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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT
PURSUANT TO SECTION 14(D)(4) OF THE
SECURITIES EXCHANGE ACT OF 1934
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NEUTROGENA CORPORATION
(NAME OF SUBJECT COMPANY)
NEUTROGENA CORPORATION
(NAME OF PERSON(S) FILING STATEMENT)
COMMON STOCK, PAR VALUE $.001 PER SHARE
(TITLE OF CLASS OF SECURITIES)
641246 10 3
(CUSIP NUMBER OF CLASS OF SECURITIES)
DONALD R. SCHORT
SENIOR VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
5760 WEST 96TH STREET
LOS ANGELES, CALIFORNIA 90045
(310) 642-1150
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON
AUTHORIZED TO RECEIVE NOTICE AND COMMUNICATIONS ON
BEHALF OF THE PERSON(S) FILING STATEMENT)
WITH COPIES TO:
DAVID W. HARDACRE
BLUM, PROPPER & HARDACRE INCORPORATED
SUITE 905, 12100 WILSHIRE BOULEVARD
LOS ANGELES, CALIFORNIA 90025
(310) 826-7900
AND
JAMES C. FREUND, ESQ.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM
919 THIRD AVENUE
NEW YORK, NEW YORK 10022
(212) 735-3000
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ITEM 1. SECURITY AND SUBJECT COMPANY.
The name of the subject company is Neutrogena Corporation, a Delaware
corporation (the "Company"), and the address of the principal executive offices
of the Company is 5760 West 96th Street, Los Angeles, California 90045. The
title of the class of equity securities to which this statement relates is the
common stock, par value $.001 per share, of the Company (the "Common Stock").
ITEM 2. TENDER OFFER OF THE PURCHASER.
This statement relates to a tender offer by JNJ Acquisition Corp., a
Delaware corporation (the "Purchaser") and a wholly owned subsidiary of Johnson
& Johnson, a New Jersey corporation ("Parent"), disclosed in a Tender Offer
Statement on Schedule 14D-1 dated August 26, 1994, (the "Schedule 14D-1"), to
purchase all outstanding shares of Common Stock, together with the associated
preferred stock purchase rights (the "Rights" and, together with the Common
Stock, the "Shares") issued pursuant to the Rights Agreement, dated as of July
23, 1990, as amended, between the Company and U.S. Stock Transfer Corporation,
as Rights Agent, at a price of $35.25 per Share, net to the seller in cash, upon
the terms and subject to the conditions set forth in the Offer to Purchase,
dated August 26, 1994 (the "Offer to Purchase"), and the related Letter of
Transmittal (which together constitute the "Offer").
The Offer is being made pursuant to an Agreement and Plan of Merger, dated
as of August 22, 1994 (the "Merger Agreement"), among Parent, the Purchaser and
the Company. The Merger Agreement provides, among other things, that as soon as
practicable after the consummation of the Offer and satisfaction or waiver of
all conditions to the Merger, the Purchaser will be merged with and into the
Company (the "Merger"), and the Company will continue as the surviving
corporation (the "Surviving Corporation"). A copy of the Merger Agreement is
attached hereto as Exhibit 1 and incorporated herein by reference.
Based on the information in the Offer to Purchase, the principal executive
offices of the Purchaser and Parent are located at One Johnson & Johnson Plaza,
New Brunswick, New Jersey 08933.
ITEM 3. IDENTITY AND BACKGROUND.
(a) The name and address of the Company, which is the person filing this
statement, are set forth in Item 1 above.
(b) Each material contract, agreement, arrangement and understanding and
actual or potential conflict of interest between the Company or its affiliates
and (i) its executive officers, directors or affiliates and (ii) the Purchaser,
its executive officers, directors or affiliates, is described in the attached
Schedule I or set forth below.
THE MERGER AGREEMENT
The summary of the Merger Agreement contained in the Offer to Purchase
which has been filed with the Securities and Exchange Commission (the
"Commission"), a copy of which is enclosed with this Schedule 14D-9, is
incorporated herein by reference. Such summary should be read in its entirety
for a more complete description of the terms and provisions of the Merger
Agreement. The following summarizes certain portions of the Merger Agreement
which relate to arrangements among the Company, Parent and the Company's
executive officers and directors.
Board Representation. The Merger Agreement provides that promptly upon the
acceptance for payment of, and payment for, any Shares by the Purchaser pursuant
to the Offer, the number of directors on the Board of Directors shall be reduced
to five and the Purchaser shall be entitled to designate three of such directors
on the Board of Directors of the Company such that the Purchaser, subject to
compliance with Section 14(f) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), will control a majority of such directors, and the Company
and its Board of Directors shall, at such time, take all such action needed to
cause the Purchaser's designees to be appointed to the Company's Board of
Directors. Subject to applicable law, the Company is required to take all action
requested by Parent necessary to effect any such election, including
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mailing to its stockholders the Information Statement containing the information
required by Section 14(f) of the Exchange Act and Rule 14f-1 promulgated
thereunder, a copy of which is attached as Schedule I hereto.
Stock Options. Pursuant to the Merger Agreement, (i) all stock options
which have been granted under any stock option, stock appreciation rights
("SARs") or stock purchase plan, program or arrangement of the Company
(together, the "Option Plans") and are outstanding immediately prior to the
consummation of the Offer, whether or not then exercisable, shall be cancelled
immediately prior to the consummation of the Offer in exchange for an amount in
cash, payable at the time of such cancellation, equal to the product of (y) the
number of Shares subject to such stock options immediately prior to the
consummation of the Offer and (z) the excess of the price per Share to be paid
in the Offer over the per Share exercise price of such stock option and (ii) all
SARs which have been granted under the Option Plans and are outstanding
immediately prior to the consummation of the Offer shall be cancelled
immediately prior to the consummation of the Offer in exchange for an amount of
cash, payable at the time of such cancellation, equal to the product of (y) the
number of Shares covered by such SAR and (z) the excess of the price per Share
to be paid in the Offer over the appreciation base per Share of such SAR;
provided, however, that no such cash payment shall be made with respect to any
SAR which is related to a stock option with respect to which such a cash payment
has been made. In addition, pursuant to the Merger Agreement, any stock option
or SAR not cancelled as provided in the immediately preceding sentence
immediately prior to the consummation of the Offer shall be cancelled at the
effective time of the Merger (the "Effective Time") in exchange for an amount in
cash, payable at the Effective Time, equal to the amount which would have been
paid had such stock option or SAR been cancelled immediately prior to the
consummation of the Offer.
Agreement with Respect to Employee Matters. The Merger Agreement provides
that Parent shall cause the Surviving Corporation to take such actions as are
necessary so that, for a period of not less than one year after the Effective
Time, nonunion employees of the Company and its subsidiaries who continue their
employment after the Effective Time will be provided employee benefits which in
the aggregate are at least generally comparable to those provided to such
employees as of the date of the Merger Agreement; provided, that it is
understood that after the Effective Time (x) neither Parent nor the Surviving
Corporation will have any obligation to issue or adopt any plans or arrangements
to provide for the issuance of shares of capital stock, warrants, options, stock
appreciation rights or other rights in respect of any shares of capital stock of
any entity or any securities convertible or exchangeable into such shares
pursuant to any such plan or program, (y) nothing therein shall require the
Surviving Corporation to maintain any particular plan or arrangement and (z)
nothing therein shall prevent or preclude the Surviving Corporation from
continuing any requirement for employee contributions under any employee benefit
plans in the same proportions as the employee-paid portion under such plans
constituted prior to the Effective Time.
In the Merger Agreement, Parent has stated its current intention that,
following the first anniversary of the Effective Time, it will provide employee
benefit plans, programs, arrangements and policies for the benefit of employees
of the Company and its subsidiaries which are at least generally comparable in
the aggregate to the employee benefit plans, programs, arrangements and policies
for the benefit of other employees of Parent and its subsidiaries. In connection
therewith, all service credited to each employee by the Company through the
Effective Time (and by the Surviving Corporation thereafter) would be recognized
by Parent for all purposes, including for purposes of eligibility, vesting and
benefit accruals under any employee benefit plan provided by Parent for the
benefit of the employees; provided, however, such service need not be credited
to the extent it would result in a duplication of benefits, including, without
limitation, benefit accrual service under defined benefit plans.
In addition, Parent has agreed to cause the Surviving Corporation to honor
(without modification) and assume certain employment agreements and individual
benefit arrangements between the Company and specified executive officers.
Agreement with Respect to Director and Officer Indemnification and
Insurance. The Merger Agreement provides that the indemnification obligations
set forth in the Company's Certificate of Incorporation and By-laws on the date
of the Merger Agreement shall survive the Merger and shall not be amended,
repealed or otherwise modified for a period of six years after the Effective
Time in any manner that would adversely affect
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the rights thereunder of individuals who on or prior to the Effective Time were
directors, officers, employees or agents of the Company.
Pursuant to the terms of the Merger Agreement, for a period of six years
from the Effective Time, Parent has agreed, unless Parent agrees in writing to
guarantee the indemnification obligations set forth in the preceding paragraph,
to maintain in effect the Company's current directors' and officers' liability
insurance covering those persons who are currently covered by the Company's
directors' and officers' liability insurance policy; provided, however, that in
no event is Parent required to expend in any one year an amount in excess of
150% of the annual premiums currently paid by the Company for such insurance
which the Company has represented to Parent and the Purchaser to be $160,000 for
the fiscal year ending October 31, 1994; and, provided, further, that if the
annual premiums of such insurance coverage exceed such amount, Parent is
obligated to obtain a policy with the greatest coverage available for a cost not
exceeding such amount.
The Merger Agreement provides that in the event Parent, the Surviving
Corporation or any of their successors or assigns (i) consolidates with or
merges into any other person and shall not be the continuing or surviving
corporation or entity of such consolidation or merger or (ii) transfers all or
substantially all of its properties and assets to any person, then and in each
such case, proper provisions shall be made so that the successors and assigns of
Parent or the Surviving Corporation, as the case may be, shall assume the
obligations set forth in the preceding paragraphs. The Merger Agreement also
provides that, in the event the Surviving Corporation transfers any material
portion of its assets, in a single transaction or in a series of transactions,
Parent will either guarantee the indemnification obligations set forth in the
preceding paragraphs or take such other action to ensure that the ability of the
Surviving Corporation to satisfy such indemnification obligations will not be
diminished in any material respect.
THE STOCKHOLDER AGREEMENT
In connection with the execution of the Merger Agreement, on August 22,
1994, Parent and a foundation and certain trusts affiliated with Lloyd E.
Cotsen, Chairman and Chief Executive Officer of the Company, (each a "Seller"
and collectively, the "Sellers") entered into a Stockholder Agreement (the
"Stockholder Agreement"), pursuant to which the Sellers have agreed to sell to
the Purchaser all 9,868,996 Shares beneficially owned by them (the "Subject
Shares"), representing approximately 38.4% of the outstanding Shares (35.2% of
the Shares on a fully diluted basis). The following summary of the Stockholder
Agreement, a copy of which is filed as Exhibit 2 hereto, is qualified in its
entirety by reference to the Stockholder Agreement.
Sale of the Shares. Pursuant to the Stockholder Agreement, each of the
Sellers has agreed to sell to the Purchaser and the Purchaser has agreed to
purchase from such Seller, the Subject Shares beneficially owned by such Seller
at a price per Share equal to the price paid in the Offer. Such obligations to
sell and to purchase are subject to the Purchaser having accepted Shares for
payment under the Offer and there having been validly tendered and not withdrawn
prior to the expiration of the Offer such number of Shares which (together with
Shares subject to the Stockholder Agreement that shall not have been so
tendered) would constitute a majority of the outstanding Shares.
Tender of Shares. The Stockholder Agreement provides that the Sellers may
tender the Subject Shares into the Offer and that the Purchaser may direct that
the Sellers so tender such Subject Shares. Any Subject Shares not purchased in
the Offer will be purchased at the same time as payment is made pursuant to the
Offer.
Representations and Warranties. The Stockholder Agreement contains various
customary representations and warranties by the Sellers, including those
relating to authorization, execution, delivery and performance of the
Stockholder Agreement and title to the Subject Shares.
Restrictions on Transfer. The Stockholder Agreement provides that each
Seller shall not, except as contemplated by the terms of the Stockholder
Agreement, (i) transfer (which term includes, without limitation, any sale,
gift, pledge or other disposition), or consent to any transfer of, any or all of
such Seller's Subject Shares or any interest therein, (ii) enter into any
contract, option or other agreement of understanding
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with respect to any transfer of any or all of such Subject Shares or any
interest therein, (iii) grant any proxy, power-of-attorney or other
authorization in or with respect to such Subject Shares, (iv) deposit such
Subject Shares into a voting trust or enter into a voting agreement or
arrangement with respect to such Subject Shares or (v) take any other action
that would in any way restrict, limit or interfere with the performance of such
Seller's obligations thereunder or the transactions contemplated thereby.
Voting Rights. The Stockholder Agreement provides that at any meeting of
stockholders of the Company or at any adjournment thereof or in any other
circumstances upon which their vote, consent or other approval is sought, each
Seller shall vote (or cause to be voted) such Seller's Subject Shares against
(i) any merger agreement or merger (other than the Merger Agreement and the
Merger), consolidation, combination, sale of substantial assets, reorganization,
joint venture, recapitalization, dissolution, liquidation or winding up of or by
the Company and (ii) any amendment of the Company's Certificate of Incorporation
or By-laws or other proposal or transaction involving the Company or any of its
subsidiaries which amendment or other proposal or transaction would in any
manner impede, frustrate, prevent or nullify, or result in a breach of any
covenant, representation or warranty or any other obligation or agreement of the
Company under or with respect to, the Offer, the Merger, the Merger Agreement or
any of the other transactions contemplated by the Merger Agreement (each of the
foregoing in clause (i) or (ii) above, a "Competing Transaction"). Pursuant to
the Stockholder Agreement, each Seller has irrevocably granted to Parent and
certain officers of Parent such Seller's proxy, for and in the name, place and
stead of such Seller, to vote such Seller's Subject Shares, or grant a consent
or approval in respect of such Subject Shares against any Competing Transaction.
Acquisition Proposals. The Stockholder Agreement provides that each Seller
shall not, nor shall such Seller permit any investment bank, attorney or other
adviser or representative of such Seller to, directly or indirectly, (i)
solicit, initiate or encourage the submission of, any takeover proposal or (ii)
participate in any discussions or negotiations regarding, or furnish to any
person any information with respect to, or take any other action to facilitate
any inquiries or the making of any proposal that constitutes, or may reasonably
be expected to lead to, any takeover proposal.
Termination. The Stockholder Agreement, and all rights and obligations of
the parties thereunder, shall terminate upon the first to occur of the Effective
Time or the date upon which the Merger Agreement is terminated in accordance
with its terms.
CERTAIN CONFLICTS
Stock Options. The current directors and executive officers of the Company
as a group hold stock options granted under the Option Plans to purchase an
aggregate of 1,793,179 Shares at exercise prices ranging from $7.644 to $26.400
per Share. In addition, the current directors and executive officers of the
Company as a group hold SARs granted under the Option Plans covering 1,205,054
Shares at an appreciation base per share ranging from $7.644 to $26.400 per
Share. In accordance with the terms of the Merger Agreement, (i) each holder of
a stock option granted under the Option Plans which is outstanding immediately
prior to the consummation of the Offer, whether or not then exercisable, will be
entitled to receive from the Company an amount in cash equal to the product of
(y) the number of Shares subject to such stock option immediately prior to the
consummation of the Offer and (z) the excess of the price per Share to be paid
in the Offer over the per Share exercise price of such stock option and (ii)
each holder of a SAR granted under the Option Plans which is outstanding
immediately prior to the consummation of the Offer will be entitled to receive
from the Company an amount of cash equal to the product of (y) the number of
Shares covered by such SAR and (z) the excess of the price per Share to be paid
in the Offer over the appreciation base per Share of such SAR. See "--The Merger
Agreement -- Stock Options."
Employment Agreements. The Company maintains employment agreements with
certain key employees. Certain of these agreements provide for the payment of
certain severance and other benefits upon termination of the executive's
employment by the Company following a change in control of the Company. The
acquisition by the Purchaser of Shares pursuant to the Offer will constitute a
change in control for purposes of those employment agreements.
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Supplemental Deferral Plan. In 1987 the Company established the
Supplemental Deferral Plan (the "SDP") to provide supplemental retirement
benefits to certain key employees of the Company. The SDP contains provisions
which provide for the automatic 100% vesting of benefits and the crediting of
interest accruals to the participants' SDP accounts if, among other things, any
person other than Mr. Cotsen and his then affiliated family members becomes the
beneficial owner of 50% or more of the combined voting power of the Company's
then outstanding securities. The acquisition by the Purchaser of Shares pursuant
to the Offer will trigger the automatic vesting provisions of the SDP and will
require the crediting of interest accruals to the participants' SDP accounts.
See "Executive Compensation -- Pension Plan and Other Benefits" in the
Information Statement attached hereto as Schedule I.
Executive Retirement Plan. On January 1, 1993 the Company put into effect
an Executive Retirement Plan (the "ERP") to supplement the expected retirement
benefits provided under the SDP and the Company's 401(k) Profit Sharing Plan.
The ERP contains provisions which provide for the 100% vesting of benefits if
the Company experiences a change in control and, upon a qualifying termination
of employment, demotion or move of more than 50 miles within three years after
the change in control, the ERP provides that the affected participant is
entitled to a minimum benefit of 20% of such participant's Final Average Base
Salary (as defined in "Executive Compensation -- Pension Plan and Other
Benefits" in the Information Statement attached hereto as Schedule I) payable in
a present-value lump-sum. The acquisition by the Purchaser of Shares pursuant to
the Offer will trigger the 100% vesting and minimum benefit provisions of the
ERP. See "Executive Compensation -- Pension Plan and Other Benefits" in the
Information Statement attached hereto as Schedule I.
Other Arrangements. Following the consummation of the Offer and the Merger,
Mr. Cotsen has agreed to continue as Chairman of the Company, for which he will
receive annual compensation of $600,000 and a grant of options to purchase
100,000 shares of Parent's common stock.
Indemnification of Officers and Directors. The Company's Restated
Certificate of Incorporation provides that each person who was or is made a
party or is threatened to be made a party to or is otherwise involved in any
action, suit or proceeding by reason of the fact that the person is or was a
director or officer of the Company (or, while a director or officer of the
Company, is or was serving at the request of the Company as a director, officer,
employee or agent for another entity) while serving in such capacity shall be
indemnified and held harmless by the Company, to the fullest extent authorized
by the Delaware General Corporation Law (the "DGCL") against all expense,
liability or loss (including attorneys' fees, judgments, fines, excise taxes
under the Employee Retirement Income Security Act of 1974 or penalties and
amounts paid or to be paid in settlement) reasonably incurred by such person in
connection with such action, suit or proceeding. The Restated Certificate of
Incorporation further provides that rights conferred thereby are contract rights
and include the right to have the expenses incurred in defending the proceedings
specified above in advance of their final disposition paid by the Company;
provided that, if the DGCL requires, such payment will be made only upon
delivery to the Company by the indemnified party of an undertaking to repay all
amounts so advanced if it is ultimately determined that the person receiving
such payments is not entitled to be indemnified under the Restated Certificate
of Incorporation or otherwise.
The Restated Certificate of Incorporation provides that persons entitled to
be indemnified may bring suit against the Company to recover unpaid amounts
claimed hereunder, and that if such suit is successful, the expense of bringing
the suit will be reimbursed by the Company. The Restated Certificate of
Incorporation further provides that, while it is a defense to such a suit that
the person claiming indemnification has not met the applicable standards of
conduct making indemnification permissible under the DGCL, the burden of proving
the defense is on the Company, and neither the failure of the Company to have
made a determination that indemnification is proper, nor an actual determination
that the person claiming indemnification has not met the applicable standard of
conduct, is a defense to the action or creates a presumption that the person
claiming indemnification has not met the applicable standards of conduct.
The Restated Certificate of Incorporation provides that the right to
indemnification and the payment of expenses incurred in defending a proceeding
in advance of its final disposition is not exclusive of any other right which
any person may have or acquire under any statute, provision of the Company's
Restated
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Certificate of Incorporation or By-laws, or otherwise. In addition, the Company
may maintain insurance, at its expense, to protect itself and any of its
directors, officers, employees or agents against any expense, liability or loss,
whether or not the Company would have the power to indemnify such person against
such expense, liability or loss under the DGCL. The Company currently maintains
such insurance for its directors and executive officers. The Company's By-laws
expressly incorporate by reference the foregoing indemnification provisions.
The Merger Agreement provides that the indemnification obligations set
forth in the Company's Restated Certificate of Incorporation and By-laws on the
date of the Merger Agreement shall survive the Merger and shall not be amended,
repealed or otherwise modified for a period of six years after the Effective
Time in any manner that would adversely affect the rights thereunder of
individuals who on or prior to the Effective Time were directors, officers,
employees or agents of the Company.
Pursuant to the terms of the Merger Agreement and subject to certain
limitations, for a period of six years from the Effective Time, Parent shall,
unless Parent agrees in writing to guarantee the indemnification obligations set
forth in the preceding paragraph, maintain in effect the Company's current
directors' and officers' liability insurance covering those persons who are
currently covered by the Company's directors' and officers' liability insurance
policy. See "-- The Merger Agreement -- Agreement with Respect to Director and
Officer Indemnification and Insurance."
ITEM 4. THE SOLICITATION OR RECOMMENDATION.
(a) RECOMMENDATION OF THE BOARD OF DIRECTORS.
The Board of Directors has unanimously approved the Merger Agreement and
the transactions contemplated thereby and unanimously recommends that all
holders of Shares tender such Shares pursuant to the Offer.
(b) BACKGROUND; REASONS FOR THE RECOMMENDATION.
Parent and the Company have from time to time engaged in discussions and
exchanges of information in an effort to examine possible joint ventures and
other business arrangements.
Since the beginning of 1994, the Board of Directors and Mr. Cotsen, the
Company's Chairman and Chief Executive Officer, have been actively studying the
current and future state of the quality skin and hair care business, the
Company's strategic position, near and long-term prospects and the possibility
that the Company should conduct a systematic review of its strategic
alternatives, including alternatives to proceeding as an independent company, in
order to increase stockholder value.
In March 1994, Mr. Cotsen and a representative of Lehman Brothers Inc.
("Lehman Brothers") met to discuss the Company's retention of Lehman Brothers to
assist with the Company's review of various strategic alternatives that would
best serve the long-term interests of the Company's stockholders.
At a meeting held on May 25, 1994, which was attended by a representative
of Lehman Brothers, these matters were discussed and the Board of Directors of
the Company authorized management to retain Lehman Brothers to render assistance
with respect to the consideration and implementation of strategic alternatives
for the Company. In addition, at the May 25, 1994 meeting, the Board of
Directors of the Company reviewed a list which had been developed by Lehman
Brothers to identify the leading candidates that could acquire the Company. At
that meeting, the Board of Directors of the Company authorized Lehman Brothers
to contact, on a confidential basis, what were considered to be the four most
eligible candidates to discuss their interest in acquiring the Company.
During the week of June 27, 1994, a representative of Lehman Brothers
contacted senior management of each of the four most eligible candidates to
arrange meetings to discuss a strategic transaction with the Company. A
representative of Lehman Brothers held a meeting on July 21, 1994 with one of
the acquisition candidates and a meeting on August 3, 1994 with another of the
candidates. On July 20, 1994, a representative of Lehman Brothers met with Ralph
Larsen, Chairman and Chief Executive Officer of Parent, and Peter
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Larson, Chairman of Parent's Consumer Products Sector. At each of these
meetings, Lehman Brothers inquired about the acquisition candidate's interest in
exploring an acquisition of the Company.
Following their initial July 20, 1994 meeting, a representative of Lehman
Brothers received a telephone call from Mr. Larson expressing Parent's serious
interest in exploring an acquisition of the Company. It was agreed that they
would meet in New York on July 25, 1994 for more detailed discussions.
At the July 25, 1994 meeting, the Lehman Brothers' representative
indicated, among other considerations, that a preemptive offer for the Company
would probably require a price in the range of $35 to $37 per Share in cash. At
that meeting, Mr. Larson said he understood the Company's valuation parameters
and indicated a willingness to proceed with discussions and due diligence on
that basis, provided that the Company refrain from soliciting offers while talks
with Parent were proceeding. In addition, Mr. Larson outlined certain of
Parent's due diligence requirements.
Following the July 25, 1994 meeting, Parent began its due diligence review
of certain publicly available financial and other information regarding the
Company.
On August 3, 1994, Mr. Larson called a representative of Lehman Brothers
and indicated that Parent was prepared to proceed with an acquisition of the
Company valued at approximately $34 per Share, subject to the Company having
certain minimum cash reserves and subject to completion of due diligence and the
negotiation of definitive agreements. The Lehman Brothers' representative and
Mr. Larson agreed that this price would be subject to further negotiation. From
time to time following that call, Lehman Brothers and representatives of Parent
engaged in discussions regarding, among other things, the terms of, and
conditions to, any possible transaction between Parent and the Company.
On August 8, 1994, the Company's Board of Directors held an informational
conference call with Mr. Cotsen, a representative of Lehman Brothers and legal
counsel. On that call Mr. Cotsen and the Lehman Brothers' representative
reviewed the results of Lehman Brothers' initial contacts with the leading
acquisition candidates and the basis upon which Parent indicated its willingness
to proceed, including the valuation presented by Parent and Parent's exclusivity
requirement. Following discussion of these matters at length, and after
receiving advice of legal counsel, the Board of Directors authorized Lehman
Brothers to proceed with its discussions with Parent on an informal exclusive
basis, subject to the Board's fiduciary responsibilities.
Due to the confidential nature of the proposed transaction, only Mr.
Cotsen, the Company's Board of Directors, Lehman Brothers and the Company's
outside legal counsel were aware that discussions between the Company and third
parties were being held. As a result of increased trading activity in the Common
Stock, on August 10, 1994 a representative of a news service contacted Donald R.
Schort, the Company's Senior Vice President and Chief Financial Officer, who was
unaware of the discussions and who indicated that the Company had no news
pending. Later that day, to correct Mr. Schort's inadvertent statement, the
Company issued a press release stating that it was engaged in discussions with a
substantially larger company regarding the possible acquisition of the Company,
that there was no assurance that any transaction would result and that the
Company did not intend to make any subsequent announcements on that subject
unless and until a definitive agreement was entered into or the discussions were
terminated.
Following the issuance of the August 10, 1994 press release, the Company
and Lehman Brothers received various indications of interest in acquiring the
Company from third parties. However, the Company received no offers to acquire
the Company from any of the third parties. In addition, none of the third
parties indicated an interest in pursuing a transaction which would provide the
Company's stockholders with a price for their Shares comparable to the price
range then being discussed with Parent.
On August 12, 1994, representatives of Lehman Brothers and the Company's
legal counsel met with representatives of Parent and Parent's financial and
legal advisors to review significant business and legal issues regarding
Parent's acquisition of the Company. Parent's representatives confirmed that it
was a condition to Parent's willingness to enter into an agreement to acquire
the Company that there be an agreement along the lines of the Stockholder
Agreement and that there be certain other provisions in the event of the
termination of the Merger Agreement by the Company in connection with a
competing transaction. At
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that meeting, the parties also discussed the possibility of Parent's acquisition
of the Company in exchange for a combination of Parent's common stock and cash.
On August 15, 1994, the Company and Parent entered into a confidentiality
agreement preceding Parent's review of confidential information regarding the
Company. Shortly thereafter, the Company decided that it preferred to pursue an
all cash transaction. The Company and Parent then began negotiating the terms of
a definitive agreement providing for Parent's acquisition of the Company for
cash.
On August 17, 1994, the Company's Board of Directors held another
informational conference call with Mr. Cotsen, a representative of Lehman
Brothers and legal counsel. On this call, Mr. Cotsen and Lehman Brothers
reviewed the status of the negotiations with Parent, including the alternative
transaction structures available and Parent's proposed valuation of the Company.
Following discussion of these matters at length, the Board of Directors
confirmed its preference for an all cash deal.
Following further negotiations, on August 19, 1994 Parent agreed to
recommend to its Board of Directors that Parent pay a price of $35.25 per Share
in cash to acquire the Company. Parent's willingness to agree to that price was
conditioned upon Mr. Cotsen's willingness to sign the Stockholder Agreement
providing for the sale of the Shares beneficially owned by him to the Purchaser
at the Offer price through a tender of such Shares in the Offer or otherwise.
Negotiations between the Company and Parent continued through August 21, 1994,
culminating in the Company and Parent agreeing upon a form of definitive
agreement to be presented for review by the Company's Board of Directors at a
meeting scheduled for August 21, 1994.
On August 21, 1994, the Company's Board of Directors convened in Los
Angeles, California to consider the terms of the proposed transaction. Lehman
Brothers made a presentation to the Board of Directors and delivered its oral
opinion as to the fairness of the $35.25 cash consideration to be paid in the
Offer and the Merger to the holders of the outstanding Shares. The Company's
legal counsel then advised the Board of Directors with respect to certain legal
matters, including their fiduciary obligations in connection with a sale of the
Company, and reviewed the principal aspects of the Merger Agreement and the
Stockholder Agreement. Mr. Cotsen then presented his favorable views on the
proposed transaction. The Board of Directors then analyzed and discussed the
Offer, the Merger Agreement and the Merger. Mr Cotsen and the representatives of
Lehman Brothers then left the meeting to permit the remaining directors to
conduct further analysis and discussion among themselves and with legal counsel.
After Mr. Cotsen returned to the meeting, the members of the Board of Directors
present at the meeting unanimously approved the Merger Agreement and the
transactions contemplated thereby and unanimously resolved to recommend
acceptance of the Offer and approval and adoption of the Merger and the Merger
Agreement by the Company's stockholders (if such approval is required by
applicable law). The two members of the Board of Directors not present at the
August 21, 1994 meeting later confirmed their approval of the matters discussed
at that meeting. A copy of a press release announcing the execution of the
Merger Agreement is attached hereto as Exhibit 3 and incorporated herein by
reference. A copy of a letter to stockholders from the Company, which will
accompany this Schedule 14D-9, is attached hereto as Exhibit 4 and incorporated
herein by reference.
In approving the Merger Agreement and the transactions contemplated thereby
and recommending that all holders of Shares tender such Shares pursuant to the
Offer, the Board of Directors considered a number of factors including:
(i) the terms of the Merger Agreement and the fact that the Company
will continue as an independent division of Parent following the Merger;
(ii) presentations by the Chairman and Chief Executive Officer of the
Company and the Company's financial advisors regarding the financial
condition, results of operations, business and prospects of the Company,
including the prospects if the Company were to remain independent;
(iii) the results of the process undertaken to identify and solicit
indications of interest from third parties with respect to a purchase of
the Company; and the fact that no unsolicited offers were received by or on
behalf of the Company with respect to a purchase of the Company following
the public announcement that the Company was engaged in discussions
regarding the possible sale of the Company;
8
<PAGE> 10
(iv) that the $35.25 per Share Offer price represents (x) a premium of
approximately 23% over the closing price for the Shares in the NASDAQ
National Market System (the "NASDAQ") on August 19, 1994, the last trading
day prior to the public announcement of the execution of the Merger
Agreement and (y) a premium of approximately 70% over the closing price for
the Shares in the NASDAQ on August 9, 1994, the last trading day prior to
the public announcement that the Company was engaged in discussions
regarding the possible acquisition of the Company;
(v) the terms of the Stockholder Agreement, which provide that the
Sellers thereunder would receive the same consideration per Share as would
all other holders of Shares, thereby ensuring that the public stockholders
would participate in any control premium realized in connection with the
Offer and the Merger;
(vi) the opinion of Lehman Brothers to the effect that, as of the date
of such opinion, the $35.25 per Share cash consideration to be offered to
the holders of the Shares in the Offer and the Merger is fair to such
holders, from a financial point of view. A copy of the opinion of Lehman
Brothers is attached hereto as Exhibit 5 and incorporated herein by
reference. STOCKHOLDERS ARE URGED TO READ THE OPINION OF LEHMAN BROTHERS
CAREFULLY IN ITS ENTIRETY;
(vii) that the Merger Agreement permits the Company to furnish
nonpublic information to, and participate in discussions and negotiations
with, any third-party that has submitted a takeover proposal to the
Company, if in the opinion of the Board of Directors, after consultation
with counsel, the failure to take such actions would be inconsistent with
the Board of Director's fiduciary duties to the Company's stockholders
under applicable law;
(viii) the termination provisions of the Merger Agreement, which were
a condition to Parent's proposal, providing that Parent could be entitled
to (x) a fee of $25 million and (y) reimbursement of expenses of up to $2.5
million upon the termination of the Merger Agreement under certain
circumstances, including the modification or withdrawal of the Board of
Directors' recommendation with respect to the Offer and the Merger in
connection with another takeover proposal; and
(ix) the ability of the Purchaser to consummate the Offer and the
Merger without conditioning the Offer on obtaining any specific financing
commitments.
The Board of Directors did not assign relative weights to the foregoing
factors or determine that any factor was of particular importance. Rather, the
Board of Directors viewed its position and recommendations as being based on the
totality of the information presented to and considered by it.
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
Lehman Brothers has been retained by the Company to act as independent
financial advisor to the Company with respect to the Offer, the Merger and
matters arising in connection therewith. Pursuant to a letter agreement, dated
June 8, 1994, between the Company and Lehman Brothers, if the Offer and the
Merger are consummated, the Company has agreed to pay Lehman Brothers an
aggregate fee of approximately $7.4 million for acting as financial advisor in
connection with the transaction, including rendering its opinion. Lehman
Brothers was paid a fee of $500,000 upon delivery of its written opinion. Such
fee will be credited against the aggregate fee to be paid to Lehman Brothers by
the Company pursuant to the letter agreement. The Company has also agreed to
reimburse Lehman Brothers for its reasonable out-of-pocket expenses, including
the reasonable fees and expenses of its counsel, and to indemnify Lehman
Brothers for certain liabilities arising out of the rendering of its opinion,
including liabilities arising under the federal securities laws.
Lehman Brothers has provided certain investment banking services to the
Company from time to time for which it has received customary compensation. In
the ordinary course of its business, Lehman Brothers may actively trade the debt
and equity securities of the Company and Parent for its own account and for the
accounts of customers and, accordingly, may at any time hold a long or short
position in such securities.
9
<PAGE> 11
Except as disclosed herein, neither the Company nor any person acting on
its behalf currently intends to employ, retain or compensate any other person to
make solicitations or recommendations to security holders on its behalf
concerning the Offer or the Merger.
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES.
(a) Except as set forth in Schedule II hereto, no transactions in the
Shares have been effected during the past 60 days by the Company or, to the best
of the Company's knowledge, by any executive officer, director, affiliate or
subsidiary of the Company.
(b) To the best of the Company's knowledge, to the extent permitted by
applicable securities laws, rules or regulations, except for gifts of Shares to
family members or charitable organizations, each executive officer, director and
affiliate of the Company currently intends to tender all Shares over which he or
she has sole dispositive power to the Purchaser.
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY SUBJECT COMPANY.
(a) Except as set forth in this Schedule 14D-9, the Company is not engaged
in any negotiation in response to the Offer which relates to or would result in
(i) an extraordinary transaction, such as a merger or reorganization, involving
the Company or any subsidiary of the Company; (ii) a purchase, sale or transfer
of a material amount of assets by the Company or any subsidiary of the Company;
(iii) a tender offer for or other acquisition of securities by or of the
Company; or (iv) any material change in the present capitalization or dividend
policy of the Company.
(b) Except as described above or in Items 3(b) or 4(b) above, there are no
transactions, Board of Directors' resolutions, agreements in principle or signed
contracts in response to the Offer that relate to or would result in one or more
of the events referred to in Item 7(a) above.
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED.
The Information Statement attached as Schedule I hereto is being furnished
in connection with the possible designation by the Purchaser, pursuant to the
Merger Agreement, of certain persons to be appointed to the Board of Directors
of the Company other than at a meeting of the Company's stockholders.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NO.
-------
<S> <C>
Exhibit 1 Agreement and Plan of Merger, dated as of August 22, 1994, by and among
Neutrogena Corporation, Johnson & Johnson and JNJ Acquisition Corp.
Exhibit 2 Stockholder Agreement, dated as of August 22, 1994, by and among Johnson &
Johnson and Lloyd E. Cotsen, trustee of the Cotsen 1985 Trust, Lloyd E.
Cotsen, trustee of the First Cotsen Charitable Unitrust, Lloyd E. Cotsen,
trustee of the Second Cotsen Charitable Unitrust, Lloyd E. Cotsen, trustee of
the Third Cotsen Charitable Unitrust, Lloyd E. Cotsen, trustee of the Fourth
Cotsen Charitable Unitrust, Lloyd E. Cotsen, trustee of the Remainder Trust
(Trust B) under the will of Joanne Cotsen (deceased), and Cotsen Family
Foundation, a California nonprofit public benefit corporation
Exhibit 3 Press Release issued jointly by Neutrogena Corporation and Johnson & Johnson,
dated August 22, 1994
Exhibit 4 Letter to Stockholders of Neutrogena Corporation dated August 26, 1994*
Exhibit 5 Opinion of Lehman Brothers Inc. dated August 22, 1994*
</TABLE>
- ---------------
* Included in copies mailed to stockholders.
10
<PAGE> 12
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
Dated: August 26, 1994 NEUTROGENA CORPORATION
By /s/ LLOYD E. COTSEN
-------------------------------
Lloyd E. Cotsen
Chief Executive Officer
11
<PAGE> 13
SCHEDULE I
NEUTROGENA CORPORATION
5760 WEST 96TH STREET
LOS ANGELES, CALIFORNIA 90045
INFORMATION STATEMENT PURSUANT TO
SECTION 14(F) OF THE SECURITIES
EXCHANGE ACT OF 1934 AND RULE 14F-1 THEREUNDER
This Information Statement is being mailed on or about August 26, 1994 as a
part of Neutrogena Corporation's (the "Company") Solicitation/Recommendation
Statement on Schedule 14D-9 (the "Schedule 14D-9") to the holders of record of
shares of Common Stock, par value $.001 per share, of the Company (the "Shares")
at the close of business on or about August 24, 1994. You are receiving this
Information Statement in connection with the possible election of persons
designated by the Purchaser (as defined below) to a majority of the seats on the
Board of Directors of the Company.
On August 22, 1994, the Company, JNJ Acquisition Corp., a Delaware
corporation (the "Purchaser"), and Johnson & Johnson ("Parent") entered into an
Agreement and Plan of Merger (the "Merger Agreement") in accordance with the
terms and subject to the conditions of which (i) Parent will cause the Purchaser
to commence a tender offer (the "Offer") for all outstanding Shares at a price
of $35.25 per Share net to the seller in cash, and (ii) the Purchaser will be
merged with and into the Company (the "Merger"). In addition, on August 22,
1994, the Purchaser and a foundation and certain trusts affiliated with Lloyd E.
Cotsen, Chairman and Chief Executive Officer of the Company (collectively, the
"Sellers"), entered into a Stockholder Agreement pursuant to which the Sellers
agreed to sell to the Purchaser all of the Shares held by them at a price of
$35.25 per share. As a result of the Offer and the Merger, the Company will
become a wholly owned subsidiary of Parent.
The Merger Agreement requires the Company to use all reasonable efforts to
cause the Purchaser's designees to be elected to the Board of Directors under
the circumstances described therein. This Information Statement is required by
Section 14(f) of the Exchange Act and Rule 14f-1 thereunder. See "Board of
Directors and Executive Officers -- Right to Designate Directors; The Purchaser
Designees."
You are urged to read this Information Statement carefully. You are not,
however, required to take any action. Capitalized terms used herein and not
otherwise defined herein shall have the meaning set forth in the Schedule 14D-9.
Pursuant to the Merger Agreement, the Purchaser commenced the Offer on
August 26, 1994. The Offer is scheduled to expire at 12:00 midnight, New York
City time, on September 23, 1994 unless the Offer is extended.
The information contained in this Information Statement concerning the
Purchaser has been furnished to the Company by the Purchaser, and the Company
assumes no responsibility for the accuracy or completeness of such information.
BOARD OF DIRECTORS AND EXECUTIVE OFFICERS
GENERAL
The Shares are the only class of voting securities of the Company
outstanding. Each Share has one vote. As of August 18, 1994, there were
25,717,859 Shares outstanding. The Board of Directors is divided into three
classes and currently consists of eight members. At each annual meeting of
stockholders, directors constituting one class are elected for three-year terms.
I-1
<PAGE> 14
RIGHT TO DESIGNATE DIRECTORS; THE PURCHASER DESIGNEES
Pursuant to the Merger Agreement, promptly upon the purchase by the
Purchaser of any Shares pursuant to the Offer, the number of directors on the
Company's Board of Directors shall be reduced to five and the Purchaser shall be
entitled to designate three of such number of directors (the "Purchaser
Designees") and the Company and its Board of Directors shall take all such
action needed to cause the Purchaser Designees to be appointed to the Company's
Board of Directors.
The Purchaser has informed the Company that it will choose the Purchaser
Designees from the directors and executive officers listed in Schedule I to the
Offer to Purchase, a copy of which is being mailed to the Company's stockholders
together with this Schedule 14D-9. The Purchaser has informed the Company that
each of the directors and executive officers listed in Schedule I to the Offer
to Purchase has consented to act as a director, if so designated. The
information on such Schedule I is incorporated herein by reference.
None of the Purchaser Designees (i) is currently a director of, or holds
any position with, the Company, (ii) has a familial relationship with any of the
directors or executive officers of the Company or (iii) to the best knowledge of
the Purchaser, beneficially owns any securities (or rights to acquire any
securities) of the Company. The Company has been advised by the Purchaser that,
to the best of Purchaser's knowledge, none of the Purchaser Designees has been
involved in any transactions with the Company or any of its directors, executive
officers or affiliates which are required to be disclosed pursuant to the rules
and regulations of the Commission, except as may be disclosed herein or in the
Schedule 14D-9.
It is expected that the Purchaser Designees may assume office at any time
following the purchase by the Purchaser of Shares pursuant to the Offer, which
purchase cannot be earlier than September 23, 1994, and that, upon assuming
office, the Purchaser Designees will thereafter constitute at least a majority
of the Board of Directors.
Biographical information concerning each of the Company's current directors
and executive officers is presented on the following pages.
DIRECTORS
<TABLE>
<CAPTION>
YEAR FIRST
ELECTED
OR
APPOINTED
NAME AGE DIRECTOR PRINCIPAL OCCUPATION
- -------------------- --- ---------- -------------------------------------------------
<S> <C> <C> <C>
CLASS I DIRECTORS
(term to expire in
1995)
Lloyd E. Cotsen 65 1962 Mr. Cotsen has served as the Chief Executive
Officer of the Company since June 1981 (Mr.
Cotsen also served as President of the Company
from 1967 until his appointment, on May 16, 1991,
as the Chairman of the Board of the Company). Mr.
Cotsen is also a member of the Board of Directors
of Sunrise Medical, Inc., a manufacturer and
distributor of medical rehabilitation equipment.
</TABLE>
I-2
<PAGE> 15
<TABLE>
<CAPTION>
YEAR FIRST
ELECTED
OR
APPOINTED
NAME AGE DIRECTOR PRINCIPAL OCCUPATION
- -------------------- --- ---------- -------------------------------------------------
<S> <C> <C> <C>
Kenneth Lipper 52 1986 Mr. Lipper is the Chairman and President of
Lipper & Company, L.P., an investment banking and
financial management firm. From 1983 to 1985, he
served as Deputy Mayor of New York City. For six
years prior thereto, he was a Managing Director
and a General Partner of Salomon Brothers Inc.,
an investment banking and corporate services
firm. Mr. Lipper has authored a novel ("Wall
Street") as well as numerous articles on
international and domestic policy and, from 1976
to 1982, served as an adjunct professor to
Columbia University's School of International
Affairs. Mr. Lipper is a member of the
International Advisory Committee of the Federal
Reserve Bank of New York.
Robert A. McCabe 60 1980 Since 1987, Mr. McCabe has been President of
Pilot Capital Corporation, an investment firm.
For more than twenty years prior thereto, Mr.
McCabe was a managing Director of Shearson Lehman
Brothers Incorporated, an investment banking
firm. He is also a member of the Board of
Directors of Morrison Knudsen Corporation, a
company engaged in engineering and construction;
Thermo Instrument Systems, Inc., a manufacturer
of analytical instruments; Thermo Electron
Corporation, a company providing industry,
utilities and government with high technology
equipment and services to enhance production;
Church & Dwight Co., Inc., a company engaged in
the chemicals and household products businesses;
and Borg-Warner Security Corp., a Company
providing guard, alarm, armored and courier
services.
CLASS II DIRECTORS
(terms to expire
in 1996)
Dr. Ronald E. Cape 61 1980 For more than five years prior to December 1991,
Dr. Cape served as Chairman of the Board of Cetus
Corporation, a leading biotechnology company. In
December 1991, Cetus Corporation merged with
Chiron Corporation, another leading biotechnology
company, and Dr. Cape served as a director of
Chiron Corporation until July 1992. Since January
1992, Dr. Cape has served as the chairman of a
start-up biotechnology company, Darwin Molecular
Corporation. Dr. Cape was a co-founder of Cetus
in 1971.
</TABLE>
I-3
<PAGE> 16
<TABLE>
<CAPTION>
YEAR FIRST
ELECTED
OR
APPOINTED
NAME AGE DIRECTOR PRINCIPAL OCCUPATION
- -------------------- --- ---------- -------------------------------------------------
<S> <C> <C> <C>
Sidney Dworkin 73 1978 Mr. Dworkin is a private investor. For more than
five years prior to April 1987, Mr. Dworkin was
Chief Executive Officer and a Director of Revco
D.S., Inc., a retail drugstore chain, and was
Chairman of the Board of that company until
September 1987. Revco D.S., Inc. filed for
protection under the U.S. bankruptcy code in July
1988. Mr. Dworkin is Chairman of the Board of
Advanced Modular Systems, a seller of modular
buildings, and of Comtrex Systems Corporation, a
manufacturer of electronic cash registers. Mr.
Dworkin is a member of the Board of Directors of
CCA Industries, Inc., a consumer products company
manufacturing beauty and health products; General
Computer Corporation, a retailer of software for
pharmacy and hospital computer systems and a
processor of third-party claims; Northern
Instruments Corporation, a manufacturer of rust
prohibitive products and lubricant sensors;
Interactive Technologies, Inc., a marketer and
distributor of pet products; and Viragen, Inc., a
manufacturer of natural alpha interferon.
CLASS III DIRECTORS
(terms to expire
in 1997)
Charles M. Diker 59 1976 Since 1986, Mr. Diker has been the Chairman of
the Board of Cantel Industries Inc., a
manufacturer and distributor of office furniture
and medical equipment. Mr. Diker is also a member
of the Board of Directors of BeautiControl
Cosmetics, Inc., a direct seller and marketer of
cosmetics, and of International Specialty
Products, a manufacturer of specialty chemicals.
Mr. Diker is also Chairman of the Board of
Blanchard and Blanchard, a marketer and
distributor of gourmet food products.
Chester L. Firestein 64 1977 Mr. Firestein has been President of CLF
Associates, a management consulting firm, since
1976. For three years prior to 1976, Mr.
Firestein was President and Chief Executive
Officer of Max Factor & Co., a manufacturer and
marketer of cosmetics and toiletries, and from
1979 to 1985 was Chairman of the Board and Chief
Executive of First Beverly Bank, a financial
institution located in Beverly Hills and Century
City, California.
</TABLE>
I-4
<PAGE> 17
<TABLE>
<CAPTION>
YEAR FIRST
ELECTED
OR
APPOINTED
NAME AGE DIRECTOR PRINCIPAL OCCUPATION
- -------------------- --- ---------- -------------------------------------------------
<S> <C> <C> <C>
James R. McManus 60 1991 Mr. McManus has for more than the past ten years
been the Chairman of the Board and Chief
Executive Officer of Marketing Corporation of
America, an international marketing services and
management consulting firm, which also owns
companies in the airline, automobile, real estate
development, restaurant management and venture
capital industries. Mr. McManus is a member of
the Board of Directors of First Brands
Corporation, a manufacturer of automotive
products and plastic wrap; Au Bon Pain, a
retailer of fresh bakery products; Ally &
Gargano, Inc., an advertising agency; and
Business Express Airlines, a regional commuter
airline. Mr. McManus also serves on the Board of
Trustees of Northwestern University.
</TABLE>
EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
YEAR FIRST
APPOINTED
NAME AGE OFFICER PRINCIPAL OCCUPATION
- -------------------- --- ---------- -------------------------------------------------
<S> <C> <C> <C>
Lloyd E. Cotsen 65 1967 Chief Executive Officer and Chairman of the Board
of Directors.
Allan H. Kurtzman 67 1991 President and Chief Operating Officer. Mr.
Kurtzman rejoined the Company in July 1991. From
February 1987 to July 1991, Mr. Kurtzman was
President of Max Factor & Co. From March 1983 to
February 1987, he served as President, Consumer
Products Division, of Neutrogena Corporation.
Sheldon L. Zimbler 50 1991 President, U.S. Division. Mr. Zimbler joined the
Company in September 1991. From 1967 to September
1991, Mr. Zimbler worked for Procter and Gamble,
starting as a member of the sales force and
ending in the position of General Sales Manager,
Health and Beauty Care Products.
Christian Bardin 55 1982 President, International Division.
Dasha Lewin 65 1973 Vice President, Treasurer and Secretary.
</TABLE>
I-5
<PAGE> 18
<TABLE>
<CAPTION>
YEAR FIRST
APPOINTED
NAME AGE OFFICER PRINCIPAL OCCUPATION
---- --- ---------- --------------------
<S> <C> <C> <C>
Donald R. Schort 52 1992 Senior Vice President and
Chief Financial Officer. Mr. Schort
joined the Company in October 1992.
From August 1991 to August 1992, he
served as Senior Vice President and
Chief Financial Officer of DAK
Industries, a privately held catalog
marketer of consumer electronics
products. DAK Industries filed for
protection under the U.S. Bankruptcy
Code in June 1992. Mr. Schort served
as Senior Vice President and Chief
Financial Officer of Ducommun
Incorporated, an American Stock
Exchange aerospace company, from
July 1988 to July 1991.
Mitchell Wortzman 44 1991 President, Dermatologics Division.
Harry Wurmbrand 56 1985 Senior Vice President, Operations.
</TABLE>
Except as indicated above, each of the above named executive officers has
been actively engaged in the business of the Company, in various management
positions, for more than five years. Subject to the employment agreement
described below, with respect to Mr. Kurtzman, all officers of the Company serve
at the pleasure of the Board of Directors.
BOARD OF DIRECTORS AND STANDING COMMITTEES OF THE BOARD
During the fiscal year ended October 31, 1993, the Board of Directors held
four meetings. For the fiscal year, the Directors during the term of their
tenure attended all meetings of the Board of Directors and all meetings of
committees of the Board of Directors on which they served.
The Audit Committee of the Board of Directors met four times during the
fiscal year. The Audit Committee acts as liaison between the Company's auditors
and the Board of Directors and advises the Board of Directors with respect to
financial and accounting matters. The members of the Audit Committee are Messrs.
Diker, Dworkin, Firestein and Lipper.
The Compensation Committee met three times during the fiscal year ended
October 31, 1993. This committee is responsible for considering and making
recommendations to the Board of Directors regarding executive compensation and
is also responsible for the administration of the Company's stock option plans.
The members of the Compensation Committee are Messrs. McCabe, Lipper and
McManus.
The Nominating Committee met one time during the fiscal year ended October
31, 1993. This committee is responsible for considering and making
recommendations to the Board of Directors regarding nominees for future
directors. The members of the Nominating Committee are Messrs. Cape, Diker and
Lipper. Stockholders wishing to nominate director candidates may do so from the
floor at the Company's Annual Meeting of Stockholders.
For the fiscal year ended October 31, 1993, Directors who are not also
executive officers of the Company received from the Company an annual retainer
of $25,000. Directors also received an attendance fee of $2,000 per meeting for
each Board meeting and $2,000 for each committee meeting not held on a day that
Board meetings are held. Each Director who is not also an officer of the Company
receives annually an option to purchase 5,625 shares of the Company's Common
Stock under the Company's 1988 Stock Incentive Plan.
PRINCIPAL STOCKHOLDERS
The following table sets forth as of August 18, 1994 certain information
with respect to Shares owned beneficially by the Chief Executive Officer and
each of the other four most highly compensated officers of the Company, by each
director of the Company, by each person known by the Company to be the
beneficial owner of more than five percent of the outstanding Common Stock and
by all directors and executive officers of the
I-6
<PAGE> 19
Company as a group. Beneficial ownership has been determined in accordance with
Rule 13d-3 under the Exchange Act. Under this rule, certain shares may be deemed
to be beneficially owned by more than one person (if, for example, persons share
the power to vote or the power to dispose of the shares). In addition, shares
are deemed to be beneficially owned by a person if the person has the right to
acquire the shares (for example, upon exercise of an option) within 60 days of
the date as of which the information is provided; in computing the percentage
ownership of any person, the amount of shares is deemed to include the amount of
shares beneficially owned by such person (and only such person) by reason of
these acquisition rights. As a result, the percentage of outstanding shares of
any person as shown in the following table does not necessarily reflect the
person's actual voting power at any particular date.
<TABLE>
<CAPTION>
NAME OF NUMBER OF SHARES PERCENT
BENEFICIAL OWNER(1) BENEFICIALLY OWNED(2) OF CLASS
------------------- --------------------- --------
<S> <C> <C>
Lloyd Cotsen(3)................................. 8,448,996 32.85
5760 West 96th Street
Los Angeles, CA 90045
Allan Kurtzman.................................. 50,082 *
Sheldon Zimbler................................. 11,000 *
Daniel C. Lapouyade............................. -- --
Christian Bardin................................ 45,546 *
Dr. Ronald E. Cape.............................. 69,106 *
Charles M. Diker(4)............................. 367,224 1.43
Sidney Dworkin.................................. 79,773 *
Chester L. Firestein(5)......................... 73,282 *
Kenneth Lipper.................................. 25,312 *
Robert McCabe................................... 77,556 *
James R. McManus................................ 20,643 *
William D. Witter, Inc.(6)...................... 1,674,833 6.51
One Citicorp Center
153 East 53rd Street
New York, New York 10022
All directors and executive officers as a group
(16 persons including those listed above)..... 11,159,126 43.39
</TABLE>
- ---------------
* Less than one percent.
(1) Unless otherwise specified, and subject to applicable community property
laws, each person named has sole voting and investment power with respect to
the Common Stock which he beneficially owns.
(2) Includes the rights of the following persons to acquire shares pursuant to
the exercise of stock options which are or will be vested prior to October
17, 1994: Mr. Cotsen--250,000 shares; Dr. Cape--39,374 shares; Mr.
Diker--42,186 shares; Mr. Dworkin--42,186 shares; Mr. Firestein--30,937
shares; Mr. Lipper--25,312 shares; Mr. McCabe--42,186 shares; Mr.
McManus--5,625 shares; and Christian Bardin--40,936 shares.
(3) Mr. Cotsen holds 2,509,850 of these shares as Trustee of the Cotsen 1985
Trust, a revocable inter vivos trust of which he is the beneficiary during
his lifetime. Also included are: (i) 3,808,413 shares with respect to which
Mr. Cotsen has sole voting and investment powers as trustee of a
testamentary trust of which he is the income beneficiary during his
lifetime; and (ii) 1,880,733 shares with respect to which Mr. Cotsen has
sole voting and investment powers as trustee of four charitable remainder
unitrusts. Excludes the following shares as to which Mr. Cotsen has no
voting and investment powers: (i) 769,481 shares beneficially owned by
Lorraine Stolaroff; (ii) 975,020 shares beneficially owned by Corinna
Cotsen; and (iii) 320,000 shares beneficially owned by L. Eric Cotsen. Mr.
Cotsen has a right of first refusal with respect to Mrs. Stolaroff's, Ms.
Corinna Cotsen's and Mr. L. Eric Cotsen's shares, which he has waived for
the limited purpose of permitting them to complete the transactions
contemplated in the Merger Agreement. Also excluded are 1,670,000 shares
held by the Cotsen Family Foundation, a California non-profit public benefit
corporation of which Mr. Cotsen is a director.
I-7
<PAGE> 20
(4) Includes 200,293 shares held by Mr. Diker as trustee with his spouse for his
minor children, as to which shares Mr. Diker disclaims beneficial ownership.
The number of shares owned does not include shares owned by Mr. Diker's
spouse as her separate property.
(5) Includes 5,310 shares owned of record by Mr. Firestein as a trustee for his
adult child, as to which shares Mr. Firestein disclaims beneficial
ownership.
(6) As of December 31, 1993, William D. Witter, Inc., a New York corporation
("W.D. Witter"), has informed the Company that it shares voting and
dispositive power with respect to 1,552,835 of these shares. W.D. Witter has
informed the Company that it shares the power to vote or dispose of these
shares with its investment advisory clients for whose accounts the shares
have been acquired. W.D. Witter claims sole voting and dispositive power
with respect to the remaining shares.
EXECUTIVE COMPENSATION
The following table sets forth both cash and noncash compensation paid or
to be paid by the Company to, and the amounts vested under certain of the
Company's plans with respect to, Mr. Cotsen and each of the other four most
highly compensated executive officers of the Company, for each of the three
fiscal years ending October 31 indicated below.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
FISCAL YEAR ANNUAL COMPENSATION -------------
NAME AND ENDED --------------------- STOCK OPTIONS ALL OTHER
PRINCIPAL POSITION OCTOBER 31, SALARY BONUS GRANTED COMPENSATION(1)
- -------------------------- ----------- -------- -------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
Lloyd E. Cotsen 1993 $711,540 $480,000 200,000shs. $20,872
Chief Executive Officer 1992 650,000 600,000 -- 17,939
1991 650,000 500,000 100,000 19,667
Allan H. Kurtzman(2) 1993 606,932 -- -- --
President and Chief 1992 600,000 50,000 -- --
Operating Officer 1991(3) 123,692 30,000 200,000 --
Sheldon L. Zimbler(2) 1993 354,807 232,000 20,000 16,653
President, U.S. Division 1992 300,000 250,000 -- 33,923
1991(4) 34,615 17,000 100,000 --
Christian Bardin 1993 301,923 90,000 15,000 31,529
President, International 1992 211,266 100,000 -- 49,773
Division 1991 188,173 100,000 30,000 54,490
Daniel C. Lapouyade(5) 1993 239,700 100,000 25,000 34,427(6)
President, Europe 1992 218,300 250,505 -- 11,930(6)
1991 178,800 188,210 50,000 --
</TABLE>
- ---------------
(1) Includes amounts accrued under the Company's 401(k) Profit Sharing Plan:
Lloyd Cotsen: $14,756; Allan Kurtzman: None; Sheldon Zimbler: $14,756;
Christian Bardin: $14,756 and the Company's Supplemental Deferral Plan;
Lloyd Cotsen: $6,116; Allan Kurtzman: None; Sheldon Zimbler: $1,897;
Christian Bardin: $16,773. Daniel Lapouyade does not participate in the
Company 401(k) Profit Sharing Plan or the Supplemental Deferral Plan.
(2) For a description of the employment contract between this officer and the
Company, see "Employment Contracts."
(3) Mr. Kurtzman joined the Company in July 1991. Excludes amounts payable to
Mr. Kurtzman under his employment contract following termination of his
employment with the Company, all of which vested at the commencement of his
employment (see "Employment Contracts -- Allan H. Kurtzman").
(4) Mr. Zimbler joined the Company in September 1991.
I-8
<PAGE> 21
(5) Mr. Lapouyade's employment with the Company was terminated as of August 17,
1994. Mr. Lapouyade and the Company entered into a Settlement Agreement with
respect to Mr. Lapouyade's employment-related claims on August 19, 1994 (the
"Settlement Agreement").
(6) Represents amounts paid by the Company on behalf of Mr. Lapouyade for health
and disability insurance and retirement benefits in excess of benefits
mandated under French law.
The following table summarizes information with respect to stock options
granted to Mr. Cotsen and each of the other four most highly compensated
executive officers of the Company during the fiscal year ended October 31, 1993,
including the potential realizable value based upon a stock appreciation of 5%
and 10% over the term of the options.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
- ----------------------------------------------------------------------------------- POTENTIAL
% OF REALIZABLE VALUE AT
TOTAL ASSUMED ANNUAL
OPTIONS RATES OF STOCK PRICE
GRANTED TO APPRECIATION
EMPLOYEES EXERCISE FOR OPTION TERM
OPTIONS IN FISCAL PRICE EXPIRATION ---------------------
NAME GRANTED YEAR ($/SH) DATE 5%($) 10%($)
- ------------------------------------- ------- ---------- -------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Lloyd E. Cotsen...................... 200,000 52.3 $24.50 12/2/02 3,082,000 7,810,000
Allen H. Kurtzman.................... -- -- --
Sheldon L. Zimbler................... 20,000 5.2 24.50 12/2/02 308,200 781,000
Christian Bardin..................... 15,000 3.9 24.50 12/2/02 231,150 585,750
Daniel C. Lapouyade.................. 25,000 6.5 24.50 12/2/02 385,250 976,250
</TABLE>
The following table summarizes information with respect to all exercises of
stock options by Mr. Cotsen and each of the other four most highly compensated
executive officers of the Company during the fiscal year ended October 31, 1993,
and the value, and number of shares underlying, all in-the-money unexercised
options held by each at year end.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND YEAR END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
SHARES NUMBER OF UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
ACQUIRED VALUE AT OCTOBER 31, 1993 AT OCTOBER 31, 1993(2)
ON REALIZED ----------------------------- -----------------------------
NAME EXERCISE (1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------------------- -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Lloyd E. Cotsen............ -- -- 250,000 300,000(4) $ -- $ 525,000
Allan H. Kurtzman.......... -- -- -- 200,000 -- 500,000
Sheldon L. Zimbler......... -- -- -- 120,000 -- --
Christian Bardin........... -- -- 40,936(3) 55,000(4) 242,549 78,750
Daniel C. Lapouyade........ -- -- -- 75,000(4) -- 78,750
</TABLE>
- ---------------
(1) Number of shares acquired, multiplied by closing market price on the date of
exercise, less exercise price.
(2) Based upon the closing price of the Common Stock on the NASDAQ National
Market System on October 31, 1993 (19 1/4 per share), less the exercisable
price. Options will be cancelled pursuant to the Merger Agreement for a cash
payment equal to the product of (x) the number of shares subject to such
options and (y) the excess of the price per share to be paid in the Offer
over the per share exercise price.
(3) Includes 15,625 shares which are not In-the-Money.
(4) Includes unexercisable options which are not In-the-Money; Lloyd E. Cotsen:
200,000 shares; Christian Bardin: 40,000 shares; and Daniel C. Lapouyade:
60,000 shares. Mr. Lapouyade waived his right to his stock options under the
terms of the Settlement Agreement.
I-9
<PAGE> 22
EMPLOYMENT CONTRACTS
The Company has employment contracts with two of its five most highly
compensated officers -- Allan Kurtzman and Sheldon Zimbler. All rights under Mr.
Lapouyade's employment agreement were cancelled under the terms of the
Settlement Agreement.
Allan H. Kurtzman. Under an agreement entered into in connection with his
joining the Company in July 1991, Mr. Kurtzman is employed as President and
Chief Operating Officer of the Company. Under the agreement, Mr. Kurtzman is to
receive annual compensation, inclusive of salary and bonus, of not less than
$600,000 per year. Should Mr. Kurtzman terminate his employment prior to October
31, 1995, he will also be entitled to receive, as severance, that portion of the
minimum compensation that would be due to him for the balance of the fiscal year
of such termination. Mr. Kurtzman was granted an option to purchase 200,000
shares of Common Stock, which option will be cancelled for cash pursuant to the
Merger Agreement (along with all other employee stock options), and is entitled
(subject to eligibility) to life insurance coverage of $1,600,000 during his
employment and $800,000 during the term of his consultancy, described below. Mr.
Kurtzman will not be eligible to participate in the Company's 401(k) Profit
Sharing Plan or Supplemental Deferral Plan (see "Pension Plan and Other
Benefits," below). Commencing November 1, 1995 (or sooner, if Mr. Kurtzman
terminates his employment for any reason prior thereto), and continuing for a
ten-year period thereafter, Mr. Kurtzman will be an independent marketing and
management consultant to the Company. So long as he makes his consulting
services available to the Company, he will be entitled to receive an annual
consultation fee of $350,000, and the consultation fee will continue to be paid
to him or his heirs for the full ten years, regardless of his disability or
death.
Sheldon Zimbler. Under an agreement entered into in connection with his
joining the Company in September 1991, Mr. Zimbler is currently employed as U.S.
President of the Company. Under the agreement, Mr. Zimbler is to receive an
annual salary of not less than $350,000, plus a bonus, as may be determined by
the Board of Directors in accordance with the Company's customary practices. Mr.
Zimbler was granted an option to purchase 100,000 shares of Common Stock which
will be cancelled for cash pursuant to the Merger Agreement (along with all
other employee stock options).
Mr. Zimbler is also entitled to $450,000 in life insurance coverage. To
assist Mr. Zimbler in relocating to Southern California, the Company made an
unsecured $500,000 loan to Mr. Zimbler, bearing interest at a rate of 6% per
annum. Under the agreement, the principal balance of the loan will be forgiven
by the Company at the rate of not less than $100,000 per year, commencing
September 15, 1992; Mr. Zimbler is responsible for the payment of interest. Mr.
Zimbler is employed on an "at will" basis. If he is terminated for any reason
prior to the full discharge of the loan, the loan will be forgiven; if Mr.
Zimbler voluntarily resigns, he will be responsible for the outstanding balance.
At August 1, 1994 the balance outstanding on this loan was $300,000.
Other Arrangements. Following the consummation of the Offer and the
Merger, Mr. Cotsen has agreed to continue as Chairman of the Company, for which
he will receive annual compensation of $600,000 and a grant of options to
purchase 100,000 shares of Parent's common stock.
For a description of certain benefits for officers affected by a change in
control of the Company, see "Pension Plan and Other Benefits," below.
PENSION PLAN AND OTHER BENEFITS
Neutrogena Corporation Supplemental Deferral Plan ("SDP"). In 1987 the
Company established the SDP to provide supplemental retirement benefits to
certain key employees of the Company. At the discretion of the Board of
Directors, contributions were made annually to the SDP with interest being
credited to each participant's account. Effective November 1, 1993, the Company
suspended its future contributions to the SDP. Interest will continue to accrue
on the deferred compensation liability.
Benefits under the SDP include: (i) a short-term distribution at the end of
the eighth, ninth and tenth plan years following each year in which the Company
contribution was made equivalent to the contribution for that year; (ii) a
retirement benefit payable over a 120-month period; and (iii) survivor,
disability and termination benefits with respect to the vested portion of a
participant's account. Interest is credited to
I-10
<PAGE> 23
employee accounts on a monthly basis at a rate which is subject to adjustment
from time to time, and was 8.0% for certain Company contributions to
participants' accounts and 7.0% for all other amounts for the fiscal year ended
October 31, 1993; however, participants' accounts are not segregated from the
general assets of the Company and each participant is an unsecured general
creditor of the Company.
The SDP contains provisions which provide for the automatic 100% vesting of
benefits and the crediting of interest accruals to the participants' SDP
accounts if, among other things, any person other than Mr. Cotsen and his then
affiliated family members becomes the beneficial owner of 50% or more of the
combined voting power of the Company's then outstanding securities. The SDP
contains a provision stating that notwithstanding any other provision of the
SDP, no participant may receive payments or benefits which would fail to be
deductible to the Company because of Section 280G of the Internal Revenue Code
of 1986, as amended.
Executive Retirement Plan ("ERP"). The ERP was put into effect January 1,
1993 to supplement the expected benefits provided under the SDP and the
Company's 401(k) Profit Sharing Plan.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF SERVICE
------------------------------------------------------------
REMUNERATION 15 20 25 30 35
------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$125,000........... $ 62,500 $ 62,500 $ 62,500 $ 62,500 $ 62,500
$150,000........... 75,000 75,000 75,000 75,000 75,000
$175,000........... 87,000 87,000 87,000 87,000 87,000
$200,000........... 100,000 100,000 100,000 100,000 100,000
$225,000........... 112,500 112,500 112,500 112,500 112,500
$250,000........... 125,000 125,000 125,000 125,000 125,500
$300,000........... 150,000 150,000 150,000 150,000 150,000
$400,000........... 200,000 200,000 200,000 200,000 200,000
$450,000........... 200,000 200,000 200,000 200,000 200,000
$500,000........... 200,000 200,000 200,000 200,000 200,000
</TABLE>
The foregoing table shows the annual pension benefit (as a straight life
annuity) payable to designated U.S. corporate officers under the ERP upon
retirement at or after age 65 with five completed years of participation in the
ERP. The annual benefit under the ERP is equal to 50% of a participant's average
base salary over the 36 months in which his or her base salary was the highest
(the "Final Average Base Salary"); provided, however, that, for purposes of
computing such benefit, a participant's base salary is treated as never
exceeding $400,000. For purposes of the ERP, a participant's base salary is the
same as the "salary" reported in the Summary Compensation Table herein. The
annual pension benefit shown in the Pension Plan Table is offset by the benefits
provided under the Company's 401(k) Profit Sharing Plan and the SDP and by 50%
of the participant's primary insurance amount under Social Security.
The acquisition of Shares pursuant to the Offer will constitute a change in
control under the ERP. Upon a change in control, all participants will be fully
vested in an annual pension benefit equal to 3 1/3% of the participant's Final
Average Base Salary for each complete credited year of participation in the ERP,
up to a maximum of 50%. If, within three years after the change in control, the
participant is involuntarily (i) terminated without cause, (ii) demoted and has
his or her compensation reduced, or (iii) required to move his or her principal
place of employment more than 50 miles, the present value of the participant's
annual pension benefit will be immediately paid to the participant in a lump
sum, and the benefit will be calculated based on a minimum of at least six years
of participation in the ERP, which will result in a minimum benefit of 20% of
Final Average Base Salary.
I-11
<PAGE> 24
Lloyd E. Cotsen and Allan Kurtzman are not entitled to participate in the
ERP. The current base salary and the current years of credited service for the
two executive officers named in the Summary Compensation Table who participate
in the ERP are as follows:
Christian Bardin, $282,695 and 11 years
Sheldon Zimbler, $348,269 and 2 years
Rabbi Trust. On May 12, 1994 the Company established a trust to secure the
payment of benefits under the SDP and the ERP (the "Rabbi Trust"). The Rabbi
Trust is subject to the claims of general creditors in the event of the
Company's insolvency. As of August 16, 1994, the trust was funded with cash,
life insurance policies and other property valued at an aggregate $3,025,000.
TRANSACTIONS WITH EXECUTIVE OFFICERS AND DIRECTORS
Dr. Cape, a Director of the Company, is brother of the owner of the
Company's Canadian licensee (the "Licensee"). The Licensee manufactures and
distributes certain of the Company's products. During the fiscal year ended
October 31, 1993, the Company earned $373,000 in royalties from the Licensee and
from November 1, 1993 through July 31, 1994, the Company earned $293,380 in such
royalties. All transactions between the Company and the Licensee were on
substantially the same terms as those prevailing at the same time for comparable
transactions with non-affiliated parties. Dr. Cape has an ownership interest in,
but takes no part in the management of, the Licensee.
See "-- Employment Contracts -- Sheldon Zimbler" for a description of an
outstanding loan from the Company to Mr. Zimbler.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Effective May 1, 1991, the Securities and Exchange Commission promulgated
new rules under Section 16 of the Exchange Act. The Company believes that during
the fiscal year ended October 31, 1993, its executive officers and directors
have complied with all Section 16 filing requirements with the exception of one
late report. Mr. Wortzman filed a report with respect to stock options exercised
which inadvertently had not been reported in December 1992 but was reported in
January 1993.
I-12
<PAGE> 25
SCHEDULE II
CERTAIN TRANSACTIONS IN SHARES OF COMMON STOCK OF
NEUTROGENA CORPORATION EFFECTED DURING THE PAST 60 DAYS
The following shares of Common Stock were transferred by executive officers or
directors of the Company as charitable contributions:
<TABLE>
<CAPTION>
PARTY DATE NUMBER OF
EFFECTING OF SHARES
TRANSACTION TRANSACTION TRANSFERRED
------------------------------------------------------ ----------- -----------
<S> <C> <C>
Dr. Ronald E. Cape.................................... 8/25/94 4,482
Lloyd E. Cotsen....................................... 8/2/94 5,150
8/9/94 3,550,733
Charles M. Diker...................................... 8/19/94 40,000
Chester L. Firestein.................................. 8/24/94 3,146
Dasha Lewin........................................... 8/10/94 40,000
</TABLE>
II-1
<PAGE> 26
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NO. DESCRIPTION PAGE NUMBER
- ---------- ---------------------------------------------------------------------- -----------
<C> <S> <C>
Exhibit 1 Agreement and Plan of Merger, dated as of August 22, 1994, by and
among Neutrogena Corporation, Johnson & Johnson and JNJ Acquisition
Corp. ................................................................
Exhibit 2 Stockholder Agreement, dated as of August 22, 1994, by and among
Johnson & Johnson and Lloyd E. Cotsen, trustee of the Cotsen 1985
Trust, Lloyd E. Cotsen, trustee of the First Cotsen Charitable
Unitrust, Lloyd E. Cotsen, trustee of the Second Cotsen Charitable
Unitrust, Lloyd E. Cotsen, trustee of the Third Cotsen Charitable
Unitrust, Lloyd E. Cotsen, trustee of the Fourth Cotsen Charitable
Unitrust, Lloyd E. Cotsen, trustee of the Remainder Trust (Trust B)
under the will of Joanne Cotsen (deceased), and Cotsen Family
Foundation, a California nonprofit public benefit corporation ........
Exhibit 3 Press Release issued jointly by Neutrogena Corporation and Johnson &
Johnson, dated August 22, 1994........................................
Exhibit 4 Letter to Stockholders of Neutrogena Corporation dated August 26,
1994..................................................................
Exhibit 5 Opinion of Lehman Brothers Inc. dated August 22, 1994.................
</TABLE>
<PAGE> 1
CONFORMED COPY
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
DATED AS OF AUGUST 22, 1994
AMONG
JOHNSON & JOHNSON
JNJ ACQUISITION CORP.
AND
NEUTROGENA CORPORATION
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
Parties and Recitals................................................................ 1
ARTICLE I
The Offer
SECTION 1.01. The Offer......................................................... 1
SECTION 1.02. Company Actions................................................... 2
ARTICLE II
The Merger
SECTION 2.01. The Merger........................................................ 3
SECTION 2.02. Closing........................................................... 3
SECTION 2.03. Effective Time.................................................... 3
SECTION 2.04. Effects of the Merger............................................. 4
SECTION 2.05. Certificate of Incorporation and By-Laws.......................... 4
SECTION 2.06. Directors......................................................... 4
SECTION 2.07. Officers.......................................................... 4
ARTICLE III
Effect of the Merger on the Capital Stock of the Constituent Corporations;
Exchange of Certificates
SECTION 3.01. Effect on Capital Stock........................................... 4
SECTION 3.02. Exchange of Certificates.......................................... 5
ARTICLE IV
Representations and Warranties
SECTION 4.01. Representations and Warranties of the Company..................... 6
SECTION 4.02. Representations and Warranties of Parent and Sub.................. 12
ARTICLE V
Covenants Relating to Conduct of Business
SECTION 5.01. Conduct of Business............................................... 13
SECTION 5.02. No Solicitation................................................... 15
ARTICLE VI
Additional Agreements
SECTION 6.01. Stockholder Meeting; Preparation of Proxy Statement............... 16
SECTION 6.02. Access to Information; Confidentiality............................ 16
SECTION 6.03. Reasonable Efforts; Notification.................................. 17
SECTION 6.04. Stock Options Plans............................................... 17
SECTION 6.05. Indemnification and Insurance..................................... 18
SECTION 6.06. Directors......................................................... 18
SECTION 6.07. Fees and Expenses................................................. 19
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
SECTION 6.08. Public Announcements.............................................. 19
SECTION 6.09. Rights Agreements................................................. 19
SECTION 6.10. Benefit Plans..................................................... 19
SECTION 6.11. Stop Transfer..................................................... 20
SECTION 6.12. Excess Parachute Payments......................................... 20
ARTICLE VII
Conditions Precedent
SECTION 7.01. Conditions to Each Party's Obligation to Effect the Merger........ 20
ARTICLE VIII
Termination, Amendment and Waiver
SECTION 8.01. Termination....................................................... 20
SECTION 8.02. Effect of Termination............................................. 21
SECTION 8.03. Amendment......................................................... 21
SECTION 8.04. Extension; Waiver................................................. 21
SECTION 8.05. Procedure for Termination, Amendment, Extension or Waiver......... 22
ARTICLE IX
General Provisions
SECTION 9.01. Nonsurvival of Representations and Warranties..................... 22
SECTION 9.02. Notices........................................................... 22
SECTION 9.03. Definitions....................................................... 23
SECTION 9.04. Interpretation.................................................... 23
SECTION 9.05. Counterparts...................................................... 23
SECTION 9.06. Entire Agreement; No Third-Party Beneficiaries.................... 24
SECTION 9.07. Governing Law..................................................... 24
SECTION 9.08. Assignment........................................................ 24
SECTION 9.09. Enforcement....................................................... 24
EXHIBITS
EXHIBIT A Conditions of the Offer
</TABLE>
ii
<PAGE> 4
AGREEMENT AND PLAN OF MERGER dated as of August 22, 1994, among
JOHNSON & JOHNSON, a New Jersey corporation ("Parent"), JNJ ACQUISITION
CORP., a Delaware corporation ("Sub") and a wholly owned subsidiary of
Parent, and NEUTROGENA CORPORATION, a Delaware corporation (the "Company").
WHEREAS the respective Boards of Directors of Parent, Sub and the Company
have approved the acquisition of the Company by Parent on the terms and subject
to the conditions set forth in this Agreement;
WHEREAS, in furtherance of such acquisition, Parent proposes to cause Sub
to make a tender offer (as it may be amended from time to time as permitted
under this Agreement, the "Offer") to purchase all the issued and outstanding
shares of Common Stock, par value $.001 per share, of the Company (together with
any associated Rights (as hereinafter defined), the "Company Common Stock"), at
a price per share of Company Common Stock of $35.25 net to the seller in cash
(such price, the "Offer Price"), upon the terms and subject to the conditions
set forth in this Agreement; and the Board of Directors of the Company has
approved the Offer and is recommending that the Company's stockholders accept
the Offer;
WHEREAS the respective Boards of Directors of Parent, Sub and the Company
have approved the Offer and the Merger of Sub into the Company, as set forth
below (the "Merger"), upon the terms and subject to the conditions set forth in
this Agreement, whereby each issued and outstanding share of Company Common
Stock, other than shares owned directly or indirectly by Parent or the Company
and Dissenting Shares (as defined in Section 3.01(d)), will be converted into
the right to receive the price per share paid in the Offer;
WHEREAS, concurrently with the execution of this Agreement and as an
inducement to Parent to enter into this Agreement, certain stockholders of the
Company, Parent and Sub are entering into an Agreement (the "Stockholder
Agreement") pursuant to which such stockholders have, among other things, agreed
to tender all such stockholders' shares of Company Common Stock into the Offer;
and
WHEREAS Parent, Sub and the Company desire to make certain representations,
warranties, covenants and agreements in connection with the Offer and the Merger
and also to prescribe various conditions to the Offer and the Merger.
NOW, THEREFORE, in consideration of the representations, warranties,
covenants and agreements contained in this Agreement, the parties agree as
follows:
ARTICLE I
The Offer
SECTION 1.01. The Offer. (a) Subject to the provisions of this Agreement,
as promptly as practicable, but in no event later than August 26, 1994, Sub
shall, and Parent shall cause Sub to, commence the Offer. The obligation of Sub
to, and of Parent to cause Sub to, commence the Offer and accept for payment,
and pay for, any shares of Company Common Stock tendered pursuant to the Offer
shall be subject to the conditions set forth in Exhibit A (any of which may be
waived by Sub in its sole discretion) and to the terms and conditions of this
Agreement; provided, however, that Sub shall not, without the Company's consent,
waive the Minimum Condition (as defined in Exhibit A). Sub expressly reserves
the right to modify the terms of the Offer, except that, without the consent of
the Company, Sub shall not (i) reduce the number of shares of Company Common
Stock to be purchased in the Offer, (ii) reduce the Offer Price, (iii) modify or
add to the conditions set forth in Exhibit A, (iv) except as provided in the
next sentence, extend the Offer, (v) change the form of consideration payable in
the Offer or (vi) amend any other term of the Offer in a manner adverse to the
holders of Company Common Stock. Notwithstanding the foregoing, Sub may, without
the consent of the Company, (i) extend the Offer beyond the scheduled expiration
date (the initial scheduled expiration date being 20 business days following
commencement of the Offer), if at the scheduled expiration date of the Offer any
of the conditions to Sub's obligation to accept for payment, and pay for, shares
of Company Common Stock shall not be satisfied or waived, until such time as
such conditions are satisfied or waived, (ii) extend the Offer for any period
required by any rule, regulation, interpretation or position of the Securities
and Exchange Commission (the "SEC") or the staff thereof applicable to the Offer
and (iii) extend the Offer for an
<PAGE> 5
aggregate period of not more than 10 business days beyond the latest expiration
date that would otherwise be permitted under clause (i) or (ii) of this sentence
if there shall not have been tendered sufficient Shares so that the Merger could
be effected as provided in the last sentence of Section 6.01(a). Subject to the
terms and conditions of the Offer and this Agreement, Sub shall, and Parent
shall cause Sub to, accept for payment, and pay for, all shares of Company
Common Stock validly tendered and not withdrawn pursuant to the Offer that Sub
becomes obligated to accept for payment, and pay for, pursuant to the Offer as
soon as practicable after the expiration of the Offer.
(b) On the date of commencement of the Offer, Parent and Sub shall file
with the SEC a Tender Offer Statement on Schedule 14D-1 with respect to the
Offer, which shall contain an offer to purchase and a related letter of
transmittal and summary advertisement (such Schedule 14D-1 and the documents
included therein pursuant to which the Offer will be made, together with any
supplements or amendments thereto, the "Offer Documents"). Parent and Sub agree
that the Offer Documents shall comply as to form in all material respects with
the Securities Exchange Act of 1934, as amended (the "Exchange Act") and the
rules and regulations promulgated thereunder and the Offer Documents on the date
first published, sent or given to the Company's stockholders, shall not contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading, except that no representation is made by Parent or Sub with respect
to information supplied by the Company specifically for inclusion in the Offer
Documents. Each of Parent, Sub and the Company agrees promptly to correct any
information provided by it for use in the Offer Documents if and to the extent
that such information shall have become false or misleading in any material
respect, and each of Parent and Sub further agrees to take all steps necessary
to amend or supplement the Offer Documents and to cause the Offer Documents as
so amended or supplemented to be filed with the SEC and to be disseminated to
the Company's stockholders, in each case as and to the extent required by
applicable Federal securities laws. The Company and its counsel shall be given a
reasonable opportunity to review and comment upon the Offer Documents and all
amendments and supplements thereto prior to their filing with the SEC or
dissemination to stockholders of the Company. Parent and Sub agree to provide
the Company and its counsel any comments Parent, Sub or their counsel may
receive from the SEC or its staff with respect to the Offer Documents promptly
after the receipt of such comments.
(c) Parent shall provide or cause to be provided to Sub on a timely basis
the funds necessary to accept for payment, and pay for, any shares of Company
Common Stock that Sub becomes obligated to accept for payment, and pay for,
pursuant to the Offer.
SECTION 1.02. Company Actions. (a) The Company hereby approves of and
consents to the Offer and represents that the Board of Directors of the Company,
at a meeting duly called and held, duly and unanimously adopted resolutions
approving this Agreement, the Offer and the Merger, determining that the terms
of the Offer and the Merger are fair to, and in the best interests of, the
Company's stockholders and recommending that the Company's stockholders approve
and adopt this Agreement, and accept the Offer and tender their shares pursuant
to the Offer. The Company has been advised by each of its directors and by each
executive officer who as of the date hereof is aware of the transactions
contemplated hereby, that each such person intends to tender pursuant to the
Offer all shares of Company Common Stock owned by such person.
(b) On the date the Offer Documents are filed with the SEC, the Company
shall file with the SEC a Solicitation/Recommendation Statement on Schedule
14D-9 with respect to the Offer (such Schedule 14D-9, as amended from time to
time, the "Schedule 14D-9") containing the recommendation described in paragraph
(a) and shall mail the Schedule 14D-9 to the stockholders of the Company. The
Company agrees that the Schedule 14D-9 shall comply as to form in all material
respects with the requirements of the Exchange Act and the rules and regulations
promulgated thereunder and, on the date filed with the SEC and on the date first
published, sent or given to the Company's stockholders, shall not contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading, except
that no representation is made by the Company with respect to information
supplied by Parent or Sub specifically for inclusion in the Schedule 14D-9. Each
of the Company, Parent and Sub agrees promptly to correct any information
provided by it for use in the Schedule 14D-9 if and to the extent that such
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information shall have become false or misleading in any material respect, and
the Company further agrees to take all steps necessary to amend or supplement
the Schedule 14D-9 and to cause the Schedule 14D-9 as so amended or supplemented
to be filed with the SEC and disseminated to the Company's stockholders, in each
case as and to the extent required by applicable Federal securities laws. Parent
and its counsel shall be given a reasonable opportunity to review and comment
upon the Schedule 14D-9 and all amendments and supplements thereto prior to
their filing with the SEC or dissemination to stockholders of the Company. The
Company agrees to provide Parent and its counsel in writing with any comments
the Company or its counsel may receive from the SEC or its staff with respect to
the Schedule 14D-9 promptly after the receipt of such comments.
(c) In connection with the Offer, the Company shall cause its transfer
agent to furnish Sub promptly with mailing labels containing the names and
addresses of the record holders of Company Common Stock as of a recent date and
of those persons becoming record holders subsequent to such date, together with
copies of all lists of stockholders, security position listings and computer
files and all other information in the Company's possession or control regarding
the beneficial owners of Company Common Stock, and shall furnish to Sub such
information and assistance (including updated lists of stockholders, security
position listings and computer files) as Parent may reasonably request in
communicating the Offer to the Company's stockholders. Subject to the
requirements of applicable law, and except for such steps as are necessary to
disseminate the Offer Documents and any other documents necessary to consummate
the Merger, Parent and Sub and their agents shall hold in confidence the
information contained in any such labels, listings and files, will use such
information only in connection with the Offer and the Merger and, if this
Agreement shall be terminated, will, upon request, deliver, and will use their
best efforts to cause their agents to deliver, to the Company all copies of such
information then in their possession or control.
ARTICLE II
The Merger
SECTION 2.01. The Merger. Upon the terms and subject to the conditions set
forth in this Agreement, and in accordance with the Delaware General Corporation
Law (the "DGCL"), Sub shall be merged with and into the Company at the Effective
Time (as hereinafter defined). Following the Merger, the separate corporate
existence of Sub shall cease and the Company shall continue as the surviving
corporation (the "Surviving Corporation") and shall succeed to and assume all
the rights and obligations of the Company in accordance with the DGCL.
Notwithstanding the foregoing, Parent may elect at any time prior to the Merger,
instead of merging Sub into the Company as provided above, to merge the Company
with and into Sub; provided, however, that the Company shall not be deemed to
have breached any of its representations, warranties, covenants or agreements
set forth in this Agreement solely by reason of such election. In such event,
the parties agree to execute an appropriate amendment to this Agreement in order
to reflect the foregoing and, where appropriate, to provide that the Sub shall
be the Surviving Corporation and will continue under the name "Neutrogena
Corporation". At the election of Parent, any direct or indirect wholly owned
subsidiary (as defined in Section 9.03) of Parent may be substituted for Sub as
a constituent corporation in the Merger. In such event, the parties agree to
execute an appropriate amendment to this Agreement in order to reflect the
foregoing.
SECTION 2.02. Closing. The closing of the Merger will take place at 10:00
a.m. on a date to be specified by the Parent or Sub, which may be on, but shall
be no later than the third business day after, the day on which there shall have
been satisfaction or waiver of the conditions set forth in Article VII (the
"Closing Date"), at the offices of Cravath, Swaine & Moore, Worldwide Plaza, 825
Eighth Avenue, New York, N.Y. 10019, unless another date or place is agreed to
in writing by the parties hereto.
SECTION 2.03. Effective Time. On the Closing Date, or as soon as
practicable thereafter, the parties shall file a certificate of merger or other
appropriate documents (in any such case, the "Certificate of Merger") executed
in accordance with the relevant provisions of the DGCL and shall make all other
filings or recordings required under the DGCL. The Merger shall become effective
at such time as the Certificate of Merger is duly filed with the Delaware
Secretary of State, or at such other time as Sub and the Company shall
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agree should be specified in the Certificate of Merger (the time the Merger
becomes effective being the "Effective Time").
SECTION 2.04. Effects of the Merger. The Merger shall have the effects set
forth in Section 259 of the DGCL.
SECTION 2.05. Certificate of Incorporation and By-laws. (a) The
certificate of incorporation of the Company as in effect immediately prior to
the Effective Time shall be amended as of the Effective Time so that Section 4
of such certificate of incorporation reads in its entirety as follows: "The
total number of shares of all classes of stock which the corporation shall have
the authority to issue is 100 shares of Common Stock, par value $1.00 per share"
and, as so amended, such certificate of incorporation shall be the certificate
of incorporation of the Surviving Corporation until thereafter changed or
amended as provided therein or by applicable law.
(b) The By-laws of the Company as in effect at the Effective Time shall be
the by-laws of the Surviving Corporation, until thereafter changed or amended as
provided therein or by applicable law.
SECTION 2.06. Directors. The directors of Sub immediately prior to the
Effective Time shall be the directors of the Surviving Corporation, until the
earlier of their resignation or removal or until their respective successors are
duly elected and qualified, as the case may be.
SECTION 2.07. Officers. The officers of the Company immediately prior to
the Effective Time shall become the officers of the Surviving Corporation, until
the earlier of their resignation or removal or until their respective successors
are duly elected and qualified, as the case may be.
ARTICLE III
Effect of the Merger on the Capital Stock of the
Constituent Corporations; Exchange of Certificates
SECTION 3.01. Effect on Capital Stock. As of the Effective Time, by virtue
of the Merger and without any action on the part of the holder of any shares of
Company Common Stock or any shares of capital stock of Sub:
(a) Capital Stock of Sub. Each share of the capital stock of Sub
issued and outstanding immediately prior to the Effective Time shall be
converted into and become one fully paid and nonassessable share of Common
Stock, par value $1.00 per share, of the Surviving Corporation.
(b) Cancellation of Treasury Stock and Parent Owned Stock. Each share
of Company Common Stock that is owned by the Company or by any subsidiary
of the Company and each share of Company Common Stock that is owned by
Parent, Sub or any other subsidiary of Parent shall automatically be
canceled and retired and shall cease to exist, and no consideration shall
be delivered in exchange therefor.
(c) Conversion of Common Stock. Subject to Section 3.01(d), each
issued and outstanding share of Company Common Stock (other than shares to
be canceled in accordance with Section 3.01(b)) shall be converted into the
right to receive from the Surviving Corporation in cash, without interest,
the price paid for each share of Company Common Stock in the Offer (the
"Merger Consideration"). As of the Effective Time, all such shares of
Company Common Stock shall no longer be outstanding and shall automatically
be canceled and retired and shall cease to exist, and each holder of a
certificate representing any such shares of Company Common Stock shall
cease to have any rights with respect thereto, except the right to receive
the Merger Consideration, without interest.
(d) Shares of Dissenting Stockholders. Notwithstanding anything in
this Agreement to the contrary, any issued and outstanding shares of
Company Common Stock held by a person (a "Dissenting Stockholder") who
objects to the Merger and complies with all the provisions of Delaware law
concerning the right of holders of Company Common Stock to dissent from the
Merger and require appraisal of their shares of Company Common Stock
("Dissenting Shares") shall not be converted as described in Section
3.01(c) but shall become the right to receive such consideration as may be
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<PAGE> 8
determined to be due to such Dissenting Stockholder pursuant to the laws of
the State of Delaware. If, after the Effective Time, such Dissenting
Stockholder withdraws his demand for appraisal or fails to perfect or
otherwise loses his right of appraisal, in any case pursuant to the DGCL,
his shares of Company Common Stock shall be deemed to be converted as of
the Effective Time into the right to receive the Merger Consideration,
without interest. The Company shall give Parent (i) prompt notice of any
demands for appraisal of shares of Company Common Stock received by the
Company and (ii) the opportunity to participate in and direct all
negotiations and proceedings with respect to any such demands. The Company
shall not, without the prior written consent of Parent, make any payment
with respect to, or settle, offer to settle or otherwise negotiate, any
such demands.
SECTION 3.02. Exchange of Certificates. (a) Paying Agent. Prior to the
Effective Time, Parent shall designate a bank or trust company to act as paying
agent in the Merger (the "Paying Agent"), and, from time to time on, prior to or
after the Effective Time, Parent shall make available, or cause the Surviving
Corporation to make available, to the Paying Agent immediately available funds
in amounts and at the times necessary for the payment of the Merger
Consideration upon surrender of certificates representing Company Common Stock
as part of the Merger pursuant to Section 3.01, it being understood that any and
all interest earned on funds made available to the Paying Agent pursuant to this
Agreement shall be turned over to Parent.
(b) Exchange Procedure. As soon as reasonably practicable after the
Effective Time, the Paying Agent shall mail to each holder of record of a
certificate or certificates which immediately prior to the Effective Time
represented outstanding shares of Company Common Stock (the "Certificates")
whose shares were converted into the right to receive the Merger Consideration
pursuant to Section 3.01, (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 delivery of the Certificates to the Paying Agent and shall be in
such form and have such other provisions as Parent may reasonably specify) and
(ii) instructions for use in effecting the surrender of the Certificates in
exchange for the Merger Consideration. Upon surrender of a Certificate for
cancellation to the Paying Agent or to such other agent or agents as may be
appointed by the Parent, together with such letter of transmittal, duly
executed, and such other documents as may reasonably be required by the Paying
Agent, the holder of such Certificate shall be entitled to receive in exchange
therefor the amount of cash into which the shares of Company Common Stock
theretofore represented by such Certificate shall have been converted pursuant
to Section 3.01, and the Certificate so surrendered shall forthwith be
cancelled. In the event of a transfer of ownership of Company Common Stock which
is not registered in the transfer records of the Company, payment may be made to
a person other than the person in whose name the Certificate so surrendered is
registered, if such Certificate shall be properly endorsed or otherwise be in
proper form for transfer and the person requesting such payment shall pay any
transfer or other taxes required by reason of the payment to a person other than
the registered holder of such Certificate or establish to the satisfaction of
Parent that such tax has been paid or is not applicable. Until surrendered as
contemplated by this Section 3.02, each Certificate shall be deemed at any time
after the Effective Time to represent only the right to receive upon such
surrender the amount of cash, without interest, into which the shares of Company
Common Stock theretofore represented by such Certificate shall have been
converted pursuant to Section 3.01. No interest will be paid or will accrue on
the cash payable upon the surrender of any Certificate.
(c) No Further Ownership Rights in Company Common Stock. All cash paid
upon the surrender of Certificates in accordance with the terms of this Article
III shall be deemed to have been paid in full satisfaction of all rights
pertaining to the shares of Company Common Stock theretofore represented by such
Certificates, and there shall be no further registration of transfers on the
stock transfer books of the Surviving Corporation of the shares of Company
Common Stock which were outstanding immediately prior to the Effective Time. If,
after the Effective Time, Certificates are presented to the Surviving
Corporation or the Paying Agent for any reason, they shall be cancelled and
exchanged as provided in this Article III, except as otherwise provided by law.
(d) No Liability. None of Parent, Sub, the Company or the Paying Agent
shall be liable to any person in respect of any cash delivered to a public
official pursuant to any applicable abandoned property, escheat or similar law.
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ARTICLE IV
Representations and Warranties
SECTION 4.01. Representations and Warranties of the Company. Except as set
forth on the Disclosure Schedule delivered by the Company to Parent prior to the
execution of this Agreement (the "Company Disclosure Schedule"), the Company
represents and warrants to Parent and Sub as follows:
(a) Organization, Standing and Corporate Power. Each of the Company
and each of its Significant Subsidiaries (as defined below) is a
corporation or partnership duly organized, validly existing and in good
standing under the laws of the jurisdiction in which it is organized and
has the requisite corporate or partnership power and authority to carry on
its business as now being conducted. Each of the Company and its
subsidiaries is duly qualified or licensed to do business and is in good
standing in each jurisdiction in which the nature of its business or the
ownership or leasing of its properties makes such qualification or
licensing necessary, other than in such jurisdictions where the failure to
be so qualified or licensed (individually or in the aggregate) would not
have a material adverse effect on the Company. The Company has delivered to
Parent complete and correct copies of its certificate of incorporation and
by-laws and the certificates of incorporation and by-laws or other
organizational documents of its Significant Subsidiaries, in each case as
amended to the date of this Agreement. For purposes of this Agreement, a
"Significant Subsidiary" means any subsidiary of the Company that
constitutes a significant subsidiary within the meaning of Rule 1-02 of
Regulation S-X of the SEC.
(b) Subsidiaries. All the outstanding shares of capital stock of each
Significant Subsidiary are owned by the Company, by another wholly owned
subsidiary of the Company or by the Company and another wholly owned
subsidiary of the Company, free and clear of all pledges, claims, liens,
charges, encumbrances and security interests of any kind or nature
whatsoever (collectively, "Liens").
(c) Capital Structure. The authorized capital stock of the Company
consists of 100,000,000 shares of Company Common Stock and 7,000,000 shares
of preferred stock, par value $.001 per share ("Company Preferred Stock").
At the close of business on August 18, 1994, (i) 25,717,859 shares of
Company Common Stock and no shares of Company Preferred Stock were issued
and outstanding, (ii) 1,006,985 shares of Company Common Stock were held by
the Company in its treasury, (iii) 2,331,352 shares of Company Common Stock
were reserved for issuance upon exercise of outstanding Stock Options (as
defined in Section 6.04) and (iv) no shares of Company Common Stock and
310,713 Shares of Company Preferred Stock were reserved for issuance in
connection with the rights (the "Rights") to purchase shares of Company
Common Stock issued pursuant to the Rights Agreement dated as of July 23,
1990 (as amended from time to time, the "Rights Agreement"), between the
Company and U.S. Stock Transfer Corporation, as Rights Agent (the "Rights
Agent"). Except as set forth above, as of the date of this Agreement, no
shares of capital stock or other voting securities of the Company were
issued, reserved for issuance or outstanding. There are no outstanding
stock appreciation rights which were not granted in tandem with a related
Stock Option. All outstanding shares of capital stock of the Company are,
and all shares which may be issued will be, when issued, duly authorized,
validly issued, fully paid and nonassessable and not subject to preemptive
rights. There are no bonds, debentures, notes or other indebtedness of the
Company having the right to vote (or convertible into, or exchangeable for,
securities having the right to vote) on any matters on which stockholders
of the Company may vote. Except as set forth above, as of the date of this
Agreement, there are no outstanding securities, options, warrants, calls,
rights, commitments, agreements, arrangements or undertakings of any kind
to which the Company or any of its subsidiaries is a party or by which any
of them is bound obligating the Company or any of its subsidiaries to
issue, deliver or sell, or cause to be issued, delivered or sold,
additional shares of capital stock or other voting securities of the
Company or of any of its subsidiaries or obligating the Company or any of
its subsidiaries to issue, grant, extend or enter into any such security,
option, warrant, call, right, commitment, agreement, arrangement or
undertaking. There are not any outstanding contractual obligations of the
Company or any of its subsidiaries to repurchase, redeem or otherwise
acquire any shares of capital stock of the Company or any of its
subsidiaries. The
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Company has delivered to Parent a complete and correct copy of the Rights
Agreement as amended and supplemented to the date of this Agreement.
(d) Authority; Noncontravention. The Company has the requisite
corporate power and authority to enter into this Agreement and, subject to
approval of this Agreement by the holders of a majority of the outstanding
shares of Company Common Stock, to consummate the transactions contemplated
by this Agreement. The execution and delivery of this Agreement by the
Company and the consummation by the Company of the transactions
contemplated by this Agreement have been duly authorized by all necessary
corporate action on the part of the Company, subject, in the case of this
Agreement, to approval of this Agreement by the holders of a majority of
the outstanding shares of Company Common Stock. This Agreement has been
duly executed and delivered by the Company and, assuming this Agreement
constitutes the valid and binding obligation of Parent and Sub, constitutes
the valid and binding obligation of the Company, enforceable against the
Company in accordance with its terms. The execution and delivery of this
Agreement does not, and the consummation of the transactions contemplated
by this Agreement and compliance with the provisions of this Agreement will
not, conflict with, or result in any violation of, or default (with or
without notice or lapse of time, or both) under, or give rise to a right of
termination, cancellation or acceleration of any obligation or to loss of a
material benefit under, or result in the creation of any Lien upon any of
the properties or assets of the Company or any of its subsidiaries under,
(i) the certificate of incorporation or by-laws of the Company or the
comparable charter or organizational documents of any of its subsidiaries,
(ii) any loan or credit agreement, note, bond, mortgage, indenture, lease
or other agreement, instrument, permit, concession, franchise or license
applicable to the Company or any of its subsidiaries or their respective
properties or assets or (iii) subject to the governmental filings and other
matters referred to in the following sentence, any judgment, order, decree,
statute, law, ordinance, rule or regulation applicable to the Company or
any of its subsidiaries or their respective properties or assets, other
than, in the case of clauses (ii) or (iii), any such conflicts, violations,
defaults, rights or Liens that individually or in the aggregate would not
(x) have a material adverse effect on the Company, (y) impair in any
material respect the ability of the Company to perform its obligations
under this Agreement or (z) prevent the consummation of any of the
transactions contemplated by this Agreement. No consent, approval, order or
authorization of, or registration, declaration or filing with, any Federal,
state or local government or any court, administrative or regulatory agency
or commission or other governmental authority or agency, domestic or
foreign (a "Governmental Entity"), is required by the Company or any of its
subsidiaries in connection with the execution and delivery of this
Agreement by the Company or the consummation by the Company of the
transactions contemplated by this Agreement, except for (i) the filing of a
premerger notification and report form by the Company under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act"), (ii)
the filing with the SEC of (x) the Schedule 14D-9, (y) a proxy statement
relating to the approval by the Company's stockholders of this Agreement
(as amended or supplemented from time to time, the "Proxy Statement") and
(z) such reports under Section 13(a) of the Exchange Act as may be required
in connection with this Agreement and the transactions contemplated by this
Agreement, (iii) the filing of the Certificate of Merger with the Delaware
Secretary of State and appropriate documents with the relevant authorities
of other states in which the Company is qualified to do business (iv) the
filing of appropriate documents with the relevant authorities of states
other than Delaware in which the Company or any of its subsidiaries is
authorized to do business, (v) in connection with any state or local tax
which is attributable to the beneficial ownership of the Company's or its
subsidiaries, real property, if any (collectively, the "Gains Taxes"), (vi)
as may be required by any applicable state securities or "blue sky" laws or
state takeover laws, (vii) such filings and consents as may be required
under any environmental, health or safety law or regulation pertaining to
any notification, disclosure or required approval triggered by the Merger
or the transactions contemplated by this Agreement, (viii) such filings,
consents, approvals, orders, registrations and declarations as may be
required under the laws of any foreign country in which the Company or any
of its subsidiaries conducts any business or owns any assets, and (ix) such
other consents, approvals, orders, authorizations, registrations,
declarations and filings the failure of which to be obtained or made would
not, individually or in the aggregate (A) have a material adverse effect on
the Company, (B) impair in any material respect the ability of the Company
to
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perform its obligations under this Agreement or (C) prevent or
significantly delay the consummation of the transactions contemplated by
this Agreement.
(e) SEC Documents; Financial Statements. The Company has filed all
required reports, forms, and other documents with the SEC since November 1,
1993 (the "SEC Documents"). As of their respective dates, (i) the SEC
Documents complied in all material respects with the requirements of the
Securities Act of 1933 (the "Securities Act"), or the Exchange Act, as the
case may be, and the rules and regulations of the SEC promulgated
thereunder applicable to such SEC Documents, and (ii) none of the SEC
Documents contained any untrue statement of a material fact or omitted 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. Except to the extent that information
contained in any SEC Document has been revised or superseded by a
later-filed SEC Document filed and publicly available prior to the date of
this Agreement, none of the SEC Documents contains any untrue statement of
a material fact or omits to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. The financial
statements of the Company included in the SEC Documents comply as to form
in all material respects with applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto, have been
prepared in accordance with generally accepted accounting principles
(except, in the case of unaudited statements, as permitted by Form 10-Q of
the SEC) applied on a consistent basis during the periods involved (except
as may be indicated in the notes thereto) and fairly present the
consolidated financial position of the Company and its consolidated
subsidiaries as of the dates thereof and the consolidated results of their
operations and cash flows for the periods then ended (subject, in the case
of unaudited statements, to normal year-end audit adjustments). Except as
set forth in the SEC Documents filed and publicly available prior to the
date of this Agreement, and except for liabilities and obligations incurred
in the ordinary course of business consistent with past practice since the
date of the most recent consolidated balance sheet included in the SEC
Documents filed and publicly available prior to the date of this Agreement
and liabilities and obligations which would not, individually or in the
aggregate, have a material adverse effect on the Company, neither the
Company nor any of its subsidiaries has any liabilities or obligations of
any nature (whether accrued, absolute, contingent or otherwise) required by
generally accepted accounting principles to be set forth on a consolidated
balance sheet of the Company and its consolidated subsidiaries or in the
notes thereto.
(f) Information Supplied. None of the information supplied or to be
supplied by the Company for inclusion or incorporation by reference in (i)
the Offer Documents, (ii) the Schedule 14D-9 or (iii) the information to be
filed by the Company in connection with the Offer pursuant to Rule 14f-1
promulgated under the Exchange Act (the "Information Statement"), will, at
the respective times the Offer Documents, the Schedule 14D-9 and the
Information Statement are filed with the SEC or first published, sent or
given to the Company's stockholders, contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of
the circumstances under which they are made, not misleading. The Schedule
14D-9 and the Information Statement, will comply as to form in all material
respects with the requirements of the Exchange Act and the rules and
regulations thereunder, except that no representation or warranty is made
by the Company with respect to statements made or incorporated by reference
therein based on information supplied by Parent or Sub specifically for
inclusion or incorporation by reference therein.
(g) Absence of Certain Changes or Events. Except as disclosed in the
SEC Documents filed and publicly available prior to the date of this
Agreement, since April 30, 1994, the Company has conducted its business
only in the ordinary course, and there has not been (i) any material
adverse change in the Company, (ii) any split, combination or
reclassification of any of its capital stock or any issuance or the
authorization of any issuance of any other securities in respect of, in
lieu of or in substitution for shares of its capital stock, (iii) (x) any
granting by the Company or any of its subsidiaries to any officer of the
Company or any of its subsidiaries of any increase in compensation, except
in the ordinary course of business consistent with prior practice, as
disclosed in the Company Disclosure Schedule or as was required under
employment agreements in effect as of the date of the most recent audited
financial
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statements included in the SEC Documents filed and publicly available prior
to the date of this Agreement, (y) any granting by the Company or any of
its subsidiaries to any such officer of any increase in severance or
termination pay, except as was required under employment, severance or
termination agreements in effect as of the date of the most recent audited
financial statements included in the SEC Documents filed and publicly
available prior to the date of this Agreement or as disclosed on the
Company Disclosure Schedule or (z) any entry by the Company or any of its
subsidiaries into any employment, severance or termination agreement with
any such officer, (iv) any damage, destruction or loss, whether or not
covered by insurance, that has or reasonably could be expected to have a
material adverse effect on the Company or (v) any change in accounting
methods, principles or practices by the Company materially affecting its
assets, liabilities or business, except insofar as may have been required
by a change in generally accepted accounting principles.
(h) Litigation. Except as disclosed in the SEC Documents filed and
publicly available prior to the date of this Agreement, there is no suit,
action or proceeding pending or, to the knowledge of the Company,
threatened against the Company or any of its subsidiaries that,
individually or in the aggregate, could reasonably be expected to have a
material adverse effect on the Company; it being understood that this
representation shall not include any litigation of the nature described in
clauses (i)-(iv) of paragraph (a) of Exhibit A.
(i) Absence of Changes in Benefit Plans. Except as disclosed in
Schedule 4.01(i), Schedule 4.01(j) or in the SEC Documents filed and
publicly available prior to the date of this Agreement or as required by
applicable law, since November 1, 1993, there has not been any adoption or
amendment in any material respect by the Company or any of its subsidiaries
of any collective bargaining agreement or any Benefit Plan (as defined in
Section 4.01(j) hereof). Except as disclosed in Schedule 4.01(i), Schedule
4.01(j) or the SEC Documents, there exist no employment, consulting,
severance, termination or indemnification agreements, arrangements or
understandings between the Company or any of its subsidiaries and any
current or former officer or director of the Company or any of its
subsidiaries.
(j) ERISA Compliance. (i) Schedules 4.01(i) and 4.01(j) contain a
list of all "employee pension benefit plans" (as defined in Section 3(2) of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA"))
(sometimes referred to herein as "Pension Plans"), "employee welfare
benefit plans" (as defined in Section 3(1) of ERISA) and all other plans,
arrangements or policies relating to stock options, stock purchases,
compensation, deferred compensation, severance, fringe benefits and other
employee benefits, in each case maintained, or contributed to, or required
to be maintained or contributed to, by the Company, any of its subsidiaries
or any other person or entity that, together with the Company, is treated
as a single employer under Section 414(b), (c), (m) or (o) of the Code
(each a "Commonly Controlled Entity") for the benefit of any current or
former employees, officers or directors (or any beneficiaries thereof) of
the Company or any of its subsidiaries (collectively, "Benefit Plans").
(ii) Each Benefit Plan has been administered in all material respects
in accordance with its terms. The Company and all the Benefit Plans are all
in compliance in all material respects with applicable provisions of ERISA
and the Code and all other applicable laws.
(iii) Neither the Company nor any Commonly Controlled Entity has
suffered or otherwise caused a "complete withdrawal" or a "partial
withdrawal" (as such terms are defined in Section 4203 and Section 4205,
respectively, of ERISA) with respect to any "multiemployer plan" (within
the meaning of Section 4001(a)(3) of ERISA) that could lead to the
imposition of any withdrawal liability under Section 4201 of ERISA; and no
action has been taken that alone or with the passage of time could result
in either a partial or complete withdrawal by any Commonly Controlled
Entity in respect of any such multiemployer plan.
(iv) To the knowledge of the Company and its subsidiaries, there are
no understandings, agreements or undertakings that would prevent any
Benefit Plan that is an employee welfare benefit plan (including any such
Benefit Plan covering retirees) from being amended or terminated without
material liability to the Company or any of its subsidiaries on or at any
time after the consummation of the Offer.
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(v) No Commonly Controlled Entity has incurred any material liability,
and no event has occurred that would result in any material liability, to a
Pension Plan (other than for contributions not yet due) or to the Pension
Benefit Guaranty Corporation (other than for payment of premiums not yet
due) that has not been fully paid as of the date hereof.
(k) Taxes. (i) Each of the Company and each of its subsidiaries has
filed all Federal income tax returns and all other material tax returns and
reports required to be filed by it. All such returns are complete and
correct in all material respects. Each of the Company and each of its
subsidiaries has paid (or the Company has paid on its subsidiaries' behalf)
all taxes shown as due on such returns and all material taxes for which no
return was required to be filed, and the most recent financial statements
contained in the SEC Documents reflect an adequate reserve for all taxes
payable by the Company and its subsidiaries for all taxable periods and
portions thereof through the date of such financial statements.
(ii) No material deficiencies for any taxes have been proposed,
asserted or assessed against the Company or any of its subsidiaries, and no
requests for waivers of the time to assess any such taxes are pending. The
Federal income tax returns of the Company and each of its subsidiaries
consolidated in such returns have been examined by and settled with the
Internal Revenue Service for all years through 1991.
(iii) As used in this Agreement, "taxes" shall include all Federal,
state, local and foreign income, property, sales, excise and other taxes,
tariffs or governmental charges of any nature whatsoever.
(l) No Excess Parachute Payments. Sections 4.01(i), 4.01(j) and
4.01(l) of the Company Disclosure Schedule set forth all written contracts,
arrangements or understandings (excluding Stock Options or SARs (as defined
in Section 6.04)) pursuant to which any person may receive any amount or
entitlement from the Company or the Surviving Corporation or any of their
respective subsidiaries (including cash or property or the vesting of
property) that may be characterized as an "excess parachute payment" (as
such term is defined in Section 280G(B)(1) of the Code) (any such amount
being an "Excess Parachute Payment") as a result of any of the transactions
contemplated by this Agreement. To the best knowledge of the Company, no
person is entitled to receive any additional payment from the Company, the
Surviving Corporation, their respective subsidiaries or any other person (a
"Parachute Gross-Up Payment") in the event that the 20 per cent parachute
excise tax of Section 4999(a) of the Code is imposed on such person. The
Board of Directors of the Company has not during the six months prior to
the date of this Agreement granted to any officer, director or employee of
the Company any right to receive any Parachute Gross-Up Payment.
(m) Compliance with Applicable Laws. (i) Each of the Company and its
subsidiaries has in effect all Federal, state, local and foreign
governmental approvals, authorizations, certificates, filings, franchises,
licenses, notices, permits and rights, including all authorizations under
Environmental Laws ("Permits"), necessary for it to own, lease or operate
its properties and assets and to carry on its business as now conducted,
and there has occurred no default under any such Permit, except for the
lack of Permits and for defaults under Permits which lack or default
individually or in the aggregate would not have a material adverse effect
on the Company. Except as disclosed in the SEC Documents filed and publicly
available prior to the date of this Agreement, the Company and its
subsidiaries are in compliance with all applicable statutes, laws,
ordinances, rules, orders and regulations of any Governmental Entity,
except for possible noncompliance which individually or in the aggregate
would not have a material adverse effect on the Company.
(ii) To the knowledge of the Company, each of the Company and its
subsidiaries is, and has been, and each of the Company's former
subsidiaries, while a subsidiary of the Company, was in compliance with all
applicable Environmental Laws, except for possible noncompliance which
individually or in the aggregate would not have a material adverse effect
on the Company. The term "Environmental Laws" means any Federal, state,
local or foreign statute, ordinance, rule, regulation, policy, permit,
consent, approval, license, judgment, order, decree, injunction or other
authorization, relating to: (A) Releases (as defined in 42 U.S.C.
sec. 9601(22)) or threatened Releases of Hazardous Material (as hereinafter
defined) into the environment or (B) the generation, treatment, storage,
disposal, use, handling, manufacturing, transportation or shipment of
Hazardous Material.
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(iii) During the period of ownership or operation by the Company and
its subsidiaries of any of their respective current or previously owned or
leased properties, there have been no Releases of Hazardous Material in,
on, under or affecting such properties or, to the knowledge of the Company,
any surrounding site, and none of the Company or its subsidiaries have
disposed of any Hazardous Material or any other substance in a manner that
has led, or could reasonably be anticipated to lead to a Release except in
each case for those which individually or in the aggregate are not
reasonably likely to have a material adverse effect on the Company. Prior
to the period of ownership or operation by the Company and its subsidiaries
of any of their respective current or previously owned or leased
properties, to the knowledge of the Company, no Hazardous Material was
generated, treated, stored, disposed of, used, handled or manufactured at,
or transported shipped or disposed of from, such current or previously
owned or leased properties, and there were no Releases of Hazardous
Material in, on, under or affecting any such property or any surrounding
site, except in each case for those which individually or in the aggregate
are not reasonably likely to have a material adverse effect on the Company.
The term "Hazardous Material " means (1) hazardous substances (as defined
in 42 U.S.C. sec. 9601(14)), (2) petroleum, including crude oil and any
fractions thereof, (3) natural gas, synthetic gas and any mixtures thereof,
(4) asbestos and/or asbestos-containing material, (5) PCBs, or materials
containing PCBs in excess of 50 ppm, and any material regulated as a
medical waste or infectious waste.
(n) State Takeover Statutes. The Board of Directors of the Company
has approved the Offer, the Merger and this Agreement and such approval is
sufficient to render inapplicable to the Offer, the Merger, this Agreement
and the Stockholder Agreement and the transactions contemplated by this
Agreement and the Stockholder Agreement, the provisions of Section 203 of
the DGCL.
(o) Brokers; Schedule of Fees and Expenses. No broker, investment
banker, financial advisor or other person, other than Lehman Brothers Inc.,
the fees and expenses of which will be paid by the Company, is entitled to
any broker's, finder's, financial advisor's or other similar fee or
commission in connection with the transactions contemplated by this
Agreement based upon arrangements made by or on behalf of the Company. The
estimated fees and expenses incurred and to be incurred by the Company in
connection with this Agreement and the transactions contemplated by this
Agreement (including the fees of the Company's legal counsel) are set forth
in the Company Disclosure Schedule. The Company has provided Parent true
and correct copies of all agreements between Company and Lehman Brothers
Inc.
(p) Opinion of Financial Advisor. The Company has received the opinion
of Lehman Brothers Inc., to the effect that, as of the date of this
Agreement, the consideration to be received in the Offer and the Merger by
the Company's stockholders is fair to the Company's stockholders from a
financial point of view, and a complete and correct signed copy of such
opinion has been, or promptly upon receipt thereof will be, delivered to
Parent.
(q) Voting Requirements. The affirmative vote of the holders of a
majority of the outstanding shares of Company Common Stock approving this
Agreement is the only vote of the holders of any class or series of the
Company's capital stock necessary to approve this agreement and the
transactions contemplated by this Agreement.
(r) Rights Agreement. The Company and the Board of Directors of the
Company have taken all necessary action to (i) render the Rights Agreement
inapplicable with respect to the Offer and the Merger and the other
transactions contemplated by this Agreement and the Stockholder Agreement
and (ii) ensure that (y) neither Parent nor Sub nor any of their Affiliates
or Associates is considered to be an Adverse Person and (z) a Distribution
Date (as defined in the Rights Agreement) does not occur by reason of the
announcement or consummation of the Offer, the Merger or the consummation
of any of the other transactions contemplated by this Agreement or the
Stockholder Agreement.
(s) Trademarks, etc. The Company Disclosure Schedule sets forth a
true and complete list of all material patents, trademarks (registered or
unregistered), trade names, service marks and copyrights and applications
therefor owned, used or filed by or licensed to the Company and its
subsidiaries ("Intellectual Property Rights") and, with respect to
registered trademarks, contains a list of all jurisdictions in
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which such trademarks are registered or applied for and all registration
and application numbers. The Company or its subsidiaries owns or has the
right to use, without payment to any other party, the patents, trademarks
(registered or unregistered), trade names, service marks, copyrights and
applications therefor referred to in such Schedule, and the consummation of
the transactions contemplated hereby will not alter or impair such rights
in any material respect. To the best knowledge of the Company, no claims
are pending by any person with respect to the ownership, validity,
enforceability or use of any such Intellectual Property Rights challenging
or questioning the validity or effectiveness of any of the foregoing which
claims could reasonably be expected to have a material adverse effect on
the Company.
(t) Distribution Agreements. The Company has made available to Parent
and its representatives true and correct copies of all contracts,
agreements, arrangements or understandings to which the Company or any of
its subsidiaries is a party, except those that are immaterial in any one
country or jurisdiction, relating to the distribution of its products or
products licensed by the Company or its subsidiaries in any foreign country
or jurisdiction ("Foreign Distribution Agreements").
SECTION 4.02. Representations and Warranties of Parent and Sub. Parent and
Sub represent and warrant to the Company as follows:
(a) Organization, Standing and Corporate Power. Each of Parent and
each of its Significant Subsidiaries and Sub is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction in which each is incorporated and has the requisite corporate
power and authority to carry on its business as now being conducted. Each
of Parent and Sub is duly qualified or licensed to do business and is in
good standing in each jurisdiction in which the nature of its business or
the ownership or leasing of its properties makes such qualification or
licensing necessary, other than in such jurisdictions where the failure to
be so qualified or licensed (individually or in the aggregate) would not
have a material adverse effect on Parent. Parent has delivered to the
Company complete and correct copies of its certificate of incorporation and
by-laws and the certificate of incorporation and by-laws of Sub, in each
case as amended to the date of this Agreement.
(b) Authority; Noncontravention. Parent and Sub have all requisite
corporate power and authority to enter into this Agreement and, in the case
of Parent, the Stockholder Agreement, and to consummate the transactions
contemplated by this Agreement and, in the case of Parent, the Stockholder
Agreement. The execution and delivery of this Agreement and, in the case of
Parent, the Stockholder Agreement, and the consummation of the transactions
contemplated by this Agreement and, in the case of Parent, the Stockholder
Agreement have been duly authorized by all necessary corporate action on
the part of Parent and Sub, as applicable. This Agreement has been duly
executed and delivered by Parent and Sub and the Stockholder Agreement has
been duly executed and delivered by Parent and, assuming this Agreement
constitutes the valid and binding obligation of the Company, each
constitutes a valid and binding obligation of each such party, enforceable
against each such party in accordance with its terms. The execution and
delivery of this Agreement and the Stockholder Agreement do not, and the
consummation of the transactions contemplated by this Agreement and the
Stockholder Agreement and compliance with the provisions of this Agreement
and the Stockholder Agreement will not, conflict with, or result in any
violation of, or default (with or without notice or lapse of time, or both)
under, or give rise to a right of termination, cancellation or acceleration
of any obligation or to loss of a material benefit under, or result in the
creation of any Lien upon any of the properties or assets of Parent under,
(i) the certificate of incorporation or by-laws of Parent or Sub, (ii) any
loan or credit agreement, note, bond, mortgage, indenture, lease or other
agreement, instrument, permit, concession, franchise or license applicable
to Parent or (iii) subject to the governmental filings and other matters
referred to in the following sentence, any judgment, order, decree,
statute, law, ordinance, rule or regulation applicable to Parent or Sub or
their respective properties or assets, other than, in the case of clauses
(ii) or (iii), any such conflicts, violations, defaults, rights or Liens
that individually or in the aggregate would not (x) have a material adverse
effect on Parent, (y) impair in any material respect the ability of Parent
and Sub to perform their respective obligations under this Agreement or the
Stockholder Agreement or (z) prevent the consummation of any of the
transactions contemplated by this Agreement or the Stockholder Agreement.
No consent, approval, order or authorization of, or registration,
declaration or filing with, any Governmental
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<PAGE> 16
Entity is required by Parent or Sub in connection with the execution and
delivery of this Agreement and the Stockholder Agreement or the
consummation by Parent or Sub, as the case may be, of any of the
transactions contemplated by this Agreement and, in the case of the Parent,
the Stockholder Agreement, except for (i) the filing of a premerger
notification and report form under the HSR Act, (ii) the filing with the
SEC of (x) the Offer Documents and (y) such reports under Sections 13(a),
13(d) and 16 of the Exchange Act as may be required in connection with this
Agreement and the Stockholder Agreement and the transactions contemplated
by this Agreement and the Stockholder Agreement, (iii) the filing of the
Certificate of Merger with the Delaware Secretary of State and appropriate
documents with the relevant authorities of other states in which the
Company is qualified to do business, and (iv) such other consents,
approvals, orders, authorizations, registrations, declarations and filings
the failure of which to be obtained or made would not, individually or in
the aggregate (A) have a material adverse effect on Parent, (B) impair the
ability of Parent and Sub to perform their respective obligations under
this Agreement or (C) prevent or significantly delay the consummation of
any transactions contemplated by this Agreement. Neither Parent nor any of
its affiliates or associates (as each such term is defined in Section 203
of the DGCL) was prior to the execution and delivery of the Stockholder
Agreement, an Interested Stockholder (as such term is defined in Section
203 of the DGCL) of the Company.
(c) Information Supplied. None of the information supplied or to be
supplied by Parent or Sub for inclusion or incorporation by reference in
the Offer Documents, the Schedule 14D-9, the Information Statement or the
Proxy Statement will, in the case of the Offer Documents, the Schedule
14D-9 and the Information Statement, at the respective times the Offer
Documents, the Schedule 14D-9 and the Information Statement are filed with
the SEC or first published, sent or given to the Company's stockholders,
or, in the case of the Proxy Statement, at the date the Proxy Statement is
first mailed to the Company's stockholders or at the time of the meeting of
the Company's stockholders held to vote on approval and adoption of this
Agreement, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they
are made, not misleading. The Offer Documents will comply as to form in all
material respects with the requirements of the Exchange Act and the rules
and regulations promulgated thereunder, except that no representation or
warranty is made by Parent or Sub with respect to statements made or
incorporated by reference therein based on information supplied by the
Company specifically for inclusion or incorporation by reference therein.
(d) Brokers. No broker, investment banker, financial advisor or other
person, other than J.P. Morgan & Co., Inc., the fees and expenses of which
will be paid by Parent, is entitled to any broker's, finder's, financial
advisor's or other similar fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by
or on behalf of Parent or Sub.
(e) Financing. Parent has sufficient funds available to purchase all
the outstanding shares on a fully diluted basis of Company Common Stock
pursuant to the Offer and the Merger and to pay all fees and expenses
related to the transactions contemplated by this Agreement.
(f) Interim Operations of Sub. Sub was formed solely for the purpose
of engaging in the transactions contemplated hereby and has not engaged in
any business activities or conducted any operations other than in
connection with the transactions contemplated hereby.
ARTICLE V
Covenants Relating to Conduct of Business
SECTION 5.01. (a) Conduct of Business. During the term of this Agreement,
the Company shall and shall cause its subsidiaries to carry on their respective
businesses in the ordinary course and use all reasonable efforts to preserve
intact their current business organizations, keep available the services of
their current officers and employees and preserve their relationships with
customers, suppliers, licensors, licensees, distributors and others having
business dealings with them to the end that their goodwill and ongoing
businesses shall be unimpaired in all material respects at the Effective Time.
Without limiting the generality
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of the foregoing, the Company shall not, and shall not permit any of its
subsidiaries to (without Parent's prior written consent, which consent may be
withheld in Parent's sole and absolute discretion):
(i) (A) declare, set aside or pay any dividends on, or make any other
distributions in respect of, any of its capital stock, other than dividends
and distributions by any direct or indirect wholly owned subsidiary of the
Company to its parent, (B) split, combine or reclassify any of its capital
stock or issue or authorize the issuance of any other securities in respect
of, in lieu of or in substitution for shares of its capital stock or (C)
except as shall be required under any employee stock-based benefit plan,
purchase, redeem or otherwise acquire any shares of capital stock of the
Company or any of its subsidiaries or any other securities thereof or any
rights, warrants or options to acquire any such shares or other securities;
(ii) issue, deliver, sell, pledge or otherwise encumber any shares of
its capital stock, any other voting securities or any securities
convertible into, or any rights, warrants or options to acquire, any such
shares, voting securities or convertible securities (other than the
issuance of Company Common Stock upon the exercise of Employee Stock
Options outstanding on the date of this Agreement in accordance with their
present terms);
(iii) amend its Certificate of Incorporation, By-laws or other
comparable charter or organizational documents;
(iv) acquire or agree to acquire (A) by merging or consolidating with,
or by purchasing a substantial portion of the assets of, or by any other
manner, any business or any corporation, partnership, joint venture,
association or other business organization or division thereof or (B) any
assets that are material, individually or in the aggregate, to the Company
and its subsidiaries taken as a whole, except purchases of inventory in the
ordinary course of business consistent with past practice;
(v) sell, lease, license, mortgage or otherwise encumber or subject to
any Lien or otherwise dispose of any of its properties or assets, except
sales of inventory in the ordinary course of business consistent with past
practice;
(vi) (A) incur any indebtedness for borrowed money or guarantee any
such indebtedness of another person, issue or sell any debt securities or
warrants or other rights to acquire any debt securities of the Company or
any of its subsidiaries, guarantee any debt securities of another person,
enter into any "keep well" or other agreement to maintain any financial
statement condition of another person or enter into any arrangement having
the economic effect of any of the foregoing or (B) make any loans, advances
or capital contributions to, or investments in, any other person, other
than to the Company or any direct or indirect wholly owned subsidiary of
the Company and other than advances to employees in the ordinary course of
business consistent with past practice;
(vii) make any tax election or settle or compromise any material
income tax liability;
(viii) pay, discharge, settle or satisfy any material claims,
liabilities or obligations (absolute, accrued, asserted or unasserted,
contingent or otherwise), other than the payment, discharge, settlement or
satisfaction, in the ordinary course of business consistent with past
practice or in accordance with their terms, of liabilities reflected or
reserved against in, or contemplated by, the most recent consolidated
financial statements (or the notes thereto) of the Company included in the
SEC Documents filed and publicly available prior to the date of this
Agreement or incurred in the ordinary course of business consistent with
past practice, or waive the benefits of, or agree to modify in any manner,
any confidentiality, standstill or similar agreement to which the Company
or any of its subsidiaries is a party;
(ix) except in the ordinary course of business, modify, amend or
terminate any material contract or agreement to which the Company or any
subsidiary is a party or waive, release or assign any material rights or
claims; or
(x) authorize any of, or commit or agree to take any of, the foregoing
actions.
(b) Other Actions. The Company shall not, and shall not permit any of its
subsidiaries to, take any action that would result in (i) any of its
representations and warranties set forth in this Agreement that are
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qualified as to materiality becoming untrue, (ii) any of such representations
and warranties that are not so qualified becoming untrue in any material respect
or (iii) any of the conditions to the Offer set forth in Exhibit A not being
satisfied (subject to the Company's right to take action specifically permitted
by Section 5.02).
SECTION 5.02. No Solicitation. (a) The Company shall not, nor shall it
permit any of its subsidiaries to, nor shall it authorize or permit any officer,
director or employee of, or any investment banker, attorney or other advisor or
representative of, the Company or any of its subsidiaries to, (i) solicit or
initiate, or encourage the submission of, any takeover proposal or (ii)
participate in any discussions or negotiations regarding, or furnish to any
person any information with respect to, or take any other action to facilitate
any inquiries or the making of any proposal that constitutes, or may reasonably
be expected to lead to, any takeover proposal; provided, however, that, prior to
the acceptance for payment of shares of Company Common Stock pursuant to the
Offer, if in the opinion of the Board of Directors, after consultation with
counsel, such failure to act would be inconsistent with its fiduciary duties to
the Company's stockholders under applicable law, the Company may, in response to
an unsolicited takeover proposal, and subject to compliance with Section
5.02(c), (A) furnish information with respect to the Company to any person
pursuant to a confidentiality agreement and (B) participate in negotiations
regarding such takeover proposal. Without limiting the foregoing, it is
understood that any violation of the restrictions set forth in the preceding
sentence by any executive officer of the Company or any of its subsidiaries or
any investment banker, attorney or other advisor or representative of the
Company or any of its subsidiaries, whether or not such person is purporting to
act on behalf of the Company or any of its subsidiaries or otherwise, shall be
deemed to be a breach of this Section 5.02(a) by the Company. For purposes of
this Agreement, "takeover proposal" means any inquiry, proposal or offer from
any person relating to any direct or indirect acquisition or purchase of a
substantial amount of assets of the Company or any of its subsidiaries (other
than investors in the ordinary course of business) or of over 20% of any class
of equity securities of the Company or any of its subsidiaries or any tender
offer or exchange offer that if consummated would result in any person
beneficially owning 20% or more of any class of equity securities of the Company
or any of its subsidiaries, or any merger, consolidation, business combination,
sale of substantially all assets, recapitalization, liquidation, dissolution or
similar transaction involving the Company or any of its subsidiaries other than
the transactions contemplated by this Agreement, or any other transaction the
consummation of which would reasonably be expected to impede, interfere with,
prevent or materially delay the Offer or the Merger or which would reasonably be
expected to dilute materially the benefits to Parent of the transactions
contemplated hereby.
(b) Except as set forth herein, neither the Board of Directors of the
Company nor any committee thereof shall (i) withdraw or modify, or propose to
withdraw or modify, in a manner adverse to Parent or Sub, the approval or
recommendation by such Board of Directors or any such committee of the Offer,
this Agreement or the Merger, (ii) approve or recommend, or propose to approve
or recommend, any takeover proposal or (iii) enter into any agreement with
respect to any takeover proposal. Notwithstanding the foregoing, in the event
prior to the time of acceptance for payment of shares of Company Common Stock in
the Offer if in the opinion of the Board of Directors, after consultation with
counsel, failure to do so would be inconsistent with its fiduciary duties to the
Company's stockholders under applicable law, the Board of Directors may (subject
to the terms of this and the following sentences) withdraw or modify its
approval or recommendation of the Offer, this Agreement or the Merger, approve
or recommend a superior proposal, or enter into an agreement with respect to a
superior proposal, in each case at any time after the second business day
following Parent's receipt of written notice (a "Notice of Superior Proposal")
advising Parent that the Board of Directors has received a superior proposal,
specifying the material terms and conditions of such superior proposal and
identifying the person making such superior proposal; provided that the Company
shall not enter into an agreement with respect to a superior proposal unless the
Company shall have furnished Parent with written notice no later than 12:00 noon
one day in advance of any date that it intends to enter into such agreement. In
addition, if the Company proposes to enter into an agreement with respect to any
takeover proposal, it shall concurrently with entering into such agreement pay,
or cause to be paid, to Parent the Expenses (as defined in Section 6.07(b)) and
the Termination Fee (as defined in Section 6.07(b)). For purposes of this
Agreement, a "superior proposal" means any bona fide takeover proposal to
acquire, directly or indirectly, for consideration consisting of cash and/or
securities, more than 50% of the shares of Company Common Stock then
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outstanding or all or substantially all the assets of the Company and otherwise
on terms which the Board of Directors of the Company determines in its good
faith judgment (based on the advice of a financial advisor of nationally
recognized reputation) to be more favorable to the Company's stockholders than
the Offer and the Merger.
(c) In addition to the obligations of the Company set forth in paragraph
(b), the Company shall immediately advise Parent orally and in writing of any
request for information or of any takeover proposal, or any inquiry with respect
to or which could lead to any takeover proposal, the material terms and
conditions of such request, takeover proposal or inquiry, and the identity of
the person making any such takeover proposal or inquiry. The Company will keep
Parent fully informed of the status and details (including amendments or
proposed amendments) of any such request, takeover proposal or inquiry.
(d) Nothing contained in this Section 5.02 shall prohibit the Company from
taking and disclosing to its stockholders a position contemplated by Rule
14e-2(a) promulgated under the Exchange Act or from making any disclosure to the
Company's stockholders if, in the opinion of the Board of Directors of the
Company, after consultation with counsel, failure to so disclose would be
inconsistent with its fiduciary duties to the Company's stockholders under
applicable law; provided that the Company does not, except as permitted by
Section 5.02(b) withdraw or modify, or propose to withdraw or modify, its
position with respect to the Offer or the Merger or approve or recommend, or
propose to approve or recommend, a takeover proposal.
ARTICLE VI
Additional Agreements
SECTION 6.01. Stockholder Meeting; Preparation of the Proxy Statement. (a)
The Company will, as soon as practicable following the acceptance for payment
of, and payment for, shares of Company Common Stock by Sub pursuant to the
Offer, duly call, give notice of, convene and hold a meeting of the holders of
the Company Common Stock (the "Stockholders Meeting") if such meeting is
required by applicable law for the purpose of approving this Agreement and the
transactions contemplated by this Agreement. At the Stockholders Meeting, Parent
shall cause all of the shares of Company Common Stock then actually or
beneficially owned by Parent, Sub or any of their subsidiaries to be voted in
favor of the Merger. Notwithstanding the foregoing, if Sub or any other
subsidiary of Parent shall acquire at least 90% of the outstanding shares of
Company Common Stock, the parties shall, at the request of Parent, take all
necessary and appropriate action to cause the Merger to become effective as soon
as practicable after the expiration of the Offer without a Stockholders Meeting
in accordance with Section 253 of the DGCL.
(b) The Company will, at Parent's request, as soon as practicable following
the expiration of the Offer, prepare and file a preliminary Proxy Statement with
the SEC and will use its best efforts to respond to any comments of the SEC or
its staff and to cause the Proxy Statement to be mailed to the Company's
stockholders as promptly as practicable after responding to all such comments to
the satisfaction of the staff. The Company will notify Parent promptly of the
receipt of any comments from the SEC or its staff and of any request by the SEC
or its staff for amendments or supplements to the Proxy Statement or for
additional information and will supply Parent with copies of all correspondence
between the Company or any of its representatives, on the one hand, and the SEC
or its staff, on the other hand, with respect to the Proxy Statement or the
Merger. If at any time prior to the Stockholders Meeting there shall occur any
event that should be set forth in an amendment or supplement to the Proxy
Statement, the Company will promptly prepare and mail to its stockholders such
an amendment or supplement. The Company will not mail any Proxy Statement, or
any amendment or supplement thereto, to which Parent reasonably objects.
SECTION 6.02. Access to Information; Confidentiality. The Company shall,
and shall cause each of its subsidiaries to, afford to Parent, and to Parent's
officers, employees, accountants, counsel, financial advisers and other
representatives, reasonable access during normal business hours during the
period prior to the Effective Time to all their respective properties, books,
contracts, commitments, personnel and records and, during such period, the
Company shall, and shall cause each of its subsidiaries to, furnish promptly to
Parent (a) a copy of each report, schedule, registration statement and other
document filed by it during such period
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pursuant to the requirements of Federal or state securities laws and (b) all
other information concerning its business, properties and personnel as Parent
may reasonably request. Except as required by law, Parent will hold, and will
cause its officers, employees, accountants, counsel, financial advisers and
other representatives and affiliates to hold, any confidential information in
accordance with the Confidentiality Agreement dated as of August 15, 1994,
between Parent and the Company (the "Confidentiality Agreement").
SECTION 6.03. Reasonable Efforts; Notification. (a) Upon the terms and
subject to the conditions set forth in this Agreement, each of the parties
agrees to use all reasonable efforts to take, or cause to be taken, all actions,
and to do, or cause to be done, and to assist and cooperate with the other
parties in doing, all things necessary, proper or advisable to consummate and
make effective, in the most expeditious manner practicable, the Offer and the
Merger, and the other transactions contemplated by this Agreement, including (i)
the obtaining of all necessary actions or nonactions, waivers, consents and
approvals from Governmental Entities and the making of all necessary
registrations and filings (including filings with Governmental Entities, if any)
and the taking of all reasonable steps as may be necessary to obtain an approval
or waiver from, or to avoid an action or proceeding by, any Governmental Entity,
(ii) the obtaining of all necessary consents, approvals or waivers from third
parties, (iii) the defending of any lawsuits or other legal proceedings, whether
judicial or administrative, challenging this Agreement or the consummation of
any of the transactions contemplated by this Agreement, including seeking to
have any stay or temporary restraining order entered by any court or other
Governmental Entity vacated or reversed and (iv) the execution and delivery of
any additional instruments necessary to consummate the transactions contemplated
by, and to fully carry out the purposes of, this Agreement and the Stockholder
Agreement. In connection with and without limiting the foregoing, the Company
and its Board of Directors shall (i) take all action necessary to ensure that no
state takeover statute or similar statute or regulation is or becomes applicable
to the Offer, the Merger, this Agreement, the Stockholder Agreement or any of
the other transactions contemplated by this Agreement or the Stockholder
Agreement and (ii) if any state takeover statute or similar statute or
regulation becomes applicable to the Offer, the Merger, this Agreement, the
Stockholder Agreement or any other transaction contemplated by this Agreement or
the Stockholder Agreement, take all action necessary to ensure that the Offer,
the Merger and the other transactions contemplated by this Agreement may be
consummated as promptly as practicable on the terms contemplated by this
Agreement and otherwise to minimize the effect of such statute or regulation on
the Offer, the Merger, this Agreement, the Stockholder Agreement and the other
transactions contemplated by this Agreement or the Stockholder Agreement.
Notwithstanding the foregoing, the Board of Directors of the Company shall not
be prohibited from taking any action permitted by the terms of this Agreement.
(b) The Company shall give prompt notice to Parent of (i) any
representation or warranty made by it contained in this Agreement that is
qualified as to materiality becoming untrue or inaccurate in any respect or any
such representation or warranty that is not so qualified becoming untrue or
inaccurate in any material respect or (ii) the failure by it to comply with or
satisfy in any material respect any covenant, condition or agreement to be
complied with or satisfied by it under this Agreement; provided, however, that
no such notification shall affect the representations, warranties, covenants or
agreements of the parties or the conditions to the obligations of the parties
under this Agreement.
SECTION 6.04. Stock Option Plans. (a) As soon as practicable following the
date of this Agreement, the Board of Directors of the Company (or, if
appropriate, any committee administering the Stock Option Plans (as defined
below)) shall adopt such resolutions or take such other actions as are required
to provide that (i) each outstanding stock option to purchase shares of Company
Common Stock (a "Stock Option") heretofore granted under any stock option, stock
appreciation rights or stock purchase plan, program or arrangement of the
Company (collectively, the "Stock Option Plans") outstanding immediately prior
to the consummation of the Offer, whether or not then exercisable, shall be
cancelled immediately prior to the consummation of the Offer in exchange for an
amount in cash, payable at the time of such cancellation, equal to the product
of (y) the number of shares of Company Common Stock subject to such Stock Option
immediately prior to the consummation of the Offer and (z) the excess of the
price per share to be paid in the Offer over the per share exercise price of
such Stock Option and (ii) each stock appreciation right ("SAR") granted under
the Stock Option Plans outstanding immediately prior to the consummation of the
Offer shall
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<PAGE> 21
be cancelled immediately prior to the consummation of the Offer in exchange for
an amount of cash, payable at the time of such cancellation, equal to the
product of (y) the number of shares of Company Common Stock covered by such SAR
and (z) the excess of the price per share to be paid in the Offer over the
appreciation base per share of such SAR; provided, however, that no such cash
payment shall be made with respect to any SAR which is related to a Stock Option
with respect to which such a cash payment has been made. Any Stock Option or SAR
not cancelled in accordance with this paragraph (a) immediately prior to the
consummation of the Offer, shall be cancelled at the Effective Time in exchange
for an amount in cash, payable at the Effective Time, equal to the amount which
would have been paid had such Stock Option or SAR been cancelled immediately
prior to the consummation of the Offer.
(b) All Stock Option Plans shall terminate as of the Effective Time and the
provisions in any other Benefit Plan providing for the issuance, transfer or
grant of any capital stock of the Company or any interest in respect of any
capital stock of the Company shall be deleted as of the Effective Time, and the
Company shall ensure that following the Effective Time no holder of a Stock
Option or any participant in any Stock Option Plan shall have any right
thereunder to acquire any capital stock of the Company, Parent or the Surviving
Corporation, except as provided in Section 6.04(a).
SECTION 6.05. Indemnification and Insurance. (a) The indemnification
obligations set forth in the Company's certificate of incorporation and by-laws
on the date of this Agreement shall survive the Merger and shall not be amended,
repealed or otherwise modified for a period of six years after the Effective
Time in any manner that would adversely affect the rights thereunder of
individuals who on or prior to the Effective Time were directors, officers,
employees or agents of the Company.
(b) For six years from the Effective Time, Parent shall, unless Parent
agrees in writing to guarantee the indemnification obligations set forth in
Section 6.05(a), maintain in effect the Company's current directors' and
officers' liability insurance covering those persons who are currently covered
by the Company's directors' and officers' liability insurance policy (a copy of
which has been heretofore delivered to Parent); provided, however, that in no
event shall Parent be required to expend in any one year an amount in excess of
150% of the annual premiums currently paid by the Company for such insurance
which the Company represents to be $160,000 for the fiscal year ending October
31, 1994; and, provided, further, that if the annual premiums of such insurance
coverage exceed such amount, Parent shall be obligated to obtain a policy with
the greatest coverage available for a cost not exceeding such amount.
(c) In the event Parent, the Surviving Corporation or any of their
successors or assigns (i) consolidates with or merges into any other person and
shall not be the continuing or surviving corporation or entity of such
consolidation or merger or (ii) transfers all or substantially all of its
properties and assets to any person, then and in each such case, proper
provisions shall be made so that the successors and assigns of Parent or the
Surviving Corporation, as the case may be, shall assume the obligations set
forth in this Section 6.05. In the event the Surviving Corporation transfers any
material portion of its assets, in a single transaction or in a series of
transactions, Parent will either guarantee the indemnification obligations
referred to in Section 6.05(a) or take such other action to ensure that the
ability of the Surviving Corporation to satisfy such indemnification obligations
will not be diminished in any material respect.
(d) This Section 6.05 shall survive the consummation of the Merger at the
Effective Time, is intended to benefit the Company, Parent, the Surviving
Corporation and the Indemnified Parties, and shall be binding on all successors
and assigns of Parent and the Surviving Corporation.
SECTION 6.06. Directors. Promptly upon the acceptance for payment of, and
payment for, any shares of Company Common Stock by Sub pursuant to the Offer,
the number of directors on the Board of Directors shall be reduced to five (5)
and Sub shall be entitled to designate three (3) of such number of directors on
the Board of Directors of the Company such that Sub, subject to compliance with
Section 14(f) of the Exchange Act, will control a majority of such directors,
and the Company and its Board of Directors shall, at such time, take all such
action needed to cause Sub's designees to be appointed to the Company's Board of
Directors. Subject to applicable law, the Company shall take all action
requested by Parent necessary to effect any such election, including mailing to
its stockholders the Information Statement containing the information required
by Section 14(f) of the Exchange Act and Rule 14f-1 promulgated thereunder, and
the Company agrees to
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make such mailing with the mailing of the Schedule 14D-9 (provided that Sub
shall have provided to the Company on a timely basis all information required to
be included in the Information Statement with respect to Sub's designees).
SECTION 6.07. Fees and Expenses. (a) Except as provided below, all fees
and expenses incurred in connection with the Offer, the Merger, this Agreement
and the transactions contemplated hereby shall be paid by the party incurring
such fees or expenses, whether or not the Offer or the Merger is consummated.
(b) The Company shall pay, or cause to be paid, in same day funds to Parent
the sum of (x) all of Parent's out-of-pocket expenses in an amount up to but not
to exceed $2,500,000 (the "Expenses") and (y) $25,000,000 (the "Termination
Fee") upon demand if (i) Parent or Sub terminates this Agreement under Section
8.01(d), (ii) the Company terminates this Agreement pursuant to Section 8.01(e)
or (iii) prior to the termination of this Agreement (other than by the Company
pursuant to Section 8.01(f)), a takeover proposal shall have been made and
within one year of such termination, the Company enters into an agreement with
respect to, approves or recommends or takes any action to facilitate (including
taking action with respect to the Rights Agreement), such takeover proposal. The
amount of Expenses so payable shall be the amount set forth in an estimate
delivered by Parent, subject to upward or downward adjustment (not to be in
excess of the amount set forth in clause (x) above) upon delivery of reasonable
documentation therefor.
SECTION 6.08. Public Announcements. Parent and Sub, on the one hand, and
the Company, on the other hand, will consult with each other before issuing, and
provide each other the opportunity to review and comment upon, any press release
or other public statements with respect to the transactions contemplated by this
Agreement, including the Offer and the Merger, and shall not issue any such
press release or make any such public statement prior to such consultation,
except as may be required by applicable law, court process or by obligations
pursuant to any listing agreement with any national securities exchange or
national securities quotation system. The parties agree that the initial press
release to be issued with respect to the transactions contemplated by this
Agreement shall be in the form heretofore agreed to by the parties.
SECTION 6.09. Rights Agreement. The Board of Directors of the Company
shall take all further action (in addition to that referred to in Section
3.01(r)) requested in writing by Parent in order to render the Rights
inapplicable to the Offer, the Merger, the Stockholder Agreement and the other
transactions contemplated by this Agreement and the Stockholder Agreement.
Except as requested in writing by Parent, during the term of this Agreement, the
Board of Directors of the Company shall not (i) amend the Rights Agreement or
(ii) take any action with respect to, or make any determination under, the
Rights Agreement (including a redemption of the Rights) including any action to
facilitate a takeover proposal; provided that any of such actions may be taken
simultaneously with entering into an agreement pursuant to Section 5.02(b).
SECTION 6.10. Benefit Plans. (a) Parent shall cause the Surviving
Corporation to take such actions as are necessary so that, for a period of not
less than one year after the Effective Time, nonunion employees of the Company
and its subsidiaries who continue their employment after the Effective Time will
be provided employee benefits which in the aggregate are at least generally
comparable to those provided to such employees as of the date hereof; provided,
that it is understood that after the Effective Time (x) neither Parent nor the
Surviving Corporation will have any obligation to issue or adopt any plans or
arrangements to provide for the issuance of shares of capital stock, warrants,
options, stock appreciation rights or other rights in respect of any shares of
capital stock of any entity or any securities convertible or exchangeable into
such shares pursuant to any such plan or program, (y) nothing herein shall
require the Surviving Corporation to maintain any particular plan or arrangement
and (z) nothing herein shall prevent or preclude the Surviving Corporation from
continuing any requirements for employee contributions under any employee
benefit plans in the same proportions as the employee-paid portion under such
plans constituted prior to the Effective Time.
(b) It is Parent's current intention that, following the first anniversary
of the Effective Time, Parent will provide employee benefit plans, programs,
arrangements and policies for the benefit of employees of the Company and its
subsidiaries which are at least generally comparable in the aggregate to the
employee benefit plans, programs, arrangements and policies for the benefit of
other employees of Parent and its subsidiaries. In connection therewith, all
service credited to each employee by the Company through the Effective Time (and
by the Surviving Corporation thereafter) would be recognized by Parent for all
purposes, including for
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purposes of eligibility, vesting and benefit accruals under any employee benefit
plan provided by Parent for the benefit of the employees; provided, however,
such service need not be credited to the extent it would result in a duplication
of benefits, including, without limitation, benefit accrual service under
defined benefit plans.
(c) Parent hereby agrees to cause the Surviving Corporation to honor
(without modification) and assume the employment agreements and individual
benefit arrangements listed on Schedule 4.01(i).
SECTION 6.11. Stop Transfer. The Company agrees with, and covenants to
Parent that the Company shall not register the transfer of any certificate
representing any Stockholder's Shares (as defined in the Stockholder Agreement),
unless such transfer is made to Parent or Sub or otherwise in compliance with
the terms of this Agreement and the Stockholder Agreement. The Company hereby
agrees to inscribe upon any and all certificates representing Stockholder's
Shares subject to the Stockholder Agreement and delivered to Parent for
inscription pursuant thereto, the following legend:
"The shares of Common Stock, $.001 par value, of Neutrogena
Corporation represented by this certificate are subject to a Stockholder
Agreement dated as of August 22, 1994, and may not be sold or otherwise
transferred, except in accordance therewith. Copies of such Agreement may
be obtained at the principal executive offices of Neutrogena Corporation."
SECTION 6.12. Excess Parachute Payments. Promptly after the date of this
Agreement, the Company will (i) determine the estimated amounts or entitlements
that any person may receive from the Company, the Surviving Corporation or any
of their respective subsidiaries (including cash or property or the vesting of
property) as a result of the transactions contemplated by this Agreement
(including pursuant to any Stock Option or SAR and using assumptions selected in
consultation with Parent), (ii) determine whether and to what extent any such
amounts or entitlements may constitute Excess Parachute Payments and (iii)
provide Parent with the determinations described in clauses (i) and (ii) and the
calculations relating to such determinations, including the "base rate" (as such
term is defined in Section 280G(b) of the Code) of any person described in
clause (i) and the estimated amount of any Excess Parachute Payment to be
received by any person.
ARTICLE VII
Conditions Precedent
SECTION 7.01. Conditions to Each Party's Obligation To Effect the
Merger. The respective obligation of each party to effect the Merger is subject
to the satisfaction or waiver on or prior to the Closing Date of the following
conditions:
(a) Stockholder Approval. This Agreement shall have been approved and
adopted by the affirmative vote of the holders of a majority of the
outstanding shares of Company Common Stock in accordance with applicable
law and the Company's Certificate of Incorporation; provided that Parent
and Sub shall vote all their shares of Company Common Stock in favor of the
Merger.
(b) No Injunctions or Restraints. 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; provided, however, that
each of the parties shall have used reasonable efforts to prevent the entry
of any such injunction or other order and to appeal as promptly as possible
any injunction or other order that may be entered.
ARTICLE VIII
Termination, Amendment and Waiver
SECTION 8.01. Termination. This Agreement may be terminated at any time
prior to the Effective Time, whether before or after approval of matters
presented in connection with the Merger by the stockholders of the Company:
(a) by mutual written consent of Parent and the Company;
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(b) by either Parent or the Company:
(i) if (x) as a result of the failure, occurrence or existence of
any of the conditions set forth in Exhibit A to this Agreement the Offer
shall have terminated or expired in accordance with its terms without
Sub having accepted for payment any shares of Company Common Stock
pursuant to the Offer or (y) Sub shall not have accepted for payment any
shares of Company Common Stock pursuant to the Offer by December 31,
1994; provided, however, that the right to terminate this Agreement
pursuant to this Section 8.01(b)(i) shall not be available to any party
whose failure to perform any of its obligations under this Agreement
results in the failure, occurrence or existence of any such condition;
(ii) if any Governmental Entity shall have issued an order, decree
or ruling or taken any other action permanently enjoining, restraining
or otherwise prohibiting the acceptance for payment of, or payment for,
shares of Company Common Stock pursuant to the Offer or the Merger and
such order, decree or ruling or other action shall have become final and
nonappealable;
(c) by Parent or Sub prior to the purchase of shares of Company Common
Stock pursuant to the Offer in the event of a breach by the Company of any
representation, warranty, covenant or other agreement contained in this
Agreement which (A) would give rise to the failure of a condition set forth
in paragraph (e) or (f) of Exhibit A and (B) cannot be or has not been
cured within 30 days after the giving of written notice to the Company;
(d) by Parent or Sub if either Parent or Sub is entitled to terminate
the Offer as a result of the occurrence of any event set forth in paragraph
(d) of Exhibit A to this Agreement;
(e) by the Company in connection with entering into a definitive
agreement in accordance with Section 5.02(b), provided it has complied with
all provisions thereof, including the notice provisions therein, and that
it makes simultaneous payment of the Expenses and the Termination Fee; or
(f) by the Company, if Sub or Parent shall have breached in any
material respect any of their respective representations, warranties,
covenants or other agreements contained in this Agreement, which failure to
perform is incapable of being cured or has not been cured within 30 days
after the giving of written notice to Parent or Sub, as applicable, except,
in any case, such failures which are not reasonably likely to affect
adversely Parent's or Sub's ability to complete the Offer or the Merger.
SECTION 8.02. Effect of Termination. In the event of termination of this
Agreement by either the Company or Parent as provided in Section 8.01, this
Agreement shall forthwith become void and have no effect, without any liability
or obligation on the part of Parent, Sub or the Company, other than the
provisions of Section 4.01(o), Section 4.02(d), the last sentence of Section
6.02, Section 6.07, this Section 8.02 and Article IX and except to the extent
that such termination results from the wilful and material breach by a party of
any of its representations, warranties, covenants or agreements set forth in
this Agreement.
SECTION 8.03. Amendment. This Agreement may be amended by the parties at
any time before or after any required approval of matters presented in
connection with the Merger by the stockholders of the Company; provided,
however, that after any such approval, there shall not be made any amendment
that by law requires further approval by such stockholders without the further
approval of such stockholders. This Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties.
SECTION 8.04. Extension; Waiver. At any time prior to the Effective Time,
the parties may (a) extend the time for the performance of any of the
obligations or other acts of the other parties, (b) waive any inaccuracies in
the representations and warranties contained in this Agreement or in any
document delivered pursuant to this Agreement or (c) subject to the proviso of
Section 8.03, waive compliance with any of the agreements or conditions
contained in this Agreement. Any agreement on the part of a party to any such
extension or waiver shall be valid only if set forth in an instrument in writing
signed on behalf of such party. The failure of any party to this Agreement to
assert any of its rights under this Agreement or otherwise shall not constitute
a waiver of those rights.
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SECTION 8.05. Procedure for Termination, Amendment, Extension or Waiver. A
termination of this Agreement pursuant to Section 8.01, an amendment of this
Agreement pursuant to Section 8.03 or an extension or waiver pursuant to Section
8.04 shall, in order to be effective, require in the case of Parent, Sub or the
Company, action by its Board of Directors or the duly authorized designee of its
Board of Directors; provided, however, that in the event that Sub's designees
are appointed or elected to the Board of Directors of the Company as provided in
Section 6.06, after the acceptance for payment of shares of Company Common Stock
pursuant to the Offer and prior to the Effective Time, the affirmative vote of a
majority of the directors of the Company that were not designated by Parent or
Sub shall be required by the Company to (i) amend or terminate this Agreement by
the Company, (ii) exercise or waive any of the Company's rights or remedies
under this Agreement, (iii) extend the time for performance of Parent's and
Sub's respective obligations under this Agreement or (iv) take any action to
amend or otherwise modify the Company's Certificate of Incorporation or By-laws.
ARTICLE IX
General Provisions
SECTION 9.01. Nonsurvival of Representations and Warranties. None of the
representations and warranties in this Agreement or in any instrument delivered
pursuant to this Agreement shall survive the Effective Time or, in the case of
the Company, shall survive the acceptance for payment of, and payment for,
shares of Company Common Stock by Sub pursuant to the Offer. This Section 9.01
shall not limit any covenant or agreement of the parties which by its terms
contemplates performance after the Effective Time of the Merger.
SECTION 9.02. Notices. All notices, requests, claims, demands and other
communications under this Agreement shall be in writing and shall be deemed
given if delivered personally or sent by overnight courier (providing proof of
delivery) to the parties at the following addresses (or at such other address
for a party as shall be specified by like notice):
(a) if to Parent or Sub, to
Johnson & Johnson
One Johnson & Johnson Plaza
New Brunswick, NJ 08933
Facsimile: (908) 524-0400
Attention: James R. Utaski
Vice President, Business Development
with copies to:
Johnson & Johnson
One Johnson & Johnson Plaza
New Brunswick, NJ 08933
Facsimile: (908) 524-2788
Attention: James R. Hilton, Esq.
and
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, NY 10019
Facsimile: (212) 474-3700
Attention: Robert A. Kindler, Esq.
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(b) if to the Company, to
Neutrogena Corporation
5760 West 96th Street
Los Angeles, CA 90045
Facsimile: (310) 641-9280
Attention: Lloyd E. Cotsen
Chairman and Chief Executive Officer
with copies to:
Skadden, Arps, Slate, Meagher & Flom
919 Third Avenue
New York, NY 10022
Facsimile: (212) 735-3638
Attention: James C. Freund, Esq.
and
Blum, Propper & Hardacre
12100 Wilshire Boulevard, Suite 905
Los Angeles, CA 90025
Facsimile: (310) 826-1480
Attention: David W. Hardacre
SECTION 9.03. Definitions. For purposes of this Agreement:
(a) an "affiliate" of any person means another person that directly or
indirectly, through one or more intermediaries, controls, is controlled by,
or is under common control with, such first person;
(b) "material adverse change" or "material adverse effect" means, when
used in connection with the Company or Parent, any change or effect (or any
development that, insofar as can reasonably be foreseen, is likely to
result in any change or effect) that is materially adverse to the business,
financial condition or results of operations of such party and its
subsidiaries taken as a whole;
(c) "person" means an individual, corporation, partnership, joint
venture, association, trust, unincorporated organization or other entity;
(d) a "subsidiary" of any person means another person, an amount of
the voting securities, other voting ownership or voting partnership
interests of which is sufficient to elect at least a majority of its Board
of Directors or other governing body (or, if there are no such voting
interests, 50% or more of the equity interests of which) is owned directly
or indirectly by such first person;
(e) "superior proposal" has the meaning assigned thereto in Section
5.02(b); and
(f) "takeover proposal" has the meaning assigned thereto in Section
5.02(a).
SECTION 9.04. Interpretation. When a reference is made in this Agreement
to a Section, Exhibit or Schedule, such reference shall be to a Section of, or
an Exhibit or Schedule to, this Agreement unless otherwise indicated. The table
of contents and headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement. Whenever the words "include", "includes" or "including" are used in
this Agreement, they shall be deemed to be followed by the words "without
limitation".
SECTION 9.05. Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties.
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SECTION 9.06. Entire Agreement; No Third-Party Beneficiaries. This
Agreement and the Confidentiality Agreement constitute the entire agreements,
and supersede all prior agreements and understandings, both written and oral,
among the parties with respect to the subject matter of these agreements and
except for the provisions of Article III and Sections 6.04 and 6.05, are not
intended to confer upon any person other than the parties any rights or remedies
hereunder.
SECTION 9.07. Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware, regardless of
the laws that might otherwise govern under applicable principles of conflict of
laws thereof.
SECTION 9.08. Assignment. Neither this Agreement nor any of the rights,
interests or obligations under this Agreement shall be assigned, in whole or in
part, by operation of law or otherwise by any of the parties without the prior
written consent of the other parties, except that Sub may assign, in its sole
discretion, any of or all its rights, interests and obligations under this
Agreement to Parent or to any direct or indirect wholly owned subsidiary of
Parent, but no such assignment shall relieve Sub of any of its obligations under
this Agreement. Subject to the preceding sentence, this Agreement will be
binding upon, inure to the benefit of, and be enforceable by, the parties and
their respective successors and assigns.
SECTION 9.09. Enforcement. The parties agree that irreparable damage would
occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any court of the United States
located in the State of Delaware or in Delaware state court, this being in
addition to any other remedy to which they are entitled at law or in equity. In
addition, each of the parties hereto (a) consents to submit itself to the
personal jurisdiction of any Federal court located in the State of Delaware or
any Delaware state court in the event any dispute arises out of this Agreement
or any of the transactions contemplated by this Agreement, (b) agrees that it
will not attempt to deny or defeat such personal jurisdiction by motion or other
request for leave from any such court and (c) agrees that it will not bring any
action relating to this Agreement or any of the transactions contemplated by
this Agreement in any court other than a Federal or state court sitting in the
State of Delaware.
IN WITNESS WHEREOF, Parent, Sub and the Company have caused this Agreement
to be signed by their respective officers thereunto duly authorized, all as of
the date first written above.
JOHNSON & JOHNSON,
by /s/ RALPH S. LARSEN
------------------------------------
Name: Ralph S. Larsen
Title: Chairman and Chief Executive
Officer
JNJ ACQUISITION CORP.,
by /s/ RALPH S. LARSEN
------------------------------------
Name: Ralph S. Larsen
Title: Chairman and Chief Executive
Officer
NEUTROGENA CORPORATION,
by /s/ LLOYD E. COTSEN
------------------------------------
Name: Lloyd E. Cotsen
Title: Chairman and Chief Executive
Officer
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EXHIBIT A
Conditions of the Offer
-----------------------
Notwithstanding any other term of the Offer or this Agreement,
Sub shall not be required to accept for payment or, subject to any applicable
rules and regulations of the SEC, including Rule 14e-1(c) under the Exchange
Act (relating to Sub's obligation to pay for or return tendered shares of
Company Common Stock after the termination or withdrawal of the Offer), to pay
for any shares of Company Common Stock tendered pursuant to the Offer unless,
(i) there shall have been validly tendered and not withdrawn prior to the
expiration of the Offer such number of shares of Company Common Stock which
(together with shares subject to the Stockholder Agreement that shall not have
been so tendered) would constitute a majority of the outstanding shares of
Company Common Stock (the "Minimum Condition") and (ii) any waiting period
under the HSR Act applicable to the purchase of shares of Company Common Stock
pursuant to the Offer shall have expired or been terminated (the "HSR
Condition"). Furthermore, notwithstanding any other term of the Offer or this
Agreement, Sub shall not be required to accept for payment or, subject as
aforesaid, to pay for any shares of Company Common Stock not theretofore
accepted for payment or paid for, and may terminate the Offer if, at any time
on or after the date of this Agreement and before the acceptance of such shares
for payment or the payment therefor, any of the following conditions exists
(other than as a result of any action or inaction of Parent or any of its
subsidiaries which constitutes a breach of this Agreement):
(a) there shall be threatened or pending by any Governmental
Entity any suit, action or proceeding, (i) challenging the acquisition
by Parent or Sub of any shares of Company Common Stock under the Offer
or pursuant to the Stockholder Agreement, seeking to restrain or
prohibit the making or consummation of the Offer or the Merger or the
performance of any of the other transactions contemplated by this
Agreement or the Stockholder Agreement (including the voting
provisions thereunder), or seeking to obtain from the Company, Parent
or Sub any damages that are material in relation to the Company and
its subsidiaries taken as whole, (ii) seeking to prohibit or limit the
ownership or operation by the Company, Parent or any of their
respective subsidiaries of a material portion of the business or
assets of the Company and its subsidiaries, taken as a whole, or
Parent and its subsidiaries, taken
<PAGE> 29
2
as a whole, or to compel the Company or Parent to dispose of or hold
separate any material portion of the business or assets of the Company
and its subsidiaries, taken as a whole, or Parent and its
subsidiaries, taken as a whole, as a result of the Offer or any of the
other transactions contemplated by this Agreement, (iii) seeking to
impose material limitations on the ability of Parent or Sub to acquire
or hold, or exercise full rights of ownership of, any shares of
Company Common Stock accepted for payment pursuant to the Offer or
purchased under the Stockholder Agreement including, without
limitation, the right to vote such Company Common Stock on all matters
properly presented to the stockholders of the Company, (iv) seeking to
prohibit Parent or any of its subsidiaries from effectively
controlling in any material respect the business or operations of the
Company and its subsidiaries, taken as a whole, or (v) which otherwise
is reasonably likely to have a material adverse effect on the
business, financial condition or results of operations of the Company
and its subsidiaries, taken as a whole;
(b) there shall be any statute, rule, regulation, judgment,
order or injunction enacted, entered, enforced, promulgated or deemed
applicable to the Offer or the Merger, or any other action shall be
taken by any Governmental Entity or court, other than the application
to the Offer or the Merger of applicable waiting periods under the HSR
Act, that is reasonably likely to result, directly or indirectly, in
any of the consequences referred to in clauses (i) through (v) of
paragraph (a) above;
(c) there shall have occurred any material adverse change (or
any development that, insofar as reasonably can be foreseen, is
reasonably likely to result in any material adverse change) in the
business, financial condition or results of operations of the Company
and its subsidiaries, taken as a whole;
(d) (i) the Board of Directors of the Company or any committee
thereof shall have withdrawn or modified in a manner adverse to Parent
or Sub its approval or recommendation of the Offer, the Merger or this
Agreement, or approved or recommended any takeover proposal or (ii)
the Company shall have entered into
<PAGE> 30
3
any agreement with respect to any superior proposal in accordance with
Section 5.02(b) of this Agreement;
(e) any of the representations and warranties of the Company
set forth in this Agreement that are qualified as to materiality shall
not be true and correct and any such representations and warranties
that are not so qualified shall not be true and correct in any
material respect, in each case as of the date of this Agreement and as
of the scheduled expiration of the Offer;
(f) the Company shall have failed to perform in any material
respect any material obligation or to comply in any material respect
with any material agreement or covenant of the Company to be performed
or complied with by it under this Agreement;
(g) the Agreement shall have been terminated in accordance
with its terms.
Notwithstanding anything contained herein, no condition
involving (i) performance of agreements by the Company or (ii) the accuracy of
representations and warranties made by the Company (without giving effect to
any "materiality" limitation set forth therein), shall be deemed not fulfilled,
and Parent and Sub shall not be entitled to fail to accept shares of Company
Common Stock for payment or terminate the Offer on such basis, if the respects
in which such agreements have not been performed or the representations and
warranties are inaccurate, in the aggregate, are not materially adverse to the
business, financial condition or results of operations of the Company and its
subsidiaries, taken as a whole.
The foregoing conditions are for the sole benefit of Sub and
Parent and may, subject to the terms of the Agreement, be waived by Sub and
Parent in whole or in part at any time and from time to time in their sole
discretion. The failure by Parent, or Sub at any time to exercise any of the
foregoing rights shall not be deemed a waiver of any such right, the waiver of
any such right with respect to particular facts and circumstances shall not be
deemed a waiver with respect to any other facts and circumstances and each such
right shall be deemed an ongoing right that may be asserted at any time and
from time to time.
<PAGE> 1
CONFORMED COPY
STOCKHOLDER AGREEMENT dated as of August 22, 1994, among JOHNSON &
JOHNSON, a New Jersey corporation ("Parent") and the other parties
signatory hereto (each a "Stockholder").
WHEREAS, each Stockholder desires that Neutrogena Corporation, a Delaware
corporation (the "Company"), Parent and JNJ Acquisition Corp., a Delaware
corporation and wholly owned subsidiary of Parent ("Sub"), enter into an
Agreement and Plan of Merger dated the date hereof (as the same may be amended
or supplemented, the "Merger Agreement") with respect to the merger of Sub with
and into the Company (the "Merger"); and
WHEREAS, each Stockholder is executing this Agreement as an inducement to
Parent to enter into and execute, and to cause Sub to enter into and execute,
the Merger Agreement;
NOW, THEREFORE, in consideration of the execution and delivery by Parent
and Sub of the Merger Agreement and the mutual covenants, conditions and
agreements contained herein and therein, the parties agree as follows:
SECTION 1. Representations and Warranties. Each Stockholder severally
represents and warrants to Parent as follows:
(a) Such Stockholder is the record and beneficial owner of, or is
trustee of a trust that is the record holder of, and whose beneficiaries
are the beneficial owners of, the number of shares of Common Stock, par
value $.001 per share, of the Company (the "Company Common Stock") set
forth opposite such Stockholder's name in Schedule A hereto (such
Stockholder's "Shares"). Except for such Stockholder's Shares and any other
shares of Company Common Stock subject hereto, such Stockholder is not the
record or beneficial owner of any shares of Company Common Stock.
(b) This Agreement has been duly authorized, executed and delivered by
such Stockholder and constitutes the legal, valid and binding obligation of
such Stockholder, enforceable against such Stockholder in accordance with
its terms. Neither the execution and delivery of this Agreement nor the
consummation by such Stockholder of the transactions contemplated hereby
will result in a violation of, or a default under, or conflict with, any
contract, trust, commitment, agreement, understanding, arrangement or
restriction of any kind to which such Stockholder is a party or bound or to
which such Stockholder's Shares are subject. No trust of which such
Stockholder is a trustee requires the consent of any beneficiary to the
execution and delivery of this Agreement or to the consummation of the
transactions contemplated hereby. If such Stockholder is married and such
Stockholder's Shares constitute community property, this Agreement has been
duly authorized, executed and delivered by, and constitutes a valid and
binding agreement of, such Stockholder's spouse, enforceable against such
person in accordance with its terms. Consummation by such Stockholder of
the transactions contemplated hereby will not violate, or require any
consent, approval, or notice under, any provision of any judgment, order,
decree, statute, law, rule or regulation applicable to such Stockholder or
such Stockholder's Shares, except for any necessary filing under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976.
(c) Such Stockholder's Shares and the certificates representing such
Shares are now and at all times during the term hereof will be held by such
Stockholder, or by a nominee or custodian for the benefit of such
Stockholder, free and clear of all liens, claims, security interests,
proxies, voting trusts or agreements, understandings or arrangements or any
other encumbrances whatsoever, except for any such encumbrances or proxies
arising hereunder or under the existing terms of a trust of which such
Stockholder is the trustee.
(d) No broker, investment banker, financial adviser or other person is
entitled to any broker's, finder's, financial adviser's or other similar
fee or commission in connection with the transactions contemplated hereby
based upon arrangements made by or on behalf of such Stockholder.
<PAGE> 2
(e) Such Stockholder understands and acknowledges that Parent is
entering into, and causing Sub to enter into, the Merger Agreement in
reliance upon such Stockholder's execution and delivery of this Agreement.
Such Stockholder acknowledges that the irrevocable proxy set forth in
Section 4 is granted in consideration for the execution and delivery of the
Merger Agreement by Parent and Sub.
SECTION 2. Purchase and Sale of Shares. Each Stockholder hereby severally
agrees to sell to Sub, and Sub hereby agrees to purchase, all Shares set forth
opposite such Stockholder's name on Schedule A hereto, at a price per share
equal to the price paid in the Offer; provided that such obligation to sell and
such obligation to purchase is subject to Sub having accepted Shares for payment
under the Offer and the Minimum Condition having been satisfied. Such
Stockholder may tender such Shares into the Offer and Sub may direct that such
Stockholder tender such Shares. Any Shares not purchased in the Offer will be
purchased at the same time as payment is made under the Offer.
SECTION 3. Covenants. Each Stockholder severally agrees with, and
covenants to, Parent and, with respect to paragraph (c) below, each beneficiary
of any revocable trust for which any Stockholder serves as trustee, agrees with
and covenants to Parent, as follows:
(a) Such Stockholder shall not, except as contemplated by the terms of
this Agreement, (i) transfer (which term shall include, without limitation,
for the purposes of this Agreement, any sale, gift, pledge or other
disposition), or consent to any transfer of, any or all of such
Stockholder's Shares or any interest therein, (ii) enter into any contract,
option or other agreement of understanding with respect to any transfer of
any or all of such Shares or any interest therein, (iii) grant any proxy,
power-of-attorney or other authorization in or with respect to such Shares,
(iv) deposit such Shares into a voting trust or enter into a voting
agreement or arrangement with respect to such Shares or (v) take any other
action that would in any way restrict, limit or interfere with the
performance of its obligations hereunder or the transactions contemplated
hereby.
(b) Subject to Section 8, such Stockholder shall not, nor shall it
permit any investment banker, attorney or other adviser or representative
of such Stockholder to, directly or indirectly, (i) solicit, initiate or
encourage the submission of, any takeover proposal or (ii) participate in
any discussions or negotiations regarding, or furnish to any person any
information with respect to, or take any other action to facilitate any
inquiries or the making of any proposal that constitutes, or may reasonably
be expected to lead to, any takeover proposal. Without limiting the
foregoing, it is understood that any violation of the restrictions set
forth in the preceding sentence by an investment banker, attorney or other
adviser or representative of such Stockholder, whether or not such person
is purporting to act on behalf of such Stockholder or otherwise, shall be
deemed to be a violation of this Section 3(b) by such Stockholder.
(c) Such Stockholder, and any beneficiary of a revocable trust for
which such Stockholder serves as trustee, shall not take any action to
revoke or terminate such trust or take any other action which would
restrict, limit or frustrate in any way the transactions contemplated by
this Agreement. Each such beneficiary hereby acknowledges and agrees to be
bound by the terms of this Agreement applicable to it.
(d) At any meeting of stockholders of the Company or at any
adjournment thereof or in any other circumstances upon which their vote,
consent or other approval is sought, such Stockholder shall vote (or cause
to be voted) such Stockholder's Shares against (i) any merger agreement or
merger (other than the Merger Agreement and the Merger), consolidation,
combination, sale of substantial assets, reorganization, joint venture,
recapitalization, dissolution, liquidation or winding up of or by the
Company and (ii) any amendment of the Company's Certificate of
Incorporation or By-laws or other proposal or transaction involving the
Company or any of its subsidiaries which amendment or other proposal or
transaction would in any manner impede, frustrate, prevent or nullify, or
result in a breach of any covenant, representation or warranty or any other
obligation or agreement of the Company under or with respect to, the Offer,
the Merger, the Merger Agreement or any of the other transactions
contemplated by the Merger Agreement (each of the foregoing in clause (i)
or (ii) above, a "Competing Transaction").
SECTION 4. Grant of Irrevocable Proxy; Appointment of Proxy. (a) Each
Stockholder hereby irrevocably grants to, and appoints, Parent and James R.
Utaski, James R. Hilton and Peter S. Galloway, in
2
<PAGE> 3
their respective capacities as officers of Parent, and any individual who shall
hereafter succeed to any such office of Parent, and each of them individually,
such Stockholder's proxy and attorney-in-fact (with full power of substitution),
for and in the name, place and stead of such Stockholder, to vote such
Stockholder's Shares, or grant a consent or approval in respect of such Shares
against any Competing Transaction.
(b) Such Stockholder represents that any proxies heretofore given in
respect of such Stockholder's Shares are not irrevocable, and that any such
proxies are hereby revoked.
(c) Such Stockholder hereby affirms that the irrevocable proxy set forth in
this Section 4 is given in connection with the execution of the Merger
Agreement, and that such irrevocable proxy is given to secure the performance of
the duties of the Stockholder under this Agreement. Such Stockholder hereby
further affirms that the irrevocable proxy is coupled with an interest and may
under no circumstances be revoked. Such Stockholder hereby ratifies and confirms
all that such irrevocable proxy may lawfully do or cause to be done by virtue
hereof. Such irrevocable proxy is executed and intended to be irrevocable in
accordance with the provisions of Section 212(e) of the Delaware General
Corporation Law (the "DGCL").
SECTION 5. Certain Events. Each Stockholder agrees that this Agreement and
the obligations hereunder shall attach to such Stockholder's Shares and shall be
binding upon any person or entity to which legal or beneficial ownership of such
Shares shall pass, whether by operation of law or otherwise, including without
limitation such Stockholder's heirs, guardians, administrators or successors. In
the event of any stock split, stock dividend, merger, reorganization,
recapitalization or other change in the capital structure of the Company
affecting the Company Common Stock, or the acquisition of additional shares of
Company Common Stock or other voting securities of the Company by any
Stockholder, the number of Shares listed in Schedule A beside the name of such
Stockholder shall be adjusted appropriately and this Agreement and the
obligations hereunder shall attach to any additional shares of Company Common
Stock or other voting securities of the Company issued to or acquired by such
Stockholder.
SECTION 6. Legend. Each Stockholder agrees that such Stockholder will
deliver to the Company, within 5 business days after the date hereof, any and
all certificates representing such Stockholder's Shares in order that the
Company may inscribe upon such certificates the following legend: "The shares of
Common Stock, $.001 par value, of Neutrogena Corporation represented by this
certificate are subject to a Stockholder Agreement dated as of August 22, 1994,
and may not be sold or otherwise transferred, except in accordance therewith.
Copies of such Agreement may be obtained at the principal executive offices of
Neutrogena Corporation."
SECTION 7. Voidability. If prior to the execution hereof, the Board of
Directors of the Company shall not have duly and validly authorized and approved
by all necessary corporate action, this Agreement, the Merger Agreement and the
transactions contemplated hereby and thereby, so that by the execution and
delivery hereof (a) Parent or Sub would become, or could reasonably be expected
to become an "interested stockholder" with whom the Company would be prevented
for any period pursuant to Section 203 of the DGCL or the Certificate of
Incorporation of the Company from engaging in any "business combination" (as
such terms are defined in Section 203 of the DGCL) or (b) the issuance of Rights
(as defined in the Rights Agreement) in accordance with the Rights Agreement
would be triggered, then this Agreement shall be void and unenforceable until
such time as such authorization and approval shall have been duly and validly
obtained.
SECTION 8. Stockholder Capacity. No person executing this Agreement who is
or becomes during the term hereof a director or officer of the Company makes any
agreement or understanding herein in his or her capacity as such director or
officer. Each Stockholder signs solely in his or her capacity as the record
holder and beneficial owner of, or the trustee of a trust whose beneficiaries
are the beneficial owners of, such Stockholder's Shares and nothing herein shall
limit or affect any actions taken by a Stockholder in its capacity as an officer
or director of the Company to the extent specifically permitted by the Merger
Agreement.
SECTION 9. Further Assurances. Each Stockholder shall, upon request of
Parent, execute and deliver any additional documents and take such further
actions as may reasonably be deemed by Parent to be
3
<PAGE> 4
necessary or desirable to carry out the provisions hereof and to vest the power
to vote such Stockholder's Shares as contemplated by Section 4 in Parent and the
other irrevocable proxies described therein.
SECTION 10. Termination. This Agreement, and all rights and obligations of
the parties hereunder, shall terminate upon the first to occur of (i) the
Effective Time of the Merger or (ii) the date upon which the Merger Agreement is
terminated in accordance with its terms.
SECTION 11. Miscellaneous. (a) Capitalized terms used and not otherwise
defined in this Agreement shall have the respective meanings assigned such terms
in the Merger Agreement.
(b) All notices, request, claims, demands and other communications under
this Agreement shall be in writing and shall be deemed given if delivered
personally or sent by overnight courier (providing proof of delivery) to the
parties at the following addresses (or at such other address for a party as
shall be specified by like notice): (i) if to Parent, to the address set forth
in Section 9.02 of the Merger Agreement; and (ii) if to a Stockholder, to the
address set forth in Schedule A hereto, or such other address as may be
specified in writing by such Stockholder.
(c) 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.
(d) This Agreement may be executed in two or more counterparts, all of
which shall be considered one and the same agreement and shall become effective
as to any Stockholder when one or more counterparts have been signed by each of
Parent and such Stockholder and delivered to Parent and such Stockholder.
(e) This Agreement (including the documents and instruments referred to
herein) constitutes the entire agreement, and supersedes all prior agreements
and understandings, both written and oral, among the parties with respect to the
subject matter hereof.
(f) This Agreement shall be governed by, and construed in accordance with,
the laws of the State of Delaware, regardless of the laws that might otherwise
govern under applicable principles of conflicts of laws thereof.
(g) Neither this Agreement nor any of the rights, interests or obligations
under this Agreement shall be assigned, in whole or in part, by operation of law
or otherwise, by any of the parties without the prior written consent of the
other parties, except by laws of descent.
(h) If any term, provision, covenant or restriction herein, or the
application thereof to any circumstance, shall, to any extent, be held by a
court of competent jurisdiction to be invalid, void or unenforceable, the
remainder of the terms, provisions, covenants and restrictions herein and the
application thereof to any other circumstances, shall remain in full force and
effect, shall not in any way be affected, impaired or invalidated, and shall be
enforced to the fullest extent permitted by law.
(i) Each Stockholder agrees that irreparable damage would occur and that
Parent would not have any adequate remedy at law in the event that any of the
provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that Parent
shall be entitled to an injunction or injunctions to prevent breaches by any
Stockholder of this Agreement and to enforce specifically the terms and
provisions of this Agreement in any court of the United States located in the
State of Delaware or in Delaware state court, this being in addition to any
other remedy to which they are entitled at law or in equity. In addition, each
of the parties hereto (i) consents to submit such party to the personal
jurisdiction of any Federal court located in the State of Delaware or any
Delaware state court in the event any dispute arises out of this Agreement or
any of the transactions contemplated hereby, (ii) agrees that such party will
not attempt to deny or defeat such personal jurisdiction by motion or other
request for leave from any such court and (iii) agrees that such party will not
bring any action relating to this Agreement of any of the transactions
contemplated hereby in any court other than a Federal court sitting in the State
of Delaware or a Delaware state court.
(j) No amendment, modification or waiver in respect of this Agreement shall
be effective against any party unless it shall be in writing and signed by such
party.
4
<PAGE> 5
IN WITNESS WHEREOF, Parent and the Stockholders have caused this Agreement
to be duly executed and delivered as of the date first written above.
<TABLE>
<S> <C>
JOHNSON & JOHNSON,
by /s/ RALPH S. LARSEN
--------------------------------------------
Name: Ralph S. Larsen
Title: Chairman and Chief Executive Officer
LLOYD E. COTSEN, TRUSTEE OF THE COTSEN 1985
TRUST,
by /s/ LLOYD E. COTSEN
--------------------------------------------
Name: Lloyd E. Cotsen
Title: Trustee
LLOYD E. COTSEN, TRUSTEE OF THE FIRST COTSEN
CHARITABLE UNITRUST,
by /s/ DASHA LEWIN
--------------------------------------------
Name: Dasha Lewin
Title: Special Trustee
LLOYD E. COTSEN, TRUSTEE OF THE SECOND COTSEN
CHARITABLE UNITRUST,
by /s/ DASHA LEWIN
--------------------------------------------
Name: Dasha Lewin
Title: Special Trustee
LLOYD E. COTSEN, TRUSTEE OF THE THIRD COTSEN
CHARITABLE UNITRUST,
by /s/ DASHA LEWIN
--------------------------------------------
Name: Dasha Lewin
Title: Special Trustee
LLOYD E. COTSEN, TRUSTEE OF THE FOURTH COTSEN
CHARITABLE UNITRUST,
by /s/ DASHA LEWIN
--------------------------------------------
Name: Dasha Lewin
Title: Special Trustee
</TABLE>
5
<PAGE> 6
<TABLE>
<S> <C>
LLOYD E. COTSEN, TRUSTEE OF THE REMAINDER TRUST
(TRUST B) UNDER THE WILL OF JOANNE COTSEN,
DECEASED,
by /s/ LLOYD E. COTSEN
--------------------------------------------
Name: Lloyd E. Cotsen
Title: Trustee
COTSEN FAMILY FOUNDATION, A CALIFORNIA
NON-PROFIT PUBLIC BENEFIT CORP.,
by /s/ DASHA LEWIN
--------------------------------------------
Name: Dasha Lewin
Title: Chief Financial Officer and Secretary
</TABLE>
6
<PAGE> 7
FORM OF SCHEDULE A
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE OF SHARES
STOCKHOLDER NATURE OF OWNERSHIP SHARES OWNED OUTSTANDING
----------- ------------------- ------------ --------------------
<S> <C> <C> <C>
Lloyd E. Cotsen, Record & Beneficial 2,509,850 9.8%
Trustee of the Cotsen 1985 Trust
*Lloyd E. Cotsen, Record & Beneficial 148,000 .58%
Trustee of The First Cotsen
Charitable Unitrust
*Lloyd E. Cotsen, Record & Beneficial 148,000 .58%
Trustee of The Second Cotsen
Charitable Unitrust
*Lloyd E. Cotsen, Record & Beneficial 148,000 .58%
Trustee of The Third Cotsen
Charitable Unitrust
*Lloyd E. Cotsen, Record & Beneficial 1,436,733 5.6%
Trustee of The Fourth Cotsen
Charitable Unitrust
Lloyd E. Cotsen, Record & Beneficial 3,808,413 14.8%
Trustee of the Remainder Trust
(Trust B) under The Will of
JoAnne Cotsen, Deceased
Cotsen Family Foundation, Record 1,670,000 6.5%
a California Non-Profit
Public Benefit Corp.
</TABLE>
- ---------------
* Executed by Dasha Lewin, Special Trustee.
7
<PAGE> 1
[LOGO]
CONTACT: ROBERT V. ANDREWS -- MEDIA RELATIONS
JOHNSON & JOHNSON
(908) 524-3535
ANNIE LO -- INVESTOR RELATIONS
JOHNSON & JOHNSON
(908) 524-6491
DONALD R. SCHORT
NEUTROGENA CORPORATION
(310) 642-1150
DAVID HARDACRE
BLUM, PROPPER & HARDACRE
(310) 826-7900
FOR IMMEDIATE RELEASE
JOHNSON & JOHNSON TO ACQUIRE
NEUTROGENA CORPORATION FOR $35.25 PER SHARE
New Brunswick, NJ (August 22, 1994) -- Johnson & Johnson, the world's
leading health care corporation, and Neutrogena Corporation, producer of high
quality skin and hair care products, today announced they have entered into a
definitive agreement through which Johnson & Johnson will acquire Neutrogena.
Under the agreement, Johnson & Johnson (NYSE: JNJ) is to begin a cash
tender offer for all outstanding shares of Neutrogena (NASDAQ: NGNA) common
stock for $35.25 per share. Any shares not purchased in the offer will be
acquired for the same price in cash, in a second-step merger. Neutrogena has
approximately 25,700,000 shares outstanding.
The boards of directors of both companies have given approval to the
acquisition.
Johnson & Johnson Board Chairman Ralph S. Larsen termed the acquisition "a
very important strategic addition to our substantial worldwide skin and hair
care business." He added, "We are pleased to have been able to enter into this
agreement with Neutrogena."
Lloyd E. Cotsen, chairman and chief executive officer of Neutrogena, said:
"Our stated corporate goal -- to be a growth-oriented company with an image for
credibility and trust in the care and maintenance of healthy looking skin and
hair -- will, in fact, be enhanced with our association with Johnson & Johnson.
Throughout the world, Johnson & Johnson has established a strong presence and
reputation that we have long admired, and we now look forward to joining in a
partnership spirit to optimize the potential of the Neutrogena family of
products."
Mr. Cotsen has entered into an agreement with Johnson & Johnson under which
he has agreed to tender all 9,869,000 shares beneficially owned by him in the
offer. All outstanding Neutrogena options to purchase shares, a total of
approximately 2,300,000 shares, will be acquired for cash at the offer price.
The offer and merger are subject to the purchase of a majority of the
outstanding shares of Neutrogena common stock, as well as other customary
conditions including clearance under the Hart-Scott-Rodino Anti-
<PAGE> 2
Trust Improvements Act. The offer will begin by Friday, August 26, and will
remain open for a minimum of 20 business days.
Lehman Brothers Inc. provided financial advisory services to Neutrogena's
Board of Directors and has rendered a fairness opinion on this transaction. In
the event an unsolicited, alternative transaction is agreed to by Neutrogena,
there would be a total fee payable to Johnson & Johnson of $27.5 million.
Johnson & Johnson, with 1993 sales of $14.14 billion, is the world's
leading and most comprehensive manufacturer of health care products serving the
consumer, pharmaceutical, diagnostic and professional markets. Johnson & Johnson
has 79,000 employees and 167 operating companies in more than 50 countries
around the world, selling products in more than 150 countries.
Neutrogena had 1993 sales of $282 million. Neutrogena's high quality skin
and hair care products are sold in 72 countries. The company is headquartered in
Los Angeles and has 840 employees.
<PAGE> 1
[NEUTROGENA CORPORATION LETTERHEAD]
August 26, 1994
Dear Stockholder:
I am pleased to announce that on August 22, 1994, Neutrogena Corporation
and Johnson & Johnson entered into an Agreement and Plan of Merger providing for
the acquisition of all outstanding shares of common stock of the Company at a
price of $35.25 per share in cash.
J&J, through a wholly owned subsidiary, has today commenced a cash tender
for all outstanding shares of common stock of the Company at a price of $35.25
per share net in cash to effectuate the purchase of the Company. Under the
Merger Agreement, the tender offer will be followed by a merger in which any
remaining shares of the Company's common stock not tendered will be converted
into the right to receive $35.25 per share in cash, without interest.
Based upon, among other things, the opinion of Lehman Brothers Inc. to the
effect that the consideration to be offered to the Company's stockholders in the
tender offer and the merger is fair, from a financial point of view, to such
stockholders, the Board has unanimously determined that the tender offer and the
merger are in the best interest of the stockholders of the Company. Accordingly,
the Board has approved the merger (subject to stockholder approval, if required)
and hereby unanimously recommends that the stockholders of the Company accept
the offer and tender their shares pursuant to the tender offer.
As a condition to J&J's offer, a foundation and certain trusts with which I
am affiliated agreed to sell all 9,868,996 shares of common stock of the Company
held by them, representing approximately 38.4% of the Company's outstanding
common shares, to J&J at $35.25 per share pursuant to the tender offer or
otherwise. The tender offer is conditioned upon, among other things, there being
validly tendered and not withdrawn a majority of the shares of common stock
outstanding (the "Minimum Condition"). Accordingly, the Minimum Condition will
be satisfied by the tender of the shares held by the affiliated foundation and
trusts and by the holders of at least 12% of the Company's outstanding common
shares.
Enclosed for your consideration are copies of the Purchaser's tender offer
materials and the Company's Solicitation/Recommendation Statement on Schedule
14D-9 being filed today with the Securities and Exchange Commission. All of
these documents should be read carefully. In particular, I call your attention
to Item 4 of the Company's Schedule 14D-9, which describes the reasons for the
Board's recommendation and which stockholders may wish to consider before taking
action with respect to the offer.
Your Board, management and I thank you for your loyal support throughout
the years. I think it has paid off! I hope you concur.
Sincerely,
/s/ Lloyd E. Cotsen
------------------------------------
Lloyd E. Cotsen
Chief Executive Officer and
Chairman of the Board of Directors
<PAGE> 1
LEHMAN BROTHERS
August 22, 1994
Board of Directors
Neutrogena Corporation
5760 West 96th Street
Los Angeles, California 90045
Members of the Board:
We understand that Johnson & Johnson ("Johnson & Johnson"), JNJ Acquisition
("Sub"), a wholly owned subsidiary of Johnson & Johnson, and Neutrogena
Corporation (the "Company") have entered into an Agreement and Plan of Merger
dated as of August 22, 1994 (the "Agreement") regarding the acquisition of the
Company by Johnson & Johnson (the "Proposed Transaction"). The Agreement
provides that Sub will make a tender offer to purchase all of the currently
issued and outstanding shares of common stock of the Company at $35.25 per share
in cash (the "Offer"). Any shares not purchased in the Offer will be acquired
for the same price in cash in a second-step merger of Sub with and into the
Company (the "Merger"). The terms and conditions of the Proposed Transaction are
set forth in more detail in the Agreement.
We have been requested by the Company to render our opinion with respect to
the fairness, from a financial point of view, to the Company's stockholders of
the consideration to be offered to such stockholders in the Offer and the
Merger. 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: (i) the Agreement;
(ii) publicly available information concerning the Company which we believe to
be relevant to our inquiry; (iii) financial and operating information with
respect to the business and operations of the Company; (iv) a trading history of
the common stock of the Company over the last five years and a comparison of
such trading histories with those of other companies which we deemed relevant;
(v) a comparison of the historical financial results and present financial
condition of the Company with those of other companies which we deemed relevant;
(vi) a comparison of the financial terms of the Proposed Transaction with the
financial terms of certain other recent transactions which we deemed relevant;
(vii) the results of our efforts to solicit indications of interest from third
parties with respect to a purchase of the Company; and (viii) unsolicited
indications of interest and other communications received by or on behalf of the
Company with respect to a purchase of the Company following the public
announcement by the Company on August 10, 1994 that it was engaged in merger
discussions with an unidentified third party. In addition, we have had
discussions with the management of the Company concerning its business,
operations, assets, financial condition and prospects, and undertook such other
studies, analyses and investigations as we deemed appropriate.
We have assumed and relied upon the accuracy and completeness of the
financial and other information used by us in arriving at our opinion without
independent verification and have further relied upon the assurances of
management of the Company that they are not aware of any facts that would make
such information inaccurate or misleading. In arriving at our opinion, we have
not been furnished with any financial forecasts from the Company beyond fiscal
1994. In addition, we have not conducted a physical inspection of the properties
and facilities of the Company and have not made nor obtained any evaluations or
appraisals of the assets or liabilities of the Company. Our opinion is
necessarily 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 consideration to be
offered to the Company's stockholders in the Offer and the Merger is fair to
such stockholders.
<PAGE> 2
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 which may arise out of the
rendering of this opinion. We also have performed various investment banking
services for the Company in the past and have received customary fees for such
services. In the ordinary course of our business, we actively trade in the debt
and equity securities of the Company and Johnson & Johnson 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.
This opinion is solely for the use and benefit of the Board of Directors of
the Company. This opinion is not intended to be and does not constitute a
recommendation to any stockholders of the Company as to whether to accept the
consideration to be offered to such stockholder in connection with the Offer or
how such stockholder should vote with respect to the Merger.
Very truly yours,
LEHMAN BROTHERS
