<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended July 3, 1999
Commission file number 1-11793
THE DIAL CORPORATION
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 51-0374887
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
15501 NORTH DIAL BOULEVARD
SCOTTSDALE, ARIZONA 85260-1619
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (480) 754-3425
Indicate by check mark whether the registrant (1) has filed all Exchange Act
reports required to be filed by Section 13 or 15 (d) of the Securities Exchange
Act of 1934 during the preceding 12 months, and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
The number of shares of Common Stock, $.01 par value, outstanding as the close
of business on August 12, 1999 was 102,251,573.
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE DIAL CORPORATION
CONSOLIDATED BALANCE SHEET
(000 omitted, except share data)
(Unaudited)
<TABLE>
<CAPTION>
July 3, December 31,
1999 1998
----------- ------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 5,259 $ 12,405
Receivables, less allowance of $7,014 and $7,378 72,447 56,477
Inventories 170,231 155,441
Deferred income taxes 15,017 13,156
Other current assets 1,832 1,634
----------- -----------
Total current assets 264,786 239,113
Property and equipment, net 282,800 281,302
Deferred income taxes 73,352 82,227
Intangibles, net 534,830 545,999
Other assets 28,556 26,734
----------- -----------
$ 1,184,324 $ 1,175,375
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Trade accounts payable $ 99,787 $ 123,911
Short-term borrowings 9,158 10,389
Income taxes payable 19,844 9,685
Other current liabilities 96,260 106,663
----------- -----------
Total current liabilities 225,049 250,648
Long-term debt 305,624 280,223
Pension and other benefits 245,450 245,981
Other liabilities 7,294 8,298
----------- -----------
Total liabilities 783,417 785,150
----------- -----------
Stockholders' Equity:
Preferred stock, $.01 par value, 10,000,000 shares
authorized; no shares issued and outstanding -- --
Common stock, $.01 par value, 300,000,000 shares
authorized, 105,137,786 and 104,355,018 shares issued 1,051 1,044
Additional capital 486,158 450,767
Retained income 144,562 105,011
Accumulated other comprehensive income (8,435) (8,949)
Unearned employee benefits (141,571) (129,111)
Treasury stock, 2,868,961 and 1,176,082 shares held (80,858) (28,537)
----------- -----------
Total stockholders' equity 400,907 390,225
----------- -----------
$ 1,184,324 $ 1,175,375
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
2
<PAGE> 3
THE DIAL CORPORATION
STATEMENT OF CONSOLIDATED OPERATIONS AND COMPREHENSIVE INCOME
(000 omitted, except per share data)
<TABLE>
<CAPTION>
(Unaudited)
Quarter Ended
-------------------------
July 3, July 4,
1999 1998
--------- ---------
<S> <C> <C>
Net sales $ 430,312 $ 366,798
--------- ---------
Costs and expenses:
Cost of products sold 211,251 185,861
Selling, general and administrative expenses 164,563 136,185
--------- ---------
375,814 322,046
--------- ---------
Operating income 54,498 44,752
Interest and other expenses 8,289 4,632
--------- ---------
Income before income taxes 46,209 40,120
Income taxes 16,776 14,513
--------- ---------
NET INCOME $ 29,433 $ 25,607
========= =========
NET INCOME PER SHARE -- BASIC $ 0.30 $ 0.26
========= =========
NET INCOME PER SHARE -- DILUTED $ 0.29 $ 0.25
========= =========
Weighted average basic shares outstanding 98,580 98,158
Weighted average equivalent shares 2,033 2,458
--------- ---------
Weighted average diluted shares outstanding 100,613 100,616
========= =========
NET INCOME $ 29,433 $ 25,607
Other comprehensive income (loss) net of tax:
Foreign currency translation adjustment 151 (172)
--------- ---------
COMPREHENSIVE INCOME $ 29,584 $ 25,435
========= =========
</TABLE>
See Notes to Consolidated Financial Statements.
3
<PAGE> 4
THE DIAL CORPORATION
STATEMENT OF CONSOLIDATED OPERATIONS AND COMPREHENSIVE INCOME
(000 omitted, except per share data)
<TABLE>
<CAPTION>
(Unaudited)
Six Months Ended
-------------------------
July 3, July 4,
1999 1998
--------- ---------
<S> <C> <C>
Net sales $ 829,260 $ 701,820
--------- ---------
Costs and expenses:
Cost of products sold 413,634 362,367
Selling, general and administrative expenses 312,133 254,147
--------- ---------
725,767 616,514
--------- ---------
Operating income 103,493 85,306
Interest and other expenses 16,647 9,386
--------- ---------
Income before income taxes 86,846 75,920
Income taxes 31,527 27,402
--------- ---------
NET INCOME $ 55,319 $ 48,518
========= =========
NET INCOME PER SHARE -- BASIC $ 0.56 $ 0.50
========= =========
NET INCOME PER SHARE -- DILUTED $ 0.55 $ 0.48
========= =========
Weighted average basic shares outstanding 98,660 97,908
Weighted average equivalent shares 2,087 2,384
--------- ---------
Weighted average diluted shares outstanding 100,747 100,292
========= =========
NET INCOME $ 55,319 $ 48,518
Other comprehensive income (loss) net of tax:
Foreign currency translation adjustment 385 (133)
Minimum pension liability adjustment 129 (17)
--------- ---------
Other comprehensive income (loss) 514 (150)
--------- ---------
COMPREHENSIVE INCOME $ 55,833 $ 48,368
========= =========
</TABLE>
See Notes to Consolidated Financial Statements.
4
<PAGE> 5
THE DIAL CORPORATION
STATEMENT OF CONSOLIDATED CASH FLOWS
(000 omitted)
<TABLE>
<CAPTION>
(Unaudited)
Six Months Ended
------------------------
July 3, July 4,
1999 1998
-------- --------
<S> <C> <C>
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:
Net income $ 55,319 $ 48,518
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 21,199 16,668
Deferred income taxes 7,014 1,619
Change in operating assets and liabilities:
Receivables (24,145) (9,601)
Inventories (14,790) 1,007
Trade accounts payable (24,124) (11,430)
Other assets and liabilities, net 5,415 (15,538)
-------- --------
Net cash provided by operating activities 25,888 31,243
-------- --------
CASH FLOWS USED BY INVESTING ACTIVITIES:
Capital expenditures (19,675) (15,082)
Acquisition of business, net of cash acquired 6,046 (83,763)
Proceeds from sale of assets 10,053
-------- --------
Net cash used by investing activities (13,629) (88,792)
-------- --------
CASH FLOWS PROVIDED (USED) BY FINANCING ACTIVITIES:
Net change in long-term borrowings 25,401 31,065
Common stock purchased for treasury (50,669) (5,232)
Net change in short-term bank loans (1,231) 116
Dividends paid on common stock (15,768) (15,712)
Cash proceeds from stock options 14,687 12,594
Net change in receivables sold 8,175 31,100
-------- --------
Net cash provided (used) by financing activities (19,405) 53,931
-------- --------
Net decrease in cash and cash equivalents (7,146) (3,618)
Cash and cash equivalents, beginning of year 12,405 10,089
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 5,259 $ 6,471
======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
5
<PAGE> 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A. BASIS OF PREPARATION
The Consolidated Financial Statements of The Dial Corporation ("the Company")
include the accounts for the Company and all of its subsidiaries. This
information should be read in conjunction with the financial statements set
forth in The Dial Corporation Annual Report to Stockholders for the year ended
December 31, 1998.
Accounting policies utilized in the preparation of the financial information
herein presented are the same as set forth in the Company's annual financial
statements except as modified for interim accounting policies which are within
the guidelines set forth in Accounting Principles Board Opinion No. 28, "Interim
Financial Reporting." The interim consolidated financial statements are
unaudited. In the opinion of management, all adjustments, consisting of normal
recurring accruals, necessary to present fairly the financial position as of
July 3, 1999, the results of operations and cash flows for the quarters and six
months ended July 3, 1999 and July 4, 1998 have been included. Interim results
of operations are not necessarily indicative of the results of operations for
the full year.
At July 3, 1999, there were 105,137,786 shares of common stock issued and
98,329,154 shares outstanding. At July 3, 1999 and July 4, 1998, a total of
3,939,671 and 4,495,785, respectively, of the issued shares were held by the
Employee Equity Trust. At July 3, 1999 and July 4, 1998, a total of 2,868,961
and 329,071, respectively, shares were held in treasury by the Company. The
shares held in treasury at July 3, 1999 include 218,725 shares valued at $5.2
million purchased by the Company as part of a small shareholder
selling/repurchasing program executed during the first half of 1998 and
2,460,700 shares valued at $71.7 million as part of the Company's stock
repurchase program.
In June 1998, the FASB issued Statement of Financial Accounting Standards No.
133 "Accounting for Derivative Instruments and Hedging Activities" ("SFAS No.
133"). SFAS No. 133 requires all derivatives to be recorded on the balance sheet
at fair value and provides a comprehensive and consistent standard for the
recognition and measurement of derivatives and hedging activities. The Company
is studying the application of this new Statement. This Statement shall be
effective for annual periods beginning after June 15, 2000.
NOTE B. ACQUISITION OF BUSINESS AND JOINT VENTURE
On April 20, 1999, the Company and Henkel KGaA ("Henkel") reached agreement to
establish a joint venture to develop and market a range of enhanced laundry
products in North America. The joint venture company, Dial/Henkel LLC ("the
Joint Venture"), is 50%-owned by the Company and 50%-owned by Henkel
Corporation, the U.S. subsidiary of Henkel, and is expected to have products in
the market by the end of 1999. The Company will account for its interest in the
Joint Venture using the equity method.
On August 4, 1999, the Joint Venture completed the purchase of the Custom
Cleaner home dry cleaning business of Creative Products Resources, Inc. and
expects to begin selling the products nationally later this year.
On September 14, 1998, the Company acquired Sarah Michaels, Inc. ("Sarah
Michaels"), a manufacturer and marketer of specialty bath and body care products
for a cash purchase price of $187.0 million. The
6
<PAGE> 7
Sarah Michaels acquisition has been accounted for under the purchase method of
accounting. At July 3, 1999, $5.0 million remains in escrow pending final
valuation of certain assets and liabilities.
On July 1, 1998, the Company acquired The Freeman Cosmetic Corporation
("Freeman"), a manufacturer and marketer of natural skin care, hair care, bath,
body and foot care products for a cash purchase price of approximately $78.0
million. The cash purchase price for Freeman reflects a $6.0 million reduction
as a result of a net worth adjustment received by the Company in January 1999.
The Company continues to gather and analyze certain information required to
complete the allocation of the purchase price of the acquisition of Sarah
Michaels. Further adjustments to the allocation of the purchase price may arise
as a result of the finalization of the ongoing study.
The following unaudited pro forma combined condensed financial information for
the second quarter and first six months of 1998 includes the results of
operations for the Company and assumes the acquisition of Sarah Michaels and
Freeman were consummated at the beginning of 1998 along with adjustments which
give effect to events that are directly attributable to the transaction and are
expected to have a continuing impact. The unaudited pro forma combined condensed
financial information does not give any effect to any potential cost savings
which may arise from the consolidation of the acquisitions with the Company.
The unaudited pro forma combined condensed financial information does not
purport to represent the results of operations that would have actually resulted
had the purchases occurred on the indicated dates, nor should it be taken as
indicative of future results of operations.
<TABLE>
<CAPTION>
Quarter ended Six Months ended
July 4, 1998 July 4, 1998
------------- ----------------
(000 omitted, except per share data)
<S> <C> <C>
Net sales $ 390,209 $ 746,034
Operating income 42,197 83,037
Net income 21,321 42,772
Earnings per share - diluted $ 0.21 $ 0.43
</TABLE>
NOTE C. INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
July 3, December 31,
1999 1998
---------- ------------
(000 omitted)
<S> <C> <C>
Raw materials and supplies $ 53,208 $ 55,791
Work in process 4,926 7,855
Finished goods 112,097 91,795
---------- ----------
$ 170,231 $ 155,441
========== ==========
</TABLE>
7
<PAGE> 8
NOTE D. DEBT
Short-term debt at July 3, 1999 consisted of a $9,158,000 bank loan to the
Company's Argentinean subsidiary, Nuevo Federal. The loan is denominated in
Argentinean Pesos, bears interest at the bank's short-term rate (9% to 11% at
July 3, 1999) and reprices monthly. The loan is subject to call by the bank at
the end of each month.
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
July 3, December 31,
1999 1998
-------- ------------
(000 omitted)
<S> <C> <C>
$200 million 6.5% Senior Notes due 2008, net of issue discount $198,043 $197,938
Short-term bank borrowings supported by the long-term revolving Credit
Agreement, with interest rates at July 3, 1999 ranging
from 5.5% to 6% 107,581 82,285
-------- --------
Total long-term debt $305,624 $280,223
======== ========
</TABLE>
On September 23, 1998, the Company completed a $200 million public offering of
6.5% Senior Notes due 2008. The proceeds of the debt financing were used to
repay outstanding bank borrowings used for the acquisitions of Freeman and Sarah
Michaels. The Indenture governing these Senior Notes imposes restrictions on the
Company with respect to, among other things, its ability to redeem the Senior
Notes, to place liens on certain properties and to enter into certain sale and
leaseback transactions.
In addition, long-term debt consists of short-term bank borrowings classified as
long-term because they are supported by the Company's $350 million long-term,
revolving Credit Agreement. At July 3, 1999, the Company had $350 million
available under the Credit Agreement. Borrowings under the Credit Agreement are
on a revolving basis under commitments available until August 15, 2002. The
interest rate applicable to bank borrowings under the Credit Agreement is, at
the Company's option, indexed to the bank prime rate or the London Interbank
Offering Rate ("LIBOR"), plus appropriate spreads over such indices during the
period of the Credit Agreement. The Agreement also provides for commitment fees.
Such spreads and fees will change moderately should the Company's debt ratings
change. During June 1999, the Company established a $350 million commercial
paper program, which will allow it to access the commercial paper market for
short-term borrowing needs. At July 3, 1999 there were no borrowings under the
commercial paper program.
8
<PAGE> 9
NOTE E. INCOME TAXES
Reconciliation between the statutory federal income tax rate of 35% and the
Company's consolidated effective income tax rate for the six months ended July
3, 1999 and July 4, 1998 is as follows:
<TABLE>
<CAPTION>
July 3, July 4,
1999 1998
------ ------
<S> <C> <C>
Federal statutory rate 35.0% 35.0%
Goodwill amortization 0.7 0.3
Foreign Sales Corp. benefit (0.6) (0.5)
State income taxes 3.4 4.0
Other, net (2.2) (2.7)
------ ------
Effective income tax rate 36.3% 36.1%
====== ======
</TABLE>
NOTE F. SEGMENTS OF AN ENTERPRISE
For organizational, marketing and financial reporting purposes, the Company has
organized into three business segments: (i) Domestic Branded, (ii)
International, and (iii) Commercial Markets and Other. The segments were
identified based on the types of products sold, the customer base and method of
distribution.
Selected information as to the operations of the Company in different business
segments for the second quarter and first six months of 1999 and 1998 is set
forth below. The accounting policies and the basis of preparation of the
business segments are the same as those described in Note P to the audited
financial statements included in the Company's 1998 Annual Report to
Stockholders.
<TABLE>
<CAPTION>
COMMERCIAL DISCONTINUED
DOMESTIC MARKETS TOTAL TOTAL & DIVESTED
BRANDED AND OTHER DOMESTIC INTERNATIONAL CONTINUING PRODUCTS TOTAL
----------- ----------- ----------- ------------- ----------- ------------ -----------
(000 omitted)
<S> <C> <C> <C> <C> <C> <C> <C>
NET SALES:
Quarter ended:
July 3, 1999 $ 365,143 $ 19,219 $ 384,362 $ 45,950 $ 430,312 $ -- $ 430,312
July 4, 1998 310,184 16,765 326,949 39,849 366,798 366,798
Six months ended:
July 3, 1999 704,192 35,377 739,569 89,691 829,260 829,260
July 4, 1998 588,449 34,205 622,654 78,665 701,319 501 701,820
OPERATING INCOME:
Quarter ended:
July 3, 1999 46,877 2,654 49,531 4,967 54,498 54,498
July 4, 1998 39,520 2,059 41,579 3,173 44,752 44,752
Six months ended:
July 3, 1999 89,613 4,980 94,593 8,900 103,493 103,493
July 4, 1998 77,224 3,356 80,580 4,784 85,364 (58) 85,306
ASSETS AT:
July 3, 1999 1,038,226 9,711 1,047,937 136,387 1,184,324 1,184,324
December 31, 1998 1,034,425 10,005 1,044,430 130,945 1,175,375 1,175,375
</TABLE>
9
<PAGE> 10
NOTE G. DISPOSITION OF ASSETS
In the first quarter of 1998, the Company received approximately $10.0 million
from the disposition of assets. The PUREX TOSS `N SOFT(R) brand and related
inventories were sold for approximately $5.3 million and a non-operating
manufacturing property was sold for $4.0 million. No gain or loss was realized
on the transactions.
10
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
COMPARISON OF THE SECOND QUARTER OF 1999 WITH THE SECOND QUARTER OF 1998
Net sales increased $63.5 million, or 17.3%, to $430.3 million in the second
quarter of 1999 from $366.8 million in the second quarter of 1998. This increase
resulted from strong growth in the PUREX(R) and RENUZIT(R) franchises which grew
at 15.3% and 23.8%, respectively, as well as contributions from Freeman and
Sarah Michaels. The Purex franchise instituted a price increase beginning in
January of 1999. Sales net of the Purex price increase improved 15.4% for the
quarter.
Domestic Branded net sales increased $55.0 million, or 17.7%, to $365.1 million
in the second quarter of 1999 from $310.1 million in the second quarter of 1998.
The increase in net sales resulted primarily from the inclusion of the Sarah
Michaels and Freeman acquisitions and sales growth in Purex, up 15.3%, and
Renuzit, up 23.8%. Domestic Branded sales net of the Purex price increase
improved 15.4% for the quarter.
International net sales increased $6.1 million, or 15.3%, to $46.0 million from
$39.9 million in the second quarter of 1998 primarily as a result of increased
sales in Argentina and Canada.
Commercial Markets and Other net sales increased $2.5 million, or 14.6%, to
$19.3 million in the second quarter of 1999 from $16.8 million in the second
quarter of 1998, primarily from sales of discontinued items.
Gross profit margin increased 1.6% to 50.9% in the second quarter of 1999 from
49.3% in the second quarter of 1998 resulting primarily from the Purex price
increase, continuing improvement in efficiencies in the manufacturing facilities
and favorable raw material prices. These improvements were partially mitigated
by increased sales of larger sizes within both DIAL(R) and Purex, which have
lower gross margins. Gross profit margin net of the Purex price increase was
50.1% for the second quarter of 1999.
Selling, general and administrative expenses for the second quarter of 1999
increased $28.4 million, or 20.8%, to $164.6 million from $136.2 million in the
second quarter of 1998. The increase was primarily due to higher marketing
expense to support core business-merchandising initiatives, new product launches
and core business advertising and amortization of goodwill and incremental
administrative expenses associated with the acquisition of Freeman and Sarah
Michaels.
Operating income in the second quarter of 1999 increased $9.8 million, or 21.8%,
to $54.5 million from $44.7 million during the second quarter of 1998. The
increase was primarily due to increased sales and gross margin improvements
partially offset by trade spending for slotting and feature price protection.
Interest and other expense increased $3.7 million, or 79.0%, to $8.3 million for
the second quarter of 1999 compared to $4.6 million in the second quarter of
1998. The increase was primarily due to increased debt to fund the Freeman and
Sarah Michaels acquisitions.
11
<PAGE> 12
The Company's consolidated effective income tax rate for the second quarter of
1999 was 36.3%, up from 36.2% for the second quarter of 1998, primarily due to
nondeductible goodwill related to the Sarah Michaels acquisition.
Net income increased $3.8 million, or 14.9%, to $29.4 million in the second
quarter of 1999 from $25.6 million in the second quarter of 1998. The increase
was primarily due to increased sales and gross margin improvements, offset in
part by higher selling, general and administrative expenses and lower than
expected operating results of both Freeman and Sarah Michaels during their
integration into Dial, caused in part by the seasonality of Sarah Michaels'
business, which derives approximately 60% of its annual net sales in the fourth
quarter.
COMPARISON OF THE FIRST SIX MONTHS OF 1999 WITH THE FIRST SIX MONTHS OF 1998
Net sales increased $127.5 million, or 18.2%, to $829.3 million in the first six
months of 1999 from $701.8 million in the first six months of 1998. This
increase resulted primarily from strong growth in the Purex and Renuzit
franchises which grew at 17.4% and 31.0%, respectively, as well as contributions
from Freeman and Sarah Michaels. The Purex franchise instituted a price increase
beginning in January of 1999. Sales net of the Purex price increase improved
16.2% for the first six months.
Domestic Branded net sales increased $115.8 million, or 19.7%, to $704.2 million
in the first six months of 1999 from $588.4 million in 1998. The increase in net
sales resulted primarily from the inclusion of the Sarah Michaels and Freeman
acquisitions and sales growth in Purex, up 17.4%, and Renuzit, up 31.0%.
Domestic Branded sales net of the Purex price increase improved 17.3% for the
first six months of 1999 compared to 1998.
International net sales increased $11.0 million, or 14.0%, to $89.7 million from
$78.7 million in the first six months of 1998 primarily as a result of increased
sales in Argentina and Canada.
Commercial Markets and Other net sales increased $1.2 million, or 3.4%, to $35.4
million in the first six months of 1999 from $34.2 million in the first six
months of 1998, primarily from sales of discontinued items offset in part by
softness in pricing of sulfonate chemicals, glycerin and fatty acids.
Gross profit margin increased 1.8% to 50.1% in the first six months of 1999 from
48.4% in the first six months of 1998 resulting primarily from the Purex price
increase, continuing improvement in manufacturing efficiencies in the
manufacturing facilities and favorable raw material prices. Gross profit margin
improvements in the first half were offset in part by increased sales of larger
sizes within both Dial and Purex, which have lower gross margins. Gross profit
margin net of the Purex price increase was 49.3% for the first six months of
1999.
Selling, general and administrative expenses for the first six months of 1999
increased $58.0 million, or 22.8%, to $312.1 million from $254.1 million in the
first six months of 1998. The increase was primarily due to higher marketing
expense to support core business-merchandising initiatives, new product
launches, core business advertising and amortization of goodwill and incremental
administrative expense associated with the acquisition of Freeman and Sarah
Michaels.
12
<PAGE> 13
Operating income in the first six months of 1999 increased $18.2 million, or
21.3%, to $103.5 million from $85.3 million during the first six months of 1998.
The increase was primarily due to increased sales and gross margin improvements.
Interest and other expense increased $7.3 million, or 77.4%, to $16.7 million
for the first six months of 1999 compared to $9.4 million in the first six
months of 1998. The increase was primarily due to increased debt to fund the
Freeman and Sarah Michaels acquisitions.
The Company's consolidated effective income tax rate for the first six months of
1999 was 36.3%, up from 36.1% for the first six months of 1998 primarily due to
nondeductible goodwill related to the Sarah Michaels acquisition.
Net income increased $6.8 million, or 14.0%, to $55.3 million in the first six
months of 1999 from $48.5 million in the first six months of 1998. The increase
was primarily due to increased sales and gross margin improvements, offset in
part by higher selling, general and administrative expenses and lower than
expected operating results of both Freeman and Sarah Michaels during their
integration into Dial, caused in part by the seasonality of Sarah Michaels'
business, which derives approximately 60% of its annual net sales in the fourth
quarter.
LIQUIDITY AND CAPITAL RESOURCES
The Company generated cash from operations of $25.9 million during the first
half of 1999 compared to cash generated of $31.2 million for the same period of
time in 1998. This decrease resulted primarily from higher inventory levels for
new products, recent acquisitions and an increase in accounts receivable to
support promotional programs primarily due to increased shipments in the latter
part of the quarter on our core franchises.
Capital expenditures for the first half of 1999 were $19.7 million versus $15.1
million for the comparable period in 1998. Capital spending in 1999 is expected
to approximate $55 million and will be concentrated primarily on equipment and
information systems that provide opportunities to reduce manufacturing, logistic
and administrative costs and address the Year 2000 issue. However, such plans
are dependent on the availability of funds, as well as identification of
projects with sufficient returns. As a result, there can be no assurance as to
the quantity and the type of capital spending in the future.
On July 1, 1998, the Company acquired Freeman for $78.0 million, which was
financed through short-term borrowings supported by the Company's long-term
Credit Agreement. The acquisition price reflects a $6.0 million reduction in the
purchase price for Freeman as a result of a net worth adjustment received by the
Company in January 1999.
On September 14, 1998, the Company acquired Sarah Michaels for $187 million,
which was financed through short-term borrowings supported by the Company's
long-term Credit Agreement.
On September 23, 1998, the Company completed a $200 million public offering of
6.5% Senior Notes due 2008. The proceeds of the debt financing were used to
repay outstanding bank borrowings used for the acquisitions of Freeman and Sarah
Michaels. The Indenture governing these Senior Notes imposes restrictions on the
Company with respect to, among other things, its ability to redeem the Senior
Notes, to place liens on certain properties and to enter into certain sale and
leaseback transactions.
13
<PAGE> 14
The Company received approximately $10.0 million from the disposition of assets
during 1998, the majority of which resulted from two sales. The Purex TOSS `N
SOFT(R) brand and related inventories were sold for approximately $5.3 million
and a non-operating manufacturing property was sold for $4.0 million. No gain or
loss was realized on either of the transactions.
The Company's financing plan includes the sale of accounts receivable to
accelerate cash flow. During June 1999, the maximum amount of receivables that
could be sold under this plan was increased to $115.0 million. Accounts
receivable sold but not yet collected under this plan at July 3, 1999 and
December 31, 1998 was $98.2 million and 90.0 million respectively. Under the
terms of the plan, the Company retains the risk of credit loss on the
receivables sold.
The Company is also party to a $350.0 million revolving credit agreement (the
"Credit Agreement") with various banks. The Credit Agreement, which will
terminate on August 15, 2002, unless extended, contains certain covenants which
impose limitations on the Company with respect to, among other things, its
ability to place liens on property, its ability to merge, consolidate or
transfer substantially all its assets, its minimum net worth and the incurrence
of certain indebtedness. The Company had $350.0 million available under the
Credit Agreement at July 3, 1999. The Company, from time to time, makes
short-term bank borrowings that are supported by the Credit agreement. At July
3, 1999, the Company had $107.6 million aggregate principal amount of such
short-term borrowings outstanding. The bank borrowings are classified as
long-term debt because they are supported by the long-term Credit Agreement.
During June 1999, the Company established a $350 million commercial paper
program which will allow it to access the commercial paper market for short-term
borrowing needs. At July 3, 1999 there were no borrowings under the commercial
paper program.
As part of its business strategy, the Company routinely reviews and evaluates
the acquisition of domestic and international companies that market products
that are similar to the Company's product offerings. The Company may seek
additional debt and/or equity financing as necessary to fund any potential
acquisitions.
At July 3, 1999 and July 4, 1998, a total of 2,868,961 and 329,071,
respectively, shares were held in treasury by The Company. The shares held at
July 3, 1999 include 218,725 shares valued at $5.2 million purchased by the
Company as part of a small shareholder selling/repurchasing program executed
during the first quarter of 1998 and 2,460,700 shares valued at $71.7 million
purchased as part of the Company's stock repurchase program.
At July 3, 1999, the Company had approximately $88.4 million in net deferred tax
benefits. The realization of such benefits will require average annual taxable
income of approximately $16.2 million over the next 15 years. The Company's
average income before income taxes over the last three years was approximately
$112.3 million.
YEAR 2000 COMPLIANCE
OVERVIEW
Many existing computer systems and software products, including several used by
Dial, are coded to accept only two digit entries in the date code field.
Beginning on January 1, 2000, these date code fields will need to accept four
digit entries to distinguish 21st Century dates from 20th Century dates. As a
result,
14
<PAGE> 15
our date critical functions related to the year 2000 and beyond, such as sales,
distribution, manufacturing, purchasing, inventory control, trade promotion
management, planning and replenishment, facilities and financial systems, may be
materially adversely affected unless computer systems and embedded microchips in
manufacturing equipment are or become Year 2000 compliant. If we do not properly
assess, remediate and test our systems for Year 2000 issues, our operating
results, financial condition and relationships with critical business partners
could be materially adversely effected. In addition, Year 2000 problems
experienced by other entities could have a material adverse impact on our
operating results and financial condition.
In early 1997, Dial established a corporate-wide project team to oversee,
monitor and coordinate our Year 2000 efforts. Our Year 2000 project is organized
into five specific areas: (1) information technology applications, (2)
information technology infrastructure, (3) embedded systems, (4) business
partners and (5) contingency plans.
INFORMATION TECHNOLOGY APPLICATIONS
We have completed our assessment of our information technology applications and
have identified 73 application systems that we believe are critical to
maintaining our domestic operations without disruptions that would have a
material adverse effect on our operating results and financial condition. Of
these 73 application systems, 60 have been remediated. We expect to have the
remaining critical information technology applications for our domestic
operations replaced or remediated by the end of the third quarter.
Our primary approach to remediation has been to replace non-compliant
application systems with application systems represented by vendors to be Year
2000 compliant. Through this replacement effort, our 73 critical application
systems are being replaced by 35 systems. In most cases, our testing of these 35
application systems consists of executing them with transaction dates beyond
December 31, 1999, as well as running the application system in an environment
in which the system date has been moved forward to a date beyond December 31,
1999.
Generally, our testing is less rigorous for newer applications represented to be
Year 2000 compliant. For example, in selected cases of newer application systems
that are represented by the vendor to be Year 2000 compliant, we have reviewed
the vendors' testing documentation and are testing the application system with
transaction dates beyond December 31, 1999, but will not run the application
system in an environment in which the system date has been moved forward to a
date beyond December 31, 1999. In other cases of newer application systems
that are represented by the vendor to be Year 2000 compliant, we have reviewed
the vendors' testing documentation and have determined that no further testing
is required. We have completed testing or have determined that testing is not
necessary for 16 of the application systems and believe that all 16 are Year
2000 compliant. We expect to complete our testing of the remaining critical
information technology applications for our domestic operations by the end of
the third quarter of 1999.
We also have identified and assessed 13 application systems consisting of 52
modules that we believe are critical to maintaining our international operations
(principally in Argentina, Guatemala, and Mexico). Of these 13 application
systems, eight systems comprising 46 modules have been replaced. The remaining
five are currently being remediated. We expect to complete replacement or
remediation of critical information technology application for our international
operations by the end of the third quarter of 1999. We have completed testing of
the eight replacement application systems mentioned above, and expect to
15
<PAGE> 16
complete our testing of all critical information technology applications for our
international operations in the fourth quarter of 1999.
INFORMATION TECHNOLOGY INFRASTRUCTURE
We have followed the same approach described above for our information
technology infrastructure, which includes computer and communications hardware
and related operating system software on which the information systems
applications operate. This equipment is in the process of being replaced or
upgraded to Year 2000 compliant versions. Approximately 88% of the critical
infrastructure equipment for our domestic and international operations and 90%
of such equipment for our international operations have been remediated. We
expect to complete remediation of our infrastructure equipment by third quarter
of 1999. As mentioned above, our testing is less rigorous for infrastructure
software/hardware represented by the manufacturer to be Year 2000 compliant. We
expect to complete testing of critical infrastructure equipment/software for our
domestic and international operations during the fourth quarter of 1999. We will
continue to monitor manufacturer revisions of Year 2000 infrastructure
compliance statements through the end of 1999 and will reassess the potential
impact on infrastructure equipment and operating systems as necessary.
EMBEDDED SYSTEMS
We have identified 460 embedded systems that we believe are critical to
maintaining our domestic operations without disruptions that would have a
material adverse effect on our operating results and financial condition. Of
these 460 embedded systems, 442 have been remediated. We have completed testing
of 400 of these 442 embedded systems and believe that we will not experience any
Year 2000 issues with these 400 embedded systems. We expect to have all of the
critical embedded systems for our domestic operations remediated and tested, as
necessary, by the end of the third quarter of 1999.
We also have identified and assessed 50 embedded systems that we believe are
critical to maintaining our international operations without disruptions that
would have a material adverse effect on our international operating results. We
have completed remediation and testing of all of these embedded systems.
BUSINESS PARTNERS
During 1998, we sent Year 2000 readiness surveys to 1,906 of our business
partners and received responses from 1,252 of these business partners. We
categorized responses as good, fair or poor based upon the information submitted
by the business partners and our ability to assess their Year 2000 readiness
from this information. Of these 1,252 responses, we determined that 913 were
good, 126 were fair and 213 were poor. We are continuing to follow up with those
business partners who we believe are critical to maintaining our domestic
operations.
We have identified 418 of our business partners as critical to maintaining our
domestic operations without disruptions that would have a material adverse
effect upon our operating results and financial condition. We have completed our
assessment of the Year 2000 readiness of our business partners. We will however,
continue to monitor the Year 2000 readiness of approximately 150 of these
critical business partners and evaluate the readiness of all new vendors
throughout 1999.
We believe that our business partners present a significant risk of disruption
to our operations due to our limited ability to influence their actions and to
estimate the level and impact of the lack of Year 2000
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<PAGE> 17
readiness throughout our extended supply chain. As part of our contingency
plans, we will identify alternatives to those business partners whom we believe
will not be prepared for Year 2000 problems.
We have had discussions concerning Year 2000 readiness with some of our largest
customers and continue to monitor their Year 2000 readiness statements. We
currently do not have any reason to believe that our largest customers are not
appropriately resolving their Year 2000 issues.
Our international facilities sent Year 2000 readiness surveys to 233 of our
critical business partners and received 167 good responses and 66 poor responses
from these business partners. We are continuing to follow up with the 66
business partners who submitted poor responses to assess their Year 2000
readiness. We believe that business partners, customers, governmental agencies
and utilities outside the United States are generally less aware of Year 2000
issues and less willing to provide information concerning their Year 2000
readiness. As a result, we currently believe that our international business
partners and customers, as well as the countries in which they operate, will be
less prepared for Year 2000 issues than our domestic business partners and
customers, and that this lack of Year 2000 readiness could have a material
adverse effect on our operating results.
CONTINGENCY PLANS
We are developing contingency plans intended to mitigate possible disruptions in
our business operations that may result from Year 2000 issues and believe that
these plans will be substantially completed by the end of the third quarter of
1999. Our contingency plans may include implementing manual work processes and
hiring additional staff, securing alternate sources of supply, distribution and
warehousing, adjusting the timing of promotional programs, stockpiling raw,
packaging and promotional materials, and increasing inventory levels of finished
goods. We will continually update and revise our contingency plans for our
significant business partners and customers as we continue to assess their Year
2000 readiness. However, judgments regarding contingency plans - such as how to
develop them and to what extent - are subject to many variables and
uncertainties. As a result, there is no certainty that our contingency plans
will be sufficient to mitigate disruptions to our business resulting from Year
2000 issues and the failure of our contingency plans to mitigate any disruptions
could have a material adverse effect on our operating results and financial
condition.
We currently believe that the most reasonably likely worst case scenario
involves the potential failure of interfaces to and from our critical
information systems applications combined with the failure of critical business
partners to be Year 2000 compliant. We believe that the most reasonably likely
worst case scenario would result in a significant increase in our costs due to
remediation efforts and additional staffing to support business activities and
perform manual work processes around critical information systems applications,
as well as difficulties in procuring raw materials and meeting customer demand
for our products. If the most reasonably likely worst case scenario occurs, it
could have a material adverse effect on our operating results and financial
condition.
COSTS
We are using both internal and external resources to complete our Year 2000
efforts. We incurred costs of $1.0 million in 1998 and currently are expected to
incur costs of $1.6 million in 1999. We also incurred capital costs of $10.8
million in 1998, $8.1 million for the first half of 1999 and are currently
expected to incur additional capital costs of $5.1 million during the second
half of 1999 to upgrade our information
17
<PAGE> 18
technology systems. These expenditures will address Year 2000 compliance and are
expected to provide us with improved efficiencies and cost savings.
The costs of Dial's Year 2000 identification, assessment, remediation and
testing efforts and the dates on which we believe we will complete such efforts
are based upon management's best estimates, which were derived using numerous
assumptions regarding future events, including the continued availability of
certain resources, third-party remediation plans and other factors. There is no
certainty that these estimates will prove to be accurate and actual results
could differ materially from those currently anticipated. Specific factors that
could cause such material differences include the availability and cost of
personnel trained in Year 2000 issues, the ability to identify, assess,
remediate and test all relevant computer codes and embedded technology and
similar uncertainties. Although some of our agreements with manufacturers and
other suppliers contain indemnification provisions, we cannot give any assurance
that these indemnification arrangements will cover Dial's liabilities and costs
related to claims by third parties related to Year 2000 issues.
The above section entitled "Year 2000 Compliance," even if incorporated by
reference into other documents or disclosures, is a Year 2000 Readiness
Disclosure as defined under the Year 2000 Information and Disclosure Act of
1998.
18
<PAGE> 19
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's Annual Meeting of Stockholders was held on June 3, 1999. The
stockholders elected the following persons to serve three-year terms as
Directors of the Corporation: Herbert M. Baum, Donald E. Guinn and Malcolm
Jozoff. The votes for and against (withheld) each nominee were as follows:
<TABLE>
<CAPTION>
NOMINEE VOTES FOR VOTES WITHHELD
- ------- --------- --------------
<S> <C> <C>
Herbert M. Baum 81,076,101 441,832
Donald E. Guinn 81,068,489 449,444
Malcolm Jozoff 80,962,307 555,626
</TABLE>
Joy A. Amundson, Joe T. Ford, Thomas L. Gossage, Michael T. Riordan, Barbara S.
Thomas and Salvador M. Villar also continued as Directors following the meeting.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits
10(a). Employment Agreement, dated May 11, 1999, between the
Company and Malcolm Jozoff.
10(b). Change of Control Agreement, dated May 11, 1999,
between the Company and Malcolm Jozoff.
27. Financial Data Schedule.
99. Private Securities Litigation Reform Act of 1995 Safe
Harbor Compliance Statement for Forward-Looking
Statements.
(B) A Current Report on Form 8-K was filed on July 27, 1999,
relating to the Company's second quarter results.
19
<PAGE> 20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
The Dial Corporation
(Registrant)
August 17, 1999
/s/ Susan J. Riley
- ------------------------------------------------------
Senior Vice President and Chief Financial Officer
(Chief Accounting Officer and Authorized Officer)
20
<PAGE> 21
Exhibit Index
<TABLE>
<CAPTION>
Number Description
------ -----------
<S> <C>
10(a). Employment Agreement, dated May 11, 1999 between the
Company and Malcolm Jozoff.
10(b). Change of Control Agreement, dated May 11, 1999
between the Company and Malcolm Jozoff.
27. Financial Data Schedule.
99. Private Securities Litigation Reform Act of 1995 Safe
Harbor Compliance Statement for Forward-Looking
Statements.
</TABLE>
<PAGE> 1
Exhibit 10(a)
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (the "Agreement"), dated May 11, 1999, to become
effective on May 13, 1999 (the "Effective Date"), by and between The Dial
Corporation, a Delaware corporation (the "Company"), and Malcolm Jozoff (the
"Executive").
WHEREAS, the Executive currently serves as Chairman, President and
Chief Executive Officer of the Company;
WHEREAS, the Executive's current employment agreement with the Company
is scheduled to expire on May 12, 1999; and
WHEREAS, the parties desire to enter into a new employment agreement
specifying the terms and conditions of the Executive's continued employment with
the Company.
NOW, THEREFORE, in consideration of the premises and the respective
covenants and agreements of the parties herein contained, and intending to be
legally bound hereby, the parties agree as follows:
1. Employment. The Company hereby agrees to employ the Executive, and
the Executive hereby agrees to serve the Company, on the terms and conditions
set forth herein.
2. Term. The term of employment of the Executive by the Company
hereunder shall be for a period commencing on the Effective Date of this
Agreement and ending February 1, 2002 (the "Term"). Upon completion of the Term,
Executive shall be treated as a "retiree" under all of the Company's plans,
programs, and grants.
3. Nature of Duties. The Executive shall serve as Chairman, President
and Chief Executive Officer of the Company and, subject to the direction of the
Company's Board of Directors (the "Board"), shall have full authority for
management of the Company and all of its operations, financial affairs,
facilities and investments, provided that (a) the Board may at any time
designate another person to serve as President of the Company and (b) the Board
may at any time after July 31, 2001 designate another person to serve as Chief
Executive Officer of the Company. The Executive shall serve as a member of the
Board, shall act as the duly authorized representative of the Board and shall be
an ex officio member of all committees of the Board. The Executive shall devote
substantially all of his working time and efforts to the business and affairs of
the Company, provided that the Executive shall be free to serve as a director or
officer or both of such not-for-profit corporations as he may desire, to join
and participate in such committees for community or national affairs as he may
select and to join and serve on business corporation boards of directors, so
long as such activities do not significantly interfere with the performance of
the Executive's duties hereunder and, in the case
<PAGE> 2
of public business corporation boards of which the Executive was not a member
when he executed this Agreement, only with the prior approval of the Board.
4. Place of Performance. The Executive shall be based at the principal
executive offices of the Company in the city of Scottsdale, Arizona, except for
required business travel.
5. Compensation and Related Matters.
(a) Base Salary. During the Executive's employment hereunder, the
Company shall pay to the Executive an annual base salary of $700,000 ("Base
Salary"), such Base Salary to be paid in conformity with the Company's policies
relating to salaried employees. The Executive shall be eligible for periodic
salary increases as determined in the sole discretion of the Executive
Compensation Committee of the Board (the "Committee"). Unless increased by the
Committee in its sole discretion, the Base Salary shall apply for each year
during the term of this Agreement. Once increased, the increased amount shall
thereafter be the Base Salary hereunder.
(b) Bonus. In each fiscal year, the Executive shall be eligible to
participate in such bonus programs as are available to senior executives of the
Company. The terms and conditions of such bonus opportunities shall be
established by the Committee; provided, however, that the aggregate targeted
payout level for achievement of the Executive's annual incentive performance
objectives shall be no less than 70% of the Executive's Base Salary (for this
purpose, the Base Salary shall be the Executive's actual base earnings for the
performance period to which such bonus opportunity pertains).
(c) Stock Options. The Executive shall be eligible for annual grants
of stock options as determined in the sole discretion of the Committee, subject
to such terms and conditions as the Committee deems appropriate.
(d) Pension Benefit. The Executive shall be entitled to receive
employment credit towards retirement under the Company's defined benefit pension
plans equal to 2.5 years for each one year employed (pro rata for partial years)
with the Company, provided that (i) Executive remains employed with the Company
until February 1, 2002, or (ii) Executive's employment with the Company is
terminated other than (A) by the Company for "Cause" or (B) by the Executive
without "Good Reason" (as such terms are defined below). If the Executive's
employment with the Company is terminated either by the Company for Cause or by
the Executive without Good Reason prior to February 1, 2002, the Executive shall
receive employment credit towards retirement equal to 2.0 years for each one
year employed (pro rata for partial years) with the Company. In either event,
such employment credit towards retirement shall be credited retroactively to May
13, 1996 and through the date of termination of the Executive's employment.
(e) Other Benefits. During the Executive's employment hereunder, the
Executive (i) shall be entitled to participate in all employee benefit plans,
which are generally available to the Company's senior executive employees of a
comparable level (subject to, and on a basis consistent with, the terms,
conditions and overall administration of
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<PAGE> 3
such plans, programs and arrangements); and (ii) shall receive pension benefits,
supplemental executive retirement benefits, health insurance programs, executive
medical benefits, fitness programs, life insurance, accidental death and
dismemberment benefits, vacation time, reimbursement of club membership
expenses, perquisites and other fringe benefits which are generally available to
other executives of the Company. In addition, Executive shall be entitled to
the use of a Company automobile and a Company paid country club membership.
(f) Insurance; Indemnification.
(i) While employed by the Company and thereafter while the
Executive could have any liability, the Executive shall be named as an insured
party in any liability insurance policy (including any director and officer
liability policy) maintained by the Company for its directors and/or senior
executive officers. In addition, the Company shall, as set forth in its
respective charter and/or bylaws, or in a separate indemnification agreement,
indemnify the Executive to the fullest extent permitted under Delaware law.
(ii) The Company shall also indemnify the Executive, to the
extent permitted by law, with respect to public service activities and
not-for-profit board membership he undertakes in accordance with Section 3.
(g) Expenses. The Executive shall be entitled to receive prompt
reimbursement for all reasonable and customary travel and business expenses he
incurs (including, when the Executive deems necessary, expenses incurred with
respect to his spouse) in connection with the Executive's employment hereunder,
provided that such expenses are accounted for in accordance with the policies
and procedures established by the Company.
(h) Change of Control. The Company has executed and entered into a
separate agreement with the Executive dated May 11, 1999, providing for
employment terms and severance compensation upon a "change of control" of the
Company (the "Change of Control Agreement"). In the event a "change of control"
occurs (as defined therein), the Change of Control Agreement shall supercede
this Agreement, except for Sections 5(d) and 5(f)(i) which shall continue in
full force and effect.
Without inference as to any other section of this Agreement, Sections 5(d),
5(f)(i) and 5(h) shall survive any termination of this Agreement or Executive's
employment with the Company.
6. Termination.
(a) By the Company. The Company may terminate Executive's employment
under this Agreement at any time for any of the following reasons:
(i) Disability. The Executive, by reason of physical or mental
illness, shall have been unable to perform the material duties to be rendered by
him hereunder for a consecutive period of 180 days.
-3-
<PAGE> 4
(ii) Death. Upon the Executive's death, this Agreement shall
automatically terminate.
(iii) For Cause. The Board may terminate the Executive's
employment for Cause by a majority vote (excluding the Executive) as evidenced
by action recorded in the official minutes of a duly held Board meeting. For
purposes of this Agreement, "Cause" shall exist after the occurrence of any of
the following:
(A) the Executive's conviction of, or plea of
nolo contendere to, any felony (other than
vicarious liability which results solely
from Executive's position as Chief Executive
Officer, provided that Executive did not
know, or should not have known, of any act
or failure to act upon which such conviction
or plea is based, or knew, but acted on the
advice of counsel);
(B) the Executive's willful misconduct with
regard to the Company having a material and
demonstrable adverse effect on the Company;
(C) the Executive's willful failure to attempt
to perform the services to be rendered by
the Executive hereunder (except in the event
of the Executive's disability) after receipt
of written notice from the Board and a
reasonable opportunity for the Executive to
cure such willful non-performance; or
(D) the Executive's failure to attempt to adhere
to, or take affirmative steps to carry out,
any legal and proper directive of the Board,
after receipt of written notice from the
Board and a reasonable opportunity to cure
such non-adherence or failure to attempt to
act.
The termination of Executive's employment shall not be deemed to be for Cause
unless and until there shall have been delivered to the Executive a copy of a
resolution duly adopted by the affirmative vote of not less than three-quarters
of the entire membership of the Board at a meeting of the Board called and held
for such purpose (after reasonable notice is provided to the Executive and the
Executive is given an opportunity, together with counsel, to be heard before the
Board), finding that, in the good faith opinion of the Board, the Executive is
guilty of the conduct described in subparagraph (A), (B), (C) or (D) above, and
specifying the particulars thereof in detail.
For purposes of this Agreement, no act, or failure to act, on Executive's part
shall be considered "willful" unless done, or omitted to be done, by Executive
in bad faith and without reasonable belief that Executive's act or failure to
act was in the Company's best interests. Any
-4-
<PAGE> 5
act, or failure to act, based upon authority granted pursuant to a duly adopted
Board resolution or the advice of counsel shall be conclusively presumed to be
done, or omitted to be done, by Executive in good faith and in the Company's
best interests.
(iv) Without Cause. The Board may terminate the Executive's
employment without Cause by a majority vote (excluding the Executive) as
evidenced by action recorded in the official minutes of a duly held Board
meeting. Upon a termination without Cause pursuant to this Section 6(a)(iv), the
Executive shall receive severance payments in accordance with Section 6(c)(i)
hereof.
(b) By the Executive. The Executive may terminate his employment
under this Agreement:
(i) at any time, provided that the Executive must give the
Company no less than 90 days written notice prior to the effective date of such
termination, unless such termination is pursuant to Section 6(b)(ii) below or
the Company elects to waive or reduce such notice requirement; or
(ii) at any time for Good Reason after the Executive's
submission of written notice to the Company specifying the grounds constituting
Good Reason and a reasonable opportunity for the Company to cure such grounds.
For purposes of this Agreement, termination for "Good Reason" shall mean
termination of the Executive's employment at his initiative following the
occurrence without the Executive's written consent of any of the following:
(A) any diminution in the Executive's title or
position or material diminution in
authority, duties or responsibilities as set
forth in (or as adjusted in accordance with)
Section 3 hereof;
(B) the assignment of any duties or
responsibilities to the Executive that are
not commensurate with the Executive's title,
authority or position as set forth in (or as
adjusted in accordance with) Section 3
hereof;
(C) a decrease in Base Salary or a decrease in
the Executive's target annual incentive
below 70% of Base Salary;
(D) the relocation of the Executive more than 35
miles from the Company's Scottsdale, Arizona
headquarters;
(E) any material breach of this Agreement by the
Company after written notice from the
Executive
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<PAGE> 6
and a reasonable opportunity for the Company
to cure such breach; or
(F) the Company's non-renewal of the Change of
Control Agreement.
(c) Severance Payments Upon Termination.
(i) Without Cause or for Good Reason. Upon a termination of
the Executive's employment by the Company without Cause or by the Executive for
Good Reason, the Executive shall be entitled to receive (A) accrued but unpaid
Base Salary through the date of termination, all earned but unpaid incentive
awards, and any other accrued benefits in accordance with the Company's
applicable plans and programs as pertains to senior executive officers; (B)
welfare benefits generally available to other senior executive officers of the
Company (including health insurance programs, executive medical benefits,
fitness programs, life insurance, accidental death and dismemberment expenses,
reimbursement of club membership expenses, perquisites and other fringe
benefits) until the later of the remaining term of this Agreement or one year
following termination of the Executive's employment; and (C) 24 monthly payments
commencing upon termination of the Executive's employment equal in the aggregate
to the greater of (1) Base Salary for the remaining term of this Agreement or
(2) the sum of one year's Base Salary plus one year's target annual incentive
award. In addition, the Executive shall be treated as a "retiree" with respect
to his outstanding stock options and his participation in the Company's annual
incentive plan and supplemental retirement plan.
(ii) Other Terminations. Upon a termination of the Executive's
employment for any other reason not described in Section 6(c)(i) hereof, the
Executive shall be entitled to receive accrued but unpaid Base Salary through
the date of termination, all earned but unpaid incentive awards, and any other
accrued benefits in accordance with the Company's applicable plans and programs
as pertains to senior executive officers.
7. Confidentiality; Cooperation with Regard to Litigation;
Non-disparagement.
(a) While employed by the Company and thereafter, the Executive
shall not, without the prior written consent of the Company, disclose to anyone
(except in good faith in the ordinary course of business to a person who will be
advised by the Executive to keep such information confidential) or make use of
any Confidential Information (as defined below) except in the performance of his
duties hereunder, or when required to do so by legal process by any governmental
agency having supervisory authority over the business of the Company or by any
administrative or legislative body (including a committee thereof) or judicial
authority that requires him to divulge, disclose or make accessible such
Confidential Information. In the event that the Executive is so ordered, he
shall give prompt written notice to the Company to allow the Company the
opportunity to object to or otherwise resist such order.
(b) "Confidential Information" shall mean all information concerning
the business of the Company or any Subsidiary (as defined below) relating to any
of their products, product development, trade secrets, customers, suppliers,
finances, and business
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<PAGE> 7
plans and strategies. Excluded from the definition of Confidential Information
is information (i) that is or becomes part of the public domain, other than
through the breach of this Agreement by the Executive or (ii) regarding the
Company's business or industry properly acquired by the Executive in the course
of his career as an executive in the Company's industry and independent of the
Executive's employment by the Company. For this purpose, information known or
available generally within the trade or industry of the Company or any
Subsidiary shall be deemed to be known or available to the public.
(c) "Subsidiary" shall mean any corporation controlled directly or
indirectly by the Company.
(d) While employed by the Company and thereafter, the Executive
agrees to cooperate with the Company by making himself reasonably available to
testify on behalf of the Company or any Subsidiary in any action, suit, or
proceeding, whether civil, criminal, administrative, or investigative, and to
assist the Company or any Subsidiary in any such action, suit, or proceeding by
providing information and meeting and consulting with the Board or its
representatives or counsel, or representatives or counsel to the Company or any
Subsidiary, as reasonably requested with regard to matters that relate to the
Executive's employment period as an officer of the Company; provided, however,
that the same does not materially interfere with the Executive's then current
professional activities, involve a conflict between the Executive and the
Company or would cause a violation of any court order or governmental
requirement. The Company agrees to reimburse the Executive, on an after-tax
basis, for all reasonable expenses actually incurred in connection with his
provision of testimony or assistance, including reasonable legal fees.
(e) While employed by the Company and thereafter, the Executive
agrees that he will not make public statements or representations, or otherwise
communicate, directly or indirectly, in writing, orally, or otherwise, or take
any action (except as Executive reasonably believes is necessary in the course
of performing his duties) which may, directly or indirectly, disparage the
Company or any Subsidiary or their respective officers, directors, employees,
advisors, businesses or reputations. The Company agrees that, while the
Executive is employed by the Company and thereafter, the Company will not make
statements or representations, or otherwise communicate, directly or indirectly,
in writing, orally, or otherwise, or take any action which may, directly or
indirectly, disparage the Executive or his business or reputation.
Notwithstanding the foregoing, nothing in this Agreement shall preclude either
the Executive or the Company from making truthful statements or disclosures that
are required by applicable law, regulation or legal process.
8. Non-competition.
(a) While employed by the Company and for a period of 24 months
thereafter (the "Restricted Period"), the Executive shall not engage in
Competition with the Company or any Subsidiary. "Competition" shall mean
engaging in any activity, except as provided below, for a Competitor of the
Company or any Subsidiary, whether as an employee, consultant, principal, agent,
officer, director, partner, shareholder (except as a less than three percent
shareholder of a publicly traded company) or otherwise (together "Employment").
A "Competitor" shall mean any corporation or other entity which derives at least
15% or more of
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its revenues from the conduct of business which competes, directly or
indirectly, with the business conducted by the Company, as determined on the
date of termination of the Executive's employment. If the Executive commences
Employment with any entity that is not a Competitor at the time the Executive
initially becomes employed or becomes a consultant, principal, agent, officer,
director, partner, or shareholder of the entity, future activities of such
entity shall not result in a violation of this provision unless (i) such
activities were contemplated by the Executive at the time the Executive
initially commenced Employment or (ii) the Executive commences directly or
indirectly overseeing or managing the activities of an entity which becomes a
Competitor during the Restricted Period, which activities are competitive with
the activities of the Company or Subsidiary. In addition, the Executive may be
employed by, or otherwise associated with, noncompeting portions of the
competing entity so long as he does not directly or indirectly oversee, manage
or contribute to the competing activities of the Competitor. The Executive shall
not be deemed to be indirectly overseeing, managing or contributing to the
Competitor's activities which are competitive with the activities of the Company
or Subsidiary so long as he does not participate in any discussions with regard
to the conduct of, or take any act intended to facilitate the success of, the
competing business.
(b) Notwithstanding the foregoing Section 8(a), in the event the
Executive desires to accept Employment with a Competitor which, in the
Executive's reasonable judgment, competes with an insignificant portion of the
business conducted by the Company or Subsidiary, the Executive shall have the
right, prior to accepting such Employment, to submit a written request to the
Company for a limited waiver of the Company's right to enforce the provisions of
this Section 8. If the Company determines, in its good faith reasonable
judgment, that the Executive's proposed Employment with the Competitor would not
result in more than an insignificant level of competition with the business
conducted by the Company or Subsidiary at either the time such request is made
or in the then foreseeable future, the Company shall grant the Executive the
requested waiver.
The Executive's compliance with the non-competition provisions of this Section 8
shall be deemed compliance with any other non-competition provision agreed to
between the Executive and the Company, including but not limited to any stock
option or equity grants.
9. Non-solicitation. During the Restricted Period, the Executive shall
not induce employees of the Company or any Subsidiary to terminate their
employment, nor shall the Executive solicit or encourage any corporation or
other entity in a joint venture relationship, directly or indirectly, with the
Company or any Subsidiary, to terminate or diminish their relationship with the
Company or any Subsidiary or to violate any agreement with any of them. During
such period, the Executive shall not hire, either directly or through any
employee, agent or representative, any employee of the Company or any Subsidiary
or any person who was employed by the Company or any Subsidiary within 90 days
of such hiring.
10. Remedies. If the Executive materially breaches any of the
provisions contained in Sections 7, 8 or 9 above, the Company (a) shall have the
right to immediately terminate all remaining severance payments and benefits due
under Section 6(c) of this Agreement and (b) shall have the right to seek
injunctive relief. The Executive acknowledges that such a breach of Sections 7,
8 or 9 would cause irreparable injury and that money damages would not provide
an adequate remedy for the Company; provided, however, the
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foregoing shall not prevent the Executive from contesting the issuance of any
such injunction on the ground that no violation or threatened violation of
Sections 7, 8 or 9 has occurred.
11. Notices. For purposes of this Agreement, notices, demands and all
other communications provided for in this Agreement shall be given in writing
and shall be deemed to have been duly given when delivered or mailed by United
States certified or registered mail, return receipt requested, postage prepaid,
addressed as follows:
If to the Company:
The Dial Corporation
15501 North Dial Boulevard
Scottsdale, Arizona 85260-1619
Attention: General Counsel
If to the Executive:
Malcolm Jozoff
Chairman, President and Chief Executive Officer
The Dial Corporation
15501 North Dial Boulevard
Scottsdale, Arizona 85260-1619
cc: Michael S. Sirkin, Esq.
Proskauer Rose LLP
1585 Broadway
New York, NY 10036
or to such other address as any party may have furnished to the other in writing
in accordance herewith, except that notices of change of address shall be
effective only upon receipt.
12. No Mitigation, No Offset. In the event of any termination of
employment, the Executive shall be under no obligation to seek other employment,
and amounts due the Executive under this Agreement shall not be offset by any
remuneration attributable to any subsequent employment that he may maintain
other than substantially comparable welfare benefits provided by a new employer.
13. Resolution of Disputes. Any controversy or claim arising out of or
relating to this Agreement or any breach or asserted breach hereof or
questioning the validity and binding effect hereof arising under or in
connection with this Agreement, other than seeking injunctive relief under
Section 10, shall be resolved by binding arbitration, to be held at an office
closest to the Company's principal offices in accordance with the rules and
procedures of the American Arbitration Association. Judgment upon the award
rendered by the arbitrator(s) may be entered in any court having jurisdiction
thereof. If the Executive prevails in any such dispute with the Company, all
reasonable attorneys' fees, disbursements and costs of the arbitration shall be
promptly reimbursed to the Executive by the Company.
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14. Miscellaneous. No provision of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing signed by the Executive and such officer of the Company as may be
specifically designated by the Board. No waiver by either party hereto at any
time of any breach by the other party hereto of, or compliance with, any
conditions or provisions of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same time or at any prior or subsequent time. No agreements or
representations, oral or otherwise, express or implied, with respect to the
subject matter hereof have been made by either party which are not set forth
expressly in this Agreement. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
Arizona without regard to its conflicts of law principles. This Agreement shall
be binding upon and shall inure to the benefit of the Executive and his estate
and the Company and any successor thereto, but neither this Agreement nor any
rights arising hereunder may be assigned or pledged by the Executive, except to
the extent permitted under the terms of the benefit plans in which the Executive
participates.
15. Death of Executive. In the event that the Executive dies before
receipt of any or all payments to which the Executive has become entitled
hereunder, the balance of all such payments shall continue to be paid in
accordance with the terms hereof to the Executive's estate.
16. Validity. The invalidity or unenforceability of any provision or
provisions of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect.
17. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same instrument.
18. Severability. In the event that any provision or portion of this
Agreement shall be determined to be invalid or unenforceable for any reason, in
whole or in part, the remaining provisions of this Agreement shall be unaffected
thereby and shall remain in full force and effect to the fullest extent
permitted by law.
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19. Entire Agreement. This Agreement constitutes the entire
agreement and understanding with respect to the employment of the Executive by
the Company.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date and year first above written.
The Dial Corporation
By: /s/ Michael T. Riordan
--------------------------------------
Michael T. Riordan
Chairman of the Executive Compensation
Committee
/s/ Malcom Jozoff
------------------------------------------
Malcom Jozoff
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Exhibit 10(b)
CHANGE OF CONTROL AGREEMENT
AGREEMENT by and between The Dial Corporation, a Delaware corporation
(the "Company") and Malcolm Jozoff (the "Executive"), dated as of the 11th day
of May, 1999.
The Board of Directors of the Company (the "Board"), has determined
that it is in the best interests of the Company and its stockholders to assure
that the Company will have the continued dedication of the Executive,
notwithstanding the possibility, threat or occurrence of a Change of Control (as
defined below) of the Company. The Board believes it is imperative to diminish
the inevitable distraction of the Executive by virtue of the personal
uncertainties and risks created by a pending or threatened Change of Control and
to encourage the Executive's full attention and dedication to the Company
currently and in the event of any threatened or pending Change of Control, and
to provide the Executive with compensation and benefits arrangements upon a
Change of Control which ensure that the compensation and benefits expectations
of the Executive will be satisfied and which are competitive with those of other
corporations. Therefore, in order to accomplish these objectives, the Board has
caused the Company to enter into this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Certain Definitions.
(a) The "Effective Date" shall mean the first date during the Change
of Control Period (as defined in Section 1(b)) on which a Change of Control (as
defined in Section 2) occurs. Anything in this Agreement to the contrary
notwithstanding, if a Change of Control occurs and if the Executive's employment
with the Company is terminated prior to the date on which the Change of Control
occurs, and if it is reasonably demonstrated by the Executive that such
termination of employment (i) was at the request of a third party who has taken
steps reasonably calculated to effect a Change of Control or (ii) otherwise
arose in connection with or anticipation of a Change of Control, then for all
purposes of this Agreement the "Effective Date" shall mean the date immediately
prior to the date of such termination of employment.
(b) The "Change of Control Period" shall mean the period commencing
on the date hereof and ending on the second anniversary of the date hereof;
provided, however, that commencing on the date one year after the date hereof,
and on each annual anniversary of such date (such date and each annual
anniversary thereof shall be hereinafter referred to as the "Renewal Date"),
unless previously terminated, the Change of Control Period shall be
automatically extended so as to terminate two years from such Renewal Date,
unless at least 60 days prior to the
<PAGE> 2
Renewal Date the Company shall give notice to the Executive that the Change of
Control Period shall not be so extended.
2. Change of Control. For the purpose of this Agreement, a "Change of
Control" shall mean:
(a) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within
the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of
either (i) the then outstanding shares of common stock of the Company (the
"Outstanding Company Common Stock") or (ii) the combined voting power of the
then outstanding voting securities of the Company entitled to vote generally in
the election of directors (the "Outstanding Company Voting Securities");
provided, however, that for purposes of this subsection (a), the following
acquisitions shall not constitute a Change of Control: (i) any acquisition
directly from the Company, (ii) any acquisition by the Company, (iii) any
acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by the Company or (iv)
any acquisition by any corporation pursuant to a transaction which complies with
clauses (i), (ii) and (iii) of subsection (c) of this Section 2; or
(b) Individuals who, as of the date hereof, constitute the Board
(the "Incumbent Board") cease for any reason to constitute at least a majority
of the Board; provided, however, that any individual becoming a director
subsequent to the date hereof whose election, or nomination for election by the
Company's stockholders, was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office occurs as a
result of an actual or threatened election contest with respect to the election
or removal of directors or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the Board; or
(c) Consummation of a reorganization, merger or consolidation or
sale or other disposition of all or substantially all of the assets of the
Company (a "Business Combination"), in each case, unless, following such
Business Combination, (i) all or substantially all of the individuals and
entities who were the beneficial owners, respectively, of the Outstanding
Company Common Stock and Outstanding Company Voting Securities immediately prior
to such Business Combination beneficially own, directly or indirectly, more than
50% of, respectively, the then outstanding shares of common stock and the
combined voting power of the then outstanding voting securities entitled to vote
generally in the election of directors, as the case may be, of the corporation
resulting from such Business Combination (including, without limitation, a
corporation which as a result of such transaction owns the Company or all or
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substantially all of the Company's assets either directly or through one or more
subsidiaries) in substantially the same proportions as their ownership,
immediately prior to such Business Combination of the Outstanding Company Common
Stock and Outstanding Company Voting Securities, as the case may be, (ii) no
Person (excluding any corporation resulting from such Business Combination or
any employee benefit plan (or related trust) of the Company or such corporation
resulting from such Business Combination) beneficially owns, directly or
indirectly, 20% or more of, respectively, the then outstanding shares of common
stock of the corporation resulting from such Business Combination or the
combined voting power of the then outstanding voting securities of such
corporation except to the extent that such ownership existed prior to the
Business Combination and (iii) at least a majority of the members of the board
of directors of the corporation resulting from such Business Combination were
members of the Incumbent Board at the time of the execution of the initial
agreement, or of the action of the Board, providing for such Business
Combination; or
(d) Approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company.
3. Employment Period. The Company hereby agrees to continue the
Executive in its employ, subject to the terms and conditions of this Agreement,
for the period commencing on the Effective Date and ending on the second
anniversary of such date (the "Employment Period").
4. Terms of Employment.
(a) Position and Duties.
(i) During the Employment Period, (A) the Executive's position
(including status, offices, titles and reporting requirements), authority,
duties and responsibilities shall be at least commensurate in all material
respects with the most significant of those held, exercised and assigned at any
time during the 120-day period immediately preceding the Effective Date and (B)
the Executive's services shall be performed at the location where the Executive
was employed immediately preceding the Effective Date or any office or location
less than 35 miles from such location.
(ii) During the Employment Period, and excluding any periods of
vacation and sick leave to which the Executive is entitled, the Executive agrees
to devote reasonable attention and time during normal business hours to the
business and affairs of the Company and, to the extent necessary to discharge
the responsibilities assigned to the Executive hereunder, to use the Executive's
reasonable best efforts to perform faithfully and efficiently such
responsibilities. During the Employment Period it shall not be a violation of
this Agreement for the Executive to (A) serve on corporate, civic or charitable
boards or committees, (B) deliver lectures, fulfill speaking
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<PAGE> 4
engagements or teach at educational institutions and (C) manage personal
investments, so long as such activities do not significantly interfere with the
performance of the Executive's responsibilities as an employee of the Company in
accordance with this Agreement. It is expressly understood and agreed that to
the extent that any such activities have been conducted by the Executive prior
to the Effective Date, the continued conduct of such activities (or the conduct
of activities similar in nature and scope thereto) subsequent to the Effective
Date shall not thereafter be deemed to interfere with the performance of the
Executive's responsibilities to the Company.
(b) Compensation.
(i) Base Salary. During the Employment Period, the Executive
shall receive an annual base salary ("Annual Base Salary"), which shall be paid
at a monthly rate, at least equal to twelve times the highest monthly base
salary paid or payable, including any base salary which has been earned but
deferred, to the Executive by the Company and its affiliated companies in
respect of the twelve-month period immediately preceding the month in which the
Effective Date occurs. During the Employment Period, the Annual Base Salary
shall be reviewed no more than 12 months after the last salary increase awarded
to the Executive prior to the Effective Date and thereafter at least annually.
Any increase in Annual Base Salary shall not serve to limit or reduce any other
obligation to the Executive under this Agreement. Annual Base Salary shall not
be reduced after any such increase and the term Annual Base Salary as utilized
in this Agreement shall refer to Annual Base Salary as so increased. As used in
this Agreement, the term "affiliated companies" shall include any company
controlled by, controlling or under common control with the Company.
(ii) Annual Bonus. In addition to Annual Base Salary, the
Executive shall be awarded, for each fiscal year ending during the Employment
Period, an annual bonus (the "Annual Bonus") in cash at least equal to the
Executive's highest bonus under the Company's Annual Incentive Plan, or any
comparable bonus under any predecessor or successor annual incentive plan, for
the last three full fiscal years prior to the Effective Date (annualized in the
event that the Executive was not employed by the Company for the whole of such
fiscal year) (the "Recent Annual Bonus"). Each such Annual Bonus shall be paid
no later than the end of the third month of the fiscal year next following the
fiscal year for which the Annual Bonus is awarded, unless the Executive shall
elect to defer the receipt of such Annual Bonus.
(iii) Incentive, Savings and Retirement Plans. During the
Employment Period, the Executive shall be entitled to participate in all
incentive, savings and retirement plans, practices, policies and programs
applicable generally to other peer executives of the Company and its affiliated
companies, but in no event shall such plans, practices, policies and programs
provide the Executive with incentive opportunities (measured with respect to
both regular and special incentive opportunities,
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<PAGE> 5
to the extent, if any, that such distinction is applicable), savings
opportunities and retirement benefit opportunities, in each case, less
favorable, in the aggregate, than the most favorable of those provided by the
Company and its affiliated companies for the Executive under such plans,
practices, policies and programs as in effect at any time during the 120-day
period immediately preceding the Effective Date or if more favorable to the
Executive, those provided generally at any time after the Effective Date to
other peer executives of the Company and its affiliated companies. The Executive
shall also continue to participate in the special retirement benefit provided in
Section 5(d) of the employment agreement dated May 11, 1999 by and between the
Company and the Executive.
(iv) Welfare Benefit Plans. During the Employment Period, the
Executive and/or the Executive's family, as the case may be, shall be eligible
for participation in and shall receive all benefits under welfare benefit plans,
practices, policies and programs provided by the Company and its affiliated
companies (including, without limitation, medical, prescription, dental,
disability, employee life, group life, accidental death and travel accident
insurance plans and programs) to the extent applicable generally to other peer
executives of the Company and its affiliated companies, but in no event shall
such plans, practices, policies and programs provide the Executive with benefits
which are less favorable, in the aggregate, than the most favorable of such
plans, practices, policies and programs in effect for the Executive at any time
during the 120-day period immediately preceding the Effective Date or, if more
favorable to the Executive, those provided generally at any time after the
Effective Date to other peer executives of the Company and its affiliated
companies.
(v) Expenses. During the Employment Period, the Executive
shall be entitled to receive prompt reimbursement for all reasonable expenses
incurred by the Executive in accordance with the most favorable policies,
practices and procedures of the Company and its affiliated companies in effect
for the Executive at any time during the 120-day period immediately preceding
the Effective Date or, if more favorable to the Executive, as in effect
generally at any time thereafter with respect to other peer executives of the
Company and its affiliated companies.
(vi) Fringe Benefits. During the Employment Period, the
Executive shall be entitled to fringe benefits, including, without limitation,
tax and financial planning services, payment of club dues, and, if applicable,
use of an automobile and payment of related expenses, in accordance with the
most favorable plans, practices, programs and policies of the Company and its
affiliated companies in effect for the Executive at any time during the 120-day
period immediately preceding the Effective Date or, if more favorable to the
Executive, as in effect generally at any time thereafter with respect to other
peer executives of the Company and its affiliated companies.
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<PAGE> 6
(vii) Office and Support Staff. During the Employment Period,
the Executive shall be entitled to an office or offices of a size and with
furnishings and other appointments, and to exclusive personal secretarial and
other assistance, at least equal to the most favorable of the foregoing provided
to the Executive by the Company and its affiliated companies at any time during
the 120-day period immediately preceding the Effective Date or, if more
favorable to the Executive, as provided generally at any time thereafter with
respect to other peer executives of the Company and its affiliated companies.
(viii) Vacation. During the Employment Period, the Executive
shall be entitled to paid vacation in accordance with the most favorable plans,
policies, programs and practices of the Company and its affiliated companies as
in effect for the Executive at any time during the 120-day period immediately
preceding the Effective Date or, if more favorable to the Executive, as in
effect generally at any time thereafter with respect to other peer executives of
the Company and its affiliated companies.
5. Termination of Employment.
(a) Death or Disability. The Executive's employment shall terminate
automatically upon the Executive's death during the Employment Period. If the
Company determines in good faith that the Disability of the Executive has
occurred during the Employment Period (pursuant to the definition of Disability
set forth below), it may give to the Executive written notice in accordance with
Section 13(b) of this Agreement of its intention to terminate the Executive's
employment. In such event, the Executive's employment with the Company shall
terminate effective on the 30th day after receipt of such notice by the
Executive (the "Disability Effective Date"), provided that, within the 30 days
after such receipt, the Executive shall not have returned to full-time
performance of the Executive's duties. For purposes of this Agreement,
"Disability" shall mean the absence of the Executive from the Executive's duties
with the Company on a full-time basis for 180 consecutive business days as a
result of incapacity due to mental or physical illness which is determined to be
total and permanent by a physician selected by the Company or its insurers and
acceptable to the Executive or the Executive's legal representative.
(b) Cause. The Company may terminate the Executive's employment
during the Employment Period for Cause. For purposes of this Agreement, "Cause"
shall mean:
(i) the Executive's conviction of, or plea of nolo
contendere to, any felony (other than vicarious
liability which results solely from Executive's
position as Chief Executive Officer, provided that
Executive did not know, or should not have known, of
any act or failure to act upon which such
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<PAGE> 7
conviction or plea is based, or knew, but acted on
the advice of counsel);
(ii) the Executive's willful misconduct with regard to the
Company having a material and demonstrable adverse
effect on the Company;
(iii) the Executive's willful failure to attempt to perform
the services to be rendered hereunder (except in the
event of the Executive's disability) after receipt of
written notice from the Board and a reasonable
opportunity for the Executive to cure such willful
non-performance; or
(iv) the Executive's failure to adhere to, or take
affirmative steps to carry out, any legal and proper
directive of the Board, after receipt of written
notice from the Board and a reasonable opportunity to
cure such non-adherence or failure to act.
The termination of Executive's employment shall not be deemed to be for Cause
unless and until there shall have been delivered to the Executive a copy of a
resolution duly adopted by the affirmative vote of not less than three-quarters
of the entire membership of the Board at a meeting of the Board called and held
for such purpose (after reasonable notice is provided to the Executive and the
Executive is given an opportunity, together with counsel, to be heard before the
Board), finding that, in the good faith opinion of the Board, the Executive is
guilty of the conduct described in subparagraph (i), (ii), (iii) or (iv) above,
and specifying the particulars thereof in detail.
For purposes of this Agreement, no act, or failure to act, on Executive's part
shall be considered "willful" unless done, or omitted to be done, by Executive
in bad faith and without reasonable belief that Executive's act or failure to
act was in the Company's best interests. Any act, or failure to act, based upon
authority granted pursuant to a duly adopted Board resolution or advice of
counsel shall be conclusively presumed to be done, or omitted to be done, by
Executive in good faith and in the Company's best interests.
(c) Good Reason. The Executive's employment may be terminated by the
Executive for Good Reason. For purposes of this Agreement, "Good Reason" shall
mean:
(i) any diminution in the Executive's title or position
or material diminution in authority, duties or
responsibilities as set forth herein;
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the assignment of any duties or responsibilities to
the Executive that are not commensurate with the
Executive's title, authority or position as set forth
herein;
(iii) a decrease in Base Salary or a decrease in the
Executive's target annual incentive below 70% of Base
Salary;
(iv) the relocation of the Executive more than 35 miles
from the Company's Scottsdale, Arizona headquarters;
(v) any material breach of this Agreement by the Company
after written notice from the Executive and a
reasonable opportunity for the Company to cure such
breach;
(vi) the Company's non-renewal of this Agreement; or
(vii) any failure by the Company to comply with and satisfy
Section 11(c) of this Agreement.
For purposes of this Section 5(c), any good faith determination of "Good Reason"
made by the Executive shall be conclusive.
(d) Notice of Termination. Any termination by the Company for Cause,
or by the Executive for Good Reason, shall be communicated by Notice of
Termination to the other party hereto given in accordance with Section 13(b) of
this Agreement. For purposes of this Agreement, a "Notice of Termination" means
a written notice which (i) indicates the specific termination provision in this
Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable
detail the facts and circumstances claimed to provide a basis for termination of
the Executive's employment under the provision so indicated and (iii) if the
Date of Termination (as defined below) is other than the date of receipt of such
notice, specifies the termination date (which date shall be not more than thirty
days after the giving of such notice). The failure by the Executive or the
Company to set forth in the Notice of Termination any fact or circumstance which
contributes to a showing of Good Reason or Cause shall not waive any right of
the Executive or the Company, respectively, hereunder or preclude the Executive
or the Company, respectively, from asserting such fact or circumstance in
enforcing the Executive's or the Company's rights hereunder.
(e) Date of Termination. "Date of Termination" means (i) if the
Executive's employment is terminated by the Company for Cause, or by the
Executive for Good Reason, the date of receipt of the Notice of Termination or
any later date specified therein, as the case may be, (ii) if the Executive's
employment is terminated by
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the Company other than for Cause or Disability, the Date of Termination shall be
the date on which the Company notifies the Executive of such termination and
(iii) if the Executive's employment is terminated by reason of death or
Disability, the Date of Termination shall be the date of death of the Executive
or the Disability Effective Date, as the case may be.
6. Obligations of the Company upon Termination.
(a) Good Reason; Other Than for Cause, Death or Disability. If,
during the Employment Period, the Company shall terminate the Executive's
employment other than for Cause or Disability or the Executive shall terminate
employment for Good Reason:
(i) the Company shall pay to the Executive in a lump sum in
cash within 30 days after the Date of Termination the aggregate of the following
amounts:
(A) the sum of (1) the Executive's Annual Base Salary through the
Date of Termination to the extent not theretofore paid, (2) any
bonus earned during the prior fiscal year but not yet paid to
Executive, (3) the product of (x) the higher of (i) the Recent
Annual Bonus and (ii) the Annual Bonus paid or payable, including
any bonus or portion thereof which has been earned but deferred (and
annualized for any fiscal year consisting of less than twelve full
months or during which the Executive was employed for less than
twelve full months), for the most recently completed fiscal year
during the Employment Period, if any (such higher amount being
referred to as the "Highest Annual Bonus") and (y) a fraction, the
numerator of which is the number of days in the current fiscal year
through the Date of Termination, and the denominator of which is 365
and (4) any compensation previously deferred by the Executive
(together with any accrued interest or earnings thereon) and any
accrued vacation pay, in each case to the extent not theretofore
paid (the sum of the amounts described in clauses (1), (2), (3) and
(4) shall be hereinafter referred to as the "Accrued Obligations");
and
(B) the amount equal to the product of (1) three and (2) the sum of
(x) the Executive's Annual Base Salary and (y) the Highest Annual
Bonus.
(ii) the Company shall pay to the Executive in a lump sum in
cash within 30 days after the Date of Termination an amount equal to (A) the
present value of the Executive's accrued benefits under The Dial Corporation
Retirement Income Plan and The Dial Corporation Supplemental Pension Plan, or
successor plans thereto and any other supplemental, non-qualified pension plan
in which the Executive
-9-
<PAGE> 10
was participating at the Date of Termination (collectively, the "Pension
Plans"), determined after giving the Executive 7.5 additional years of age and
pension service credit under the Pension Plans from the Date of Termination,
less (B) the present value of Executive's accrued benefits under the Pension
Plans at the Date of Termination determined without regard to any additional
years of age and pension service credit. Such present values shall be determined
using actuarial assumption and discount rates consistent with the Company's
practice in effect immediately prior to the Date of Termination;
(iii) for three years after the Executive's Date of
Termination, or such longer period as may be provided by the terms of the
appropriate plan, program, practice or policy, the Company shall continue
benefits to the Executive and/or the Executive's family at least equal to those
which would have been provided to them in accordance with the plans, programs,
practices and policies described in Section 4(b)(iv) of this Agreement if the
Executive's employment had not been terminated or, if more favorable to the
Executive, as in effect generally at any time thereafter with respect to other
peer executives of the Company and its affiliated companies and their families,
provided, however, that if the Executive becomes reemployed with another
employer and is eligible to receive medical or other welfare benefits under
another employer provided plan, the medical and other welfare benefits described
herein shall be secondary to those provided under such other plan during such
applicable period of eligibility. For purposes of determining eligibility (but
not the time of commencement of benefits) of the Executive for retiree benefits
pursuant to such plans, practices, programs and policies, the Executive shall be
considered to have remained employed until three years after the Date of
Termination and to have retired on the last day of such period;
(iv) the Company shall, at its sole expense as incurred,
provide the Executive with outplacement services the scope and provider of which
shall be selected by the Executive in his sole discretion; and
(v) to the extent not theretofore paid or provided, the
Company shall timely pay or provide to the Executive any other amounts or
benefits required to be paid or provided or which the Executive is eligible to
receive under any plan, program, policy or practice or contract or agreement of
the Company and its affiliated companies (such other amounts and benefits shall
be hereinafter referred to as the "Other Benefits").
(b) Death. If the Executive's employment is terminated by reason of
the Executive's death during the Employment Period, this Agreement shall
terminate without further obligations to the Executive's legal representatives
under this Agreement, other than for payment of Accrued Obligations and the
timely payment or provision of Other Benefits. Accrued Obligations shall be paid
to the Executive's estate or
-10-
<PAGE> 11
beneficiary, as applicable, in a lump sum in cash within 30 days of the Date of
Termination. With respect to the provision of Other Benefits, the term Other
Benefits as utilized in this Section 6(b) shall include, without limitation, and
the Executive's estate and/or beneficiaries shall be entitled to receive,
benefits at least equal to the most favorable benefits provided by the Company
and affiliated companies to the estates and beneficiaries of peer executives of
the Company and such affiliated companies under such plans, programs, practices
and policies relating to death benefits, if any, as in effect with respect to
other peer executives and their beneficiaries at any time during the 120-day
period immediately preceding the Effective Date or, if more favorable to the
Executive's estate and/or the Executive's beneficiaries, as in effect on the
date of the Executive's death with respect to other peer executives of the
Company and its affiliated companies and their beneficiaries.
(c) Disability. If the Executive's employment is terminated by
reason of the Executive's Disability during the Employment Period, this
Agreement shall terminate without further obligations to the Executive, other
than for payment of Accrued Obligations and the timely payment or provision of
Other Benefits. Accrued Obligations shall be paid to the Executive in a lump sum
in cash within 30 days of the Date of Termination. With respect to the provision
of Other Benefits, the term Other Benefits as utilized in this Section 6(c)
shall include, and the Executive shall be entitled after the Disability
Effective Date to receive, disability and other benefits at least equal to the
most favorable of those generally provided by the Company and its affiliated
companies to disabled executives and/or their families in accordance with such
plans, programs, practices and policies relating to disability, if any, as in
effect generally with respect to other peer executives and their families at any
time during the 120-day period immediately preceding the Effective Date or, if
more favorable to the Executive and/or the Executive's family, as in effect at
any time thereafter generally with respect to other peer executives of the
Company and its affiliated companies and their families.
(d) Cause; Other than for Good Reason. If the Executive's employment
shall be terminated for Cause during the Employment Period or if Executive
voluntarily terminates employment during the Employment Period (excluding a
termination for Good Reason), this Agreement shall terminate without further
obligations to the Executive other than the obligation to pay to the Executive
(i) his or her Annual Base Salary through the Date of Termination, (ii) the
amount of any compensation previously deferred by the Executive, and (iii) Other
Benefits, in each case to the extent theretofore unpaid.
7. Non-exclusivity of Rights. Nothing in this Agreement shall prevent
or limit the Executive's continuing or future participation in any plan,
program, policy or practice provided by the Company or any of its affiliated
companies and for which the Executive may qualify, nor, subject to Section
13(f), shall anything herein limit or otherwise affect such rights as the
Executive may have under any contract or agreement with the
-11-
<PAGE> 12
Company or any of its affiliated companies. Amounts which are vested benefits or
which the Executive is otherwise entitled to receive under any plan, policy,
practice or program of or any contract or agreement with the Company or any of
its affiliated companies at or subsequent to the Date of Termination shall be
payable in accordance with such plan, policy, practice or program or contract or
agreement except as explicitly modified by this Agreement.
8. Full Settlement. The Company's obligation to make the payments
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim, recoupment,
defense or other claim, right or action which the Company may have against the
Executive or others. In no event shall the Executive be obligated to seek other
employment or take any other action by way of mitigation of the amounts payable
to the Executive under any of the provisions of this Agreement and such amounts
shall not be reduced whether or not the Executive obtains other employment. The
Company agrees to pay as incurred, to the full extent permitted by law, all
legal fees and expenses which the Executive may reasonably incur as a result of
any contest (regardless of the outcome thereof) by the Company, the Executive or
others of the validity or enforceability of, or liability under, any provision
of this Agreement or any guarantee of performance thereof (including as a result
of any contest by the Executive about the amount of any payment pursuant to this
Agreement), plus in each case interest on any delayed payment at the applicable
Federal rate provided for in Section 7872(f)(2)(A) of the Internal Revenue Code
of 1986, as amended (the "Code").
9. Certain Additional Payments by the Company.
(a) Anything in this Agreement to the contrary notwithstanding and
except as set forth below, in the event it shall be determined that any payment
or distribution by the Company to or for the benefit of the Executive (whether
paid or payable or distributed or distributable pursuant to the terms of this
Agreement or otherwise, but determined without regard to any additional payments
required under this Section 9) (a "Payment") would be subject to the excise tax
imposed by Section 4999 of the Code or any interest or penalties are incurred by
the Executive with respect to such excise tax (such excise tax, together with
any such interest and penalties, are hereinafter collectively referred to as the
"Excise Tax"), then the Executive shall be entitled to receive an additional
payment (a "Gross-Up Payment") in an amount such that after payment by the
Executive of all taxes (including any interest or penalties imposed with respect
to such taxes), including, without limitation, any income taxes (and any
interest and penalties imposed with respect thereto) and Excise Tax imposed upon
the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment
equal to the Excise Tax imposed upon the Payments.
-12-
<PAGE> 13
(b) Subject to the provisions of Section 9(c), all determinations
required to be made under this Section 9, including whether and when a Gross-Up
Payment is required and the amount of such Gross-Up Payment and the assumptions
to be utilized in arriving at such determination, shall be made by Deloitte &
Touche LLP or such other certified public accounting firm as may be designated
by the Executive (the "Accounting Firm") which shall provide detailed supporting
calculations both to the Company and the Executive within 15 business days of
the receipt of notice from the Executive that there has been a Payment, or such
earlier time as is requested by the Company. In the event that the Accounting
Firm is serving as accountant or auditor for the individual, entity or group
effecting the Change of Control, the Executive shall appoint another nationally
recognized account firm to make the determinations required hereunder (which
accounting firm shall then be referred to as the Accounting Firm hereunder). All
fees and expenses of the Accounting Firm shall be borne solely by the Company.
Any Gross-Up Payment, as determined pursuant to this Section 9, shall be paid by
the Company to the Executive within five days of the receipt of the Accounting
Firm's determination. Any determination by the Accounting Firm shall be binding
upon the Company and the Executive. As a result of the uncertainty in the
application of Section 4999 of the Code at the time of the initial determination
by the Accounting Firm hereunder, it is possible that Gross-Up Payments which
will not have been made by the Company should have been made ("Underpayment"),
consistent with the calculations required to be made hereunder. In the event
that the Company exhausts its remedies pursuant to Section 9(c) and the
Executive thereafter is required to make a payment of any Excise Tax, the
Accounting Firm shall determine the amount of the Underpayment that has occurred
and any such Underpayment shall be promptly paid by the Company to or for the
benefit of the Executive.
(c) The Executive shall notify the Company in writing of any claim
by the Internal Revenue Service that, if successful, would require the payment
by the Company of the Gross-Up Payment. Such notification shall be given as soon
as practicable but no later than ten business days after the Executive is
informed in writing of such claim and shall apprise the Company of the nature of
such claim and the date on which such claim is requested to be paid. The
Executive shall not pay such claim prior to the expiration of the 30-day period
following the date on which it gives such notice to the Company (or such shorter
period ending on the date that any payment of taxes with respect to such claim
is due). If the Company notifies the Executive in writing prior to the
expiration of such period that it desires to contest such claim, the Executive
shall:
(i) give the Company any information reasonably requested by
the Company relating to such claim,
-13-
<PAGE> 14
(ii) take such action in connection with contesting such claim
as the Company shall reasonably request in writing from time to time, including,
without limitation, accepting legal representation with respect to such claim by
an attorney reasonably selected by the Company,
(iii) cooperate with the Company in good faith in order to
effectively contest such claim, and
(iv) permit the Company to participate in any proceedings
relating to such claim; provided, however, that the Company shall bear and pay
directly all costs and expenses (including additional interest and penalties)
incurred in connection with such contest and shall indemnify and hold the
Executive harmless, on an after-tax basis, for any Excise Tax or income tax
(including interest and penalties with respect thereto) imposed as a result of
such representation and payment of costs and expenses. Without limitation on the
foregoing provisions of this Section 9(c), the Company shall control all
proceedings taken in connection with such contest and, at its sole option, may
pursue or forgo any and all administrative appeals, proceedings, hearings and
conferences with the taxing authority in respect of such claim and may, at its
sole option, either direct the Executive to pay the tax claimed and sue for a
refund or contest the claim in any permissible manner, and the Executive agrees
to prosecute such contest to a determination before any administrative tribunal,
in a court of initial jurisdiction and in one or more appellate courts, as the
Company shall determine; provided, however, that if the Company directs the
Executive to pay such claim and sue for a refund, the Company shall advance the
amount of such payment to the Executive, on an interest-free basis and shall
indemnify and hold the Executive harmless, on an after-tax basis, from any
Excise Tax or income tax (including interest or penalties with respect thereto)
imposed with respect to such advance or with respect to any imputed income with
respect to such advance; and further provided that any extension of the statute
of limitations relating to payment of taxes for the taxable year of the
Executive with respect to which such contested amount is claimed to be due is
limited solely to such contested amount. Furthermore, the Company's control of
the contest shall be limited to issues with respect to which a Gross-Up Payment
would be payable hereunder and the Executive shall be entitled to settle or
contest, as the case may be, any other issue raised by the Internal Revenue
Service or any other taxing authority.
(d) If, after the receipt by the Executive of an amount advanced by
the Company pursuant to Section 9(c), the Executive becomes entitled to receive
any refund with respect to such claim, the Executive shall (subject to the
Company's complying with the requirements of Section 9(c)) promptly pay to the
Company the amount of such refund (together with any interest paid or credited
thereon after taxes applicable thereto). If, after the receipt by the Executive
of an amount advanced by the Company pursuant to Section 9(c), a determination
is made that the Executive shall not be entitled to any refund with respect to
such claim and the Company does not notify the
-14-
<PAGE> 15
Executive in writing of its intent to contest such denial of refund prior to the
expiration of 30 days after such determination, then such advance shall be
forgiven and shall not be required to be repaid and the amount of such advance
shall offset, to the extent thereof, the amount of Gross-Up Payment required to
be paid.
10. Confidential Information. The Executive shall hold in a fiduciary
capacity for the benefit of the Company all secret or confidential information,
knowledge or data relating to the Company or any of its affiliated companies,
and their respective businesses, which shall have been obtained by the Executive
during the Executive's employment by the Company or any of its affiliated
companies and which shall not be or become public knowledge (other than by acts
by the Executive or representatives of the Executive in violation of this
Agreement). After termination of the Executive's employment with the Company,
the Executive shall not, without the prior written consent of the Company or as
may otherwise be required by law or legal process, communicate or divulge any
such information, knowledge or data to anyone other than the Company and those
designated by it. In no event shall an asserted violation of the provisions of
this Section 10 constitute a basis for deferring or withholding any amounts
otherwise payable to the Executive under this Agreement.
11. Non-Enforceability of Covenants. In the event that the Executive's
employment terminates within 24 months after the occurrence of a Change of
Control, Sections 7(e) and 8 of the employment agreement dated May 11, 1999 by
and between the Company and the Executive shall be of no further force and
effect.
12. Successors.
(a) This Agreement is personal to the Executive and without the
prior written consent of the Company shall not be assignable by the Executive
otherwise than by will or the laws of descent and distribution. This Agreement
shall inure to the benefit of and be enforceable by the Executive's legal
representatives.
(b) This Agreement shall inure to the benefit of and be binding
upon the Company and its successors and assigns.
(c) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Agreement by operation of
law, or otherwise.
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<PAGE> 16
13. Miscellaneous.
(a) This Agreement shall be governed by and construed in accordance
with the laws of the State of Delaware, without reference to principles of
conflict of laws. The captions of this Agreement are not part of the provisions
hereof and shall have no force or effect. Except as provided in Section 13(f),
this Agreement may not be amended or modified otherwise than by a written
agreement executed by the parties hereto or their respective successors and
legal representatives.
(b) All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party or by registered
or certified mail, return receipt requested, postage prepaid, addressed as
follows:
If to the Executive:
Malcolm Jozoff
Chairman, President and Chief Executive Officer
The Dial Corporation
15501 North Dial Boulevard
Scottsdale, AZ 85260-1619
If to the Company:
The Dial Corporation
15501 North Dial Boulevard
Scottsdale, AZ 85260-1619
Attention: General Counsel
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement.
(d) The Company may withhold from any amounts payable under this
Agreement such Federal, state, local or foreign taxes as shall be required to be
withheld pursuant to any applicable law or regulation.
(e) The Executive's or the Company's failure to insist upon strict
compliance with any provision of this Agreement or the failure to assert any
right the
-16-
<PAGE> 17
Executive or the Company may have hereunder, including, without limitation, the
right of the Executive to terminate employment for Good Reason pursuant to
Section 5(c)(i)-(v) of this Agreement, shall not be deemed to be a waiver of
such provision or right or any other provision or right of this Agreement.
(f) The Executive and the Company acknowledge that, except as may
otherwise be provided under any other written agreement between the Executive
and the Company, the employment of the Executive by the Company is "at will"
and, subject to Section 1(a) hereof, prior to the Effective Date, the
Executive's employment and/or this Agreement may be terminated by either the
Executive or the Company at any time prior to the Effective Date, in which case
the Executive shall have no further rights under this Agreement. From and after
the Effective Date this Agreement shall supersede any other agreement between
the parties with respect to the subject matter hereof except as otherwise
specifically provided therein.
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's
hand and, pursuant to the authorization from its Board of Directors, the Company
has caused these presents to be executed in its name on its behalf, all as of
the day and year first above written.
The Dial Corporation
By: /s/ Michael T. Riordan
-------------------------------------
Michael T. Riordan
Chairman of the Executive
Compensation Committee
/s/ Malcom Jozoff
-----------------------------------------
Malcolm Jozoff
-17-
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<PAGE> 1
THE DIAL CORPORATION
EXHIBIT 99
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
SAFE HARBOR COMPLIANCE STATEMENT FOR FORWARD-LOOKING STATEMENTS
In passing the Private Securities Litigation Reform Act of 1995 (the
"PSLRA"), Congress encouraged public companies to make "forward-looking
statements" by creating a safe-harbor to protect companies from securities law
liability in connection with forward-looking statements. The Dial Corporation
(the "Company") intends to qualify both its written and oral forward-looking
statements for protection under the PSLRA.
To qualify oral forward-looking statements for protection under the
PSLRA, a readily available written document must identify important factors that
could cause actual results to differ materially from those in the
forward-looking statements. The Company provides the following information in
connection with its continuing effort to qualify forward-looking statements for
the safe harbor protection of the PSLRA.
Forward-looking statements express expectations of future events. All
forward-looking statements are inherently uncertain as they are based on various
expectations and assumptions concerning future events and they are subject to
numerous known and unknown risks and uncertainties which could cause actual
events or results to differ materially from those projected. Due to these
inherent uncertainties, the investment community is urged not to place undue
reliance on forward-looking statements. In addition, the Company undertakes no
obligation to update or revise forward-looking statements to reflect changed
assumptions, the occurrence of unanticipated events or changes to projections
over time.
FACTORS THAT MAY AFFECT FUTURE RESULTS AND FINANCIAL CONDITION
The Company's future results and financial condition are dependent upon
the Company's ability to successfully develop, manufacture and market consumer
products. Inherent in this process are a number of factors that the Company must
successfully manage to achieve favorable future operating results and financial
condition. Potential risks and uncertainties that could affect the Company's
future operating results and financial condition include, but are not limited
to, the factors discussed below.
<PAGE> 2
INTENSE COMPETITION IN THE CONSUMER PRODUCTS INDUSTRY
The consumer products industry, particularly its detergent, personal
care and air freshener categories, is intensely competitive. Among the Company's
most significant competitors are large companies, including The Procter & Gamble
Company, Lever Brothers Co. (a division of Unilever plc), and Colgate-Palmolive
Company. These companies have greater financial resources than the Company and
may be willing to commit significant resources to protecting their own market
shares or to capturing market share from the Company. As a result, the Company
may need to incur greater costs than previously incurred for trade and consumer
promotions and advertising to preserve or improve market share and to introduce
and establish new products and line extensions. At the same time, the Company
may need to undertake additional production-related costs-cutting measures to
enable it to respond to competitors' price cuts and marketing efforts without
reducing the Company's margins. There can be no assurance that the Company will
be able to make such additional expenditures or implement such cost-cutting
measures or that, if made or implemented, they will be effective.
CONSUMER PRICING PRESSURES
Consumer products, particularly those that are value-priced, are
subject to significant price competition. From time to time, the Company may
need to engage in price-cutting initiatives for some of its products to respond
to competitive and consumer pressures. The failure of the Company's sales
volumes to grow sufficiently to improve overall revenues and income as a result
of a competitive price reduction could have a material adverse effect on the
financial performance of the Company.
TRADE CUSTOMER PRICING PRESSURES; COMPETITIVE RETAIL ENVIRONMENT
The Company faces pricing pressures from its trade customers. Because
of the competitive retail environment, retailers have increasingly sought to
reduce inventory levels and obtain pricing concessions from vendors. In
addition, because consumer products companies, including the Company, have
historically offered end-of-quarter discounts to achieve quarterly sales goals,
trade customers have been inclined to delay inventory restocking until
quarter-end. Since August 1996, the Company has reduced end-of-quarter discounts
to retailers and has changed its sales incentive structure to emphasize not only
quarterly review targets but also trade spending management and other personal
performance targets. The reduction in discounts has not had, and the Company
believes it will not have, a material adverse effect on sales although there can
be no assurance in that regard. The Company is also subject to the risk that
high-volume customers could seek alternative pricing concessions or better trade
terms. The Company's performance is also dependent upon the general health of
the retail
<PAGE> 3
environment and could be materially adversely affected by changes therein and by
the financial difficulties of retailers.
DEPENDENCE OF KEY CUSTOMERS
The Company's top ten customers accounted for 40% of net sales in 1998.
Wal-Mart Stores Inc. (and its affiliate, SAM's Club) ("Wal-Mart") was the
Company's largest customer, accounting for 17% of the Company's net sales in
1998. The loss of, or a substantial decrease in the volume of purchases by,
Wal-Mart or any of the Company's other top customers could have a material
adverse effect on the Company's results of operations.
PRICE VOLATILITY OF RAW MATERIALS; SINGLE SOURCE SUPPLIER
While the Company believes that is may, in certain circumstances, be
able to respond to price increases for certain raw materials by increasing sales
prices, rapid increases in the prices of such raw materials could have a
material adverse impact on financial results. For example, tallow (a key
ingredient in Dial bar soaps) has experienced price fluctuations within the
range of $0.16 and $0.28 per pound from January 1, 1995 to July 3, 1999.
Recently, the price of tallow has been trading near the lower end of this
historical range. Because the majority of the competitors' soap products use
considerably less tallow in their bar soap products, the Company may not be able
to increase the prices of its Dial bar soaps in response to increases in tallow
prices. In addition, the antibacterial agent, Triclosan, which is the active
ingredient used in Liquid Dial products, is sourced from a single supplier.
Although the Company has an adequate supply of Triclosan for its current and
foreseeable needs, a significant disruption in this supply could have a
short-term material adverse impact on the Company's financial results. The
Company seeks to mitigate the risk by entering into contracts to provide up to
six-month supplies of tallow, Triclosan and packaging materials. Long-term
hedging opportunities against price increases for these items are generally not
available.
DEPENDENCE ON DOMESTIC MARKETS; RISKS ASSOCIATED WITH INTERNATIONAL EXPANSION
While a number of the Company's competitors have diversified their
revenues to include a strong international component, the Company is currently
dependent primarily on sales generated in the U.S. (89% of sales in 1998). With
respect to a number of the Company's most significant product categories,
including detergents and bar soaps, the U.S. markets are mature and
characterized by high household penetration. The Company's unit sales growth in
these domestic markets will depend on increasing usage by consumers and
capturing market share from competitors. There can be no assurance
<PAGE> 4
that the Company will succeed in implementing its strategies to achieve such
domestic growth.
To reduce its dependence on domestic revenues, the Company has adopted
a strategy to further penetrate international markets. In implementing this
strategy, the Company faces barriers to entry and the risk of competition from
local and other companies that already have established global businesses, risks
generally associated with conducting business internationally, including
exposure to currency fluctuations, limitations on foreign investment,
import/export controls, nationalization, unstable governments and legal systems
and the additional expense and risks inherent in operating in geographically and
culturally diverse locations. Because the Company plans to develop its
international business through acquisitions as well as joint ventures,
co-packaging arrangements and/or other alliances, the Company may also be
subject to risks associated with such acquisitions, ventures, arrangement and
alliances, including those relating to the marriage of different corporate
cultures and shared decision-making. In addition, because the Company's current
international distribution capabilities are extremely limited, the Company will
also need to acquire a distribution network or enter into alliances with
existing distributors before it can effectively conduct operations in new
markets. There can be no assurance that the Company will succeed in increasing
its international business in a profitable manner, and a failure to expand this
business may have a material adverse effect on the Company.
The Company has a significant number of registered foreign trademarks
as well as pending foreign trademark applications. There can be an assurance
that the Company will successfully register any foreign trademark for which
applications are currently pending or that such trademarks, once registered,
together with any existing registered foreign trademarks, will be protected in
the foreign markets in which they are used.
RISKS OF POTENTIAL ACQUISITIONS
As previously disclosed, the Company recently acquired Freeman and
Sarah Michaels. The Company may acquire or make substantial investments in
complementary businesses or products in the future. The Freeman and Sarah
Michaels acquisitions entailed, and any future acquisitions or investments would
entail, various risks, including the difficulty of assimilating the operations
and personnel of the acquired business or products, the potential disruption of
the Company's ongoing business and, generally, the potential inability of the
Company to obtain the desired financial and strategic benefits from the
acquisition or investment. These factors could have a material adverse effect on
the Company's financial results. Future acquisitions and investments by the
Company also could result in substantial cash expenditures, potentially dilutive
issuance of equity securities, the incurrence of additional debt and contingent
liabilities, and amortization
<PAGE> 5
expenses relating to goodwill and other intangible assets, which could adversely
affect the Company's financial results and condition. The Company engages from
time to time in discussions with respect to potential acquisitions, some of
which may be material.
ADVERSE PUBLICITY; PRODUCT RECALL
Certain news broadcasts by major U.S. television and radio networks
have focused on the use of antibacterial agents to kill germs on various
surfaces. Triclosan, the active ingredient in Liquid Dial, has also been a focus
of these broadcasts. Although none of the broadcasts disputed that Triclosan
kills germs on the skin, some third party experts did question whether it
provides any additional protection beyond that provided by non-antibacterial
soap products. Although the Company has test results that it believes prove that
Triclosan provides consumers with additional protection in limiting exposure to
bacterial-related diseases, there can be no assurance the adverse publicity
stemming from these broadcasts will not adversely affect the Company's sales of
its antibacterial soap products and its results of operations.
Because the Company shares the use of the Armour trademark for food
products with ConAgra Inc., the manufacturer of Armour-branded non-canned meat
products, the Company faces the risk that consumer preferences and perceptions
with respect to any of the Company's Armour products may be influenced by
adverse publicity affecting any of the Armour-branded products of ConAgra, Inc.
From time to time, consumer product companies, including Dial, have had
to recall certain products for various reasons, which costs of recall or other
liabilities could be material to such companies. To date, the Company has not
made any product recalls that have been material to the Company's financial
condition. In addition, adverse publicity regarding any such product recall
could have a material adverse effect on the Company.
ENVIRONMENTAL CONCERNS REGARDING DETERGENT COMPOUND
Nonlyphenol ethoxylate ("NPE") is an ingredient used in the Company's
liquid and powder detergent products. Certain environmental and regulatory
groups have raised concerns regarding the toxicity of compounds produced from
NPE as it decomposes and the adverse impact on the reproductive health of
certain aquatic animals exposed to those compounds. Although to the best of the
Company's knowledge none of the studies undertaken on NPE have demonstrated a
link between the compound and such effect in the environment or in human beings,
there can be no assurance that subsequent studies will in fact demonstrate such
a link or demonstrate other adverse environmental consequences. Current
government regulations do not impose any restrictions on the use
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of NPE, or impose any liability on any of the businesses that utilize NPE in the
products they manufacture. The Company believes, however, that a number of
governmental agencies in North America and Europe are discussing formal
regulations of NPE in the environment. The Company is in the process of
reformulating its detergents to eliminate this compound ingredient. The
additional expense the Company expects to incur as a result of this
reformulation is not expected to have a material adverse impact on the Company's
financial results. In addition, the Company believes that it will not incur any
significant environmental liability as a result of the use of NPE in its
products.
DEPENDENCE ON KEY PERSONNEL
The operation of the Company requires managerial expertise. Of the
Company's key personnel, only the Chief Executive Officer has an employment
contract with the Company. There can be no assurance that any of the Company's
key employees will remain in the Company's employ. The loss of such key
personnel could have a material adverse effect on the Company's operations.
TURNOVER; EMPLOYEE RELATIONS
Primarily as a result of the restructuring of its business, the Company
discharged approximately 950 salaried and non-salaried employees during 1995 and
1996. In addition, the Company experienced greater aggregate voluntary turnover
of salaried employees in 1996 and 1997 than the industry average. Although the
Company believes that it presently has sufficient staffing, there can be no
assurance that the Company would not be materially adversely affected by any
future significant voluntary turnover of salaried or other employees.
Four of the Company's eight plants in the U.S. are unionized. The
Company's contract with the United Food and Commercial Workers Union (covering
approximately 300 employees at the Company's Aurora, Illinois plant) is
scheduled for renegotiation in August 1999. There can be no assurance that this
contract can be renegotiated on terms acceptable to the Company. In 1999, the
Company successfully renegotiated its contracts with (i) the Paper,
Allied-Industrial, Chemical and Energy Workers International Union (covering
approximately 85 employees at the Company's Bristol, Pennsylvania plant) which
now expires in May 2000; and (ii) the United Food and Commercial Workers Union
(covering approximately 420 employees at the Company's Fort Madison, Iowa plan)
which now expires in September 2003. In 1998, the Company successfully
renegotiated its contract with the International Brotherhood of Teamsters
(covering approximately 335 employees at the Company's St. Louis, Missouri plant
and Madison County, Illinois distribution center), which now expires in July
2001. Although the Company believes that its relations with the employees are
satisfactory, there can be no
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assurance that the Company will not face labor disputes in the future or that
any such disputes will not be material to the Company.
ENVIRONMENTAL MATTERS
The Company is subject to a variety of environmental and health and
safety laws in each jurisdiction in which it operations. These laws and
regulations pertain to the Company's present and past operations.
Since 1980, the Company has received notices or requests for
information with respect to 27 sites that have been deemed "Superfund" sites
under the federal Comprehensive Environmental Response, Compensation and
Liability Act, five of which are currently active, 14 of which are inactive, and
eight of which have been settled. The Company also is engaged in investigatory
and remedial activities with respect to four closed plants previously operated
by the Company's former parent. As of July 3, 1999, the Company has accrued in
its financial statements approximately $3 million in reserves for expenses
relating to Superfund sites and the clean-up of closed plant sites, which
reserves it believes are adequate.
The Company does not anticipate that the costs to comply with
environmental laws and regulations or the costs related to Superfund sites and
the clean-up of closed plant sites will have any material adverse effect on the
Company's capital expenditures, earnings or competitive position; however, there
can be no assurance that other developments, such as the emergence of unforeseen
claims or liabilities or the imposition of increasingly stringent laws,
regulations and enforcement policies will not result in material costs in the
future.
