<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 22, 1998
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
THE CLOROX COMPANY
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 2842 31-0595760
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification
incorporation or organization) No.)
</TABLE>
1221 BROADWAY
OAKLAND, CALIFORNIA 94612-1888
(510) 271-7000
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
G. C. SULLIVAN
CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER
THE CLOROX COMPANY
1221 BROADWAY
OAKLAND, CALIFORNIA 94612-1888
(510) 271-7000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
WITH COPIES TO:
JOHN W. CAMPBELL III, ESQ. ROGER S. AARON, ESQ.
KRISTIAN E. WIGGERT, ESQ. ALAN C. MYERS, ESQ.
S. DAVID GOLDENBERG, ESQ. Skadden, Arps, Slate, Meagher & Flom
LLP
E. JOHN PARK, ESQ. 919 Third Avenue
Morrison & Foerster LLP New York, New York 10022-3897
425 Market Street (212) 735-3000
San Francisco, California 94105-2482
(415) 268-7000
------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: At the effective time of the merger (the "Merger") of the wholly owned
subsidiary of the Registrant with First Brands Corporation ("First Brands"),
which shall occur as soon as practicable after the effective date of this
Registration Statement and the satisfaction of all conditions to the closing of
such Merger.
------------------------------
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box: / /
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering: / /
- ---------------------------
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier registration statement for the same
offering: / /
- ---------------------------
------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED(1) PER SHARE OFFERING PRICE(2) REGISTRATION FEE(3)
<S> <C> <C> <C> <C>
Common Stock, $1.00 par value................. 20,394,076 shares Not applicable. $1,626,296,828 $452,111
</TABLE>
(1) Represents the number of shares of the Common Stock of the Registrant that
may be issued to former stockholders of First Brands pursuant to the Merger
described herein, giving effect to the exercise of outstanding warrants or
other rights to purchase First Brands Common Stock and outstanding and
exercisable options and assuming an exchange ratio of 0.4875 of a share of
the Common Stock of the Registrant for each share of First Brands Common
Stock pursuant to the Merger described herein.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(f)(1) and Rule 457(c), based on the average of the high
and low sale prices of First Brands Common Stock on the New York Stock
Exchange on December 17, 1998 of $38.875.
(3) Pursuant to Rule 457(b), $317,371 of the registration fee that was
previously paid pursuant to Section 14(g) of the Securities Exchange Act of
1934, as amended, in connection with the filing of preliminary proxy
materials on November 13, 1998 has been credited against the registration
fee payable in connection with this filing.
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
[FIRST BRANDS CORPORATION LOGO]
December 28, 1998
Dear Stockholder:
You are cordially invited to attend our special meeting to be held on
Thursday, January 28, 1999, at 9:00 a.m., local time, at the Danbury Ballroom of
the Danbury Hilton, 18 Ridgebury Road, Danbury, Connecticut.
At the special meeting, you will be asked to approve a merger agreement
among The Clorox Company, Pennant, Inc., a wholly-owned subsidiary of Clorox,
and First Brands Corporation. As a result of the proposed merger, you and the
stockholders of Clorox will become the owners of a combined company.
In the merger, each outstanding share of First Brands stock will be
converted into a fraction of a Clorox share with a value equal to $39, provided
the average closing price of Clorox common stock is greater than $80 and less
than or equal to $115 during the ten trading days preceding the fifth trading
day before the date of the merger. If the average closing price of Clorox common
stock is higher than $115 during such ten-day period, you will receive 0.3391 of
a Clorox share for each First Brands share you own. If the average closing price
of Clorox common stock is less than or equal to $80 during such period, you will
receive 0.4875 of a Clorox share for each First Brands share you own.
First Brands' Board of Directors has determined that the merger agreement
and the merger are in the best interest of First Brands and its stockholders.
Accordingly, the Board has by unanimous vote of all directors present approved
the merger agreement and recommends that you vote in favor of the merger
agreement at the special meeting.
At the special meeting, which will also serve as a special meeting in lieu
of an annual meeting, you will also vote on a proposal to elect three directors
for a three-year term (or until completion of the merger, if earlier) and a
proposal to ratify the appointment of KPMG Peat Marwick LLP as independent
accountants for the year ending June 30, 1999 (or until completion of the
merger, if earlier). First Brands' Board of Directors has also unanimously
approved these other two proposals and unanimously recommends that you vote in
favor of each such proposal.
Your participation in the special meeting, in person or by proxy, is
especially important because the items to be voted on are very important to
First Brands and its stockholders. Whether or not you plan to attend the special
meeting in person, on behalf of First Brands and your fellow stockholders, I
urge you to complete, date, sign and promptly return the enclosed proxy card in
the prepaid envelope enclosed to ensure that your shares will be represented at
the special meeting.
We look forward to the successful combination of First Brands and Clorox and
to your continued support as a stockholder of the combined company.
Sincerely,
/s/ William V. Stephenson
William V. Stephenson
CHAIRMAN OF THE BOARD OF DIRECTORS
<PAGE>
FIRST BRANDS CORPORATION
83 WOOSTER HEIGHTS ROAD
DANBURY, CONNECTICUT 06813-1911
------------------------
NOTICE OF SPECIAL STOCKHOLDERS' MEETING
TO BE HELD ON JANUARY 28, 1999
------------------------
TO THE STOCKHOLDERS OF FIRST BRANDS CORPORATION:
The special meeting of stockholders (the "Special Meeting") of First Brands
Corporation, a Delaware corporation ("First Brands"), will be held on Thursday,
January 28, 1999 at the Danbury Ballroom of the Danbury Hilton, 18 Ridgebury
Road, Danbury, Connecticut, commencing at 9:00 a.m., local time. At the Special
Meeting, which will also serve as a special meeting in lieu of an annual
meeting, you will be asked to consider and vote upon the following proposals:
(1) approval and adoption of the Agreement and Plan of Merger dated as of
October 18, 1998 (the "Merger Agreement") among The Clorox Company, a
Delaware corporation ("Clorox"), Pennant, Inc., a Delaware corporation
and a direct wholly-owned subsidiary of Clorox ("Merger Sub"), and First
Brands, a copy of which is attached as Appendix A to the Proxy
Statement/Prospectus accompanying this notice. The Merger Agreement
provides for the merger of Merger Sub with and into First Brands (the
"Merger"), resulting in First Brands becoming a wholly-owned subsidiary
of Clorox. In the Merger, each outstanding share of First Brands stock
will be converted into a fraction of a Clorox share with a value equal to
$39, provided the average closing price of Clorox common stock is greater
than $80 and less than or equal to $115 during the ten trading days
preceding the fifth trading day before the date of the Merger. If the
average closing price of Clorox common stock is higher than $115 during
such period, each outstanding share of First Brands stock will be
converted into 0.3391 of a Clorox share. If the average closing price of
Clorox common stock is less than or equal to $80 during such period, each
outstanding share of First Brands stock will be converted into 0.4875 of
a Clorox share;
(2) election of three directors to serve a term of three years (or until
consummation of the Merger, if earlier);
(3) ratification of the appointment by the First Brands board of directors
of KPMG Peat Marwick LLP as independent accountants for the year ending
June 30, 1999 (or until consummation of the Merger, if earlier); and
(4) transaction of such other business as may properly be brought before the
Special Meeting or any adjournment thereof.
AFTER CAREFUL CONSIDERATION, YOUR BOARD OF DIRECTORS HAS BY UNANIMOUS VOTE
OF ALL DIRECTORS PRESENT DETERMINED THAT THE EXCHANGE RATIO IS FAIR TO AND IN
THE BEST INTERESTS OF FIRST BRANDS AND ITS STOCKHOLDERS. THE BOARD RECOMMENDS
THAT YOU VOTE FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AT THE SPECIAL
MEETING.
Your Board of Directors has also unanimously approved each of the other
proposals to be considered at the Special Meeting and unanimously recommends
that stockholders vote in favor of each such proposal.
Please read the accompanying Proxy Statement/Prospectus carefully for a
description of the Merger Agreement.
<PAGE>
Under Delaware law, holders of First Brands Common Stock are not entitled to
appraisal rights in connection with the Merger.
Only stockholders of record at the close of business on December 21, 1998
are entitled to notice of, and to vote at, the Special Meeting or any
adjournments or postponements thereof. A list of stockholders entitled to vote
at the Special Meeting will be available for examination, during regular
business hours, at First Brands' principal offices at 83 Wooster Heights Road,
Danbury, Connecticut for a period of ten days prior to the Special Meeting.
By Order of the Board of Directors,
/s/ Joseph B. Furey
Joseph B. Furey
SECRETARY
Danbury, Connecticut
December 28, 1998
Whether or not you plan to attend the Special Meeting, please complete,
sign, date and return the enclosed proxy card promptly in the enclosed
postage-paid envelope. Stockholders who attend the Special Meeting may revoke
their proxies and vote in person if they desire. PLEASE DO NOT SEND YOUR STOCK
CERTIFICATES WITH YOUR PROXY CARDS.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
REGULATOR HAS APPROVED THE CLOROX COMMON STOCK TO BE ISSUED IN THE MERGER OR
DETERMINED WHETHER THIS PROXY STATEMENT/ PROSPECTUS IS ACCURATE OR ADEQUATE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Proxy Statement/Prospectus is December 28, 1998.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
QUESTIONS & ANSWERS ABOUT THE MERGER........... 1
SUMMARY........................................ 3
The Companies................................ 3
Reasons for the Merger....................... 3
The Special Meeting.......................... 3
Vote Required................................ 3
Recommendation to Stockholders............... 4
The Merger................................... 4
What You Will Receive in the
Merger................................... 4
Interests of Certain Persons in the
Merger................................... 4
Conditions to the Merger................... 4
Termination of the Merger Agreement........ 5
Termination Fee............................ 5
Non-Solicitation of Competing
Transactions............................. 6
Regulatory Approvals....................... 6
Fairness Opinion of Lehman Brothers........ 6
No Dissenters' Rights...................... 6
Material Federal Income Tax Consequences... 6
Accounting Treatment....................... 7
Risk Factors................................. 7
Forward-Looking Statements................... 7
Summary Selected Financial Information....... 8
Comparative Per Share Information.......... 11
Comparative Market Price Information....... 12
RISK FACTORS................................... 13
Uncertainties Associated with the Integration
of First Brands and Achievement of Cost
Savings.................................... 13
Substantial Expenses Resulting from the
Merger..................................... 13
Adjustable Exchange Ratio.................... 13
Risks Associated with International
Operations................................. 14
Failure to Qualify for Pooling of Interests
Accounting Treatment May Impact Reported
Operating Results.......................... 14
Fluctuations in Quarterly Operating
Results.................................... 15
Importance of New Products................... 15
Year 2000 Compliance......................... 15
<CAPTION>
PAGE
-----
<S> <C>
Euro Conversion.............................. 17
Government Regulations....................... 17
Environmental Matters........................ 17
Importance of Intellectual Property.......... 17
Forward-Looking Statements................... 18
THE SPECIAL MEETING............................ 19
General...................................... 19
Record Date; Solicitation of Proxies......... 19
Revocability of Proxies...................... 19
MATTERS TO BE CONSIDERED AT THE MEETING........ 19
Approval and Adoption of the Merger
Agreement.................................. 19
Election of Directors........................ 20
Ratification of the Appointment of
Independent Auditors....................... 22
THE MERGER..................................... 23
Background of the Merger..................... 23
Reasons for the Merger; Recommendations of
the First Brands Board..................... 27
Opinion of Lehman Brothers................... 28
Transaction Terms.......................... 31
Stock Trading History...................... 31
Comparable Company Analysis................ 31
Comparable Transaction Analysis and
Transaction Premium Analysis............. 32
Discounted Cash Flow Analysis.............. 33
Leveraged Acquisition Analysis............. 33
Dividend Discount Analysis................. 33
Contribution Analysis...................... 34
Pro Forma Analysis......................... 34
Interests of Certain Persons in the Merger... 34
General.................................... 34
Indemnification and Insurance.............. 35
Severance Agreements....................... 35
Options.................................... 36
Annual Incentive Plan...................... 36
Deferral Plan.............................. 36
Executive Life Insurance Plan.............. 36
Employee Severance Plan.................... 36
Special Severance Plan..................... 37
Form of the Merger........................... 37
Merger Consideration......................... 37
Effective Time............................... 38
Procedures for Exchange of First Brands
Common Stock Certificates.................. 38
Anticipated Accounting Treatment............. 38
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Regulatory Approvals......................... 39
Certain Other Effects of the Merger;
Delisting of First Brands Shares........... 40
No Dissenters' Rights........................ 40
Material Federal Income Tax Consequences..... 40
Resale Restrictions and Lockup Agreements.... 41
Dividend Policy.............................. 42
THE MERGER AGREEMENT........................... 42
The Merger................................... 42
Conversion of Securities..................... 42
First Brands Stock Option Plans.............. 43
Exchange of Shares........................... 44
Representations and Warranties............... 45
Certain Covenants............................ 46
No Solicitation.............................. 47
Director and Officer Indemnification......... 48
Access and Information....................... 48
Agreements Relating to Approval of the
Merger..................................... 49
First Brands' Employee Benefits.............. 49
Additional Agreements........................ 49
Conditions................................... 49
Additional Conditions to the Obligations of
Clorox and Merger Sub...................... 50
Additional Conditions to the Obligations of
First Brands............................... 51
Termination.................................. 51
Amendment; Waiver............................ 53
DESCRIPTION OF CLOROX COMMON STOCK............. 53
Clorox's Transfer Agent and Registrar........ 53
COMPARISON OF RIGHTS OF CLOROX STOCKHOLDERS AND
FIRST BRANDS STOCKHOLDERS.................... 54
Comparison of Current First Brands
Stockholder Rights and Rights of Clorox
Stockholders Following the Merger.......... 54
Authorized Common Stock.................. 54
Board of Directors; Number of
Directors.............................. 54
Term of Directors........................ 54
Composition of the Board/ Nomination of
Directors.............................. 54
Amendment of Charter/Bylaws.............. 55
Supermajority Voting
Requirements/Shareholder Action by
Written Consent........................ 55
<CAPTION>
PAGE
-----
<S> <C>
Rights Plan.............................. 56
Redemption Rights........................ 56
Indemnification.......................... 56
PRO FORMA FINANCIAL INFORMATION................ 58
Financial Statements......................... 58
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE
SHEET........................................ 59
UNAUDITED PRO FORMA COMBINED CONDENSED
STATEMENTS OF EARNINGS....................... 60
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED
FINANCIAL STATEMENTS......................... 61
EXPERTS........................................ 64
OTHER RELEVANT INFORMATION FOR FIRST BRANDS
STOCKHOLDERS................................. 64
First Brands Board and Committees............ 64
Compensation Committee Report on Executive
Compensation............................... 65
Compensation Philosophy...................... 65
Relationship of Corporate Performance to
Executive Compensation..................... 67
1998 Fiscal Year Compensation of Chief
Executive Officer.......................... 67
Summary Compensation Table................... 68
Option Exercises in Last Fiscal Year and
Fiscal Year End Option Values.............. 69
Retirement Plan.............................. 69
Severance Agreements......................... 70
Five Year Stock Performance Graph............ 71
Beneficial Ownership of Voting Securities.... 73
Section 16(a) Beneficial Ownership Reporting
Compliance................................. 74
FUTURE STOCKHOLDER PROPOSALS................... 74
LEGAL MATTERS.................................. 75
WHERE YOU CAN FIND MORE INFORMATION............ 75
APPENDICES TO THE PROXY
STATEMENT/PROSPECTUS
</TABLE>
<TABLE>
<S> <C> <C>
APPENDIX A -- Agreement and Plan of Merger
APPENDIX B -- Opinion of Lehman Brothers
</TABLE>
ii
<PAGE>
QUESTIONS & ANSWERS ABOUT THE MERGER
<TABLE>
<C> <S>
Q: WHY ARE THE TWO COMPANIES PROPOSING THE
MERGER? HOW WILL I BENEFIT?
A: This merger means that you will have a
stake in one of the nation's leading
consumer goods companies. The combined
company will be a major manufacturer and
marketer of diverse consumer goods in
the United States and internationally.
The product lines will include laundry
additives, household cleaners, plastic
bags, plastic wraps, cat litter, auto
care products and home fireplace
products. It is anticipated that
combined annual sales will exceed $4
billion. Overall, Clorox believes that
the merger will provide added value to
all its stockholders. Clorox notes that
achieving its goals with respect to the
merger is subject to certain risks as
discussed in the section on "Risk
Factors." To review the reasons for the
merger in greater detail, see page 27.
Q: WHEN IS THE FIRST BRANDS SPECIAL
MEETING, AND WHAT ARE THE PROPOSALS I AM
BEING ASKED TO VOTE UPON AT THE MEETING?
A: The Special Meeting of First Brands
stockholders will take place on January
28, 1999. At that meeting you will be
asked to vote on three proposals: (a)
approval and adoption of the merger
agreement, (b) election of directors to
serve a term of three years (or until
consummation of the Merger, if earlier)
and (c) ratification of the appointment
of KPMG Peat Marwick LLP as independent
auditors for the year ending June 30,
1999 (or until consummation of the
Merger, if earlier).
Q: WHAT VOTE IS REQUIRED?
A: To approve the merger, a vote reflecting
two thirds of the shares entitled to
vote at the Special Meeting is required.
Directors are elected by a plurality of
the votes represented at the Special
Meeting if a quorum (holders of a
majority of the outstanding shares) is
present at such meeting. The
ratification of the appointment of
independent auditors requires the
approval of a majority of the votes
represented at the Special Meeting,
assuming that a quorum is present.
Q: WHAT DO I NEED TO DO NOW?
A: Just mail your signed proxy card in the
enclosed return envelope as soon as
possible, so that your shares may be
represented at the Special Meeting. The
Board of Directors of First Brands
recommends voting in favor of the
approval of the merger agreement and the
merger and also recommends that you vote
in favor of the other proposals.
Q: WHAT DO I DO IF I WANT TO CHANGE MY
VOTE?
A: Just send in a later-dated, signed proxy
card to the Secretary of First Brands
before the meeting or attend the meeting
in person and vote.
Q: SHOULD I SEND IN MY STOCK CERTIFICATES
NOW?
A: No. After the merger is completed,
Clorox will send First Brands
stockholders written instructions for
exchanging their share certificates.
Q: PLEASE EXPLAIN WHAT I WILL RECEIVE IN
THE MERGER.
A: You will receive for each First Brands
share you own a fraction of a share of
Clorox common stock, which will be
determined as follows:
- If the average closing price of Clorox
common stock during the ten trading days
preceding the fifth trading day before
the date of the merger is greater than
$80 and less than or equal to $115, you
will receive a fraction of a share of
Clorox common stock with a value of $39
based on the average closing price during
that ten-day period. For example, if the
average closing price during that period
for Clorox common stock is $100 per
share, you will receive 0.3900 of a
Clorox share for each First Brands share
you own.
</TABLE>
1
<PAGE>
<TABLE>
<C> <S>
- If the average closing price of Clorox
common stock during the ten-day period is
less than or equal to $80, you will
receive 0.4875 of a Clorox share for each
First Brands share you own. For example,
if the average closing price of Clorox
common stock during that period is $75,
you will receive 0.4875 of a share of
Clorox common stock for each First Brands
share you own. That fraction of a Clorox
share would have a value of $36.56 based
on the average closing price during the
ten-day period.
- If the average closing price of Clorox
common stock during the ten-day period is
greater than $115, you will receive
0.3391 of a share of Clorox common stock
for each First Brands share you own. For
example, if the average closing price
during that period for Clorox common
stock is $120, you will receive 0.3391 of
a share of Clorox common stock for each
First Brands share you own. That fraction
of a Clorox share would have a value of
$40.69 based on the average closing price
during the ten-day period.
Because the fraction of a Clorox share
that you will receive is fixed five
trading days before the date of the
merger, the actual value on the date of
the merger of the Clorox shares you will
receive may vary from the value of those
shares on the date the fraction is fixed
if Clorox's stock price on the date of
the merger is different from the average
closing price during the ten-day period.
Q: WILL CLOROX ISSUE FRACTIONAL SHARES TO
FIRST BRANDS STOCKHOLDERS?
A: Clorox will not issue fractional shares
in the merger. As a result, First Brands
stockholders will receive a cash payment
based on the closing price of Clorox
common stock on the last trading day
before the merger multiplied by the
remaining fraction of a share of Clorox
common stock they would otherwise be
entitled to receive.
Q: WHAT HAPPENS TO MY FUTURE DIVIDENDS?
A: We expect no changes in Clorox's or
First Brands' dividend policies before
the merger. After the merger, we expect
the initial annual dividend rate to be
$1.44 per share of Clorox common stock,
which is equivalent to the current
annual dividend payment to Clorox
stockholders. The payment of dividends
by Clorox in the future, however, will
depend on business conditions, its
financial condition and earnings, and
other factors.
Q: WHEN DO YOU EXPECT THE MERGER TO BE
COMPLETED?
A: We expect to complete the merger within
three days after the Special Meeting of
First Brands stockholders.
Q: WHAT ARE THE TAX CONSEQUENCES OF THE
MERGER TO FIRST BRANDS STOCKHOLDERS?
A: We expect that for U.S. federal income
tax purposes the exchange of shares will
be tax-free to First Brands
stockholders, except for taxes with
respect to cash received for any
fractional shares of Clorox common
stock. To review the federal income tax
consequences to First Brands
stockholders in greater detail, see page
40.
WHO CAN HELP ANSWER YOUR QUESTIONS
If you have more questions about the merger you
should contact:
First Brands
83 Wooster Heights Road
Danbury, Connecticut 06813-1911
Telephone: (203) 731-2300
Attention: Secretary
</TABLE>
2
<PAGE>
SUMMARY
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS PROXY
STATEMENT/PROSPECTUS AND MAY NOT CONTAIN ALL OF THE INFORMATION THAT IS
IMPORTANT TO YOU. TO UNDERSTAND THE MERGER FULLY AND FOR A MORE COMPLETE
DESCRIPTION OF THE LEGAL TERMS OF THE MERGER, YOU SHOULD CAREFULLY READ THIS
ENTIRE DOCUMENT, INCLUDING THE APPENDICES AND OTHER DOCUMENTS TO WHICH WE HAVE
REFERRED YOU. SEE "WHERE YOU CAN FIND MORE INFORMATION" FOR MORE DETAILS.
THE COMPANIES
THE CLOROX COMPANY
1221 Broadway
Oakland, California 94612-1888
Tel: (510) 271-2150
Attention: Director of Investor Relations
website: http://www.clorox.com
Clorox builds brand franchises for consumer products sold primarily in
grocery stores and other retail outlets throughout the United States and in many
parts of the world. Clorox's line of domestic retail products includes many of
the country's best-known brands of laundry additives, home cleaning and
automotive appearance products, cat litters, insecticides, charcoal briquettes,
salad dressings, sauces and water filtration systems. Internationally, Clorox
markets laundry additives, home cleaning products, insecticides and automotive
appearance products, primarily in developing countries. Overall, Clorox products
are sold in more than 70 countries and are manufactured in more than 35 plants
at locations in the United States (including Puerto Rico) and abroad.
FIRST BRANDS CORPORATION
83 Wooster Heights Road
Post Office Box 1911
Danbury, Connecticut 06813-1911
Tel: (203) 731-2300
Attention: Secretary
website: http://www.firstbrands.com
First Brands is a leading developer, manufacturer and marketer of branded
and private label consumer products for the household and automotive markets.
First Brands product lines include food protection items such as plastic wrap,
bags and containers; aluminum foil; trash bags; cleaning cloths, sponges, and
scrubbers; automotive additives and appearance products; cat litter and pet
accessories and home fireplace products. First Brands also markets commercial
products including flexible packaging, trash bags and mineral absorbents. First
Brands operates in foreign countries through subsidiaries in Australia, New
Zealand, Canada, South Africa, Zimbabwe, the United Kingdom, Spain, Hong Kong,
China, Mexico and the Philippines. First Brands exports to over 100 countries,
and its products are packaged in 12 languages.
REASONS FOR THE MERGER
The First Brands board of directors considered a number of factors in
determining to approve the merger and recommend it to its stockholders. These
considerations are described below under "The Merger--Reasons for the Merger;
Recommendations of the First Brands Board."
THE SPECIAL MEETING
The Special Meeting of First Brands stockholders will take place on January
28, 1999. At that meeting, which will also serve as a special meeting in lieu of
an annual meeting, you will be asked to vote on three proposals:
- approval and adoption of the merger agreement;
- election of directors for a term of three years (or until consummation of
the merger, if earlier); and
- ratification of the appointment of KPMG Peat Marwick LLP as independent
auditors for the year ending June 30, 1999 (or until consummation of the
merger, if earlier).
VOTE REQUIRED
To approve the merger, a vote reflecting two thirds of the shares entitled
to vote at the Special Meeting is required. Directors are elected by a plurality
of the votes represented at the Special Meeting if a quorum (holders of a
majority of the outstanding shares) is present at such
3
<PAGE>
meeting. The ratification of the appointment of independent auditors requires
the approval of a majority of the votes represented at the Special Meeting of
stockholders assuming that a quorum is present.
RECOMMENDATION TO STOCKHOLDERS
The First Brands board of directors has determined that the merger agreement
and the merger are in the best interest of First Brands and its stockholders.
Accordingly, the First Brands board of directors has by unanimous vote of all
directors present approved the merger agreement and recommends that you vote in
favor of the merger agreement at the Special Meeting. The First Brands board of
directors has also unanimously approved each of the other proposals to be
considered at the Special Meeting and unanimously recommends that you vote in
favor of each such proposal.
THE MERGER
The merger agreement is attached as Appendix A to this Proxy
Statement/Prospectus. We encourage you to read the merger agreement as it (and
not this Proxy Statement/Prospectus) is the legal document that governs the
merger.
WHAT YOU WILL RECEIVE IN THE MERGER. (SEE PAGE 37)
You will receive for your shares of First Brands common stock the right to
receive whole shares of Clorox common stock, and cash in lieu of any fractional
shares of Clorox common stock. The exchange ratio will depend on the average
closing price of Clorox common stock on the New York Stock Exchange over the ten
trading days preceding the fifth trading day before the date of the merger, as
follows:
- If the average closing price over such period is more than $80 but less
than or equal to $115, the exchange ratio will be $39 divided by the
average closing price over such period (that is, you will receive
approximately $39 in value (based on the average closing price) of Clorox
common stock for each share of First Brands common stock);
- If the average closing price over such period is less than or equal to
$80, the exchange ratio will be 0.4875 of a share of Clorox common stock
for each share of First Brands common stock;
- If the average closing price is greater than $115, the exchange ratio will
be 0.3391 of a share of Clorox common stock for each share of First Brands
common stock.
These ratios are referred to collectively throughout this Proxy
Statement/Prospectus as the "Exchange Ratio."
Clorox will not issue fractional shares in the merger. Instead, you will
receive cash, without interest, equal to (1) the fraction of a share to which
you are entitled, multiplied by (2) the closing price of Clorox common stock on
the last trading day before the date of the merger, rounded up to the nearest
whole cent.
YOU SHOULD NOT SEND IN YOUR STOCK CERTIFICATES FOR EXCHANGE UNTIL INSTRUCTED
TO DO SO AFTER THE MERGER IS COMPLETED. YOU WILL BE SENT A SEPARATE MAILING TO
EXCHANGE YOUR CERTIFICATES AT THAT TIME.
INTERESTS OF CERTAIN PERSONS IN THE MERGER. (SEE PAGE 34)
You should note that certain directors and executive officers of First
Brands may have interests in the merger that are different from, and in addition
to, the interests of First Brands stockholders generally.
CONDITIONS TO THE MERGER. (SEE PAGE 49)
We will complete the merger only if the conditions set forth in the merger
agreement are satisfied or (in some cases) waived. These conditions include,
among others, the following:
- approval of the merger by the stockholders of First Brands;
- declaration of effectiveness of the Registration Statement of which this
Proxy Statement/Prospectus forms a part;
- receipt of letters from Clorox's and First Brands' accountants stating
that the
4
<PAGE>
merger will qualify as a "pooling of interests" for accounting purposes;
- receipt of legal opinions that the merger will be treated as a tax-free
reorganization under Section 368(a) of the Internal Revenue Code of 1986,
as amended;
- absence of any change in either Clorox or First Brands or any of their
subsidiaries which has had or may have a material adverse effect on
Clorox's or First Brands' business taken as a whole;
- absence of any law, court order or litigation by a governmental agency
prohibiting or seeking to prohibit the merger;
- the representations and warranties of each of Clorox and First Brands
contained in the merger agreement remaining true at the closing unless the
failure for this to occur would not have a material adverse effect on the
party whose representations and warranties are not true; and
- each of Clorox and First Brands having complied in all material respects
with their covenants under the merger agreement.
At any time before the merger, to the extent legally allowed, the board of
directors of Clorox or First Brands may waive compliance with any of the
conditions contained in the merger agreement without the approval of Clorox
stockholders or First Brands stockholders.
The merger is also subject to the following additional condition, which was
satisfied before the date we mailed this Proxy Statement/ Prospectus:
- expiration of the waiting period during which the U.S. regulatory
authorities review the merger under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended.
TERMINATION OF THE MERGER AGREEMENT. (SEE PAGE 51)
The merger agreement may be terminated under the following circumstances:
- by mutual consent of Clorox and First Brands;
- by either Clorox or First Brands if the merger has not been consummated by
June 30, 1999 (so long as the failure of the merger to close by such date
is not due to the party who exercises this right to terminate having
failed to fulfill its obligations under the merger agreement);
- by either Clorox or First Brands if a court or governmental entity has
issued a final order prohibiting the merger;
- by either Clorox or First Brands if the stockholders of First Brands do
not approve the merger;
- by Clorox if the First Brands board of directors withdraws, changes or
modifies its recommendation in favor of the merger in a manner adverse to
Clorox or recommends to the First Brands stockholders an alternative
transaction;
- by First Brands if, after having received a superior proposal, it
withdraws its recommendation to approve the merger agreement because it
has determined that its fiduciary duties require it to do so; or
- by First Brands or Clorox if the other party has breached any
representation, warranty or covenant in the merger agreement which would
not be able to be cured by the breaching party prior to closing.
TERMINATION FEE. (SEE PAGE 52)
First Brands must pay Clorox a fee of $52 million in cash if the agreement
is terminated in the following circumstances:
- if the First Brands board of directors withdraws, changes or modifies its
recommendation in favor of the merger in a manner adverse to Clorox or
resolves to take such action;
5
<PAGE>
- if the First Brands board of directors recommends a tender offer or merger
proposal made by a third party to the First Brands stockholders; or
- if a tender offer or exchange offer for 15% or more of the outstanding
shares of First Brands common stock is commenced (other than by Clorox or
an affiliate of Clorox) and the First Brands board of directors recommends
that the First Brands stockholders tender their shares in such tender or
exchange offer.
NON-SOLICITATION OF COMPETING TRANSACTIONS. (SEE PAGE 47)
The merger agreement generally restricts First Brands' ability to entertain
or encourage any alternative transactions for the sale of the company with third
parties beyond what is required by the First Brands board's fiduciary duties.
First Brands is required to communicate to Clorox the terms of any superior
proposal it receives from a third party unless the First Brands board of
directors believes that its fiduciary duties require that it not do so.
REGULATORY APPROVALS. (SEE PAGE 39)
Clorox and First Brands are both required to make filings with or obtain
approvals from certain United States and international regulatory authorities in
connection with the merger, including United States antitrust authorities. The
waiting period during which the U.S. regulatory authorities review the merger
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended,
expired on December 10, 1998. We believe that all other material notifications,
filings and approvals have been made or obtained, or will be made or obtained
prior to the date of the merger.
FAIRNESS OPINION OF LEHMAN BROTHERS (SEE PAGE 28)
Lehman Brothers has acted as financial advisor to First Brands in connection
with the merger and has delivered a written opinion, dated October 18, 1998, to
the First Brands board that the Exchange Ratio was fair to First Brands
stockholders, from a financial point of view, on that date. The First Brands
board of directors considered this opinion in deciding to approve and recommend
the merger. A copy of this opinion, which describes the assumptions made,
matters considered and limitations on the reviews undertaken by Lehman Brothers,
is attached as Appendix B to this Proxy Statement/ Prospectus. We encourage you
to read and consider this opinion.
NO DISSENTERS' RIGHTS. (SEE PAGE 40)
Holders of First Brands common stock are not entitled under Delaware law to
an appraisal of the value of their shares in connection with the merger.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES. (SEE PAGE 40)
The obligations of both companies to complete the merger are conditioned
upon the receipt by each company of an opinion of its counsel that, generally,
for U.S. federal income tax purposes, the merger will qualify as a
reorganization under the Internal Revenue Code of 1986, as amended. Provided the
merger so qualifies, First Brands stockholders will not recognize any gain or
loss upon the exchange of their First Brands common stock for Clorox common
stock (except with respect to cash received in lieu of a fractional share
interest of Clorox common stock). In the event that Clorox or First Brands is
unable to obtain these opinions, each of the parties is permitted under the
merger agreement to waive the receipt of the opinions as a condition to its
obligation to complete the merger. As of the date of this Proxy
Statement/Prospectus, neither Clorox nor First Brands intends to waive the
receipt of these opinions as a condition to its obligation to complete the
merger. In the event that Clorox or First Brands fails to obtain these opinions,
and either Clorox or First Brands determines to waive receipt of an opinion as a
condition to the completion of the merger, First Brands will resolicit the votes
of its stockholders to approve completion of the merger.
TAX MATTERS ARE VERY COMPLICATED, AND THE TAX CONSEQUENCES OF THE MERGER TO
YOU WILL DEPEND ON THE FACTS OF YOUR OWN SITUATION. YOU SHOULD CONSULT YOUR TAX
ADVISORS FOR A FULL
6
<PAGE>
UNDERSTANDING OF THE TAX CONSEQUENCES OF THE MERGER TO YOU.
ACCOUNTING TREATMENT
Clorox and First Brands expect the merger will qualify as a "pooling of
interests," which means that Clorox and First Brands will be treated as if they
had always been combined for accounting and financial reporting purposes. The
availability of this accounting treatment is a condition to the merger.
RISK FACTORS
You should carefully consider the risk factors under the caption "Risk
Factors" on page 13. Such risk factors include, among other things, that Clorox
may not be able to integrate the business of First Brands successfully, the
stockholders of First Brands will not receive a fixed value of Clorox common
stock in the merger under all circumstances and Clorox may incur substantial
expenses related to the merger.
FORWARD-LOOKING STATEMENTS
Clorox and First Brands have made forward-looking statements in this
document and in the documents to which we have referred you. These statements
are subject to risks and uncertainties, and therefore may not prove to be
correct. Forward-looking statements include assumptions as to how Clorox may
perform after the merger, and, accordingly, it is uncertain whether any of the
events anticipated by the forward-looking statements will transpire or occur, or
if any of them do so, what impact they will have on the results of operations
and financial condition of Clorox or the price of its stock. See page 18 for
further details.
When we use words like "believes," "expects," "anticipates" or similar
expressions, we are making forward-looking statements. For those statements,
Clorox and First Brands claim the protection of the safe harbor for forward-
looking statements contained in the Private Securities Litigation Reform Act of
1995.
7
<PAGE>
SUMMARY SELECTED FINANCIAL INFORMATION
Clorox and First Brands are providing you the following information to aid
you in your analysis of the financial aspects of the merger. The following
selected historical financial information of Clorox and First Brands has been
derived from their audited and unaudited historical financial statements, and
you should read it in conjunction with these financial statements and the notes
thereto, which are incorporated by reference in this Proxy Statement/Prospectus.
The audited historical consolidated financial statements are, for both Clorox
and First Brands, for the five fiscal years ended June 30, 1998. The selected
historical financial information for the three-month periods ended September 30,
1997 and 1998 for Clorox and for First Brands has been derived from the
unaudited consolidated financial statements of Clorox and First Brands as of and
for those periods which are incorporated by reference in this Proxy
Statement/Prospectus, and which, in the opinion of Clorox's and First Brands'
respective management, reflect all adjustments necessary for the fair
presentation of this unaudited interim financial information. The results of
operations for these interim periods are not necessarily indicative of the
results to be expected for the entire fiscal year or future periods. See "Where
You Can Find More Information" on page 75.
CLOROX SELECTED HISTORICAL FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED JUNE 30, SEPTEMBER 30,
----------------------------------------------------- --------------------
1994 1995 1996 1997 1998 1997 1998
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
HISTORICAL CONSOLIDATED
STATEMENT OF OPERATIONS
INFORMATION:
Net sales..................... $1,836,949 $1,984,170 $2,217,843 $2,532,651 $2,741,270 $ 649,284 $ 685,883
Earnings from continuing
operations.................. 179,993 200,832 222,092 249,442 297,960 74,363 85,422
Diluted earnings per common
share from continuing
operations.................. 1.67 1.88 2.12 2.37 2.82 .71 .81
Dividends declared per common
share....................... 0.90 0.96 1.06 1.16 1.28 .32 .36
Diluted weighted average
shares outstanding.......... 108,338 107,085 105,006 105,100 105,635 105,184 105,637
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
----------------------------------------------------- --------------------
1994 1995 1996 1997 1998 1997 1998
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
HISTORICAL CONSOLIDATED
BALANCE SHEET INFORMATION:
Total assets.................. $1,668,104 $1,886,550 $2,166,022 $2,762,852 $3,013,350 $2,792,338 $3,009,982
Long-term debt................ 216,088 253,079 356,267 565,926 316,260 756,299 466,294
Total stockholders' equity.... 909,417 943,913 950,087 1,036,046 1,085,235 1,074,920 1,101,601
</TABLE>
- ------------------------------
Note: Certain reclassifications of prior periods' amounts relating to accounts
receivable and accrued liabilities have been made to conform to the amounts
reported on Clorox's quarterly report on Form 10-Q filed with the Securities and
Exchange Commission for the quarter ended September 30, 1998.
8
<PAGE>
FIRST BRANDS SELECTED HISTORICAL FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED JUNE 30, SEPTEMBER 30,
----------------------------------------------------- --------------------
1994 1995 1996 1997 1998 1997 1998
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
HISTORICAL CONSOLIDATED
STATEMENT OF OPERATIONS
INFORMATION:
Net sales..................... $1,086,320 $1,036,515 $1,073,022 $1,119,898 $1,203,670 $ 269,480 $ 291,509
Earnings before extraordinary
loss and cumulative effect
of change in accounting
principle................... 60,166 43,190 65,100 50,865 52,330 12,173 14,320
DILUTED EARNINGS PER COMMON
SHARE:
Earnings before extraordinary
loss and cumulative effect
of change in accounting
principle................... $ 1.36 $ 1.01 $ 1.53 $ 1.22 $ 1.29 $ 0.30 $ 0.36
Dividends declared per common
share....................... 0.15 0.19 0.24 0.30 0.38 0.08 0.10
Diluted weighted average
shares outstanding.......... 44,338 42,915 42,600 41,757 40,502 40,775 39,677
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
----------------------------------------------------- --------------------
1994 1995 1996 1997 1998 1997 1998
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
HISTORICAL CONSOLIDATED
BALANCE SHEET INFORMATION:
Total assets.................. $ 813,985 $ 839,946 $ 860,888 $1,046,781 $1,060,201 $1,053,588 $1,071,205
Long-term debt................ 153,430 166,279 199,355 380,467 388,054 408,062 443,785
Total stockholders' equity.... 360,730 352,178 398,825 393,916 386,148 395,343 389,976
</TABLE>
9
<PAGE>
The following selected unaudited pro forma combined condensed financial
information is derived from the unaudited pro forma combined condensed financial
statements and notes thereto appearing elsewhere in this Proxy
Statement/Prospectus, which give effect to the merger as a pooling of interests
transaction, and you should read it in conjunction with such unaudited pro forma
statements and notes thereto and the separate audited consolidated financial
statements and related notes thereto of Clorox and First Brands, respectively,
incorporated by reference in this Proxy Statement/Prospectus. See "Pro Forma
Financial Information" on page 58, and "Where You Can Find More Information" on
page 75.
For purposes of the unaudited pro forma combined condensed financial
statements, Clorox's consolidated financial statements for the years ended June
30, 1996, 1997 and 1998 and the unaudited condensed statements for the three
months ended September 30, 1997 and 1998 have been combined with the
consolidated financial statements of First Brands for the years ended June 30,
1996, 1997 and 1998 and its unaudited condensed statements for the three months
ended September 30, 1997 and 1998, respectively.
The unaudited pro forma combined condensed financial information is
presented for comparative purposes only and does not purport to be indicative of
the operating results or financial position that would have occurred had the
merger been consummated at the beginning of the periods presented, nor is such
information necessarily indicative of the future operating results or financial
position of the combined company after the merger.
SELECTED UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED JUNE 30, SEPTEMBER 30,
---------------------------------------- ----------------------
1996 1997 1998 1997 1998
------------ ------------ ------------ ---------- ----------
<S> <C> <C> <C> <C> <C>
PRO FORMA STATEMENT OF OPERATIONS INFORMATION:
Net sales...................................... $ 3,265,330 $ 3,622,993 $ 3,897,976 $ 913,805 $ 964,670
Earnings before extraordinary loss and
cumulative effect of change in accounting
principle.................................. 287,192 300,307 350,290 86,536 99,742
Diluted earnings per common share:
Earnings before extraordinary loss and
cumulative effect of change in accounting
principle.................................. $ 2.39 $ 2.50 $ 2.92 $ 0.72 $ 0.83
Diluted weighted average shares outstanding.... 120,108 119,903 119,993 119,639 119,702
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30,
1998
-------------
<S> <C>
PRO FORMA COMBINED BALANCE SHEET INFORMATION:
Total assets....................................................................................... $ 4,060,451
Long-term debt..................................................................................... 910,079
Total stockholders' equity......................................................................... 1,476,077
</TABLE>
10
<PAGE>
COMPARATIVE PER SHARE INFORMATION
The following table summarizes per share information for Clorox and First
Brands on a historical, pro forma combined and equivalent basis. The pro forma
information gives effect to the merger accounted for on a "pooling of interests"
basis, assuming that 0.3545 of a share of Clorox common stock (an average per
share price of Clorox common stock of $110 during the measurement period) was
issued for each share of First Brands common stock outstanding. You should read
this information together with the historical financial statements (and related
notes) included in the annual reports on Form 10-K and other information that
each of First Brands and Clorox has filed with the Securities and Exchange
Commission and which are incorporated herein by reference. See "Where You Can
Find More Information" on page 75. You should also read this information in
connection with the pro forma combined condensed financial information set forth
starting on page 58. You should not rely on the pro forma combined condensed
financial information as being indicative of the results that would have been
achieved had the companies been combined at a prior date or the future results
that the combined company will experience after the merger.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED JUNE 30, SEPTEMBER 30,
------------------------------- --------------------
1996 1997 1998 1997 1998
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
HISTORICAL--CLOROX COMMON STOCK
Basic earnings per share.......................................... $ 2.14 $ 2.41 $ 2.88 $ 0.72 $ 0.82
Diluted earnings per share........................................ 2.12 2.37 2.82 0.71 0.81
Book value per share.............................................. 9.23 10.04 10.47 10.40 10.64
HISTORICAL--FIRST BRANDS COMMON STOCK EARNINGS PER COMMON SHARE:
Earnings before extraordinary loss and cumulative effect of change
in accounting principle:
Basic......................................................... $ 1.56 $ 1.25 $ 1.32 $ 0.30 $ 0.37
Diluted....................................................... 1.53 1.22 1.29 0.30 0.36
Net Earnings:
Basic......................................................... 1.56 1.23 1.15 0.30 0.37
Diluted....................................................... 1.53 1.20 1.12 0.30 0.36
Book value per share.............................................. 9.58 9.84 9.86 9.93 9.99
PRO FORMA COMBINED NET INCOME PER CLOROX SHARE:
Earnings before extraordinary loss and cumulative effect of change
in accounting principle:
Basic......................................................... $ 2.42 $ 2.55 $ 2.98 $ 0.74 $ 0.85
Diluted....................................................... 2.39 2.50 2.92 0.72 0.83
PER EQUIVALENT FIRST BRANDS SHARE:
Earnings before extraordinary loss and cumulative effect of change
in accounting principle:
Basic......................................................... $ .86 $ .90 $ 1.06 $ 0.26 $ 0.30
Diluted....................................................... .85 .89 1.04 0.26 0.29
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30,
1998
-------------
<S> <C>
PRO FORMA COMBINED BOOK VALUE
PER SHARE:
Per Clorox share................................................................................... $ 12.58
Equivalent First Brands share...................................................................... $ 4.46
</TABLE>
11
<PAGE>
COMPARATIVE MARKET PRICE INFORMATION
The following tables present certain historical trading information for
First Brands common stock and Clorox common stock for fiscal years ended June
30.
<TABLE>
<CAPTION>
CLOROX FIRST BRANDS COMMON
COMMON STOCK STOCK
-------------------- --------------------
HIGH LOW HIGH LOW
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Fiscal year 1996:
First Quarter..... $36 11/16 $30 7/16 $22 5/8 $19 3/4
Second Quarter.... 39 5/8 34 5/8 23 15/16 21 5/16
Third Quarter..... 44 11/16 35 29 1/2 23
Fourth Quarter.... 44 9/16 39 3/16 28 1/4 24
Fiscal year 1997:
First Quarter..... 50 1/4 43 7/16 27 1/2 21
Second Quarter.... 55 1/8 47 1/2 29 3/8 26
Third Quarter..... 63 11/16 48 5/8 28 3/8 23 1/2
Fourth Quarter.... 67 3/32 55 26 5/8 20 1/8
Fiscal year 1998:
First Quarter..... 74 3/8 62 28 1/2 20 1/4
Second Quarter.... 80 1/8 64 7/8 28 1/2 23 3/8
Third Quarter..... 89 15/16 74 3/8 28 3/8 23
Fourth Quarter.... 96 5/8 79 1/8 28 22 7/8
Fiscal year 1999:
First Quarter..... 111 7/8 79 3/8 26 7/16 19 5/16
Second Quarter
through December
21, 1998........ 117 1/2 80 39 3/16 19 9/16
</TABLE>
Clorox common stock is currently traded on the New York Stock Exchange and
the Pacific Exchange under the symbol "CLX." First Brands common stock is
currently traded on the New York Stock Exchange under the symbol "FBR."
On October 16, 1998, the last trading day prior to the public announcement
of the merger agreement, the closing sale price of Clorox common stock was
$99.75 per share, and the closing sale price of First Brands common stock was
$23.63 per share. Based on the terms of the merger agreement, the value of
Clorox common stock that would have been received on that date was $39 for each
share of First Brands common stock.
Because the Exchange Ratio will be fixed five trading days prior to the
merger and because the market price of Clorox common stock is subject to
fluctuation, the market value of the shares of Clorox common stock that holders
of First Brands common stock will receive in the merger may increase or decrease
prior to and following the merger. WE URGE HOLDERS OF FIRST BRANDS COMMON STOCK
TO OBTAIN CURRENT MARKET QUOTATIONS OF CLOROX COMMON STOCK AND FIRST BRANDS
COMMON STOCK. NO ASSURANCE CAN BE GIVEN AS TO THE FUTURE PRICES OR MARKETS FOR
CLOROX COMMON STOCK OR FIRST BRANDS COMMON STOCK.
Clorox declared dividends of approximately $132 million in fiscal year 1998,
or approximately 44% of Clorox's 1998 consolidated earnings. Per share dividends
declared of $1.28 in fiscal year 1998 represent an increase of approximately
10.3% from per share dividends of $1.16 in fiscal year 1997. Anticipated fiscal
year 1999 per share dividends are $1.44, a 12.5% increase over fiscal year 1998.
Following the merger, payment of cash dividends by Clorox in respect of Clorox
common stock will depend on Clorox's financial condition, results of operations
and any other factors the Clorox board of directors may consider relevant.
12
<PAGE>
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION INCLUDED IN THIS PROXY
STATEMENT/PROSPECTUS, YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS
IN DETERMINING WHETHER TO VOTE TO APPROVE THE MERGER. THESE MATTERS SHOULD BE
CONSIDERED IN CONJUNCTION WITH THE OTHER INFORMATION INCLUDED OR INCORPORATED BY
REFERENCE IN THIS PROXY STATEMENT/PROSPECTUS.
UNCERTAINTIES ASSOCIATED WITH THE INTEGRATION OF FIRST BRANDS AND ACHIEVEMENT OF
COST SAVINGS
The merger will present challenges to management, including the integration
of the operations, technologies and personnel of Clorox and First Brands, and
special risks, including possible unanticipated liabilities, unanticipated
costs, and diversion of management attention.
There can be no assurance that Clorox will be able to successfully integrate
or profitably manage First Brands' businesses. In addition, there can be no
assurance that, following the transaction, First Brands' businesses will achieve
sales levels, profitability, cost savings or synergies that justify the
investment made or that the acquisition will be accretive to earnings in any
future period.
SUBSTANTIAL EXPENSES RESULTING FROM THE MERGER
Clorox and First Brands estimate they will incur combined aggregate direct
transaction costs of approximately $15.5 million associated with the merger,
consisting of transaction fees for investment bankers, attorneys, accountants,
and other related costs. These nonrecurring transaction costs will be charged to
operations upon consummation of the merger. It is expected that following the
merger, the combined company will incur additional nonrecurring costs, currently
estimated to be approximately $125 million, including non-cash charges estimated
at $30 million. There can be no assurance that the combined company will not
incur additional charges in excess of $125 million to reflect costs associated
with the merger.
ADJUSTABLE EXCHANGE RATIO
The merger agreement provides for adjustments to the Exchange Ratio between
First Brands common stock and Clorox common stock based upon the average of the
closing prices of Clorox common stock on the New York Stock Exchange ("NYSE")
Composite Transaction Tape during the ten trading days preceding the fifth
trading day prior to the date of the merger (the "Clorox Average Share Price").
These adjustments are designed so that you will receive $39 in value of Clorox
common stock (as measured by the Clorox Average Share Price) for each share of
First Brands common stock exchanged in the merger, so long as the Clorox Average
Share Price is greater than $80 and less than or equal to $115. However, if the
Clorox Average Share Price is above $115, the Exchange Ratio will be fixed at
0.3391, so that the value of the Clorox common stock that you will receive in
the merger (measured by the Clorox Average Share Price) will be greater than
$39. In addition, if the Clorox Average Share Price is less than or equal to
$80, the Exchange Ratio will be fixed at 0.4875, so that the value of Clorox
common stock that you will receive in the merger (measured by the Clorox Average
Share Price) will be less than $39.
At the time of the special meeting, you will not know the exact value of the
Clorox common stock you will receive when the merger is completed, because the
price of Clorox common stock at the time of the merger is likely to be different
from the Clorox Average Share Price, which could increase or decrease the actual
value of the Clorox common stock that you will receive from the value that was
calculated based on the Clorox Average Share Price. The price of Clorox common
stock may change based upon changes in the business, operations and prospects of
Clorox, general market and economic conditions, regulatory considerations and
other factors. We urge you to obtain current market quotations for Clorox common
stock and First Brands common stock and to call the Director of Investor
Relations of Clorox or the Secretary of First Brands at (510) 271-2150 or (203)
731-2300, respectively,
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at any time after December 21, 1998 for current information on the Clorox
Average Share Price and the Exchange Ratio.
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS
Clorox believes that its international sales, which were 18% of net sales in
fiscal year 1998, are likely to increase as a percentage of its total sales, as
a result of both internal expansion and the addition of First Brands'
international operations. As a result, Clorox will be increasingly subject to
the risks associated with foreign operations, including economic or political
instability in its overseas markets, shipping delays and fluctuations in foreign
currency exchange rates that may make its products more expensive in its foreign
markets, all of which could have a significant impact on Clorox's ability to
sell its products on a timely and competitive basis in foreign markets and may
have a material adverse effect on Clorox's results of operations or financial
position. Clorox seeks to limit its foreign currency exchange risks through the
use of foreign currency forward contracts when practical, but there can be no
assurance that this strategy will be successful. In addition, Clorox's
international operations are subject to the risk of new and different legal and
regulatory requirements in local jurisdictions, potential difficulties in
staffing and managing local operations, credit risk of local customers and
distributors, and potentially adverse tax consequences.
FAILURE TO QUALIFY FOR POOLING OF INTERESTS ACCOUNTING TREATMENT MAY IMPACT
REPORTED OPERATING RESULTS
The obligations of Clorox and First Brands to complete the merger are
subject to a number of conditions, one of which is that each of them receive an
opinion from its accountants that the merger qualifies for "pooling of
interests" accounting treatment under U.S. generally accepted accounting
principles. Under pooling of interests accounting treatment, the accounts of
Clorox will be combined with those of First Brands at their historical carrying
amounts, and Clorox's financial statements for all prior periods will be
restated to reflect the accounts of Clorox as if the two companies had been
combined for all periods.
As part of the process to qualify for pooling of interests accounting
treatment for the merger, Clorox plans to discontinue a previously announced
share repurchase program. Clorox will also need to issue additional shares of
its common stock to third parties. Such share issuance and any issuance of
shares pursuant to Clorox stock incentive and option plans will have a potential
dilutive effect on Clorox stockholders.
Nevertheless, if, after consummation of the merger, events occur that cause
the merger to be deemed no longer to qualify for pooling of interests accounting
treatment, the purchase method of accounting would be applied. Under that
method, the estimated fair value of Clorox common stock issued in the merger
would be recorded as the cost of acquiring the business of First Brands. That
cost would be allocated to the individual assets acquired and liabilities
assumed according to their respective fair values, with the excess of the
estimated fair value of Clorox common stock over the fair value of net assets
acquired recorded as goodwill, to be amortized over a period of up to 40 years.
The estimated fair value of Clorox common stock to be issued in the merger is
substantially in excess of the amount at which the historical net book value at
which the assets of First Brands are carried in its accounts. Therefore,
purchase accounting treatment could have a material adverse effect on the
reported operating results of the combined company as compared to pooling of
interests accounting treatment because of required charges to Clorox's earnings
for amortization of goodwill required by the purchase accounting treatment.
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FLUCTUATIONS IN QUARTERLY OPERATING RESULTS
Although Clorox's recent historical operating results have improved when
compared with the same quarter in the previous fiscal year, there can be no
assurance that such quarter-to-quarter comparisons will continue to improve, or
that if any improvement is shown, the degree of improvement will meet investors'
expectations. In addition, sales volume growth, whether due to acquisitions or
to internal growth, can place burdens on Clorox's management resources and
financial controls which, in turn, can have a negative impact on operating
results. Clorox's quarterly operating results will be influenced by a host of
factors, which include the following: the seasonality of its products; the
extent of competition; the degree of market acceptance of new products and line
extensions; the mix of products sold in a given quarter; changes in pricing
policies by Clorox and by its competitors; acquisition costs and restructuring
and other charges associated with acquisitions, including the First Brands
merger; the ability of Clorox to develop, introduce and market successful new
products and line extensions; the ability of Clorox to control its internal
costs and costs of its raw materials and packaging materials; Clorox's success
in expanding its international operations; changes in Clorox's strategy;
personnel changes; and general economic conditions. To a certain extent, Clorox
sets its expense levels in anticipation of future revenues. If actual revenue
falls short of expectations, operating results are likely to be adversely
affected. Because of all of these factors, Clorox believes that
quarter-to-quarter comparisons of its results of operations should not be relied
upon as indications of future performance.
Future announcements concerning Clorox or its competitors, quarterly
variations in operating results, the introduction of new products and line
extensions or changes in product pricing policies by Clorox or its competitors,
changes in earnings estimates by analysts, or changes in accounting policies,
among other factors, could cause the market price of Clorox common stock to
fluctuate substantially and have an adverse effect on the price of Clorox common
stock. In addition, stock markets have experienced price and volume volatility,
and such volatility in the future could have an adverse impact on Clorox's
market price.
IMPORTANCE OF NEW PRODUCTS
In most categories in which Clorox competes, there are frequent
introductions of new products and line extensions. Accordingly, an important
factor in Clorox's future performance will be its ability to identify emerging
consumer and technological trends and to maintain and improve the
competitiveness of its products. However, there can be no assurance that Clorox
will successfully achieve those goals. Continued product development and
marketing efforts are subject to all the risks inherent in the development of
new products and line extensions, including development delays, the failure of
new products and line extensions to achieve anticipated levels of market
acceptance, and the cost of failed product introductions.
YEAR 2000 COMPLIANCE
Many financial information and operations systems used today may be unable
to interpret dates after December 31, 1999 because these systems allow only two
digits to indicate the year in a date. Consequently, these systems are unable to
distinguish January 1, 2000 from January 1, 1900, which could have adverse
consequences on the operations of an entity and the integrity of information
processing. This potential problem is referred to as the "Year 2000" or "Y2K"
issue.
In 1997, Clorox established a corporate-wide program to address Y2K issues.
This effort is comprehensive and encompasses software, hardware, electronic data
interchange, networks, PCs, manufacturing and other facilities, embedded chips,
century certification, supplier and customer readiness, contingency planning,
and domestic and international operations. Clorox's program to address the Y2K
issue is currently on schedule and is more than 60% complete as of September 30,
1998. Clorox has replaced or upgraded most of its critical business applications
and systems and has begun the century
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testing phase for these critical technology systems. The target date to repair
or replace the remaining critical business information systems is March 31,
1999. Clorox is assessing its plant floor systems and equipment, and the target
date to complete manufacturing plant floor and facilities efforts is September
30, 1999. Clorox has prioritized its third-party relationships as critical,
severe or sustainable, has completed the assessment phase for third parties
(except for assessment of its key customers, which is scheduled to be complete
in March 1999), has requested a Y2K contract warranty in many new key contracts
and is developing contingency plans for critical third parties, including key
customers, suppliers and other service providers.
If necessary modifications and conversions by Clorox are not made on a
timely basis, or if key third parties are not Y2K compliant, Y2K problems could
have a material adverse effect on Clorox's operations. Clorox's most reasonably
likely worst case scenario is a regional utility failure that would interrupt
manufacturing operations and distribution centers in the affected region. To
mitigate this risk, and to address the possible uncertainty of whether Clorox
will be able to solve all potential Y2K issues, Clorox has begun contingency
planning for its critical operations, including key third-party relationships,
and will require written contingency plans for these areas. Clorox expects to
complete all of its contingency planning by June 30, 1999.
Y2K costs are expensed as incurred and funded through operating cash flows.
Through September 30, 1998, Clorox has expensed incremental remediation costs of
$17.1 million with remaining incremental remediation costs estimated at $13.8
million. In addition, through September 30, 1998, Clorox has expensed
accelerated strategic upgrade costs of $9.6 million with anticipated remaining
accelerated strategic upgrade costs of $6.4 million. Clorox has spent
approximately 17% of its 1998 fiscal year information technology budget, and
expects to spend approximately 12% of its 1999 fiscal year information
technology budget, on Y2K remediation issues. Clorox has not deferred any
critical information technology projects because of its Year 2000 program
efforts, which are primarily being addressed through a dedicated team within
Clorox's information technology group. Time and cost estimates are based on
currently available information and could be affected by the ability to correct
all relevant computer codes and equipment, and the Y2K readiness of Clorox's
business partners, among other factors.
Clorox has not yet performed an assessment of the impact of the merger on
its Y2K costs. However, Clorox expects that overall Y2K costs will increase
based on First Brands' own assessment of these costs. In this assessment, First
Brands reviewed the potential impact on both its information systems and on
ancillary systems. This review included, but was not limited to, an analysis of
all significant systems or assets that may use microcontrollers. First Brands is
now in the final testing phase of its sales, costing and production modules and
currently intends to implement these systems in the first and second quarters of
calendar 1999. In addition to upgrading its own systems, First Brands has
contacted certain significant suppliers to determine their Y2K readiness. To
date, First Brands has not received any information which would indicate that
the Y2K issue will result in any significant disruption from its suppliers.
However, if necessary modifications and conversions by First Brands are not made
on a timely basis, or if key third parties are not Y2K ready, Y2K problems could
have a material adverse effect on First Brands' operations. First Brands has
spent approximately $29 million from a total budget of $33 million for a
comprehensive upgrade to its computer applications, which will address a major
portion of its Y2K issues. First Brands' international subsidiaries, other than
those in Canada (which are covered in the U.S. program), have established their
own plans for addressing the Y2K issue, and have computer systems that either
are compliant as of June 30, 1998 or are expected to be compliant by December
31, 1998. The international subsidiaries performed assessments similar to those
conducted by First Brands in the U.S. and Canada. Y2K efforts of both companies
will be combined and continued following the merger. Although First Brands'
timetables may affect the target dates and contingency plans of Clorox's
original Y2K program, following the merger Clorox expects to be Y2K compliant
before the arrival of the new millennium.
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EURO CONVERSION
On January 1, 1999, certain countries in the European Union ("EU") that are
participating in the EU's Economic and Monetary Union ("EMU") will begin using
the "euro" as their single currency, while continuing to use their own notes and
coins (representing their equivalent in euros) for cash transactions. Banknotes
and coins denominated in euros are expected to be put into circulation in these
EMU countries during 2002. Uncertainty exists as to the effect the introduction
of the euro, including the conversion of cash in circulation into euros, will
have on the marketplace. Additionally, all of the final rules and regulations
have not yet been defined and finalized by the European Commission with regard
to the euro. Clorox is assessing the effect the euro will have on its internal
systems and sales of its products. Clorox expects to take appropriate actions
based on the results of such assessment. Clorox has not yet determined the costs
of addressing this issue. In addition, Clorox has non-controlled joint ventures
in Europe that could be affected by the euro introduction.
GOVERNMENT REGULATIONS
The manufacture, packaging, storage, distribution and labeling of Clorox's
and First Brands' products and Clorox's and First Brands' business operations
generally are all subject to extensive federal, state, and foreign laws and
regulations. For example, in the United States, many of Clorox's and First
Brands' products are subject to regulation by the Environmental Protection
Agency, the Food and Drug Administration, and the Consumer Product Safety
Commission. Most states have agencies that regulate in parallel to these federal
agencies. The failure to comply with applicable laws and regulations in these or
other areas could subject Clorox and First Brands to civil remedies, including
fines, injunctions, recalls or seizures, as well as potential criminal
sanctions, any of which could have a material adverse effect on the combined
company. Loss of or failure to obtain necessary permits and registrations could
delay or prevent Clorox or First Brands from introducing new products, building
new facilities or acquiring new businesses and could adversely affect operating
results.
ENVIRONMENTAL MATTERS
Clorox and First Brands are subject to various environmental laws and
regulations in the jurisdictions in which they operate, including those relating
to air emissions, water discharges, the handling and disposal of solid and
hazardous wastes, and the remediation of contamination associated with the use
and disposal of hazardous substances. Clorox and First Brands have incurred, and
will continue to incur, capital and operating expenditures and other costs in
complying with such laws and regulations in the United States and
internationally. Clorox and First Brands are currently involved in or have
potential liability with respect to the remediation of past contamination in the
operation of certain of their presently and formerly owned and leased
facilities. In addition, certain of Clorox's and First Brands' present and
former facilities have been or had been in operation for many years, and over
such time, some of these facilities may have used substances or generated and
disposed of wastes that are or may be considered hazardous. It is possible that
such sites, as well as disposal sites owned by third parties to which Clorox and
First Brands have sent waste, may in the future be identified and become the
subject of remediation. Accordingly, although each of Clorox and First Brands
believes that it is currently in substantial compliance with applicable
environmental requirements, it is possible that the combined company could
become subject to additional environmental liabilities in the future that could
result in a material adverse effect on the combined company's results of
operations or financial condition.
IMPORTANCE OF INTELLECTUAL PROPERTY
Clorox and First Brands rely on trademark, trade secret, patent and
copyright law to protect their intellectual property. There can be no assurance
that such intellectual property rights can be successfully asserted in the
future or will not be invalidated, circumvented or challenged. In addition, laws
of certain foreign countries in which Clorox's and First Brands' products are or
may be sold do not
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protect Clorox's and First Brands' intellectual property rights to the same
extent as the laws of the United States. The failure of the combined company to
protect its proprietary information and any successful intellectual property
challenges or infringement proceedings against the combined company could have a
material adverse effect on the combined company's business, operating results
and financial condition.
FORWARD-LOOKING STATEMENTS
The information in this Proxy Statement/Prospectus and information we have
incorporated by reference in this Proxy Statement/Prospectus contains certain
forward-looking statements within the meaning of Section 21E of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), about Clorox, First
Brands, and their subsidiaries and affiliates. Although each of Clorox and First
Brands believes that, in making any such statements, its expectations are based
on reasonable assumptions, any such statement may be influenced by factors that
could cause actual outcomes and results to be materially different from those
projected. When used in this Proxy Statement/Prospectus, the words
"anticipates," "believes," "expects," "intends," and similar expressions as they
relate to Clorox, First Brands, their subsidiaries, their affiliates or their
respective management members are intended to identify such forward-looking
statements. These forward-looking statements are subject to numerous risks and
uncertainties. Important factors that could cause actual results to differ
materially from those in forward-looking statements, certain of which are beyond
the control of Clorox, First Brands or their subsidiaries, include: the impact
of general economic conditions in the U.S. and Canada and in other countries in
which Clorox, First Brands, or their subsidiaries or affiliates currently do
business (including Asia, Europe and Central and South America); industry
conditions, including competition and product and raw material prices;
fluctuations in exchange rates and currency values; capital expenditure
requirements; legislative or regulatory requirements, particularly concerning
environmental matters; interest rates; access to capital markets; the timing of
and value received in connection with asset divestitures; and obtaining required
approvals of debtholders. The actual results, performance or achievement by
Clorox, First Brands, their subsidiaries or affiliates could differ materially
from those expressed in, or implied by, these forward-looking statements and,
accordingly, no assurances can be given that any of the events anticipated by
the forward-looking statements will occur or transpire, or, if any of them do
so, what impact they will have on the results of operations and financial
condition of Clorox, First Brands, their subsidiaries or affiliates.
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THE SPECIAL MEETING
GENERAL
The special meeting of stockholders of First Brands (the "Special Meeting")
will be held at the Danbury Ballroom of the Danbury Hilton, 18 Ridgebury Road,
Danbury, Connecticut on Thursday, January 28, 1999 at 9:00 a.m., local time. At
the Special Meeting, which will also serve as a special meeting in lieu of an
annual meeting, the holders of First Brands common stock, par value $0.01 per
share (the "First Brands Common Stock"), will consider and vote upon (1) the
approval and adoption of an Agreement and Plan of Merger, dated as of October
18, 1998, by and among Clorox, Pennant, Inc., a Delaware corporation and
wholly-owned subsidiary of Clorox ("Merger Sub"), and First Brands (the "Merger
Agreement"), (2) the election of directors, to serve a term of three years (or
until consummation of the Merger, if earlier) and (3) the ratification of the
appointment by the First Brands board of directors (the "First Brands Board") of
KPMG Peat Marwick LLP as independent auditors for the fiscal year ending June
30, 1999 (or until consummation of the Merger, if earlier).
RECORD DATE; SOLICITATION OF PROXIES
The close of business on December 21, 1998 (the "Record Date") has been
fixed as the record date for the determination of the stockholders entitled to
notice of, and to vote at, the Special Meeting. At that date, there were
39,469,418 outstanding shares of First Brands Common Stock entitled to vote at
the Special Meeting.
In addition to soliciting proxies by mail, officers, directors and employees
of First Brands, without receiving any additional compensation, may solicit
proxies by telephone, fax, in person or by other means. Arrangements will also
be made with brokerage firms and other custodians, nominees and fiduciaries to
forward proxy solicitation materials to the beneficial owners of First Brands
Common Stock held of record by such persons, and First Brands will reimburse
such brokerage firms, custodians, nominees and fiduciaries for reasonable
out-of-pocket expenses incurred by them in connection therewith. First Brands
has retained Morrow & Co. Inc. to assist in the solicitation of proxies at an
estimated cost of $15,000. Clorox and First Brands will share equally all
expenses related to printing and filing this Proxy Statement/Prospectus,
including all filing fees of the Securities and Exchange Commission (the
"Commission").
REVOCABILITY OF PROXIES
Any holder of First Brands Common Stock may revoke a proxy at any time
before it is voted, by filing with the Secretary of First Brands an instrument
revoking the proxy or by returning a duly executed proxy bearing a later date,
or by attending the Special Meeting and voting in person. Any such filing should
be made to the attention of Joseph B. Furey, Secretary, First Brands
Corporation, 83 Wooster Heights Road, Danbury, Connecticut 06813-1911.
Attendance at the Special Meeting will not by itself constitute revocation of a
proxy.
MATTERS TO BE CONSIDERED AT THE MEETING
APPROVAL AND ADOPTION OF THE MERGER AGREEMENT
At the Special Meeting, you will be asked to approve and adopt the Merger
Agreement. Pursuant to the Merger Agreement, Merger Sub will be merged with and
into First Brands, and First Brands, as the surviving corporation (the
"Surviving Corporation"), will become a wholly-owned subsidiary of Clorox (the
"Merger"). A vote of two thirds of the outstanding shares of First Brands Common
Stock entitled to be cast at the Special Meeting is required to approve and
adopt the Merger Agreement. After careful consideration, the First Brands Board
by a unanimous vote of the directors present has determined that the Merger is
fair to and in the best interests of the stockholders of First Brands.
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Accordingly, the First Brands Board has approved the Merger Agreement by a
unanimous vote of the directors present.
THE FIRST BRANDS BOARD RECOMMENDS A VOTE FOR THIS PROPOSAL.
ELECTION OF DIRECTORS
The First Brands Board is divided into three classes of membership, with
terms expiring on different annual meeting dates. Three or four of the members
of the First Brands Board are elected each year to serve as directors for a term
of three years. Directors are elected for the terms specified and continue in
office until their respective successors have been elected.
The First Brands Board, at its meeting held on June 5, 1998, selected the
following three nominees for election at the next annual meeting: Mr. Robert F.
Bernstock, Mr. Denis Newman and Mr. Ervin R. Shames. Each nominee shall, if
elected, serve for a three-year term expiring on the date of the annual meeting
of stockholders in the year 2001 and until their successors are elected (or upon
consummation of the Merger, if earlier).
Certain information with respect to the nominees for election as director
and with respect to directors whose terms extend beyond the date of the Special
Meeting, which is being held in lieu of an annual meeting, is set forth below.
If the Merger is consummated, the directors of Merger Sub will be the initial
directors of the Surviving Corporation in the Merger.
Should any one or more of the nominees be unable or unwilling to serve
(which is not expected), the proxies (except proxies marked to the contrary) may
be voted for such other person or persons as the First Brands Board may
recommend.
NOMINEES FOR ELECTION FOR TERM ENDING 2001
ROBERT F. BERNSTOCK, Age 47
Director since 1997 and member of the Audit and Pension Committees.
Mr. Bernstock has been President and CEO of Vlasic Foods International, Inc.
since March 1998. He is a director of the Grocery Manufacturers Association, the
National Food Processors Association, the Rowan School of Business
Administration and the Philadelphia Tennis Patrons. Mr. Bernstock was Executive
Vice President of the Campbell Soup Company from July 1997 until March 1998 when
he became President of the Specialty Foods Division which was spun off in March
1998 as Vlasic Foods International, Inc. Prior to that, he was President of
various divisions of the Campbell Soup Company, including the International Soup
Division from June 1993 to July 1994.
DENIS NEWMAN, Age 68
Director since 1986. Chairman of the Audit Committee and member of the Executive
Committee.
Mr. Newman has been Managing Director of MidMark Associates, a financial
services firm, since December 1989. He is also a Director of Clearview Cinema
Group, Inc.
ERVIN R. SHAMES, Age 58
Director since 1987. Chairman of the Compensation Committee and member of the
Nominating Committee.
Mr. Shames has been Chairman of Select Comfort Corporation, a mattress
manufacturer and retailer, since 1996 and a visiting lecturer at the Darden
Graduate School of Business, University of Virginia, since 1996. He was a
private investor and consultant from January 1995 to April 1996, and was
President and Chief Executive Officer of Borden, Inc. from December 1993 to
January 1995.
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DIRECTORS CONTINUING IN OFFICE UNTIL 2000
JOHN C. FERRIES, Age 60
Director since 1997 and member of the Audit and Pension Committees.
Mr. Ferries has been a consultant for The MacManus Group, a communications group
consisting of nine companies, running their mergers and acquisitions program
since January 1998. In December 1997, Mr. Ferries retired from DMB&B, a MacManus
advertising company, where he served as President--Americas. Mr. Ferries was
President of the DMB&B Asia-Pacific, Latin America and Africa regions from
1991-1993.
JAMES R. MAHER, Age 48
Director since 1988 and member of the Audit and Pension Committees.
Mr. Maher has been President of Mafco Holdings, Inc. since July 1998. Mr. Maher
was previously President and Chief Executive Officer of Mafco Consolidated
Group, Inc., a diversified manufacturer and now a wholly-owned subsidiary of
Mafco Holdings. Mr. Maher was Chairman of the Board from April 1995 to April
1996 and was President and Chief Executive Officer from December 1992 to April
1995 of Laboratory Corporation of America, a health services company.
WILLIAM V. STEPHENSON, Age 57
Director since 1992 and member of the Executive and Nominating Committees.
Mr. Stephenson has been the Chairman and CEO of First Brands since January 1997.
Prior to that, he had been President and CEO of First Brands since September
1994. From August 1992 to September 1994, he was President and Chief Operating
Officer. He relinquished the title of President effective August 7, 1998.
ROBERT G. TOBIN, Age 60
Director since 1991. Chairman of the Pension Committee and member of the
Compensation Committee.
Mr. Tobin served as Chairman, President and Chief Executive Officer of The Stop
& Shop Supermarket Company from January 1995 through December 1997. He was
President and CEO of The Stop & Shop Supermarket Company from May 1994 to
January 1995, and prior to that had been President and Chief Operating Officer
of The Stop & Shop Supermarket Companies, Inc. since 1993. Mr. Tobin retired as
Chairman of The Stop & Shop Supermarket Companies, Inc. and The Stop & Shop
Supermarket Company on July 31, 1998 when he became President and CEO of Ahold,
Inc., a subsidiary of Royal Ahold, NV.
DIRECTORS CONTINUING IN OFFICE UNTIL 1999
ALFRED E. DUDLEY, Age 70
Director since 1986. Chairman of the Executive Committee and member of the
Nominating Committee.
Mr. Dudley was Chairman of First Brands from 1986 to 1997; and Chairman and CEO
from 1986 to 1994.
JAMES R. MCMANUS, Age 64
Director since 1986 and member of the Compensation and Nominating Committees.
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Mr. McManus has been the Chairman, CEO and Founder of Marketing Corporation of
America since 1971 and is also currently Director of Au Bon Pain Co. Inc. On
February 1, 1994, Mr. McManus resigned as President and Chief Executive Officer
of Business Express, Inc., a regional airline operating in the northeastern
United States. On January 22, 1996, a petition for Chapter IX Bankruptcy
Protection was filed against Business Express, Inc. in Federal Court in
Manchester, New Hampshire by Saab Aircraft of America and two of its operating
subsidiaries.
THOMAS H. ROWLAND, Age 53
Director since 1996 and member of the Executive Committee.
Mr. Rowland was elected President and Chief Operating Officer of First Brands
effective August 7, 1998. Prior to that, he was Executive Vice President of
First Brands and President of the Home Products Division since August 1992. He
is also President of Himolene, Inc., a wholly-owned subsidiary of First Brands.
Directors of First Brands are elected by a plurality of the votes present or
represented by proxy at the Special Meeting if a quorum is present at such
meeting. However, if the Merger is consummated, the directors of Merger Sub will
be the directors of the Surviving Corporation (see "The Merger Agreement--The
Merger").
THE FIRST BRANDS BOARD RECOMMENDS A VOTE FOR EACH OF THESE NOMINEES.
RATIFICATION OF THE APPOINTMENT OF INDEPENDENT AUDITORS
The First Brands Board has appointed KPMG Peat Marwick LLP to serve as
independent auditors to audit the financial statements of First Brands and its
subsidiaries for the fiscal year 1999. KPMG Peat Marwick LLP has served First
Brands in the capacity of independent auditors since First Brands' incorporation
in 1986.
Representatives of KPMG Peat Marwick LLP will be present at the Special
Meeting to answer any appropriate questions. They will also have the opportunity
to make a statement if they so desire.
The ratification of the appointment of the independent auditors requires the
approval of a majority of the votes entitled to vote, present in person or
represented by proxy, at the Special Meeting.
THE FIRST BRANDS BOARD RECOMMENDS A VOTE FOR THIS PROPOSAL.
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THE MERGER
THIS SECTION OF THE PROXY STATEMENT/PROSPECTUS DESCRIBES CERTAIN ASPECTS OF
THE PROPOSED MERGER. TO THE EXTENT THAT IT RELATES TO THE MERGER AGREEMENT AND
THE TERMS OF THE MERGER, THE FOLLOWING DESCRIPTION IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO THE MERGER AGREEMENT, WHICH IS ATTACHED AS APPENDIX A TO THIS
PROXY STATEMENT/PROSPECTUS AND IS INCORPORATED HEREIN BY REFERENCE. YOU ARE
URGED TO READ THE MERGER AGREEMENT.
The Merger Agreement provides that the Merger will be consummated if the
approval of the First Brands stockholders is obtained and all other conditions
to the Merger are satisfied or waived as provided in the Merger Agreement. Upon
consummation of the Merger, each outstanding share of First Brands Common Stock
will be converted into the right to receive a fraction of a share of fully paid
and nonassessable Clorox common stock, par value $1.00 per share ("Clorox Common
Stock"), equal to the Exchange Ratio. Cash will be delivered in lieu of any
remaining fractional share as described in the Merger Agreement.
Based upon the capitalization of Clorox and First Brands as of December 15,
1998, assuming an Exchange Ratio of 0.3545, and assuming exercise of all
outstanding First Brands options and all exercisable Clorox options, the
stockholders of First Brands will own approximately 12.2% of the outstanding
Clorox Common Stock following consummation of the Merger. Such percentage could
change depending on whether and to what extent shares of Clorox Common Stock and
First Brands Common Stock are issued upon exercise of outstanding Clorox or
First Brands stock options or warrants, on the price of Clorox Common Stock
(which, in some cases, will determine the Exchange Ratio) (see "--Merger
Consideration" below) and on whether Clorox needs to issue additional shares of
common stock to third parties in connection with pooling of interests accounting
treatment for the Merger.
BACKGROUND OF THE MERGER
On or about April 16, 1998, a senior executive of a large publicly held
corporation (the "Other Bidder") contacted, without having been solicited to do
so, Mr. William V. Stephenson, Chairman and Chief Executive Officer of First
Brands, and expressed interest in acquiring First Brands and proposed setting up
a meeting between the two companies to discuss the matter further. Senior
executives from each of First Brands and the Other Bidder met on or about May 6
to discuss the broad outline of a proposed acquisition. Thereafter, in early
May, the Other Bidder orally presented a preliminary indication of interest to
acquire First Brands for cash, for an amount within a stated range of values,
conditioned upon it being given the opportunity to perform extensive due
diligence upon First Brands. During this period, First Brands requested Lehman
Brothers to advise it on financial issues relating to any potential acquisition
of First Brands.
The First Brands Board held a telephonic meeting on May 15, 1998 at which it
voted unanimously to reject the Other Bidder's preliminary indication of
interest as inadequate. Lehman Brothers prepared a preliminary review of
alternatives and valuation of First Brands, which it presented to the First
Brands Board on June 19, 1998. The Board discussed at length the valuation
prepared by Lehman Brothers as well as First Brands' financial position,
strategic alternatives, business plans and prospects. The First Brands Board
authorized management to provide some limited non-public financial and operating
information to the Other Bidder, subject to appropriate provisions for
confidentiality, in an effort to determine if the Other Bidder would increase
its offer sufficiently to warrant further negotiations.
Following additional intermittent discussions between First Brands and the
Other Bidder during June and July 1998, First Brands and the Other Bidder signed
a confidentiality agreement on July 14, 1998, after which First Brands furnished
to the Other Bidder certain financial and operating data. Following its review
of such information, on August 20, 1998 the Other Bidder proposed, subject to
certain conditions, that it purchase First Brands for $32 per share in cash.
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During the week of July 20, 1998, Mr. G. Craig Sullivan, Chairman and Chief
Executive Officer of Clorox, called, without having been solicited to do so, Mr.
Alfred E. Dudley, formerly Chairman, and currently Chairman of the Executive
Committee, of First Brands, and requested a meeting. On July 30, 1998, Mr.
Sullivan met with Mr. Dudley and indicated to Mr. Dudley Clorox's interest in
discussing a possible acquisition of First Brands. On July 31, Mr. Dudley and
Mr. Stephenson discussed this overture, and at a meeting on August 5, they
discussed the overture with members of the First Brands Board and Lehman
Brothers. On August 5, the First Brands Board authorized management to provide
similar information to Clorox as had been provided to the Other Bidder, subject
to appropriate provisions for confidentiality. On August 10, 1998, Clorox and
First Brands signed a confidentiality agreement, after which First Brands
furnished to Clorox the same type of due diligence information it had provided
to the Other Bidder. On August 30, Clorox provided an oral indication of
interest to acquire the stock of First Brands in a stock-for-stock exchange
which would value the stock of First Brands in the range of $29 to $32 per
share. Clorox requested that it be provided with additional due diligence
material to enable it to refine its offer.
The First Brands Executive Committee had a telephonic meeting on September
1, 1998 to discuss what action, if any, to take with regard to the indications
of interest from each of Clorox and the Other Bidder. In light of the sharp
decline in the equity markets in August, the Committee requested that Lehman
Brothers update its preliminary valuation of First Brands based on current
market conditions for review by the First Brands Board.
The First Brands Board met on September 4, 1998 to discuss the two
indications of interest. At the meeting, Lehman Brothers presented a detailed
and updated analysis of the factors affecting a valuation of First Brands, an
analysis of both proposals and recommendations of measures First Brands might
consider taking to enhance its value and prospects. The First Brands Board
discussed (i) First Brands' earnings prospects, (ii) the relative value to First
Brands' stockholders of a tax-free stock transaction that could be accounted for
as a pooling of interests compared to an all cash transaction that would be
taxable to stockholders and accounted for using the purchase method, (iii)
Clorox's business portfolio and historical stock performance and future
prospects, (iv) First Brands' spending levels for infrastructure improvements
and research and development, (v) whether First Brands had sufficient scale to
compete as an independent company over the near and medium term and (vi) whether
First Brands had the financial flexibility to expand via additional acquisitions
while maintaining a desirable credit rating.
The First Brands Board agreed with management's recommendation that First
Brands advise each of Clorox and the Other Bidder that their respective
indications of interest were at too low a price level, but that First Brands
would be willing to provide each of such parties with additional due diligence
material, including the ability to conduct site visits, to enable each of the
parties to justify a meaningful increase in their respective indications of
interest. Subsequent to this meeting, First Brands informed each of Clorox and
the Other Bidder that the Board considered their proposals to be below the range
of fair valuation and that the Board would not consider a proposal in the $32
per share range.
During September and October 1998, each of Clorox and the Other Bidder
conducted further due diligence, including visits to First Brands manufacturing
locations as well as reviews of First Brands' research and development.
On October 1 and October 2, 1998, Lehman Brothers met with the financial
advisors of each of Clorox and the Other Bidder in order to provide its
perspective on value and process and to encourage each of Clorox and the Other
Bidder to provide their best offer.
On October 2, 1998, the Other Bidder delivered a letter to First Brands in
which it reiterated its offer to acquire all of the outstanding shares of First
Brands for $32 per share in cash, with such offer being contingent on matters
such as the completion of confirmatory due diligence. As an alternative,
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the Other Bidder indicated its willingness to more narrowly limit the number of
matters on which its offer was contingent if its purchase price was reduced to
$31.50 per First Brands share.
On October 8, 1998, Clorox delivered a letter to First Brands confirming its
willingness to exchange Clorox shares for First Brands shares in a tax-free
stock-for-stock merger to be accounted for as a pooling of interests. This
proposal valued First Brands at $35.50 per share based on a fixed exchange ratio
and was conditioned upon the completion of confirmatory due diligence. The
proposal did not contain any collar or other form of price protection in the
event of fluctuations in the value of Clorox shares prior to closing.
The First Brands Board had a telephonic meeting on October 9, 1998 to
discuss the current offers from Clorox and the Other Bidder. Lehman Brothers
indicated that Clorox's revised bid fell within its valuation range for First
Brands shares. The Board viewed Clorox's revised proposal to be attractive
inasmuch as such proposal fell within Lehman Brothers' valuation range and would
allow the stockholders of First Brands to participate in the equity of a company
with an excellent track record; however, the Board noted that because Clorox's
proposal was based on a fixed exchange ratio, without any collar or other form
of price protection, the consideration which would actually be received by the
First Brands stockholders at the time of closing could be lower than $35.50 per
share.
The First Brands Board determined that it was critical that the terms of any
proposal protect the value to be received by the First Brands stockholders,
especially in light of the volatility which was being experienced in the equity
markets. The First Brands Board authorized Lehman Brothers and Skadden, Arps,
Slate, Meagher & Flom LLP ("Skadden"), First Brands' corporate counsel, to
conduct further discussions with Clorox, negotiate the terms of a contract with
Clorox, and bring such contract back to the First Brands Board for its
consideration. The First Brands Board indicated to Lehman Brothers and Skadden
that they should request that the contract include a provision under which First
Brands stockholders would receive $35.50 in value of Clorox shares at the
closing regardless of the price at which Clorox shares were trading at such time
(a so-called "fixed price mechanism").
Subsequent to the October 9th Board meeting, Lehman Brothers informed the
Other Bidder that First Brands was not interested in pursuing discussions on its
proposal since its offer was not within Lehman Brothers' valuation range. In
addition, First Brands told Clorox that it was interested in pursuing a
strategic merger with Clorox that valued the First Brands shares at $35.50 per
share, provided the merger agreement contained a fixed price mechanism. During
the period from October 10 to October 14, First Brands and Clorox began
negotiating the terms of a merger agreement, Clorox continued conducting due
diligence upon First Brands, and First Brands conducted due diligence upon
Clorox.
On Thursday morning, October 15, 1998, the Other Bidder telephoned Mr.
Stephenson, expressed strong interest in First Brands and inquired as to what
would be required in order for First Brands to support its proposal. Mr.
Stephenson advised the Other Bidder only that the price it had previously
offered was not within the range of value as determined by Lehman Brothers.
Later on Thursday, Clorox provided Lehman Brothers with clarification of the
financial terms of its proposal, and indicated its willingness to provide a
fixed price mechanism resulting in consideration of $35.50 per First Brands
share so long as Clorox's stock price was above $89 per share. Under such
proposal, if the per share price of Clorox Common Stock fell below $89, First
Brands stockholders would receive 0.3989 of a Clorox share (that is, $35.50
divided by $89). First Brands' management continued to view the proposal as
having too much risk for its stockholders.
On Thursday afternoon, the Other Bidder increased its offer to $35 or $35.50
per First Brands share, depending on the number of matters upon which the offer
would be contingent. The Other Bidder expressed its willingness to provide such
consideration either in cash or, in the alternative, in stock pursuant to a
tax-free exchange which would not be accounted for as a pooling of interests.
Such
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offer continued to be subject to confirmatory due diligence, and the Other
Bidder indicated that it could be prepared to sign a definitive agreement by
Tuesday, October 20th.
On Friday, October 16, following a meeting of the Clorox board of directors
(the "Clorox Board"), Clorox increased its offer for First Brands to $37.50 per
share with a collar that would result in a fixed price being paid to the First
Brands stockholders so long as Clorox shares traded within a range of $80 to
$120. Clorox indicated that it was prepared to sign a definitive agreement over
the weekend and would like to announce the merger the following Monday.
Later on Friday, the First Brands Board had a telephonic meeting at which
Lehman Brothers provided an analysis of the latest Clorox offer. The First
Brands Board considered the fact that while the Other Bidder's offer, which
contemplated the Other Bidder promptly commencing a cash tender offer for First
Brands shares, could be completed in 25-30 days, Clorox's offer provided for a
stock-for-stock merger, which would probably take approximately four months to
complete. On the other hand, while the merger agreement with Clorox was almost
fully negotiated, much contract negotiation was still required to be done with
the Other Bidder, and certain due diligence issues still remained outstanding
with the Other Bidder. Acknowledging that the Other Bidder might still raise its
offer, the First Brands Board voted unanimously to instruct Lehman Brothers to
advise the financial advisor to the Other Bidder that it should make its best
and highest offer, but no lower than $37.50 per share in cash, prior to noon on
Saturday, October 17th, accept the terms of the contract First Brands had
already negotiated with Clorox (with such modifications as would be necessary to
take account of the differing transaction structures) and drop all further due
diligence matters. Subsequent to the First Brands Board meeting, Lehman Brothers
so advised the Other Bidder's financial advisor.
At shortly before noon on Saturday, October 17th, the Other Bidder's
financial advisor informed Lehman Brothers that the Other Bidder had agreed to
increase its offer to $37.50 per share in cash, eliminate nearly all additional
due diligence requirements and was prepared to sign an agreement on Sunday,
October 18th.
The First Brands Board had a telephonic board meeting on October 17, 1998 at
which it considered the potential for a further bid from Clorox and the merits
of an all cash tender offer compared to a stock-for-stock merger at a fixed
price ratio (within a particular band). Following the discussion, the First
Brands Board agreed to reject Clorox's offer of $37.50 per share due to price
risk and timing concerns. The First Brands Board agreed to reconvene
telephonically on Sunday, October 18th, at 10:00 a.m., at which time Lehman
Brothers would render its opinion based on the review of its fairness opinion
committee and the First Brands Board would resolve to finalize a transaction
with the Other Bidder.
Subsequent to the October 17th Board meeting, Clorox was advised that the
First Brands Board had declined its offer due to price risk and timing issues.
Late on Saturday, Clorox advised First Brands that it was increasing its bid
to $38.50 per First Brands share, subject to the same $80/$120 collar.
Later on Saturday and again on Sunday morning, Lehman Brothers informed the
Other Bidder's financial advisor that it had received a higher bid from (without
naming it) Clorox, and that, as a result, it was not clear which bid the First
Brands Board would accept. In reply to Lehman Brothers' query whether the Other
Bidder wished to further revise its offer, the Other Bidder's financial advisor
was not forthcoming. Lehman Brothers then contacted Clorox's financial advisor
to confirm Clorox's offer and inquire if Clorox's offer could be revised to
provide any additional upside potential for First Brands' stockholders. Clorox's
financial advisor replied that Clorox was willing to modify the collar provision
from $80/$120 to $80/$115 (thereby permitting the First Brands stockholders to
benefit from any increase in the Clorox share price above $115 during the
pricing period) but that Clorox was unlikely to increase its $38.50 per share
offer.
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On Sunday, October 18, the First Brands Board convened telephonically.
During the meeting, the Board was informed that Clorox had increased its offer
to $39 per share with an $80/$115 collar. The Board conducted a full and
complete discussion of both Clorox's and the Other Bidder's last best offers,
the risks and upside potential of the proposed Clorox $80/$115 collar, the
impact on First Brands' employees of accepting either offer, the relative merits
of the $37.50 cash offer and the $39 stock-for-stock merger, Commission pooling
issues, Clorox's historical and projected financial and stock performance, the
likely impact of the proposed transaction on Clorox's earnings per share and
management's recommendation to accept the Clorox offer. Following discussion,
and after reviewing with Lehman Brothers its valuation analysis of First Brands
and receiving from Lehman Brothers its oral opinion (later confirmed in writing)
that the Exchange Ratio to be offered by Clorox was fair to the First Brands
stockholders from a financial point of view, the Board resolved to accept the
Clorox proposal. Later on Sunday, Clorox, Merger Sub and First Brands executed
the Merger Agreement.
On Monday, October 19, Clorox and First Brands issued a joint press release
announcing the execution of the Merger Agreement.
REASONS FOR THE MERGER; RECOMMENDATIONS OF THE FIRST BRANDS BOARD
At its meeting on October 18, 1998, the First Brands Board (with one
director absent) unanimously determined that (a) the terms of the Merger
Agreement and the transactions contemplated thereby are advisable and fair to
and in the best interests of First Brands and its stockholders, (b) directed
that the proposed transaction be submitted for consideration by the First Brands
stockholders and (c) recommended that the First Brands stockholders vote for
approval and adoption of the Merger, the Merger Agreement and the transactions
contemplated thereby. In reaching this conclusion, the First Brands Board, with
the assistance of its financial and legal advisors, considered and analyzed a
number of factors, including, without limitation, the following:
(i) That based on information with respect to the financial condition,
results of operations, cash flow, business and prospects of First Brands on
both a stand-alone basis and as compared with those available in combination
with Clorox, the First Brands stockholders would benefit substantially from
a business combination with Clorox. Such benefits would consist of the
ability of the First Brands stockholders to continue to own an interest in
the combined company and thereby benefit from the enhanced prospects of the
combined company in terms of enhanced financial and operational resources
and flexibility, the combination of complementary skills and experience of
the two companies, as well as the combined company's enhanced ability to
take advantage of future strategic opportunities.
(ii) That the Merger should allow the combined company to meet the
challenges of the increasingly competitive environment in the household
products industry more effectively than First Brands could on its own.
(iii) The oral presentations of Lehman Brothers and its oral opinion
(later confirmed in writing) that the Merger consideration was fair from a
financial point of view to the holders of First Brands Common Stock. See
"--Opinion of Lehman Brothers" for a discussion of Lehman Brothers' opinion.
A copy of this opinion, which is subject to certain limitations,
qualifications and assumptions as stated therein, is included as Appendix B
hereto and should be read carefully and in its entirety.
(iv) That the terms of the Clorox proposal were more favorable to the
First Brands stockholders than the terms of the proposal of the Other
Bidder.
(v) That the Merger consideration remains fixed at a value of $39 per
share so long as shares of Clorox Common Stock are trading at greater than
$80 and less than or equal to $115 during a specified period prior to
closing; that First Brands' stockholders will have the opportunity to
participate in the appreciation of the price of Clorox Common Stock if the
price of such stock
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surpasses $115 per share during such specified period of time prior to
closing; and that First Brands stockholders will receive less than $39 per
share only under the circumstance where Clorox Common Stock falls below $80
per share during such specified period of time prior to closing.
(vi) The terms of the Merger Agreement, the consideration to be received
by the First Brands stockholders in the Merger and the fact that the receipt
of Clorox Common Stock by the First Brands stockholders upon consummation of
the Merger will be a tax-free exchange (other than taxes payable on cash
received for fractional shares).
(vii) The historical market prices for shares of First Brands Common
Stock, and historical price to earnings trading multiples for such shares.
(viii) The historical market prices for shares of Clorox Common Stock, and
historical price to earnings trading multiples for such shares.
(ix) The prices, multiples of revenues and earnings measures and premium
over market value paid in recent acquisitions of other companies, including
manufacturers of consumer products.
(x) The impact of each of the Clorox proposal and the proposal of the
Other Bidder on First Brands' employees.
We do not intend the foregoing discussion of the information and factors
that were given weight by the First Brands Board to be exhaustive, but we
believe it includes all material factors considered by the First Brands Board.
In view of the variety of factors considered in connection with its evaluation
of the proposed Merger and the terms of the Merger Agreement, the First Brands
Board did not deem it practicable to, and did not, quantify or otherwise assign
relative weights to the specific factors considered in reaching its conclusion,
and individual directors may have given different weights to different factors.
After considering all such factors, at a telephonic meeting held on October 18,
1998, the First Brands Board (with one director absent) unanimously approved the
Merger, the Merger Agreement and the transactions contemplated thereby as fair
to, and in the best interests of, First Brands and its stockholders.
THE FIRST BRANDS BOARD UNANIMOUSLY RECOMMENDS TO ITS STOCKHOLDERS THAT THEY
VOTE "FOR" APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
In considering the recommendation of the First Brands Board with respect to
approving the Merger Agreement and the transactions contemplated thereby, First
Brands stockholders should be aware that certain officers and directors of First
Brands have certain interests in the proposed Merger that are different from and
in addition to the interests of First Brands stockholders generally. The First
Brands Board was aware of these interests and considered them in approving the
Merger and the Merger Agreement. See "--Interests of Certain Persons in the
Merger."
OPINION OF LEHMAN BROTHERS
Lehman Brothers has acted as financial advisor to First Brands in connection
with the Merger. As part of its role as financial advisor to First Brands,
Lehman Brothers, on October 18, 1998, delivered an oral opinion (confirmed in
writing in an opinion dated the same date) (the "Lehman Brothers Opinion") to
the effect that, as of such date, the Exchange Ratio to be offered to the First
Brands stockholders in the Merger was fair, from a financial point of view, to
such stockholders.
A copy of the Lehman Brothers Opinion is included at the back of this Proxy
Statement/Prospectus as Appendix B. Holders of First Brands Common Stock should
read the Lehman Brothers Opinion in its entirety for a discussion of the
assumptions made, matters considered and limitations on the review undertaken by
Lehman Brothers in rendering its opinion. The summary of the Lehman Brothers
Opinion set forth in this Proxy Statement/Prospectus is qualified in its
entirety by reference to the full text of the Lehman Brothers Opinion.
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No limitations were imposed by First Brands on the scope of Lehman Brothers'
investigation or the procedures to be followed by Lehman Brothers in rendering
its opinion, except that (i) Lehman Brothers was not provided with and did not
have access to any financial forecasts or projections prepared by the management
of Clorox as to the future financial performance of Clorox and (ii) Lehman
Brothers was not authorized to solicit, and did not solicit, any indications of
interest from any third party with respect to a purchase of all or a part of
First Brands' businesses. Lehman Brothers was not requested to and did not make
any recommendation to the First Brands Board as to the form or amount of
consideration to be received by First Brands' stockholders in the Merger, which
was determined through arm's-length negotiations between First Brands and Clorox
and their respective advisors. In arriving at its opinion, Lehman Brothers did
not ascribe a specific range of value to First Brands, but made its
determination as to fairness, from a financial point of view, to First Brands'
stockholders of the Exchange Ratio to be offered to such stockholders in the
Merger on the basis of the financial and comparative analyses described below.
The Lehman Brothers Opinion is for the use and benefit of the First Brands Board
and was rendered to the First Brands Board in connection with its consideration
of the Merger. The Lehman Brothers Opinion is not intended to be and does not
constitute a recommendation to any stockholder of First Brands as to how such
stockholder should vote with respect to the Merger. Lehman Brothers was not
requested to opine as to, and its opinion does not in any manner address, First
Brands' underlying business decision to proceed with or effect the Merger.
In arriving at its opinion, Lehman Brothers reviewed and analyzed:
- the Merger Agreement and the specific terms of the Merger,
- such publicly available information concerning First Brands and Clorox
that Lehman Brothers believed to be relevant to its analysis, including
the Annual Reports on Form 10-K for the fiscal years ended June 30, 1997
and June 30, 1998,
- financial and operating information with respect to the business,
operations and prospects of First Brands furnished to them by First
Brands,
- financial and operating information with respect to the business and
operations of Clorox furnished to them by Clorox,
- the trading history of First Brands Common Stock from October 15, 1993 to
the date of the Lehman Brothers Opinion and a comparison of that trading
history with those of other companies that Lehman Brothers deemed
relevant,
- the trading history of Clorox Common Stock from October 15, 1993 to the
date of the Lehman Brothers Opinion and a comparison of that trading
history with those of other companies that Lehman Brothers deemed
relevant,
- a comparison of the historical financial results and present financial
condition of First Brands with those of other companies that Lehman
Brothers deemed relevant,
- a comparison of the historical financial results and present financial
condition of Clorox with those of other companies that Lehman Brothers
deemed relevant,
- a comparison of the financial terms of the Merger with the financial terms
of certain other transactions that Lehman Brothers deemed relevant,
- the pro forma impact of the Merger on Clorox,
- estimates of third party research analysts with respect to the future
financial performance of First Brands and Clorox and
- an indication of interest received by First Brands from the Other Bidder
with respect to an acquisition of First Brands. In addition, Lehman
Brothers had discussions with the management of each of First Brands and
Clorox concerning their respective businesses, operations, assets,
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financial conditions and prospects and with the management of First Brands
concerning the cost savings and other strategic benefits expected by them
to result from a combination of the businesses of First Brands and Clorox,
and undertook such other studies, analyses and investigations as Lehman
Brothers deemed appropriate.
In arriving at its opinion, Lehman Brothers assumed and relied upon the
accuracy and completeness of the financial and other information used by it
without assuming any responsibility for independent verification of such
information and further relied upon the assurances of management of each of
First Brands and Clorox that they were not aware of any facts or circumstances
that would make such information inaccurate or misleading. With respect to the
financial projections of First Brands for fiscal year 1999, upon advice of First
Brands, Lehman Brothers assumed that such projections were reasonably prepared
on a basis reflecting the then best currently available estimates and judgments
of the management of First Brands as to the future financial performance of
First Brands and that First Brands would perform substantially in accordance
with such projections. In addition, for purposes of its analysis, Lehman
Brothers also extrapolated the financial trends of the latest three fiscal years
and the First Brands' projections for fiscal year 1999 to develop financial
projections for First Brands for the fiscal years 2000 through 2003, and then
considered certain more conservative assumptions and estimates which resulted in
certain adjustments to such projections. Lehman Brothers discussed the
extrapolation process, the resulting projections and the adjusted projections
with the management of First Brands and they agreed with the appropriateness of
the extrapolation process and the use of the resulting projections and the
adjusted projections in performing Lehman Brothers' analysis. In arriving at its
opinion, Lehman Brothers was not provided with, and did not have access to, any
financial projections prepared by the management of Clorox. Accordingly, with
respect to the future financial performance of Clorox on a stand-alone basis,
upon advice of Clorox, Lehman Brothers assumed that the published estimates of
third party research analysts were a reasonable basis upon which to evaluate the
future financial performance of Clorox on a stand-alone basis and that Clorox
would perform, on a stand-alone basis, substantially in accordance with those
estimates. In arriving at its opinion, Lehman Brothers did not conduct a
physical inspection of the properties and facilities of First Brands and did not
make or obtain any evaluations or appraisals of the assets or liabilities of
First Brands. In addition, Lehman Brothers was not authorized to solicit, and
Lehman Brothers did not solicit, any indications of interest from any third
party with respect to the purchase of all or a part of First Brands' businesses.
Upon the advice of First Brands and Clorox, Lehman Brothers assumed that the
Merger will qualify for pooling-of-interests accounting treatment, and upon the
advice of First Brands, Clorox and their respective legal advisors, Lehman
Brothers assumed that the Merger will qualify as a reorganization within the
meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the
"Code"), and therefore as a tax-free transaction to the stockholders of First
Brands. The Lehman Brothers Opinion was necessarily based upon market, economic
and other conditions as they existed on, and could be evaluated as of, the date
of such opinion.
In connection with preparing its presentation to the First Brands Board on
October 18, 1998, and its written opinion dated October 18, 1998, Lehman
Brothers performed a variety of financial and comparative analyses as described
below. The preparation of a fairness opinion involves various determinations as
to the most appropriate and relevant methods of financial and comparative
analysis and the application of those methods to the particular circumstances
and, therefore, such an opinion is not readily susceptible to summary
description. Furthermore, in arriving at its opinion, Lehman Brothers did not
attribute any particular weight to any analysis or factor considered by it, but
rather made qualitative judgments as to the significance and relevance of each
analysis and factor. Accordingly, Lehman Brothers believes that its analyses
must be considered as a whole and that considering any portions of such analyses
and factors, without considering all analyses and factors, could create a
misleading or incomplete view of the process underlying its opinion. In its
analyses, Lehman Brothers made numerous assumptions with respect to industry
performance, general business and economic conditions and other matters, many of
which are beyond the control of First Brands and Clorox. None
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of First Brands, Clorox, Lehman Brothers or any other person assumes
responsibility if future results are materially different from those discussed.
Any estimates contained in these analyses are not necessarily indicative of
actual values or predictive of future results or values, which may be
significantly more or less favorable than as set forth therein. In addition,
analyses relating to the value of businesses do not purport to be appraisals or
to reflect the prices at which businesses actually may be sold.
TRANSACTION TERMS. Upon the effectiveness of the Merger, and so long as the
Clorox Average Share Price is greater than $80 and less than or equal to $115
per share, holders of First Brands Common Stock will receive sufficient shares
of Clorox Common Stock to provide a value of $39 for each share of First Brands
Common Stock (the "Fixed Price Ratio"). If the Clorox Average Share Price is $80
or less, each share of First Brands Common Stock will be converted into 0.4875
of a share of Clorox Common Stock (the "Ratio Cap"). If the Clorox Average Share
Price is greater than $115, each share of First Brands Common Stock will be
converted into 0.3391 of a share of Clorox Common Stock (the "Ratio Floor," and
together with the Ratio Cap and the Fixed Price Ratio, the "Exchange Ratio").
STOCK TRADING HISTORY. Lehman Brothers considered historical data
concerning the history of the trading prices for First Brands Common Stock and
Clorox Common Stock for the period from October 15, 1993 to October 16, 1998
(the last trading date prior to the delivery of the Lehman Brothers Opinion) and
the relative stock price performances during this same period of First Brands,
Clorox and the Standard & Poors 400 Index and the Standard & Poors Consumer
Staples Index. During this period, the closing stock price of First Brands
ranged from $15.19 to $29.25 per share, and the closing stock price of Clorox
ranged from $23.56 to $109.94 per share. During the one-year period prior to the
announcement of the Merger, the closing stock price of First Brands ranged from
$19.63 to $28.13 per share, and the closing stock price of Clorox ranged from
$66.94 to $109.94 per share. In addition, Lehman Brothers noted that First
Brands Common Stock had its all-time high of $29.25 on March 26, 1996. Lehman
Brothers noted that over both the one-year and the five-year periods, Clorox had
outperformed the two indexes while First Brands had not kept pace with the
indexes.
COMPARABLE COMPANY ANALYSIS. Lehman Brothers reviewed the public stock
market trading multiples for selected companies that Lehman Brothers deemed
comparable to First Brands, including (in order by market capitalization,
largest to smallest) The Procter & Gamble Company, Unilever plc, Sara Lee
Corporation, Kimberly-Clark Corporation, Colgate-Palmolive Company, Clorox,
Ralston-Purina Company, Newell Company, Rubbermaid Incorporated, The Dial
Corporation, RPM, Incorporated, Lancaster Colony, Church & Dwight Company,
Incorporated, WD-40 Company and Oil Dri Corporation of America (collectively,
the "Comparable Companies"). Using publicly available information, Lehman
Brothers calculated and analyzed the common equity market value multiples of
historical and projected net income and enterprise value multiples of certain
historical financial criteria (such as revenue, earnings before interest, taxes,
depreciation and amortization ("EBITDA"), and earnings before interest and taxes
("EBIT")) for each of the Comparable Companies. The enterprise value of each
company was obtained by adding its short and long-term debt to the sum of the
market value of its common equity, the value of its preferred stock (at
liquidation value) and the book value of any minority interest, and subtracting
its cash and cash equivalents. As of October 16, 1998, the last trading date
prior to the delivery of the Lehman Brothers Opinion, the Comparable Companies'
median enterprise multiples of actual or, where necessary, estimated pro forma,
latest twelve months ("LTM") EBITDA, LTM EBIT and LTM Revenues were 12.4x, 15.2x
and 1.81x, respectively. In addition, as of October 16, 1998, the Comparable
Companies' median multiple of the current stock price to (i) the latest twelve
months earnings per share (the "LTM P/E Multiple"), (ii) the estimated 1998
earnings per share (the "1998 P/E Multiple"), based on data from First Call and
I/B/E/S International, Inc. ("IBES"), service companies used widely by the
investment community to gather earnings estimates from various research analysts
and (iii) the estimated 1999 earnings per share (the "1999 P/E Multiple"), also
based on First Call and IBES data, were 24.3x, 22.6x and 19.7x, respectively.
Lehman
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Brothers calculated the implied equity values per share of First Brands Common
Stock for the median LTM P/E Multiple, 1998 P/E Multiple, 1999 P/E Multiple, LTM
EBITDA enterprise multiple, LTM EBIT enterprise multiple and LTM Revenue
enterprise multiple which yielded implied equity values per share of First
Brands Common Stock of $31.44, $32.73, $34.63, $40.39, $33.85 and $41.46,
respectively. Lehman Brothers noted that the $39 per share offered in the Merger
was near the upper end of the per share value range indicated above.
However, because of the inherent differences between the businesses,
operations and prospects of First Brands and the business, operations and
prospects of the companies included in the Comparable Companies, Lehman Brothers
believed that it was inappropriate to, and therefore did not, rely solely on the
quantitative results of the comparable company analysis and, accordingly, also
made qualitative judgments concerning differences between the financial and
operating characteristics and prospects of First Brands and the companies
included in the Comparable Companies that would affect the public trading values
of each.
COMPARABLE TRANSACTION ANALYSIS AND TRANSACTION PREMIUM ANALYSIS. Using
publicly available information, Lehman Brothers compared selected financial data
for First Brands to similar data for selected transactions in the consumer
products industry (the "Comparable Transactions"). The Comparable Transactions
included the following: The Estee Lauder Companies Incorporated's purchase of
Aveda Corporation; Johnson (S.C.) & Son Incorporated's purchase of Dow Brands
Inc.; Tyco International Limited's purchase of Inbrand Corporation; Newell
Company's purchase of Rubbermaid Incorporated-Office Products Division; The
Procter & Gamble Company's purchase of Tambrands Incorporated; First Brands'
purchase of NationalPak from National Foods Limited; The Sherwin-Williams
Company's purchase of Thompson Minwax Holding Corp. from Forstmann Little & Co.;
Davis Companies' unsuccessful bid to acquire Carter-Wallace Incorporated; Henkel
KgaA's purchase of Loctite Corporation; The Procter & Gamble Company's purchase
of Kimberly-Clark Corporation's Scott Paper baby wipe business; JW Childs
Associates LP's purchase of Reckitt & Colman NA-Personal Products Division;
Unilever NV's purchase of Helene Curtis Industries, Inc.; Honeywell
Incorporated's purchase of Duracraft Corporation; L'Oreal S.A. (Gesparal)'s
purchase of Maybelline, Incorporated; Alberto-Culver Company's purchase of St.
Ives Laboratories, Inc.; Tenneco Incorporated's purchase of Mobil
Corporation-Plastics Division (includes Hefty Bags); The Scotts Company's
purchase of Miracle-Gro Products, Inc.; Ralston-Purina Company's purchase of
Golden Cat Corp.; Haas Wheat & Harrison Incorporated's purchase of Playtex
Products, Incorporated; Colgate-Palmolive Company's purchase of American Home
Products Corporation-Kolynos Business; Mark IV Industries, Incorporated's
purchase of Purolator Products Inc.; Reckitt & Colman's purchase of L&F
Products; Johnson & Johnson's purchase of Neutrogena Corporation; RPM,
Incorporated's purchase of Rust-Oleum Corporation; Health o meter, Inc.'s
purchase of Mr. Coffee, Inc.; and Johnson (S.C.) & Son Incorporated's purchase
of The Drackett Company from Bristol-Myers Squibb Company. Lehman Brothers
reviewed the prices paid in the Comparable Transactions in terms of the multiple
of the Transaction Enterprise Value (defined as the total consideration paid
including total debt assumed less cash and cash equivalents transferred to the
acquiror) to the (i) last twelve months revenue (the "LTM Revenue Multiple"),
(ii) last twelve months earnings before interest and tax (the "LTM EBIT
Multiple") and (iii) last twelve months earnings before interest, tax,
depreciation and amortization (the "LTM EBITDA Multiple"). Lehman Brothers noted
that (i) the LTM Revenue Multiple associated with the Merger was 1.72x as
compared to 1.66x for the median of the Comparable Transactions, (ii) the LTM
EBIT Multiple associated with the Merger was 17.0x as compared to 14.4x for the
median of the Comparable Transactions and (iii) the LTM EBITDA Multiple
associated with the Merger was 12.1x as compared to 11.5x for the median of the
Comparable Transactions.
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In addition, Lehman Brothers reviewed the premium paid in selected
acquisitions in the consumer products sector (the "Consumer Product
Transactions") and the premium paid in all transactions announced from January
1, 1996 to October 16, 1998 with transaction values from $1 billion to $5
billion (the "Other Transactions"). Lehman Brothers calculated the premium per
share paid by the acquiror compared to the share price of the target company
prevailing (i) one month (the "One Month Premium"), (ii) one week (the "One Week
Premium"), and (iii) one day (the "One Day Premium"), prior to the announcement
of the transaction. Lehman Brothers noted that (i) the One Month Premium
associated with the Merger was 96.9% versus 51.2% for the median of the Consumer
Product Transactions and 35.7% for the median of the Other Transactions, (ii)
the One Week Premium associated with the Merger was 92.6% versus 34.3% for the
median of the Consumer Product Transactions and 31.4% for the median of the
Other Transactions and (iii) the One Day Premium associated with the Merger was
65.0% versus 22.6% for the median of the Consumer Product Transactions and 26.2%
for the median of the Other Transactions.
However, because the reasons for and the circumstances surrounding each of
the Comparable Transactions, the Consumer Product Transactions and Other
Transactions were specific to each such transaction, and because of the inherent
differences among the businesses, operations and prospects of First Brands and
the selected acquired companies analyzed, Lehman Brothers believed that it was
inappropriate to, and therefore did not, rely solely on the quantitative results
of the comparable transactions analysis and, accordingly, also made qualitative
judgments concerning the difference between the terms and characteristics of
these transactions and the Merger that would affect the acquisition values of
First Brands and such acquired companies.
DISCOUNTED CASH FLOW ANALYSIS. Lehman Brothers prepared a discounted
after-tax cash flow model that was based upon the financial projections of First
Brands as described above. Lehman Brothers used after-tax discount rates of 10%
to 12% and a terminal value based on a range of multiples of estimated EBITDA in
2003 of 10.0x to 12.0x. Based on these discount rates and the midpoint of the
terminal values, Lehman Brothers calculated the implied equity value per share
of First Brands Common Stock at $36.99 to $41.07 using the extrapolated but
unadjusted projections and $29.28 to $32.67 using the extrapolated and adjusted
projections. Lehman Brothers also performed analyses of the financial
projections using after-tax unlevered cash flow perpetuity growth rates of 4.0%
to 5.0% to determine the terminal value. These analyses resulted in implied
equity values per share of First Brands Common Stock of $31.11 to $37.82 using
the extrapolated but unadjusted projections and a 10% discount rate, and $24.18
to $29.64 using the extrapolated and adjusted projections and a 10% discount
rate.
LEVERAGED ACQUISITION ANALYSIS. Lehman Brothers performed a leveraged
acquisition analysis in order to ascertain the price which would be attractive
to a potential financial buyer based upon current market conditions. Lehman
Brothers assumed the following in this analysis: (i) a capital structure
comprised of $500 million in senior debt and $685 million in subordinated debt;
(ii) an equity investment that would achieve a rate of return of between 23-30%;
and (iii) an exit multiple of 11.0x 2003 projected EBITDA. Based on these
assumptions, the range of implied leveraged acquisition prices per share of
First Brands Common Stock was $29 to $33.
DIVIDEND DISCOUNT ANALYSIS. Lehman Brothers also performed a dividend
discount analysis to estimate the present value of dividends and the estimated
future value of the First Brands Common Stock. The present value of a share of
First Brands Common Stock was calculated by adding the present value of the per
share estimated dividend stream for the next five years and the present value of
the estimated price per share in 2003. Lehman Brothers assumed (i) an annual
dividend growth rate of approximately 10% beyond 1999; (ii) excess cash flow
generated by operations is applied to the reduction of debt over the period;
(iii) a range of multiples of earnings per share of 19.0x to 23.0x; and (iv) an
equity discount rate of 11%. Based on these assumptions, the indicated range of
values per share of First Brands Common Stock was $30.73 to $37.20.
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CONTRIBUTION ANALYSIS. Lehman Brothers utilized publicly available
historical financial data regarding First Brands and Clorox to calculate the
relative contributions of First Brands and Clorox to the pro forma combined
company with respect to revenues, operating income (defined as net income before
interest and tax) and net income for fiscal year 1998. In 1998, First Brands
would have contributed 30.5% of revenues, 18.5% of operating income and 15.5% of
net income to the combined company. Lehman Brothers compared such contributions
to the pro forma ownership of the combined company by the holders of First
Brands Common Stock. Such ownership would range from 11.8% at the Ratio Floor to
16.1% at the Ratio Cap, assuming exercise of all outstanding First Brands
options and all exercisable Clorox options.
PRO FORMA ANALYSIS. Based on the Exchange Ratio and the financial
projections of First Brands management, as extrapolated and adjusted as
described above, and third party research analysts with respect to the future
financial performance of Clorox on a stand-alone basis, Lehman Brothers
calculated the estimated pro forma financial results for the combined company.
Lehman Brothers noted that, assuming no cost savings as a result of the Merger
and excluding extraordinary charges, the Merger was estimated to be modestly
accretive to Clorox's stand alone earnings per share ("EPS") in fiscal year 1999
and fiscal year 2000.
Lehman Brothers is an internationally recognized investment banking firm
and, as part of its investment banking activities, is regularly engaged in the
evaluation of businesses and their securities in connection with mergers and
acquisitions, negotiated underwritings, competitive bids, secondary
distributions of listed and unlisted securities, private placements and
valuations for corporate and other purposes. The First Brands Board selected
Lehman Brothers because of its expertise, reputation and familiarity with First
Brands and the consumer products industry in general and because its investment
banking professionals have substantial experience in transactions similar to the
Merger.
First Brands has agreed to pay Lehman Brothers (1) a retainer of $300,000,
(2) a fee of $1 million for rendering its opinion and (3) a fee of $7.15 million
contingent upon consummation of the Merger against which the $300,000 retainer
and the $1 million opinion fee would be credited. First Brands also has agreed
to reimburse Lehman Brothers for reasonable expenses incurred by Lehman Brothers
in connection with Lehman Brothers' engagement and to indemnify Lehman Brothers
for certain liabilities that may arise out of its engagement and the rendering
of its opinion.
In the ordinary course of its business, Lehman Brothers actively trades in
the debt and equity securities of First Brands and Clorox for its own account
and for the accounts of its customers and, accordingly, may at any time hold a
long or short position in such securities.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
GENERAL. Certain executive officers and certain members of the First Brands
Board may be deemed to have interests in the Merger that are different from, or
in addition to, the interests of stockholders of First Brands generally. These
include, among other things, provisions in the Merger Agreement relating to
indemnification and the acceleration and/or payout of benefits under certain
agreements and employee benefit plans. The First Brands Board was aware of these
interests and considered them, among other matters, in approving the Merger
Agreement and the transactions contemplated thereby.
The Merger Agreement provides that Clorox will, and will cause First Brands
to, assume and honor in accordance with their terms all employment, severance
and other compensation agreements, plans and arrangements which existed prior to
the execution of the Merger Agreement between First Brands and any of its
directors, officers or employees. Pursuant to the Merger Agreement, Clorox and
First Brands acknowledge and agree that the Merger constitutes a "Change of
Control" for all purposes pursuant to such agreements and arrangements and for
all purposes pursuant to the arrangements described below.
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The Merger Agreement also provides that for a period of 60 days immediately
following the Effective Time (as defined below under "--Effective Time"), Clorox
will, or will cause First Brands to, continue to employ those of First Brands'
officers who are "affiliates" within the meaning of Rule 144(a)(1) under the
Securities Act of 1933, as amended (the "Securities Act"), on financial terms no
less favorable as those in effect immediately prior to the Effective Time. In
addition, Clorox has agreed and acknowledged that such continued employment for
such 60-day period will not constitute a waiver on the part of any executive of
that executive's right to terminate his or her employment for "good reason"
(generally, an adverse change to the executive's authority, responsibilities,
job function or title) under the terms of such executive's Severance Agreement
(as defined below). In addition, Clorox has agreed to employ certain of such
executives on a part-time basis for an additional period of 12 months.
INDEMNIFICATION AND INSURANCE. The Merger Agreement provides that Clorox
and First Brands will indemnify (including the payment of any costs, judgments,
settlements or attorneys' fees and providing advances of expenses) each present
and former director, officer or employee of First Brands or any of its
subsidiaries, to the fullest extent permitted under applicable law, for
liabilities for acts or omissions occurring at or prior to the Effective Time.
The Merger Agreement also provides that Clorox will assume any indemnification
agreements in effect on October 18, 1998 and that any directors or officers of
First Brands who become directors or officers of Clorox will be entitled to all
indemnification rights afforded to other directors and officers of Clorox. See
"Comparison of Current First Brands Stockholder Rights and Rights of Clorox
Stockholders Following the Merger--Indemnification." The Merger Agreement also
provides that Clorox will maintain First Brands' current directors' and
officers' liability insurance coverage on terms no less favorable than the
policy in effect on October 18, 1998 for seven years after the date of the
Merger, but Clorox is not obligated to pay for any annual premium more than 200%
of the amount paid for premiums by First Brands as of the date of the Merger
Agreement.
SEVERANCE AGREEMENTS. First Brands has entered into severance agreements
with each of William V. Stephenson, Thomas H. Rowland, Donald A. DeSantis,
Patrick J. O'Brien, James S. Gracie, Mark E. Haglund, Joseph B. Furey and Einar
M. Rod (each, an "Executive" and each agreement, a "Severance Agreement"). Each
Severance Agreement provides generally that, in the event that the Executive's
employment with First Brands is terminated either (i) by First Brands other than
for "cause" or (ii) by the Executive with "good reason," in either case within
two years following a Change of Control, First Brands will pay to the Executive
severance payments and will provide to the Executive severance benefits as
follows: (a) a lump sum cash payment in an amount equal to the sum of (i) two
times the Executive's base salary (three times, in the case of Mr. Stephenson),
(ii) a pro rata portion (to the date of termination) of the Executive's annual
bonus for the year in which such termination occurs and (iii) the value of
adding three years of company service credit and three years of age for all
purposes under First Brands' Executive Retirement Plan and First Brands'
Retirement Program Plan (together, the "Retirement Plans"); (b) the
continuation, for two years following the Executive's termination of employment
(three years, in the case of Mr. Stephenson), of all medical, dental and life
insurance benefits in effect as of the date of termination, at no cost to the
Executive; (c) the continued eligibility to participate in the Executive
Retirement Plan; and (d) reasonable outplacement services. The Severance
Agreements further provide that (x) First Brands is obligated either (i) to
maintain in full force and effect and not adversely amend or affect the
Retirement Plans as in effect immediately prior to the Change of Control or (ii)
to provide benefits no less favorable to the Executive under substitute benefit
programs and (y) all payments made to the Executive that are calculated by
reference to the Retirement Plans must be calculated as though the Executive
were fully vested in the Retirement Plans. In addition, the Severance Agreements
provide that First Brands is obligated to pay an additional amount (the
"Additional Payment") sufficient to make such Executive whole with respect to
the excise tax imposed by the Code, and any taxes imposed on such additional
payments. It is anticipated that the Severance Agreements will be amended to
provide that some portion of the severance payment described in clause (a) above
shall be paid to certain of the Executives prior to December 31, 1998,
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and that Clorox will indemnify and hold harmless each such Executive with
respect to any additional tax liability that such Executive may incur as a
result of receiving such amounts in 1998 rather than in 1999.
OPTIONS. First Brands maintains the Non-Employee Director Stock Option Plan
(the "Directors' Plan"). Each option granted under the Directors' Plan (each, a
"Director Option") becomes exercisable two years after the date of grant. Upon
separation of a director's service with the First Brands Board for reasons other
than death, disability or retirement, Director Options granted to such director
under the Directors' Plan, to the extent then exercisable, remain exercisable
for 60 days following the date of such separation of service. The Merger will
not affect the vesting of the Director Options.
First Brands also maintains the 1998 Performance Stock Option and Incentive
Plan, the 1994 Performance Stock Option and Incentive Plan and the 1989 Long
Term Incentive Plan (collectively, the "Option Plans" and each option granted
under the Option Plans, an "Option"). Pursuant to each of the Option Plans, upon
a Change of Control of First Brands, all outstanding unvested Options to acquire
shares of First Brands Common Stock will become exercisable immediately in full.
Such Options shall remain exercisable for 60 days following the date of
termination of an optionholder's employment with First Brands.
At the Effective Time, each Option and each Director Option to purchase
First Brands Common Stock will be deemed assumed by Clorox and will be deemed to
constitute an option to purchase shares of Clorox Common Stock (each, a "Clorox
Option") (see "The Merger Agreement--First Brands Stock Option Plans"). The
number of shares of Clorox Common Stock subject to a Clorox Option will be equal
to the number of shares of Clorox Common Stock (rounded down to the nearest
whole number) the holder of such Option or Director Option would have received
had he or she (a) exercised the Option or Director Option in full immediately
prior to the Effective Time and (b) received Clorox Common Stock, pursuant to
the terms of the Merger Agreement, in exchange for the shares of First Brands
Common Stock acquired upon such exercise of such Option or Director Option (the
number of shares of Clorox Common Stock received in such exchange, the
"Conversion Number"), at a price per share (rounded up to the nearest cent)
equal to (i) the aggregate exercise price for all shares of First Brands Common
Stock otherwise purchasable under the Option or Director Option, divided by (ii)
the Conversion Number.
Based upon the Options outstanding as of December 15, 1998, the vesting of
Options relating to 1,222,750 shares of First Brands Common Stock, valued at
$47,840,094, based upon the per share closing price on December 15, 1998, held
by the executive officers of First Brands, would be accelerated upon the Merger.
ANNUAL INCENTIVE PLAN. First Brands' Annual Incentive Plan provides that,
following a Change of Control (as defined thereunder), no award granted
thereunder may be cancelled.
DEFERRAL PLAN. First Brands' Nonqualified Deferred Compensation Plan (the
"Deferral Plan") provides that, in the event that the committee administering
such plan believes that a Change of Control (as defined in the Deferral Plan) is
likely to occur, such committee will direct First Brands to establish a rabbi
trust and to contribute to such rabbi trust money or other property sufficient
to fund the present value of benefits to Deferral Plan participants.
EXECUTIVE LIFE INSURANCE PLAN. First Brands' Executive Life Insurance Plan
provides that, following a Change of Control, the First Brands Board may
authorize First Brands to assign its interest in each policy to a trust that
will continue coverage until such time as the arrangement would normally
terminate. It is expected that, immediately prior to the Change of Control,
First Brands will assign its interests in the Executive Life Insurance Plan to
such a trust.
EMPLOYEE SEVERANCE PLAN. Pursuant to the terms of the Merger Agreement,
First Brands (and, following the Effective Time, Clorox) has agreed to provide
severance payments and benefits to the
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employees of First Brands in accordance with the terms set forth below (the
"Employee Severance Plan"). These severance payments and benefits will not be
made to any employee who is a party to an individual employment or severance
agreement.
In the event the employment of any person who is an employee other than an
employee covered by a First Brands collective bargaining agreement (an
"Employee") immediately prior to the Effective Time is terminated by First
Brands without "cause" or by the Employee for "good reason," in either case
within 12 months following the Effective Time, the Employee will be entitled to
receive a lump sum severance payment equal to one-half of a month's salary per
year of service (with a minimum of two months' salary) (the period equal to
one-half of a month for each year of service being referred to as the "Severance
Period").
Following the Employee's date of termination, for the Severance Period (or,
if longer, for the period required by any applicable law, and in any case
terminating on the date the Employee obtains employment which provides
substantially similar benefits), the Employee will receive all benefits under
any group hospitalization, health care plan, dental care plan, life or other
insurance or death benefit plan, or other present or future similar group
employee benefit plan or program of the employer for which Employees are
eligible, to the same extent as if the Employee has continued to be an Employee
during such Severance Period.
SPECIAL SEVERANCE PLAN. Pursuant to the terms of the Merger Agreement,
First Brands has agreed to establish the Special Severance Plan, pursuant to
which First Brands will pay a special severance payment to each Employee who is
a participant in the Annual Incentive Plan or who is a salaried plant employee
on the earlier to occur of (a) a termination date specified by Clorox or (b) a
termination of such Employee's employment by First Brands without "cause" or by
the Employee for "good reason." The special severance payment will be paid in a
single lump sum cash payment and will be equal to the higher of (x) such
Employee's estimated Annual Incentive Plan award with respect to the 1999 fiscal
year (if applicable) prorated to the applicable payment date and (y) two months'
salary. This special severance arrangement will terminate on the date that
payments under the Annual Incentive Plan with respect to the 1999 fiscal year
are paid. In no case will this special severance payment be duplicative of the
Employee's bonus with respect to the 1999 fiscal year.
FORM OF THE MERGER
Pursuant to the Merger Agreement, and subject to the terms and conditions
thereof, at the Effective Time, Merger Sub will be merged with and into First
Brands, with First Brands as the Surviving Corporation, and the separate
existence of Merger Sub will cease.
The certificate of incorporation and bylaws of Merger Sub immediately prior
to the Effective Time will be the certificate of incorporation and bylaws of the
Surviving Corporation at the Effective Time until duly amended. The directors
and officers of Merger Sub immediately prior to the Effective Time will be the
initial directors and officers of the Surviving Corporation.
MERGER CONSIDERATION
As a result of the Merger, First Brands' stockholders will receive, for each
share of First Brands Common Stock that they own, whole shares of Clorox Common
Stock which will be determined according to one of the following exchange
ratios: (i) that number of shares of Clorox Common Stock equal to the quotient
of $39 divided by the Clorox Average Share Price (rounded to the nearest
thousandth of a share) if the Clorox Average Share Price is greater than $80 but
less than or equal to $115, (ii) 0.4875 of a share of Clorox Common Stock if the
Clorox Average Share Price is less than or equal to $80 or (iii) 0.3391 of a
share of Clorox Common Stock if the Clorox Average Share Price is greater than
$115.
Clorox will not issue any fractional shares in the Merger. Instead, First
Brands stockholders will receive cash for any fractional share of Clorox Common
Stock owed to them in an amount equal to
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(1) the fractional share that would otherwise be issuable multiplied by (2) the
closing price of Clorox Common Stock on the NYSE on the last trading day
immediately prior to the Effective Time.
EFFECTIVE TIME
The effective time will occur upon the filing of all necessary documentation
(the "Merger Documents"), together with any required related certificates, with
the Secretary of State of the State of Delaware, in such form as required by,
and executed in accordance with the relevant provisions of, Delaware law (the
"Effective Time"). The filing of the Merger Documents will occur as soon as
practicable, but in no event later than three days, after the satisfaction or
waiver of the closing conditions set forth in the Merger Agreement. See "The
Merger Agreement--Conditions." The Merger Agreement may be terminated by mutual
agreement of both parties, by either party if the Merger has not been
consummated on or before June 30, 1999 (so long as the failure by the
terminating party to fulfill any obligation under the Merger Agreement is not
the cause of the failure of the Merger to occur prior to such date) and under
certain other conditions. See "The Merger Agreement--Conditions" and "The Merger
Agreement--Termination."
PROCEDURES FOR EXCHANGE OF FIRST BRANDS COMMON STOCK CERTIFICATES
As a result of the Merger and without any action on the part of the First
Brands stockholders, each share of First Brands Common Stock issued and
outstanding immediately prior to the Effective Time will be converted into the
right to receive that number of shares of fully paid and nonassessable shares of
Clorox Common Stock as determined by the Exchange Ratio.
Each holder of a certificate evidencing outstanding shares of First Brands
Common Stock (a "First Brands Certificate") upon consummation of the Merger will
cease to have any rights with respect to such First Brands Common Stock, except
the right to receive, without interest, shares of Clorox Common Stock, any
distributions made by First Brands prior to the Effective Time, and cash in lieu
of fractional shares (as described in "The Merger Agreement--Conversion of
Shares") upon the surrender of such First Brands Certificate. If, prior to the
Effective Time, either Clorox or First Brands should split or combine their
common stock, or pay a stock dividend or other stock distribution in, or in
exchange of, shares of their common stock, or engage in any similar transaction,
then the Exchange Ratio will be appropriately adjusted to reflect such split,
combination, dividend, exchange, distribution or similar transaction.
ANTICIPATED ACCOUNTING TREATMENT
The Merger is intended to qualify as a pooling of interests for accounting
and financial reporting purposes. Under this method of accounting, the recorded
historical cost basis of the assets and liabilities of Clorox and First Brands
will be carried forward to the operations of the combined company at their
historical recorded amounts. Results of operations of the combined company will
include income of Clorox and First Brands for the entire fiscal period in which
the combination occurs, and the historical results of operations of the separate
companies for fiscal years prior to the Merger will be combined and reported as
the results of operations of the combined company. No adjustments have been made
to the unaudited combined condensed pro forma financial statements of Clorox and
First Brands to conform the accounting policies of the combined company as the
nature and amounts of such adjustments are deemed insignificant.
Consummation of the Merger is conditioned upon receipt by each of Clorox and
First Brands of a letter from their respective independent public accountants
stating that, in their respective opinions, they concur with the conclusions of
the management of Clorox and First Brands that the criteria for pooling of
interests accounting, which can be assessed at that time, have been met. See
"The Merger Agreement--Conditions" and "Risk Factors--Failure to Qualify for
Pooling of Interests Accounting Treatment May Impact Reported Operating
Results." However, some of the conditions to be met for pooling of interests
accounting cannot be fully assessed until the passage of specified periods of
time
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after the Effective Time, as certain of the conditions for pooling of interests
accounting address transactions occurring within such specified periods of time.
Certain events, including certain transactions with respect to Clorox Common
Stock or First Brands Common Stock by affiliates of Clorox and First Brands,
respectively, may prevent the Merger from qualifying as a pooling of interests
for accounting and financial reporting purposes. For information concerning
certain restrictions to be imposed on the transferability of Clorox Common Stock
to be received by affiliates in order, among other things, to ensure the
availability of pooling of interests accounting treatment, see "The
Merger--Resale Restrictions."
REGULATORY APPROVALS
Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR
Act"), and the rules promulgated thereunder by the Federal Trade Commission (the
"FTC"), the Merger cannot be consummated until notifications have been given and
certain information has been furnished to the FTC and the Antitrust Division of
the Department of Justice (the "Antitrust Division") and specified waiting
period requirements have been satisfied. Clorox and First Brands filed
notification and report forms under the HSR Act with the FTC and the Antitrust
Division on November 10, 1998. The waiting period under the HSR Act expired at
11:59 p.m., Eastern Standard Time, on December 10, 1998.
On November 23, 1998, Clorox submitted a pre-merger notification of the
Merger to the German Cartel Office. The Cartel Office notified Clorox on
November 27, 1998 that the transaction would not be prohibited. Clorox and First
Brands may make additional regulatory filings in other foreign jurisdictions.
At any time before or after consummation of the Merger, the Antitrust
Division or the FTC, or any state, could take such action under the antitrust
laws as it deems necessary or desirable in the public interest, including
seeking to enjoin the consummation of the Merger or seeking divestiture of
particular assets of Clorox or First Brands. Private parties also may seek to
take legal action under the antitrust laws under certain circumstances. In
addition, non-United States governmental and regulatory authorities may seek to
take action under applicable antitrust laws. There can be no assurance that a
challenge to the Merger will not be made or, if such challenge is made, that
Clorox will prevail.
The obligations of Clorox and First Brands to consummate the Merger are
subject to the condition that there be no preliminary or permanent injunction or
other order by any court of competent jurisdiction or other legal restraint or
prohibition that prevents consummation of the Merger, that there be no
litigation by any governmental entity seeking any of the same, and that there be
no statute, rule, regulation, executive order, stay, decree or judgment by any
court or governmental authority deemed applicable to the Merger that makes the
consummation of the Merger illegal. In addition, the obligations of the parties
to consummate the Merger are subject to there being no action taken or any rule,
regulation, order or statute enacted, entered or enforced by any governmental
entity that imposes any condition or restriction upon Clorox, First Brands or
any of their subsidiaries (including, without limitation, the disposition of
assets by any of them) which in any case would so materially adversely impact
the economic or business benefits of the Merger such that a reasonable business
person in that situation would not proceed with the Merger. For a more complete
description of these conditions, see "The Merger Agreement--Conditions." Either
Clorox or First Brands may terminate the Merger Agreement if a court of
competent jurisdiction or governmental, regulatory or administrative agency or
commission shall have issued a non-appealable, final order, decree or ruling or
taken any other action, having the effect of permanently restraining, enjoining
or otherwise prohibiting the Merger, provided that the party relying on such
order, decree or ruling has complied with its obligations with respect to using
its best efforts to consummate the Merger and to cause the Merger to qualify as
a tax-free reorganization. See "The Merger Agreement--Conditions" and "The
Merger Agreement-- Termination."
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CERTAIN OTHER EFFECTS OF THE MERGER; DELISTING OF FIRST BRANDS SHARES
After the Merger, First Brands stockholders will become stockholders of
Clorox. The rights of all such stockholders will be governed by the certificate
of incorporation and bylaws of Clorox. For a description of the difference
between the rights of Clorox and First Brands stockholders, see "Comparison of
Rights of Clorox Stockholders and First Brands Stockholders."
If the Merger is consummated, shares of First Brands Common Stock will cease
to be listed on the NYSE. In addition, First Brands will deregister the First
Brands Common Stock under the Exchange Act and, accordingly, will no longer be
required to file periodic reports pursuant to the Exchange Act.
NO DISSENTERS' RIGHTS
Section 262 of the Delaware General Corporation Law (the "DGCL") provides
appraisal rights (sometimes referred to as "dissenters' rights") to stockholders
of Delaware corporations in certain situations. However, Section 262 appraisal
rights are not available to stockholders of a corporation, such as First Brands,
(a) whose securities are listed on a national securities exchange, and (b) whose
stockholders are not required to accept in exchange for their stock anything
other than stock of another corporation listed on a national securities exchange
and cash in lieu of fractional shares. Because the First Brands Common Stock is
traded on a national securities exchange, the NYSE, and because the First Brands
stockholders are being offered Clorox Common Stock, which is also traded on the
NYSE, and cash in lieu of fractional shares, stockholders of First Brands will
not have appraisal rights with respect to the Merger.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes the material federal income tax
consequences of the Merger that are applicable to First Brands stockholders. It
is based on the Code, applicable U.S. Treasury Regulations, judicial authority,
and administrative rulings and practice, all as of the date of this Proxy
Statement/Prospectus and all of which are subject to change, including changes
with retroactive effect. The discussion below does not address any state, local
or foreign tax consequences of the Merger. The tax treatment of a stockholder
may vary depending upon the stockholder's particular situation, and certain
stockholders (including individuals who hold options in respect of First Brands
Common Stock, insurance companies, tax-exempt organizations, financial
institutions or broker-dealers, persons who are neither citizens nor residents
of the United States, and persons who hold First Brands Common Stock as part of
a hedge, straddle or conversion transaction) may be subject to special rules not
discussed below. The following discussion assumes that First Brands Common Stock
is held as a capital asset at the Effective Time. Neither Clorox nor First
Brands has requested or will request an advance ruling from the Internal Revenue
Service as to the tax consequences of the Merger.
EACH FIRST BRANDS STOCKHOLDER IS URGED TO CONSULT THEIR TAX ADVISOR AS TO
THE PARTICULAR TAX CONSEQUENCES OF THE MERGER TO THEM, INCLUDING THE
APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN LAWS, AND THE EFFECT OF
POSSIBLE CHANGES IN APPLICABLE TAX LAWS.
The obligations of First Brands and Clorox to consummate the Merger are
conditioned upon the receipt by First Brands and Clorox of opinions (the "Tax
Opinions") of Skadden, counsel to First Brands, and Morrison & Foerster LLP,
counsel to Clorox, that on the basis of the facts, representations and
assumptions set forth or referred to therein, for U.S. federal income tax
purposes, the Merger will qualify as a tax-free reorganization under Section
368(a) of the Code, and that each of Clorox, Merger Sub and First Brands will be
a party to the reorganization within the meaning of Section 368(b) of the Code
(such opinions, collectively, the "Tax Opinions"). Provided that the Merger so
qualifies,
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(i) Except for any cash received in lieu of fractional shares, a First
Brands stockholder will not recognize any gain or loss as a result of the
receipt of Clorox Common Stock pursuant to the Merger.
(ii) A First Brands stockholder's aggregate tax basis for the shares of
Clorox Common Stock received pursuant to the Merger, including any
fractional share interest for which cash is received, will equal such
stockholder's aggregate tax basis in shares of First Brands Common Stock
held immediately before the Merger.
(iii) A First Brands stockholder's holding period for the shares of
Clorox Common Stock received pursuant to the Merger, including any
fractional share interest for which cash is received, will include the
period during which the shares of First Brands Common Stock were held.
(iv) Cash received by a First Brands stockholder in lieu of a fractional
share interest of Clorox Common Stock will be treated as having been
received in exchange for such fractional share interest and capital gain or
loss will be recognized in an amount equal to the difference between the
amount of cash received and the portion of the tax basis allocable to such
fractional interest.
The Tax Opinions are based upon certain facts, representations and
assumptions set forth or referred to therein and the continued accuracy and
completeness of certain representations made by Clorox, Merger Sub and First
Brands, including representations in certificates to be delivered to counsel by
the management of each of Clorox and First Brands which, if incorrect in certain
material respects, would jeopardize the conclusions reached by counsel in their
opinions. In addition, in the event that Clorox or First Brands is unable to
obtain the Tax Opinions, each of Clorox and First Brands is permitted under the
Merger Agreement to waive the receipt of such Tax Opinions as a condition to
such party's obligation to consummate the Merger. As of the date of this Proxy
Settlement/Prospectus, neither Clorox nor First Brands intends to waive the
receipt of the Tax Opinions as a condition to such party's obligation to
consummate the Merger. In the event of such a failure to obtain the Tax
Opinions, and either Clorox or First Brands determines to waive such condition
to the consummation of the Merger, First Brands will resolicit the votes of its
stockholders to approve consummation of the Merger.
RESALE RESTRICTIONS AND LOCKUP AGREEMENTS
This Proxy Statement/Prospectus does not cover resales of the Clorox Common
Stock to be received by the stockholders of First Brands upon consummation of
the Merger, and no person is authorized to make any use of this Proxy
Statement/Prospectus in connection with any such resale.
All shares of Clorox Common Stock received by First Brands stockholders in
the Merger will be freely transferable, except that shares of Clorox Common
Stock received by persons who are deemed to be "affiliates" (as such term is
defined under the Securities Act) of First Brands may be resold by them only in
transactions permitted by the resale provisions of Rule 145 (or Rule 144 in the
case of such persons who become affiliates of Clorox) promulgated under the
Securities Act or as otherwise permitted under the Securities Act. Persons who
may be deemed to be affiliates of Clorox or First Brands generally include
individuals or entities that control, are controlled by, or are under common
control with, such party and may include certain officers and directors of
Clorox or First Brands as well as significant stockholders.
Commission guidelines regarding qualification for the use of the pooling of
interests method of accounting also limit sales by affiliates of the acquiring
and acquired companies in a business combination. Commission guidelines indicate
further that the pooling of interests method of accounting generally will not be
challenged on the basis of sales by affiliates of the acquiring or acquired
company if they do not dispose of any of the shares they own or shares they
receive in connection with a Merger
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during the period beginning 30 days before the Merger and ending when financial
results covering at least 30 days of combined operations have been published.
See "The Merger--Accounting Treatment."
The Merger Agreement requires First Brands to use its best efforts to cause
each of its affiliates to execute a written agreement restricting the
disposition by such affiliate of the shares of Clorox Common Stock to be
received by such affiliate in the Merger.
DIVIDEND POLICY
Clorox currently expects to declare regularly scheduled dividends consistent
with its policy prior to the Merger, which is to pay dividends quarterly at a
rate of $0.36 per share of Clorox Common Stock (an annual rate of $1.44). Future
dividends will be at the discretion of the Clorox Board and will be determined
after consideration of a number of factors, including, among others, Clorox's
earnings, financial condition, cash flows from operations, current and
anticipated cash needs and expansion plans and any restrictions that may be
imposed under Clorox's current and future credit facilities.
Under the terms of the Merger Agreement, First Brands is not permitted to
declare, set aside, make or pay any distribution in respect of its equity
securities, other than its normal quarterly dividend consistent with past
practices, during the period from the date of the Merger Agreement until the
earlier of the termination of the Merger Agreement or the Effective Time.
THE MERGER AGREEMENT
THE FOLLOWING IS A BRIEF SUMMARY OF THE MATERIAL PROVISIONS OF THE MERGER
AGREEMENT, A COPY OF WHICH IS ATTACHED AS APPENDIX A TO THIS PROXY
STATEMENT/PROSPECTUS AND IS INCORPORATED HEREIN BY REFERENCE. THIS SUMMARY IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE MERGER AGREEMENT.
THE MERGER
The terms and conditions of the Merger Agreement provide that, at the
Effective Time, Merger Sub will be merged with and into First Brands, with First
Brands as the Surviving Corporation, and Merger Sub will cease to exist.
The certificate of incorporation and bylaws of Merger Sub immediately prior
to the Effective Time will be the certificate of incorporation and bylaws of the
Surviving Corporation at the Effective Time until duly amended, and the
directors and officers of Merger Sub immediately prior to the Effective Time
will be the initial directors and officers of the Surviving Corporation.
CONVERSION OF SECURITIES
As a result of the Merger and without any action on the part of the holders
thereof, each share of First Brands Common Stock issued and outstanding
immediately prior to the Effective Time (excluding shares held by Clorox, First
Brands or any of their subsidiaries, which will be cancelled) will be converted
into the right to receive (i) that fraction of a share of Clorox Common Stock
equal to the quotient of $39 divided by the Clorox Average Share Price (rounded
to the nearest thousandth of a share) if the Clorox Average Share Price is
greater than $80 but less than or equal to $115, (ii) 0.4875 of a share of
Clorox Common Stock if the Clorox Average Share Price is less than or equal to
$80, or (iii) 0.3391 of a share of Clorox Common Stock if the Clorox Average
Share Price is greater than $115. At the Effective Time, each share of First
Brands Common Stock so converted will cease to be outstanding, and will be
cancelled and retired, except as described below.
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The Merger Agreement provides that the Clorox Average Share Price will be
calculated based on the ten trading day period preceding the fifth trading day
prior to the Effective Time, and therefore the number of shares of Clorox Common
Stock constituting the Merger consideration will be fixed at that time. The
market price of Clorox Common Stock and hence the value of the Merger
Consideration could fluctuate with the performance of Clorox and general market
conditions up to the date of determination of the Exchange Ratio. In addition,
the market price of the Clorox Common Stock could fluctuate during the five
trading day period between the determination of the Clorox Average Share Price
and the Effective Time. Thus, the value of the Merger Consideration at the
Effective Time may be less than the value of the Merger Consideration as
determined at any point in time prior to the Effective Time. See "Risk
Factors--Adjustable Exchange Ratio."
Each holder of a First Brands Certificate upon consummation of the Merger
will cease to have any rights with respect to such First Brands Common Stock,
except the right to receive, without interest, shares of Clorox Common Stock,
any distributions made by First Brands prior to the Effective Time and cash in
lieu of fractional shares upon the surrender of such First Brands Certificate.
If, prior to the Effective Time, either Clorox or First Brands should split or
combine the shares of Clorox Common Stock or First Brands Common Stock, or pay a
stock dividend or other stock distribution in, or in exchange of, shares of
Clorox Common Stock or First Brands Common Stock, or engage in a reorganization
or recapitalization or any similar transaction, then the Exchange Ratio will be
appropriately adjusted to reflect such split, combination, dividend, exchange,
distribution or similar transaction.
FIRST BRANDS STOCK OPTION PLANS
As of the Effective Time, each of the options to acquire shares of First
Brands Common Stock not expired as of the Effective Date, will be assumed by
Clorox, and each option will be converted into an option to purchase that number
of shares of Clorox Common Stock (rounded down to the nearest whole number)
which the holder thereof would have been entitled to receive under the Merger
Agreement had the stock option been exercised immediately prior to the Effective
Time, and the replacement option will have a per share exercise price equal to
the aggregate exercise price for First Brands Common Stock subject to the option
divided by the number of shares of Clorox Common Stock purchasable under the
assumed option.
Subject to the consent of the holders thereof, each limited stock
appreciation right ("LSAR") issued and outstanding under any of the Option Plans
or the Director Plan will be cancelled effective immediately prior to the
Effective Time and at the same time the tandem stock option will be assumed
pursuant to the terms above.
Except as described above, the assumed stock options will be subject to the
same terms and conditions (including, without limitation, vesting provisions) as
were applicable to such stock options immediately prior to the Effective Time,
with such adjustments as are appropriate to preserve the value in such awards
with no detrimental effects on the holders thereof. Consummation of the Merger
will not be treated as a termination of employment for purposes of such stock
options.
The assumption of the Options enables the holders thereof to hold options to
acquire Clorox Common Stock after the Merger. Options granted under the Option
Plans immediately accelerate and vest upon consummation of the Merger. As of
December 15, 1998, there were outstanding options to purchase an aggregate of
2,699,002 shares of First Brands Common Stock, at a weighted average exercise
price of approximately $18.10 per share (at exercise prices ranging from $9.50
to $26.00 per share).
Clorox will take all corporate action necessary to reserve for issuance a
sufficient number of shares of Clorox Common Stock for delivery pursuant to the
terms of all assumed First Brands stock options.
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EXCHANGE OF SHARES
As soon as reasonably practicable after the Effective Time, First Chicago
Trust Company of New York (the "Exchange Agent") will mail to each holder of
record of First Brands Common Stock (i) a letter of transmittal and (ii)
instructions for use in effecting the surrender of the First Brands Certificates
in exchange for certificates representing shares of Clorox Common Stock and, in
lieu of any fractional shares thereof, cash. Upon surrender of a First Brands
Certificate to the Exchange Agent together with such letter of transmittal, duly
executed, and any other customary documents as may be reasonably required, the
holder of such First Brands Certificate will be entitled to receive in exchange
therefor (i) a certificate representing a number of whole shares of Clorox
Common Stock equal to the Exchange Ratio multiplied by the number of shares of
First Brands Common Stock represented by the certificate, (ii) any dividends or
other distributions of First Brands made prior to the Effective Time to which
such holder is entitled and (iii) a check representing the amount of cash in
lieu of a fractional share of Clorox Common Stock, if any, which such holder has
the right to receive in respect of the First Brands Certificate so surrendered.
See "--Conversion of Securities." FIRST BRANDS STOCKHOLDERS SHOULD NOT SEND IN
THEIR FIRST BRANDS CERTIFICATES UNTIL THEY RECEIVE A LETTER OF TRANSMITTAL.
No fractional shares of Clorox Common Stock will be issued pursuant to the
Merger. In lieu thereof, cash adjustments will be paid in an amount equal to (i)
the fraction of a share of Clorox Common Stock that would otherwise be issuable,
multiplied by (ii) the closing price of Clorox Common Stock on the NYSE
Composite Transaction Tape on the last trading day immediately prior to the
Effective Time.
After the Effective Time and until surrendered, each First Brands
Certificate will be deemed to represent only the right to receive upon surrender
a certificate representing whole shares of Clorox Common Stock, dividends or
other distributions of First Brands made prior to the Effective Time and cash in
lieu of fractional shares of Clorox Common Stock. No dividends or other
distributions declared or made with a record date after the Effective Time will
be paid to the holder of any unsurrendered First Brands Certificate with respect
to the shares of Clorox Common Stock represented thereby, and no cash in lieu of
fractional shares will be paid to any such holder, until the holder of record of
such First Brands Certificate surrenders such First Brands Certificate. Subject
to the effect of applicable laws, following surrender of any such Certificate,
there will be paid to the record holder of the new certificates representing
whole shares of Clorox Common Stock issued in exchange therefor, without
interest, (i) at the time of such surrender, the amount of any cash payable in
lieu of fractional shares of Clorox Common Stock to which such holder is
entitled and the amount of dividends or other distributions with a record date
after the Effective Time previously paid with respect to such whole shares of
Clorox Common Stock, and (ii) at the appropriate payment date, the amount of
dividends or other distributions with a record date after the Effective Time but
prior to surrender and a payment date subsequent to surrender payable with
respect to such whole shares of Clorox Common Stock.
If any certificates for shares of Clorox Common Stock are to be issued in a
name other than that in which the First Brands Certificate surrendered in
exchange therefor is registered, the person requesting such exchange must (i)
pay to Clorox or any agent designated by it any transfer or other taxes required
by reason thereof, or (ii) establish to the satisfaction of Clorox or any agent
designated by it that such tax has been paid or is not applicable.
At the Effective Time, the stock transfer books of First Brands will be
closed and no further transfers of shares of First Brands Common Stock will be
made. If, after the Effective Time, First Brands Certificates are presented to
the Surviving Corporation for any reason, they will be cancelled and exchanged
as described above.
No party to the Merger Agreement is or will be liable to a holder of shares
of First Brands Common Stock for any shares of Clorox Common Stock or dividends
thereon or the cash payment for
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fractional interests delivered to a public official pursuant to applicable
abandoned property, escheat or similar laws.
Clorox or the Exchange Agent will be entitled to deduct and withhold from
the consideration otherwise payable pursuant to the Merger Agreement such
amounts as Clorox or the Exchange Agent is required to deduct and withhold under
the Code, or any provision of state, local or foreign tax law, with respect to
the making of such payment. To the extent that amounts are so withheld by Clorox
or the Exchange Agent, such withheld amounts shall be treated for all purposes
of the Merger Agreement as having been paid to the person in respect of whom
such deduction and withholding was made by Clorox or the Exchange Agent.
In the event that any First Brands Certificate has been lost, stolen or
destroyed, upon (i) the making of an affidavit of that fact by the person
claiming such First Brands Certificate to be lost, stolen or destroyed, and (ii)
if required by Clorox, in its reasonable discretion, the posting by such person
of a bond in such sum as Clorox may direct as indemnity against any claim that
may be made against Clorox with respect to such First Brands Certificate, Clorox
will issue or cause to be issued in exchange for such First Brands Certificate
the number of whole shares of Clorox Common Stock and cash in lieu of fractional
shares into which the shares of First Brands Common Stock represented by the
First Brands Certificate are converted in the Merger.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains certain representations and warranties by
First Brands, on the one hand, and Clorox and Merger Sub, on the other hand,
relating to:
- their organization and qualification and their subsidiaries;
- capitalization;
- their authority relative to the Merger Agreement;
- filings with the Commission and financial statements;
- absence of certain changes or events;
- absence of undisclosed liabilities;
- no violation of laws or other agreements;
- absence of litigation;
- employee benefit plans;
- labor matters;
- the accuracy of information supplied by each party for inclusion or
incorporation by reference in this Proxy Statement/Prospectus and in the
registration statement of which this Proxy Statement/ Prospectus forms a
part (the "Registration Statement");
- taxes;
- environmental matters;
- brokers;
- the opinion rendered by each party's financial advisor with respect to the
fairness of the Exchange Ratio;
- intellectual property; and
- pooling matters.
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First Brands has also made representations and warranties relating to: (i)
employment agreements; (ii) the vote required to approve the Merger; and (iii)
change of control payments. Furthermore, Clorox and Merger Sub have also made
representations and warranties that neither they nor any subsidiary of Clorox
owns any shares of First Brands as of the date of the Merger Agreement.
CERTAIN COVENANTS
The Merger Agreement provides that First Brands and each of its subsidiaries
will, prior to the earlier of the termination of the Merger Agreement or the
Effective Time, except as agreed to in writing by Clorox,
- conduct its business in the ordinary course of business and in a manner
consistent with past practice, and
- except as contemplated by the Merger Agreement, not (a) amend its
certificate of incorporation and bylaws, (b) issue, sell, pledge, dispose
of or encumber, or authorize the issuance, sale, pledge, disposition or
encumbrance of any shares of capital stock of any class, or any options,
warrants, convertible securities or other rights of any kind to acquire
any shares of capital stock, or any other ownership interest of First
Brands or any of its subsidiaries or affiliates (except for the issuance
of (1) shares of First Brands Common Stock issuable pursuant to employee
stock options under the Option Plans which options were outstanding on
October 18, 1998 and (2) the grant of options consistent with past
practice to purchase up to 5,000 shares of First Brands Common Stock to
newly hired employees (excluding officers), provided that the vesting of
such new options is not in any manner accelerated by the Merger, (c) sell,
pledge, dispose of or encumber any assets of First Brands or its
subsidiaries (except for (1) sales of assets in the ordinary course of
business and in a manner substantially consistent with past practice, (2)
dispositions of obsolete or worthless assets and (3) sales of immaterial
assets not in excess of $5,000,000 in the aggregate) or (d) accelerate,
amend or change the period (or permit any acceleration, amendment or
change) of exercisability of options or restricted stock granted under
First Brands' employee benefit, bonus, stock option or other employee
plans (including the Option Plans and the Directors' Plan) or authorize
cash payments in exchange for any options granted under any of such plans.
The Merger Agreement also provides that First Brands and its subsidiaries
will not, prior to the earlier of the termination of the Merger Agreement or the
Effective Time, except as agreed to in writing by Clorox,
- other than its normal quarterly dividend, declare, set aside, make or pay
any dividend or other distribution (whether in cash, stock or property or
any combination thereof) in respect of any of its equity securities,
except that a First Brands subsidiary may (a) declare and pay a dividend
to First Brands, (b) split, combine or reclassify any of its equity
securities or issue or authorize or propose the issuance of any other
securities in respect of, in lieu of or in substitution for shares of its
equity securities or (c) amend the terms of, repurchase, redeem or
otherwise acquire, any of their securities;
- (a) acquire (by merger, consolidation, or acquisition of stock or assets)
any company, corporation, partnership or other business organization or
division thereof, (b) incur any indebtedness for borrowed money or issue
any debt securities or assume or guarantee (other than guarantees of bank
debt of a subsidiary entered into in the ordinary course of business) or
otherwise become responsible for the obligations of any person, or make
any loans or advances, except in the ordinary course of business
consistent with past practice, (c) enter into or amend any material
contract or agreement other than in the ordinary course of business, (d)
authorize any capital expenditures or purchase of fixed assets which are,
in the aggregate, in excess of
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$10,000,000 for First Brands and its subsidiaries taken as a whole or (e)
enter into or amend any contract, agreement, commitment or arrangement to
do any of the same;
- except for certain individuals named in the schedules to the Merger
Agreement, increase the compensation payable or to become payable to its
officers or employees, except for increases in salary or wages of
employees of First Brands or any subsidiary who are not officers of First
Brands in accordance with past practices, or grant any severance or
termination pay to, or enter into any employment or severance agreement
with any director, officer (except for officers who are terminated on an
involuntary basis) or other employee of First Brands or any subsidiary, or
establish, adopt, enter into or amend any collective bargaining, bonus,
profit sharing, thrift, compensation, stock option, restricted stock,
pension, retirement, deferred compensation, employment, termination,
severance or other plan, agreement, trust, fund, policy or arrangement for
the benefit of any current or former directors, officers or employees,
except, in each case, as may be required by law;
- take any action to change accounting policies or procedures (including,
without limitation, procedures with respect to revenue recognition,
payments of accounts payable and collection of accounts receivable);
- make any material tax election inconsistent with past practices or settle
or compromise any material federal, state, local or foreign tax liability
or agree to an extension of a statute of limitations except to the extent
the amount of any such settlement has been reserved for on First Brands'
most recent filing with the Commission prior to October 18, 1998;
- pay, discharge or satisfy any obligations other than the payment in the
ordinary course of business and consistent with past practice of
liabilities reflected or reserved against in the financial statements of
First Brands or incurred in the ordinary course of business and consistent
with past practice;
- except for certain plans named in the schedules to the Merger Agreement,
establish, or, subject to the terms of such program, continue to maintain,
employee compensation programs based on quarterly sales or volume targets,
or compensation programs or trade practices designed to accelerate
shipments of products to any First Brands customers in anticipation of a
change of control; or
- take, or agree in writing or otherwise to take, any of the actions
described above, or any action which would make any of the representations
or warranties of First Brands contained in the Merger Agreement untrue or
incorrect or prevent First Brands from performing or cause First Brands
not to perform its covenants under the Merger Agreement.
NO SOLICITATION
The Merger Agreement provides that, subject to the following paragraph,
First Brands will not, and will use its reasonable best efforts to cause its
subsidiaries, its representatives and the representatives of its subsidiaries to
not, initiate, solicit, encourage or take any action to facilitate any inquiries
about or the making of any proposal to effect an Alternative Transaction (as
defined below) or to enter into discussions about any Alternative Transaction.
However, if the First Brands Board determines in good faith after
consultation with Skadden that its fiduciary duties under Delaware law require
that it consider an Alternative Transaction, then the First Brands Board may
furnish information or enter into discussions or negotiations with an entity
making an unsolicited bona fide proposal relating to an Alternative Transaction.
In such circumstance, First Brands is required to enter into a confidentiality
agreement with such entity prior to furnishing any information, and the terms of
such confidentiality agreement cannot be more favorable to the third party than
the terms of the confidentiality agreement between Clorox and First Brands.
First Brands
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must communicate to Clorox the terms of any Alternative Transaction the terms of
which it feels are superior to the terms of the Merger Agreement (if financing
is also committed), unless after consulting with Skadden it determines that its
fiduciary duties under Delaware Law prevent such action.
The First Brands Board may withdraw or modify its recommendation in favor of
the Merger if
- First Brands receives an Alternative Transaction the terms and conditions
of which in the judgment of the First Brands Board are more favorable than
the terms of the Merger Agreement, and for which financing is committed,
and
- upon the advice of Skadden, the Board determines in good faith that it is
necessary to do so in order to fulfill its fiduciary duties to its
stockholders under Delaware law.
"Alternative Transaction" means any inquiry, proposal or offer from any
person relating to any
- direct or indirect acquisition or purchase of a business that constitutes
15% or more of the net revenues, net income or the assets of First Brands
and its subsidiaries, taken as a whole,
- direct or indirect acquisition or purchase of 15% or more of any class of
equity securities of First Brands or any of its subsidiaries whose
business constitutes 15% or more of the net revenues, net income or assets
of First Brands and its subsidiaries, taken as a whole,
- tender offer or exchange offer that if consummated would result in any
person beneficially owning 15% or more of any class of equity securities
of First Brands or any of its subsidiaries whose business constitutes 15%
or more of the net revenues, net income or assets of First Brands and its
subsidiaries, taken as a whole, or
- merger, consolidation, business combination, capitalization, liquidation,
dissolution or similar transaction involving First Brands or any of its
subsidiaries whose business constitutes 15% or more of the net revenues,
net income or assets of First Brands and its subsidiaries, taken as a
whole, other than the transactions contemplated by the Merger Agreement.
DIRECTOR AND OFFICER INDEMNIFICATION
For a description of the indemnification of First Brands directors and
officers pursuant to the Merger, see "The Merger--Interests of Certain Persons
in the Merger--Indemnification and Insurance."
ACCESS AND INFORMATION
The Merger Agreement provides that, until the Effective Time, First Brands
and its subsidiaries will afford to Clorox access to all of its properties,
books, contracts, commitments and records. Furthermore, First Brands will
furnish promptly to Clorox all information concerning its business, properties
and personnel as Clorox may reasonably request and will make available to Clorox
the appropriate individuals (including attorneys, accountants and other
professionals) for discussion of its properties and personnel as Clorox may
reasonably request.
Clorox will hold any information which is nonpublic in confidence in
accordance with a confidentiality agreement between it and First Brands.
Clorox and First Brands will each obtain the approval of the other prior to
issuing any press release or any other public statement with respect to the
Merger or the Merger Agreement, provided, however, that a party may, without
prior written consent of the other party, issue such press release or make such
public statement as may upon the advice of counsel be required by law or the
NYSE if it has used all reasonable efforts to consult with the other party.
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AGREEMENTS RELATING TO APPROVAL OF THE MERGER
The Merger Agreement provides that Clorox and First Brands will each use
their reasonable efforts to obtain all consents, waivers, approvals,
authorizations or orders (including, without limitation, all governmental and
regulatory rulings and approvals). Clorox and First Brands will make all filings
(including, without limitation, all filings with governmental or regulatory
agencies) required in connection with the consummation by them of the
transactions contemplated by the Merger Agreement. Clorox and First Brands will
furnish all information required to be included in any such application or other
filing. Except where prohibited by applicable statutes and regulations, and
subject to the confidentiality agreement between Clorox and First Brands, each
party will promptly provide the other (or its counsel) with copies of all
filings made by such party with any state or federal government entity in
connection with the transactions contemplated by the Merger Agreement.
FIRST BRANDS' EMPLOYEE BENEFITS
The Merger Agreement provides that Clorox will give all employees of First
Brands and its subsidiaries, employed at the Effective Time, full credit for
their prior service with First Brands or any subsidiary for purposes of
eligibility, vesting and benefit accrual (but excluding benefit accrual under
any defined benefit pension plans) under any employee benefit plans or
arrangements maintained by Clorox to the same extent recognized by First Brands
immediately prior to the Effective Time. Clorox will further waive any
pre-existing condition exclusions and waiting periods and provide credit for any
co-payments or deductibles made prior to the Effective Time with respect to
participation, coverage or out-of-pocket requirements for such employees, except
for limitations or waiting periods that are already in effect with respect to
such employees under First Brands' plans not satisfied prior to the Effective
Time.
Clorox also agrees to provide, for a period of two years immediately
following the Effective Time, coverage and benefits to such employees that, in
the aggregate, are no less favorable than those provided immediately prior to
the Effective Time.
Clorox also agrees to assume and honor certain severance arrangements to be
implemented by First Brands. See "The Merger--Interests of Certain Persons in
the Merger."
ADDITIONAL AGREEMENTS
The Merger Agreement provides that First Brands and Clorox will cooperate
with each other and use all reasonable efforts to take, or cause to be taken,
all action and to do, or cause to be done, all things necessary, proper or
advisable to consummate and make effective the transactions contemplated by the
Merger Agreement. However, Clorox will not be obligated to divest, abandon,
license or take similar action with respect to any assets of Clorox or First
Brands which, in the reasonable judgment of Clorox, would so materially
adversely impact the transactions that a reasonable business person in such
situation would not proceed with the Merger.
CONDITIONS
The obligations of Clorox and First Brands to effect the Merger are subject
to the satisfaction or waiver of certain conditions, including, among others:
EFFECTIVE REGISTRATION STATEMENT. The Registration Statement shall have
been declared effective by the Commission under the Securities Act and the
Merger shall have been accounted for in such Registration Statement as a
pooling of interests transaction;
NO INJUNCTION. No temporary restraining order, preliminary or permanent
injunction or other order issued by any court of competent jurisdiction or
other legal restraint or prohibition preventing the consummation of the
Merger shall be in effect and no litigation by any governmental entity
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seeking any of the foregoing shall have been commenced, and there shall not
be any action taken, or any statute, rule, regulation or order enacted,
entered, enforced or deemed applicable to the Merger, which makes the
consummation of the Merger illegal;
REGULATORY APPROVAL. There shall not be any action taken, or law or
regulation enacted, entered, enforced or deemed applicable to the Merger, by
any federal or state governmental entity which, in connection with the grant
of a consent or the lapse of a waiting period which is necessary for the
consummation of the Merger, imposes any condition or restriction upon the
Surviving Corporation or, under certain circumstances, Clorox, including,
without limitation, requirements relating to the disposition of assets,
which in any such case would so materially adversely impact the economic or
business benefits of the transactions contemplated by the Merger Agreement,
such that a reasonable business person in such a situation would not proceed
with the consummation of the Merger;
ACCOUNTANT'S OPINION. First Brands and Clorox shall have received (i) a
letter addressed to Clorox from Deloitte & Touche LLP, dated the date of the
Merger, in form and substance reasonably satisfactory to Clorox and (ii) a
letter addressed to First Brands from KPMG Peat Marwick LLP, dated the date
of the Merger, in form and substance reasonably satisfactory to First
Brands, in each case to the effect that the Merger qualifies for "pooling of
interests" accounting treatment for financial purposes and that such
accounting treatment is in accordance with U.S. GAAP;
HSR ACT. The waiting period (and any extension thereof) applicable to
the consummation of the Merger under the HSR Act shall have expired or been
terminated;
STOCK EXCHANGE LISTING. The shares of Clorox Common Stock issuable to
the First Brands stockholders in the Merger shall have been approved for
listing on the NYSE, subject to official notice of issuance; and
SHAREHOLDER APPROVAL. The Merger Agreement shall have been approved and
adopted by the requisite vote of the stockholders of First Brands.
ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF CLOROX AND MERGER SUB
The obligations of Clorox and Merger Sub to effect the Merger are also
subject to the following additional conditions:
REPRESENTATIONS AND WARRANTIES TRUE. The representations and warranties
of First Brands contained in the Merger Agreement shall be true and correct
on and as of the Effective Time, except (i) for changes contemplated by the
Merger Agreement, (ii) those representations and warranties which address
matters only as of a particular date (which shall remain true and correct as
of such date) and (iii) where the failure of such representations and
warranties to be so true and correct (without giving effect to any
limitation as to "materiality" or "material adverse effect" set forth
therein) would not, individually or in the aggregate, have a material
adverse effect on First Brands, with the same force and effect as if made on
and as of the Effective Time;
COMPLIANCE WITH COVENANTS. First Brands shall have performed or
complied in all material respects with all agreements and covenants required
by the Merger Agreement to be performed or complied with by it on or prior
to the Effective Time;
CONSENTS AND APPROVALS RECEIVED. All material consents, waivers,
approvals, authorizations or orders required to be obtained, and all filings
required to be made ("Material Consents"), by First Brands for the
authorization, execution and delivery of the Merger Agreement and the
consummation by it of the transactions contemplated in the Merger Agreement
shall have been obtained and made by First Brands, except where the failure
to receive such Material Consents would not have a material adverse effect
on First Brands or Clorox;
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NO MATERIAL ADVERSE CHANGE. Since October 18, 1998, there shall have
been no change in First Brands or any First Brands subsidiary having,
individually or in the aggregate, a material adverse effect on First Brands;
AFFILIATE AGREEMENTS. Clorox shall have received from each person who
is identified as an "affiliate" of First Brands for purposes of Rule 145
under the Securities Act (an "Affiliate"), an affiliate agreement relating
to, among other things, restrictions on such Affiliate's sale of Clorox
Common Stock, and such Affiliate agreement shall be in full force and effect
as of the Effective Time;
ADVISORS' REMUNERATION. Clorox shall have received a copy of final
invoices from First Brands' financial advisors, accountants and counsel at
least one business day prior to the Merger, and the sum of all fees paid and
to be paid to such parties by First Brands shall be no more than
$15,000,000; and
TAX OPINION. Clorox shall have received an opinion of its counsel, in
form and substance reasonably satisfactory to Clorox on the basis of the
facts, representations and assumptions set forth therein, to the effect that
the Merger will be treated for federal income tax purposes as a
reorganization qualifying under the provisions of Section 368(a) of the
Code, and that each of Clorox, Merger Sub and First Brands will be a party
to the reorganization within the meaning of Section 368(b) of the Code. In
addition, in the event that Clorox or First Brands is unable to obtain the
Tax Opinions, each of Clorox and First Brands is permitted under the Merger
Agreement to waive the receipt of such Tax Opinions as a condition to such
party's obligation to consummate the Merger. As of the date of this Proxy
Statement/Prospectus, neither Clorox nor First Brands intends to waive the
receipt of the Tax Opinions as a condition to such party's obligation to
consummate the Merger. In the event of such a failure to obtain the Tax
Opinions, and either Clorox or First Brands determines to waive such
condition to the consummation of the Merger, First Brands will resolicit the
votes of its stockholders to approve consummation of the Merger.
ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF FIRST BRANDS
The obligation of First Brands to effect the Merger is subject to additional
conditions which correspond to those set forth under "--Additional Conditions to
the Obligations of Clorox and Merger Sub," with the exception that First Brands'
obligations are not subject to the conditions captioned "Affiliate Agreements"
and "Advisor's Remuneration."
On or prior to the Effective Time, to the extent legally allowed, each of
Clorox and First Brands, without the approval of the First Brands stockholders,
may waive compliance with any of the agreements or satisfaction of any of the
conditions contained in the Merger Agreement for its respective benefit. See
"--Amendment; Waiver."
TERMINATION
TERMINATION GENERALLY. The Merger Agreement may be terminated at any time
prior to the Effective Time and the Merger abandoned notwithstanding approval
thereof by the First Brands stockholders:
(a) by mutual written consent duly authorized by the Clorox Board and
the First Brands Board;
(b) by either Clorox or First Brands if the Merger shall not have been
consummated by June 30, 1999 (provided that this right to terminate the
Merger Agreement will not be available to any party whose failure to fulfill
any obligation under the Merger Agreement has been the cause of or resulted
in the failure of the Merger to occur on or before such date);
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(c) by either Clorox or First Brands if a court of competent
jurisdiction or governmental entity shall have issued a non-appealable final
order or taken any other action, in each case having the effect of
prohibiting the Merger, except if the party relying on such order has not
complied with its obligations under the Merger Agreement with respect to
using its reasonable best efforts to consummate the Merger and to use its
best efforts to cause the Merger to qualify as a tax-free reorganization
under the Code;
(d) by Clorox or First Brands, if, at the First Brands stockholders'
meeting (including any adjournment or postponement thereof), the requisite
vote of the stockholders of First Brands shall not have been obtained;
(e) by Clorox, if (1) the First Brands Board withdraws, modifies or
changes its recommendation of the Merger Agreement or the Merger in a manner
adverse to Clorox or has resolved to do any of the foregoing, (2) the First
Brands Board shall have recommended to the stockholders of First Brands an
Alternative Transaction or (3) a tender offer or exchange offer for 15% or
more of the outstanding shares of First Brands Common Stock is commenced,
and the First Brands Board recommends that the stockholders of First Brands
tender their shares in such tender or exchange offer;
(f) by First Brands, if its board of directors withdraws or modifies its
recommendation of the Merger Agreement or the Merger following receipt of an
unsolicited, bona fide proposal from a third party regarding an Alternative
Transaction which the First Brands Board believes is a superior proposal, if
after duly considering the advice of counsel, it determines it is necessary
to do so in order to comply with its fiduciary duties, provided that it may
not effect such termination unless and until it pays Clorox the Fee (as
defined below); or
(g) by Clorox or First Brands, upon a breach of any representation,
warranty, covenant or agreement on the part of the other party set forth in
the Merger Agreement such that such representation, warranty, covenant or
agreement would not be true or correct or complied with in all material
respects at the time of closing. However, if such breach is curable prior to
June 30, 1999 by the breaching party, through the exercise of its reasonable
best efforts, the non-breaching party may not terminate the Merger
Agreement.
EFFECT OF TERMINATION; TERMINATION FEE. In the event of termination, the
Merger Agreement will be of no further effect and there will be no liability or
obligation on the part of any party to the Merger Agreement or their respective
affiliates, directors, officers or stockholders except (i) as provided in the
Merger Agreement with respect to payment of fees and survival of representations
and warranties and (ii) for a termination resulting from a willful breach by a
party to the Merger Agreement. Except for transaction expenses such as
attorneys' fees, printing and filing costs and the Fee (as defined below), (i)
all fees and expenses incurred in connection with the Merger Agreement and the
transactions contemplated thereby will be paid by the party incurring such
expenses, if the Merger is not consummated or (ii) if the Merger is consummated,
then the Surviving Corporation will pay all such fees and expenses; provided,
however, that Clorox and First Brands will share equally all fees and expenses,
other than attorney's fees, incurred in relation to the printing and filing of
this Proxy Statement/ Prospectus and the Registration Statement including any
preliminary materials related thereto.
Pursuant to the Merger Agreement, First Brands will pay Clorox a fee of
$52,000,000 in cash (the "Fee"), upon the earlier to occur of (i) the
termination of the Merger Agreement by Clorox pursuant to the rights described
under part (e) of "--Termination Generally" or (ii) one day prior to the
termination of the Merger Agreement by First Brands pursuant to the rights
described under part (f) of "--Termination Generally."
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AMENDMENT; WAIVER
The Merger Agreement may be amended by the parties thereto by action taken
by or on behalf of their respective board of directors at any time prior to the
Effective Time; provided, however, that, after approval of the Merger by the
stockholders of First Brands, any subsequent amendment which by law requires
stockholder approval may only be made with such approval. The Merger Agreement
may not be amended except by an instrument in writing signed by the parties
thereto.
At the Effective Time or any time prior thereto, to the extent legally
allowed, the parties to the Merger Agreement may (1) extend the time for the
performance of any of the obligations or other acts of the other parties
thereto, (2) waive any inaccuracies in the representations and warranties
contained in the Merger Agreement or in any document delivered pursuant thereto
and (3) waive compliance with any of the agreements or conditions contained in
the Merger Agreement. Any agreement on the part of a party thereto to any such
extension or waiver shall be valid only if set forth in an instrument in writing
signed on behalf of such party.
DESCRIPTION OF CLOROX COMMON STOCK
Clorox is authorized to issue up to 375,000,000 shares of Clorox Common
Stock, par value $1.00 per share. Holders of shares of Clorox Common Stock are
entitled to one vote per share on all matters to be voted on by stockholders.
The holders of Clorox Common Stock are entitled to receive such dividends, if
any, as may be declared from time to time by the Clorox Board out of funds
legally available therefor. Upon liquidation or dissolution of Clorox, the
holders of Clorox Common Stock are entitled to share ratably in the distribution
of assets, subject to the rights of the holders of Clorox Preferred Stock (as
defined below), if any. Holders of Clorox Common Stock have no preemptive
rights, subscription rights or conversion rights. There are no redemption or
sinking fund provisions with respect to the Clorox Common Stock. As of December
15, 1998, there were approximately 103,717,000 shares of Clorox Common Stock
outstanding, held by approximately 13,756 holders of record.
In addition, Clorox is authorized to issue 5,000,000 shares of preferred
stock, $1.00 par value per share (the "Clorox Preferred Stock"), in one or more
series as determined by the Clorox Board. No shares of Clorox Preferred Stock
are currently issued or outstanding. The Clorox Board may, without further
action by the stockholders of Clorox, issue a series of Clorox Preferred Stock
and fix the rights and preferences of those shares, including the dividend
rights, dividend rates, conversion rights, exchange rights, voting rights, terms
of redemption, redemption price or prices, liquidation preferences, the number
of shares constituting any series and the designation of such series. The rights
of the holders of Clorox Common Stock will be subject to, and may be adversely
affected by, the rights of the holders of any Clorox Preferred Stock issued by
Clorox in the future.
CLOROX'S TRANSFER AGENT AND REGISTRAR. First Chicago Trust Company of New
York is the transfer agent and registrar of the Clorox Common Stock.
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COMPARISON OF RIGHTS OF CLOROX STOCKHOLDERS
AND FIRST BRANDS STOCKHOLDERS
THE FOLLOWING IS A SUMMARY OF THE PRINCIPAL DIFFERENCES BETWEEN THE CURRENT
RIGHTS OF FIRST BRANDS STOCKHOLDERS AND THOSE OF CLOROX STOCKHOLDERS FOLLOWING
THE MERGER. IT IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE DGCL, THE
CERTIFICATE OF INCORPORATION OF CLOROX (THE "CLOROX CHARTER"), THE BYLAWS OF
CLOROX (THE "CLOROX BYLAWS"), THE CERTIFICATE OF INCORPORATION OF FIRST BRANDS
(THE "FIRST BRANDS CHARTER") AND THE BYLAWS OF FIRST BRANDS (THE "FIRST BRANDS
BYLAWS"). COPIES OF THE CLOROX CHARTER AND THE CLOROX BYLAWS ARE INCORPORATED BY
REFERENCE HEREIN AND WILL BE SENT TO HOLDERS OF SHARES OF FIRST BRANDS COMMON
STOCK UPON A REQUEST MADE TO CLOROX'S SECRETARY. SEE "WHERE YOU CAN FIND MORE
INFORMATION."
COMPARISON OF CURRENT FIRST BRANDS STOCKHOLDER RIGHTS AND RIGHTS OF CLOROX
STOCKHOLDERS FOLLOWING THE MERGER
Neither the Clorox Charter nor the Clorox Bylaws are being amended in
connection with the Merger. Accordingly, upon consummation of the Merger, the
rights of First Brands stockholders who become Clorox stockholders in the Merger
will be governed by the DGCL, and each of the Clorox Charter and the Clorox
Bylaws, as currently in effect.
The rights of First Brands stockholders under the First Brands Charter and
the First Brands Bylaws prior to the Merger are substantially the same as the
rights of Clorox stockholders (including First Brands stockholders who become
Clorox stockholders as a result of the Merger) under the Clorox Charter and the
Clorox Bylaws, with the following principal exceptions:
AUTHORIZED COMMON STOCK. The authorized Common Stock of First Brands
consists of 120,000,000 shares, par value $0.01 per share, of which
approximately 39,135,000 shares were issued and outstanding as of December 15,
1998. In addition, First Brands has authorized 10,000,000 shares of preferred
stock, par value $1.00 per share, for issuance. No shares of First Brands
preferred stock are currently issued and outstanding. The authorized capital of
Clorox is set forth under "Description of Clorox Common Stock."
BOARD OF DIRECTORS; NUMBER OF DIRECTORS. The First Brands Charter provides
that the First Brands Board will have no less than 9 nor more than 15 members,
with the exact number to be determined by the First Brands Board. The First
Brands Board currently consists of 10 members. The Clorox Charter provides that
the Clorox Board will consist of no less than 9 members, with the exact number
to be determined by the Clorox Board. The Clorox Board currently consists of 11
members.
TERM OF DIRECTORS. Members of the First Brands Board are divided into three
classes, with each class serving a staggered three-year term. Members of the
Clorox Board are not divided into classes and serve for a term of one year.
COMPOSITION OF THE BOARD/NOMINATION OF DIRECTORS. Neither the First Brands
Charter nor the First Brands Bylaws provide for cumulative voting for election
of directors. Nominations of persons for election to the First Brands Board may
be made by or at the direction of the First Brands Board, or by First Brands
stockholders in accordance with the procedures set forth in the First Brands
Bylaws. Under the First Brands Charter, vacancies in the First Brands Board may
be filled by the affirmative vote of a majority of the directors then in office,
though less than a quorum, or by a sole remaining director. Any director elected
to fill a vacancy holds office until the next meeting of stockholders at which
the term of office of the class to which such director has been appointed
expires. Pursuant to the First Brands Charter, one or more members of the First
Brands Board may be removed only for cause (as defined in the First Brands
Charter) at a special meeting of stockholders called for that purpose, by vote
of the holders of a majority of the voting power of all of the shares of First
Brands entitled to vote for the election of directors.
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Neither the Clorox Charter nor the Clorox Bylaws provides for cumulative
voting for election of directors. Nominations of persons for election to the
Clorox Board may be made by or at the direction of the Clorox Board, or by
Clorox stockholders according to the procedures described in the Clorox Bylaws.
Under the Clorox Bylaws, vacancies in the Clorox Board may be filled by
resolution of a majority of the directors then in office, though less than a
quorum, or by a sole remaining director, and any director so appointed will hold
office until the next annual meeting of stockholders. The Clorox Charter and the
Clorox Bylaws do not contain provisions regarding the removal of directors, and
accordingly such matter would be governed by the DGCL. The DGCL provides that
directors may be removed (with or without cause) by vote of the holders of a
majority of shares entitled to vote at an election of directors.
AMENDMENT OF CHARTER/BYLAWS. Except as described below with respect to
supermajority voting requirements, any provision contained in the First Brands
Charter may be amended, altered, changed or repealed as prescribed pursuant to
the DGCL.
The First Brands Bylaws may be amended by the affirmative vote of two-thirds
of the shares entitled to vote thereon or by a majority of the First Brands
Board, each without the consent of the other; except that revisions to the
provisions of the First Brands Bylaws relating to the holding and notice of
annual and special meetings of the First Brands stockholders, the nomination and
election of directors, and the amendment of the First Brands Bylaws, if made by
the First Brands Board, must be approved by a vote of not less than two-thirds
of the entire First Brands Board.
Except as described below with respect to supermajority voting requirements,
any provision contained in the Clorox Charter may be amended, altered, changed
or repealed as prescribed by the DGCL.
The Clorox Bylaws provide for their amendment by a majority of either the
Clorox Board or the shares entitled to vote thereon.
SUPERMAJORITY VOTING REQUIREMENTS/SHAREHOLDER ACTION BY WRITTEN
CONSENT. The First Brands Charter provides that First Brands may not merge with
any business entity, sell, exchange or dispose of all or substantially all its
assets or liquidate or dissolve without the affirmative vote of two-thirds of
the shares entitled to vote thereon. The First Brands Charter also provides that
the affirmative vote of two-thirds of the First Brands voting stock is required
to amend or repeal the provisions in the First Brands Charter governing the
election and removal of directors, and the affirmative vote of 80% of the First
Brands voting stock is required to amend or repeal the provisions governing the
classification and terms of members of the First Brands Board. The First Brands
Charter also provides that no action may be taken by the stockholders by written
consent in lieu of a meeting unless and until 80% of the First Brands Common
Stock is held by one person or entity.
The Clorox Charter provides that any (i) merger of Clorox or any subsidiary
into or with an Interested Stockholder (generally, a 5% stockholder) or any
other corporation which after such merger would be an affiliate of such
Interested Stockholder, (ii) sale of or other disposition of assets to or with
any Interested Stockholder or any affiliate thereof with an aggregate fair
market value of more than 10% of the consolidated total assets of Clorox, (iii)
issuance of any securities of Clorox or any subsidiary to an Interested
Stockholder or any affiliate thereof the consideration for which has an
aggregate fair market value of more than 10% of the consolidated total assets of
Clorox, (iv) adoption of any plan or proposal for the liquidation of Clorox by
or on behalf of an Interested Stockholder or an affiliate thereof, or (v) any
reclassification or recapitalization of the securities of Clorox or any merger
or consolidation of Clorox with any of its subsidiaries or any other transaction
that has the effect, directly or indirectly, of increasing the proportionate
share of Clorox's equity securities owned by any Interested Stockholder will
require the affirmative vote of at least 80% of the voting stock outstanding,
unless the transaction is approved by a majority of the Disinterested Directors
(generally, a Clorox Board member who is unaffiliated with an Interested
Stockholder) or the consideration offered in the
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transaction meets certain requirements as described in Article Six of the Clorox
Charter. The Clorox Charter further provides that the foregoing provisions may
only be modified upon the affirmative vote of 80% of the voting stock
outstanding. The Clorox Charter also provides that no action may be taken by the
Clorox stockholders by written consent.
RIGHTS PLAN. In March 1996, First Brands adopted a Rights Agreement (the
"Rights Plan") pursuant to which one preferred share purchase right was issued
for each outstanding share of First Brands Common Stock outstanding or issued on
or after April 1, 1996. Each right entitles the holder to purchase one
one-thousandth of a share of First Brands Junior Participating Preferred Stock,
Series A, at a price of $87.50 upon the occurrence of certain events. The rights
expire in April 2006, unless earlier redeemed by First Brands.
The rights become exercisable upon the earlier to occur of (i) a person
having acquired, or obtained the right to acquire, beneficial ownership of 20%
or more of the First Brands Common Stock, and (ii) on the tenth business day
after the public announcement of the commencement of a tender offer or exchange
offer for First Brands Common Stock, if after acquiring the maximum number of
shares sought pursuant to such offer, the person making the offer would own 20%
or more of the outstanding shares of First Brands Common Stock. If First Brands
were to be acquired at any time after the rights become exercisable, the holder
of a purchase right would have the right to receive, upon exercise of the right,
that number of shares of common stock of the acquiring company or First Brands,
as the case may be, which would have a market value equal to two times the
exercise price of the right. The purchase rights are redeemable by the First
Brands Board at a price of $0.01 per right at any time within ten days after a
person has acquired 20% or more of the First Brands Common Stock. THE FIRST
BRANDS BOARD PASSED A RESOLUTION PRIOR TO SIGNING THE MERGER AGREEMENT MAKING
THE RIGHTS PLAN INAPPLICABLE TO CLOROX OR THE MERGER.
The above summary of the Rights Plan is qualified in its entirety by
reference to the terms and conditions of the Rights Plan and the First Brands
Charter. See "Where You Can Find More Information."
Clorox has not adopted a stockholders' rights plan.
REDEMPTION RIGHTS. Neither the First Brands Charter nor the Clorox Charter
contemplates the repurchase or redemption of shares of common stock, but either
action is allowed under the DGCL, and each company has repurchased its shares in
the past.
INDEMNIFICATION. Under the First Brands Charter and the First Brands
Bylaws, First Brands is required to indemnify, in the manner and to the full
extent permitted by law, any person made or threatened to be made a party to a
proceeding (whether civil, criminal or otherwise) by reason of the fact that
such person (or his estate) is or was a director or officer of First Brands or
by reason of the fact that such director or officer was serving in any other
capacity at the request of First Brands. However, a director will be liable to
the extent provided by applicable law (1) for any breach of the director's duty
of loyalty to First Brands or its stockholders, (2) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of the
law, (3) under Section 174 of the DGCL or (4) for any transaction from which the
director derived an improper personal benefit. First Brands may also, to the
full extent permitted by law, purchase and maintain insurance on behalf of any
of its directors, officers or agents and may advance the expenses of any current
or former director, officer employee or trustee in defending any action brought
against any of them. No person will be entitled to indemnification or to
advances with respect to any action brought by them against First Brands other
than an action to recover or enforce such person's right to indemnification or
advance.
The Clorox Charter provides that Clorox is required to indemnify to the full
extent permitted by Delaware law any person made, or threatened to be made, a
party to an action or proceeding, whether criminal, civil, administrative or
investigative, by reason of the fact that the person, or the testator or
56
<PAGE>
intestate of such person, is or was a director or officer of Clorox, or served
any business as a director or officer at the request of Clorox. Expenses
incurred by a director of Clorox in defending a civil or criminal action, suit
or proceeding by reason of the fact that such person was a director of Clorox
(and not in any other capacity, including if such person was serving at Clorox's
request as a director or officer of another enterprise or corporation) will be
paid by Clorox in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such director to
repay such amount if it shall ultimately be determined that such person is not
entitled to be indemnified by Clorox as authorized by relevant sections of the
DGCL. Clorox will indemnify officers or directors in connection with a
proceeding initiated by them only if such proceeding was authorized by the
Clorox Board. Any person who is not paid pursuant to the foregoing
indemnification provisions 90 days after submitting a written claim to Clorox
may sue to recover such unpaid amounts and, if successful, will be entitled to
be paid the expense of prosecuting such claim (except for any such claims as
Clorox is not permitted by law to indemnify, although the burden of proving such
defense will be on Clorox). The Clorox Charter also provides that no director
will be liable to Clorox for a breach of fiduciary duty, except (1) for any
breach of the director's duty of loyalty to Clorox or its stockholders, (2) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of the law, (3) under Section 174 of the DGCL, or (4) for any
transaction from which the director derived an improper personal benefit. Clorox
may also maintain insurance at its expense, to protect itself and any director
or officer of Clorox or of another corporation or other enterprise against any
expense, liability or loss, whether or not Clorox would have the power to
indemnify such person against such expense, liability or loss under the DGCL.
57
<PAGE>
PRO FORMA FINANCIAL INFORMATION
FINANCIAL STATEMENTS
The following unaudited pro forma combined condensed financial statements
have been prepared to give effect to the Merger, using the pooling of interests
method of accounting.
The unaudited pro forma combined condensed financial statements reflect
certain assumptions deemed probable by management regarding the Merger (for
example, the share information used in the unaudited pro forma information
approximates actual share information at the Effective Time). No adjustments to
the unaudited pro forma combined condensed financial information have been made
to account for different possible results in connection with the foregoing, as
management believes that the impact on such information by the varying outcomes,
individually or in the aggregate, would not be material.
The unaudited pro forma combined condensed balance sheet as of September 30,
1998 gives effect to the Merger as if it had occurred on September 30, 1998, and
combines the unaudited consolidated balance sheet of Clorox and the unaudited
consolidated balance sheet of First Brands as of September 30, 1998. The
unaudited pro forma combined statements of income for all periods presented give
effect to the Merger as if it had occurred at the beginning of the periods
presented. For purposes of the unaudited pro forma combined condensed statements
of income for the periods presented, First Brands' consolidated statements of
income for the fiscal years ended June 30, 1996, 1997 and 1998 have been
combined with Clorox's consolidated statements of income for each of the fiscal
years ended June 30, 1996, 1997 and 1998, respectively. Additionally for
purposes of the pro forma combined condensed statements of income, First Brands'
consolidated statements of income for the three month periods ended September
30, 1997 and 1998 have been combined with Clorox's consolidated statements of
income for the three month periods ended September 30, 1997 and 1998,
respectively.
Clorox and First Brands estimate they will incur combined aggregate direct
transaction costs of approximately $15.5 million associated with the Merger,
consisting of transaction fees for investment bankers, attorneys, accountants,
and other related costs. These nonrecurring transaction costs will be charged to
operations upon consummation of the Merger. It is expected that following the
Merger, the combined company will incur additional nonrecurring costs currently
estimated to be approximately $125 million, including non-cash charges estimated
at $30 million. No estimate for these charges has been reflected in the pro
forma combined condensed balance sheet or pro forma combined condensed
statements of income. There can be no assurance that the combined company will
not incur additional charges in excess of $125 million, to reflect costs
associated with the Merger or that management will be successful in its efforts
to integrate the operations of the two companies.
The unaudited pro forma combined condensed financial information is
presented in this Proxy Statement/Prospectus for illustrative purposes only and
is not necessarily indicative of the financial position or results of operations
that would have actually been reported had the Merger occurred at the beginning
of the periods presented (or as of September 30, 1998, as the case may be), nor
is it necessarily indicative of the financial position or results of operations
of the merged company in the future. Such unaudited pro forma combined condensed
financial statements are based upon the respective historical consolidated
financial statements and notes thereto of Clorox and First Brands included
elsewhere in this Proxy Statement/Prospectus or incorporated herein by
reference, and do not incorporate, nor do they assume, any benefits from cost
savings or synergies that the combined company may realize after the Merger.
58
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET(1)(2)
SEPTEMBER 30, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS AND PRO FORMA
CLOROX FIRST BRANDS RECLASSIFICATIONS COMBINED
------------ ------------ --------------- ------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and short term investments....................... $ 109,156 $ 19,115 $ 128,271
Accounts and notes receivable, net.................... 347,342 95,103 $ (20,736)(b) 421,709
Inventories........................................... 214,701 154,106 368,807
Prepaid expenses and other............................ 45,598 4,564 50,162
Deferred income taxes................................. 21,668 12,209 33,877
------------ ------------ --------------- ------------
Total current assets................................ 738,465 285,097 (20,736) 1,002,826
------------ ------------ --------------- ------------
Property, plant and equipment, net.................... 598,402 418,199 1,016,601
Brands, trademarks and other intangibles.............. 1,248,899 332,505 1,581,404
Investments in affiliates............................. 89,478 -- 5,675(b) 95,153
Other assets.......................................... 334,738 35,404 (5,675)(b) 364,467
------------ ------------ --------------- ------------
Total............................................... $ 3,009,982 $ 1,071,205 $ (20,736) $ 4,060,451
------------ ------------ --------------- ------------
------------ ------------ --------------- ------------
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable...................................... $ 127,363 $ 40,294 $ 167,657
Accrued liabilities................................... 192,671 67,837 $ (20,736)(b) 239,772
Accrued merger costs.................................. -- -- 15,500(a) 15,500
Short-term debt and notes payable..................... 666,485 4,280 670,765
Income taxes payable.................................. 56,437 15,871 72,308
Current maturities of long-term debt.................. 1,461 3,184 4,645
------------ ------------ --------------- ------------
Total current liabilities........................... 1,044,417 131,466 (5,236) 1,170,647
------------ ------------ --------------- ------------
Long-term debt........................................ 466,294 443,785 910,079
Other obligations..................................... 209,404 26,955 236,359
Deferred income taxes................................. 188,266 79,023 267,289
------------ ------------ --------------- ------------
Total liabilities................................... 1,908,381 681,229 (5,236) 2,584,374
------------ ------------ --------------- ------------
Stockholders' equity:
Common stock and paid-in capital...................... 198,620 134,601 333,221
Treasury shares, at cost.............................. (415,221) (125,872) (541,093)
Accumulated other comprehensive income................ (106,876) (31,310) (138,186)
Other................................................. (7,074) -- (7,074)
Retained earnings..................................... 1,432,152 412,557 (15,500)(a) 1,829,209
------------ ------------ --------------- ------------
Stockholders' equity................................ 1,101,601 389,976 (15,500) 1,476,077
------------ ------------ --------------- ------------
Total............................................... $ 3,009,982 $ 1,071,205 $ (20,736) $ 4,060,451
------------ ------------ --------------- ------------
------------ ------------ --------------- ------------
</TABLE>
See notes to unaudited pro forma combined condensed financial statements.
59
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF EARNINGS(1), (3), (4)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED JUNE 30, SEPTEMBER 30,
---------------------------------------- ----------------------
1996 1997 1998 1997 1998
------------ ------------ ------------ ---------- ----------
<S> <C> <C> <C> <C> <C>
Net sales...................................... $ 3,265,330 $ 3,622,993 $ 3,897,976 $ 913,805 $ 964,670
------------ ------------ ------------ ---------- ----------
Cost and expenses
Cost of products sold........................ 1,631,082 1,766,894 1,889,162 444,998 458,146
Selling, delivery and administration......... 624,598 717,119 783,722 175,194 191,355
Advertising.................................. 403,310 481,412 491,377 112,874 114,453
Research and development..................... 50,610 55,532 60,783 12,911 14,365
Restructuring................................ -- 19,000 2,700 -- --
Interest expense............................. 59,797 79,998 103,867 23,755 27,482
Other expense, net........................... 16,627 3,625 9,746 2,202 772
------------ ------------ ------------ ---------- ----------
Total costs and expenses................... 2,786,024 3,123,580 3,341,357 771,934 806,573
------------ ------------ ------------ ---------- ----------
Earnings before income taxes, extraordinary
loss and cumulative effect of change in
accounting principle....................... 479,306 499,413 556,619 141,871 158,097
Income taxes................................... 192,114 199,106 206,329 55,335 58,355
------------ ------------ ------------ ---------- ----------
Earnings before extraordinary loss and
cumulative effect of change in accounting
principle.................................... $ 287,192 $ 300,307 $ 350,290 $ 86,536 $ 99,742
------------ ------------ ------------ ---------- ----------
------------ ------------ ------------ ---------- ----------
EARNINGS PER COMMON SHARE:
before extraordinary loss and cumulative
effect of change in accounting principle
Basic........................................ $ 2.42 $ 2.55 $ 2.98 $ 0.74 $ 0.85
Diluted...................................... 2.39 2.50 2.92 0.72 0.83
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic........................................ 118,638 117,746 117,551 117,376 117,443
Diluted...................................... 120,108 119,903 119,993 119,639 119,702
</TABLE>
See notes to unaudited pro forma combined condensed financial statements.
60
<PAGE>
NOTES TO UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL STATEMENTS
(1) PRO FORMA BASIS OF PRESENTATION
The unaudited pro forma combined condensed financial statements for the
years ended June 30, 1996, 1997 and 1998 reflect the combination of the
financial statements of Clorox and First Brands for those years. The unaudited
pro forma combined condensed statements of earnings for the three month periods
ended September 30, 1997 and 1998 reflect the combination of the statements of
earnings of Clorox and First Brands for those periods. No adjustments have been
made in these pro forma combined condensed financial statements to conform the
accounting policies of the combined company, as the nature and amounts of such
adjustments are deemed insignificant.
These unaudited pro forma combined condensed financial statements reflect
the issuance of 13,833,000 shares of Clorox Common Stock in exchange for an
aggregate of 39,020,000 shares of First Brands Common Stock (outstanding as of
September 30, 1998) in connection with the Merger, based on an assumed Exchange
Ratio of 0.3545 (which assumes an average price for Clorox Common Stock of $110
per share during the prescribed measurement period) as set forth in the
following table:
<TABLE>
<S> <C>
Shares of First Brands Common Stock outstanding as of September
30, 1998..................................................... 39,020,000
Exchange Ratio................................................. 0.3545
-----------
Number of shares of Clorox Common Stock exchanged for First
Brands Common Stock.......................................... 13,833,000
Number of shares of Clorox Common Stock outstanding at
September 30, 1998........................................... 103,525,000
-----------
Number of shares of Clorox Common Stock outstanding at
September 30, 1998 after giving effect to the Merger......... 117,358,000
-----------
-----------
</TABLE>
The actual number of shares of Clorox Common Stock to be issued will be
determined at the Effective Time based on the number of shares of First Brands
Common Stock outstanding at that date and the Exchange Ratio. See "Risk
Factors--Adjustable Exchange Ratio."
(2) PRO FORMA COMBINED BALANCE SHEET
(a) Clorox and First Brands estimate they will incur direct transaction
costs of approximately $15,500,000 associated with the Merger, consisting of
transaction fees for investment bankers, attorneys, accountants, and other
related costs. These nonrecurring transaction costs will be charged to
operations upon consummation of the Merger. These charges have been reflected in
the unaudited pro forma combined condensed balance sheet but have not been
included in the unaudited pro forma combined condensed statements of earnings.
(b) Represents certain reclassifications to conform First Brands' balance
sheet classifications to Clorox's balance sheet classifications at September 30,
1998.
(c) It is expected that, following the Merger, the combined company will
incur additional nonrecurring costs currently estimated to be approximately
$125,000,000, including non-cash charges estimated at $30,000,000, in connection
with the Merger. No estimate for these charges has been reflected in the pro
forma combined condensed balance sheet or combined condensed statements of
earnings. There can be no assurance that the combined company will not incur
additional charges in excess of $125,000,000 to reflect costs associated with
the Merger, or that management will be successful in its efforts to integrate
the operations of the two companies.
61
<PAGE>
NOTES TO UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(3) PRO FORMA COMBINED CONDENSED STATEMENTS OF EARNINGS
The following are certain classifications of historical results of
operations of Clorox and First Brands and their pro forma combined amounts
included in the unaudited pro forma combined condensed statements of earnings
for which certain reclassifications have been made to the historical results of
First Brands to conform to Clorox's classifications. These pro forma amounts
reflect the Merger as if it were effected for all periods presented below:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED JUNE 30, SEPTEMBER 30,
---------------------------------------- ----------------------
1996 1997 1998 1997 1998
------------ ------------ ------------ ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
NET SALES:
Clorox......................................... $ 2,217,843 $ 2,532,651 $ 2,741,270 $ 649,284 $ 685,883
First Brands................................... 1,073,022 1,119,898 1,203,670 269,480 291,509
Pro Forma reclassifications.................... (25,535) (29,556) (46,964) (4,959) (12,722)
------------ ------------ ------------ ---------- ----------
Net sales.................................... $ 3,265,330 $ 3,622,993 $ 3,897,976 $ 913,805 $ 964,670
------------ ------------ ------------ ---------- ----------
------------ ------------ ------------ ---------- ----------
COST OF PRODUCTS SOLD:
Clorox......................................... $ 1,007,200 $ 1,123,459 $ 1,192,534 $ 279,694 $ 288,551
First Brands................................... 687,103 713,203 775,870 183,195 188,859
Pro Forma reclassifications.................... (63,221) (69,768) (79,242) (17,891) (19,264)
------------ ------------ ------------ ---------- ----------
$ 1,631,082 $ 1,766,894 $ 1,889,162 $ 444,998 $ 458,146
------------ ------------ ------------ ---------- ----------
------------ ------------ ------------ ---------- ----------
SELLING, DELIVERY AND ADMINISTRATION:
Clorox......................................... $ 464,767 $ 543,804 $ 592,557 $ 130,399 $ 142,618
First Brands................................... 241,711 268,086 291,156 53,911 65,720
Pro Forma reclassifications.................... (81,880) (94,771) (99,991) (9,116) (16,983)
------------ ------------ ------------ ---------- ----------
$ 624,598 $ 717,119 $ 783,722 $ 175,194 $ 191,355
------------ ------------ ------------ ---------- ----------
------------ ------------ ------------ ---------- ----------
DEPRECIATION AND AMORTIZATION:
Clorox......................................... $ -- $ -- $ -- $ -- $ --
First Brands................................... 15,607 13,411 14,585 3,860 4,004
Pro Forma reclassifications.................... (15,607) (13,411) (14,585) (3,860) (4,004)
------------ ------------ ------------ ---------- ----------
$ 0 $ 0 $ 0 $ 0 $ 0
------------ ------------ ------------ ---------- ----------
------------ ------------ ------------ ---------- ----------
ADVERTISING:
Clorox......................................... $ 285,015 $ 348,521 $ 362,093 $ 91,544 $ 91,592
First Brands................................... -- -- -- -- --
Pro Forma reclassifications.................... 118,295 132,891 129,284 21,330 22,861
------------ ------------ ------------ ---------- ----------
$ 403,310 $ 481,412 $ 491,377 $ 112,874 $ 114,453
------------ ------------ ------------ ---------- ----------
------------ ------------ ------------ ---------- ----------
RESEARCH AND DEVELOPMENT:
Clorox......................................... $ 45,821 $ 50,489 $ 56,005 $ 11,606 $ 12,949
First Brands................................... -- -- -- -- --
Pro Forma reclassifications.................... 4,789 5,043 4,778 1,305 1,416
------------ ------------ ------------ ---------- ----------
$ 50,610 $ 55,532 $ 60,783 $ 12,911 $ 14,365
------------ ------------ ------------ ---------- ----------
------------ ------------ ------------ ---------- ----------
</TABLE>
62
<PAGE>
NOTES TO UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(3) PRO FORMA COMBINED CONDENSED STATEMENTS OF EARNINGS (CONTINUED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED JUNE 30, SEPTEMBER 30,
---------------------------------------- ----------------------
1996 1997 1998 1997 1998
------------ ------------ ------------ ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
INTEREST EXPENSE:
Clorox......................................... $ 38,288 $ 55,623 $ 69,702 $ 15,494 $ 18,796
First Brands................................... 17,546 20,383 29,604 7,114 7,199
Pro Forma reclassifications.................... 3,963 3,992 4,561 1,147 1,487
------------ ------------ ------------ ---------- ----------
$ 59,797 $ 79,998 $ 103,867 $ 23,755 $ 27,482
------------ ------------ ------------ ---------- ----------
------------ ------------ ------------ ---------- ----------
OTHER (INCOME) EXPENSE, NET:
Clorox......................................... $ 6,365 $ (5,260) $ (3,546) $ (1,359) $ (3,150)
First Brands................................... (1,827) (1,575) 500 288 670
Pro Forma reclassifications.................... 12,089 10,460 12,792 3,273 3,252
------------ ------------ ------------ ---------- ----------
$ 16,627 $ 3,625 $ 9,746 $ 2,202 $ 772
------------ ------------ ------------ ---------- ----------
------------ ------------ ------------ ---------- ----------
EARNINGS BEFORE EXTRAORDINARY LOSS AND
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLE:
Clorox......................................... $ 222,092 $ 249,442 $ 297,960 $ 74,363 $ 85,422
First Brands................................... 65,100 50,865 52,330 12,173 14,320
Pro Forma reclassifications.................... -- -- -- -- --
------------ ------------ ------------ ---------- ----------
$ 287,192 $ 300,307 $ 350,290 $ 86,536 $ 99,742
------------ ------------ ------------ ---------- ----------
------------ ------------ ------------ ---------- ----------
</TABLE>
(4) PRO FORMA EARNINGS PER SHARE
The following table reconciles the number of shares used in the pro forma
earnings per share computations to the number of shares set forth in Clorox's
and First Brands' historical statements of earnings.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED JUNE 30, SEPTEMBER 30,
------------------------------- --------------------
1996 1997 1998 1997 1998
--------- --------- --------- --------- ---------
(IN THOUSANDS EXCEPT ASSUMED CONVERSION RATIO)
<S> <C> <C> <C> <C> <C>
SHARES USED IN CALCULATIONS:
Historical basic shares--Clorox............................ 103,869 103,292 103,507 103,217 103,604
--------- --------- --------- --------- ---------
Historical basic shares--First Brands...................... 41,662 40,772 39,616 39,942 39,039
Assumed conversion ratio................................... .3545 .3545 .3545 .3545 .3545
--------- --------- --------- --------- ---------
14,769 14,454 14,044 14,159 13,839
--------- --------- --------- --------- ---------
Pro forma combined basic shares............................ 118,638 117,746 117,551 117,376 117,443
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Historical diluted shares--Clorox.......................... 105,006 105,100 105,635 105,184 105,637
--------- --------- --------- --------- ---------
Historical diluted shares--First Brands.................... 42,600 41,757 40,502 40,775 39,677
Assumed conversion ratio................................... .3545 .3545 .3545 .3545 .3545
--------- --------- --------- --------- ---------
15,102 14,803 14,358 14,455 14,065
--------- --------- --------- --------- ---------
Pro forma combined diluted shares.......................... 120,108 119,903 119,993 119,639 119,702
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
63
<PAGE>
EXPERTS
The consolidated financial statements of Clorox incorporated in this Proxy
Statement/Prospectus by reference from Clorox's Annual Report on Form 10-K for
the fiscal year ended June 30, 1998 have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their reports which are incorporated by
reference herein, and have been so incorporated in reliance upon the reports of
such firm given upon their authority as experts in accounting and auditing.
The consolidated financial statements and schedule of First Brands as of
June 30, 1998 and 1997, and for each of the years in the three-year period ended
June 30, 1998, have been incorporated by reference herein and in the
Registration Statement in reliance upon the report of KPMG Peat Marwick LLP,
independent certified public accountants, incorporated by reference herein, and
upon the authority of said firm as experts in accounting and auditing.
OTHER RELEVANT INFORMATION FOR FIRST BRANDS STOCKHOLDERS
FIRST BRANDS BOARD AND COMMITTEES
There were five regular and two telephonic meetings of the First Brands
Board during fiscal year 1998. All of the incumbent directors attended at least
78% of the total number of meetings of the First Brands Board and committees on
which they served. Directors who are employees of First Brands do not receive
any compensation for service as directors. Mr. Dudley, who retired from First
Brands on September 1, 1994, and relinquished the title of Chairman on January
1, 1997, received a fee of $100,000 for consulting services from July 1, 1997
through December 31, 1997. Each non-employee director is currently paid an
annual retainer of $20,000 and fees of $1,000 for attendance at each First
Brands Board meeting or committee meeting not held in conjunction with a board
meeting. First Brands Board members are paid $500 for attendance at each
telephonic meeting, or telephonic committee meeting not held in conjunction with
a board meeting. Directors are also reimbursed for reasonable expenses incurred
in attending board and committee meetings of First Brands. In addition, under
the Director's Plan adopted at the 1995 First Brands annual meeting of
stockholders, non-employee directors receive 2,000 non-qualified stock options
on the first Friday following First Brands' annual meeting of stockholders. The
options vest on the second anniversary of the grant and have an exercise price
equal to the average of the high and low prices on the date of grant.
The members of the First Brands Board are elected to various standing
committees which include the: Audit Committee, Compensation Committee, Executive
Committee, Nominating Committee and Pension Committee.
The functions of the Audit Committee are to recommend a firm of independent
auditors to perform the annual audit; review and approve the scope of the
independent and internal auditors' work; review the effectiveness of First
Brands' internal controls; and review and approve the fees of the independent
auditors and related matters. The Audit Committee met once in fiscal 1998. The
members of the Audit Committee are Denis Newman (Chairman), Robert F. Bernstock,
John C. Ferries and James R. Maher.
The functions of the Compensation Committee are to review and approve the
salaries of senior officers and managers of First Brands; approve the amount
authorized for, approve awards under and administer the Option Plans; and review
additional compensation arrangements. The Compensation Committee met twice in
fiscal 1998. The members of the Compensation Committee are Ervin R. Shames
(Chairman), James R. McManus and Robert G. Tobin.
The function of the Executive Committee is to act for the First Brands Board
between regular meetings to the extent permitted by the DGCL on matters that
need timely attention. The Executive Committee met twice in fiscal 1998. The
members of the Executive Committee are Alfred E. Dudley (Chairman), Denis
Newman, Thomas H. Rowland and William V. Stephenson.
64
<PAGE>
The functions of the Nominating Committee are to establish criteria for
First Brands Board membership; search for and screen candidates to fill
vacancies on the First Brands Board; recommend an appropriate slate of
candidates for election each year; assess the overall performance of the First
Brands Board; and consider issues regarding the composition, tenure and size of
the First Brands Board. The Nominating Committee will consider nominations by
stockholders. The Nominating Committee met once in fiscal 1998. The members of
the Nominating Committee are Alfred E. Dudley, James R. McManus, Ervin R. Shames
and William V. Stephenson.
The functions of the Pension Committee are to supervise the administration
of First Brands' pension and savings plans; review the levels of funding and
allocation of funds invested in the plans; and review the performance of the
investments and investment managers against goals. The Pension Committee met
twice in fiscal 1998. The members of the Pension Committee are Robert G. Tobin
(Chairman); Robert F. Bernstock, John C. Ferries and James R. Maher.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the First Brands Board consists of three
non-employee directors who make decisions pertaining to executive compensation
and benefits. The Committee uses the services of an outside compensation
consultant to assist in making objective decisions based on data from consumer
products companies of similar size, some of which are in the peer group of
companies included in the stock performance graph.
COMPENSATION PHILOSOPHY
First Brands' executive compensation program has three objectives:
1. To provide compensation that rewards executives for meeting and
exceeding internal performance goals and standards.
2. To maintain a compensation program that attracts and retains high
quality executives.
3. To create a link between the interests of First Brands' stockholders,
First Brands' financial performance and the total compensation
opportunities for its executive officers.
The executive compensation program consists of base salary, an annual cash
incentive plan, long-term stock option incentive plans, a non-qualified deferred
compensation plan, an executive life insurance plan, and qualified and
non-qualified retirement plans.
First Brands maintains a benefit program that is competitive with other
consumer products companies of similar size. The program includes qualified
retirement, savings and disability programs as well as medical, dental and
business travel insurance programs.
Base salaries are targeted slightly below the 50th percentile of competitive
salaries for executives of consumer products companies of similar size. Salary
ranges are established using published surveys and other external data.
Variation in compensation between individuals is based on position value,
experience level and performance against pre-established objectives. Individual
increases are typically given at twelve month intervals, and the amount is based
on the individual's performance and place in the salary range. Prior to
approving individual increases, the Compensation Committee reviews each senior
executive's performance against previously established performance goals.
First Brands' Annual Incentive Plan provides for an annual cash award based
on attainment of operating income goals, and the awards are targeted at slightly
above the 50th percentile for executives of consumer products companies of
similar size. The plan triggers if a pre-approved threshold is achieved.
Individual awards are determined by total corporate, business unit and
individual performance levels. The performance level of the business unit is
measured on an unweighted basis by market share and operating income. Individual
performance goals are established for each senior executive at
65
<PAGE>
the commencement of each year. The Compensation Committee approves the total
dollar pool available and the amount awarded to each senior executive
participant. In respect of the named executives in the Summary Compensation
Table on page 68, the Compensation Committee will also assess First Brands'
relative financial performance against peer group consumer products companies
considering such measures as earnings per share growth, sales growth,
improvement in return on equity and acquisition success.
The Option Plans were established in 1989, 1994 and 1998. All option shares
available under the 1989 Long Term Incentive Plan have been granted. The 1989
plan provides for non-qualified stock options, Long-term Stock Appreciation
Rights ("LSAR's") and restricted stock. LSAR's are exercisable only in change of
control situations. The 1994 Performance Stock Option and Incentive Plan
provides for non-qualified stock options, LSAR's and restricted stock. Options
may have an exercise price of either 100% of the fair market value of the
underlying shares of common stock ("Market Priced Options") or more than 100% of
such fair market value ("Premium Priced Options"). Of the Market Priced Options,
a portion may vest as of specific dates and a portion may be subject to
performance vesting. At the time of the grant, a "trigger stock price" or other
performance criteria upon which the vesting of performance options will be based
may be established. These options will be exercisable at the earlier of the date
that the market price exceeds the trigger stock price or the ninth anniversary
of the grant. The 1998 Performance Stock Option and Incentive Plan provides for
non-qualified stock options, LSAR's and performance stock units (for
international management). There were no options granted during fiscal year
1998. No restricted stock has been granted under the 1989 or the 1994 plan, and
there is no provision for restricted stock in the 1998 plan. The Compensation
Committee approves grants of a sufficient number and type of stock options to
retain executives based on its review of surveys of long-term incentive and
long-term capital accumulation plans available to similar positions at other
consumer products companies of similar size.
In addition to the qualified retirement plans, officers of First Brands also
participate in a non-qualified Retirement Plan that alleviates the impact of tax
or legal restrictions imposed upon the qualified plan when total annual
compensation is used in calculating pension benefits.
First Brands has established its Deferral Plan for senior executives. This
plan permits deferral of a portion of base salary and/or annual incentive awards
to a later date, normally until after retirement. Interest on deferred
compensation is based on seven-year U.S. Treasury Bond yields plus a margin
which is intended to approximate the margin First Brands would incur if it were
issuing a senior unsecured bond with a seven-year maturity. If the participant
defers salary or bonus for seven or more years or until death, disability or
retirement, the interest on the deferred amount for the entire period will be
the Treasury Bond yield, plus the margin, plus 3%.
The Compensation Committee endorses the position that stock ownership by
management provides linkage in aligning management's and stockholders' interest
in enhancing stockholder value although the Committee does not set target
ownership levels for executive equity holdings. During fiscal year 1995,
stockholders approved an amendment to the Annual Incentive Plan which permits
certain members of senior management to elect to receive all or a portion of
their annual incentive award in First Brands Common Stock instead of cash. Those
who elect stock instead of cash receive a premium of 25% in stock, thereby
encouraging management to increase stock ownership. The stock acquired under the
Annual Incentive Plan is restricted in its transferability or sale for a period
of two years from the date of issuance.
Section 162(m) of the Code, enacted in 1993, limits the tax deduction that
corporations may take with respect to the compensation of certain executive
officers, unless the compensation is "performance based" as defined in the Code.
The Committee believes that all compensation received by the executive officers
is performance based, and in any event, the deductibility limits in the Code
have not been reached. There is no loss of deduction for fiscal year 1998.
66
<PAGE>
RELATIONSHIP OF CORPORATE PERFORMANCE TO EXECUTIVE COMPENSATION
First Brands has two types of executive compensation incentive plans, the
Annual Incentive Plan and the Option Plans (both previously described), which
reward executives based on the performance of First Brands.
The Annual Incentive Plan provides compensation based on the attainment of
operating income objectives which are contained in the annual business plan. For
the named executives in the Summary Compensation Table, First Brands' financial
performance relative to a peer group of companies is also considered in order to
validate incentive compensation in comparison with these companies. The annual
business plan is developed by First Brands' management and approved by the First
Brands Board at the beginning of each fiscal year. The financial measures used
to validate incentive awards are approved by the Compensation Committee at the
beginning of each fiscal year.
The Option Plans use stock price appreciation as the incentive to reward
executives over the long term. Compensation gained as a result of this program
has a direct relationship to the gain achieved by investors in First Brands'
stock.
1998 FISCAL YEAR COMPENSATION OF CHIEF EXECUTIVE OFFICER
Mr. Stephenson earned $465,000 in base salary during fiscal year 1998 and
received an annual incentive award of $180,000 for his overall performance for
the year. The Compensation Committee determined that these amounts were
justified when considering First Brands' financial performance for the fiscal
year as well as Mr. Stephenson's personal performance based upon return on
equity, sales growth, acquisition success, market share, operating income,
earnings per share growth and overall management effectiveness. The Compensation
Committee also considered Mr. Stephenson's compensation as compared to chief
executive officers of the peer group of consumer products companies that First
Brands traditionally monitors. Mr. Stephenson's total cash compensation (base
salary and annual incentive) for fiscal year 1998 was slightly lower than the
preceding fiscal year.
COMPENSATION COMMITTEE
Ervin R. Shames, Chairman
James R. McManus
Robert G. Tobin
67
<PAGE>
SUMMARY COMPENSATION TABLE
Furnished below is a summary of the compensation paid and/or awarded to the
Chief Executive Officer and to each of the other four most highly compensated
executive officers of First Brands for fiscal years 1996-1998.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM
------------------------------------------------ COMP.(2) ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) OTHER ($)(1) OPTIONS (#) COMPENSATION ($)(3)
- ------------------------------------------ --------- ---------- ---------- ------------- ----------- -------------------
<S> <C> <C> <C> <C> <C> <C>
William V. Stephenson .................... 1998 $ 465,000 $ 180,000 -- -- $ 36,217
Chairman and CEO 1997 440,000 210,000 -- 70,000 32,058
1996 379,167 300,000 -- 80,000 35,669
Thomas H. Rowland ........................ 1998 258,500 90,000 -- -- 14,787
President and COO 1997 241,263 90,000 11,250 40,000 13,404
1996 195,030 120,000 22,500 48,000 15,724
Donald A. DeSantis ....................... 1998 218,680 80,000 -- -- 14,019
Senior Vice President and CFO 1997 210,080 82,000 -- 25,000 12,155
1996 199,530 110,000 -- 32,000 13,133
Einar M. Rod(4) .......................... 1998 165,950 40,000 2,250 -- 9,779
Vice President, General Counsel 1997 158,150 32,000 2,000 15,000 8,764
1996 17,456 -- -- -- 524
Patrick J. O'Brien ....................... 1998 155,000 45,000 5,625 -- 8,759
Vice President, and President of 1997 146,500 51,000 6,375 25,000 7,102
Household Products 1996 137,600 60,000 11,250 32,000 8,076
</TABLE>
- ------------------------
(1) The amount in this column represents the premium that these individuals
received by selecting First Brands stock rather than cash for a portion of
their award under the Annual Incentive Plan.
(2) There were no options granted under the 1994 Performance Stock Option and
Incentive Plan or the 1998 Performance Stock Option and Incentive Plan
during fiscal year 1998 for executive officers and other employees.
(3) All Other Compensation includes the employer match under First Brands'
savings plan and the compensation to each individual attributable to the
current dollar value of the premium payable by First Brands under its
Executive Life Insurance Program. The employer match under the savings plan
and the life insurance compensation for all executive officers totaled
$47,087 and $93,087, respectively, for fiscal year 1998. Prior to fiscal
year 1996, life insurance provided by First Brands for the executive
officers was included in First Brands' group insurance program.
(4) Mr. Rod joined First Brands on May 20, 1996.
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<PAGE>
OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
The following table lists the shares acquired on exercise of options by the
executive officers named in the Summary Compensation Table during fiscal year
1998 and certain information as to options outstanding at the end of fiscal year
1998.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE- MONEY OPTIONS AT
SHARES OPTIONS AT FISCAL YEAR END FISCAL YEAR END (1)
ACQUIRED ON VALUE -------------------------- ---------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------------- ------------- ------------- ----------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
W.V. Stephenson (2).......... 4,000 $ 64,500 192,000 150,000 $ 1,989,006 $ 220,000
T.H. Rowland................. -- -- 166,000 88,000 $ 1,746,879 $ 132,498
D.A. DeSantis................ -- -- 112,000 57,000 $ 1,235,128 $ 88,000
E.M. Rod..................... -- -- -- 15,000 -- --
P.J. O'Brien................. -- -- 95,500 57,000 $ 1,069,425 $ 88,000
</TABLE>
- ------------------------
(1) Values have been calculated based on the closing price of First Brands
Common Stock reported on the NYSE Composite Tape on June 30, 1998, which was
$25.2813 per share.
(2) Options were exercised to acquire additional First Brands Common Stock.
RETIREMENT PLAN
First Brands currently maintains the First Brands' Retirement Program Plan,
a non-contributory defined benefit Retirement Plan covering 78% of all U.S.
employees, including those of its subsidiaries. The officers listed in the
foregoing Summary Compensation Table are covered by this Retirement Plan.
Outside the United States, certain of First Brands' subsidiaries have retirement
programs that are generally administered by trustees or insurance companies.
Under this Retirement Plan, the monthly amount of an employee's retirement
benefit upon retirement at age 65 is the greater of (a) 1.2% of average monthly
compensation received during the three-year period preceding retirement, or 1.2%
of average monthly compensation received during the three best calendar years in
the final ten calendar years preceding retirement, if the latter average would
result in a higher pension benefit, multiplied by the number of years of
credited service, plus $12 or (b) 1.5% of the average monthly compensation
computed as in (a) above, multiplied by the number of years of credited service,
less a percentage, based on service and not exceeding 50%, of the projected
primary Social Security benefit or such maximum percentage as is allowed under
the Code. In January 1995, First Brands announced a change in this formula
beginning January 2000, to a defined benefit based on years of credited service
and career average compensation. Effective January 1, 2000 the formula for the
retirement program is changed as follows: the total benefit will equal the sum
of (a) the pension benefit for each individual as of December 31, 1999 using the
present formulas and (b) 1.5% of eligible annual earnings for each year.
An employee who is (i) age 62 or over with ten or more years of credited
service or (ii) whose age and years of credited service add up to 85, may
voluntarily retire earlier than age 65 with a retirement benefit, unreduced
because of early retirement. Employees may retire as early as age 50 with ten
years of credited service but will receive an actuarially reduced pension
benefit.
The amounts contributed by First Brands to this Retirement Plan are
calculated on a group basis that is actuarially determined. No specific amount
is set aside by First Brands for any individual officer or employee under this
Retirement Plan. The amounts shown in the following table are the estimated
annual retirement benefits payable at age 65 for the respective average annual
remuneration levels and years of service credit indicated. Actual benefits will
not exceed limits permitted under the Code and applicable regulations. Amounts
shown are computed based upon straight life annuity amounts and are
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<PAGE>
reduced by 1.5% of the employee's primary Social Security benefit for each year
of the employee's credited service up to a maximum deduction of 50% of such
Social Security benefit. Annual retirement benefits are based on average
earnings.
For federal income tax purposes the amount of benefits that can be paid from
the qualified plan is restricted. First Brands maintains a nonqualified
Retirement Plan, the effect of which is to award retirement benefits to all
employees on a uniform basis. The nonqualified Retirement Plan is unfunded.
First Brands also maintains a savings plan as part of its long term
retirement/savings program to which it contributes to the account of each
eligible employee who chooses to participate. Effective January 1995, First
Brands contributes 50% of each employee's basic 401(k) contributions, up to 6%
of regular earnings. Any regular employee of First Brands or its subsidiaries is
eligible to participate. In fiscal year 1996, First Brands instituted a profit
sharing contribution based on First Brands' operating performance. Profit
sharing will be contributed in shares of First Brands common stock, allocated to
separate employee 401(k) accounts based on First Brands service credit.
As of June 30, 1998, the credited years of service (credited service is
combined from First Brands and Union Carbide Corporation) for the individuals
named in the Summary Compensation Table were as follows: William V. Stephenson,
34 years; Thomas H. Rowland, 24 years; Donald A. DeSantis, 12 years; Einar M.
Rod, 2 years; and Patrick J. O'Brien, 13 years.
<TABLE>
<CAPTION>
ESTIMATED ANNUAL RETIREMENT BENEFITS
AT AGE 65 FOR YEARS OF SERVICE CREDIT
AVERAGE ANNUAL REMUNERATION ----------------------------------------------------------
USED FOR CALCULATING RETIREMENT BENEFITS 25 30 35 40 45
- ----------------------------------------------------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
$150,000............................................. $ 56,250 $ 67,500 $ 78,750 $ 90,000 $ 101,250
$200,000............................................. 75,000 90,000 105,000 120,000 135,000
$250,000............................................. 93,750 112,500 131,250 150,000 168,750
$300,000............................................. 112,500 135,000 157,500 180,000 202,500
$350,000............................................. 131,250 157,500 183,750 210,000 236,250
$400,000............................................. 150,000 180,000 210,000 240,000 270,000
$450,000............................................. 168,750 202,500 236,250 270,000 303,750
$500,000............................................. 187,500 225,000 262,500 300,000 337,500
$550,000............................................. 206,250 247,500 288,750 330,000 371,250
$600,000............................................. 225,000 270,000 315,000 360,000 405,000
$700,000............................................. 262,500 315,000 367,500 420,000 472,500
$800,000............................................. 300,000 360,000 420,000 480,000 540,000
</TABLE>
SEVERANCE AGREEMENTS
First Brands has also entered into Severance Agreements with certain
executive officers generally providing severance benefits if the employee is
terminated for reasons other than "cause" within two years after a "change in
control." The severance benefits include cash payments equal to two years salary
and bonus, except for William V. Stephenson, who would receive payments equal to
three years salary and bonus, and certain other employee and retirement
benefits. Provision for a tax gross-up payment is also included to cover excise
taxes, if any, on payments paid under these agreements. See "The
Merger--Interests of Certain Persons in the Merger."
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<PAGE>
FIVE YEAR STOCK PERFORMANCE GRAPH
The following table compares total stockholder returns for First Brands to
the Standard & Poor's 500 Stock Index ("S&P 500"), the Standard & Poor's Midcap
400 Consumer Products Index ("S&P 400 CP")(1) and the combined S&P Midcap 400
and 500 Household Products Index ("S&P 400 & 500 HP")(2), for the five-year
period beginning June 30, 1993 through the fiscal year end of June 30, 1998 (the
"Performance Period"). Assuming $100 was invested on June 30, 1993 in First
Brands Common Stock and in each of the foregoing indices and the reinvestment of
dividends, if any, on a quarterly basis, the total return for First Brands
Common Stock was 56% during the Performance Period as compared with a total
return during the same period for the S&P 500, the S&P Midcap 400 CP and the S&P
400 & 500 HP of 169%, 11%, and 206%, respectively. The compound annual growth
rate for First Brands Common Stock was 9.3% for the five-year period.
There can be no assurance that First Brands' stock performance will continue
into the future with the same or similar trends depicted in the graph below.
First Brands will not make or endorse any predictions as to future stock
performance.
FIRST BRANDS CORPORATION
TOTAL RETURN PERFORMANCE
COMPARISON SINCE JUNE 1993
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
FBC S&P 500 S&P 400 CP(1) S&P 400 & 500 HP(2)
<S> <C> <C> <C> <C>
Jun-93 100 100 100 100
Jun-94 102 101 71 108
Jun-95 141 139 81 148
Jun-96 169 171 85 192
Jun-97 163 229 103 271
Jun-98 156 269 111 306
CAGR(3) 9.3% 21.9% 2.1% 25.0%
</TABLE>
71
<PAGE>
STOCK PERFORMANCE GRAPH SINCE DECEMBER 1989
The following table compares total stockholder returns for First Brands to
the S&P 500, S&P 400 CP and the S&P 400 & 500 HP, for the eight and a half year
period beginning on December 29, 1989 (the end of the first month following
First Brands' initial public offering) through the fiscal year end of June 30,
1998. Assuming $100 was invested on December 29, 1989 in First Brands Common
Stock and in each of the foregoing indices and the reinvestment of dividends, if
any, on a quarterly basis, the total return for First Brands Common Stock was
192% as compared with a total return during the same period for the S&P 500, the
S&P Midcap 400 CP and the S&P 400 & 500 HP of 242%, 92% and 427%, respectively.
The compound annual growth rate for First Brands Common Stock was 13.4% for the
eight and a half year period.
There can be no assurance that First Brands' stock performance will continue
into the future with the same or similar trends depicted in the graph below.
First Brands will not make or endorse any predictions as to future stock
performance.
FIRST BRANDS CORPORATION
TOTAL RETURN PERFORMANCE
COMPARISON SINCE JUNE 1989
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
FBC S&P 500 S&P 400 CP(1) S&P 400 & 500 HP(2)
<S> <C> <C> <C> <C>
Dec-89 100 100 100 100
Jun-90 109 97 106 120
Jun-91 139 126 168 131
Jun-92 157 136 175 161
Jun-93 187 150 173 172
Jun-94 191 152 123 186
Jun-95 263 209 140 256
Jun-96 316 257 147 331
Jun-97 304 257 178 467
Jun-98 292 342 192 527
CAGR(3) 13.4% 15.5% 8.0% 21.5%
</TABLE>
- ------------------------
(1) The S&P Midcap 400 Consumer Products Index is comprised of the following
companies: Carter-Wallace, Inc., Church & Dwight, Inc., A.T. Cross, Dial
Corp., Enesco Group, Inc. (formerly Stanhome, Inc.), First Brands, Gibson
Greetings, Inc., Lancaster Colony Corporation, National Presto, Inds., Inc.,
Perrigo Company and Tambrands (acquired by Procter & Gamble on August 18,
1997). First Brands has not been eliminated from this peer group for
purposes of this presentation.
(2) The combined S&P Midcap 400 and 500 Household Products Index is comprised of
the following companies: Church & Dwight, Inc., Clorox, Colgate-Palmolive
Company, Dial Corporation, First Brands, Fort James Corporation,
Kimberly-Clark Corporation and The Procter & Gamble Company. First Brands
has not been eliminated from this peer group for purposes of this
presentation.
(3) Compound Annual Growth Rate.
72
<PAGE>
BENEFICIAL OWNERSHIP OF VOTING SECURITIES
The following table sets forth certain information concerning the beneficial
ownership of each stockholder who is known by First Brands to own beneficially
in excess of 5% of the outstanding First Brands Common Stock.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP PERCENT OF CLASS
- -------------------------------------------------------------------------- -------------------- -----------------
<S> <C> <C>
Fidelity Management & Research Co.
82 Devonshire
Boston, MA 02109........................................................ 4,504,000(a) 11.51%
GSB Investment Management
301 Commerce Street
Fort Worth, TX 76102.................................................... 3,162,000(b) 8.08%
Harris Associates LP
2 North LaSalle Street
Chicago, IL 60602....................................................... 2,763,000(c) 7.06%
Lazard Freres
30 Rockefeller Plaza
New York, NY 10020...................................................... 2,130,000(d) 5.44%
</TABLE>
- ------------------------
(a) Information concerning beneficial ownership by Fidelity Management &
Research Corporation is based on a report on Form 13F filed with the
Commission on September 30, 1998.
(b) Information concerning beneficial ownership by GSB Investment Management is
based on a report on Form 13F filed with the Commission as of September 30,
1998.
(c) Information concerning beneficial ownership by Harris Associates LP is based
on a report on Form 13G filed with the Commission on October 30, 1998.
(d) Information concerning beneficial ownership by Lazard Freres is based upon a
report on Form 13F filed with the Commission on September 30, 1998.
The following table sets forth certain information concerning the beneficial
ownership of First Brands Common Stock as of December 15, 1998 by each director
of First Brands, by each of the
73
<PAGE>
executive officers named in the Summary Compensation Table and by all Directors
and executive officers as a group (18 persons):
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF BENEFICIAL
NAME AND ADDRESS OF BENEFICIAL OWNER OWNERSHIP(A) PERCENT OF CLASS(B)
- -------------------------------------------------- ------------------------------------------ ---------------------
<S> <C> <C>
Robert F. Bernstock............................... 0 .00%
Alfred E. Dudley.................................. 446,000 1.14
John C. Ferries................................... 1,000 .00
James R. Maher.................................... 8,270 .02
James R. McManus.................................. 14,000 .04
Denis Newman...................................... 94,684 .24
Ervin R. Shames................................... 18,164 .05
Robert G. Tobin................................... 10,000 .03
William V. Stephenson............................. 381,125(c) .97
Thomas H. Rowland................................. 180,157(c) .46
Donald A. DeSantis................................ 167,839(c) .43
Einar M. Rod...................................... 1,729 .00
Patrick J. O'Brien................................ 99,361(c) .25
All Directors and Executive Officers as a Group... 1,764,649(c) 4.52%
</TABLE>
- ------------------------
(a) Under rules of the Commission, persons who have power to vote or dispose of
securities, either alone or jointly with others, are deemed for purposes of
this table, to be the beneficial owners of such securities. Each nominee,
director and officer has both sole voting power and sole investment power
with respect to the shares set forth in the table.
(b) No nominee or director is the beneficial owner of more than 1.1% of the
outstanding shares of common stock.
(c) Includes 192,000, 166,000, 112,000, 95,500, and 411,250 shares which William
V. Stephenson, Thomas H. Rowland, Donald A. DeSantis, Patrick J. O'Brien and
all Directors and executive officers as a group, respectively, have a right
to acquire within 60 days of September 1, 1998 upon the exercise of stock
options. The shares issuable upon exercise of options included herein were
deemed to be outstanding for purposes of calculating the percentages of
shares.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
First Brands is required to identify any officer, director or owner of more
than 10% of its common stock who during the last fiscal year failed to file
timely with the Commission a required report under Section 16(a) of the Exchange
Act relating to beneficial ownership of First Brands Common Stock. Based solely
on a review of information provided to First Brands, all persons subject to the
reporting requirements of Section 16(a) of the Exchange Act filed the required
reports on a timely basis for fiscal year 1998.
FUTURE STOCKHOLDER PROPOSALS
If the Merger is not consummated, First Brands will hold an annual meeting
in the year 2000. If such meeting is held, First Brands stockholders must
deliver any proposals which they intend to present at such meeting to First
Brands within a reasonable time before the solicitation of proxies for such
meeting is made. This would ensure that such proposals are included in the proxy
materials.
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<PAGE>
LEGAL MATTERS
Certain legal matters with respect to the validity of the securities offered
hereby and the federal income tax consequences of the Merger will be passed upon
for Clorox by Morrison & Foerster LLP, San Francisco, California. Certain legal
matters with respect to the federal income tax consequences of the Merger will
be passed upon for First Brands by Skadden, Arps, Slate, Meagher & Flom LLP, New
York, New York.
WHERE YOU CAN FIND MORE INFORMATION
First Brands and Clorox file annual, quarterly and special reports, proxy
statements and other information with the Commission. You may read and copy any
reports, statements or other information filed by either company at the
Commission's public reference rooms in Washington, D.C., New York, New York and
Chicago, Illinois. Please call the Commission at 1-800-SEC-0330 for further
information on the public reference rooms. The companies' Commission filings are
also available to the public from commercial document retrieval services and at
the web site maintained by the Commission at "http:// www.sec.gov."
Clorox filed a Registration Statement on Form S-4 to register with the
Commission the Clorox Common Stock to be issued to First Brands stockholders in
the Merger. This Proxy Statement/Prospectus is a part of that Registration
Statement and constitutes a prospectus of Clorox in addition to being a proxy
statement of First Brands for the Special Meeting. As allowed by Commission
rules, this Proxy Statement/Prospectus does not contain all the information you
can find in the Registration Statement or the exhibits to the Registration
Statement.
The Commission allows First Brands and Clorox to "incorporate by reference"
information into this Proxy Statement/Prospectus, which means important
information may be disclosed to you by referring you to another document filed
separately with the Commission. The information incorporated by reference is
deemed to be part of this Proxy Statement/Prospectus, except for any information
superseded by information in (or incorporated by reference in) this Proxy
Statement/Prospectus. This Proxy Statement/Prospectus incorporates by reference
the documents set forth below that have been previously filed with the
Commission. These documents contain important information about our companies
and their finances.
<TABLE>
<S> <C>
CLOROX FILINGS (FILE NO. 1-07151) PERIOD
Annual Report on Form 10-K Year ended June 30, 1998
Quarterly Report on Form 10-Q Quarter ended September 30, 1998
FIRST BRANDS FILINGS (FILE NO. 1-10395) PERIOD
Annual Report on Form 10-K Year ended June 30, 1998
Quarterly Report on Form 10-Q Quarter ended September, 30, 1998
</TABLE>
First Brands and Clorox are also incorporating by reference additional
documents that either company may file with the Commission pursuant to the
Exchange Act between the date of this Proxy Statement/Prospectus and the date of
the Special Meeting.
Clorox has supplied all information contained or incorporated by reference
in this Proxy Statement/Prospectus relating to Clorox, and First Brands has
supplied all such information relating to First Brands.
If you are a stockholder of Clorox or First Brands, Clorox and First Brands
may have sent you some of the documents incorporated by reference, but you can
obtain any of them through either company or the Commission. Documents
incorporated by reference are available from either company without charge,
excluding all exhibits unless we have specifically incorporated by reference an
exhibit in this Proxy Statement/Prospectus. Stockholders may obtain documents
incorporated by reference in this
75
<PAGE>
Proxy Statement/Prospectus by requesting them in writing or by telephone from
the appropriate party at the following address:
<TABLE>
<S> <C>
First Brands Corporation The Clorox Company
83 Wooster Heights Road 1221 Broadway
Post Office Box 1911 Oakland, California 94612-1888
Danbury, Connecticut 06813-1911 Tel: (510) 271-2150
Tel: (203) 731-2300 Attention: Director of Investor
Attention: Secretary Relations
website: HTTP://WWW.FIRSTBRANDS.COM website: HTTP://WWW.CLOROX.COM
</TABLE>
IF YOU WOULD LIKE TO REQUEST DOCUMENTS FROM EITHER COMPANY, PLEASE DO SO BY
JANUARY 15, 1999 TO RECEIVE THEM BEFORE THE SPECIAL MEETING.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROXY STATEMENT/PROSPECTUS TO VOTE ON THE APPROVAL OF THE
MERGER AGREEMENT. NEITHER FIRST BRANDS NOR CLOROX HAS AUTHORIZED ANYONE TO
PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT FROM WHAT IS CONTAINED IN THIS
PROXY STATEMENT/PROSPECTUS. THIS PROXY STATEMENT/PROSPECTUS IS DATED DECEMBER
28, 1998. YOU SHOULD NOT ASSUME THAT THE INFORMATION CONTAINED IN THIS PROXY
STATEMENT/PROSPECTUS IS ACCURATE AS OF ANY DATE OTHER THAN THAT DATE, AND
NEITHER THE MAILING OF THIS PROXY STATEMENT/PROSPECTUS TO STOCKHOLDERS NOR THE
ISSUANCE OF CLOROX COMMON STOCK IN THE MERGER SHALL CREATE ANY IMPLICATION TO
THE CONTRARY.
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APPENDICES TO THE
PROXY STATEMENT/PROSPECTUS
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APPENDIX A AGREEMENT AND PLAN OF REORGANIZATION AND MERGER
APPENDIX B OPINION OF LEHMAN BROTHERS
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APPENDIX A
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF REORGANIZATION
AND
MERGER
BY AND AMONG
THE CLOROX COMPANY,
PENNANT, INC.
AND
FIRST BRANDS CORPORATION
---------------
DATED AS OF OCTOBER 18, 1998
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TABLE OF CONTENTS
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ARTICLE I THE MERGER................................................................. A-1
SECTION 1.01. The Merger........................................................ A-1
SECTION 1.02. Effective Time.................................................... A-2
SECTION 1.03. Effect of the Merger.............................................. A-2
SECTION 1.04. Certificate of Incorporation and By-Laws.......................... A-2
SECTION 1.05. Directors and Officers............................................ A-2
SECTION 1.06. Merger Consideration; Conversion and Cancellation of Securities... A-2
SECTION 1.07. Exchange of Certificates.......................................... A-4
SECTION 1.08. Stock Transfer Books.............................................. A-5
SECTION 1.09. Lost, Stolen or Destroyed Certificate............................. A-5
SECTION 1.10. Tax and Accounting Consequences................................... A-6
SECTION 1.11. Material Adverse Effect........................................... A-6
ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY............................. A-6
SECTION 2.01. Organization and Qualification; Subsidiaries...................... A-6
SECTION 2.02. Capitalization.................................................... A-6
SECTION 2.03. Authority Relative to this Agreement.............................. A-7
SECTION 2.04. SEC Filings; Financial Statements................................. A-7
SECTION 2.05. Absence of Certain Changes or Events.............................. A-8
SECTION 2.06. No Undisclosed Liabilities........................................ A-8
SECTION 2.07. No Violation...................................................... A-8
SECTION 2.08. Absence of Litigation............................................. A-8
SECTION 2.09. Employee Benefit Plans; Employment Agreements..................... A-9
SECTION 2.10. Labor Matters..................................................... A-9
SECTION 2.11. Registration Statement; Joint Proxy Statement/Prospectus.......... A-10
SECTION 2.12. Taxes............................................................. A-10
SECTION 2.13. Environmental Matters............................................. A-11
SECTION 2.14. Brokers........................................................... A-12
SECTION 2.15. Opinion of Financial Advisor...................................... A-12
SECTION 2.16. Intellectual Property............................................. A-12
SECTION 2.17. Vote Required..................................................... A-12
SECTION 2.18. Pooling Matters................................................... A-12
SECTION 2.19. Change in Control Payments........................................ A-13
ARTICLE III REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB..................
A-12
SECTION 3.01. Organization and Qualification; Subsidiaries...................... A-12
SECTION 3.02. Capitalization.................................................... A-13
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SECTION 3.03. Authority Relative to this Agreement.............................. A-14
SECTION 3.04. SEC Filings; Financial Statements................................. A-14
SECTION 3.05. Absence of Certain Changes or Events.............................. A-14
SECTION 3.06. No Undisclosed Liabilities........................................ A-15
SECTION 3.07. Absence of Litigation............................................. A-15
SECTION 3.08. No Violation...................................................... A-15
SECTION 3.09. Employee Benefit Plans............................................ A-15
SECTION 3.10. Labor Matters..................................................... A-16
SECTION 3.11. Registration Statement; Joint Proxy Statement/Prospectus.......... A-16
SECTION 3.12. Taxes............................................................. A-16
SECTION 3.13. Environmental Matters............................................. A-17
SECTION 3.14. Brokers........................................................... A-18
SECTION 3.15. Opinion of Financial Advisor...................................... A-18
SECTION 3.16. Intellectual Property............................................. A-18
SECTION 3.17. Pooling Matters................................................... A-18
SECTION 3.18. Ownership of Shares............................................... A-18
ARTICLE IV CONDUCT OF BUSINESS PENDING THE MERGER.................................... A-18
SECTION 4.01. Conduct of Business by the Company Pending the Merger............. A-18
SECTION 4.02. No Solicitation................................................... A-20
ARTICLE V ADDITIONAL AGREEMENTS...................................................... A-20
SECTION 5.01. Joint Proxy Statement Prospectus; Registration Statement.......... A-21
SECTION 5.02. Company Stockholders' Meeting..................................... A-21
SECTION 5.03. Access to Information; Confidentiality............................ A-21
SECTION 5.04. Consents; Approvals............................................... A-22
SECTION 5.05. Agreements of Affiliates.......................................... A-22
SECTION 5.06. Notification of Certain Matters................................... A-22
SECTION 5.07. Further Assurances; Tax Treatment................................. A-22
SECTION 5.08. Employees, Employee Benefits...................................... A-23
SECTION 5.09. Public Announcements.............................................. A-24
SECTION 5.10. Listing of Parent Common Stock.................................... A-24
SECTION 5.11. Conveyance Taxes.................................................. A-24
SECTION 5.12. Pooling Accounting Treatment...................................... A-24
SECTION 5.13. Indemnification, Exculpation and Insurance........................ A-24
ARTICLE VI CONDITIONS TO THE MERGER.................................................. A-25
SECTION 6.01. Conditions to Obligation of Each Party to Effect the Merger....... A-25
SECTION 6.02. Additional Conditions to Obligations of Parent and Merger Sub..... A-26
SECTION 6.03. Additional Conditions to Obligation of the Company................ A-27
</TABLE>
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ARTICLE VII TERMINATION.............................................................. A-28
SECTION 7.01. Termination....................................................... A-28
SECTION 7.02. Effect of Termination............................................. A-28
SECTION 7.03. Fees and Expenses................................................. A-28
ARTICLE VIII GENERAL PROVISIONS...................................................... A-29
SECTION 8.01. Effectiveness of Representations, Warranties and Agreements;
Knowledge, Etc.................................................. A-29
SECTION 8.02. Notices........................................................... A-29
SECTION 8.03. Certain Definitions............................................... A-30
SECTION 8.04. Amendment......................................................... A-31
SECTION 8.05. Waiver............................................................ A-31
SECTION 8.06. Headings.......................................................... A-31
SECTION 8.07. Severability...................................................... A-31
SECTION 8.08. Entire Agreement.................................................. A-31
SECTION 8.09. Assignment, Merger Sub............................................ A-31
SECTION 8.10. Parties in Interest............................................... A-31
SECTION 8.11. Governing Law..................................................... A-31
SECTION 8.12. Counterparts...................................................... A-32
SECTION 8.13. Waiver of Jury Trial.............................................. A-32
</TABLE>
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<PAGE>
AGREEMENT AND PLAN
OF
REORGANIZATION AND MERGER
THIS AGREEMENT AND PLAN OF REORGANIZATION AND MERGER, dated as of October
18, 1998 (this "AGREEMENT"), among THE CLOROX COMPANY, a Delaware corporation
("PARENT"), PENNANT, INC., a Delaware corporation and a direct wholly owned
subsidiary of Parent ("MERGER SUB"), and FIRST BRANDS CORPORATION, a Delaware
corporation (the "COMPANY").
WITNESSETH:
WHEREAS, the Boards of Directors of Parent, Merger Sub and the Company have
each determined that it is advisable and in the best interests of their
respective stockholders for Parent to enter into a strategic business
combination with the Company upon the terms and subject to the conditions set
forth herein;
WHEREAS, in furtherance of such combination, the Boards of Directors of
Parent, Merger Sub and the Company have each approved the Merger (the "MERGER")
of Merger Sub with and into the Company in accordance with the applicable
provisions of the Delaware General Corporation Law ("DGCL"), and upon the terms
and subject to the conditions set forth herein;
WHEREAS, Parent, Merger Sub and the Company intend that the Merger qualify
as a reorganization under Section 368(a) of the Internal Revenue Code of 1986,
as amended (the "CODE"), and that, by approving resolutions authorizing this
Agreement, this Agreement be adopted as a plan of reorganization under Section
368 of the Code;
WHEREAS, pursuant to the Merger, each outstanding share of common stock of
the Company, par value $0.01 per share (the "COMPANY COMMON STOCK" and each
share, a "SHARE") shall be exchanged for the right to receive the Merger
Consideration (as defined in Section 1.07(b)), upon the terms and subject to the
conditions set forth herein; and
WHEREAS, for financial accounting purposes, Parent, Merger Sub and the
Company intend that the Merger be accounted for as a pooling of interests
transaction.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements herein contained, and intending to be legally bound hereby,
Parent, Merger Sub and the Company hereby agree as follows:
ARTICLE I
THE MERGER
SECTION 1.01. THE MERGER.
(a) At the Effective Time (as defined in Section 1.02 hereof), and subject
to and upon the terms and conditions of this Agreement and in accordance with
the DGCL, Merger Sub shall be merged with and into the Company, the separate
corporate existence of Merger Sub shall cease upon the filing of a certificate
of merger with the Secretary of State of the State of Delaware pursuant to the
DGCL, and the Company shall continue as the surviving corporation being the
successor to all the property, rights, powers, privileges, liabilities and
obligations of both Merger Sub and the Company. The Company as the surviving
corporation after the Merger is hereinafter sometimes referred to as the
"SURVIVING COMPANY."
(b) The closing of the Merger (the "CLOSING") shall take place at a time and
on a date to be specified by the parties, which shall be no later than the
second business day after satisfaction or waiver of the conditions set forth in
Article VI, unless another time or date is agreed to in writing by the parties
hereto. The Closing will be held at the offices of Morrison & Foerster LLP
("MOFO"), 425
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Market Street, San Francisco, California 94105, unless another place is agreed
to in writing by the parties hereto.
SECTION 1.02. EFFECTIVE TIME. As promptly as practicable after the
satisfaction or waiver of the conditions set forth in Article VI, but in no
event later than three days thereafter, the parties hereto shall cause the
Merger to be consummated by filing all necessary documentation (the "MERGER
DOCUMENTS"), together with any required related certificates, with the Secretary
of State of the State of Delaware, in such form as required by, and executed in
accordance with the relevant provisions of, the DGCL (the time of such filing
being the "EFFECTIVE TIME").
SECTION 1.03. EFFECT OF THE MERGER. The Merger shall have the effects set
forth in Section 259 of the DGCL.
SECTION 1.04. CERTIFICATE OF INCORPORATION AND BY-LAWS. Unless otherwise
determined by Parent prior to the Effective Time, at the Effective Time the
certificate of incorporation and by-laws of Merger Sub, as in effect immediately
prior to the Effective Time shall be the certificate of incorporation and
by-laws of the Surviving Company (the "CERTIFICATE OF INCORPORATION" and
"BY-LAWS") until thereafter changed or amended as provided therein or by the
DGCL; provided, however, that Article I of the certificate of incorporation of
the Surviving Company shall be amended to read as follows: "The name of the
company is First Brands Corporation."
SECTION 1.05. DIRECTORS AND OFFICERS. The directors of Merger Sub
immediately prior to the Effective Time shall be the initial directors of the
Surviving Company, each to hold office in accordance with the Certificate of
Incorporation and By-laws, and the officers of Merger Sub immediately prior to
the Effective Time shall be the initial officers of the Surviving Company, in
each case until their respective successors are duly elected or appointed and
qualified.
SECTION 1.06. MERGER CONSIDERATION; CONVERSION AND CANCELLATION OF
SECURITIES. At the Effective Time, by virtue of the Merger and without any
action on the part of Parent, Merger Sub, the Company or the holders of any of
the Shares:
(a) CONVERSION OF SECURITIES. Each Share issued and outstanding
immediately prior to the Effective Time (excluding any Shares to be canceled
pursuant to Section 1.06(b)) shall be converted, subject to Section 1.06(f),
into the right to receive that number of validly issued, fully paid and
nonassessable shares of common stock, $1.00 par value per share (the "PARENT
COMMON STOCK") equal to the Exchange Ratio (as defined below).
The exchange ratio for the Merger (the "Exchange Ratio") shall be
calculated as follows:
(i) If the average of the closing prices of the Parent Common Stock
on the New York Stock Exchange ("NYSE") Composite Transaction Tape (as
reported in The Wall Street Journal or, if not reported therein, any
other authoritative source) during the ten trading days preceding the
fifth trading day prior to the Effective Time (carried to the fourth
decimal place) (the "PARENT AVERAGE SHARE PRICE") is less than or equal
to $80.00, the Exchange Ratio will be 0.4875;
(ii) If the Parent Average Share Price is greater than $80.00, but
less than or equal to $115.00, the Exchange Ratio will be the quotient of
(A) $39.00 divided by (B) the Parent Average Share Price, rounded to the
nearest one-one thousandth of a share;
(iii) If the Parent Average Share Price is greater than $115.00, the
Exchange Ratio will be 0.3391.
(b) CANCELLATION. Each Share owned by the Company, Parent, Merger Sub
or any direct or indirect wholly owned subsidiary of the Company or Parent
immediately prior to the Effective
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Time shall, by virtue of the Merger and without any action on the part of
the holder thereof, be canceled and retired without payment of any
consideration therefor and cease to exist.
(c) ASSUMPTION OF STOCK OPTIONS.
(i) At the Effective Time, each outstanding option to purchase (a
"STOCK OPTION") Company Common Stock granted under the Company's 1989
Long Term Incentive Plan, the Company's 1994 Performance Stock Option and
Incentive Plan, the Company's 1998 Performance Stock Option and Incentive
Plan, and the Company's Non-Employee Directors Stock Option Plan
(collectively, the "COMPANY STOCK OPTION PLANS"), whether vested or
unvested, shall be deemed assumed by Parent and deemed to constitute an
option to acquire, on the same terms and conditions as were applicable
under such Stock Option prior to the Effective Time, the number (rounded
down to the nearest whole number) of shares of Parent Common Stock as the
holder of such Stock Option would have been entitled to receive pursuant
to the Merger had such holder exercised such option in full immediately
prior to the Effective Time (not taking into account whether or not such
option was in fact exercisable), at a price per share rounded up to the
nearest whole cent equal to (x) the aggregate exercise price for Company
Common Stock otherwise purchasable pursuant to such Stock Option divided
by (y) the number of shares of Parent Common Stock deemed purchasable
pursuant to such Stock Option; PROVIDED, HOWEVER, that the vesting
schedule of the assumed options (including any accelerated vesting of
such options due to the transactions contemplated by this Agreement)
shall continue to be determined by reference to the applicable Company
Stock Option Plan.
(ii) As soon as practicable after the Effective Time, Parent shall
deliver to each holder of an outstanding Stock Option an appropriate
notice setting forth such holder's rights pursuant thereto and such Stock
Option shall continue in effect on the same terms and conditions
(including any applicable anti-dilution provisions, and subject to the
adjustments required by this Section 1.06(c) after giving effect to the
Merger). Parent shall comply with the terms of all such Stock Options and
ensure, to the extent required by, and subject to the provisions of, the
applicable Company Stock Option Plan that any Stock Options which
qualified for special tax treatment prior to the Effective Time continue
to so qualify after the Effective Time. Parent shall take all corporate
action necessary to reserve for issuance a sufficient number of shares of
Parent Common Stock for delivery pursuant to the terms set forth in this
Section 1.06(c).
(iii) At the Effective Time, each outstanding award (including
restricted stock, stock equivalents and stock units, but excluding Stock
Options) ("COMPANY AWARD") under any employee incentive or benefit plans,
programs or arrangements and non-employee director plans presently
maintained by the Company which provide for grants of equity-based awards
shall be amended or converted into a similar instrument of Parent, in
each case with such adjustments to the terms of such Company Awards as
are appropriate to preserve the value inherent in such Company Awards
with no detrimental effects on the holders thereof. The other terms of
each Company Award, and the plans or agreements under which they were
issued, shall continue to apply in accordance with their terms, including
any provisions for acceleration. Parent shall take all corporate action
necessary to reserve for issuance a sufficient number of shares of Parent
Common Stock for delivery pursuant to the terms set forth in this Section
1.06(c)(iii).
(d) COMMON STOCK OF MERGER SUB. Each share of the common stock of
Merger Sub issued and outstanding immediately prior to the Effective Time
shall be converted into and exchanged for a validly issued, fully paid and
nonassessable share of common stock of the Surviving Company. Each share
certificate of Merger Sub evidencing ownership of any such shares shall
evidence, from and after the Effective Time, ownership of such shares of the
Surviving Company.
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(e) LONG TERM STOCK APPRECIATION RIGHTS. Subject to the consent of the
holders thereof, each limited stock appreciation right to purchase shares of
Company Common Stock under the Company Stock Option Plans ("LSAR'S") shall
be cancelled and the tandem Stock Option shall be assumed pursuant to
Section 1.06(c).
(f) ADJUSTMENTS TO EXCHANGE RATIO. The Exchange Ratio shall be
adjusted to reflect fully the effect of any share split, reverse split,
share dividend (including any dividend or distribution of securities
convertible into Parent Common Stock or Company Common Stock),
reorganization, recapitalization or other like change with respect to Parent
Common Stock or Company Common Stock occurring after the date hereof and
prior to the Effective Time.
(g) FRACTIONAL SHARES. No fraction of a share of Parent Common Stock
will be issued, but in lieu thereof each holder of Company Common Stock who
would otherwise be entitled to a fraction of a share of Parent Common Stock
(after aggregating all fractional shares of Parent Common Stock to be
received by such holder) shall receive from Parent an amount of cash
(rounded up to the nearest whole cent), without interest, equal to the
product of (i) such fraction, multiplied by (ii) closing price of the Parent
Common Stock on the NYSE Composite Transaction Tape on the last trading day
immediately prior to the Effective Time (as reported in the Wall Street
Journal or, if not reported therein, any other authoritative source).
SECTION 1.07. EXCHANGE OF CERTIFICATES.
(a) EXCHANGE AGENT. Parent shall supply, or shall cause to be supplied, to
or for the account of a bank or trust company designated by Parent (the
"EXCHANGE AGENT"), in trust for the benefit of the holders of Company Common
Stock, for exchange in accordance with this Section 1.07, through the Exchange
Agent, certificates or other evidence of title evidencing the shares of Parent
Common Stock issuable pursuant to Section 1.06 in exchange for outstanding
Shares. Parent shall make available to the Exchange Agent from time to time as
needed, cash sufficient to pay cash in lieu of fractional shares.
(b) EXCHANGE PROCEDURES. As soon as reasonably practicable after the
Effective Time, Parent will instruct the Exchange Agent to mail to each holder
of record of a certificate or certificates which immediately prior to the
Effective Time evidenced outstanding Shares (the "CERTIFICATES") (i) a letter of
transmittal (which shall specify that delivery shall be effected, and risk of
loss and title to the Certificates shall pass, only upon proper delivery of the
Certificates to the Exchange Agent and shall be in such form and have such other
provisions as Parent may reasonably specify) and (ii) instructions to effect the
surrender of the Certificates in exchange for the certificates evidencing shares
of Parent Common Stock and, in lieu of any fractional shares thereof, cash. Upon
surrender of a Certificate to the Exchange Agent for cancellation together with
such letter of transmittal, duly executed, and such other customary documents as
may be required pursuant to such instructions, the holder of such Certificate
shall be entitled to receive in exchange therefor (A) certificates evidencing
that number of whole shares of Parent Common Stock which such holder has the
right to receive in accordance with the Exchange Ratio in respect of the Shares
formerly evidenced by such Certificate, (B) any dividends or other distributions
with respect to Shares to which such holder was entitled to receive prior to the
Effective Time, and (C) cash in lieu of fractional shares of Parent Common Stock
to which such holder is entitled pursuant to Section 1.06(g) (the shares of
Parent Common Stock, dividends, distributions and cash described in clauses
(A)-(C) delivered for each share being, collectively, the "MERGER
CONSIDERATION"), and the Certificate so surrendered shall forthwith be canceled.
In the event of a transfer of ownership of Shares which is not registered in the
transfer records of the Company as of the Effective Time, Parent Common Stock
and cash may be issued and paid in accordance with this Article I to a
transferee if the Certificate evidencing such Shares is presented to the
Exchange Agent, accompanied by all documents required to evidence and effect
such transfer pursuant to this Section 1.07(b) and by evidence that any
applicable stock/share transfer taxes have been paid. Until so surrendered, each
outstanding Certificate that, prior to the Effective Time, represented Shares
will be deemed from and
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after the Effective Time, for all corporate purposes other than the payment of
dividends, to evidence the ownership of the number of full shares of Parent
Common Stock into which such Shares shall have been so converted and the right
to receive an amount in cash in lieu of the issuance of any fractional shares in
accordance with Section 1.06.
(c) DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED PARENT COMMON STOCK. No
dividends or other distributions declared or made after the Effective Time with
respect to shares of Parent Common Stock with a record date after the Effective
Time shall be paid to the holder of any unsurrendered Certificate with respect
to shares of Parent Common Stock they are entitled to receive until the holder
of such Certificate shall surrender such Certificate. Subject to applicable law,
following surrender of any such Certificate, there shall be paid to the record
holder of the certificates representing whole shares of Parent Common Stock
issued in exchange therefor, without interest, at the time of such surrender,
the amount of dividends or other distributions with a record date after the
Effective Time theretofore paid with respect to such whole shares of Parent
Common Stock and cash in lieu of any fractional share of Parent Common Stock
pursuant to Section 1.06(g) above.
(d) TRANSFERS OF OWNERSHIP. If any certificate for shares of Parent Common
Stock is to be issued in a name other than that in which the Certificate
surrendered in exchange therefor is registered, it will be a condition of the
issuance thereof that the Certificate so surrendered will be properly endorsed
and otherwise in proper form for transfer and that the person requesting such
exchange will have paid to Parent or any agent designated by it any transfer or
other taxes required by reason of the issuance of a certificate for shares of
Parent Common Stock in any name other than that of the registered holder of the
Certificate surrendered, or established to the satisfaction of Parent or any
agent designated by it that such tax has been paid or is not payable.
(e) NO LIABILITY. Neither Parent, Merger Sub nor the Company shall be
liable to any holder of Shares for any Merger Consideration (or dividends or
distributions with respect thereto) delivered to a public official pursuant to
any applicable abandoned property, escheat or similar law.
(f) WITHHOLDING RIGHTS. Parent or the Exchange Agent shall be entitled to
deduct and withhold from the Merger Consideration otherwise payable pursuant to
this Agreement to any holder of Shares such amounts as Parent or the Exchange
Agent is required to deduct and withhold with respect to the making of such
payment under the Code, or any provision of state, local or foreign tax law. To
the extent that amounts are so withheld by Parent or the Exchange Agent, such
withheld amounts shall be treated for all purposes of this Agreement as having
been paid to the holder of the Shares in respect of which such deduction and
withholding was made by Parent or the Exchange Agent.
SECTION 1.08. STOCK TRANSFER BOOKS. At the Effective Time, the stock
transfer books of the Company shall be closed, the Merger Consideration
delivered upon the surrender for exchange of Shares in accordance with the terms
hereof shall be deemed to have been issued in full satisfaction of all rights
pertaining to such Shares, and there shall be no further registration of
transfers on the records of the Surviving Company of Shares which were
outstanding immediately prior to the Effective Time. If, after the Effective
Time, Certificates are presented to the Surviving Company for any reason, they
shall be canceled and exchanged as provided in this Article I.
SECTION 1.09. LOST, STOLEN OR DESTROYED CERTIFICATE. In the event any
Certificates shall have been lost, stolen or destroyed, the Exchange Agent shall
issue in exchange for such lost, stolen or destroyed Certificates, upon the
making of an affidavit of that fact by the holder thereof, such shares of Parent
Common Stock and cash as may be required pursuant to Section 1.06; PROVIDED,
HOWEVER, that Parent may, in its discretion and as a condition precedent to the
issuance thereof, require the owner of such lost, stolen or destroyed
Certificates to deliver a bond in such sum as it may reasonably direct as
indemnity against any claim that may be made against Parent or the Exchange
Agent with respect to the Certificates alleged to have been lost, stolen or
destroyed.
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SECTION 1.10. TAX AND ACCOUNTING CONSEQUENCES. It is intended by the
parties hereto that the Merger shall (i) constitute a reorganization within the
meaning of Section 368(a) of the Code and (ii) qualify for accounting treatment
as a pooling of interests under United States generally accepted accounting
principles ("U.S. GAAP"). The parties hereto hereby adopt this Agreement as a
"plan of reorganization" within the meaning of Section 368 of the Code.
SECTION 1.11. MATERIAL ADVERSE EFFECT. When used in connection with the
Company or any of its subsidiaries, or Parent or any of its respective
subsidiaries, as the case may be, the term "MATERIAL ADVERSE EFFECT" means any
change or effect that, individually or in the aggregate, is materially adverse
to the business, assets (including intangible assets), financial condition or
results of operations of the Company and its subsidiaries ("COMPANY MATERIAL
ADVERSE EFFECT") or of Parent and its subsidiaries ("PARENT MATERIAL ADVERSE
EFFECT"), respectively, in each case taken as a whole, but other than those
adverse effects occurring as a result of general economic or financial
conditions which generally affect other persons who participate or are engaged
in lines of business in which the Company or Parent, as the case may be,
participate or are engaged.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Parent and Merger Sub that:
SECTION 2.01. ORGANIZATION AND QUALIFICATION; SUBSIDIARIES. The Company is
a corporation and each of its subsidiaries is an entity duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
formation, has the requisite corporate (or other similar) power and authority
and is in possession of all franchises, grants, authorizations, licenses,
permits, easements, consents, certificates, approvals and orders ("APPROVALS")
necessary to own, lease and operate the properties it purports to own, lease or
operate and to carry on its business as it is now being conducted, except where
the failure to have such power, authority and Approvals would not, individually
or in the aggregate, have a Company Material Adverse Effect. The Company and
each subsidiary is duly qualified or licensed as a foreign entity to do
business, and is in good standing, in each jurisdiction where the character of
its properties owned, leased or operated by it or the nature of its activities
makes such qualification or licensing necessary, except for such failures to be
so duly qualified or licensed and in good standing that would not, either
individually or in the aggregate, have a Company Material Adverse Effect.
SECTION 2.02. CAPITALIZATION. The authorized capital stock of the Company
consists of 120,000,000 shares of Company Common Stock and 10,000,000 shares of
Preferred Stock, par value $1.00 per share ("COMPANY PREFERRED STOCK"). As of
October 15, 1998, (i) 39,045,100 shares of Company Common Stock were issued and
outstanding, all of which are validly issued, fully paid and nonassessable, (ii)
4,513,460 shares of Company Common Stock were held by the Company in its
treasury, (iii) no shares of Company Common Stock were held by any subsidiary,
(iv) no shares of Company Preferred Stock were issued and outstanding and (v)
3,091,170 shares of Company Common Stock were reserved for future issuance
pursuant to outstanding employee stock options granted pursuant to the Company's
Stock Option Plans. Except as set forth in Section 2.02 of the written
disclosure schedule previously provided by Company to Parent (the "COMPANY
DISCLOSURE SCHEDULE"), no shares of Company Common Stock have been issued
between June 30, 1998 and the date hereof, other than pursuant to the Company
Employee Plans. Except as set forth in Section 2.02 of the Company Disclosure
Schedule, there are no options, warrants or other rights, agreements,
arrangements or commitments of any character relating to the issued or unissued
shares (or other equity interests) of the Company or of any subsidiary or
obligating the Company or any subsidiary to issue or sell any shares of, or
other equity interests in, the Company or any subsidiary. All shares of Company
Common Stock subject to issuance as aforesaid, upon issuance on the terms and
conditions specified in the instruments pursuant to which they are
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issuable, shall be duly authorized, validly issued, fully paid and
nonassessable. There are no obligations, contingent or otherwise, of the Company
or of any subsidiary to repurchase, redeem or otherwise acquire any shares of
Company Common Stock or the shares of any subsidiary. Except as set forth in
Section 2.02 of the Company Disclosure Schedule or as will not have a Company
Material Adverse Effect, all of the outstanding equity interests of each
subsidiary are duly authorized, validly issued, fully paid and nonassessable,
and all such equity interests are owned by the Company free and clear of all
security interests, liens, claims, pledges, agreements, limitations in voting
rights, charges or other encumbrances of any nature whatsoever (collectively,
"LIENS"), other than Liens for taxes not yet due and payable and Liens being
negotiated in good faith and for which proper reserves exist.
SECTION 2.03. AUTHORITY RELATIVE TO THIS AGREEMENT. The Company has all
necessary corporate power and authority to execute and deliver this Agreement
and subject to obtaining any necessary stockholder approval of this Agreement,
to perform its obligations hereunder and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement by the Company
and the consummation by the Company of the transactions contemplated hereby have
been duly and validly authorized by all necessary corporate action and no other
corporate proceedings on the part of the Company are necessary to authorize this
Agreement or to consummate the transactions so contemplated (other than the
approval and adoption of the Merger by at least two-thirds of the holders of the
outstanding Shares entitled to vote in accordance with the Company's certificate
of incorporation and by-laws). The board of directors of the Company has
determined that it is advisable and in the best interest of the Company's
stockholders for the Company to enter into a strategic business combination with
Parent upon the terms and subject to the conditions of this Agreement, and has
recommended that the Company's stockholders approve and adopt this Agreement and
the transactions contemplated hereby. This Agreement has been duly and validly
executed and delivered by the Company and, assuming the due authorization,
execution and delivery by Parent and Merger Sub, as applicable, constitutes a
legal, valid and binding obligation of the Company enforceable against the
Company in accordance with its terms.
SECTION 2.04. SEC FILINGS; FINANCIAL STATEMENTS.
(a) The Company has filed all forms, reports, exhibits and other documents
required to be filed with the Securities and Exchange Commission ("SEC") since
June 30, 1998 and has made available to Parent (i) its Quarterly Report on Form
10-Q for the period ended March 31, 1998 and its Annual Reports on Form 10-K for
the period ended June 30, 1997 and June 30, 1998, respectively, (ii) all proxy
statements relating to the Company's meetings of stockholders (whether annual or
special) held since June 30, 1997, (iii) all other reports or registration
statements (other than reports on Forms 3, 4 or 5 filed on behalf of affiliates
of the Company) filed by the Company with the SEC since June 30, 1998, and (iv)
all amendments and supplements to all such reports and registration statements
filed by the Company with the SEC (collectively, the "COMPANY SEC REPORTS"). The
Company SEC Reports (i) were prepared in accordance with the requirements of the
Securities Act of 1933, as amended (the "SECURITIES ACT") or the Securities
Exchange Act of 1934, as amended, and the SEC's rules thereunder (collectively,
the "EXCHANGE ACT"), as the case may be, and (ii) did not at the time they were
filed (or if amended or superseded by a filing prior to the date of this
Agreement, then on the date of such filing) contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading. No subsidiary is required to file
any forms, reports or other documents with the SEC.
(b) Each of the consolidated financial statements (including, in each case,
any related notes thereto) contained in the Company SEC Reports was prepared in
accordance with U.S. GAAP applied on a consistent basis throughout the periods
involved (except as may be indicated in the notes thereto) and each fairly
presents the consolidated financial position of the Company and its subsidiaries
as at the respective dates thereof and the consolidated results of its
operations and cash flows for the
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periods indicated, except that the unaudited interim financial statements were
or are subject to normal and recurring year-end adjustments which were not or
are not expected to be material in amount.
(c) The Company has heretofore furnished to Parent a complete and correct
copy of any amendments or modifications, which have not yet been filed with the
SEC but which are required to be filed, to agreements, documents or other
instruments which previously had been filed by the Company with the SEC pursuant
to the Securities Act or the Exchange Act.
SECTION 2.05. ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth in
Section 2.05 of the Company Disclosure Schedule or the Company SEC Reports,
since June 30, 1998, the Company has conducted its business in the ordinary
course and there has not occurred: (i) any Company Material Adverse Effect; (ii)
any change by the Company in its accounting methods, principles or practices;
(iii) any revaluation of any of the Company's or any subsidiary's assets,
including, without limitation, writing down the value of inventory or writing
off notes or accounts receivable other than in the ordinary course of business;
(iv) any sale, pledge, disposition of or encumbrance upon a material amount of
property of the Company or of any subsidiary, except in the ordinary course of
business and consistent with past practice; or (v) any material Tax (as defined
below) election inconsistent with past practices or the settlement or compromise
of any material Tax liability.
SECTION 2.06. NO UNDISCLOSED LIABILITIES. Except as is set forth in
Section 2.06 of the Company Disclosure Schedule or in the Company SEC Reports,
neither the Company nor any subsidiary has any liabilities (absolute, accrued,
contingent or otherwise) which are, in the aggregate, material to the business,
operations or financial condition of the Company and its subsidiaries taken as a
whole, except liabilities (a) adequately provided for in the Company's balance
sheet (including any related notes thereto) as of June 30, 1998 (the "1998
COMPANY BALANCE SHEET"); (b) incurred in the ordinary course of business and not
required under U.S. GAAP to be reflected on such balance sheet, (c) incurred
since June 30, 1998 in the ordinary course of business and consistent with past
practice or (d) incurred in connection with the transactions contemplated by
this Agreement to Lehman Brothers Inc., Skadden, Arps, Slate, Meagher & Flom LLP
("SKADDEN") and KPMG Peat Marwick, LLP ("KPMG").
SECTION 2.07. NO VIOLATION. Except as set forth in Section 2.07 of the
Company Disclosure Schedule, the execution and delivery of this Agreement by the
Company does not, and the performance of this Agreement by the Company will not,
and the consummation by the Company of the transactions contemplated hereby will
not, (i) conflict with or violate the certificate of incorporation or by-laws of
the Company, (ii) conflict with or violate any federal, foreign, state or
provincial law, rule, regulation, order, judgment or decree (collectively,
"LAWS") applicable to the Company or any subsidiary or by which any of their
respective properties are bound or affected, or (iii) result in any breach of or
constitute a default (or an event that with notice or lapse of time or both
would become a default) under, or impair the Company's or any subsidiary's
rights or alter the rights or obligations of any third party under, or give to
others any rights of termination, amendment, acceleration or cancellation of,
any material contract, or result in the creation of a Lien on any of the
properties or assets of the Company or any subsidiary pursuant to, any note,
bond, mortgage, indenture, contract, agreement, lease, license, permit,
franchise or other instrument or obligation to which the Company or any
subsidiary is a party or by which the Company or any subsidiary or any of their
respective properties are bound or affected, except in the case of clauses (ii)
and (iii) for any such conflicts, violations, breaches, defaults or other
occurrences that would not, individually or in the aggregate, have a Company
Material Adverse Effect.
SECTION 2.08. ABSENCE OF LITIGATION. Except as set forth in Section 2.08
of the Company Disclosure Schedule or the Company SEC Reports, (i) there are no
claims, actions, suits, proceedings or investigations pending or, to the
knowledge of the Company, threatened against the Company or against any
subsidiary and (ii) there is no judgment, decree, injunction, rule or order
outstanding against the Company or its subsidiaries other than, in each case,
those that the outcome of which,
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individually or in the aggregate, would not have a Company Material Adverse
Effect or a material adverse effect on the Company's ability to consummate the
Merger.
SECTION 2.09. EMPLOYEE BENEFIT PLANS; EMPLOYMENT AGREEMENTS.
(a) For purposes of this Section 2.09: "ERISA" means the Employee Retirement
Income Security Act of 1974, as amended; "COMPANY ERISA AFFILIATE" means any
trade or business (whether or not incorporated) which is a member of a
controlled group including the Company or which is under common control with the
Company or any subsidiary of the Company; and "COMPANY EMPLOYEE PLANS" means all
bonus, stock option, stock purchase, incentive, deferred compensation,
supplemental retirement, severance and other fringe or employee benefit plans,
programs or arrangements, and any current or former employment or executive
compensation or severance agreements, written or otherwise, for the benefit of,
or relating to, any employee of the Company, as well as each such plan with
respect to which the Company or a Company ERISA Affiliate could incur liability
under applicable law (if such plan has been or were terminated), and excluding
agreements with former employees under which the Company has no remaining
monetary obligations.
(b) Except as set forth in Section 2.09(b) of the Company Disclosure
Schedule, none of the Company Employee Plans promises or provides retiree
medical or other retiree welfare benefits to any person other than coverage
mandated by applicable law or benefits, the full cost of which is borne by the
retiree.
(c) Except as set forth in Section 2.09(c) of the Company Disclosure
Schedule or as would not have a Company Material Adverse Effect: (i) the Company
and its subsidiaries have complied with ERISA, the Code and all laws and
regulations applicable to the Company Employee Plans and each Company Employee
Plan has been maintained and administered in compliance with its terms; and (ii)
each Company Employee Plan intended to qualify under Section 401(a) of the Code
and each trust intended to qualify under Section 501(a) of the Code is the
subject of a favorable determination letter from the IRS, and nothing has
occurred which may reasonably be expected to impair such determination.
(d) Neither the Company nor its subsidiaries have incurred any liability
under Title IV of ERISA (other than liability for premiums to the Pension
Benefit Guaranty Corporation arising in the ordinary course). No Company
Employee Plan has incurred an "accumulated funding deficiency" (within the
meaning of Section 302 of ERISA or Section 412 of the Code) whether or not
waived. To the knowledge of the Company, there are not any facts or
circumstances that would materially change the funded status of any Company
Employee Plan that is a "defined benefit" plan (as defined in Section 3(35) of
ERISA) since the date of the most recent actuarial report for such plan. No
Company Employee Plan is a "multiemployer plan" within the meaning of Section
3(37) of ERISA.
(e) Except as set forth in Section 2.09(e) of the Company Disclosure
Schedule, with respect to each of the Company Employee Plans that is subject to
Title IV of ERISA, the present value of accrued benefits under each such plan
did not, as of its latest valuation date, exceed the then current value of the
aggregate assets of such plans allocable to the payment of such benefits.
SECTION 2.10. LABOR MATTERS. Except as set forth in Section 2.09 of the
Company Disclosure Schedule, (i) there are no controversies pending or, to the
knowledge of the Company or any subsidiary, threatened, between the Company or
any subsidiary and any of their respective employees, other than such pending or
threatened controversies which would not, individually or in the aggregate, have
a Company Material Adverse Effect; and (ii) neither the Company nor any
subsidiary has any knowledge of any strikes, slowdowns, work stoppages,
lockouts, or threats thereof, by or with respect to any employees of the Company
or of any subsidiary, except as have not, individually or in the aggregate, had
a Company Material Adverse Effect.
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SECTION 2.11. REGISTRATION STATEMENT; JOINT PROXY
STATEMENT/PROSPECTUS. Subject to the accuracy of the representations of Parent
in Section 3.11, the information supplied by the Company for inclusion in the
registration statement to be filed with the SEC by Parent in connection with the
issuance of the Parent Common Stock in the Merger (the "REGISTRATION STATEMENT")
shall not at the time the Registration Statement is declared effective by the
SEC contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading. The information supplied by the Company for inclusion or
incorporation by reference in the Registration Statement or in the joint proxy
statement/prospectus to be sent to the stockholders of the Company in connection
with the meeting of the stockholders of the Company to consider the Merger (the
"COMPANY STOCKHOLDERS' MEETING" and such joint proxy statement/prospectus as
amended or supplemented, the "JOINT PROXY STATEMENT/PROSPECTUS") will not, on
the date the Joint Proxy Statement/Prospectus (or any amendment thereof or
supplement thereto) is first mailed to shareholders or stockholders, at the time
of the Company Stockholders' Meeting, or at the Effective Time: (i) contain any
statement which, at such time and in light of the circumstances under which it
shall be made, is false or misleading with respect to any material fact, (ii)
omit to state any material fact necessary in order to make the statements made
therein, not false or misleading; or (iii) omit to state any material fact
necessary to correct any statement in any earlier communication with respect to
the solicitation of proxies for the Company Stockholders' Meeting which has
become false or misleading. If at any time prior to the Effective Time any event
relating to the Company or any of its respective affiliates, officers or
directors should be discovered by the Company which should be set forth in an
amendment to the Registration Statement or a supplement to the Joint Proxy
Statement/Prospectus, the Company shall promptly inform Parent and Merger Sub.
The Joint Proxy Statement/Prospectus shall comply in all material respects as to
form and substance with the requirements of the Securities Act, the Exchange Act
and the rules and regulations thereunder.
SECTION 2.12. TAXES.
(a) For purposes of this Agreement, "TAX" or "TAXES" shall mean taxes, fees,
levies, duties, tariffs, imposts and governmental impositions or charges of any
kind in the nature of (or similar to) taxes, payable to any federal, state,
local or foreign taxing authority, including (without limitation) (i) income,
franchise, profits, gross receipts, ad valorem, net worth, goods and services,
fringe benefits, withholding, sales, use, service, real or personal property,
special assessments, Common Stock, license, payroll, withholding, employment,
social security, accident compensation, unemployment compensation, utility,
severance, production, excise, stamp, occupation, premiums, windfall profits,
transfer and gains taxes and (ii) interest, penalties, additional taxes and
additions to tax imposed with respect thereto; and "TAX RETURNS" shall mean
returns, reports and information statements with respect to Taxes required to be
filed with the Internal Revenue Service (the "IRS") or any other taxing
authority, domestic or foreign, including, without limitation, consolidated,
combined and unitary tax returns.
(b) The Company and each subsidiary have timely filed all United States
federal income Tax Returns and all other material Tax Returns required to be
filed by them. Such returns and reports are correct and complete in all material
respects, or requests for extensions to file such returns have been granted and
have not expired, except to the extent such failures to file, to be current and
complete, or to have such extensions granted and that remain in effect,
individually or in the aggregate, would not have a Company Material Adverse
Effect. The Company and each subsidiary have timely paid or made adequate
provision on their books for the payment of all Taxes shown to be due on such
Tax Returns.
(c) No deficiencies for any Taxes have been proposed, asserted or assessed
against the Company or any of its subsidiaries for which adequate reserves are
not maintained, except for deficiencies that, individually or in the aggregate
would not have a Company Material Adverse Effect.
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SECTION 2.13. ENVIRONMENTAL MATTERS.
(a) Except as set forth in Section 2.13(a) of the Company Disclosure
Schedule, each of the Company and its subsidiaries has obtained all licenses,
permits, authorizations, approvals and consents from Governmental or Regulatory
Authorities which are required under any applicable Environmental Law (as
defined below) in respect of its business or operations ("ENVIRONMENTAL
PERMITS"), except for such failures to have Environmental Permits which,
individually or in the aggregate, are not reasonably expected to have a Company
Material Adverse Effect. Each of such Environmental Permits is in full force and
effect and each of the Company and its subsidiaries is in compliance with the
terms and conditions of all such Environmental Permits and with any applicable
Environmental Law, except for such failures to be in compliance which,
individually or in the aggregate, are not reasonably expected to have a Company
Material Adverse Effect.
(b) Except as set forth in Section 2.13(b) of the Company Disclosure
Schedule, there is no Environmental Claim (as defined below) pending or to the
knowledge of the Company threatened against the Company or any of its
subsidiaries or to the knowledge of the Company, pending or threatened against
any person or entity whose liability for any Environmental Claim the Company or
any of its subsidiaries has or may have retained or assumed either contractually
or by operation of law that is reasonably expected to have a Company Material
Adverse Effect.
(c) Except as set forth in Section 2.13(c) of the Company Disclosure
Schedule, to the knowledge of the Company, there are no past or present actions,
activities, circumstances, conditions, events or incidents, including, without
limitation, the release, threatened release or presence of any Hazardous
Material (as defined below) which could form the basis of any Environmental
Claim against the Company or any of its subsidiaries, or to the knowledge of the
Company, against any person or entity whose liability for any Environmental
Claim the Company or any of its subsidiaries has or may have retained or assumed
either contractually or by operation of law, except for such liabilities which,
individually or in the aggregate, are not reasonably expected to have a Company
Material Adverse Effect.
(d) Except as set forth in Section 2.13(d) of the Company Disclosure
Schedule, to the knowledge of the Company, no site or facility now or previously
owned, operated or leased by the Company or any of its subsidiaries is listed or
proposed for listing on the National Priorities List promulgated pursuant to the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended, and the rules and regulations thereunder ("CERCLA").
(e) No Liens have arisen under or pursuant to any Environmental Law on any
site or facility owned, operated or leased by the Company or any of its
subsidiaries, other than any such Liens which would not, individually or in the
aggregate, have a Company Material Adverse Effect, and no action of any
Governmental or Regulatory Authority (as defined below) has been taken or, to
the knowledge of the Company, is in process which could subject any of such
properties to such Liens.
(f) To the best of the Company's knowledge, the Company has delivered or
otherwise made available for inspection to the Parent true, complete and correct
copies and results of any material reports, studies, analyses, tests or
monitoring possessed or initiated by the Company or any of its subsidiaries
pertaining to Hazardous Materials in, on, beneath or adjacent to any property
currently or formerly owned, operated or leased by the Company or any of its
subsidiaries, or regarding the Company's or any of its subsidiaries' compliance
with applicable Environmental Laws.
(g) As used herein: (i) "GOVERNMENTAL OR REGULATORY AUTHORITY" means any
court, tribunal, arbitrator, authority, agency, commission, official or other
instrumentality of the United States, any foreign country or any domestic or
foreign state, county, city or other political subdivision; (ii) "ENVIRONMENTAL
CLAIM" means any claim, action, cause of action, investigation or notice
(written or oral) by any person or entity alleging potential liability
(including, without limitation, potential liability for investigatory
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costs, cleanup costs, governmental response costs, natural resources damages,
property damages, personal injuries, or penalties) arising out of, based on or
resulting from (A) the presence, or release or threatened release, of any
Hazardous Materials at any location, whether or not owned or operated by the
Company or any of its subsidiaries, or (B) circumstances forming the basis of
any violation, or alleged violation, of any Environmental Law; (iii)
"ENVIRONMENTAL LAW" means any law or order of any Governmental or Regulatory
Authority relating to the regulation or protection of human health, safety or
the environment or to emissions, discharges, releases or threatened releases of
Hazardous Material, pollutants, contaminants, chemicals or industrial, toxic or
hazardous substances or wastes into the environment; and (iv) "HAZARDOUS
MATERIAL" means (A) any petroleum or petroleum products, flammable materials,
radioactive materials, friable asbestos, urea formaldehyde foam insulation and
transformers or other equipment that contain dielectric fluid containing
regulated levels of polychlorinated biphenyls (PCBs); (B) any chemicals or other
materials or substances which are now or hereafter become defined as or included
in the definition of "hazardous substances," "hazardous wastes," "hazardous
materials," "extremely hazardous wastes," "restricted hazardous wastes," "toxic
substances," "toxic pollutants" or words of similar import under any
Environmental Law; and (C) any other chemical or other material or substance,
exposure to which is now or hereafter prohibited, limited or regulated by any
Governmental or Regulatory Authority under any Environmental Law.
SECTION 2.14. BROKERS. No broker, finder or investment banker (other than
Lehman Brothers Inc.) is entitled to any brokerage, finder's or other fee or
commission in connection with the transactions contemplated by this Agreement
based upon arrangements made by or on behalf of the Company.
SECTION 2.15. OPINION OF FINANCIAL ADVISOR. The Company has been advised
by its financial advisor, Lehman Brothers Inc., that in its opinion, as of the
date hereof, the Exchange Ratio is fair from a financial point of view to the
Company.
SECTION 2.16. INTELLECTUAL PROPERTY.
(a) Except as set forth in Section 2.16 of the Company Disclosure Schedule,
the Company and its subsidiaries own or have valid right to use, all patents,
trademarks, trade names, service marks, copyrights, and any applications
therefor listed in such schedule, technology, and, to the Company's knowledge,
know-how and tangible or intangible proprietary information or material that are
material to the business of the Company and its subsidiaries as currently
conducted (the "COMPANY INTELLECTUAL PROPERTY RIGHTS"), except for Company
Intellectual Property Rights the failure of which to validly own or validly have
a right to use would not have a Company Material Adverse Effect.
(b) Except as set forth in Section 2.16 of the Company Disclosure Schedule,
neither the Company nor any subsidiary has received any notice of infringement
of or violation of, and to the Company's knowledge, there are no infringements
or violations by others with respect to, the Company Intellectual Property,
except for such infringements or violations that individually or in the
aggregate, would not have a Company Material Adverse Effect.
SECTION 2.17. VOTE REQUIRED. Assuming the accuracy of the representation
of Parent contained in Section 3.18, the affirmative vote of the holders
(entitled to vote and voting on the Merger) of at least two-thirds of the Shares
is the only vote of the holders of the Company's Common Stock necessary to
approve the Merger.
SECTION 2.18. POOLING MATTERS. Except with respect to information
disclosed to Parent prior to the date hereof, to the knowledge of the Company,
neither the Company nor any of its affiliates has taken or agreed to take any
action that (without giving effect to any action taken or agreed to be taken by
Parent or any of its affiliates) would affect the ability of Parent to account
for the business combination to be effected by the Merger as a pooling of
interests.
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SECTION 2.19. CHANGE IN CONTROL PAYMENTS. Except for awards under the
Company Stock Option Plans and as set forth on Section 2.19 of the Company
Disclosure Schedule, neither the Company nor any subsidiary have any plans,
programs or agreements to which they are parties, or to which they are subject,
pursuant to which payments (or acceleration of benefits) may be required upon,
or may become payable directly or indirectly as a result of, a change of control
of the Company.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub hereby represent and warrant to the Company that:
SECTION 3.01. ORGANIZATION AND QUALIFICATION; SUBSIDIARIES.
(a) Parent is a corporation and each of its subsidiaries is an entity duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its formation and has the requisite corporate (or other similar)
power and authority and is in possession of all Approvals necessary to own,
lease and operate the properties it purports to own, lease or operate and to
carry on its business as it is now being conducted, except where the failure to
have such power, authority and Approvals would not, individually or in the
aggregate, have a Parent Material Adverse Effect. Parent and each of its
subsidiaries is duly qualified or licensed as a foreign entity to do business,
and is in good standing, in each jurisdiction where the character of its
properties owned, leased or operated by it or the nature of its activities makes
such qualification or licensing necessary, except for such failures to be so
duly qualified or licensed and in good standing that would not, either
individually or in the aggregate, have a Parent Material Adverse Effect.
SECTION 3.02. CAPITALIZATION.
(a) As of June 30, 1998, the authorized Common Stock of Parent consisted of
(i) 375,000,000 shares of Parent Common Stock of which: (x) 103,544,000 (rounded
to the nearest thousand) shares were issued and outstanding, (y) 7,300,000
(rounded to the nearest thousand) shares were held in its treasury, (z)
5,141,000 (rounded to the nearest thousand) shares were reserved for issuance
pursuant to outstanding options under Parent's stock option plans ("PARENT'S
STOCK OPTION PLANS"); and (ii) 5,000,000 shares of Preferred Stock, ("PARENT
PREFERRED STOCK"), no shares of which are issued and outstanding. No shares of
Parent Common Stock have been issued between June 30, 1998 and the date hereof,
except for shares issued upon exercise of options outstanding under Parent's
Stock Option Plans. The authorized common stock of Merger Sub consists of 100
shares of common stock, all of which, as of the date hereof, are issued and
outstanding. All of the outstanding shares of Parent's and Merger Sub's
respective common stock have been duly authorized and validly issued and are
fully paid and nonassessable. Except for options outstanding under Parent's
Stock Option Plans and as described in the Parent SEC Reports, there are no
options, warrants or other rights, agreements, arrangements or commitments of
any character relating to the issued or unissued common stock of Parent or any
of its subsidiaries or obligating Parent or any of its subsidiaries to issue or
sell any shares of common stock of, or other equity interests in Parent, or any
shares of common stock of its subsidiaries. All shares of Parent Common Stock
subject to issuance as aforesaid, upon issuance on the terms and conditions
specified in the instruments pursuant to which they are issuable, shall be duly
authorized, validly issued, fully paid and nonassessable. Except as described in
the Parent SEC Reports (as defined below), there are no obligations, contingent
or otherwise, of Parent or any of its subsidiaries to repurchase, redeem or
otherwise acquire any shares of Parent Common Stock or the Common Stock of any
subsidiary. Except as will not have a Parent Material Adverse Effect, all of the
outstanding shares of common stock (or other equity interests) of each of
Parent's subsidiaries is duly authorized, validly issued, fully paid and
nonassessable and all such shares are owned by Parent or another subsidiary free
and clear of all Liens other than Liens for taxes not yet due and payable and
Liens being negotiated in good faith and for which proper reserves exist.
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(b) The shares of Parent Common Stock to be issued pursuant to the Merger
will be duly authorized, validly issued, fully paid and nonassessable and shall
be available for trading on the NYSE.
SECTION 3.03. AUTHORITY RELATIVE TO THIS AGREEMENT. Each of Parent and
Merger Sub has all necessary corporate power and authority to execute and
deliver this Agreement and, subject to obtaining any necessary stockholder
approval of this Agreement by Merger Sub, to perform its obligations hereunder
and to consummate the transactions contemplated hereby. The execution and
delivery of this Agreement by Parent and Merger Sub and the consummation by
Parent and Merger Sub of the transactions contemplated hereby have been duly and
validly authorized by all necessary corporate action on the part of Parent and
Merger Sub, and no other corporate proceedings on the part of Parent or Merger
Sub are necessary to authorize this Agreement or to consummate the transactions
so contemplated (other than the approval by Parent as sole stockholder of Merger
Sub). The board of directors of Parent has determined that it is advisable and
in the best interest of Parent's stockholders for Parent to enter into a
strategic business combination with the Company upon the terms and subject to
the conditions of this Agreement. This Agreement has been duly and validly
executed and delivered by Parent and Merger Sub and, assuming the due
authorization, execution and delivery by the Company, constitutes a legal, valid
and binding obligation of Parent and Merger Sub enforceable against each in
accordance with its terms.
SECTION 3.04. SEC FILINGS; FINANCIAL STATEMENTS.
(a) Parent has filed all forms, reports, exhibits and other documents
required to be filed with the SEC since June 30, 1998 and has heretofore
delivered to the Company, in the form filed with the SEC, (i) its Annual Reports
on Form 10-K for the fiscal year ended June 30, 1997 and June 30, 1998, (ii) all
proxy statements relating to Parent's meetings of stockholders (whether annual
or special) held since June 30, 1997, (iii) all other reports or registration
statements (other than Reports on Form 3, 4 or 5 filed on behalf of affiliates
of the Parent) filed by Parent with the SEC since June 30, 1998 and (iv) all
amendments and supplements to all such reports and registration statements filed
by Parent with the SEC (collectively, the "PARENT SEC REPORTS"). The Parent SEC
Reports (i) were prepared in accordance with the requirements of the Securities
Act or the Exchange Act, as the case may be, and (ii) did not at the time they
were filed (or if amended or superseded by a filing prior to the date of this
Agreement, then on the date of such filing) contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. None of Parent's
subsidiaries is required to file any forms, reports or other documents with the
SEC.
(b) Each of the consolidated financial statements (including, in each case,
any related notes thereto) contained in the Parent SEC Reports has been prepared
in accordance with generally accepted accounting principles applied on a
consistent basis throughout the periods involved (except as may be indicated in
the notes thereto) and each fairly presents the consolidated financial position
of Parent and its subsidiaries as of the respective dates thereof and the
consolidated results of its operations and cash flows for the periods indicated,
except that the unaudited interim financial statements were or are subject to
normal and recurring year-end adjustments which were not or are not expected to
be material in amount.
(c) Parent has heretofore furnished to the Company a complete and correct
copy of any amendments or modifications, which have not yet been filed with the
SEC but which are required to be filed, to agreements, documents or other
instruments which previously had been filed by Parent with the SEC pursuant to
the Securities Act or the Exchange Act.
SECTION 3.05. ABSENCE OF CERTAIN CHANGES OR EVENTS. Since June 30, 1998,
Parent has conducted its business in the ordinary course and there has not
occurred: (i) any Parent Material Adverse Effect; (ii) any change by Parent in
its accounting methods, principles or practices; (iii) any revaluation by Parent
of any of its assets, including without limitation, writing down the value of
inventory or writing
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off notes or accounts receivable other than in the ordinary course of business;
or (iv) any sale, pledge, disposition or encumbrance upon a material amount of
property of Parent or of any subsidiary, except in the ordinary course of
business and consistent with past practice.
SECTION 3.06. NO UNDISCLOSED LIABILITIES. Except as is set forth in the
Parent SEC Reports, neither the Parent nor any of its subsidiaries has any
liabilities (absolute, accrued, contingent or otherwise) which are, in the
aggregate, material to the business, operations or financial condition of the
Parent and its subsidiaries taken as a whole, except liabilities (a) adequately
provided for in the Parent's balance sheet (including any related notes thereto)
as of June 30, 1998, (b) incurred in the ordinary course of business and not
required under U.S. GAAP to be reflected on such balance sheet, (c) incurred
since June 30, 1998 in the ordinary course of business and consistent with past
practice, or (d) incurred in connection with the transactions contemplated by
this Agreement to J.P. Morgan Securities, Inc. ("JPM"), MoFo, and Deloitte &
Touche LLP ("D&T").
SECTION 3.07. ABSENCE OF LITIGATION. Except as set forth in the Parent SEC
Reports, (i) there are no claims, actions, suits, proceedings or investigations
pending or, to the knowledge of the Parent, threatened against Parent against
any subsidiary and (ii) there is no judgment, decree, injunction, rule or order
outstanding against Parent or its subsidiaries, other than, in each case those
that the outcome of which, individually or in the aggregate, would not have a
Parent Material Adverse Effect.
SECTION 3.08. NO VIOLATION. The execution and delivery of this Agreement
by Parent and Merger Sub does not, and the performance of this Agreement by
Parent and Merger Sub will not, and the consummation by Parent and Merger Sub of
the transactions contemplated hereby will not, (i) conflict with or violate the
certificate of incorporation or by-laws of Parent or Merger Sub, (ii) conflict
with or violate any Laws applicable to Parent or any subsidiary or by which any
of their respective properties are bound or affected, or (iii) result in any
breach of or constitute a default (or an event that with notice or lapse of time
or both would become a default) under, or impair Parent's or any subsidiary's
rights or alter the rights or obligations of any third party under, or give to
others any rights of termination, amendment, acceleration or cancellation of,
any material contract, or result in the creation of a lien or encumbrance on any
of the properties or assets of Parent or any subsidiary pursuant to, any note,
bond, mortgage, indenture, contract, agreement, lease, license, permit,
franchise or other instrument or obligation to which Parent or any subsidiary is
a party or by which Parent or any subsidiary or any of their respective
properties are bound or affected, except in the case of clauses (ii) and (iii)
for any such conflicts, violations, breaches, defaults or other occurrences that
would not, individually or in the aggregate, have a Parent Material Adverse
Effect.
SECTION 3.09. EMPLOYEE BENEFIT PLANS.
(a) For purposes of this Section 3.09: "PARENT ERISA AFFILIATE" means any
trade or business (whether or not incorporated) which is a member of a
controlled group including Parent or which is under common control with Parent
or any subsidiary of Parent; and "PARENT EMPLOYEE PLANS" means all bonus, stock
option, stock purchase, incentive, deferred compensation, supplemental
retirement, severance and other similar fringe or employee benefit plans,
programs or arrangements, and any current or former employment or executive
compensation or severance agreements, written or otherwise, for the benefit of,
or relating to, any employee of Parent, as well as each such plan with respect
to which Parent or a Company ERISA Affiliate could incur liability under
applicable law (if such plan has been or were terminated), and excluding
agreements with former employees under which Parent has no remaining monetary
obligations.
(b) Except as disclosed in the Parent SEC Reports, none of the Parent
Employee Plans promises or provides retiree medical or other retiree welfare
benefits to any person other than coverage mandated by applicable law or
benefits, the full cost of which is borne by the retiree.
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(c) Except as would not have a Parent Material Adverse Effect: (i) Parent
and its subsidiaries have complied with ERISA, the Code and all laws and
regulations applicable to Parent Employee Plans and each Parent Employee Plan
has been maintained and administered in compliance with its terms; and (ii) each
Parent Company Employee Plan intended to qualify under Section 401(a) of the
Code and each trust intended to qualify under Section 501(a) of the Code is the
subject of a favorable determination letter from the IRS, and nothing has
occurred which may reasonably be expected to impair such determination.
(d) Neither Parent nor its subsidiaries have incurred any liability under
Title IV of ERISA (other than liability for premiums to the Pension Benefit
Guaranty Corporation arising in the ordinary course). No Company Employee Plan
has incurred an "accumulated funding deficiency" (within the meaning of Section
302 of ERISA or Section 412 of the Code) whether or not waived. To the knowledge
of Parent, there are not any facts or circumstances that would materially change
the funded status of any Parent Employee Plan that is a "defined benefit" plan
(as defined in Section 3(35) of ERISA) since the date of the most recent
actuarial report for such plan. No Parent Employee Plan is a "multiemployer
plan" within the meaning of Section 3(37) of ERISA.
(e) With respect to each of the Parent Employee Plans that is subject to
Title IV of ERISA, the present value of accrued benefits under each such plan
did not, as of its latest valuation date, exceed the then current value of the
aggregate assets of such plans allocable to the payment of such benefits.
SECTION 3.10. LABOR MATTERS. There are no controversies pending or, to the
knowledge of the Parent or any subsidiary, threatened, between the Parent or any
subsidiary and any of their respective employees other than such pending or
threatened controversies which would not, individually or in the aggregate, have
a Parent Material Adverse Effect. Neither the Parent nor any subsidiary has any
knowledge of any strikes, slowdowns, work stoppages, lockouts, or threats
thereof, by or with respect to any employees of the Parent or of any subsidiary,
except as have not, individually or in the aggregate, had a Parent Material
Adverse Effect.
SECTION 3.11. REGISTRATION STATEMENT; JOINT PROXY
STATEMENT/PROSPECTUS. Subject to the accuracy of the representations of the
Company in Section 2.11, the Registration Statement shall not, at the time the
Registration Statement (including any amendments or supplements thereto) is
declared effective by the SEC, contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary in
order to make the statements included therein, in light of the circumstances
under which they were made, not misleading. The information supplied by Parent
for inclusion in the Joint Proxy Statement/Prospectus will not, on the date the
Joint Proxy Statement/Prospectus is first mailed to stockholders (or at the time
of any subsequent amendment or supplement), at the time of the Company
Stockholders' Meeting and at the Effective Time: (i) contain any statement
which, at such time and in light of the circumstances under which it shall be
made, is false or misleading with respect to any material fact; (ii) omit to
state any material fact necessary in order to make the statements therein not
false or misleading; or (iii) omit to state any material fact necessary to
correct any statement in any earlier communication with respect to the
solicitation of proxies for the Company Stockholders' Meeting which has become
false or misleading. If at any time prior to the Effective Time any event
relating to Parent or any of its respective affiliates, officers or directors
should be discovered by Parent which should be set forth in an amendment to the
Registration Statement or a supplement to the Joint Proxy Statement/Prospectus,
Parent shall promptly inform Company. The Registration Statement and Joint Proxy
Statement/Prospectus shall comply in all material respects as to form and
substance with the requirements of the Securities Act, the Exchange Act and the
rules and regulations thereunder.
SECTION 3.12. TAXES.
(a) Parent and each subsidiary have timely filed all United States federal
income Tax Returns and all other material Tax Returns required to be filed by
them. Such returns and reports are correct and
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complete in all material respects, or requests for extensions to file such
returns have been granted and have not expired, except to the extent such
failures to file, to be current and complete, or to have such extensions granted
and that remain in effect, individually or in the aggregate, would not have a
Parent Material Adverse Effect. Parent and each subsidiary have timely paid or
made adequate provision on their books for the payment of all Taxes shown to be
due on such returns. Except as set forth in Section 3.12(a) of the disclosure
schedule previously delivered by Parent to the Company (the "PARENT DISCLOSURE
SCHEDULE"), none of Parent or any of its subsidiaries is a party to, is bound
by, or has any obligation under, any tax sharing agreement, tax indemnification
agreement or similar contract or arrangement. Parent has complied in all
material respects with the requirements of Section 6038 of the Code with respect
to its foreign subsidiaries.
(b) No deficiencies for any Taxes have been proposed, asserted or assessed
against Parent or any of its subsidiaries for which adequate reserves are not
maintained, except for deficiencies that, individually or in the aggregate would
not have a Parent Material Adverse Effect. Except as set forth in Section
3.12(b) of the Parent Disclosure Schedule, neither the Parent nor any subsidiary
has given or been requested to give waivers or extensions of any statute of
limitations relating to the payment of Taxes for which Parent or any subsidiary
may be liable.
SECTION 3.13. ENVIRONMENTAL MATTERS.
(a) Each of the Parent and its subsidiaries has obtained all Environmental
Permits, except for such failures to have Environmental Permits which,
individually or in the aggregate, are not reasonably expected to have a Parent
Material Adverse Effect. Each of such Environmental Permits is in full force and
effect and each of the Parent and its subsidiaries is in compliance with the
terms and conditions of all such Environmental Permits and with any applicable
Environmental Law, except for such failures to be in compliance which,
individually or in the aggregate, are not reasonably expected to have a Parent
Material Adverse Effect.
(b) Except as described in the Parent SEC Reports, there is no Environmental
Claim pending or to the knowledge of the Parent threatened against the Parent or
any of its subsidiaries or to the knowledge of the Parent, against any person or
entity whose liability for any Environmental Claim the Parent or any of its
subsidiaries has or may have retained or assumed either contractually or by
operation of law that is reasonably expected to have a Parent Material Adverse
Effect.
(c) Except as described in the Parent SEC Reports, to the knowledge of
Parent, there are no past or present actions, activities, circumstances,
conditions, events or incidents, including, without limitation, the release,
threatened release or presence of any Hazardous Material which could form the
basis of any Environmental Claim against Parent or any of its subsidiaries, or
to the knowledge of Parent, against any person or entity whose liability for any
Environmental Claim Parent or any of its subsidiaries has or may have retained
or assumed either contractually or by operation of law, except for such
liabilities which, individually or in the aggregate, are not reasonably expected
to have a Parent Material Adverse Effect.
(d) To the knowledge of Parent, no site or facility now or previously owned,
operated or leased by Parent or any of its subsidiaries is listed or proposed
for listing on the National Priorities List promulgated pursuant to CERCLA.
(e) No Liens have arisen under or pursuant to any Environmental Law on any
site or facility owned, operated or leased by Parent or any of its subsidiaries,
other than any such Liens which would, individually or in the aggregate, have a
Parent Material Adverse Effect, and no action of any Governmental or Regulatory
Authority has been taken or, to the knowledge of Parent, is in process which
could subject any of such properties to such Liens.
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SECTION 3.14. BROKERS. No broker, finder or investment banker (other than
JPM) is entitled to any brokerage, finder's or other fee or commission in
connection with the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of Parent or Merger Sub.
SECTION 3.15. OPINION OF FINANCIAL ADVISOR. Parent has been advised by its
financial advisor, JPM, that, in its opinion, as of the date hereof the Exchange
Ratio is fair from a financial point of view to Parent.
SECTION 3.16. INTELLECTUAL PROPERTY.
(a) Parent and its subsidiaries own or have valid right to use, all patents,
trademarks, trade names, service marks, copyrights, and any applications
therefor, technology, and, to the Parent's knowledge, know-how and tangible or
intangible proprietary information or material that are material to the business
of the Parent and its subsidiaries as currently conducted (the "PARENT
INTELLECTUAL PROPERTY RIGHTS"), except for Parent Intellectual Property Rights
the failure of which to validly own or validly have a right to use would not
have a Parent Material Adverse Effect.
(b) Except as set forth in Section 3.16 of the Parent Disclosure Schedule,
neither the Parent nor any subsidiary has received any notice of infringement of
or violation of, and to the Parent's knowledge, there are no infringements or
violations by others with respect to, the Parent Intellectual Property, except
for such infringements or violations that individually or in the aggregate,
would not have a Parent Material Adverse Effect.
SECTION 3.17. POOLING MATTERS. Except with respect to information
disclosed to the Company prior to the date hereof, to the knowledge of Parent,
neither Parent nor any of its affiliates has taken or agreed to take any action
that (without giving effect to any action taken or agreed to be taken by the
Company or any of its affiliates) would affect the ability of Parent to account
for the business combination to be effected by the Merger as a pooling of
interests.
SECTION 3.18. OWNERSHIP OF SHARES. None of Parent, Merger Sub or any
subsidiary of Parent owns any Shares as of the date hereof.
ARTICLE IV
CONDUCT OF BUSINESS PENDING THE MERGER
SECTION 4.01. CONDUCT OF BUSINESS BY THE COMPANY PENDING THE
MERGER. During the period from the date of this Agreement and continuing until
the earlier of the termination of this Agreement or the Effective Time, the
Company covenants and agrees that, unless Parent shall otherwise agree in
writing, the Company shall conduct its business and shall cause the business of
its subsidiaries to be conducted only in, and the Company and its subsidiaries
shall not take any action except in, the ordinary course of business and in a
manner consistent with its past practices; the Company shall use reasonable
commercial efforts to preserve substantially intact the business organization of
the Company and its subsidiaries, to keep available the services of the present
officers, employees and consultants of the Company and its subsidiaries and to
preserve the present relationships of the Company and its subsidiaries with
customers, suppliers and other persons with which the Company or any subsidiary
has significant business relations. By way of amplification and not limitation,
except as contemplated by this Agreement, neither the Company nor any subsidiary
shall, during the period from the date of this Agreement and continuing until
the earlier of the termination of this Agreement or the Effective Time, directly
or indirectly, do any of the following without the prior written consent of
Parent:
(a) amend or otherwise change the Company's certificate of incorporation
or by-laws;
(b) issue, sell, pledge, dispose of or encumber, or authorize the
issuance, sale, pledge, disposition or encumbrance of, any capital stock of
the Company of any class, or any options, warrants, convertible securities
or other rights of any kind to acquire any Shares, or any other ownership
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interest (including, without limitation, any phantom interest) of the
Company, any subsidiary or any of its affiliates (except for the issuance of
(i) Shares issuable pursuant to employee stock options under the Company
Stock Option Plans which options are outstanding on the date hereof and (ii)
the grant of options consistent with past practice to purchase up to 5,000
Shares to newly hired employees (excluding officers); PROVIDED THAT the
vesting of such new options is not in any manner accelerated by the Merger;
(c) sell, pledge, dispose of or encumber any assets of the Company or of
any subsidiary (except for (i) sales of assets in the ordinary course of
business and in a manner consistent with past practice, (ii) dispositions of
obsolete or worthless assets and (iii) sales of immaterial assets not in
excess of $5,000,000 in the aggregate);
(d) except as contemplated by this Agreement, accelerate, amend or
change the period (or permit any acceleration, amendment or change) of
exercisability of options or restricted stock granted under the Company
Employee Plans (including the Company Stock Option Plans) or authorize cash
payments in exchange for any options granted under any of such plans;
(e) (i) other than the Company's normal quarterly dividend, declare, set
aside, make or pay any dividend or other distribution (whether in cash,
stock or property or any combination thereof) in respect of any of its
common stock (or other equity interest), except that a subsidiary may
declare and pay a dividend to the Company, (ii) split, combine or reclassify
any of its common stock (or other equity interest) or issue or authorize or
propose the issuance of any other securities in respect of, in lieu of or in
substitution for shares any of its equity securities or (iii) amend the
terms of, repurchase, redeem or otherwise acquire, or permit any subsidiary
to repurchase, redeem or otherwise acquire, any of its securities or any
securities of a subsidiary, or propose to do any of the foregoing;
(f) (i) acquire (by merger, consolidation, or acquisition of stock or
assets) any company, corporation, partnership or other business organization
or division thereof; (ii) incur any indebtedness for borrowed money or issue
any debt securities or assume, guarantee (other than guarantees of bank debt
of a subsidiary entered into in the ordinary course of business) or endorse
or otherwise as an accommodation become responsible for, the obligations of
any person, or make any loans or advances, except in the ordinary course of
business consistent with past practice; (iii) enter into or amend any
material contract or agreement other than in the ordinary course of
business; (iv) authorize any capital expenditures or purchase of fixed
assets which are, in the aggregate, in excess of $10,000,000 for the Company
and its subsidiaries taken as a whole, or (v) enter into or amend any
contract, agreement, commitment or arrangement to effect any of the matters
prohibited by this Section 4.01(f);
(g) except as set forth in Section 4.01(g) of the Company Disclosure
Schedule, increase the compensation payable or to become payable to its
officers or employees, except for increases in salary or wages of employees
of the Company or of any subsidiary who are not officers of the Company in
accordance with past practices, or grant any severance or termination pay
to, or enter into any employment or severance agreement with any director,
officer (except for officers who are terminated on an involuntary basis) or
other employee of the Company or of any subsidiary, or establish, adopt,
enter into or amend any collective bargaining, bonus, profit sharing,
thrift, compensation, stock option, restricted stock, pension, retirement,
deferred compensation, employment, termination, severance or other plan,
agreement, trust, fund, policy or arrangement for the benefit of any current
or former directors, officers or employees, except, in each case, as may be
required by law;
(h) take any action to change accounting policies or procedures
(including, without limitation, procedures with respect to revenue
recognition, payments of accounts payable and collection of accounts
receivable);
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(i) make any material tax election inconsistent with past practices or
settle or compromise any material federal, state, local or foreign tax
liability or agree to an extension of a statute of limitations except to the
extent the amount of any such settlement has been reserved for on the most
recent Company SEC Report;
(j) pay, discharge or satisfy any claims, liabilities or obligations
(absolute, accrued, asserted or unasserted, contingent or otherwise), other
than the payment, discharge or satisfaction in the ordinary course of
business and consistent with past practice of liabilities reflected or
reserved against in the financial statements of the Company or incurred in
the ordinary course of business and consistent with past practice;
(k) except as set forth in Section 4.01(k) of the Company Disclosure
Schedule, establish, or, subject to the terms of such program continue to
maintain, employee compensation programs based on quarterly sales or volume
targets, or compensation programs or trade practices designed to accelerate
shipments of products to any of their customers in anticipation of a change
of control of the Company.
(l) take, or agree in writing or otherwise to take, any of the actions
described in Sections 4.01(a) through (k) above, or any action which would
make any of the representations or warranties of the Company contained in
this Agreement untrue or incorrect or prevent the Company from performing or
cause the Company not to perform its covenants under this Agreement.
SECTION 4.02. NO SOLICITATION.
(a) The Company shall not, and shall use its reasonable best efforts to
cause the Company's subsidiaries, its and their officers, directors, employees,
affiliates, agents, or other representatives (including without limitation any
investment banker, attorney or accountant retained by it or any of its
subsidiaries) to not, initiate, solicit or encourage (including by way of
furnishing information or assistance), or take any other action to facilitate,
any inquiries or the making of any proposal to effect an Alternative Transaction
(as defined in Section 7.03(c)), or enter into discussions or negotiate with any
person or entity regarding an Alternative Transaction, or authorize any of the
officers, directors, employees or agents of the Company or of any subsidiary or
any investment banker, financial advisor, attorney, accountant or other
representative retained by the Company or any subsidiary to take any such
action; provided, however, that nothing contained in this subsection (a) shall
prohibit the board of directors of the Company from (i) furnishing information
to, or entering into discussions or negotiations with, any persons or entity in
connection with an unsolicited bona-fide proposal by such person or entity
relating to an Alternative Transaction if, and only to the extent that (A) the
board of directors of the Company determines in good faith after consultation
with Skadden, that the fiduciary duties of the board of directors under Delaware
law require consideration of the Alternative Transaction and (B) prior to
furnishing such information to, or entering into discussions or negotiations
with, such person or entity the Company requires such person or entity to enter
into a confidentiality agreement with the Company in customary form (with terms
no more favorable to such person or entity than the terms of the confidentiality
agreement between Parent and the Company), (ii) withdrawing or modifying its
recommendation referred to in Section 5.01 following receipt of an unsolicited,
bona-fide proposal from a third party regarding an Alternative Transaction which
is a Superior Proposal (as defined below), if after duly considering the advice
of Skadden, the board of directors of the Company determines in good faith that
it is necessary to do so in order to comply with its fiduciary duties to
stockholders imposed by Delaware law or (iii) complying with Rule 14e-2
promulgated under the Exchange Act with regard to an Alternative Transaction.
"SUPERIOR PROPOSAL" as used herein is defined as a bona fide proposal for an
Alternative Transaction made by a third party on terms and conditions which the
board of directors of the Company determines in its good faith judgment to be
more favorable than those contained in this Agreement and for which financing,
to the extent required, is then committed.
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(b) Unless the board of directors of the Company determines in good faith
after consultation with Skadden that its fiduciary duties under Delaware law
require that it not do so, the Company will communicate to Parent the terms of
an Alternative Transaction which is a Superior Proposal.
(c) The Company shall immediately cease and cause to be terminated any
existing discussions or negotiations with any parties (other than Parent and
Merger Sub) conducted heretofore with respect to any of the foregoing. The
Company agrees not to release any third party from any confidentiality or
standstill agreement to which the Company is a party (other than any release or
termination of any such agreement which may occur by the terms thereof).
(d) The Company shall ensure that the officers, directors and employees of
the Company and of each subsidiary and any investment banker or other advisor or
representative retained by the Company are aware of the restrictions described
in this Section 4.02.
(e) Nothing in this Section 4.02 shall (i) permit the Company to terminate
this Agreement or (ii) permit the Company to enter into any written agreement
with respect to an Alternative Transaction during the term of this Agreement (it
being agreed that during the term of this Agreement the Company shall not enter
into any written agreement with any person that provides for, or in any way
facilitates, an Alternative Transaction, other than a confidentiality agreement
in the form referred to above), it being understood that Section 7.01(f) sets
forth the rights of the Company to terminate this Agreement in the circumstances
specified in Section 4.02(a)(ii) above.
ARTICLE V
ADDITIONAL AGREEMENTS
SECTION 5.01. JOINT PROXY STATEMENT PROSPECTUS; REGISTRATION STATEMENT. As
promptly as practicable, the Company and Parent shall prepare and file with the
SEC the Joint Proxy Statement/Prospectus and the Registration Statement of
Parent with respect to the shares of Parent Common Stock to be issued in
connection with the Merger. As promptly as practicable after comments are
received from the SEC thereon and after the furnishing by the Company and Parent
of all information required to be contained therein, the Company and Parent
shall file with the SEC a combined proxy and Registration Statement on Form S-4
(or on such other form as shall be appropriate) relating to the approval of the
Merger and the transactions contemplated hereby by the stockholders of the
Company and shall use all reasonable efforts to cause the Registration Statement
to become effective as soon thereafter as practicable. The Joint Proxy
Statement/Prospectus shall, subject to the fiduciary duties of the board of
directors of the Company, include the recommendation of the board of directors
of the Company in favor of the Merger.
SECTION 5.02. COMPANY STOCKHOLDERS' MEETING. The Company shall call and
hold the Company Stockholders' Meeting as promptly as practicable for the
purpose of voting upon the approval of the Merger, and the Company shall use its
reasonable best efforts to hold the Company Stockholders' Meeting as soon as
practicable, subject to applicable law, after the date on which the Registration
Statement becomes effective. The Company shall use its best efforts to solicit
from its stockholders proxies in favor of the approval of the Merger, and shall
take all other action necessary or advisable to secure the vote or consent of
stockholders required by the DGCL and the certificate of incorporation and
by-laws of the Company to obtain such approvals, unless otherwise required under
the applicable fiduciary duties of the directors of the Company, as advised by
Skadden.
SECTION 5.03. ACCESS TO INFORMATION; CONFIDENTIALITY. Upon reasonable
notice and subject to restrictions contained in confidentiality agreements to
which such party is subject, the Company shall (and shall cause its subsidiaries
to) afford to the officers, employees, accountants, counsel and other
representatives of Parent, reasonable access, during the period prior to the
Effective Time, to all its properties, books, contracts, commitments and
records, shall during such period furnish promptly to
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Parent all information concerning its business, properties and personnel as
Parent may reasonably request, and shall make available to Parent the
appropriate individuals (including attorneys, accountants and other
professionals) for discussion of the Company's, properties and personnel as
Parent may reasonably request. Parent shall keep such information confidential
in accordance with the terms of the letter agreement, entered into on August 10,
1998 and amended on September 18, 1998, (the "CONFIDENTIALITY AGREEMENT")
between Parent and the Company. The Company and Parent shall file all reports
required to be filed by each of them with the SEC between the date of this
Agreement and the Effective Time and shall deliver to the other party copies of
such reports promptly after the same are filed.
SECTION 5.04. CONSENTS; APPROVALS. The Company and Parent shall each use
their reasonable efforts to obtain all consents, waivers, approvals,
authorizations or orders (including, without limitation, all governmental and
regulatory rulings and approvals), and the Company and Parent shall make all
filings (including, without limitation, all filings with governmental or
regulatory agencies) required in connection with the authorization, execution
and delivery of this Agreement by the Company and Parent and the consummation by
them of the transactions contemplated hereby. The Company and Parent shall
furnish all information required to be included in the Joint Proxy
Statement/Prospectus and the Registration Statement, or for any application or
other filing to be made pursuant to the rules and regulations of any
governmental body in connection with the transactions contemplated by this
Agreement. Except where prohibited by applicable statutes and regulations, and
subject to the Confidentiality Agreement, each party shall promptly provide the
other (or its counsel) with copies of all filings made by such party with any
state or federal government entity in connection with this Agreement or the
transactions contemplated hereby.
SECTION 5.05. AGREEMENTS OF AFFILIATES. The Company shall deliver to
Parent, prior to the date the Registration Statement becomes effective under the
Securities Act, a letter (the "AFFILIATE LETTER") identifying all persons who
are, or may be deemed to be, at the time of the Company Stockholders' Meetings,
"affiliates" of the Company for purposes of Rule 145 under the Securities Act.
The Company shall use its best efforts to cause each person who is identified as
an "affiliate" in the Affiliate Letter to deliver to Parent, prior to the
Effective Time, a written agreement (an "AFFILIATE AGREEMENT") in a form
mutually agreeable to the Company and Parent.
SECTION 5.06. NOTIFICATION OF CERTAIN MATTERS. The Company shall give
prompt notice to Parent, and Parent shall give prompt notice to the Company, of
(i) the occurrence or non-occurrence of any event the occurrence or
non-occurrence of which would be likely to cause any representation or warranty
contained in this Agreement to be materially untrue or inaccurate and (ii) any
failure of the Company, Parent or Merger Sub, as the case may be, to materially
comply with or satisfy any covenant, condition or agreement to be complied with
or satisfied by it hereunder; PROVIDED, HOWEVER, that the delivery of any notice
pursuant to this Section shall not limit or otherwise affect the remedies
available hereunder to the party receiving such notice and FURTHER PROVIDED that
failure to give such notice shall not be treated as a breach of covenant for the
purposes of Section 6.02(b) or 6.03(b) unless the failure to give such notice
results in material prejudice to the other party.
SECTION 5.07. FURTHER ASSURANCES; TAX TREATMENT.
(a) Upon the terms and subject to the conditions hereof, each of the parties
hereto shall use all reasonable best efforts to take, or cause to be taken, all
actions and to do, or cause to be done, all other things necessary, proper or
advisable to consummate and make effective as promptly as practicable the
transactions contemplated by this Agreement, to obtain in a timely manner all
necessary waivers, consents and approvals and to effect all necessary
registrations and filings, and to otherwise satisfy or cause to be satisfied all
conditions precedent to its obligations under this Agreement. The foregoing
covenant shall not include any obligation by Parent to agree to divest, abandon,
license or take similar action with respect to any assets (tangible or
intangible) of Parent or the Company which, in the
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reasonable judgment of Parent, would so materially adversely impact the economic
or business benefits of the transactions contemplated by this Agreement such
that a reasonable business person in such a situation would not proceed with the
consummation of the Merger.
(b) Each of Parent, Merger Sub and the Company shall use its best efforts to
cause the Merger to qualify, and will not (both before and after consummation of
the Merger) take any actions which could prevent the Merger from qualifying, as
a reorganization under the provisions of Section 368 of the Code. Without
limiting the generality of the foregoing, each of Parent and the Company shall
execute and deliver to MoFo, counsel to Parent, and Skadden, counsel to the
Company, tax certificates containing customary representations, respectively, at
such time or times as reasonably requested by such counsel in connection with
the delivery of an opinion with respect to the transactions contemplated hereby.
SECTION 5.08. EMPLOYEES, EMPLOYEE BENEFITS.
(a) Parent will, or will cause the Company to, give individuals who are
employed by the Company and its subsidiaries as of the Effective Time ("AFFECTED
EMPLOYEES") full credit for purposes of eligibility, vesting, benefit accrual
(excluding, however, benefit accrual under any defined benefit pension plans)
and determination of the level of benefits under any employee benefit plans or
arrangements maintained by Parent or any subsidiary of Parent for such Affected
Employees' service with the Company or any subsidiary of the Company to the same
extent recognized by the Company immediately prior to the Effective Time.
(b) Parent will, or will cause the Company to, (i) waive all limitations as
to preexisting conditions exclusions and waiting periods with respect to
participation and coverage requirements applicable to the Affected Employees
under any welfare benefit plans that such employees may be eligible to
participate in after the Effective Time, other than limitations or waiting
periods that are already in effect with respect to such employees and that have
not been satisfied as of the Effective Time under any welfare plan maintained
for the Affected Employees immediately prior to the Effective Time, and (ii)
provide each Affected Employee with credit for any co-payments and deductibles
paid prior to the Effective Time in satisfying any applicable deductible or
out-of-pocket requirements under any welfare plans that such employees are
eligible to participate in after the Effective Time.
(c) For a period of two years immediately following the Effective Time, the
coverage and benefits provided to Affected Employees who remain employed with
the Surviving Company, Parent or any subsidiary of Parent pursuant to employee
benefit plans or arrangements maintained by Parent, the Company, or any
subsidiary of Parent shall be, in the aggregate, not less favorable than those
provided to such employees immediately prior to the Effective Time.
(d) As of the Effective Time, Parent shall assume and honor and shall cause
the Company to honor in accordance with their terms all employment, severance
and other compensation agreements and arrangements existing prior to the
execution of this Agreement which are between the Company or any subsidiary and
any director, officer or employee thereof (each an "EXECUTIVE AGREEMENT") except
as otherwise expressly agreed between Parent and such person. Parent and the
Company hereby agree that the consummation of the Merger shall constitute a
"Change in Control" for purposes of any Executive Agreement and all other
Company Employee Plans, pursuant to the terms of such plan. Parent's obligations
under this Section 5.08(d) are intended to be for the benefit of, and shall be
enforceable by, any Affected Employee to which such obligations relate.
(e) Prior to the Effective Time the Company shall adopt, and following the
Effective Time Parent shall assume and honor in accordance with their terms, the
employee retention arrangements described in Section 5.08(e) of the Company
Disclosure Schedule.
(f) For a period of sixty days immediately following the Effective Time,
Parent will, or will cause the Surviving Company to, continue to employ those
Affected Employees who are "affiliates" within
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the meaning of Rule 144(a)(1) under the Securities Act on financial terms no
less favorable as those in effect immediately prior to the Effective Time.
Parent acknowledges and agrees that such continued employment for this sixty day
period shall not constitute a waiver on the part of any such employee of that
employee's rights to terminate his or her employment for "Good Reason" under the
terms of any Executive Agreement in effect as of the date hereof.
SECTION 5.09. PUBLIC ANNOUNCEMENTS. Parent and the Company shall consult
with each other before issuing any press release with respect to the Merger or
this Agreement and shall not issue any such press release or make any such
public statement without the prior consent of the other party, which shall not
be unreasonably withheld; PROVIDED, HOWEVER, that a party may, without the prior
consent of the other party, issue such press release or make such public
statement as may upon the advice of counsel be required by law or the NYSE if it
has used all reasonable efforts to consult with the other party.
SECTION 5.10. LISTING OF PARENT COMMON STOCK. Parent shall use its
commercially reasonable best efforts to cause the shares of Parent Common Stock
to be issued in the Merger to be approved for quotation on the NYSE prior to the
Effective Time.
SECTION 5.11. CONVEYANCE TAXES. Parent and the Company shall cooperate in
the preparation, execution and filing of all returns, questionnaires,
applications, or other documents regarding any real property transfer or gains,
sales, use, transfer, value added, stock transfer and stamp taxes, any transfer,
recording, registration and other fees, and any similar taxes which become
payable by, and are imposed on, the Company in connection with the transactions
contemplated hereby that are required or permitted to be filed on or before the
Effective Time.
SECTION 5.12. POOLING ACCOUNTING TREATMENT. Each of the parties will use
its best efforts to cause the transactions contemplated by this Agreement to be
accounted for as a pooling transaction by each party's independent certified
public accountants, by the NYSE and by the SEC, respectively, and each of the
parties agrees that it will take no action that would cause such accounting
treatment not to be obtained.
SECTION 5.13. INDEMNIFICATION, EXCULPATION AND INSURANCE.
(a) Parent and the Company shall indemnify and hold harmless (including
attorneys' fees and the right to advancement of expenses) from liabilities for
acts or omissions occurring at or prior to the Effective Time each present and
former director, officer or employee of the Company or any of its subsidiaries
to the fullest extent permitted under applicable law, including against any
costs or expenses, judgments, fines, losses, claims, damages, liabilities and
amounts paid in settlement in connection with any claim, action, suit,
proceeding or investigation, whether civil, criminal, administrative or
investigative, and shall assume, without further action, as of the Effective
Time, any indemnification agreements of the Company in effect as of the date
hereof. In addition, from and after the Effective Time, directors and officers
of the Company who become directors or officers of Parent will be entitled to
indemnification under Parent's Restated Certificate of Incorporation and Bylaws,
as the same may be amended from time to time in accordance with their terms and
applicable law, and to all other indemnity rights and protections as are
afforded to other directors and officers of Parent.
(b) In the event that Parent or any of its successors or assigns (i)
consolidates with or merges into any other person and is not the continuing or
surviving corporation or entity of such consolidation or merger or (ii)
transfers or conveys all or substantially all of its properties and assets to
any person, then, and in each such case, proper provision will be made so that
the successors and assigns of Parent assume the obligations set forth in this
Section 5.13.
(c) For seven years after the Effective Time, Parent shall maintain in
effect the Company's current directors' and officers' liability insurance
covering acts or omissions occurring prior to the Effective Time with respect to
those persons who are currently covered by the Company's directors' and
officers'
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liability insurance policy on terms with respect to such coverage and amount no
less favorable than those of such policy in effect on the date hereof; PROVIDED,
HOWEVER, that Parent may substitute therefor policies of Parent or its
subsidiaries containing terms with respect to coverage and amount no less
favorable to such directors or officers, and PROVIDED, FURTHER, that if the
aggregate annual premiums for such insurance at any time during such period
shall exceed 200% of the per annum rate of premium paid by the Company and its
subsidiaries as of the date hereof for such insurance, then Parent shall, or
shall cause its subsidiaries to, provide the maximum coverage that shall then be
available at an annual premium equal to 200% of such rate.
(d) The provisions of this Section 5.13: (i) are intended to be for the
benefit of, and will be enforceable by, each indemnified party, his or her heirs
and his or her representatives; and (ii) are in addition to, and not in
substitution for, any other rights to indemnification or contribution that any
such person may have by contract or otherwise.
ARTICLE VI
CONDITIONS TO THE MERGER
SECTION 6.01. CONDITIONS TO OBLIGATION OF EACH PARTY TO EFFECT THE
MERGER. The respective obligations of each party to effect the Merger shall be
subject to the satisfaction at or prior to the Effective Time of the following
conditions:
(a) EFFECTIVENESS OF THE REGISTRATION STATEMENT. The Registration
Statement shall have been declared effective by the SEC under the Securities
Act and the Merger contemplated hereby shall have been accounted for in the
effective Registration Statement as a pooling of interests transaction. No
stop order suspending the effectiveness of the Registration Statement shall
have been issued by the SEC and no proceedings for that purpose and no
similar proceeding in respect of the Joint Proxy Statement/Prospectus shall
have been initiated or threatened by the SEC;
(b) NO INJUNCTIONS OR RESTRAINTS; ILLEGALITY. No temporary restraining
order, preliminary or permanent injunction or other order issued by any
court of competent jurisdiction or other legal restraint or prohibition
preventing the consummation of the Merger shall be in effect and no
litigation by any governmental entity seeking any of the foregoing shall
have been commenced. There shall not be any action taken, or any statute,
rule, regulation or order enacted, entered, enforced or deemed applicable to
the Merger, which makes the consummation of the Merger illegal;
(c) GOVERNMENT ACTIONS. There shall not be any action taken, or any
statute, rule, regulation or order enacted, entered, enforced or deemed
applicable to the Merger, by any federal or state governmental entity which,
in connection with the grant of a consent or the lapse of a waiting period
which is necessary for the consummation of the Merger ("REQUISITE REGULATORY
APPROVAL"), imposes any condition or restriction upon the Surviving Company
or its subsidiaries (or, in the case of any disposition of assets required
in connection with such Requisite Regulatory Approval, upon Parent or its
subsidiaries), including, without limitation, requirements relating to the
disposition of assets, which in any such case would so materially adversely
impact the economic or business benefits of the transactions contemplated by
this Agreement, such that a reasonable business person in such a situation
would not proceed with the consummation of the Merger.
(d) POOLING OPINIONS. The Company and Parent shall have received (i) a
letter addressed to Parent from D&T, dated the date of the Merger, in
response to a letter from Parent summarizing the relevant facts and in form
and substance reasonably satisfactory to Parent, a copy of which shall be
provided to the Company and (ii) a letter addressed to the Company from
KPMG, dated the date of the Merger, in response to a letter from the Company
summarizing the relevant facts and in form and substance reasonably
satisfactory to the Company, a copy of which shall be
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provided to Parent, in each case to the effect that the Merger qualifies for
"pooling of interests" treatment for financial accounting purposes and that
such accounting treatment is in accordance with U.S. GAAP. D&T shall also
have received from KPMG, a letter in form and substance satisfactory to D&T,
dated the date of the Merger, that KPMG is not aware of any fact concerning
the Company or any of its subsidiaries or affiliates that would preclude
Parent from accounting for the Merger by the "pooling of interests" method
for financial reporting purposes.
(e) HSR ACT. The waiting period (and any extension thereof) applicable
to the consummation of the Merger under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR ACT") shall have expired or
been terminated.
(f) NYSE LISTING. The shares of Parent Common Stock issuable to the
Company's stockholders as contemplated by this Agreement shall have been
approved for listing on the NYSE, subject to official notice of issuance.
(g) STOCKHOLDER APPROVAL. This Agreement and the Merger shall have
been approved and adopted by the requisite vote of the stockholders of the
Company.
SECTION 6.02. ADDITIONAL CONDITIONS TO OBLIGATIONS OF PARENT AND MERGER
SUB. The obligations of Parent and Merger Sub to effect the Merger are also
subject to the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of the Company contained in this Agreement shall be true and correct on and
as of the Effective Time, except (i) for changes contemplated by this
Agreement, (ii) those representations and warranties which address matters
only as of a particular date (which shall remain true and correct as of such
date), and (iii) where the failure of such representations and warranties to
be so true and correct (without giving effect to any limitation as to
"materiality" or "material adverse effect" set forth therein) would not have
a Company Material Adverse Effect, with the same force and effect as if made
on and as of the Effective Time, and Parent and Merger Sub shall have
received a certificate to such effect signed by the President and Chief
Financial Officer of the Company;
(b) AGREEMENTS AND COVENANTS. The Company shall have performed or
complied in all material respects with all agreements and covenants required
by this Agreement to be performed or complied with by it on or prior to the
Effective Time, and Parent and Merger Sub shall have received a certificate
to such effect signed by the President and Chief Financial Officer of the
Company;
(c) CONSENTS OBTAINED. All material consents, waivers, approvals,
authorizations or orders required to be obtained, and all filings required
to be made ("MATERIAL CONSENTS"), by the Company for the authorization,
execution and delivery of this Agreement and the consummation by it of the
transactions contemplated hereby shall have been obtained and made by the
Company, except where the failure to receive such Material Consents would
not have a Material Adverse Effect on the Company or Parent;
(d) MATERIAL ADVERSE EFFECT. Since the date of this Agreement, there
shall not have been a Company Material Adverse Effect;
(e) AFFILIATE AGREEMENTS. Parent shall have received from each person
who is identified in the Affiliate Letter as an "affiliate" of the Company,
an Affiliate Agreement, and such Affiliate Agreement shall be in full force
and effect;
(f) FEES. The sum of all fees paid and to be paid by the Company to
Lehman Brothers Inc., KPMG and Skadden in connection with the transactions
contemplated hereby, through and including the date of the Merger and as
reflected in a final invoice from each of them delivered to the Company,
with a copy to Parent, at least one business day prior to the date of the
Merger, in the aggregate, shall be no more than $15,000,000; and
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(g) TAX OPINION. Parent shall have received the opinion of MoFo in
form and substance reasonably satisfactory to Parent, on the basis of
certain facts, representations (including representations contained in the
certificates described below) and assumptions set forth in such opinion,
dated the Effective Time, to the effect that the Merger will be treated for
federal income tax purposes as a reorganization qualifying under the
provisions of Section 368(a) of the Code and that each of Parent, Merger Sub
and the Company will be a party to the reorganization within the meaning of
Section 368(b) of the Code. In rendering such opinion, MoFo may rely upon
and require representations contained in certificates of Parent, Merger Sub,
the Company and others as are customary for such opinions.
SECTION 6.03. ADDITIONAL CONDITIONS TO OBLIGATION OF THE COMPANY. The
obligation of the Company to effect the Merger is also subject to the following
conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of Parent and Merger Sub contained in this Agreement shall be true and
correct on and as of the Effective Time, except (i) for changes contemplated
by this Agreement, (ii) those representations and warranties which address
matters only as of a particular date (which shall remain true and correct as
of such date), and (iii) where the failure of such representations and
warranties to be so true and correct (without giving effect to any
limitation as to "materiality" or "material adverse effect" set forth
therein) would not have, individually or in the aggregate, a Parent Material
Adverse Effect, with the same force and effect as if made on and as of the
Effective Time, and the Company shall have received a certificate to such
effect signed by the President and Chief Financial Officer of Parent;
(b) AGREEMENTS AND COVENANTS. Parent and Merger Sub shall have
performed or complied in all material respects with all agreements and
covenants required by this Agreement to be performed or complied with by
them on or prior to the Effective Time, and the Company shall have received
a certificate to such effect signed by the President and Chief Financial
Officer of Parent;
(c) CONSENTS OBTAINED. All Material Consents required to be obtained
or made by Parent and Merger Sub for the authorization, execution and
delivery of this Agreement and the consummation by them of the transactions
contemplated hereby shall have been obtained and made by Parent and Merger
Sub, except where the failure to receive such Material Consents would not
have a Material Adverse Effect on the Company or Parent; and
(d) MATERIAL ADVERSE EFFECT. Since the date of this Agreement, there
shall not have been a Parent Material Adverse Effect.
(e) TAX OPINION. The Company shall have received the opinion of
Skadden, counsel to the Company, in form and substance reasonably
satisfactory to the Company, on the basis of the facts, representations
(including representations contained in the certificates described below)
and assumptions set forth in such opinion, dated the Effective Time, to the
effect that the Merger will be treated for federal income tax purposes as a
reorganization qualifying under the provisions of Section 368(a) of the
Code, and each of Parent, Merger Sub and the Company will be a party to the
reorganization within the meaning of Section 368(b). In rendering such
opinion, Skadden may rely upon and require representations contained in
certificates of Parent, Merger Sub, the Company and others as are customary
for such opinions.
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ARTICLE VII
TERMINATION
SECTION 7.01. TERMINATION. This Agreement may be terminated at any time
prior to the Effective Time, notwithstanding approval thereof by the
stockholders of the Company:
(a) by mutual written consent duly authorized by the Boards of Directors
of Parent and the Company; or
(b) by either Parent or the Company if the Merger shall not have been
consummated by June 30, 1999 (provided that the right to terminate this
Agreement under this Section 7.01(b) shall not be available to any party
whose failure to fulfill any obligation under this Agreement has been the
cause of or resulted in the failure of the Merger to occur on or before such
date); or
(c) by either Parent or the Company if a court of competent jurisdiction
or governmental, regulatory or administrative agency or commission shall
have issued a non-appealable final order, decree or ruling or taken any
other action, in each case having the effect of permanently restraining,
enjoining or otherwise prohibiting the Merger, except if the party relying
on such order, decree or ruling or other action has not complied with its
obligations under Section 5.07; or
(d) by Parent or the Company if, at the Company Stockholders' Meeting
(including any adjournment or postponement thereof), the requisite vote of
the stockholders of the Company shall not have been obtained; or
(e) by Parent, if (i) the board of directors of the Company shall
withdraw, modify or change its recommendation of this Agreement or the
Merger in a manner adverse to Parent or shall have resolved to do any of the
foregoing; (ii) the board of directors of the Company shall have recommended
to the stockholders of the Company an Alternative Transaction (as defined in
Section 7.03(c)); or (iii) a tender offer or exchange offer for 15% or more
of the outstanding shares of Company Common Stock is commenced (other than
by Parent or an affiliate of Parent), and the board of directors of the
Company recommends that the stockholders of the Company tender their shares
in such tender or exchange offer; or
(f) by the Company, if it shall exercise the right specified in clause
(ii) of Section 4.02(a), provided that the Company may not effect such
termination pursuant to this Section 7.01(f) unless and until it shall have
paid Parent an amount in cash equal to the Fee (as defined herein); or
(g) by Parent or the Company, upon a breach of any representation,
warranty, covenant or agreement on the part of the Company or Parent,
respectively, set forth in this Agreement such that the conditions set forth
in Section 6.02(a) or 6.02(b), or Section 6.03(a) or 6.03(b), would not be
satisfied (a "TERMINATING BREACH"), PROVIDED, that if such Terminating
Breach is curable prior to June 30, 1999 by Parent or the Company, as the
case may be, through the exercise of its reasonable best efforts and for so
long as Parent or the Company, as the case may be, continues to exercise
such reasonable best efforts, neither the Company nor Parent, respectively,
may terminate this Agreement under this Section 7.01.
SECTION 7.02. EFFECT OF TERMINATION. In the event of the termination of
this Agreement pursuant to Section 7.01, this Agreement shall forthwith become
void and there shall be no liability on the part of any party hereto or any of
its affiliates, directors, officers or stockholders except (i) as set forth in
Sections 7.03 and 8.01 hereof, and (ii) nothing herein shall relieve any party
from liability for any willful breach hereof.
SECTION 7.03. FEES AND EXPENSES.
(a) Except as set forth in this Section 7.03, (i) all fees and expenses
incurred in connection with this Agreement and the transactions contemplated
hereby shall be paid by the party incurring such
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expenses, if the Merger is not consummated or (ii) if the Merger is consummated,
then the Surviving Company shall pay all such fees and expenses; PROVIDED,
HOWEVER, that Parent and the Company shall share equally all fees and expenses,
other than attorneys' fees, incurred in relation to the printing and filing of
the Joint Proxy Statement/Prospectus (including any preliminary materials
related thereto) and the Registration Statement (including financial statements
and exhibits) and any amendments or supplements thereto.
(b) The Company shall pay Parent a fee of $52,000,000 in cash (the "FEE")
upon the earliest to occur of the following events:
(i) the termination of this Agreement by Parent pursuant to Section
7.01(e); or
(ii) one day prior to the termination of this Agreement by the Company
pursuant to Section 7.01(f).
(c) As used herein, "ALTERNATIVE TRANSACTION" means any inquiry, proposal or
offer from any person relating to any (i) direct or indirect acquisition or
purchase of a business that constitutes 15% or more of the net revenues, net
income or the assets of the Company and its subsidiaries, taken as a whole, (ii)
direct or indirect acquisition or purchase of 15% or more of any class of equity
securities of the Company or any of its subsidiaries whose business constitutes
15% or more of the net revenues, net income or assets of the Company and its
subsidiaries, taken as a whole, (iii) tender offer or exchange offer that if
consummated would result in any person beneficially owning 15% or more of any
class of equity securities of the Company or any of its subsidiaries whose
business constitute 15% or more of the net revenues, net income or assets of the
Company and its subsidiaries, taken as a whole, or (iv) merger, consolidation,
business combination, capitalization, liquidation, dissolution or similar
transaction involving the Company or any of its subsidiaries whose business
constitutes 15% or more of the net revenues, net income or assets of the Company
and its subsidiaries, taken as a whole, other than the transactions contemplated
by this Agreement.
ARTICLE VIII
GENERAL PROVISIONS
SECTION 8.01. EFFECTIVENESS OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS;
KNOWLEDGE, ETC.
(a) Except as otherwise provided in this Section 8.01, the representations,
warranties and agreements of each party hereto shall remain operative and in
full force and effect regardless of any investigation made by or on behalf of
any other party hereto, any person controlling any such party or any of their
officers or directors, whether prior to or after the execution of this
Agreement. The representations, warranties and agreements in this Agreement
shall terminate at the Effective Time or upon the termination of this Agreement
pursuant to Section 7.01, as the case may be, except that the agreements set
forth in Article I and Section 5.03 shall survive the Effective Time
indefinitely and those set forth in Section 7.03 shall survive termination
indefinitely.
(b) Any disclosure made with reference to one or more Sections of the
Company Disclosure Schedule or the Parent Disclosure Schedule shall be deemed
disclosed with respect to each other section therein as to which such disclosure
is relevant provided that such relevance is reasonably apparent.
SECTION 8.02. NOTICES. All notices and other communications given or made
pursuant hereto shall be in writing and shall be deemed to have been duly given
or made as of the date delivered or mailed if delivered personally or mailed by
registered or certified mail (postage prepaid, return receipt requested) to the
parties at the following addresses (or at such other address for a party as
shall be
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specified by like changes of address which shall be effective upon receipt) or
sent by electronic transmission, with confirmation received, to the
telefacsimile number specified below:
(a) If to Parent or Merger Sub:
The Clorox Company
1221 Broadway
Oakland, California 94612-1888
Fax: (510) 271-1696
Attention: Peter D. Bewley, Senior Vice President and General Counsel
With copies to:
Morrison & Foerster LLP
425 Market Street
San Francisco, CA 94105
Fax: (415) 268-7522
Attention: John W. Campbell
(b) If to the Company:
First Brands Corporation
83 Wooster Heights Road
P.O. Box 1911
Danbury, CT 06813-1911
Fax: (203) 731-2355
Attention: Einar M. Rod, General Counsel
With copies to:
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, NY 10022
Fax: (212) 735-2000
Attention: Roger S. Aaron
Alan C. Myers
SECTION 8.03. CERTAIN DEFINITIONS. For purposes of this Agreement, the
term:
(a) "AFFILIATES" means a person that directly or indirectly, through one
or more intermediaries, controls, is controlled by, or is under common
control with, the first mentioned person;
(b) "BUSINESS DAY" means any day other than a day on which banks in San
Francisco are required or authorized to be closed;
(c) "CONTROL" (including the terms "CONTROLLED BY" and "UNDER COMMON
CONTROL WITH") means the possession, directly or indirectly or as trustee or
executor, of the power to direct or cause the direction of the management or
policies of a person, whether through the ownership of stock, as trustee or
executor, by contract or credit arrangement or otherwise;
(d) "KNOWLEDGE" or "TO THE KNOWLEDGE" when used with respect to Parent
or of the Parent and its subsidiaries means the knowledge of the executive
officers of Parent; when used with respect to the Company or the Company and
its subsidiaries means to the knowledge of the executive officers of the
Company and the Company's vice president of operations.
(e) "PERSON" means an individual, corporation, partnership, association,
trust, unincorporated organization, other entity or group (as defined in
Section 13(d)(3) of the Exchange Act); and
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(f) "SUBSIDIARY" or "SUBSIDIARIES" of the Company, the Surviving
Company, Parent or any other person means any corporation, partnership,
joint venture or other legal entity of which the Company, the Surviving
Company, Parent or such other person, as the case may be, (either alone or
through or together with any other subsidiary) owns, directly or indirectly,
any of the stock or other equity interests, the holders of which are
generally entitled to vote for the election of the board of directors or
other governing body of such corporation or other legal entity.
SECTION 8.04. AMENDMENT. This Agreement may be amended by the parties
hereto by action taken by or on behalf of their respective Boards of Directors
at any time prior to the Effective Time; PROVIDED, HOWEVER, that, after approval
of the Merger by the stockholders of the Company, no amendment may be made which
by law requires further approval by such stockholders without such further
approval. This Agreement may not be amended except by an instrument in writing
signed by the parties hereto.
SECTION 8.05. WAIVER. At any time prior to the Effective Time, any party
hereto may with respect to any other party hereto (a) extend the time for the
performance of any of the obligations or other acts, (b) waive any inaccuracies
in the representations and warranties contained herein or in any document
delivered pursuant hereto and (c) waive compliance with any of the agreements or
conditions contained herein. Any such extension or waiver shall be valid if set
forth in an instrument in writing signed by the party or parties to be bound
thereby.
SECTION 8.06. HEADINGS. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
SECTION 8.07. SEVERABILITY. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law,
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in an acceptable manner to the end
that transactions contemplated hereby are fulfilled to the extent possible.
SECTION 8.08. ENTIRE AGREEMENT. This Agreement, the Company Disclosure
Schedule, and the Parent Disclosure Schedule together constitute the entire
agreement and supersedes all prior agreements and undertakings (other than the
Confidentiality Agreement), both written and oral, among the parties, or any of
them, with respect to the subject matter hereof and, except as otherwise
expressly provided herein, are not intended to confer upon any other person any
rights or remedies hereunder.
SECTION 8.09. ASSIGNMENT, MERGER SUB. This Agreement shall not be assigned
by operation of law or otherwise, except that Parent and Merger Sub may assign
all or any of their rights hereunder to any affiliate provided that no such
assignment shall relieve the assigning party of its obligations hereunder.
SECTION 8.10. PARTIES IN INTEREST. This Agreement shall be binding upon
and inure solely to the benefit of each party hereto, and nothing in this
Agreement, express or implied, is intended to or shall confer upon any other
person any right, benefit or remedy of any nature whatsoever under or by reason
of this Agreement.
SECTION 8.11. GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the internal laws of the State of Delaware
applicable to contracts executed and fully performed within the State of
Delaware, without regard to the conflicts of laws provisions thereof.
A-31
<PAGE>
SECTION 8.12. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, and by the different parties hereto in separate counterparts, each
of which when executed shall be deemed to be an original but all of which taken
together shall constitute one and the same agreement.
SECTION 8.13. WAIVER OF JURY TRIAL. EACH OF PARENT, MERGER SUB AND THE
COMPANY HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ALL
RIGHTS TO TRIAL BY JURY IN ANY ACTION, PROCEEDING, OR COUNTERCLAIM (WHETHER
BASED UPON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY.
[SIGNATURE PAGE FOLLOWS]
A-32
<PAGE>
IN WITNESS WHEREOF, Parent, Merger Sub and the Company have caused this
Agreement and Plan of Reorganization and Merger to be executed as of the date
first written above by their respective officers thereunto duly authorized.
<TABLE>
<S> <C> <C>
THE CLOROX COMPANY
By: /s/ PETER D. BEWLEY
-----------------------------------------
Name: Peter D. Bewley
Title: Senior Vice President, General
Counsel
and Secretary
PENNANT, INC.
By: /s/ PETER D. BEWLEY
-----------------------------------------
Name: Peter D. Bewley
Title: Senior Vice President
FIRST BRANDS CORPORATION
By: /s/ WILLIAM V. STEPHENSON
-----------------------------------------
Name: William V. Stephenson
Title: Chairman and Chief Executive
Officer
</TABLE>
A-33
<PAGE>
APPENDIX B
LEHMAN BROTHERS
October 18, 1998
Board of Directors
First Brands Corporation
Danbury, CT 06813
Members of the Board:
We understand that First Brands Corporation ("First Brands" or the
"Company"), The Clorox Company ("Clorox") and Pennant, Inc., a wholly owned
subsidiary of Clorox ("Pennant"), are proposing to enter into an Agreement and
Plan of Reorganization and Merger, dated as of October 18, 1998 (the
"Agreement"), providing, among other things, for the merger (the "Merger" or the
"Proposed Transaction") of Pennant into First Brands, whereby First Brands will
become a wholly owned subsidiary of Clorox. Upon the effectiveness of the
Merger, and so long as the average of the closing prices of Clorox common stock
quoted on the New York Stock Exchange during the ten trading days preceding the
fifth trading day prior to the effective date of the Merger (the "Clorox Average
Price") is between $80 and $115 per share, each issued and outstanding share of
First Brands' common stock shall be converted into the right to receive a number
of shares of Clorox common stock determined by dividing $39.00 by the Clorox
Average Price (the quotient resulting from the above calculation being referred
to as the "Fixed Price Ratio"). In the event the Clorox Average Price is $80 or
below, each issued and outstanding share of First Brands' common stock shall be
converted on the effective date of the Merger into 0.4875 shares of Clorox
common stock (the "Ratio Cap"). In the event the Clorox Average Price is $115 or
above, each issued and outstanding share of First Brands' common stock shall be
converted on the effective date of the Merger into 0.3391 shares of Clorox
common stock (the "Ratio Floor" and together with the Ratio Cap and the Fixed
Price Ratio, the "Exchange Ratio"). The terms and conditions of the Proposed
Transaction are set forth in more detail in the Agreement.
We have been requested by the Board of Directors of the Company to render
our opinion with respect to the fairness, from a financial point of view, to the
stockholders of the Company of the Exchange Ratio to be offered to such
stockholders in the Proposed Transaction. We have not been requested to opine as
to, and our opinion does not in any manner address, the Company's underlying
business decision to proceed with or effect the Proposed Transaction.
In arriving at our opinion, we reviewed and analyzed: (1) the Agreement and
the specific terms of the Proposed Transaction, (2) such publicly available
information concerning the Company and Clorox that we believe to be relevant to
our analysis, including the Annual Reports on Form 10-K for the fiscal years
ended June 30, 1997 and June 30, 1998, (3) financial and operating information
with respect to the business, operations and prospects of the Company furnished
to us by the Company, (4) financial and operating information with respect to
the business and operations of Clorox furnished to us by Clorox, (5) the trading
history of the Company's common stock from October 15, 1993 to the present and a
comparison of that trading history with those of other companies that we deemed
relevant, (6) the trading history of Clorox's common stock from October 15, 1993
to the present and a comparison of that trading history with those of other
companies that we deemed relevant, (7) a comparison of the historical financial
results and present financial condition of the Company with those of other
companies that we deemed relevant, (8) a comparison of the historical financial
results and present financial condition of Clorox with those of other companies
that we deemed relevant, (9) a comparison of the financial terms of the Proposed
Transaction with the financial terms of certain other
B-1
<PAGE>
transactions that we deemed relevant, (10) the proforma impact of the Proposed
Transaction on Clorox, (11) estimates of third party research analysts with
respect to the future financial performance of First Brands and Clorox and (12)
an indication of interest received by the Company from another party with
respect to an acquisition of the Company. In addition, we have had discussions
with the managements of the Company and Clorox concerning their respective
businesses, operations, assets, financial conditions and prospects and with the
management of the Company concerning the cost savings and other strategic
benefits expected by them to result from a combination of the businesses of
First Brands and Clorox, and have undertaken such other studies, analyses and
investigations as we deemed appropriate.
In arriving at our opinion, we have assumed and relied upon the accuracy and
completeness of the financial and other information used by us without assuming
any responsibility for independent verification of such information and have
further relied upon the assurances of managements of the Company and Clorox that
they are not aware of any facts or circumstances that would make such
information inaccurate or misleading. With respect to the financial projections
of the Company for fiscal year 1999, upon advice of the Company we have assumed
that such projections have been reasonably prepared on a basis reflecting the
best currently available estimates and judgments of the management of the
Company as to the future financial performance of the Company and that the
Company will perform substantially in accordance with such projections. In
addition, for purposes of our analysis, we also extrapolated the financial
trends of the latest three fiscal years and the Company's projections for fiscal
year 1999 to develop financial projections for the Company for the fiscal years
2000 through 2003, and then considered certain more conservative assumptions and
estimates which resulted in certain adjustments to such projections. We have
discussed the extrapolation process, the resulting projections and the adjusted
projections with the management of the Company and they have agreed with the
appropriateness of the extrapolation process and the use of the resulting
projections and the adjusted projections in performing our analysis. In arriving
at our opinion, we were not provided with, and did not have access to, any
financial projections prepared by the management of Clorox. Accordingly, with
respect to the future financial performance of Clorox on a stand alone basis,
upon advice of Clorox we have assumed that the published estimates of third
party research analysts are a reasonable basis upon which to evaluate the future
financial performance of Clorox on a stand alone basis and that Clorox would
perform, on a stand alone basis, substantially in accordance with those
estimates. In arriving at our opinion, we have not conducted a physical
inspection of the properties and facilities of the Company and have not made or
obtained any evaluations or appraisals of the assets or liabilities of the
Company. In addition, you have not authorized us to solicit, and we have not
solicited, any indications of interest from any third party with respect to the
purchase of all or a part of the Company's businesses. Upon the advice of the
Company and Clorox, we have assumed that the Merger will qualify for
pooling-of-interests accounting treatment, and upon the advice of the Company,
Clorox and their respective legal advisors, we have assumed that the Merger will
qualify as a reorganization within the meaning of Section 368(a) of the Internal
Revenue Code of 1986, as amended, and therefore as a tax-free transaction to the
stockholders of the Company. Our opinion necessarily is based upon market,
economic and other conditions as they exist on, and can be evaluated as of, the
date of this letter.
Based upon and subject to the foregoing, we are of the opinion as of the
date hereof that, from a financial point of view, the Exchange Ratio to be
offered to the stockholders of the Company in the Proposed Transaction is fair
to such stockholders.
We have acted as financial advisor to the Company in connection with the
Proposed Transaction and will receive a fee for our services which is contingent
upon the consummation of the Proposed Transaction. In addition, the Company has
agreed to indemnify us for certain liabilities that may arise out of the
rendering of this opinion. In the ordinary course of our business, we actively
trade in the debt and equity securities of the Company and Clorox for our own
account and for the accounts of our customers and, accordingly, may at any time
hold a long or short position in such securities.
B-2
<PAGE>
This opinion is for the use and benefit of the Board of Directors of the
Company and is rendered to the Board of Directors in connection with its
consideration of the Proposed Transaction. This opinion is not intended to be
and does not constitute a recommendation to any stockholder of the Company as to
how such stockholder should vote with respect to the Proposed Transaction.
Very truly yours,
/s/ LEHMAN BROTHERS
LEHMAN BROTHERS
B-3
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145(a) of the Delaware General Corporation Law (the "DGCL") provides
in relevant part that "a corporation may indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation), by
reason of the fact that he is or was a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interest of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful." With respect to
derivative actions, Section 145(b) of the DGCL provides in relevant part that
"[a] corporation may indemnify any person who was or is a party or is threatened
to be made a party to any threatened, pending or completed action or suit by or
in the right of the corporation to procure a judgment in its favor..............
[by
reason of his service in one of the capacities specified in the preceding
sentence] against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection with the defense or settlement of such action or
suit if he acted in good faith and in a manner he reasonably believed to be in
or not opposed to the best interest of the corporation and except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the Court of Chancery or the court in which
such action or suit was brought shall determine upon application that, despite
the adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
which the Court of Chancery or such other court shall deem proper."
The Registrant's Restated Certificate of Incorporation provides that the
Registrant is required to indemnify to the full extent permitted by the DGCL any
person made, or threatened to be made, a party to an action or proceeding,
whether criminal, civil, administrative or investigative, by reason of the fact
that the person, or the testator or intestate of such person, is or was a
director or officer of the Registrant, or served any business as a director or
officer at the request of the Registrant. Expenses incurred by a director of the
Registrant in defending a civil or criminal action, suit or proceeding by reason
of the fact that such person was a director of the Registrant (and not in any
other capacity, including if such person was serving at the Registrant's request
as a director or officer of another enterprise or corporation) will be paid by
the Registrant in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such director to
repay such amount if it shall ultimately be determined that such person is not
entitled to be indemnified by the Registrant as authorized by relevant sections
of the DGCL. The Registrant will indemnify officers or directors in connection
with a proceeding initiated by them only if such proceeding was authorized by
the Registrant's Board of Directors. Any person who is not paid pursuant to the
foregoing indemnification provisions 90 days after submitting a written claim to
the Registrant may sue to recover such unpaid amounts and, if successful, will
be entitled to be paid the expense of prosecuting such claim (except for any
such claims as the Registrant is not permitted by law to indemnify, although the
burden of proving such defense will be on the Registrant).
Such Restated Certificate of Incorporation also provides that no director
will be liable to the Registrant for a breach of fiduciary duty, except (1) for
any breach of the director's duty of loyalty to the Registrant or its
stockholders, (2) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of the law, (3) under Section 174
of the DGCL, or (4) for any transaction from which the director derived an
improper personal benefit. The Registrant may also
II-1
<PAGE>
maintain insurance at its expense, to protect itself and any director or officer
of the Registrant or of another corporation or other enterprise against any
expense, liability or loss, whether or not the Registrant would have the power
to indemnify such person against such expense, liability or loss under the DGCL.
The Registrant has purchased and maintains insurance on behalf of any person
who is or was a director or officer against loss arising from any claim asserted
against him and incurred by him in any such capacity, subject to certain
exclusions.
See also the undertakings set out in response to Item 22 herein.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
- ----------- ---------------------------------------------------------------------------------------------------------
<C> <S>
2.1 Agreement and Plan of Merger, dated as of October 18, 1998, by and between the Registrant, Pennant, Inc.
and First Brands Corporation (included as Appendix A to the Joint Proxy Statement/Prospectus filed as
part of this Registration Statement).
5.1 Opinion of Morrison & Foerster LLP together with consent.
8.1 Tax Opinion of Morrison & Foerster LLP together with consent.
8.2 Tax Opinion of Skadden, Arps, Slate, Meagher & Flom LLP together with consent.
23.1 Consent of Deloitte & Touche LLP, independent public accountants.
23.2 Consent of KPMG Peat Marwick LLP, independent auditors.
24.1 Power of Attorney (See Page II-4 of this Registration Statement).
</TABLE>
ITEM 22. UNDERTAKINGS.
(1) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933 (the "Act"), each
filing of the Registrant's annual report pursuant to Section 13(a) or Section
15(d) of the Securities Exchange Act of 1934 that is incorporated by reference
in the Registration Statement shall be deemed to be a new Registration Statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(2) The undersigned Registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is part of this Registration Statement, by any person or party
who is deemed to be an underwriter within the meaning of Rule 145(c), the issuer
undertakes that such reoffering prospectus will contain the information called
for by the applicable registration form with respect to reofferings by persons
who may be deemed underwriters, in addition to the information called for by the
other items of the applicable form.
(3) The Registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (2) immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Act, and is used in connection with
an offering of securities subject to Rule 415, will be filed as part of an
amendment to the Registration Statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(4) The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11 or 13 of this form, within
II-2
<PAGE>
one business day of receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective date of the
Registration Statement through the date of responding to the request.
(5) The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
(6) Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Registrant
pursuant to the foregoing provisions hereof, or otherwise, the Registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Oakland, State of
California, on this 22nd day of December, 1998.
<TABLE>
<S> <C> <C>
THE CLOROX COMPANY
BY: /S/ G.C. SULLIVAN
-----------------------------------------
G.C. Sullivan
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
</TABLE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints, severally and not jointly, G. Craig Sullivan,
Peter D. Bewley, Karen M. Rose and Henry J. Salvo, Jr., with full power to act
alone, his true and lawful attorneys-in-fact, with the power of substitution,
for him and in his name, place and stead, in any and all capacities, to sign any
and all amendments to this Registration Statement and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact full
power and authority to do and perform each and every act and thing requisite and
necessary to be done as fully to all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that said attorneys-in-fact
may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
/s/ G.C. SULLIVAN Chairman of the Board,
- ------------------------------ Chief Executive Officer December 22, 1998
G.C. Sullivan and Director
/s/ D. BOGGAN, JR.
- ------------------------------ Director December 22, 1998
D. Boggan, Jr.
/s/ J. W. COLLINS
- ------------------------------ Director December 22, 1998
J. W. Collins
/s/ U. FAIRCHILD
- ------------------------------ Director December 22, 1998
U. Fairchild
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
/s/ T. M. FRIEDMAN
- ------------------------------ Director December 22, 1998
T. M. Friedman
/s/ J. MANCHOT
- ------------------------------ Director December 22, 1998
J. Manchot
/s/ D. O. MORTON
- ------------------------------ Director December 22, 1998
D. O. Morton
/s/ K. MORWIND
- ------------------------------ Director December 22, 1998
K. Morwind
/s/ E. L. SCARFF
- ------------------------------ Director December 22, 1998
E. L. Scarff
/s/ L. R. SCOTT
- ------------------------------ Director December 22, 1998
L. R. Scott
/s/ C. A. WOLFE
- ------------------------------ Director December 22, 1998
C. A. Wolfe
Group Vice
/s/ K. M. ROSE President--Finance and
- ------------------------------ Chief Financial Officer December 22, 1998
K. M. Rose (Principal Financial
Officer)
/s/ H. J. SALVO, JR. Vice President--Controller
- ------------------------------ (Principal Accounting December 22, 1998
H. J. Salvo, Jr. Officer)
</TABLE>
II-5
<PAGE>
FIRST BRANDS CORPORATION
83 WOOSTER HEIGHTS ROAD
DANBURY, CONNECTICUT 06813-1911
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE SPECIAL MEETING OF STOCKHOLDERS ON JANUARY 28, 1999
The undersigned hereby appoints William V. Stephenson and Joseph B. Furey,
or any of them, each with power of substitution, as proxies to vote as specified
on this card all shares of common stock of First Brands Corporation (the
"Company") which the undersigned may be entitled to vote at the Company's
Special Meeting of Stockholders to be held on January 28, 1999 and at any
adjournment or postponement thereof. Said proxies are authorized to vote in
their discretion as to any other business which may properly come before the
meeting. IF A VOTE IS NOT SPECIFIED, SAID PROXIES WILL VOTE FOR PROPOSALS 1, 2
AND 3.
You are encouraged to specify your choices by marking the appropriate boxes
on both sides of this card--but you need not mark any boxes if you wish to vote
in accordance with the Board of Directors' recommendations. The proxies cannot
vote your shares unless you sign and return this card.
The signer hereby revokes all proxies heretofore given by the signer to vote
at said meeting or any adjournment or postponement thereof.
This proxy when properly executed will be voted in the manner directed
herein by the undersigned stockholder. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED FOR PROPOSALS 1, 2 AND 3. /X/ Please make your votes as in this
example.
---------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1, 2 AND 3.
---------------------------------------------------------------------
1. PROPOSAL TO APPROVE AND ADOPT THE AGREEMENT AND PLAN OF REORGANIZATION AND
MERGER AMONG THE CLOROX COMPANY, PENNANT, INC. AND THE COMPANY, DATED AS OF
OCTOBER 18, 1998.
<TABLE>
<S> <C>
/ / FOR / / AGAINST / / ABSTAIN
</TABLE>
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE.)
<PAGE>
2. PROPOSAL TO ELECT DIRECTORS TO SERVE A THREE-YEAR TERM (OR UNTIL
CONSUMMATION OF THE MERGER, IF EARLIER).
<TABLE>
<S> <C>
/ / FOR all nominees listed below (except as indicated / / WITHHOLD AUTHORITY to vote for all
to the contrary below). nominees listed below.
</TABLE>
Robert F. Bernstock, Dennis Newman, Ervin R. Shames
Instruction: To withhold authority to vote for any individual nominee,
cross a line through the name of the nominee.
3. PROPOSAL TO RATIFY THE SELECTION OF KPMG PEAT MARWICK LLP AS INDEPENDENT
AUDITORS FOR THE FISCAL YEAR 1999 (OR UNTIL CONSUMMATION OF THE MERGER, IF
EARLIER).
<TABLE>
<S> <C>
/ / FOR / / AGAINST / / ABSTAIN
</TABLE>
Dated: _________________ , 19 _____
Signature(s):
___________________________________________________________
___________________________________________________________
Please sign exactly as name appears
herein. If shares are held jointly or
by two or more persons, each
stockholder named should sign.
Executors, administrators, trustees,
etc. should so indicate when signing.
If the signer is a corporation, please
sign corporate name by duly authorized
officer. If a partnership, please sign
in partnership name by authorized
person.
PLEASE SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
<PAGE>
EXHIBIT 5.1
MORRISON & FOERSTER LLP
ATTORNEYS AT LAW
425 MARKET STREET
SAN FRANCISCO, CALIFORNIA 94105-2482
December 22, 1998
The Clorox Company
1221 Broadway
Oakland, CA 94612-1888
Re: The Clorox Company:
20,394,076 Shares of Common Stock
Ladies and Gentlemen:
At your request, we have examined the Registration Statement on Form S-4
(the "Registration Statement") filed by you with the Securities and Exchange
Commission on December 22, 1998, in connection with the registration under the
Securities Act of 1933, as amended, of 20,394,076 shares of your Common Stock,
par value of $0.01 per share (the "Common Stock"). The Common Stock is to be
issued to the former stockholders of First Brand Corporation, a Delaware
corporation ("First Brands"), pursuant to the terms of that certain Agreement
and Plan of Merger, dated as of October 18, 1998, by and between you, Pennant,
Inc., a Delaware corporation and your wholly owned subsidiary, and First Brands
(the "Merger Agreement").
In connection with this opinion, we have examined all proceedings taken by
you relating to the issuance of up to 20,394,076 shares of the Common Stock.
It is our opinion that the shares of Common Stock being issued by you in
exchange for the shares of common stock of First Brands pursuant to the Merger
Agreement, when issued in the manner referred to in the Registration Statement,
will be legally and validly issued, fully paid, and nonassessable.
We consent to the use of this opinion as an exhibit to the Registration
Statement and further consent to all references to us in the Registration
Statement, the Proxy Statement/Prospectus constituting a part thereof, and any
amendments thereto.
Very truly yours,
/s/ MORRISON & FOERSTER LLP
<PAGE>
EXHIBIT 8.1
MORRISON & FOERSTER LLP
ATTORNEYS AT LAW
425 MARKET STREET
SAN FRANCISCO, CALIFORNIA 94105-2482
December 22, 1998
The Clorox Company
1221 Broadway
Oakland, CA 94612
Ladies and Gentlemen:
We have acted as counsel to the Clorox Company ("Clorox"), a Delaware
corporation, in connection with the proposed merger (the "Merger") of Pennant,
Inc. ("Merger Sub"), a Delaware corporation and a direct wholly-owned subsidiary
of Clorox, with and into First Brands Corporation, a Delaware corporation
("First Brands"), pursuant to an Agreement and Plan of Merger dated as of
October 18, 1998 (the "Merger Agreement") by and among Clorox, Merger Sub and
First Brands. The Merger is described in the Registration Statement of Clorox on
Form S-4 (the "Registration Statement") filed on the date hereof with the
Securities and Exchange Commission (the "Commission") under the Securities Act
of 1933, as amended (the "Securities Act"), which includes the combined proxy
statement of First Brands and the prospectus of Clorox (the "Proxy
Statement/Prospectus").
In that connection, we have reviewed the Merger Agreement, the Proxy
Statement/Prospectus and such other materials as we have deemed necessary or
appropriate for purposes of our opinion. In addition, we have assumed (i) that
the Merger will be consummated in accordance with the provisions of the Merger
Agreement and as contemplated by the Proxy Statement/Prospectus and (ii) the
truth and accuracy, on the date of the Merger Agreement and on the date hereof,
of the representations and warranties made by Clorox, Merger Sub and First
Brands in the Merger Agreement.
Based upon and subject to the foregoing, it is our opinion that the
discussion contained in the Registration Statement under the captions
"SUMMARY--The Merger--Material Federal Income Tax Consequences" and "THE
MERGER--Material Federal Income Tax Consequences", to the extent that it
pertains to matters of law or legal conclusions, is correct in all material
respects. Because this opinion is being delivered prior to the effective time of
the Merger, it must be considered prospective and dependent upon future events.
There can be no assurance that changes in the law will not take place which
could affect the Federal income tax consequences of the Merger or that contrary
positions may not be asserted by the Internal Revenue Service.
This opinion is being furnished in connection with the Registration
Statement. You may rely upon and refer to the foregoing opinion in the Proxy
Statement/Prospectus. Any variation or difference in any fact from those set
forth or assumed either herein or in the Proxy Statement/Prospectus may affect
the conclusions stated herein.
We hereby consent to the use of our name under the caption "THE
MERGER--Material Federal Income Tax Consequences" in the Proxy
Statement/Prospectus and to the filing of this opinion as an Exhibit to the
Registration Statement. In giving this consent, we do not admit that we come
within the category of persons whose consent is required under Section 7 of the
Securities Act or the rules and regulations of the Commission thereunder.
Very truly yours,
/s/ MORRISON & FOERSTER LLP
<PAGE>
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, New York 10022
(212) 735-3000
EXHIBIT 8.2
December 22, 1998
First Brands Corporation
83 Wooster Heights Road
P.O. Box 1911
Danbury, CT 06813
Gentlemen:
You have requested our opinion regarding the discussions of the material
United States Federal income tax consequences under the captions "SUMMARY--The
Merger--Material Federal Income Tax Consequences" and the "THE MERGER--Material
Federal Income Tax Consequences" in the combined Proxy Statement of First Brands
Corporation ("First Brands") and Prospectus of the Clorox Company ("Clorox")
which is included (the "Proxy Statement/Prospectus") in the Registration
Statement on Form S-4 (the "Registration Statement") filed on the date hereof
with the Securities and Exchange Commission (the "Commission") under the
Securities Act of 1933, as amended (the "Securities Act"). The Proxy
Statement/Prospectus relates to the proposed merger (the "Merger") of Pennant,
Inc. ("Merger Sub"), a direct wholly-owned subsidiary of Clorox, with and into
First Brands, with First Brands being the surviving corporation in the Merger.
This opinion is delivered in accordance with the requirements of Item 601(b)(8)
of Regulation S-K under the Securities Act.
In rendering our opinion, we have reviewed the Proxy Statement/Prospectus
and such other materials as we have deemed necessary or appropriate as a basis
for our opinion. In addition, we have considered the applicable provisions of
the Internal Revenue Code of 1986, as amended (the "Code"), Treasury Regulations
promulgated thereunder by the Treasury Department (the "Regulations"), pertinent
judicial authorities, rulings of the Internal Revenue Service (the "IRS") and
such other authorities as we have considered relevant, in each case, in effect
on the date hereof. It should be noted that such Code, Regulations, judicial
decisions, administrative interpretations and such other authorities are subject
to change at any time and, in some circumstances, with retroactive effect. A
material change in any of the materials or authorities upon which our opinion is
based could affect our conclusions stated herein.
Based upon the foregoing, it is our opinion that the statements made under
the captions "SUMMARY--The Merger--Material Federal Income Tax Consequences" and
"THE MERGER--Material Federal Income Tax Consequences" in the Proxy
Statement/Prospectus, to the extent that they constitute matters of law or legal
conclusions, are correct in all material respects. There can be no assurance
that contrary positions may not be asserted by the IRS.
This opinion is being furnished in connection with the Proxy
Statement/Prospectus. You may rely upon and refer to the foregoing opinion in
the Proxy Statement/Prospectus. Any variation or difference in any fact from
those set forth or assumed either herein or in the Proxy Statement/Prospectus
may affect the conclusions stated herein.
In accordance with the requirements of Item 601(b)(23) of Regulation S-K
under the Securities Act, we hereby consent to the use of our name under the
caption "THE MERGER--Material Federal Income Tax Consequences" in the Proxy
Statement/Prospectus and to the filing of this opinion as an Exhibit to the
Registration Statement. In giving this consent, we do not admit that we come
within the category of persons whose consent is required under Section 7 of the
Securities Act or the rules and regulations of the Commission thereunder.
Very truly yours,
/s/ SKADDEN, ARPS, SLATE, MEAGHER &
FLOM LLP
<PAGE>
EXHIBIT 23.1
CONSENT OF DELOITTE & TOUCHE LLP
INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the incorporation by reference in this Registration Statement
of The Clorox Company on Form S-4 of our report dated July 30, 1998, appearing
in and incorporated by reference in the Annual Report on Form 10-K of The Clorox
Company for the year ended June 30, 1998 and to the reference to us under the
heading "Experts" in the Proxy Statement/Prospectus, which is part of this
Registration Statement.
Deloitte & Touche LLP
/s/ DELOITTE & TOUCHE LLP
Oakland, California
December 21, 1998
<PAGE>
EXHIBIT 23.2
CONSENT OF KPMG PEAT MARWICK LLP, INDEPENDENT AUDITORS
The Board of Directors
First Brands Corporation:
We consent to the use of our audit reports dated August 6, 1998, relating to the
consolidated balance sheets of First Brands Corporation and subsidiaries as of
June 30, 1998 and 1997, and the related consolidated statements of income,
stockholders' equity and cash flows for each of the years in the three year
period ended June 30, 1998, and the related schedule, which audit reports appear
in the June 30, 1998 annual report on Form 10-K of First Brands Corporation, and
to the reference to our firm under the heading "Experts" in the Proxy
Statement/Prospectus.
With respect to the proxy statement/prospectus, we acknowledge our awareness of
the use therein of our report dated October 23, 1998 related to our review of
interim financial information.
Pursuant to Rule 436(c) under the Securities Act of 1933, such review report is
not considered part of a registration statement prepared as certified by an
accountant or a report prepared or certified by an accountant within the meaning
of sections 7 and 11 of the Act.
KPMG PEAT MARWICK LLP
/s/ KPMG PEAT MARWICK LLP
New York, New York
December 22, 1998
