(a) would not be
satisfied and (ii) any material failure of Witco to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied by it
hereunder; provided, however, that the delivery of any notice pursuant to this
Section 7.3(h) shall not limit or otherwise affect the remedies available
hereunder to Crompton.
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ARTICLE VIII
CONDITIONS PRECEDENT
8.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE SECOND STEP
MERGER. The respective obligations of the parties to effect the Second Step
Merger, and of Crompton and Newco to effect the First Step Merger, shall be
subject to the satisfaction at or prior to the Effective Time (and the First
Effective Time, in the case of the consummation of the First Step Merger) of the
following conditions:
(a) STOCKHOLDER APPROVAL. This Agreement and the transactions
contemplated hereby, including the Second Step Merger and, in the case of
the holders of Crompton Common Stock, the First Step Merger, (i) shall have
been approved and adopted by the respective requisite affirmative votes of
the holders of Witco Common Stock and to the extent outstanding, the holders
of $2.65 Cumulative Convertible Preferred, voting as a single class with the
holders of the Witco Common Stock, and (ii) the holders of the Crompton
Common Stock entitled to vote thereon.
(b) NYSE LISTING. The shares of Newco Common Stock that shall be
issued to the holders of Witco Common Stock upon consummation of the Merger
shall have been authorized for listing on the NYSE, subject to official
notice of issuance.
(c) OTHER APPROVALS. All waiting periods applicable to the
consummation of the Merger under the HSR Act shall have expired or been
terminated, and all other consents, approvals, permits or authorizations
required to be obtained prior to the Effective Time from any Governmental
Authority, the absence of which would prohibit the Merger and the
consummation of the transactions contemplated hereby, shall have been
obtained.
(d) REGISTRATION STATEMENT. The Registration Statement shall have
become effective under the Securities Act and no stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceedings for that purpose shall have been initiated or threatened by the
Commission.
(e) NO INJUNCTIONS OR RESTRAINTS; ILLEGALITY. No order, injunction or
decree issued by any court or agency of competent jurisdiction or other
legal restraint or prohibition (an "Injunction") preventing the consummation
of the First Step Merger, the Second Step Merger or any of the other
transactions contemplated by this Agreement shall be in effect.
(f) FEDERAL TAX OPINION. Crompton and Witco shall have received an
opinion of Wachtell, Lipton, Rosen & Katz and Cravath, Swaine & Moore,
respectively, in form and substance reasonably satisfactory to Crompton and
Witco, respectively, in each case, dated the Closing Date, substantially to
the effect that, on the basis of facts, representations and assumptions set
forth in such opinion that are consistent with the state of facts existing
at the Effective Time, each of the First Step Merger and the Second Step
Merger will constitute a "reorganization" under Section 368(a) of the Code;
Crompton and Newco will each be a party to the reorganization in respect of
the First Step Merger; and Newco and Witco will each be a party to the
reorganization in respect of the Second Step Merger.
In rendering such opinion, counsel may require and rely upon representations
contained in certificates of officers of Crompton, Newco, Witco and others.
8.2 CONDITIONS TO OBLIGATIONS OF CROMPTON AND NEWCO. The obligations of
Crompton and Newco to effect the First Step Merger, and the obligation of Newco
to effect the Second Step Merger, are also subject to the satisfaction, or
waiver by Crompton or Newco, at or prior to the Effective Time, of the following
conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of Witco set forth in this Agreement shall be true and correct in all
material respects as of the date of this Agreement
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and (except to the extent such representations and warranties speak as of an
earlier date) as of the Closing Date as though made on and as of the Closing
Date, PROVIDED, HOWEVER, that for purposes of this paragraph, such
representations and warranties shall be deemed to be true and correct unless
the failure or failures of such representations and warranties to be so true
and correct, individually or in the aggregate, and without giving effect to
any qualification as to materiality set forth in such representations or
warranties, has had or could reasonably be expected to have a Material
Adverse Effect on Witco. Crompton shall have received a certificate signed
on behalf of Witco by the Chief Executive Officer and the Chief Financial
Officer of Witco to the foregoing effect.
(b) PERFORMANCE OF OBLIGATIONS OF WITCO. Witco shall have performed in
all material respects all obligations required to be performed by it under
this Agreement at or prior to the Closing Date, and Crompton shall have
received a certificate signed on behalf of Witco by the Chief Executive
Officer and the Chief Financial Officer of Witco to such effect.
8.3 CONDITIONS TO OBLIGATIONS OF WITCO. The obligation of Witco to effect
the Second Step Merger is also subject to the satisfaction or waiver by Witco at
or prior to the Effective Time of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of Crompton and Newco set forth in this Agreement shall be true and correct
in all material respects as of the date of this Agreement and (except to the
extent such representations and warranties speak as of an earlier date) as
of the Closing Date as though made on and as of the Closing Date; PROVIDED,
HOWEVER, that, for purposes of this paragraph, such representations and
warranties shall be deemed to be true and correct unless the failure or
failures of such representations and warranties to be so true and correct,
individually or in the aggregate, and without giving effect to any
qualification as to materiality set forth in such representations or
warranties, has had or could reasonably be expected to have a Material
Adverse Effect on Crompton. Witco shall have received a certificate signed
on behalf of Crompton by the Chief Executive Officer and the Chief Financial
Officer of Crompton to the foregoing effect.
(b) PERFORMANCE OF OBLIGATIONS OF CROMPTON. Each of Crompton and Newco
shall have performed in all material respects all obligations required to be
performed by it under this Agreement at or prior to the Closing Date, and
Witco shall have received a certificate signed on behalf of Crompton by the
Chief Executive Officer and the Chief Financial Officer of Crompton to such
effect.
ARTICLE IX
TERMINATION AND AMENDMENT
9.1 TERMINATION. This Agreement may be terminated at any time prior to the
First Effective Time, whether before or after approval of the matters presented
in connection with the Second Step Merger by the holders of Crompton Common
Stock or Witco Common Stock:
(a) by mutual consent of Crompton and Witco;
(b) by either the Board of Directors of Crompton or the Board of Directors
of Witco if any permanent injunction or other order or decree of a court or
other competent Governmental Authority preventing the Merger shall have become
final and nonappealable, provided that the party seeking to terminate this
Agreement under this Section 9.1(b) shall have used its reasonable best efforts
to remove such injunction, order or decree;
(c) by either the Board of Directors of Crompton or the Board of Directors
of Witco if the Second Step Merger shall not have been consummated on or before
December 31, 1999, unless the
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failure of the Closing to occur by such date shall be due to the failure of the
party seeking to terminate this Agreement to perform or observe the covenants
and agreements of such party set forth herein;
(d) by either the Board of Directors of Crompton or the Board of Directors
of Witco (PROVIDED that the terminating party is not then in breach of any
representation, warranty, covenant or other agreement contained herein) if there
shall have been a breach of any of the covenants or agreements or any of the
representations or warranties set forth in this Agreement on the part of Witco,
in the case of a termination by Crompton, or Crompton or Newco, in the case of a
termination by Witco, which breach, individually or together with other such
breaches, would constitute, if occurring or continuing on the Closing Date, the
failure of the conditions set forth in Section 8.2 or 8.3, as the case may be,
and which is not cured within 30 days following written notice to the party
committing such breach or by its nature or timing cannot be cured prior to the
Closing Date;
(e) by either the Board of Directors of Crompton or the Board of Directors
of Witco, (i) if, upon a vote at a duly held meeting to obtain the Witco
Stockholders Approval, the Witco Stockholders Approval is not obtained; or (ii)
if, upon a vote at a duly held meeting to obtain the Crompton Stockholders
Approval, the Crompton Stockholders Approval is not obtained;
(f) by the Board of Directors of Crompton, if the Board of Directors of
Witco, any committee thereof or Witco withdraws, or proposes to withdraw or
modify, in a manner adverse to Crompton, its approval or recommendation of this
Agreement and the transactions contemplated hereby or approves or recommends, or
proposes to approve or recommend, any Witco Competing Transaction;
(g) by the Board of Directors of Witco, if the Board of Directors of
Crompton, any committee thereof or Crompton withdraws, or proposes to withdraw
or modify, in a manner adverse to Witco, its approval of this Agreement and the
transactions contemplated hereby, or proposes to approve or recommend, any
Crompton Competing Transaction;
(h) by the Board of Directors of Crompton, if (i) prior to receipt of the
Crompton Stockholders Approval, Crompton has received a publicly disclosed
proposal for a Crompton Competing Transaction that constitutes a Qualifying
Crompton Proposal that was not solicited or encouraged by Crompton or its
representatives and that did not otherwise result from the breach or a deemed
breach of Section 7.2(g), (ii) the Board of Directors has determined in good
faith and on a reasonable basis, and based on the written advice of outside
counsel that not to so act would constitute a violation of such fiduciary
obligations, that it is necessary to (x) withdraw or modify its approval or
recommendation of this Agreement and the transactions contemplated hereby, (y)
terminate this Agreement pursuant hereto and (z) enter into a Crompton
Acquisition Agreement in connection with such Qualifying Crompton Proposal in
order to comply with its fiduciary obligations under Applicable Law, (iii)
Crompton has notified Witco in writing of the determination described in clause
(ii) above, (iv) at least ten business days following receipt by Witco of the
notice referred to in clause (iii) above, and taking into account any proposal
made by Witco since receipt of such notice to amend or modify the terms of the
transactions contemplated by this Agreement, such Qualifying Crompton Proposal
remains a Qualifying Crompton Proposal and the Board of Directors of Crompton
has again made the determination referred to in clause (ii) above, (v) Crompton
is in compliance with Section 7.2(g), (vi) Crompton has paid in advance the fee
due under Section 10.3(c) to Witco, and (vii) the Board of Directors of Crompton
concurrently approves, and Crompton concurrently enters into, a Crompton
Acquisition Agreement providing for the implementation of such Qualifying
Crompton Proposal; or
(i) by the Board of Directors of Witco, if (i) prior to receipt of the Witco
Stockholders Approval, Witco has received a publicly disclosed proposal for a
Witco Competing Transaction that constitutes a Qualifying Witco Proposal that
was not solicited or encouraged by Witco or its representatives and that did not
otherwise result from the breach or a deemed breach of Section 7.3(c), (ii) the
Board of Directors has determined in good faith and on a reasonable basis, and
based on the written advice of outside counsel that not to so act would
constitute a violation of such fiduciary obligations, that it is
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necessary to (x) withdraw or modify its approval or recommendation of this
Agreement and the transactions contemplated hereby, (y) terminate this Agreement
pursuant hereto and (z) enter into a Witco Acquisition Agreement in connection
with such Qualifying Witco Proposal in order to comply with its fiduciary
obligations under Applicable Law, (iii) Witco has notified Crompton in writing
of the determination described in clause (ii) above, (iv) at least ten business
days following receipt by Crompton of the notice referred to in clause (iii)
above, and taking into account any proposal made by Crompton since receipt of
such notice to amend or modify the terms of the transactions contemplated by
this Agreement, such Qualifying Witco Proposal remains a Qualifying Witco
Proposal and the Board of Directors of Witco has again made the determination
referred to in clause (ii) above, (v) Witco is in compliance with Section
7.3(c), (vi) Witco has paid in advance the fee due under Section 10.3(b) to
Crompton, and (vii) the Board of Directors of Witco concurrently approves, and
Witco concurrently enters into, a Witco Acquisition Agreement providing for the
implementation of such Qualifying Witco Proposal.
9.2 EFFECT OF TERMINATION. In the event of termination of this Agreement
by either Crompton or Witco as provided in Section 9.1, this Agreement shall
forthwith become void and have no effect, and none of Crompton, Witco, Newco,
any of their respective subsidiaries or any of the officers or directors of any
of them shall have any liability of any nature whatsoever hereunder, or in
connection with the transactions contemplated hereby, except that (a) the last
sentence of Section 7.1(f), Section 9.2 and Article X shall survive any
termination of this Agreement, and (b) notwithstanding anything to the contrary
contained in this Agreement, neither Crompton nor Witco shall be relieved or
released from any liabilities or damages arising out of its willful breach of
any provision of this Agreement.
9.3 AMENDMENT. Subject to compliance with Applicable Laws, this Agreement
may be amended by the parties hereto, by action taken or authorized by their
respective Boards of Directors, at any time before or after approval of the
matters presented in connection with Merger by the stockholders of Crompton and
Witco; PROVIDED, HOWEVER, that, after any approval of the transactions
contemplated by this Agreement by the respective stockholders of Crompton or
Witco, there may not be any amendment of this Agreement that by law requires the
further approval of such stockholders, without the further approval of such
stockholders. This Agreement may not be amended, except by an instrument in
writing signed on behalf of each of the parties hereto.
9.4 EXTENSION; WAIVER. At any time prior to the Effective Time, the
parties hereto, by action taken or authorized by their respective Board of
Directors, may, to the extent legally allowed, (a) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(b) waive any inaccuracies in the representations and warranties contained
herein or in any document delivered pursuant hereto and (c) waive compliance
with any of the agreements or conditions contained herein; PROVIDED, HOWEVER,
that after any approval of the transactions contemplated by this Agreement by
the respective stockholders of Crompton or Witco, there may not be any extension
or waiver of this Agreement or any portion thereof that by law requires the
further approval of such stockholders, without the further approval of such
stockholders. Any agreement on the part of a party hereto to any such extension
or waiver shall be valid only if set forth in a written instrument signed on
behalf of such party, but such extension or waiver or failure to insist on
strict compliance with an obligation, covenant, agreement or condition shall not
operate as a waiver of, or estoppel with respect to, any subsequent or other
failure.
ARTICLE X
GENERAL PROVISIONS
10.1 CLOSING. Subject to the terms and conditions of this Agreement and
the Option Agreements, the closing of the Second Step Merger (the "Closing")
will take place at 10:00 a.m. on a date and at a place to be specified by the
parties, which shall be no later than five business days after
A-39
the satisfaction or waiver (subject to Applicable Laws) of the latest to occur
of the conditions set forth in Article VIII, unless extended by mutual agreement
of the parties (the "Closing Date").
10.2 NONSURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS. None of
the representations, warranties, covenants and agreements in this Agreement or
in any instrument delivered pursuant to this Agreement (other than the Option
Agreements and the Confidentiality Agreement, which shall terminate in
accordance with terms) shall survive the Effective Time, except for those
covenants and agreements contained herein and therein that by their terms apply
in whole or in part after the Effective Time.
10.3 FEES AND EXPENSES. (a) All costs and expenses incurred in connection
with this Agreement and the transactions contemplated hereby shall be paid by
the party incurring such expense; PROVIDED, HOWEVER, that the costs and expenses
of printing and mailing the Joint Proxy Statement, and all filing and other fees
paid to the Commission in connection with the Merger, shall be borne equally by
Crompton and Witco.
(b) Witco shall pay to Crompton a fee of $30 million if: (i) Witco
terminates this Agreement pursuant to Section 9.1(i); (ii) Crompton terminates
this Agreement pursuant to Section 9.1(f); or (iii) any Witco Competing
Transaction proposed to Witco or publicly disclosed and, in each case, pending
prior to the earlier of (x) the Witco Stockholders Meeting and (y) the
occurrence of the earliest event or circumstance constituting the basis for the
termination of this Agreement, and thereafter either Crompton or Witco
terminates this Agreement pursuant to Section 9.1(c), Section 9.1(e)(i), or
Section 9.1(d) (but only in the case of termination by Crompton under such
Section 9.1(d)) and, in the case of clause (iii) above, within 12 months of such
termination Witco enters into a definitive agreement to consummate, or otherwise
consummates, the transactions contemplated by any Witco Competing Transaction.
Any fee due under this Section 10.3(b) shall be paid by wire transfer of
same-day funds on the date of termination of this Agreement (except that in the
case of termination pursuant to clause (iii) above such payment shall be made on
the date of execution of such definitive agreement or, if earlier, consummation
of such transactions).
(c) Crompton shall pay to Witco a fee of $30 million if: (i) Crompton
terminates this Agreement pursuant to Section 9.1(h); (ii) Witco terminates this
Agreement pursuant to Section 9.1(g); or (iii) any Crompton Competing
Transaction proposed to Crompton or publicly disclosed and, in each case,
pending prior to the earlier of (x) the Crompton Stockholders Meeting and (y)
the occurrence of the earliest event or circumstance constituting the basis for
the termination of this Agreement, and thereafter either Crompton or Witco
terminates this Agreement pursuant to Section 9.1(c), Section 9.1(e)(ii), or
Section 9.1(d) (but only in the case of termination by Witco under such Section
9.1(d)) and, in the case of clause (iii) above, within 12 months of such
termination Crompton enters into a definitive agreement to consummate, or
otherwise consummates, the transactions contemplated by any Crompton Competing
Transaction. Any fee due under this Section 10.3(c) shall be paid by wire
transfer of same-day funds on the date of termination of this Agreement (except
that in the case of termination pursuant to clause (iii) above such payment
shall be made on the date of execution of such definitive agreement or, if
earlier, consummation of such transactions).
A-40
10.4 NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally, telecopied (with
confirmation), mailed by registered or certified mail (return receipt requested)
or delivered by an express courier (with confirmation) to the parties at the
following addresses (or at such other address for a party as shall be specified
by like notice):
(a) if to Crompton or Newco, to:
Crompton & Knowles Corporation
One Station Place, Metro Center
Stamford, CT 06902
Attention: Charles J. Marsden/John T. Ferguson, II
Telecopy No.: (203) 353-5470
with a copy to:
Edward D. Herlihy
Wachtell, Lipton, Rosen & Katz
51 West 52(nd) Street
New York, NY 10019
Telecopy No.: (212) 403-2000
and
(b) if to Witco, to:
Witco Corporation
One American Lane
Greenwich, CT 06831
Attention: Cam DiFrancesco/Ed Smith
Telecopy No: (203) 552-2201
with a copy to:
Philip A. Gelston
Cravath, Swaine & Moore
825 Eighth Avenue
New York, NY 10019
Telecopy No.: (212) 424-3700
10.5 INTERPRETATION. When a reference is made in this Agreement to
Sections, Exhibits or Schedules, such reference shall be to a Section of or
Exhibit or Schedule to this Agreement unless otherwise indicated. The table of
contents and headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement. Whenever the words "include," "includes" or "including" are used in
this Agreement, they shall be deemed to be followed by the words "without
limitation." No provision of this Agreement shall be construed to require Witco,
Crompton, Newco or any of their respective subsidiaries or affiliates to take
any action that would violate any applicable law, rule or regulation.
10.6 COUNTERPARTS. This Agreement may be executed in counterparts, all of
which shall be considered one and the same agreement and shall become effective
when counterparts have been signed by each of the parties and delivered to the
other parties, it being understood that all parties need not sign the same
counterpart.
10.7 ENTIRE AGREEMENT. This Agreement (including the documents and the
instruments referred to herein) constitutes the entire agreement and supersedes
all prior agreements and understandings,
A-41
both written and oral, among the parties with respect to the subject matter
hereof other than the Option Agreements and the Confidentiality Agreement.
10.8 GOVERNING LAW. This Agreement shall be governed and construed in
accordance with the laws of the State of New York, without regard to any
applicable conflicts of law (except to the extent that mandatory provisions of
federal law or of the DGCL or MBCL are applicable).
10.9 SEVERABILITY. Any term or provision of this Agreement that is invalid
or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, the provision shall be interpreted
to be only so broad as is enforceable.
10.10 ASSIGNMENT; THIRD-PARTY BENEFICIARIES. Neither this Agreement nor
any of the rights, interests or obligations shall be assigned by any of the
parties hereto (whether by operation of law or otherwise) without the prior
written consent of the other parties. Subject to the preceding sentence, this
Agreement will be binding upon, inure to the benefit of and be enforceable by
the parties and their respective successors and assigns. Except for the
provisions of Section 7.2(c) and 7.2(d) that may be enforced by the persons
intended to be benefited thereby, this Agreement (including the documents and
instruments referred to herein) is not intended to confer upon any person other
than the parties hereto any rights or remedies hereunder.
10.11 CERTAIN AGREEMENTS OF CROMPTON AND WITCO. Each of Crompton and Witco
agree that the Combined Company may be sued in the Commonwealth of Massachusetts
for any prior obligation of Crompton or Witco and any obligation incurred by the
Combined Company after the Effective Time, so long as any liability remains
outstanding against any such entity in the Commonwealth of Massachusetts, and
the Combined Company irrevocably appoints the State Secretary of the
Commonwealth of Massachusetts as its agent to accept service of process in any
action for the enforcement of any such obligation, including taxes, in the
manner provided in Chapter 181 of the General Laws of the Commonwealth of
Massachusetts.
10.12 REPRESENTATIONS AND WARRANTIES OF NEWCO. For purposes of Article IV
and Section 8.2(a), Newco shall succeed to all representations and warranties of
Crompton after the First Effective Time as the successor corporation to
Crompton.
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IN WITNESS WHEREOF, Crompton, Witco and Newco have caused this Agreement to
be executed by their respective officers thereunto duly authorized as of the
date first above written.
CROMPTON & KNOWLES CORPORATON
BY: _________/S/ VINCENT A. CALARCO_________
____Name:_Vincent A. Calarco
____Title:_ Chairman of the Board, President
and Chief Executive Officer
PARK MERGER CO.
BY:__________/S/ VINCENT A. CALARCO_________
____Name:_Vincent A. Calarco
____Title:_ President
WITCO CORPORATION
BY:___________/S/ E. GARY COOK______________
____Name:_E. Gary Cook
____Title:_ Chairman of the Board, President
and Chief Executive Officer
APPENDIX A-1
AMENDMENT NO. 1
TO
AGREEMENT AND PLAN OF REORGANIZATION
AMENDMENT No. 1, dated as of July 27, 1999 (this "Amendment") by and among
Crompton & Knowles Corporation, a Massachusetts corporation ("Crompton"), CK
Witco Corporation (formerly known as Park Merger Co.), a Delaware corporation
and wholly owned subsidiary of Crompton ("CK Witco"), and Witco Corporation, a
Delaware corporation ("Witco" and, together with Crompton and CK Witco, and all
successors thereto, the "Parties").
WHEREAS, the Parties have previously entered into that certain Agreement and
Plan of Reorganization, dated as of May 31, 1999 (the "Agreement");
WHEREAS, the Parties wish to amend the Agreement, pursuant to Section 9.3 of
the Agreement, in the manner set forth below.
NOW, THEREFORE, the Parties agree as follows:
1. All capitalized terms used and not defined herein shall have the meanings
given them in the Agreement. All references to the Agreement in any other
agreement among the Parties relating to the transactions contemplated by the
Agreement shall be deemed to refer to the Agreement as amended hereby.
2. Section 2.12 of the Agreement is hereby amended and restated to state in
its entirety as follows:
2.12 NAME, CORPORATE OFFICES. (a) At the Effective Time, the name of the
Combined Company shall be "CK Witco Corporation."
(b) The corporate headquarters of the Combined Company shall be
maintained in the State of Connecticut.
3. This Amendment shall be governed by and construed in accordance with the
laws of the state of New York, without regard to the conflict of law principles
thereof.
4. This Amendment may be signed in any number of counterparts, each of which
shall be an original, with the same effect as if the signatures thereto and
hereto were upon the same instrument.
5. Except as expressly amended hereby, the Agreement shall remain in full
force and effect.
A-1-1
IN WITNESS WHEREOF, the Parties have caused this Amendment to be executed in
counterparts by their duly authorized officers, all as of the day and year first
above written.
CROMPTON & KNOWLES CORPORATION
By:_/s/ VINCENT A. CALARCO________________
Name: Vincent A. Calarco
Title: Chairman of the Board, President
and Chief Executive Officer
CK WITCO CORPORATION
By:_/s/ VINCENT A. CALARCO________________
Name: Vincent A. Calarco
Title: President
WITCO CORPORATION
By:_/s/ E. GARY COOK______________________
Name: E. Gary Cook
Title: Chairman of the Board, President
and Chief Executive Officer
A-1-2
APPENDIX B
EXECUTION COPY
THE TRANSFER OF THIS AGREEMENT IS SUBJECT TO
CERTAIN PROVISIONS CONTAINED HEREIN AND TO
RESALE RESTRICTIONS UNDER THE
SECURITIES ACT OF 1933, AS AMENDED
STOCK OPTION AGREEMENT, dated May 31, 1999, between Crompton & Knowles, a
Massachusetts corporation ("Issuer"), and Witco Corporation, a Delaware
corporation ("Grantee").
W I T N E S S E T H:
WHEREAS, Grantee and Issuer have entered into an Agreement and Plan of
Reorganization of even date herewith (the "Merger Agreement"), which agreement
has been executed by the parties hereto immediately prior to this Stock Option
Agreement (the "Agreement"); and
WHEREAS, as a condition to Grantee's entering into the Merger Agreement and
in consideration therefor, Issuer has agreed to grant Grantee the Option (as
hereinafter defined);
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements set forth herein and in the Merger Agreement, the parties hereto
agree as follows:
1. (a) Issuer hereby grants to Grantee an unconditional, irrevocable option
(the "Option") to purchase, subject to the terms hereof, up to 13,025,917 fully
paid and nonassessable shares of Issuer's Common Stock, par value $.10 per share
("Common Stock"), at a price of $18.375 per share (the "Option Price");
PROVIDED, HOWEVER, that in no event shall the number of shares of Common Stock
for which this Option is exercisable exceed 19.9% of the Issuer's issued and
outstanding shares of Common Stock without giving effect to any shares subject
to or issued pursuant to the Option. The number of shares of Common Stock that
may be received upon the exercise of the Option and the Option Price are subject
to adjustment as herein set forth.
(b) In the event that any additional shares of Common Stock are either
(i) issued or otherwise become outstanding after the date of this Agreement
(other than pursuant to this Agreement) or (ii) redeemed, repurchased,
retired or otherwise cease to be outstanding after the date of this
Agreement, the number of shares of Common Stock subject to the Option shall
be increased or decreased, as appropriate, so that, after such issuance,
such number equals 19.9% of the number of shares of Common Stock then issued
and outstanding without giving effect to any shares subject or issued
pursuant to the Option. Nothing contained in this Section 1(b) or elsewhere
in this Agreement shall be deemed to authorize Issuer or Grantee to breach
any provision of the Merger Agreement.
2. (a) The Holder (as hereinafter defined) may exercise the Option, in
whole or part, and from time to time, if, but only if, a Triggering Event (as
hereinafter defined) shall have occurred prior to the occurrence of an Exercise
Termination Event (as hereinafter defined), PROVIDED that the Holder shall have
sent the written notice of such exercise (as provided in subsection (c) of this
Section 2) within 60 days following such Triggering Event. A "Triggering Event"
shall mean any occurrence following which Grantee is entitled (without any
further contractual contingencies) to receive a termination fee pursuant to
Section 10.3[(b)][(c)] of the Merger Agreement. Each of the following shall be
an "Exercise Termination Event": (i) the Effective Time (as defined in the
Merger Agreement) of the Merger; (ii) termination of the Merger Agreement in
accordance with the provisions thereof if following such termination a
Triggering Event, by its terms, cannot occur; or (iii) such time after
termination of the Merger Agreement when a Triggering Event, by its terms,
cannot thereafter occur. The term "Holder" shall mean the holder or holders of
the Option.
B-1
(b) Issuer shall notify Grantee promptly in writing of the occurrence of
any Triggering Event of which it has notice, it being understood that the
giving of such notice by Issuer shall not be a condition to the right of the
Holder to exercise the Option.
(c) In the event the Holder is entitled to and wishes to exercise the
Option, it shall send to Issuer a written notice (the date of which being
herein referred to as the "Notice Date") specifying (i) the total number of
shares it will purchase pursuant to such exercise and (ii) a place and date
not earlier than three business days nor later than 60 business days from
the Notice Date for the closing of such purchase (the "Closing Date");
PROVIDED that if prior notification to or approval of any regulatory agency
is required in connection with such purchase, the Holder shall promptly file
the required notice or application for approval and shall expeditiously
process the same and the period of time that otherwise would run pursuant to
this sentence shall run instead from the date on which any required
notification periods have expired or been terminated or such approvals have
been obtained and any requisite waiting period or periods shall have passed.
Any exercise of the Option shall be deemed to occur on the Notice Date
relating thereto.
(d) At the closing referred to in subsection (c) of this Section 2, the
Holder shall pay to Issuer the aggregate purchase price for the shares of
Common Stock purchased pursuant to the exercise of the Option in immediately
available funds by wire transfer to a bank account designated by Issuer,
PROVIDED that failure or refusal of Issuer to designate such a bank account
shall not preclude the Holder from exercising the Option.
(e) At such closing, simultaneously with the delivery of immediately
available funds as provided in subsection (d) of this Section 2, Issuer
shall deliver to the Holder a certificate or certificates representing the
number of shares of Common Stock purchased by the Holder and, if the Option
should be exercised in part only, a new Option evidencing the rights of the
Holder thereof to purchase the balance of the shares purchasable hereunder,
and the Holder shall deliver to Issuer this Agreement and a letter agreeing
that the Holder will not offer to sell or otherwise dispose of such shares
in violation of applicable law or the provisions of this Agreement.
(f) Certificates for Common Stock delivered at a closing hereunder may
be endorsed with a restrictive legend that shall read substantially as
follows:
"The transfer of the shares represented by this certificate is
subject to certain provisions of an agreement between the registered
holder hereof and Issuer and to resale restrictions arising under the
Securities Act of 1933, as amended. A copy of such agreement is on
file at the principal office of Issuer and will be provided to the
holder hereof without charge upon receipt by Issuer of a written
request therefor."
It is understood and agreed that: (i) the reference to the resale restrictions
of the Securities Act of 1933, as amended (the "1933 Act"), in the above legend
shall be removed by delivery of substitute certificate(s) without such reference
if the Holder shall have delivered to Issuer a copy of a letter from the staff
of the SEC, or an opinion of counsel, in form and substance reasonably
satisfactory to Issuer, to the effect that such legend is not required for
purposes of the 1933 Act; (ii) the reference to the provisions to this Agreement
in the above legend shall be removed by delivery of substitute certificate(s)
without such reference if the shares have been sold or transferred in compliance
with the provisions of this Agreement and under circumstances that do not
require the retention of such reference; and (iii) the legend shall be removed
in its entirety if the conditions in the preceding clauses (i) and (ii) are both
satisfied. In addition, such certificates shall bear any other legend as may be
required by law.
(g) Upon the giving by the Holder to Issuer of the written notice of
exercise of the Option provided for under subsection (c) of this Section 2
and the tender of the applicable purchase price in immediately available
funds, the Holder shall be deemed to be the holder of record of the
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shares of Common Stock issuable upon such exercise, notwithstanding that the
stock transfer books of Issuer shall then be closed or that certificates
representing such shares of Common Stock shall not then be actually
delivered to the Holder. Issuer shall pay all expenses, and any and all
United States federal, state and local taxes and other charges that may be
payable in connection with the preparation, issue and delivery of stock
certificates under this Section 2 in the name of the Holder or its assignee,
transferee or designee.
3. Issuer agrees: (i) that it shall at all times maintain, free from
preemptive rights, sufficient authorized but unissued or treasury shares of
Common Stock so that the Option may be exercised without additional
authorization of Common Stock after giving effect to all other options,
warrants, convertible securities and other rights to purchase Common Stock; (ii)
that it will not, by charter amendment or through reorganization, consolidation,
merger, dissolution or sale of assets, or by any other voluntary act, avoid or
seek to avoid the observance or performance of any of the covenants,
stipulations or conditions to be observed or performed hereunder by Issuer;
(iii) use its reasonable best efforts to promptly to take all action as may from
time to time be required (including complying with all premerger notification,
reporting and waiting period requirements specified in 15 U.S.C. Section 18a and
regulations promulgated thereunder) in order to permit the Holder to exercise
the Option and Issuer duly and effectively to issue shares of Common Stock
pursuant hereto; and (iv) use its reasonable best efforts to promptly to take
all action provided herein to protect the rights of the Holder against dilution.
4. This Agreement and the Option granted hereby are exchangeable, without
expense, at the option of the Holder, upon presentation and surrender of this
Agreement at the principal office of Issuer, for other Agreements providing for
Options of different denominations entitling the holder thereof to purchase, on
the same terms and subject to the same conditions as are set forth herein, in
the aggregate the same number of shares of Common Stock purchasable hereunder.
The terms "Agreement" and "Option" as used herein include any Stock Option
Agreements and related Options for which this Agreement (and the Option granted
hereby) may be exchanged. Upon receipt by Issuer of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of this
Agreement, and (in the case of loss, theft or destruction) of reasonably
satisfactory indemnification, and upon surrender and cancellation of this
Agreement, if mutilated, Issuer will execute and deliver a new Agreement of like
tenor and date. Any such new Agreement executed and delivered shall constitute
an additional contractual obligation on the part of Issuer, whether or not the
Agreement so lost, stolen, destroyed or mutilated shall at any time be
enforceable by anyone.
5. In addition to the adjustment in the number of shares of Common Stock
that are purchasable upon exercise of the Option pursuant to Section 1 of this
Agreement, the number of shares of Common Stock purchasable upon the exercise of
the Option and the Option Price shall be subject to adjustment from time to time
as provided in this Section 5. In the event of any change in, or distributions
in respect of, the Common Stock by reason of stock dividends, split-ups,
mergers, recapitalizations, combinations, subdivisions, conversions, exchanges
of shares, distributions on or in respect of the Common Stock that would be
prohibited under the terms of the Merger Agreement, or the like, the type and
number of shares of Common Stock purchasable upon exercise hereof and the Option
Price shall be appropriately adjusted in such manner as shall fully preserve the
economic benefits provided hereunder and proper provision shall be made in any
agreement governing any such transaction to provide for such proper adjustment
and the full satisfaction of the Issuer's obligations hereunder.
6. Upon the occurrence of a Triggering Event that occurs prior to an
Exercise Termination Event, Issuer shall, at the request of Grantee delivered
within 60 days of such Triggering Event (whether on its own behalf or on behalf
of any subsequent holder of this Option (or part thereof) or any of the shares
of Common Stock issued pursuant hereto), promptly prepare, file and keep current
a shelf registration statement under the 1933 Act covering this Option and any
shares issued and issuable pursuant to this
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Option and shall use its reasonable best efforts to cause such registration
statement to become effective and remain current in order to permit the sale or
other disposition of this Option and any shares of Common Stock issued upon
total or partial exercise of this Option ("Option Shares") in accordance with
any plan of disposition requested by Grantee. Issuer will use its reasonable
best efforts to cause such registration statement first to become effective and
then to remain effective for such period not in excess of 180 days from the day
such registration statement first becomes effective or such shorter time as may
be reasonably necessary to effect such sales or other dispositions. Grantee
shall have the right to demand two such registrations. The foregoing
notwithstanding, if, at the time of any request by Grantee for registration of
the Option or Option Shares as provided above, Issuer is in registration with
respect to an underwritten public offering of shares of Common Stock, and if in
the good faith judgment of the managing underwriter or managing underwriters,
or, if none, the sole underwriter or underwriters, of such offering the
inclusion of the Holder's Option or Option Shares would interfere with the
successful marketing of the shares of Common Stock offered by Issuer, the number
of Option Shares otherwise to be covered in the registration statement
contemplated hereby may be reduced; PROVIDED, HOWEVER, that after any such
required reduction the number of Option Shares to be included in such offering
for the account of the Holder shall constitute at least 25% of the total number
of shares to be sold by the Holder and Issuer in the aggregate; and PROVIDED
FURTHER, however, that if such reduction occurs, then the Issuer shall file a
registration statement for the balance as promptly as practicable and no
reduction shall thereafter occur. Each such Holder shall provide all information
reasonably requested by Issuer for inclusion in any registration statement to be
filed hereunder. If requested by any such Holder in connection with such
registration, Issuer shall become a party to any underwriting agreement relating
to the sale of such shares, but only to the extent of obligating itself in
respect of representations, warranties, indemnities and other agreements
customarily included in secondary offering underwriting agreements for the
Issuer. Upon receiving any request under this Section 6 from any Holder, Issuer
agrees to send a copy thereof to any other person known to Issuer to be entitled
to registration rights under this Section 6, in each case by promptly mailing
the same, postage prepaid, to the address of record of the persons entitled to
receive such copies. Notwithstanding anything to the contrary contained herein,
in no event shall Issuer be obligated to effect more than two registrations
pursuant to this Section 6 by reason of the fact that there shall be more than
one Grantee as a result of any assignment or division of this Agreement.
7. (a) Notwithstanding any other provision of this Agreement, in no event
shall the Total Option Profit (as hereinafter defined) exceed in the aggregate
$30 million.
(b) Notwithstanding any other provision of this Agreement, this Option
may not be exercised for a number of shares as would, as of the date of
exercise, result in a Notional Total Option Profit (as hereinafter defined)
which would exceed in the aggregate $30 million.
(c) As used herein, the term "Total Option Profit" shall mean the
aggregate amount (before taxes) of the following: (i) (x) the amount
received by Grantee pursuant to Section 15, less (y) Grantee's purchase
price for any Option Shares, (ii) (x) the amount received by Grantee
pursuant to the sale of Option Shares to any unaffiliated party, valuing any
non-cash consideration at its fair market value, less (y) Grantee's purchase
price for such Option Shares, and (iii) any equivalent amount with respect
to the Substitute Option.
(d) As used herein, the term "Notional Total Option Profit" with respect
to any number of shares of Common Stock as to which Grantee has delivered an
exercise notice shall be the Total Option Profit determined as of the Notice
Date assuming that the Option were exercised on such date for such number of
shares of Common Stock and assuming that such shares, together with all
other Option Shares held by Grantee and its affiliates as of such date, were
sold for cash at the closing market price for the Common Stock as of the
close of business on the preceding trading day (less customary brokerage
commissions or underwriting discounts).
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8. (a) In the event that prior to an Exercise Termination Event, Issuer
shall enter into an agreement (i) to consolidate with or merge into any person,
other than Grantee or one of its Subsidiaries, and shall not be the continuing
or surviving corporation of such consolidation or merger, (ii) to permit any
person, other than Grantee or one of its Subsidiaries, to merge into Issuer and
Issuer shall be the continuing or surviving corporation, but, in connection with
such merger, the then outstanding shares of Common Stock shall be changed into
or exchanged for stock or other securities of any other person or cash or any
other property or the then outstanding shares of Common Stock shall after such
merger represent less than 50% of the outstanding voting shares and voting share
equivalents of the merged company, or (iii) to sell or otherwise transfer all or
substantially all of its assets to any person, other than Grantee or one of its
Subsidiaries, then, and in each such case, the agreement governing such
transaction shall make proper provision so that the Option shall, upon the
consummation of any such transaction and upon the terms and conditions set forth
herein, be converted into, or exchanged for, an option (the "Substitute
Option"), at the election of the Holder, of either (x) the Acquiring Corporation
(as hereinafter defined) or (y) any person that controls the Acquiring
Corporation.
(b) The following terms have the meanings indicated:
(A) "Acquiring Corporation" shall mean (i) the continuing or
surviving corporation of a consolidation or merger with Issuer (if other
than Issuer), (ii) Issuer in a merger in which Issuer is the continuing
or surviving person, and (iii) the transferee of all or substantially all
of Issuer's assets.
(B) "Substitute Common Stock" shall mean the common stock issued by
the issuer of the Substitute Option upon exercise of the Substitute
Option.
(3) "Assigned Value" shall mean the highest of (i) the price per
share of Common Stock at which a tender offer or exchange offer therefor
has been made, (ii) the price per share of Common Stock to be paid by any
third party pursuant to an agreement with Issuer, (iii) the highest
closing price for shares of Common Stock within the immediately preceding
six-month period, or (iv) in the event of a sale of all or a substantial
portion of Issuer's assets, the sum of the price paid in such sale for
such assets and the current market value of the remaining assets of
Issuer as determined by a nationally recognized investment banking firm
selected by the Holder and reasonably acceptable to the Issuer, divided
by the number of shares of Common Stock of Issuer outstanding at the time
of such sale.
(4) "Average Price" shall mean the average closing price of a share
of the Substitute Common Stock for the 45 business days immediately
preceding the consolidation, merger or sale in question, but in no event
higher than the closing price of the shares of Substitute Common Stock on
the day preceding such consolidation, merger or sale; PROVIDED that if
Issuer is the issuer of the Substitute Option, the Average Price shall be
computed with respect to a share of common stock issued by the person
merging into Issuer or by any company which controls or is controlled by
such person, as the Holder may elect.
(c) The Substitute Option shall have the same terms as the Option,
PROVIDED, that if the terms of the Substitute Option cannot, for legal
reasons, be the same as the Option, such terms shall be as similar as
possible and in no event less advantageous to the Holder. The issuer of the
Substitute Option shall also enter into an agreement with the then Holder or
Holders of the Substitute Option in substantially the same form as this
Agreement, which shall be applicable to the Substitute Option.
(d) The Substitute Option shall be exercisable for such number of shares
of Substitute Common Stock as is equal to the Assigned Value multiplied by
the number of shares of Common Stock for which the Option is then
exercisable, divided by the Average Price. The exercise price of
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the Substitute Option per share of Substitute Common Stock shall then be
equal to the Option Price multiplied by a fraction, the numerator of which
shall be the number of shares of Common Stock for which the Option is then
exercisable and the denominator of which shall be the number of shares of
Substitute Common Stock for which the Substitute Option is exercisable.
(e) In no event, pursuant to any of the foregoing paragraphs, shall the
Substitute Option be exercisable for more than 19.9% of the shares of
Substitute Common Stock outstanding prior to exercise of the Substitute
Option. In the event that the Substitute Option would be exercisable for
more than 19.9% of the shares of Substitute Common Stock outstanding prior
to exercise but for this clause (e), the issuer of the Substitute Option
(the "Substitute Option Issuer") shall make a cash payment to Holder equal
to the excess of (i) the value of the Substitute Option without giving
effect to the limitation in this clause (e) over (ii) the value of the
Substitute Option after giving effect to the limitation in this clause (e).
This difference in value shall be determined by a nationally recognized
investment banking firm selected by the Holder or the Owner, as the case may
be, and reasonably acceptable to the Acquiring Corporation.
(f) Issuer shall not enter into any transaction described in subsection
(a) of this Section 8 unless the Acquiring Corporation and any person that
controls the Acquiring Corporation assume in writing all the obligations of
Issuer hereunder.
9. [Intentionally Omitted]
10. The 60-day period for exercise of certain rights under Sections 2, 6
and 13 shall be extended: (i) to the extent necessary to obtain all regulatory
approvals for the exercise of such rights and for the expiration of all
statutory waiting periods; and (ii) to the extent necessary to avoid liability
under Section 16(b) of the 1934 Act by reason of such exercise.
11. Issuer hereby represents and warrants to Grantee as follows:
(a) Issuer has full corporate power and authority to execute and deliver
this Agreement and to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly authorized by
the Board of Directors of Issuer and no other corporate proceedings on the
part of Issuer are necessary to authorize this Agreement or to consummate
the transactions so contemplated. This Agreement has been duly and validly
executed and delivered by Issuer.
(b) Issuer has taken all necessary corporate action to authorize and
reserve and to permit it to issue, and at all times from the date hereof
through the termination of this Agreement in accordance with its terms will
have reserved for issuance upon the exercise of the Option, that number of
shares of Common Stock equal to the maximum number of shares of Common Stock
at any time and from time to time issuable hereunder, and all such shares,
upon issuance pursuant hereto, will be duly authorized, validly issued,
fully paid, nonassessable, and will be delivered free and clear of all
claims, liens, encumbrance and security interests and not subject to any
preemptive rights.
(c) Issuer has taken all action (including if required redeeming all of
the Rights or amending or terminating the Rights Agreement) so that the
entering into of this Option Agreement, the acquisition of shares of Common
Stock hereunder and the other transactions contemplated hereby do not and
will not result in the grant of any rights to any person under the Rights
Agreement or enable or require the Rights to be exercised, distributed or
triggered.
12. Grantee hereby represents and warrants to Issuer that:
(a) Grantee has all requisite corporate power and authority to enter
into this Agreement and, subject to any approvals or consents referred to
herein, to consummate the transactions contemplated hereby. The execution
and delivery of this Agreement and the consummation of the
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transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of Grantee. This Agreement has been duly
executed and delivered by Grantee.
(b) The Option is not being, and any shares of Common Stock or other
securities acquired by Grantee upon exercise of the Option will not be,
acquired with a view to the public distribution thereof and will not be
transferred or otherwise disposed of except in a transaction registered or
exempt from registration under the 1933 Act.
13. Neither of the parties hereto may assign any of its rights or
obligations under this Agreement or the Option created hereunder to any other
person, without the express written consent of the other party, except that in
the event a Triggering Event shall have occurred prior to an Exercise
Termination Event, Grantee, subject to the express provisions hereof, may assign
in whole or in part its rights and obligations hereunder within 90 days
following such Triggering Event (or such later period as provided in Section
10).
14. Each of Grantee and Issuer will use its reasonable best efforts to make
all filings with, and to obtain consents of, all third parties and governmental
authorities necessary to the consummation of the transactions contemplated by
this Agreement, including without limitation making application to list the
shares of Common Stock issuable hereunder on the New York Stock Exchange upon
official notice of issuance.
15. (a) At any time from and after the occurrence of a Triggering Event,
(i) following a request of the Holder, delivered prior to an Exercise
Termination Event, Issuer (or any successor thereto) shall repurchase the Option
from the Holder at a price (the "Option Repurchase Price") equal to the amount
by which (A) the Market/Offer Price (as defined below) exceeds (B) the Option
Price, multiplied by the number of shares for which this Option may then be
exercised and (ii) at the request of the owner of Option Shares from time to
time (the "Owner"), delivered within 60 days of such occurrence (or such later
period as provided in Section 10), Issuer shall repurchase such number of the
Option Shares from the Owner as the Owner shall designate at a price (the
"Option Share Repurchase Price") equal to the Market/Offer Price multiplied by
the number of Option Shares so designated. The term "Market/Offer Price" shall
mean the highest of (i) the highest price per share of Common Stock to be paid
or received in connection with or as a result of such Triggering Event
(including, in the event of a sale of all or a substantial portion of Issuer's
assets, the sum of the price paid in such sale for such assets and the current
market value of the remaining assets of Issuer as determined by a nationally
recognized investment banking firm selected by the Holder or the Owner, as the
case may be, and reasonably acceptable to the Issuer, divided by the number of
shares of Common Stock of Issuer outstanding at the time of such sale), or (ii)
the highest closing price for shares of Common Stock within the six-month period
immediately preceding the date the Holder gives notice of the required
repurchase of this Option or the Owner gives notice of the required repurchase
of Option Shares, as the case may be. In determining the Market/Offer Price, the
value of consideration other than cash shall be determined by a nationally
recognized investment banking firm selected by the Holder or Owner, as the case
may be, and reasonably acceptable to the Issuer.
(b) The Holder and the Owner, as the case may be, may exercise its right
to require Issuer to repurchase the Option and any Option Shares pursuant to
this Section 15 by surrendering for such purpose to Issuer, at its principal
office, this Agreement or certificates for Option Shares, as applicable,
accompanied by a written notice or notices stating that the Holder or the
Owner, as the case may be, elects to require Issuer to repurchase this
Option and/or the Option Shares in accordance with the provisions of this
Section 15. Within the latter to occur of (x) five business days after the
surrender of the Option and/or certificates representing Option Shares and
the receipt of such notice or notices relating thereto and (y) the time that
is immediately prior to the occurrence of a Triggering Event, Issuer shall
deliver or cause to be delivered to the Holder the Option Repurchase Price
and/or to the Owner the Option Share Repurchase Price therefor or the
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portion thereof, if any, that Issuer is not then prohibited under applicable
law and regulation from so delivering.
(c) To the extent that Issuer is prohibited under applicable law or
regulation from repurchasing the Option and/or the Option Shares in full,
Issuer shall immediately so notify the Holder and/or the Owner and
thereafter deliver or cause to be delivered, from time to time, to the
Holder and/or the Owner, as appropriate, the portion of the Option
Repurchase Price and the Option Share Repurchase Price, respectively, that
it is no longer prohibited from delivering, within five business days after
the date on which Issuer is no longer so prohibited; PROVIDED, HOWEVER, that
if Issuer at any time after delivery of a notice of repurchase pursuant to
paragraph (b) of this Section 15 is prohibited under applicable law or
regulation from delivering to the Holder and/or the Owner, as appropriate,
the Option Repurchase Price and the Option Share Repurchase Price,
respectively, in full (and Issuer hereby undertakes to use its reasonable
best efforts to obtain all required regulatory and legal approvals and to
file any required notices, in each case as promptly as practicable in order
to accomplish such repurchase), the Holder or Owner may revoke its notice of
repurchase of the Option or the Option Shares either in whole or to the
extent of the prohibition, whereupon, in the latter case, Issuer shall
promptly (i) deliver to the Holder and/or the Owner, as appropriate, that
portion of the Option Repurchase Price or the Option Share Repurchase Price
that Issuer is not prohibited from delivering; and (ii) deliver, as
appropriate, either (A) to the Holder, a new Stock Option Agreement
evidencing the right of the Holder to purchase that number of shares of
Common Stock obtained by multiplying the number of shares of Common Stock
for which the surrendered Stock Option Agreement was exercisable at the time
of delivery of the notice of repurchase by a fraction, the numerator of
which is the Option Repurchase Price less the portion thereof theretofore
delivered to the Holder and the denominator of which is the Option
Repurchase Price, or (B) to the Owner, a certificate for the Option Shares
it is then so prohibited from repurchasing.
(d) The parties hereto agree that Issuer's obligations to repurchase the
Option or Option Shares under this Section 15 shall not terminate upon the
occurrence of an Exercise Termination Event unless no Triggering Event shall
have occurred prior to the occurrence of an Exercise Termination Event.
(e) The Holder and any Owner shall have rights substantially identical
to those set forth in paragraphs (a), (b), (c) and (d) of this Section 15
with respect to the Substitute Option, the Substitute Common Stock and the
Substitute Option Issuer.
16. The parties hereto acknowledge that damages would be an inadequate
remedy for a breach of this Agreement by either party hereto and that the
obligations of the parties hereto shall be enforceable by either party hereto
through injunctive or other equitable relief.
17. If any term, provision, covenant or restriction contained in this
Agreement is held by a court or a federal or state regulatory agency of
competent jurisdiction to be invalid, void or unenforceable, the remainder of
the terms, provisions and covenants and restrictions contained in this Agreement
shall remain in full force and effect, and shall in no way be affected, impaired
or invalidated. If for any reason such court or regulatory agency determines
that the Holder is not permitted to acquire, or Issuer is not permitted to
repurchase pursuant to Section 15, the full number of shares of Common Stock
provided in Section 1(a) hereof (as adjusted pursuant to Section 1(b) or 5
hereof), it is the express intention of Issuer to allow the Holder to acquire or
to require Issuer to repurchase such lesser number of shares as may be
permissible, without any amendment or modification hereof.
18. All notices, requests, claims, demands and other communications
hereunder shall be deemed to have been duly given when delivered in person, by
cable, telegram, telecopy or telex, or by registered or certified mail (postage
prepaid, return receipt requested) at the respective addresses of the parties
set forth in the Merger Agreement.
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19. This Agreement shall be governed by and construed in accordance with
the laws of the State of New York, regardless of the laws that might otherwise
govern under applicable principles of conflicts of laws thereof (except to the
extent that mandatory provisions of federal or state law apply).
20. This Agreement may be executed in two counterparts, each of which shall
be deemed to be an original, but all of which shall constitute one and the same
agreement.
21. Except as otherwise expressly provided herein, each of the parties
hereto shall bear and pay all costs and expenses incurred by it or on its behalf
in connection with the transactions contemplated hereunder, including fees and
expenses of its own financial consultants, investment bankers, accountants and
counsel.
22. Except as otherwise expressly provided herein or in the Merger
Agreement, this Agreement contains the entire agreement between the parties with
respect to the transactions contemplated hereunder and supersedes all prior
arrangements or understandings with respect thereof, written or oral. The terms
and conditions of this Agreement shall inure to the benefit of and be binding
upon the parties hereto and their respective successors and permitted assigns.
Nothing in this Agreement, expressed or implied, is intended to confer upon any
party, other than the parties hereto, and their respective successors and
permitted assigns, any rights, remedies, obligations or liabilities under or by
reason of this Agreement, except as expressly provided herein.
23. Capitalized terms used in this Agreement and not defined herein shall
have the meanings assigned thereto in the Merger Agreement.
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IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed on its behalf by its officers thereunto duly authorized, all as of the
date first above written.
CROMPTON & KNOWLES CORPORATION
By: _________/S/ VINCENT A. CALARCO_________
Name: Vincent A. Calarco
Title: Chairman of the Board, President
and Chief Executive Officer
WITCO CORPORATION
By: __________/S/ E. GARY COOK______________
Name: E. Gary Cook
Title: Chairman of the Board, President
and Chief Executive Officer
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APPENDIX C
EXECUTION COPY
THE TRANSFER OF THIS AGREEMENT IS SUBJECT TO
CERTAIN PROVISIONS CONTAINED HEREIN AND TO
RESALE RESTRICTIONS UNDER THE
SECURITIES ACT OF 1933, AS AMENDED
STOCK OPTION AGREEMENT, dated May 31, 1999, between Witco Corporation, a
Delaware corporation ("Issuer"), and Crompton & Knowles Corporation, a
Massachusetts corporation ("Grantee").
W I T N E S S E T H:
WHEREAS, Grantee and Issuer have entered into an Agreement and Plan of
Reorganization of even date herewith (the "Merger Agreement"), which agreement
has been executed by the parties hereto immediately prior to this Stock Option
Agreement (the "Agreement"); and
WHEREAS, as a condition to Grantee's entering into the Merger Agreement and
in consideration therefor, Issuer has agreed to grant Grantee the Option (as
hereinafter defined);
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements set forth herein and in the Merger Agreement, the parties hereto
agree as follows:
1. (a) Issuer hereby grants to Grantee an unconditional, irrevocable option
(the "Option") to purchase, subject to the terms hereof, up to 11,471,159 fully
paid and nonassessable shares of Issuer's Common Stock, par value $5.00 per
share ("Common Stock"), at a price of $17.50 per share (the "Option Price");
PROVIDED, HOWEVER, that in no event shall the number of shares of Common Stock
for which this Option is exercisable exceed 19.9% of the Issuer's issued and
outstanding shares of Common Stock without giving effect to any shares subject
to or issued pursuant to the Option. The number of shares of Common Stock that
may be received upon the exercise of the Option and the Option Price are subject
to adjustment as herein set forth.
(b) In the event that any additional shares of Common Stock are either
(i) issued or otherwise become outstanding after the date of this Agreement
(other than pursuant to this Agreement) or (ii) redeemed, repurchased,
retired or otherwise cease to be outstanding after the date of this
Agreement, the number of shares of Common Stock subject to the Option shall
be increased or decreased, as appropriate, so that, after such issuance,
such number equals 19.9% of the number of shares of Common Stock then issued
and outstanding without giving effect to any shares subject or issued
pursuant to the Option. Nothing contained in this Section 1(b) or elsewhere
in this Agreement shall be deemed to authorize Issuer or Grantee to breach
any provision of the Merger Agreement.
2. (a) The Holder (as hereinafter defined) may exercise the Option, in whole
or part, and from time to time, if, but only if, a Triggering Event (as
hereinafter defined) shall have occurred prior to the occurrence of an Exercise
Termination Event (as hereinafter defined), PROVIDED that the Holder shall have
sent the written notice of such exercise (as provided in subsection (c) of this
Section 2) within 60 days following such Triggering Event. A "Triggering Event"
shall mean any occurrence following which Grantee is entitled (without any
further contractual contingencies) to receive a termination fee pursuant to
Section 10.3[(b)][(c)] of the Merger Agreement. Each of the following shall be
an "Exercise Termination Event": (i) the Effective Time (as defined in the
Merger Agreement) of the Merger; (ii) termination of the Merger Agreement in
accordance with the provisions thereof if following such termination a
Triggering Event, by its terms, cannot occur; or (iii) such time after
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termination of the Merger Agreement when a Triggering Event, by its terms,
cannot thereafter occur. The term "Holder" shall mean the holder or holders of
the Option.
(b) Issuer shall notify Grantee promptly in writing of the occurrence of
any Triggering Event of which it has notice, it being understood that the
giving of such notice by Issuer shall not be a condition to the right of the
Holder to exercise the Option.
(c) In the event the Holder is entitled to and wishes to exercise the
Option, it shall send to Issuer a written notice (the date of which being
herein referred to as the "Notice Date") specifying (i) the total number of
shares it will purchase pursuant to such exercise and (ii) a place and date
not earlier than three business days nor later than 60 business days from
the Notice Date for the closing of such purchase (the "Closing Date");
PROVIDED that if prior notification to or approval of any regulatory agency
is required in connection with such purchase, the Holder shall promptly file
the required notice or application for approval and shall expeditiously
process the same and the period of time that otherwise would run pursuant to
this sentence shall run instead from the date on which any required
notification periods have expired or been terminated or such approvals have
been obtained and any requisite waiting period or periods shall have passed.
Any exercise of the Option shall be deemed to occur on the Notice Date
relating thereto.
(d) At the closing referred to in subsection (c) of this Section 2, the
Holder shall pay to Issuer the aggregate purchase price for the shares of
Common Stock purchased pursuant to the exercise of the Option in immediately
available funds by wire transfer to a bank account designated by Issuer,
PROVIDED that failure or refusal of Issuer to designate such a bank account
shall not preclude the Holder from exercising the Option.
(e) At such closing, simultaneously with the delivery of immediately
available funds as provided in subsection (d) of this Section 2, Issuer
shall deliver to the Holder a certificate or certificates representing the
number of shares of Common Stock purchased by the Holder and, if the Option
should be exercised in part only, a new Option evidencing the rights of the
Holder thereof to purchase the balance of the shares purchasable hereunder,
and the Holder shall deliver to Issuer this Agreement and a letter agreeing
that the Holder will not offer to sell or otherwise dispose of such shares
in violation of applicable law or the provisions of this Agreement.
(f) Certificates for Common Stock delivered at a closing hereunder may
be endorsed with a restrictive legend that shall read substantially as
follows:
"The transfer of the shares represented by this certificate is subject to
certain provisions of an agreement between the registered holder hereof
and Issuer and to resale restrictions arising under the Securities Act of
1933, as amended. A copy of such agreement is on file at the principal
office of Issuer and will be provided to the holder hereof without charge
upon receipt by Issuer of a written request therefor."
It is understood and agreed that: (i) the reference to the resale restrictions
of the Securities Act of 1933, as amended (the "1933 Act"), in the above legend
shall be removed by delivery of substitute certificate(s) without such reference
if the Holder shall have delivered to Issuer a copy of a letter from the staff
of the SEC, or an opinion of counsel, in form and substance reasonably
satisfactory to Issuer, to the effect that such legend is not required for
purposes of the 1933 Act; (ii) the reference to the provisions to this Agreement
in the above legend shall be removed by delivery of substitute certificate(s)
without such reference if the shares have been sold or transferred in compliance
with the provisions of this Agreement and under circumstances that do not
require the retention of such reference; and (iii) the legend shall be removed
in its entirety if the conditions in the preceding clauses (i) and (ii) are both
satisfied. In addition, such certificates shall bear any other legend as may be
required by law.
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(g) Upon the giving by the Holder to Issuer of the written notice of
exercise of the Option provided for under subsection (c) of this Section 2
and the tender of the applicable purchase price in immediately available
funds, the Holder shall be deemed to be the holder of record of the shares
of Common Stock issuable upon such exercise, notwithstanding that the stock
transfer books of Issuer shall then be closed or that certificates
representing such shares of Common Stock shall not then be actually
delivered to the Holder. Issuer shall pay all expenses, and any and all
United States federal, state and local taxes and other charges that may be
payable in connection with the preparation, issue and delivery of stock
certificates under this Section 2 in the name of the Holder or its assignee,
transferee or designee.
3. Issuer agrees: (i) that it shall at all times maintain, free from
preemptive rights, sufficient authorized but unissued or treasury shares of
Common Stock so that the Option may be exercised without additional
authorization of Common Stock after giving effect to all other options,
warrants, convertible securities and other rights to purchase Common Stock; (ii)
that it will not, by charter amendment or through reorganization, consolidation,
merger, dissolution or sale of assets, or by any other voluntary act, avoid or
seek to avoid the observance or performance of any of the covenants,
stipulations or conditions to be observed or performed hereunder by Issuer;
(iii) use its reasonable best efforts to promptly to take all action as may from
time to time be required (including complying with all premerger notification,
reporting and waiting period requirements specified in 15 U.S.C. Section 18a and
regulations promulgated thereunder) in order to permit the Holder to exercise
the Option and Issuer duly and effectively to issue shares of Common Stock
pursuant hereto; and (iv) use its reasonable best efforts to promptly to take
all action provided herein to protect the rights of the Holder against dilution.
4. This Agreement and the Option granted hereby are exchangeable, without
expense, at the option of the Holder, upon presentation and surrender of this
Agreement at the principal office of Issuer, for other Agreements providing for
Options of different denominations entitling the holder thereof to purchase, on
the same terms and subject to the same conditions as are set forth herein, in
the aggregate the same number of shares of Common Stock purchasable hereunder.
The terms "Agreement" and "Option" as used herein include any Stock Option
Agreements and related Options for which this Agreement (and the Option granted
hereby) may be exchanged. Upon receipt by Issuer of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of this
Agreement, and (in the case of loss, theft or destruction) of reasonably
satisfactory indemnification, and upon surrender and cancellation of this
Agreement, if mutilated, Issuer will execute and deliver a new Agreement of like
tenor and date. Any such new Agreement executed and delivered shall constitute
an additional contractual obligation on the part of Issuer, whether or not the
Agreement so lost, stolen, destroyed or mutilated shall at any time be
enforceable by anyone.
5. In addition to the adjustment in the number of shares of Common Stock
that are purchasable upon exercise of the Option pursuant to Section 1 of this
Agreement, the number of shares of Common Stock purchasable upon the exercise of
the Option and the Option Price shall be subject to adjustment from time to time
as provided in this Section 5. In the event of any change in, or distributions
in respect of, the Common Stock by reason of stock dividends, split-ups,
mergers, recapitalizations, combinations, subdivisions, conversions, exchanges
of shares, distributions on or in respect of the Common Stock that would be
prohibited under the terms of the Merger Agreement, or the like, the type and
number of shares of Common Stock purchasable upon exercise hereof and the Option
Price shall be appropriately adjusted in such manner as shall fully preserve the
economic benefits provided hereunder and proper provision shall be made in any
agreement governing any such transaction to provide for such proper adjustment
and the full satisfaction of the Issuer's obligations hereunder.
6. Upon the occurrence of a Triggering Event that occurs prior to an
Exercise Termination Event, Issuer shall, at the request of Grantee delivered
within 60 days of such Triggering Event (whether on its
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own behalf or on behalf of any subsequent holder of this Option (or part
thereof) or any of the shares of Common Stock issued pursuant hereto), promptly
prepare, file and keep current a shelf registration statement under the 1933 Act
covering this Option and any shares issued and issuable pursuant to this Option
and shall use its reasonable best efforts to cause such registration statement
to become effective and remain current in order to permit the sale or other
disposition of this Option and any shares of Common Stock issued upon total or
partial exercise of this Option ("Option Shares") in accordance with any plan of
disposition requested by Grantee. Issuer will use its reasonable best efforts to
cause such registration statement first to become effective and then to remain
effective for such period not in excess of 180 days from the day such
registration statement first becomes effective or such shorter time as may be
reasonably necessary to effect such sales or other dispositions. Grantee shall
have the right to demand two such registrations. The foregoing notwithstanding,
if, at the time of any request by Grantee for registration of the Option or
Option Shares as provided above, Issuer is in registration with respect to an
underwritten public offering of shares of Common Stock, and if in the good faith
judgment of the managing underwriter or managing underwriters, or, if none, the
sole underwriter or underwriters, of such offering the inclusion of the Holder's
Option or Option Shares would interfere with the successful marketing of the
shares of Common Stock offered by Issuer, the number of Option Shares otherwise
to be covered in the registration statement contemplated hereby may be reduced;
PROVIDED, HOWEVER, that after any such required reduction the number of Option
Shares to be included in such offering for the account of the Holder shall
constitute at least 25% of the total number of shares to be sold by the Holder
and Issuer in the aggregate; and PROVIDED FURTHER, however, that if such
reduction occurs, then the Issuer shall file a registration statement for the
balance as promptly as practicable and no reduction shall thereafter occur. Each
such Holder shall provide all information reasonably requested by Issuer for
inclusion in any registration statement to be filed hereunder. If requested by
any such Holder in connection with such registration, Issuer shall become a
party to any underwriting agreement relating to the sale of such shares, but
only to the extent of obligating itself in respect of representations,
warranties, indemnities and other agreements customarily included in secondary
offering underwriting agreements for the Issuer. Upon receiving any request
under this Section 6 from any Holder, Issuer agrees to send a copy thereof to
any other person known to Issuer to be entitled to registration rights under
this Section 6, in each case by promptly mailing the same, postage prepaid, to
the address of record of the persons entitled to receive such copies.
Notwithstanding anything to the contrary contained herein, in no event shall
Issuer be obligated to effect more than two registrations pursuant to this
Section 6 by reason of the fact that there shall be more than one Grantee as a
result of any assignment or division of this Agreement.
7. (a) Notwithstanding any other provision of this Agreement, in no event
shall the Total Option Profit (as hereinafter defined) exceed in the aggregate
$30 million.
(b) Notwithstanding any other provision of this Agreement, this Option
may not be exercised for a number of shares as would, as of the date of
exercise, result in a Notional Total Option Profit (as hereinafter defined)
which would exceed in the aggregate $30 million.
(c) As used herein, the term "Total Option Profit" shall mean the
aggregate amount (before taxes) of the following: (i) (x) the amount
received by Grantee pursuant to Section 15, less (y) Grantee's purchase
price for any Option Shares, (ii) (x) the amount received by Grantee
pursuant to the sale of Option Shares to any unaffiliated party, valuing any
non-cash consideration at its fair market value, less (y) Grantee's purchase
price for such Option Shares, and (iii) any equivalent amount with respect
to the Substitute Option.
(d) As used herein, the term "Notional Total Option Profit" with respect
to any number of shares of Common Stock as to which Grantee has delivered an
exercise notice shall be the Total Option Profit determined as of the Notice
Date assuming that the Option were exercised on such date for such number of
shares of Common Stock and assuming that such shares, together with all
other Option Shares held by Grantee and its affiliates as of such date, were
sold for cash at the
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closing market price for the Common Stock as of the close of business on the
preceding trading day (less customary brokerage commissions or underwriting
discounts).
8. (a) In the event that prior to an Exercise Termination Event, Issuer
shall enter into an agreement (i) to consolidate with or merge into any person,
other than Grantee or one of its Subsidiaries, and shall not be the continuing
or surviving corporation of such consolidation or merger, (ii) to permit any
person, other than Grantee or one of its Subsidiaries, to merge into Issuer and
Issuer shall be the continuing or surviving corporation, but, in connection with
such merger, the then outstanding shares of Common Stock shall be changed into
or exchanged for stock or other securities of any other person or cash or any
other property or the then outstanding shares of Common Stock shall after such
merger represent less than 50% of the outstanding voting shares and voting share
equivalents of the merged company, or (iii) to sell or otherwise transfer all or
substantially all of its assets to any person, other than Grantee or one of its
Subsidiaries, then, and in each such case, the agreement governing such
transaction shall make proper provision so that the Option shall, upon the
consummation of any such transaction and upon the terms and conditions set forth
herein, be converted into, or exchanged for, an option (the "Substitute
Option"), at the election of the Holder, of either (x) the Acquiring Corporation
(as hereinafter defined) or (y) any person that controls the Acquiring
Corporation.
(b) The following terms have the meanings indicated:
(A) "Acquiring Corporation" shall mean (i) the continuing or
surviving corporation of a consolidation or merger with Issuer (if other
than Issuer), (ii) Issuer in a merger in which Issuer is the continuing
or surviving person, and (iii) the transferee of all or substantially all
of Issuer's assets.
(B) "Substitute Common Stock" shall mean the common stock issued by
the issuer of the Substitute Option upon exercise of the Substitute
Option.
(3) "Assigned Value" shall mean the highest of (i) the price per
share of Common Stock at which a tender offer or exchange offer therefor
has been made, (ii) the price per share of Common Stock to be paid by any
third party pursuant to an agreement with Issuer, (iii) the highest
closing price for shares of Common Stock within the immediately preceding
six-month period, or (iv) in the event of a sale of all or a substantial
portion of Issuer's assets, the sum of the price paid in such sale for
such assets and the current market value of the remaining assets of
Issuer as determined by a nationally recognized investment banking firm
selected by the Holder and reasonably acceptable to the Issuer, divided
by the number of shares of Common Stock of Issuer outstanding at the time
of such sale.
(4) "Average Price" shall mean the average closing price of a share
of the Substitute Common Stock for the 45 business days immediately
preceding the consolidation, merger or sale in question, but in no event
higher than the closing price of the shares of Substitute Common Stock on
the day preceding such consolidation, merger or sale; PROVIDED that if
Issuer is the issuer of the Substitute Option, the Average Price shall be
computed with respect to a share of common stock issued by the person
merging into Issuer or by any company which controls or is controlled by
such person, as the Holder may elect.
(c) The Substitute Option shall have the same terms as the Option,
PROVIDED, that if the terms of the Substitute Option cannot, for legal
reasons, be the same as the Option, such terms shall be as similar as
possible and in no event less advantageous to the Holder. The issuer of the
Substitute Option shall also enter into an agreement with the then Holder or
Holders of the Substitute Option in substantially the same form as this
Agreement, which shall be applicable to the Substitute Option.
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(d) The Substitute Option shall be exercisable for such number of shares
of Substitute Common Stock as is equal to the Assigned Value multiplied by
the number of shares of Common Stock for which the Option is then
exercisable, divided by the Average Price. The exercise price of the
Substitute Option per share of Substitute Common Stock shall then be equal
to the Option Price multiplied by a fraction, the numerator of which shall
be the number of shares of Common Stock for which the Option is then
exercisable and the denominator of which shall be the number of shares of
Substitute Common Stock for which the Substitute Option is exercisable.
(e) In no event, pursuant to any of the foregoing paragraphs, shall the
Substitute Option be exercisable for more than 19.9% of the shares of
Substitute Common Stock outstanding prior to exercise of the Substitute
Option. In the event that the Substitute Option would be exercisable for
more than 19.9% of the shares of Substitute Common Stock outstanding prior
to exercise but for this clause (e), the issuer of the Substitute Option
(the "Substitute Option Issuer") shall make a cash payment to Holder equal
to the excess of (i) the value of the Substitute Option without giving
effect to the limitation in this clause (e) over (ii) the value of the
Substitute Option after giving effect to the limitation in this clause (e).
This difference in value shall be determined by a nationally recognized
investment banking firm selected by the Holder or the Owner, as the case may
be, and reasonably acceptable to the Acquiring Corporation.
(f) Issuer shall not enter into any transaction described in subsection
(a) of this Section 8 unless the Acquiring Corporation and any person that
controls the Acquiring Corporation assume in writing all the obligations of
Issuer hereunder.
9. [Intentionally Omitted]
10. The 60-day period for exercise of certain rights under Sections 2, 6 and
13 shall be extended: (i) to the extent necessary to obtain all regulatory
approvals for the exercise of such rights and for the expiration of all
statutory waiting periods; and (ii) to the extent necessary to avoid liability
under Section 16(b) of the 1934 Act by reason of such exercise.
11. Issuer hereby represents and warrants to Grantee as follows:
(a) Issuer has full corporate power and authority to execute and deliver
this Agreement and to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly authorized by
the Board of Directors of Issuer and no other corporate proceedings on the
part of Issuer are necessary to authorize this Agreement or to consummate
the transactions so contemplated. This Agreement has been duly and validly
executed and delivered by Issuer.
(b) Issuer has taken all necessary corporate action to authorize and
reserve and to permit it to issue, and at all times from the date hereof
through the termination of this Agreement in accordance with its terms will
have reserved for issuance upon the exercise of the Option, that number of
shares of Common Stock equal to the maximum number of shares of Common Stock
at any time and from time to time issuable hereunder, and all such shares,
upon issuance pursuant hereto, will be duly authorized, validly issued,
fully paid, nonassessable, and will be delivered free and clear of all
claims, liens, encumbrance and security interests and not subject to any
preemptive rights.
(c) Issuer has taken all action (including if required redeeming all of
the Rights or amending or terminating the Rights Agreement) so that the
entering into of this Option Agreement, the acquisition of shares of Common
Stock hereunder and the other transactions contemplated hereby do not and
will not result in the grant of any rights to any person under the Rights
Agreement or enable or require the Rights to be exercised, distributed or
triggered.
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12. Grantee hereby represents and warrants to Issuer that:
(a) Grantee has all requisite corporate power and authority to enter
into this Agreement and, subject to any approvals or consents referred to
herein, to consummate the transactions contemplated hereby. The execution
and delivery of this Agreement and the consummation of the transactions
contemplated hereby have been duly authorized by all necessary corporate
action on the part of Grantee. This Agreement has been duly executed and
delivered by Grantee.
(b) The Option is not being, and any shares of Common Stock or other
securities acquired by Grantee upon exercise of the Option will not be,
acquired with a view to the public distribution thereof and will not be
transferred or otherwise disposed of except in a transaction registered or
exempt from registration under the 1933 Act.
13. Neither of the parties hereto may assign any of its rights or
obligations under this Agreement or the Option created hereunder to any other
person, without the express written consent of the other party, except that in
the event a Triggering Event shall have occurred prior to an Exercise
Termination Event, Grantee, subject to the express provisions hereof, may assign
in whole or in part its rights and obligations hereunder within 90 days
following such Triggering Event (or such later period as provided in Section
10).
14. Each of Grantee and Issuer will use its reasonable best efforts to make
all filings with, and to obtain consents of, all third parties and governmental
authorities necessary to the consummation of the transactions contemplated by
this Agreement, including without limitation making application to list the
shares of Common Stock issuable hereunder on the New York Stock Exchange upon
official notice of issuance.
15. (a) At any time from and after the occurrence of a Triggering Event, (i)
following a request of the Holder, delivered prior to an Exercise Termination
Event, Issuer (or any successor thereto) shall repurchase the Option from the
Holder at a price (the "Option Repurchase Price") equal to the amount by which
(A) the Market/Offer Price (as defined below) exceeds (B) the Option Price,
multiplied by the number of shares for which this Option may then be exercised
and (ii) at the request of the owner of Option Shares from time to time (the
"Owner"), delivered within 60 days of such occurrence (or such later period as
provided in Section 10), Issuer shall repurchase such number of the Option
Shares from the Owner as the Owner shall designate at a price (the "Option Share
Repurchase Price") equal to the Market/Offer Price multiplied by the number of
Option Shares so designated. The term "Market/Offer Price" shall mean the
highest of (i) the highest price per share of Common Stock to be paid or
received in connection with or as a result of such Triggering Event (including,
in the event of a sale of all or a substantial portion of Issuer's assets, the
sum of the price paid in such sale for such assets and the current market value
of the remaining assets of Issuer as determined by a nationally recognized
investment banking firm selected by the Holder or the Owner, as the case may be,
and reasonably acceptable to the Issuer, divided by the number of shares of
Common Stock of Issuer outstanding at the time of such sale), or (ii) the
highest closing price for shares of Common Stock within the six-month period
immediately preceding the date the Holder gives notice of the required
repurchase of this Option or the Owner gives notice of the required repurchase
of Option Shares, as the case may be. In determining the Market/Offer Price, the
value of consideration other than cash shall be determined by a nationally
recognized investment banking firm selected by the Holder or Owner, as the case
may be, and reasonably acceptable to the Issuer.
(b) The Holder and the Owner, as the case may be, may exercise its right
to require Issuer to repurchase the Option and any Option Shares pursuant to
this Section 15 by surrendering for such purpose to Issuer, at its principal
office, this Agreement or certificates for Option Shares, as applicable,
accompanied by a written notice or notices stating that the Holder or the
Owner, as the case may be, elects to require Issuer to repurchase this
Option and/or the Option Shares in accordance with the provisions of this
Section 15. Within the latter to occur of (x) five business
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days after the surrender of the Option and/or certificates representing
Option Shares and the receipt of such notice or notices relating thereto and
(y) the time that is immediately prior to the occurrence of a Triggering
Event, Issuer shall deliver or cause to be delivered to the Holder the
Option Repurchase Price and/or to the Owner the Option Share Repurchase
Price therefor or the portion thereof, if any, that Issuer is not then
prohibited under applicable law and regulation from so delivering.
(c) To the extent that Issuer is prohibited under applicable law or
regulation from repurchasing the Option and/or the Option Shares in full,
Issuer shall immediately so notify the Holder and/or the Owner and
thereafter deliver or cause to be delivered, from time to time, to the
Holder and/or the Owner, as appropriate, the portion of the Option
Repurchase Price and the Option Share Repurchase Price, respectively, that
it is no longer prohibited from delivering, within five business days after
the date on which Issuer is no longer so prohibited; PROVIDED, HOWEVER, that
if Issuer at any time after delivery of a notice of repurchase pursuant to
paragraph (b) of this Section 15 is prohibited under applicable law or
regulation from delivering to the Holder and/or the Owner, as appropriate,
the Option Repurchase Price and the Option Share Repurchase Price,
respectively, in full (and Issuer hereby undertakes to use its reasonable
best efforts to obtain all required regulatory and legal approvals and to
file any required notices, in each case as promptly as practicable in order
to accomplish such repurchase), the Holder or Owner may revoke its notice of
repurchase of the Option or the Option Shares either in whole or to the
extent of the prohibition, whereupon, in the latter case, Issuer shall
promptly (i) deliver to the Holder and/or the Owner, as appropriate, that
portion of the Option Repurchase Price or the Option Share Repurchase Price
that Issuer is not prohibited from delivering; and (ii) deliver, as
appropriate, either (A) to the Holder, a new Stock Option Agreement
evidencing the right of the Holder to purchase that number of shares of
Common Stock obtained by multiplying the number of shares of Common Stock
for which the surrendered Stock Option Agreement was exercisable at the time
of delivery of the notice of repurchase by a fraction, the numerator of
which is the Option Repurchase Price less the portion thereof theretofore
delivered to the Holder and the denominator of which is the Option
Repurchase Price, or (B) to the Owner, a certificate for the Option Shares
it is then so prohibited from repurchasing.
(d) The parties hereto agree that Issuer's obligations to repurchase the
Option or Option Shares under this Section 15 shall not terminate upon the
occurrence of an Exercise Termination Event unless no Triggering Event shall
have occurred prior to the occurrence of an Exercise Termination Event.
(e) The Holder and any Owner shall have rights substantially identical
to those set forth in paragraphs (a), (b), (c) and (d) of this Section 15
with respect to the Substitute Option, the Substitute Common Stock and the
Substitute Option Issuer.
16. The parties hereto acknowledge that damages would be an inadequate
remedy for a breach of this Agreement by either party hereto and that the
obligations of the parties hereto shall be enforceable by either party hereto
through injunctive or other equitable relief.
17. If any term, provision, covenant or restriction contained in this
Agreement is held by a court or a federal or state regulatory agency of
competent jurisdiction to be invalid, void or unenforceable, the remainder of
the terms, provisions and covenants and restrictions contained in this Agreement
shall remain in full force and effect, and shall in no way be affected, impaired
or invalidated. If for any reason such court or regulatory agency determines
that the Holder is not permitted to acquire, or Issuer is not permitted to
repurchase pursuant to Section 15, the full number of shares of Common Stock
provided in Section 1(a) hereof (as adjusted pursuant to Section 1(b) or 5
hereof), it is the express intention of Issuer to allow the Holder to acquire or
to require Issuer to repurchase such lesser number of shares as may be
permissible, without any amendment or modification hereof.
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18. All notices, requests, claims, demands and other communications
hereunder shall be deemed to have been duly given when delivered in person, by
cable, telegram, telecopy or telex, or by registered or certified mail (postage
prepaid, return receipt requested) at the respective addresses of the parties
set forth in the Merger Agreement.
19. This Agreement shall be governed by and construed in accordance with the
laws of the State of New York, regardless of the laws that might otherwise
govern under applicable principles of conflicts of laws thereof (except to the
extent that mandatory provisions of federal or state law apply).
20. This Agreement may be executed in two counterparts, each of which shall
be deemed to be an original, but all of which shall constitute one and the same
agreement.
21. Except as otherwise expressly provided herein, each of the parties
hereto shall bear and pay all costs and expenses incurred by it or on its behalf
in connection with the transactions contemplated hereunder, including fees and
expenses of its own financial consultants, investment bankers, accountants and
counsel.
22. Except as otherwise expressly provided herein or in the Merger
Agreement, this Agreement contains the entire agreement between the parties with
respect to the transactions contemplated hereunder and supersedes all prior
arrangements or understandings with respect thereof, written or oral. The terms
and conditions of this Agreement shall inure to the benefit of and be binding
upon the parties hereto and their respective successors and permitted assigns.
Nothing in this Agreement, expressed or implied, is intended to confer upon any
party, other than the parties hereto, and their respective successors and
permitted assigns, any rights, remedies, obligations or liabilities under or by
reason of this Agreement, except as expressly provided herein.
23. Capitalized terms used in this Agreement and not defined herein shall
have the meanings assigned thereto in the Merger Agreement.
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IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed on its behalf by its officers thereunto duly authorized, all as of the
date first above written.
CROMPTON & KNOWLES CORPORATION
By: ______/S/ VINCENT A. CALARCO______
Name: Vincent A. Calarco
Title: Chairman of the Board
President and Chief Executive
Officer
WITCO CORPORATION
By: _______/S/ E. GARY COOK___________
Name: E. Gary Cook
Title: Chairman of the Board
President and Chief Executive
Officer
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APPENDIX E
PERSONAL AND CONFIDENTIAL
May 31, 1999
Board of Directors
Witco Corporation
One American Lane
Greenwich, CT 06831
Gentlemen:
You have requested our opinion as to the fairness from a financial point of
view to the holders of the outstanding shares of Common Stock, par value $5.00
per share (the "Witco Shares"), of Witco Corporation (the "Company") of the
exchange ratio of 0.9242 shares of Common Stock, par value $0.01 per share, of
Park Merger Co. ("Newco") to be received for each Witco Share (the "Exchange
Ratio") pursuant to the Agreement and Plan of Reorganization, dated as of May
31, 1999, among Crompton & Knowles Corporation ("Crompton"), Newco, a wholly
owned subsidiary of Crompton, and the Company (the "Agreement").
Goldman, Sachs & Co., as part of its investment banking business, is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, competitive
biddings, secondary distributions of listed and unlisted securities, private
placements and valuations for estate, corporate and other purposes. Goldman,
Sachs & Co. provides a full range of financial advisory and securities services
and, in the course of its normal trading activities, may from time to time
effect transactions and hold securities, including derivative securities, of the
Company or Crompton for its own account and for the accounts of customers. We
are familiar with the Company having acted as its financial advisor in
connection with, and having participated in certain of the negotiations leading
to, the Agreement. Richard M. Hayden, a former Managing Director and Limited
Partner of Goldman, Sachs & Co., is a director of the Company. We also have
provided certain investment banking services to Crompton from time to time,
including having acted as agent for Crompton on its share repurchase program. In
addition, we are acting, with your consent, as Crompton's financial advisor and
receiving fees therefor in connection with the transactions contemplated by the
Agreement. Goldman, Sachs & Co. may provide investment banking services to Newco
and its subsidiaries in the future.
In connection with this opinion, we have reviewed, among other things, the
Agreement; Annual Reports to Stockholders and Annual Reports on Form 10-K of the
Company and Crompton for the five years ended December 31, 1998 and December 26,
1998, respectively; certain interim reports to stockholders and Quarterly
Reports on Form 10-Q of the Company and Crompton; certain other communications
from the Company and Crompton to their respective stockholders; and certain
internal financial analyses and forecasts for the Company and Crompton prepared
by their respective managements, including certain cost savings and operating
synergies projected by the managements of the Company and Crompton to result
from the transactions contemplated by the Agreement (the "Synergies"). We also
have held discussions with members of the senior management of the Company and
Crompton regarding the strategic rationale for, and the potential benefits of,
the transaction contemplated by the Agreement and the past and current business
operations, financial condition and future prospects of their respective
companies. In addition, we have reviewed the reported price and trading activity
for the Witco Shares and the Common Stock, par value $0.10 per share, of
Crompton, compared certain financial and stock market information for the
Company and Crompton with similar information for certain other companies the
securities of which are publicly traded, reviewed the
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financial terms of certain recent business combinations in the chemicals
industry specifically and in other industries generally and performed such other
studies and analyses as we considered appropriate.
We have relied upon the accuracy and completeness of all of the financial
and other information reviewed by us and have assumed such accuracy and
completeness for purposes of rendering this opinion. In that regard, we have
assumed, with your consent that the internal financial forecasts prepared by the
managements of the Company and Crompton, including the Synergies, have been
reasonably prepared on a basis reflecting the best currently available judgments
and estimates of the Company and Crompton, and that such Synergies will be
realized in the amounts and time periods contemplated thereby. In addition, we
have not made an independent evaluation or appraisal of the assets and
liabilities of the Company or Crompton or any of their subsidiaries and we have
not been furnished with any such evaluation or appraisal. In addition, our
opinion does not address the relative merits of the transactions contemplated by
the Agreement as compared to any alternative business transaction that might be
available to the Company. Our advisory services and the opinion expressed herein
are provided for the information and assistance of the Board of Directors of the
Company in connection with its consideration of the transactions contemplated by
the Agreement and such opinion does not constitute a recommendation as to how
any holder of Witco Shares should vote with respect to such transactions.
Based upon and subject to the foregoing and based upon such other matters as
we consider relevant, it is our opinion that as of the date hereof the Exchange
Ratio pursuant to the Agreement is fair from a financial point of view to the
holders of Witco Shares.
Very truly yours,
/s/ Goldman, Sachs & Co.
GOLDMAN, SACHS & CO.
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APPENDIX F
May 31, 1999
Board of Directors
Witco Corporation
One American Lane
Greenwich, CT 06831
Member of the Board:
We understand that Witco Corporation (the "Company"), Crompton & Knowles
Corporation ("Crompton") and Park Merger Co. ("Newco"), a wholly owned
subsidiary of Crompton propose to enter into an Agreement and Plan of
Reorganization, dated as of May 31, 1999 (the "Reorganization Agreement"),
pursuant to which there shall be two mergers. First, Crompton shall merge with
and into Newco (the "First Step Merger"), so that Newco is the surviving
corporation; immediately thereafter, the Company will merge with and into Newco
(the "Second Step Merger") so that Newco is the surviving corporation. The First
Step Merger and the Second Step Merger are together referred to as the "Merger".
The Merger is intended to be a merger of equals.
We understand that pursuant to the Reorganization Agreement, each outstanding
share of common stock, par value $0.10 per share, of Crompton, together with the
rights attached thereto ("Crompton Common Stock") (other than dissenting shares
and Crompton Common Stock held in Crompton's treasury or by Newco), will be
converted, pursuant to the First Step Merger, into one share of common stock,
par value $0.01 per share, of Newco ("Newco Common Stock"), and each outstanding
share of common stock, par value $5.00 per share, of the Company, together with
the rights attached thereto ("Company Common Stock") (other than Company Common
Stock held in the Company's treasury or held by Crompton) will be converted,
pursuant to the Second Step Merger, into the right and represent the right to
receive 0.9242 shares (the "Exchange Ratio") of Newco Common Stock (with cash in
lieu of fractional shares). The terms and conditions of the Merger are more
fully set forth in the Reorganization Agreement.
You have asked for our opinion as to the fairness, from a financial point of
view, of the Exchange Ratio to the holders of Company Common Stock.
For purposes of the opinion set forth herein, we have:
(i) reviewed the Reorganization Agreement;
(ii) analyzed certain publicly available financial statements and other
information of the Company and of Crompton;
(iii) analyzed certain internal financial statements and other financial and
operating data concerning the Company prepared by the management of the
Company and concerning Crompton prepared by the management of Crompton;
(iv) analyzed certain financial projections prepared by the management of
the Company and certain financial projections prepared by the
management of Crompton including estimates of synergies and cost
savings anticipated by management to result from the Merger;
(v) discussed the past and current operations and financial condition and
the prospects of the Company with senior executives of the Company and
of Crompton with the senior executives of Crompton;
(vi) reviewed the reported prices and trading activity for Company Common
Stock and Crompton Common Stock;
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(vii) compared the financial performance of the Company and the prices and
trading activity of the Company Common Stock and the financial
performance of Crompton and the prices and trading activity of the
Crompton Common Stock with that of certain other comparable
publicly-traded companies and their securities;
(viii) reviewed the pro forma effects of the Merger on the combined company's
projected net income per share, cash flow per share, earnings before
interest and taxes ("EBIT"), earnings before interest, taxes,
depreciation and amortization ("EBITDA"), and certain financial ratios;
(ix) reviewed the pro forma contribution of the Company and Crompton,
respectively, with regard to aggregate value, historic and projected
revenues, net income, cash income, EBIT, and EBITDA; and
(x) performed such other analyses and examinations and considered such other
factors as we have deemed appropriate.
We have assumed and relied upon, without independent verification, the accuracy
and completeness of the information reviewed by us for the purposes of this
opinion. With respect to the financial projections, we have assumed that they
have been reasonably prepared on bases reflecting the best currently available
estimates and judgments of the future financial performance of the Company and
of Crompton, as applicable. We have not made any independent valuation or
appraisal of the assets or liabilities of the Company or Crompton, nor have we
been furnished with any such appraisals. Our opinion is necessarily based on
economic, market and other conditions as in effect on, and the information made
available to us as of, the date hereof. We have assumed that the Merger will
constitute a tax-free reorganization under the Internal Revenue Code. In
addition we have assumed that obtaining any regulatory or third party approvals
for the Merger will not have a materially adverse effect on the Company or
Crompton or the anticipated benefits of the Merger.
We did not participate in any of the discussions and negotiations among
representatives of the Company and Crompton regarding the Merger. We have not
been asked to consider, and our opinion does not address, the relative merits of
the Merger as compared to any alternative business strategy that might exist for
the Company. Our opinion as expressed below does not imply any conclusion as to
the trading range for Newco Common Stock following the announcement or
consummation of the Merger.
We have acted as financial advisor to the Board of Directors of the Company in
connection with this transaction and will receive a fee for our services. In the
past, Deutsche Bank Securities and its affiliates have provided financial
advisory and financing services for the Company and have received fees for the
rendering of these services. In the ordinary course of business, we or our
affiliates may actively trade the securities of the Company or Crompton for our
own account and the accounts of our customers and, accordingly, may at any time
hold a long or short position in securities of the Company or Crompton.
It is understood that this letter is for the information of the Board of
Directors of the Company only and does not constitute a recommendation to any
stockholder as to how such stockholder should vote with respect to the Merger.
This letter may not be used for any other purpose without our prior written
consent, except that it may be reprinted in full in any filing with the
Securities and Exchange Commission.
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Based upon and subject to the foregoing, we are of the opinion that, as of the
date hereof, the Exchange Ratio is fair from a financial point of view to the
holders of Company Common Stock.
Very truly yours,
/s/ Deutsche Bank Securities Inc.
DEUTSCHE BANK SECURITIES INC.
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APPENDIX G
TEXT OF SECTIONS 85 TO 98 OF CHAPTER 156B OF THE
MASSACHUSETTS BUSINESS CORPORATION LAW
SECTION85. DISSENTING STOCKHOLDER; RIGHT TO DEMAND PAYMENT FOR STOCK; EXCEPTION
A stockholder in any corporation organized under the laws of Massachusetts
which shall have duly voted to consolidate or merge with another corporation or
corporations under the provisions of sections seventy-eight or seventy-nine who
objects to such consolidation or merger may demand payment for his stock from
the resulting or surviving corporation and an appraisal in accordance with the
provisions of sections eighty-six to ninety-eight, inclusive, and such
stockholder and the resulting or surviving corporation shall have the rights and
duties and follow the procedure set forth in those sections. This section shall
not apply to the holders of any shares of stock of a constituent corporation
surviving a merger if, as permitted by subsection (c) of section seventy-eight,
the merger did not require for its approval a vote of the stockholders of the
surviving corporation.
SECTION86. SELECTIONS APPLICABLE TO APPRAISAL; PREREQUISITES
If a corporation proposes to take a corporate action as to which any section
of this chapter provides that a stockholder who objects to such action shall
have the right to demand payment for his shares and an appraisal thereof,
sections eighty-seven to ninety-eight, inclusive, shall apply except as
otherwise specifically provided in any section of this chapter. Except as
provided in sections eighty-two and eighty-three, no stockholder shall have such
right unless (1) he files with the corporation before the taking of the vote of
the shareholders on such corporate action, written objection to the proposed
action stating that he intends to demand payment for his shares if the action is
taken and (2) his shares are not voted in favor of the proposed action.
SECTION87. STATEMENT OF RIGHTS OF OBJECTING STOCKHOLDERS IN NOTICE OF MEETING;
FORM
The notice of the meeting of stockholders at which the approval of such
proposed action is to be considered shall contain a statement of the rights of
objecting stockholders. The giving of such notice shall not be deemed to create
any rights in any stockholder receiving the same to demand payment for his
stock, and the directors may authorize the inclusion in any such notice of a
statement of opinion by the management as to the existence or non-existence of
the right of the stockholders to demand payment for their stock on account of
the proposed corporate action. The notice may be in such form as the directors
or officers calling the meeting deem advisable, but the following form of notice
shall be sufficient to comply with this section:
"If the action proposed is approved by the stockholders at the meeting and
effected by the corporation, any stockholder (1) who files with the corporation
before the taking of the vote on the approval of such action, written objection
to the proposed action stating that he intends to demand payment for his shares
if the action is taken and (2) whose shares are not voted in favor of such
action has or may have the right to demand in writing from the corporation (OR,
IN THE CASE OF A CONSOLIDATION OR MERGER, THE NAME OF THE RESULTING OR SURVIVING
CORPORATION SHALL BE INSERTED), within twenty days after the date of mailing to
him of notice in writing that the corporate action has become effective, payment
for his shares and an appraisal of the value thereof. Such corporation and any
such stockholder shall in such cases have the rights and duties and shall follow
the procedure set forth in sections 88 to 98, inclusive, of chapter 156B of the
General Laws of Massachusetts."
SECTION88. NOTICE OF EFFECTIVENESS OF ACTION OBJECTED TO
The corporation taking such action, or in the case of a merger or
consolidation the surviving or resulting corporation, shall, within ten days
after the date on which such corporate action became effective, notify each
stockholder who filed a written objection meeting the requirements of section
eighty-six and whose shares were not voted in favor of the approval of such
action, that the action
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approved at the meeting of the corporation of which he is a stockholder has
become effective. The giving of such notice shall not be deemed to create any
rights in any stockholder receiving the same to demand payment for his stock.
The notice shall be sent by registered or certified mail, addressed to the
stockholder at his last known address as it appears in the records of the
corporation.
SECTION89. DEMAND FOR PAYMENT; TIME FOR PAYMENT
If within twenty days after the date of mailing of a notice under subsection
(e) of section eighty-two, subsection (f) of section eighty-three, or section
eighty-eight, any stockholder to whom the corporation was required to give such
notice shall demand in writing from the corporation taking such action, or in
the case of a consolidation or merger from the resulting or surviving
corporation, payment for his stock, the corporation upon which such demand is
made shall pay to him the fair value of his stock within thirty days after the
expiration of the period during which such demand may be made.
SECTION90. DEMAND FOR DETERMINATION OF VALUE; BILL IN EQUITY; VENUE
If during the period of thirty days provided for in section eighty-nine the
corporation upon which such demand is made and any such objecting stockholder
fail to agree as to the value of such stock, such corporation or any such
stockholder may within four months after the expiration of such thirty-day
period demand a determination of the value of the stock of all such objecting
stockholders by a bill in equity filed in the superior court in the county where
the corporation in which such objecting stockholder held stock had or has its
principal office in the commonwealth.
SECTION91. PARTIES TO SUIT TO DETERMINE VALUE; SERVICE
If the bill is filed by the corporation, it shall name as parties respondent
all stockholders who have demanded payment for their shares and with whom the
corporation has not reached agreement as to the value thereof. If the bill is
filed by a stockholder, he shall bring the bill in his own behalf and in behalf
of all other stockholders who have demanded payment for their shares and with
whom the corporation has not reached agreement as to the value thereof, and
service of the bill shall be made upon the corporation by subpoena with a copy
of the bill annexed. The corporation shall file with its answer a duly verified
list of all such other stockholders, and such stockholders shall thereupon be
deemed to have been added as parties to the bill. The corporation shall give
notice in such form and returnable on such date as the court shall order to each
stockholder party to the bill by registered or certified mail, addressed to the
last known address of such stockholder as shown in the records of the
corporation, and the court may order such additional notice by publication or
otherwise as it deems advisable. Each stockholder who makes demand as provided
in section eighty-nine shall be deemed to have consented to the provisions of
this section relating to notice, and the giving of notice by the corporation to
any such stockholder in compliance with the order of the court shall be a
sufficient service of process on him. Failure to give notice to any stockholder
making demand shall not invalidate the proceedings as to other stockholders to
whom notice was properly given, and the court may at any time before the entry
of a final decree make supplementary orders of notice.
SECTION92. DECREE DETERMINING VALUE AND ORDERING PAYMENT; VALUATION DATE
After hearing the court shall enter a decree determining the fair value of
the stock of those stockholders who have become entitled to the valuation of and
payment for their shares, and shall order the corporation to make payment of
such value, together with interest, if any, as hereinafter provided, to the
stockholders entitled thereto upon the transfer by them to the corporation of
the certificates representing such stock if certificated or, if uncertificated,
upon receipt of an instruction transferring such stock to the corporation. For
this purpose, the value of the shares shall be determined as of the day
preceding the date of the vote approving the proposed corporate action and shall
be exclusive of any element of value arising from the expectation or
accomplishment of the proposed corporate action.
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SECTION93. REFERENCE TO SPECIAL MASTER
The court in its discretion may refer the bill or any question arising
thereunder to a special master to hear the parties, make findings and report the
same to the court, all in accordance with the usual practice in suits in equity
in the superior court.
SECTION94. NOTATION ON STOCK CERTIFICATES OF PENDENCY OF BILL
On motion the court may order stockholder parties to the bill to submit
their certificates of stock to the corporation for the notation thereon of the
pendency of the bill and may order the corporation to note such pendency in its
records with respect to any uncertificated shares held by such stockholder
parties, and may on motion dismiss the bill as to any stockholder who fails to
comply with such order.
SECTION95. COSTS; INTEREST
The costs of the bill, including the reasonable compensation and expenses of
any master appointed by the court, but exclusive of fees of counsel or of
experts retained by any party, shall be determined by the court and taxed upon
the parties to the bill, or any of them, in such manner as appears to be
equitable, except that all costs of giving notice to stockholders as provided in
this chapter shall be paid by the corporation. Interest shall be paid upon any
award from the date of the vote approving the proposed corporate action, and the
court may on application of any interested party determine the amount of
interest to be paid in the case of any stockholder.
SECTION96. DIVIDENDS AND VOTING RIGHTS AFTER DEMAND FOR PAYMENT
Any stockholder who has demanded payment for his stock as provided in this
chapter shall not thereafter be entitled to notice of any meeting of
stockholders or to vote such stock for any purpose and shall not be entitled to
the payment of dividends or other distribution on the stock (except dividends or
other distributions payable to stockholders of record at a date which is prior
to the date of the vote approving the proposed corporate action) unless:
(1) A bill shall not be filed within the time provided in section ninety;
(2) A bill, if filed, shall be dismissed as to such stockholder; or
(3) Such stockholder shall with the written approval of the corporation, or in
the case of a consolidation or merger, the resulting or surviving
corporation, deliver to it a written withdrawal of his objections to and an
acceptance of such corporate action.
Notwithstanding the provisions of clauses (1) to (3), inclusive, said
stockholder shall have only the rights of a stockholder who did not so demand
payment for his stock as provided in this chapter.
SECTION97. STATUS OF SHARES PAID FOR
The shares of the corporation paid for by the corporation pursuant to the
provisions of this chapter shall have the status of treasury stock, or in the
case of a consolidation or merger the shares or the securities of the resulting
or surviving corporation into which the shares of such objecting stockholder
would have been converted had he not objected to such consolidation or merger
shall have the status of treasury stock or securities.
SECTION98. EXCLUSIVE REMEDY; EXCEPTION
The enforcement by a stockholder of his right to receive payment for his
shares in the manner provided in this chapter shall be an exclusive remedy
except that this chapter shall not exclude the right of such stockholder to
bring or maintain an appropriate proceeding to obtain relief on the ground that
such corporate action will be or is illegal or fraudulent as to him.
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APPENDIX H
RESTATED CERTIFICATE OF INCORPORATION
OF
CK WITCO CORPORATION
I, the undersigned, for the purpose of incorporating and organizing a
corporation under the General Corporation Law of the State of Delaware, do
hereby execute this Certificate of Incorporation and do hereby certify as
follows:
ARTICLE I
The name of the corporation (which is hereinafter referred to as the
"Corporation") is:
"CK Witco Corporation"
ARTICLE II
The address of the Corporation's registered office in the State of Delaware
is c/o National Registered Agents, Inc., 9 East Loockerman Street in the City of
Dover, County of Kent, State of Delaware 19901. The name of the Corporation's
registered agent at such address is National Registered Agents, Inc.
ARTICLE III
The purpose of the Corporation shall be to engage in any lawful act or
activity for which corporations may be organized and incorporated under the
General Corporation Law of the State of Delaware.
ARTICLE IV
Section 1. The Corporation shall be authorized to issue 500,250,000 shares
of capital stock, of which 500,000,000 shares shall be shares of Common Stock,
$.01 par value ("Common Stock"), and 250,000 shares shall be shares of Preferred
Stock, $.10 par value ("Preferred Stock").
Section 2. Shares of Preferred Stock may be issued from time to time in one
or more series as authorized by the Board of Directors. Prior to issuance of any
series of Preferred Stock, the Board of Directors by resolution shall designate
that series to distinguish it from other series and classes of stock of the
Corporation, shall specify the number of shares to be included in the series,
and shall fix the terms, rights, restrictions and qualifications of the shares
of the series, including any preferences, voting powers, dividend rights and
redemption, sinking fund and conversion rights. Subject to the express terms of
any other series of Preferred Stock outstanding at the time, the Board of
Directors may increase or decrease the number of shares or alter the designation
or classify or reclassify any unissued shares of a particular series of
Preferred Stock by fixing or altering in any or more respects from time to time
before issuing the shares of Preferred Stock any terms, rights, restrictions and
qualifications of the shares.
Section 3. (a) DIVIDENDS. After the requirements with respect to
preferential dividends upon any issued and outstanding Preferred Stock have been
satisfied, the holders of the Common Stock shall be entitled to receive such
dividends as may be declared from time to time by the Board of Directors.
(b) VOTING RIGHTS. Except as otherwise provided by law, or by the resolution
or resolutions adopted by the Board designating the rights, powers and
preferences of any series of Preferred Stock, the Common Stock shall have the
exclusive right to vote for the election of directors and for all other
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purposes. Each share of Common Stock shall have one vote, and the Common Stock
shall vote together as a single class.
(c) REGARDING PREEMPTIVE RIGHTS. No stockholder shall be entitled as a
matter of right to subscribe for, purchase or receive any shares of the stock or
any rights or options of the Corporation which it may issue or sell whether out
of the number of shares now or hereafter authorized to be issued at any time or
out of the shares of the stock of the Corporation acquired by it after the
issuance thereof, nor shall any stockholder be entitled as a matter of right to
purchase or subscribe for or receive any bonds, debentures or other obligations
which the Corporation may issue or sell that shall be convertible into or
exchangeable for stock or to which shall be attached or appertain any warrant or
warrants or other instrument or instruments that shall confer upon the holder or
owner of such obligation the right to subscribe for or purchase from the
Corporation any shares of its stock. All such additional issues of stock,
rights, options, or of bonds, debentures or other obligations convertible into
or exchangeable for stock or to which warrants shall be attached or appertain or
which shall confer upon the holder the right to subscribe for or purchase any
shares of stock may (to the extent permitted by law) be issued and disposed of
by the Board of Directors to such persons and upon such terms as in their
absolute discretion they may deem advisable.
ARTICLE V
The Corporation is to have perpetual existence.
ARTICLE VI
The private property of the stockholders shall not be subject to the payment
of corporate debts to any extent whatsoever.
ARTICLE VII
Section 1. The number of Directors of the Corporation shall be not less than
eight or more than 15 persons. The exact number of directors within the minimum
and maximum limitations specified in the preceding sentence shall be fixed from
time to time by the Board of Directors pursuant to a resolution adopted by a
majority of the entire Board of Directors. At the 2000 annual meeting of
stockholders, the directors shall be divided into three classes, as nearly equal
in number as possible, with the term of office of the first class to expire at
the 2001 annual meeting of stockholders, the term of office of the second class
to expire at the 2002 annual meeting of stockholders and the term of office of
the third class to expire at the 2003 annual meeting of stockholders. At each
annual meeting of stockholders following such initial classification and
election, directors elected to succeed those directors whose terms expire shall
be elected for a term of office to expire at the third succeeding annual meeting
of stockholders after their election.
Section 2. Subject to the rights of the holders of any series of Preferred
Stock then outstanding, newly created directorships resulting from any increase
in the authorized number of directors or any vacancies in the Board of Directors
resulting from death, resignation, retirement, disqualification, removal from
office or other cause shall be filled by a majority vote of the directors then
in office, although less than a quorum, and directors so chosen shall hold
office for a term expiring at the annual meeting of stockholders at which the
term of the class to which they have been elected expires. If the number of
directors is changed any increase or decrease shall be apportioned among the
classes so as to maintain the number of directors in each class as nearly equal
as possible. No decrease in the number of directors constituting the Board of
Directors shall shorten the term of any incumbent director.
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Section 3. Any director, or the entire Board of Directors may be removed
from office at any time, but only for cause and only by the affirmative vote of
the holders of at least 80% of the voting power of all of the shares of the
Corporation entitled to vote for the election of directors.
Section 4. Notwithstanding the foregoing, whenever the holders of any class
of stock (other than Common Stock) issued by the Corporation shall have the
right, voting as a class or otherwise, to elect directors, the then authorized
number of directors of the Corporation shall be increased by the number of
additional directors to be elected.
Section 5. In furtherance, and not in limitation of the powers conferred by
law, the Board of Directors is expressly authorized:
(a) to make, alter, amend or repeal the By-Laws of the Corporation and,
subject to Articles XIV and XV herein, stockholders of the Corporation shall
have the power to alter, amend or repeal By-Laws made by the Board of
Directors;
(b) to remove at any time any officer elected or appointed by the Board
of Directors by such vote of the Board of Directors as may be provided for
in the By-Laws. Any other officer of the Corporation may be removed at any
time by a vote of the Board of Directors, or by any committee or superior
officer upon whom such power of removal may be conferred by the By-Laws or
by the vote of the Board of Directors;
(c) to determine whether any, and if any, what part, of the annual net
profits of the Corporation or of its net assets in excess of its capital
shall be declared in dividends and paid to the stockholders, and to direct
and determine the use and disposition of any such annual net profits or net
assets in excess of capital;
(d) to fix from time to time the amount of the profits of the
Corporation to be reserved as working capital or for any other lawful
purpose;
(e) to establish bonus, profit sharing, stock option, retirement, or
other types of incentive or compensation plans for the employees (including
directors and officers) of the Corporation and to fix the amount of the
profits to be distributed or shared and to determine the persons to
participate in any such plans and the amounts of their respective
participations;
(f) from time to time to determine whether and to what extent, and at
what time and places and under what conditions and regulations the accounts
and books of the Corporation (other than the stock ledger), or any of them,
shall be open to the inspection of the stockholders; and no stockholder
shall have any right to inspect any account or book or document of the
Corporation, except as conferred by statute or authorized by the Board of
Directors or by a resolution of the stockholders; and
(g) to authorize, and cause to be executed, mortgages and liens upon the
real and personal property of the Corporation.
ARTICLE VIII
No contract or other transaction between the Corporation and any other
corporation and no other act of the Corporation with relation to any other
corporation shall, in the absence of fraud, in any way be invalidated or
otherwise affected by the fact that any one or more of the directors of the
Corporation are pecuniarily or otherwise interested in, or are directors or
officers of, such other corporation. Any director of the Corporation
individually, or any firm or association of which any director may be a member,
may be party to, or may be pecuniarily or otherwise interested in, any contract
or transaction of the Corporation; PROVIDED that the fact that he individually
or as a member of such firm or association is such a party or so interested
shall be disclosed or shall have been known to the Board of Directors or a
majority of such members thereof as shall be present at any meeting of the
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Board of Directors at which action upon any such contract or transaction shall
be taken; and any director of the Corporation who is also a director or officer
of such other corporation or who is such a party or so interested may be counted
in determining the existence of a quorum at any meeting of the Board of
Directors which shall authorize any such contract or transaction, and may vote
thereat to authorize any such contract or transaction, with like force and
effect as if he were not such director or officer of such other corporation or
not so interested. Any director of the Corporation may vote upon any contract or
other transaction between the Corporation and any subsidiary or affiliated
corporation without regard to the fact that he is also a director of such
subsidiary or affiliated corporation.
Any contract, transaction or act of the Corporation or of the directors,
which shall be ratified at any annual meeting of the stockholders of the
Corporation, or at any special meeting called for such purpose, shall, in so far
as permitted by law or by the Certificate of Incorporation of the Corporation,
be as valid and as binding as though ratified by every stockholder of the
Corporation; PROVIDED, HOWEVER, that any failure of the stockholders to approve
or ratify any such contract, transaction or act, when and if submitted, shall
not be deemed in any way to invalidate the same or deprive the Corporation, its
directors, officers or employees, of its or their right to proceed with such
contract, transaction or act.
ARTICLE IX
Each officer, director, or member of any committee designated by the Board
of Directors shall, in the performance of his duties, be fully protected in
relying in good faith upon the books of account or reports made to the
Corporation by any of its officials or by an independent public accountant or by
an appraiser selected with reasonable care by the Board of Directors or by any
such committee or in relying in good faith upon other records of the
Corporation.
ARTICLE X
Section 1. ELIMINATION OF CERTAIN LIABILITY OF DIRECTORS. Neither any
director nor any officer (including former directors and officers) of the
Corporation shall be personally liable to the Corporation or its stockholders
for monetary damages for breach of fiduciary duty as a director, except to the
extent such exemption from liability or limitation thereof is not permitted
under the General Corporation Law of the State of Delaware as the same exists or
may hereafter be amended.
Any repeal or modification of the foregoing paragraph shall not adversely
affect any right or protection of a director of the Corporation existing
hereunder with respect to any act or omission occurring prior to such repeal or
modification.
Section 2. INDEMNIFICATION AND INSURANCE.
(a) RIGHT TO INDEMNIFICATION. Each person who was or is made a party or is
threatened to be made a party to or is involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that he or she, or a person
of whom he or she is the legal representative, is or was a director or officer
of the Corporation or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation or of a partnership,
joint venture, trust or other enterprise, including service with respect to
employee benefit plans, whether the basis of such proceeding is alleged action
in an official capacity as a director, officer, employee or agent or in any
other capacity while serving as a director, officer, employee or agent, shall be
indemnified and held harmless by the Corporation to the fullest extent
authorized by the General Corporation Law of the State of Delaware, as the same
exists or may hereafter be amended (but, in the case of any such amendment, to
the fullest extent permitted by law, only to the extent that such amendment
permits the Corporation to provide broader indemnification rights than said law
permitted the Corporation to provide prior to such amendment), against all
expense, liability and loss (including attorneys' fees, judgments, fines,
amounts paid or to be paid in settlement, and excise taxes or penalties arising
under the Employee Retirement Income Security Act of 1974) reasonably incurred
or suffered
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by such person in connection therewith and such indemnification shall continue
as to a person who has ceased to be a director, officer, employee or agent and
shall inure to the benefit of his or her heirs, executors and administrators.
The right to indemnification conferred in this Article X shall be a contract
right and shall include the right to be paid by the Corporation the expenses
incurred in defending any such proceeding in advance of its final disposition;
PROVIDED, HOWEVER, that, if the General Corporation Law of the State of Delaware
requires, the payment of such expenses incurred by a director or officer in his
or her capacity as a director or officer (and not in any other capacity in which
service was or is rendered by such person while a director or officer,
including, without limitation, service to an employee benefit plan) in advance
of the final disposition of a proceeding, shall be made only upon delivery to
the Corporation of an undertaking, by or on behalf of such director or officer,
to repay all amounts so advanced if it shall ultimately be determined that such
director or officer is not entitled to be indemnified under this Section or
otherwise. The Corporation may, by action of the Board of Directors, provide
indemnification to employees and agents of the Corporation with the same scope
and effect as the foregoing indemnification of directors and officers.
(b) RIGHT OF CLAIMANT TO BRING SUIT. If a claim under paragraph (a) of this
Section is not paid in full by the Corporation within thirty days after a
written claim has been received by the Corporation, the claimant may at any time
thereafter bring suit against the Corporation to recover the unpaid amount of
the claim and, if successful in whole or in part, the claimant shall be entitled
to be paid also the expense of prosecuting such claim. It shall be a defense to
any such action (other than an action brought to enforce a claim for expenses
incurred in defending any proceeding in advance of its final disposition where
the required undertaking, if any is required, has been tendered to the
Corporation) that the claimant has not met the standards of conduct which make
it permissible under the General Corporation Law of the State of Delaware for
the Corporation to indemnify the claimant for the amount claimed, but the burden
of proving such defense shall be on the Corporation. Neither the failure of the
Corporation (including its Board, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because he or she has met the applicable standard of conduct set forth in the
General Corporation Law of the State of Delaware, nor an actual determination by
the Corporation (including its Board, independent legal counsel, or its
stockholders) that the claimant has not met such applicable standard of conduct,
shall be a defense to the action or create a presumption that the claimant has
not met the applicable standard of conduct.
(c) NON-EXCLUSIVITY OF RIGHTS. The right to indemnification and the payment
of expenses incurred in defending a proceeding in advance of its final
disposition conferred in this Section shall not be exclusive of any other right
which any person may have or hereafter acquire under any statute, provision of
the Certificate of Incorporation, By-Law, agreement, vote of stockholders or
disinterested directors or otherwise, and shall continue as to a person who has
ceased to be a director or officer of the Corporation and shall inure to the
benefit of the heirs, executors and administrators of such person.
(d) INSURANCE. The Corporation may maintain insurance, at its expense, to
protect itself and any director, officer, employee or agent of the Corporation
or another corporation, partnership, joint venture, trust or other enterprise
against any such expense, liability or loss, whether or not the Corporation
would have the power to indemnify such person against such expense, liability or
loss under the General Corporation Law of the State of Delaware.
(e) BORROWING. The Board of Directors, without approval of the stockholders,
shall have the power to borrow money on behalf of the Corporation, including the
power to pledge the assets of the Corporation, from time to time to discharge
the Corporation's obligations with respect to indemnification, the advancement
and reimbursement of expenses, and the purchase and maintenance of insurance
referred to in this Article X.
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(f) SUCCESSORS. For purposes of this Article, references to the
"Corporation" shall include, in addition to the resulting corporations, any
constituent corporation (including any constituent of a constituent) absorbed in
a consolidation or merger which, if its separate existence had continued, would
have had power and authority to indemnify its directors and officers so that any
person who is or was a director or officer of such constituent corporation shall
stand in the same position under this Article X with respect to the resulting or
surviving corporation as he would have with respect to such constituent
corporation if its separate existence had continued.
(g) ADDITIONAL AGREEMENTS. The Board of Directors is authorized to enter
into a contract with any director, officer, employee or agent of the Corporation
providing for indemnification rights equivalent to or, if the Board of Directors
so determines, greater than, those provided for in this Article X.
(h) AMENDMENTS. Any amendment, repeal or modification of any provision of
this Article X by the stockholders or the directors of the Corporation shall not
adversely affect any right of protection of a director or officer of the
Corporation under this Article XI existing at the time of such amendment, repeal
or modification.
(i) OTHER EMPLOYEES AND AGENTS. The Corporation may, to the extent
authorized from time to time by the Board of Directors, grant rights to
indemnification and to the advancement of expenses to any employee or agent of
the Corporation to the fullest extent of the provisions of this Article with
respect to the indemnification and advancement of expenses of directors and
officers of the Corporation.
ARTICLE XI
Both the stockholders and the directors of the Corporation may hold their
meetings and the Corporation may have an office or offices in such place or
places outside of the State of Delaware as the By-Laws may provide and the
Corporation may keep its books outside of the State of Delaware except as
otherwise provided by law.
ARTICLE XII
Any action required or permitted to be taken by the stockholders of the
Corporation must be effected at a duly called annual or special meeting of
stockholders of the Corporation and may not be effected by any consent in
writing by such stockholders. Special meetings of stockholders of the
Corporation may be called only by the Board of Directors pursuant to a
resolution approved by a majority of the entire Board of Directors.
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ARTICLE XIII
(a) (i) In addition to any affirmative vote required by law, and except as
otherwise expressly provided in paragraph (b) of this Article:
(A) any merger or consolidation of the Corporation or any subsidiary (as
hereinafter defined) with or into (i) any Interested Stockholder (as
hereinafter defined) or (ii) any other corporation (whether or not itself an
Interested Stockholder) which, after such merger or consolidation, would be
an Affiliate (as hereinafter defined) of an Interested Stockholder, or
(B) any sale, lease, exchange, mortgage, pledge, transfer or other
disposition (in one transaction or a series of related transactions) to or
with any Interested Stockholder or any Affiliate of any Interested
Stockholder of any assets of the Corporation or any Subsidiary having an
aggregate fair market value of $1,000,000 or more, or
(C) the issuance or transfer by the Corporation or any Subsidiary (in
one transaction or a series of related transactions) of any securities of
the Corporation or any Subsidiary to any Interested Stockholder or any
Affiliate of any Interested Stockholder in exchange for cash, securities or
other property (or a combination thereof) having an aggregate fair market
value of $1,000,000 or more, or
(D) the adoption of any plan or proposal for the liquidation or
dissolution of the Corporation, or
(E) any reclassification of securities (including any reverse stock
split), or recapitalization of the Corporation or any merger or
consolidation of the Corporation with any of its Subsidiaries or any similar
transaction (whether or not with or into or otherwise involving an
Interested Stockholder) which has the effect, directly or indirectly, of
increasing the proportionate share of the outstanding shares of any class of
equity or convertible securities of the Corporation or any Subsidiary which
is directly or indirectly owned by any Interested Stockholder or any
Affiliate of any Interested Stockholder,
shall require the affirmative vote of the holders of at least 80% of the
outstanding shares of stock of the Corporation entitled to vote generally in the
election of directors, considered for the purpose of this Article as one class
("Voting Shares"). Such affirmative vote shall be required notwithstanding the
fact that no vote may be required, or that some lesser percentage may be
specified, by law or in any agreement with any national securities exchange or
otherwise.
(ii) The term "business combination" as used in this Article shall mean any
transaction which is referred to in any one or more of clauses (A) through (E)
of Section (i) of this paragraph (a).
(b) The provisions of paragraph (a) of this Article shall not be applicable
to any particular business combination, and such business combination shall
require only such affirmative vote as is required by law and any other
provisions of this Certificate of Incorporation, if either (i) such business
combination has been approved by a majority of the Continuing Directors (as
hereinafter defined) or (ii) the aggregate amount of the cash and fair market
value of consideration other than cash to be received per share by holders of
Common Stock in such business combination shall be in the same form and of the
same kind as the consideration paid by the Interested Stockholder in acquiring
the initial 10% of the Common Stock owned by it and shall be at least equal to
the highest per share price (including brokerage commission, transfer taxes and
soliciting dealers' fees and after giving effect to appropriate adjustments for
any recapitalizations and for any stock splits, stock dividends and like
distributions) paid by such Interested Stockholder for any shares of Common
Stock acquired by it prior to the business combination; and the aggregate amount
of cash to be received per share by the holders of any class of preferred stock
in such business combination is the greater of (i) the highest per share price
paid by the Interested Stockholder in acquiring any shares of such preferred
stock or (ii) the
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highest preferential amount per share to which the holders of such class of
preferred stock are entitled in the event of a voluntary or involuntary
liquidation of the Corporation.
(c) For the purposes of this Article XIII:
(i) A "person" shall mean any individual, firm, corporation or other
entity.
(ii) "Interested Stockholder" shall mean, in respect of any business
combination, any person (other than the Corporation or any Subsidiary) who or
which, as of the record date for the determination of stockholders entitled to
notice of and to vote on such business combination, or immediately prior to the
consummation of any such transaction,
(A) is the beneficial owner, directly or indirectly, of more than 10% of
the Voting Shares, or
(B) is an Affiliate of the Corporation and at any time within two years
prior thereto was the beneficial owner, directly or indirectly, of not less
than 10% of the then outstanding Voting Shares, or
(C) is an assignee of or has otherwise succeeded to any shares of
capital stock of the Corporation which were at any time within two years
prior thereto beneficially owned by any Interested Stockholder, and such
assignment or succession shall have occurred in the course of a transaction
or series of transactions not involving a public offering within the meaning
of the Securities Act of 1933.
(iii) A person shall be the "beneficial owner" of the Voting Shares:
(A) which such person or any of its Affiliates and Associates (as
hereinafter defined) beneficially own, directly or indirectly, or
(B) which such person or any of its Affiliates or Associates has (1) the
right to acquire (whether such right is exercisable immediately or only
after the passage of time), pursuant to any agreement, arrangement or
understanding or upon the exercise of conversion rights, exchange rights,
warrants or options, or otherwise, or (2) the right to vote pursuant to any
agreement, arrangement or understanding, or
(C) which are beneficially owned, directly or indirectly, by any other
person, with which such first mentioned person or any of its Affiliates or
Associates has any agreement, arrangement or understanding for the purpose
of acquiring, holding, voting or disposing of any shares of capital stock of
the Corporation.
(iv) The outstanding Voting Shares shall include shares deemed owned
through applications of Section (iii) above but shall not include any other
Voting Shares which may be issuable pursuant to any agreement, or upon exercise
of conversion rights, warrants or options, or otherwise.
(v) "Affiliate" and "Associate" shall have the respective meanings given
those terms in Rule 12b-2 of the General Rules and Regulations under the
Securities Exchange Act of 1934, as in effect on March 1, 1983.
(vi) "Subsidiary" means any corporation of which a majority of any class of
equity security (as defined in Rule 3a11-1 of the General Rules and Regulation
under the Securities Exchange Act of 1934, as in effect on March 1, 1983) is
owned, directly or indirectly, by the Corporation; PROVIDED, HOWEVER, that for
the purposes of the definition of Interested Stockholder set forth in Section
(ii) of this subparagraph (c), the term "Subsidiary" shall mean only a
corporation of which a majority of each class of equity security is owned,
directly or indirectly, by the Corporation.
(vii) "Continuing Director" means any member of the Board of Directors of
the Corporation who is unaffiliated with an Interested Stockholder and was a
member of the Board prior to the time that an Interested Stockholder became an
Interested Stockholder and any successor of a Continuing
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Director who is unaffiliated with the Interested Stockholder and is recommended
to succeed a Continuing Director by a majority of the Continuing Directors then
on the Board.
(d) A majority of the directors shall have the power and duty to determine
for the purposes of this Article, on the basis of information known to them, (A)
the number of Voting Shares beneficially owned by any person, (B) whether a
person is an Affiliate or Associate of another, (C) whether a person has an
agreement, arrangement or understanding with another as to the matters referred
to in Section (iii) of paragraph (c), or (D) whether the assets subject to any
business combination or the consideration received for the issuance or transfer
of securities by the Corporation or any Subsidiary has an aggregate fair market
value of $1,000,000 or more.
(e) Nothing contained in this Article shall be construed to relieve any
Interested Stockholder from any fiduciary obligation imposed by law.
ARTICLE XIV
The provisions set forth in Article VII, Article XII, Article XIII, Article
XIV and Article XV herein may not be repealed or amended in any respect, and the
Corporation's By-Laws may not be amended by stockholders, unless such action is
approved by the affirmative vote of the holders of not less than 80% of the
voting power of all shares of stock of the Corporation entitled to vote in the
election of directors, considered for purposes of this Article XIV as one class.
The voting requirements contained in Article VIII, Article XII, Article XIII,
Article XIV, and Article XV herein shall be in addition to the voting
requirements imposed by law, other provisions of this Certificate of
Incorporation or any certificate of designation of preferences filed with
respect to any series of Preferred Stock. The By-Laws of the Corporation may be
altered, amended or repealed by the Board of Directors at any regular or special
meeting of the Board of Directors.
ARTICLE XV
The Corporation reserves the right to amend, alter, change or repeal any
provision contained in this Certificate of Incorporation, in the manner now or
hereafter prescribed by the laws of the State of Delaware, and all rights
conferred on stockholders herein are granted subject to this reservation.
Notwithstanding the foregoing, the provisions set forth in Article VII, Article
XII, Article XIII, Article XIV and Article XV may not be repealed or amended in
any respect unless such repeal or amendment is approved as specified in Article
XV herein.
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