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[Paste-up Armor All Letterhead]
December 2, 1996
Dear Stockholder:
I am pleased to inform you that on November 26, 1996, Armor All Products
Corporation ("Armor All") entered into an Agreement and Plan of Merger, as
amended, (the "Merger Agreement") with The Clorox Company and Shield Acquisition
Corporation (the "Purchaser"). Pursuant to the Merger Agreement, the Purchaser
today commenced a tender offer to purchase all outstanding shares of Armor All's
Common Stock (the "Shares") for $19.09 per share in cash. Additionally, holders
of record on December 2, 1996 will be paid the previously declared, regular
quarterly dividend equal to $0.16 per Share on January 2, 1997. Under the Merger
Agreement, the tender offer will be followed by a merger in which any remaining
Shares (other than Shares held by dissenting Stockholders, if applicable) will
be converted into the same consideration as is paid in the tender offer.
Your Board of Directors has unanimously approved the Merger Agreement, the
tender offer and the merger and has determined that the tender offer and merger
are fair to, and in the best interests of, Armor All and its stockholders.
Accordingly, the Board of Directors recommends that stockholders tender their
Shares.
In arriving at its recommendation, the Board of Directors gave careful
consideration to a number of factors which are described in the enclosed
Schedule 14D-9, including, among other things, the opinion of PaineWebber,
Incorporated, Armor All's financial advisor, that the cash consideration of
$19.09 per share to be received by the stockholders pursuant to the offer and
the merger is fair to such stockholders from a financial point of view.
Additional information with respect to the transaction is contained in the
enclosed Schedule 14D-9, and we urge you to consider this information carefully.
Sincerely,
KENNETH M. EVANS
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Kenneth M. Evans
PRESIDENT AND CHIEF EXECUTIVE OFFICER
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ITEM 1. SECURITY AND SUBJECT COMPANY
The name of the subject company is Armor All Products Corporation, a
Delaware corporation (the "Company"), and the address of the principal executive
offices of the Company is 6 Liberty, Aliso Viejo, California 92656-3829. The
title of the class of equity securities to which this statement relates is the
common stock, par value $0.01 per share, of the Company (the "Common Stock").
ITEM 2. TENDER OFFER OF THE PURCHASER.
This statement relates to a tender offer by Shield Acquisition Corporation,
a Delaware corporation (the "Purchaser"), and a wholly owned subsidiary of The
Clorox Company, a Delaware corporation ("Parent"), disclosed in a Tender Offer
Statement on Schedule 14D-1, dated December 2, 1996 (the "Schedule 14D-1"), to
purchase all outstanding shares of Common Stock (the "Shares"), at a price of
$19.09 per Share, net to the seller in cash, upon the terms and subject to the
conditions set forth in the Offer to Purchase, dated December 2, 1996 (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 November 26, 1996, as amended, (the "Merger Agreement"), among Parent, the
Purchaser and the Company. The Merger Agreement provides, among other things,
that as soon as practicable after the satisfaction or waiver of the conditions
set forth in the Merger Agreement, the Purchaser will be merged with and into
the Company (the "Merger"), and the Company will continue as the surviving
corporation (the "Surviving Corporation"). Copies of the Merger Agreement and
the first amendment thereto are attached hereto as Exhibit 1 and Exhibit 1.1,
respectively, and incorporated herein by reference.
As set forth in the Schedule 14D-1, the principal executive offices of the
Purchaser and Parent are located at 1221 Broadway, Oakland, California
94612-1888.
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 or (ii) the Purchaser,
its executive officers, directors or affiliates, is described in the attached
Schedule I (which information is incorporated herein by reference) or in pages 2
through 16 of the Company's Proxy Statement dated as of June 18, 1996 and
attached hereto as Exhibit 4 (which information is incorporated herein by
reference) or set forth below.
ARRANGEMENTS WITH PARENT, PURCHASER OR THEIR AFFILIATES
THE MERGER AGREEMENT
On November 26, 1996, Parent, the Purchaser and the Company entered into the
Merger Agreement, pursuant to which Purchaser agreed to make the Offer. The
following description of the Merger Agreement does not purport to be complete
and is qualified by reference to the text of the Merger Agreement, a copy of
which is filed as Exhibit 1 hereto and is incorporated herein by reference.
Capitalized terms not otherwise defined herein shall have the meanings set forth
in the Merger Agreement.
THE OFFER. The Merger Agreement provides for the making of the Offer by the
Purchaser. The obligation of the Purchaser to accept for payment and pay for
Shares tendered is subject to the satisfaction of the conditions described in
Annex A to the Merger Agreement. The Merger Agreement provides that the
Purchaser may not decrease the Offer Price, extend the expiration date of the
Offer beyond the
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twentieth business day following commencement thereof or otherwise amend any
other condition of the Offer in any manner adverse to the holders of the Shares
without the prior written consent of the Company; provided, that the Purchaser
may extend the expiration date of the Offer if (i) one or more conditions set
forth in Annex A shall not be satisfied or (ii) the Parent reasonably
determines, with the prior approval of the Company, that such extension is
necessary to comply with any legal or regulatory requirements relating to the
Offer.
The Merger Agreement provides that, promptly after the purchase of Shares
pursuant to the Offer, the Parent shall be entitled to designate directors on
the Company Board as will give the Parent representation proportionate to its
ownership interest. Following the election of the Parent's designees, any
amendment to the Merger Agreement by the Company, any extension of time for
performance of any of the obligations of the Parent or the Offeror under the
Merger Agreement, any waiver of any condition to the obligations of the Company
or any of the Company's rights under the Merger Agreement or other action by the
Company under the Merger Agreement shall be effected only by the action of a
majority of the directors of the Company then in office who are Continuing
Directors. The parties agreed to use their best efforts to ensure that at least
three of the members of the Company Board shall, at all times prior to the
Effective Time, be Continuing Directors.
THE MERGER. The Merger Agreement provides that, at the Effective Time, the
Purchaser will be merged with and into the Company, with the Company as the
surviving corporation. The Merger shall become effective at the time of the
filing with the Secretary of State of the State of Delaware of a Certificate of
Merger, or at such later time as may be specified in the Certificate of Merger.
The parties shall file such Certificate of Merger as soon as practicable
following the closing of the Merger, which shall take place on the second
business day after the conditions to the parties' obligation to effect the
Merger have been satisfied or waived, unless another date is otherwise agreed.
Each Share issued and outstanding immediately prior to the Effective Time
(other than Shares with respect to which appraisal rights have been properly
exercised, and Cancelled Shares (as defined below)) shall be converted into the
right to receive $19.09 in cash, or any higher price paid per Share in the Offer
(the "Merger Consideration"), without interest. Each Share issued and
outstanding immediately prior to the Effective Time owned by the Parent or the
Purchaser, or any subsidiary of the Company, the Parent or the Purchaser, and
each Share held in the treasury of the Company (collectively, the "Cancelled
Shares") immediately prior to the Effective Time shall be cancelled and cease to
exist. Each share of Common Stock of the Purchaser issued and outstanding
immediately prior to the Effective Time shall automatically be converted into
one share of Common Stock of the Surviving Corporation.
The Merger Agreement provides that the Certificate of Incorporation and
By-Laws of the Purchaser shall be the Certificate of Incorporation and By-Laws
of the Surviving Corporation, provided that Article First of the Certificate of
Incorporation of the Surviving Corporation shall be amended to read in its
entirety as follows: "FIRST: The name of the Corporation is Armor All Products
Corporation." The Merger Agreement also provides that the directors of the
Purchaser at the Effective Time will be the directors of the Surviving
Corporation and that the officers of the Company at the Effective Time will be
the officers of the Surviving Corporation.
STOCK OPTIONS. The Company has agreed in the Merger Agreement to take all
actions necessary to provide that, immediately prior to the consummation of the
Offer, each outstanding stock option (collectively, the "Options") under the
Company's 1986 Stock Option Plan, shall be cancelled or repurchased by the
Company, and except to the extent that the Parent or the Purchaser and the
holder of any such Option otherwise agree, the Company shall pay to the holder
of each Option (i) the excess of the Merger Consideration over the exercise
price of the Option, multiplied by (ii) the number of Shares subject thereto
(such payment to be net of applicable withholding taxes).
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RECOMMENDATION. The Company represents in the Merger Agreement that the
Company Board has (i) determined that each of the Merger and the Offer is fair
to, and in the best interests of, the stockholders of the Company, and (ii)
resolved to recommend acceptance of the Offer and approval and adoption of the
Merger Agreement by the Company's stockholders. The recommendation of the
Company Board may be withdrawn, modified or amended if the Company Board
determines in good faith, after consultation with its counsel, that the exercise
of the directors' fiduciary duties requires such withdrawal, amendment or
modification. The Company has agreed to use its best efforts to file a
Solicitation/ Recommendation Statement on Schedule 14D-9 containing such
recommendations with the Commission and to mail such Schedule 14D-9 to the
stockholders of the Company contemporaneous with the commencement of the Offer,
but in any event not later than ten business days following the commencement of
the Offer.
INTERIM AGREEMENTS OF THE PARENT, THE PURCHASER AND THE COMPANY. Pursuant
to the Merger Agreement, the Company has agreed that, until the consummation of
the Offer, the Company and its subsidiaries will conduct their respective
businesses and operations only in the ordinary course, consistent with past
practice, except as the Parent shall otherwise agree, as required by applicable
law or as otherwise contemplated by the Merger Agreement. Except as otherwise
provided in the Company Disclosure Letter (as defined in the Merger Agreement),
prior to the consummation of the Offer, neither the Company nor any of its
subsidiaries will: (i) amend its charter or by-laws; (ii) authorize for
issuance, issue, sell, or agree or commit to issue, sell or deliver any stock of
any class or any other securities, except by the Company in connection with the
exercise of employee options granted and outstanding before the date of the
Merger Agreement; (iii) split, combine or reclassify any shares of its capital
stock, declare, set aside or pay any dividend or other distribution in respect
of its capital stock or redeem or otherwise acquire any of its securities or any
securities of its subsidiaries, provided that the Company may pay to holders of
the Shares the quarterly dividend of $0.16 per Share previously declared by the
Company payable January 2, 1997 to stockholders of record December 2, 1996; (iv)
(a) incur or assume any material long-term debt or, except in the ordinary
course of business consistent with past practices, under existing lines of
credit, incur or assume any material short-term debt, (b) assume, guarantee,
endorse or otherwise become liable or responsible for any material obligations
of any other person, except its wholly owned subsidiaries in the ordinary course
of business and consistent with past practices, or (c) make any material loans,
advances or capital contributions to, or investments in, any other person (other
than loans or advances to the Company's subsidiaries and customary loans or
advances to employees in accordance with past practices); (v) enter into, adopt
or materially amend any bonus, profit sharing, compensation, severance,
termination, stock option, employment, severance or other employee benefit
agreements, trusts, plans, funds or other arrangements of or for the benefit or
welfare of any Company Employee (as defined in the Merger Agreement), or (except
for increases in wage and salary compensation in the ordinary course consistent
with past practices) increase the compensation or fringe benefits of any Company
employee or pay any benefit not required by any existing plan and arrangement,
or enter into any contract agreement, commitment or arrangement to do any of the
foregoing; (vi) acquire, sell, lease or dispose of any assets outside the
ordinary course of business or any assets that are material, individually or in
the aggregate, to the Company and its subsidiaries, taken as a whole, or enter
into any material commitment or transaction outside the ordinary course of
business; (vii) except as may be required by law and as set forth on the Company
Disclosure Letter, take any action to terminate or amend any of its employee
benefit plans with respect to or for the benefit of Company Employees; (viii)
hire any employee other than to replace an employee; provided, however, that the
annual salary of such replacement employee shall not exceed $50,000; (ix) pay,
discharge or satisfy any claims, liabilities or obligations, not in the ordinary
course of business consistent with past practice or in accordance with their
terms as in effect on the date of the Merger Agreement, or liabilities reflected
or reserved against in, or contemplated by, the Company's consolidated audited
financial statements, or waive, release, grant, or transfer any rights of
material value or modify or change in any material respect any existing license,
lease, contract or other document, other than in the ordinary course of business
consistent with past practice; (x) change any material accounting
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principle used by it, except for such changes as may be required to be
implemented following the date of the Merger Agreement pursuant to generally
accepted accounting principles or rules and regulations of the Commission; (xi)
take any action that would result in any of its representations and warranties
in the Merger Agreement becoming untrue in any material respect; (xii)
materially change its policy of not accepting returns of products shipped to
customers; (xiii) materially change its co-packer arrangements; or (xiv) take,
or agree to take, any of the foregoing actions.
The Company has agreed to amend its Third Quarter Incremental Volume Plan to
extend the measurement period for determining whether the incremental sales
volume targets of such plan have been satisfied to include the fourth quarter of
fiscal year 1997, and to take steps to communicate to customers eligible to
participate in such plan that the Company will honor such plan with respect to
shipments made in the fourth quarter of fiscal year 1997 and to Company sales
personnel responsible for such customers.
OTHER AGREEMENTS OF THE PARENT, THE PURCHASER AND THE COMPANY. In the
Merger Agreement, the Company and its subsidiaries agree not to (i) initiate or
solicit any inquiries or the making of any acquisition proposal, or (ii) except
as provided below, engage in negotiations or discussions with, or furnish any
information or data to, any third party relating to an acquisition proposal.
However, the Merger Agreement provides that the Company and the Company Board
may (i) participate in discussions or negotiations with or furnish information
to any third party if the failure to do so may constitute a breach of the
Company Board's fiduciary duties, and (ii) take, and disclose to the Company's
stockholders, a position with respect to the Offer or the Merger or another
tender or exchange offer, or amend or withdraw such position, pursuant to Rules
14d-9 and 14e-2 of the Exchange Act, or make disclosure to the Company's
stockholders, in each case if the failure to take such action may constitute a
breach of the Company Board's fiduciary duties or otherwise violate applicable
law. The Company also has agreed to provide the Parent with a copy of any
written acquisition proposal and, subject to the proper discharge of the
fiduciary duties of the Company Board, to keep the Parent reasonably and
promptly informed of the status and content of any discussions with such a third
party.
Pursuant to the Merger Agreement, the Company has agreed to give the Parent
reasonable access to its facilities, books and records, to permit the Parent to
make such inspections as it may reasonably require and to cause its officers to
furnish the Parent with such information as Parent may from time to time
reasonably request.
Each of the Company, the Parent and the Purchaser has agreed in the Merger
Agreement to use its best efforts to take, or cause to be taken, all things
necessary, proper or advisable to consummate the transactions contemplated by
the Merger Agreement. Each such party also has agreed to cooperate and use its
best efforts to make all filings and obtain all licenses, permits, consents,
approvals and other authorizations of third parties, including governmental
authorities, necessary to consummate such transactions, including the filings
required of the Parent or the Purchaser or any of their affiliates under the HSR
Act.
Pursuant to the Merger Agreement, each of the Company, the Parent and the
Purchaser agreed not to make any public statement with respect to the Merger
Agreement or the transactions contemplated thereby without the prior consent of
the other party. The parties thereto also agreed that the provisions of the
Confidentiality Agreement would remain binding and in full force and effect.
EMPLOYEE AGREEMENTS AND EMPLOYEE BENEFITS. The Parent has agreed in the
Merger Agreement to honor the agreements with officers of the Company set forth
in Section 6.8 of the Company Disclosure Letter. In addition, as of the
Effective Time, Company employees will be terminated from future participation
in McKesson's Employee Benefit Plans (as defined in the Merger Agreement). The
benefits to be paid to Company employees under each Employee Benefit Plan
sponsored or maintained by McKesson shall not be increased by any service to the
Company following the Effective Time. Except as expressly provided in the Merger
Agreement, the Purchaser and the Parent agree to provide Company employees
employee benefit and compensation plans, policies and arrangements (other than
severance
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plans) at a level no less favorable than provided to Parent employees of
comparable status; provided, that for one year following the Effective Time,
Company employees shall also be provided a severance benefit no less favorable
than provided by the Company as of the date of the Merger Agreement; and
provided further that the Company's severance benefit plans may be amended after
the Effective Time to clarify any ambiguities. Furthermore, the Parent agrees to
permit Company employees to participate immediately as of the Effective Date in
its medical, dental, disability and life insurance plans. The Parent agrees to
allow participation in its retiree medical plan to Company employees on a basis
no less favorable than provided to Parent employees of comparable status and to
grant eligibility and vesting credit in such retiree medical plans for service
with the Company or McKesson. The Parent agrees to provide Company employees
with service credit under the Parent's other employee benefit plans, other than
the Parent's Supplemental Executive Retirement Plan. The Company's Incentive
Plan for Business Managers shall be terminated immediately following the date of
the Merger Agreement. The Company's Employee Incentive Plan shall, immediately
following the Effective Time, be terminated, and all participants will receive
their targeted bonus for the current period as though the budgeted target had
been achieved. The Company's 1989 Short Term Employee Incentive Plan,
International Incentive Plan and Sales Incentive Plan will, on April 1, 1997, be
terminated, and the aggregate amount of individual bonus targets payable to
participants in those incentive plans will be determined as soon as practicable
after the Effective Time as though the budgeted target for fiscal year 1997 had
been achieved; individual cash payments will be modified to reflect individual
performance; provided, that such participant either (i) has remained employed
with the Company through March 31, 1997 or (ii) was terminated by the Company on
or prior to such date but after December 31, 1996, other than for cause; and
provided, further, that the participants in the Company's 1989 Short Term
Incentive Plan previously identified in writing to the Parent shall receive such
cash payment immediately following the Effective Time. As of April 1, 1997,
Company employees will become eligible to participate in the Parent's incentive
plans at a level comparable to that of other Parent employees immediately prior
to the date of the Merger Agreement. As of the Effective Time, Company employees
will participate in all of Parent's Employee Benefit Plans, on a basis no less
favorable than provided to Parent employees of comparable status, but excluding
executive retirement and severance plans.
COMPANY STOCKHOLDER MEETING. If required by applicable law, the Company has
agreed to: (i) hold a special meeting of its stockholders (the "Special
Meeting") as soon as practicable following acceptance for payment of Shares
pursuant to the Offer for the purpose of taking action upon the Merger
Agreement; (ii) subject to its fiduciary duties, prepare and file with the
Commission a preliminary proxy statement relating to the Merger Agreement and
use its commercially reasonable efforts to (a) cause a definitive proxy
statement (the "Proxy Statement") to be mailed to its stockholders following
acceptance for payment of Shares pursuant to the Offer and (b) obtain the
necessary approvals of the Merger Agreement by its stockholders. The Parent and
the Purchaser have agreed to vote all Shares owned by them in favor of approval
of the Merger Agreement at any such meeting. However, in the event that the
Parent or the Purchaser shall acquire at least 90 percent of the outstanding
Shares, the parties will, at the request of the Parent, take action to cause the
Merger to become effective as soon as practicable after the expiration or
termination of the Offer and the completion of all activities necessary to
finance the consummation of the Merger and the transactions contemplated by the
Merger Agreement, without a meeting of stockholders of the Company in accordance
with the DGCL.
INDEMNIFICATION OF COMPANY OFFICERS AND DIRECTORS; LIABILITY INSURANCE. The
Merger Agreement provides that, in the event of any threatened or actual claim,
action, suit, proceeding or investigation, whether civil, criminal or
administrative, in which any of the present officers or directors (the
"Indemnified Parties") of the Company or any of its subsidiaries is, or is
threatened to be, made a party by reason of the fact that he or she is or was a
director, officer, employee or agent of the Company or any of its subsidiaries,
or is or was serving at the request of the Company or any of its subsidiaries as
a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, the Company, the Parent and the
Purchaser will cooperate and use their best efforts to defend against and
respond thereto. It
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also was agreed that the Company shall indemnify and hold harmless, and after
the Effective Time the Surviving Corporation and the Parent, jointly and
severally, shall indemnify and hold harmless, as and to the full extent
permitted by applicable law, each Indemnified Party against any losses, claims,
damages, liabilities, costs, expenses (including reasonable attorneys' fees and
expenses), judgments, fines and amounts paid in settlement in connection with
any such claim, action, suit, proceeding or investigation, and in the event of
any such claim, action, suit, proceeding or investigation, (i) the Indemnified
Parties may retain counsel, and the Company, or the Surviving Corporation and
the Parent after the Effective Time, shall pay all reasonable fees and expenses
of such counsel for the Indemnified Parties and (ii) the Company and the
Surviving Corporation and the Parent will use reasonable efforts to assist in
the defense of any such matter; provided, that neither the Company, the
Surviving Corporation nor the Parent shall be liable for any settlement effected
without its prior written consent; and provided, further, that the Surviving
Corporation shall not indemnify the Indemnified Parties if prohibited by law.
The Merger Agreement provides that, until the Effective Time, the Company
shall keep in effect Article Tenth of its Certificate of Incorporation and
Article IX of its By-Laws, which provide for indemnification of officers,
directors, employees and agents, and thereafter, the Parent shall cause the
Surviving Corporation to keep in effect in its By-Laws a provision for a period
of not less than six years from the Effective Time (or, in the case of matters
occurring prior to the Effective Time which have not been resolved prior to the
sixth anniversary of the Effective Time, until such matters are finally
resolved) which provides for indemnification of the Indemnified Parties to the
full extent permitted by the DGCL.
The Merger Agreement provides that the Parent shall cause to be maintained
in effect for not less than six years from the Effective Time the current or
equivalent policies of the directors' and officers' liability insurance
maintained by the Company, if any, with respect to matters occurring prior to
the Effective Time; provided, that if the aggregate annual premiums for such
insurance at any time during such period shall exceed 200% of the per annum rate
of premium currently paid by the Company and its subsidiaries on the date of the
Merger Agreement, if any, then the Company (or the Surviving Corporation if
after the Effective Time) shall provide the maximum coverage that shall then be
available at an annual premium equal to 200% of such rate, and the Parent, in
addition to the indemnification provided as described above, shall indemnify the
Indemnified Parties for the balance of such insurance coverage on the same terms
and conditions as though the Parent were the insurer under those policies.
CERTAIN AGREEMENTS WITH MCKESSON. The Company has agreed in the Merger
Agreement, at or prior to the Effective Time, to cause the Services Agreement
between the Company and McKesson, as amended through April 1, 1996 (the
"Services Agreement"), to be amended as provided in the Stockholder Agreement,
with all monies held by McKesson pursuant to the cash management program to be
remitted to the Company at the Effective Time. The Tax Allocation Agreement
between the Company and McKesson shall remain in effect.
REPRESENTATIONS AND WARRANTIES. The Merger Agreement contains various
representations and warranties of the parties thereto, including representations
by the Company as to, among other things, corporate existence and good standing,
capitalization, corporate authorization, consents and approvals, reports,
undisclosed liabilities, certain changes or events concerning its businesses,
compliance with applicable law, employee benefit plans, litigation and real
property, intellectual property, computer software, material contracts, taxes,
environmental matters and brokers. In addition, the Parent and the Purchaser
represented as to, among other things, corporate existence and good standing,
corporate authorization, consents and approvals.
In addition, the Parent and the Purchaser represented that each of them had
conducted its own independent review and analysis of the Company and its
subsidiaries, and acknowledged that each of them had been provided access to the
properties, premises and records of the Company and its subsidiaries for this
purpose. The Parent and the Purchaser also acknowledged that they relied solely
upon their own investigation and analysis in entering into the Merger Agreement,
and each of them (i) acknowledged that
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none of the Company, its subsidiaries or any of their respective directors,
officers, employees, affiliates, agents or representatives made any
representation or warranty as to the accuracy or completeness of any of the
information provided or made available to the Parent or their agents or
representatives prior to the execution of the Merger Agreement, and (ii) agreed,
to the fullest extent permitted by law, that none of the Company, its
subsidiaries or any of their respective directors, officers, employees,
stockholders, affiliates or agents or representatives shall have any liability
or responsibility whatsoever to the Parent or the Offeror based upon any
information provided or made available, or statements made, to the Parent prior
to the execution of the Merger Agreement, except that such limitations shall not
apply to the Company to the extent (a) the Company makes the specific
representations and warranties set forth in the Merger Agreement or (b) McKesson
makes the specific representations and warranties or the specific covenant set
forth in the Stockholder Agreement, but always subject to the limitations and
restrictions contained in the Merger Agreement and the Stockholder Agreement.
CONDITIONS TO THE MERGER. The obligations of each of the Parent, the
Purchaser and the Company to effect the Merger are subject to the satisfaction
or waiver of certain conditions, including (i) if required by the DGCL, the
Merger Agreement and the Merger shall have been approved by the stockholders of
the Company, (ii) no statute, rule, regulation, order, decree, or injunction
shall have been promulgated by any governmental entity which prohibits the
consummation of the Merger, (iii) the Offer shall not have expired or been
terminated prior to the purchase of any Shares, and (iv) any waiting period
under the HSR Act applicable to the purchase of Shares pursuant to the Offer
shall have expired or been terminated. Further, the respective obligations of
the Company, on the one hand, and the Parent and the Purchaser, on the other
hand, are subject to the satisfaction or waiver at or prior to the Effective
Time of certain additional conditions, including (i) the representations and
warranties of the other parties or party being true as of the Effective Time,
(ii) the other parties or party having performed in all material respects their
or its obligations under the Merger Agreement, and (iii) receipt of a
certificate of an officer of the Parent or the Company, as the case may be, as
to the satisfaction of certain of such conditions, provided that the conditions
described in this sentence with respect to the obligations of the Parent and the
Purchaser shall cease to be conditions if the Purchaser shall have accepted for
payment and paid for Shares validly tendered pursuant to the Offer.
TERMINATION. The Merger Agreement may be terminated and the Offer (if the
Purchaser has not accepted Shares for payment) and the Merger may be abandoned
at any time prior to the Effective Time: (i) by mutual written consent of the
Parent, the Purchaser and the Company; (ii) by the Parent and the Purchaser, or
by the Company, if the Effective Time shall not have occurred on or before
January 31, 1997; (iii) by the Parent or the Purchaser, or by the Company, if
the Offer expires or terminates in accordance with its terms without any Shares
being purchased thereunder but only, if the Purchaser shall not have been
required to purchase any Shares pursuant to the Offer; (iv) by the Parent and
the Purchaser, or by the Company, if permanently prohibited by any United States
court or governmental body; (v) by the Parent, the Purchaser or the Company if
the other party fails in a material way to comply with any material obligation
of the Merger Agreement, upon notice, after 20 days to cure; (vi) by the Parent,
if any required approval of the stockholders of the Company shall not have been
obtained by reason of the failure to obtain the required vote upon a vote held
at a duly held meeting of stockholders or at any adjournment thereof; (vii) by
the Parent, if the Company shall have (a) withdrawn its approval or
recommendation of the Merger Agreement or the Merger; (b) recommended any
Acquisition Proposal from a person other than the Parent; or (viii) by the
Company if, prior to the purchase of Shares pursuant to the Offer, a third party
shall have made an Acquisition Proposal that the Company Board determines is
more favorable to the Company and the holders of Shares than the transactions
contemplated by the Merger Agreement or the Board determines in good faith,
other than in response to an Acquisition Proposal, that the failure to terminate
this agreement may constitute a breach of its fiduciary duties. However, the
Company shall not be permitted to terminate, or consent to the termination of,
the Merger Agreement without the approval of a majority of the Continuing
Directors.
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TERMINATION; FEE AND EXPENSES. The Merger Agreement provides for a
termination fee of $11 million to be paid by the Company to the Parent if the
Merger Agreement is terminated according to certain of its terms.
Pursuant to the Merger Agreement, in the event of the termination thereof,
the Merger Agreement will become null and void, without any liability on the
part of any party, except as provided therein, and provided that a party will
not be relieved from liability for any willful breach of the Merger Agreement.
FEES AND EXPENSES. The Merger Agreement provides that all costs and
expenses incurred in connection with the transactions contemplated by the Merger
Agreement shall be paid by the party incurring such costs and expenses.
AMENDMENTS AND MODIFICATIONS. Subject to applicable law, the Merger
Agreement may be amended, modified or supplemented by a written agreement of the
Parent, the Purchaser and the Company, provided, that after the approval of the
Merger Agreement by the stockholders of the Company, no such amendment,
modification or supplement shall reduce or change the consideration to be
received by the Company's stockholders in the Merger.
STOCKHOLDER AGREEMENT
On November 26, 1996, Parent, the Purchaser and McKesson Corporation, a
Delaware corporation ("McKesson") and a holder of approximately 54% of the
shares of Common Stock of the Company, entered into a Stockholder Agreement,
dated as of November 26, 1996 (the "Stockholder Agreement"), pursuant to which
and subject to the terms thereof McKesson agreed to tender, or cause to be
tendered, all the shares of Common Stock owned by it into the Offer. The
following description of the Stockholder Agreement does not purport to be
complete and is qualified by reference to the text of the Stockholder Agreement,
a copy of which is filed as Exhibit 2 hereto and is incorporated herein by
reference. Capitalized terms not otherwise defined herein shall have the
meanings set forth in the Stockholder Agreement.
Concurrently with the execution of the Merger Agreement, the Purchaser and
the Parent entered into the Stockholder Agreement with McKesson. In the
Stockholder Agreement, McKesson represented that it owns, in the aggregate,
11,624,900 Shares, of which 6,939,759 Shares are deposited with an exchange
agent pursuant to an exchange agent agreement and an indenture relating to
debentures issued by McKesson. Pursuant to the Stockholder Agreement, McKesson
has agreed to tender (and to direct its exchange agent pursuant to such exchange
agent agreement and indenture to tender) all Shares owned by it into the Offer
and that it will not (and will not direct its exchange agent to) withdraw any
Shares so tendered.
Pursuant to the Stockholder Agreement, McKesson also has granted to the
Parent an irrevocable proxy to vote its Shares, or grant a consent or approval
in respect of such Shares, in connection with any meeting of the stockholders of
the Company (i) in favor of the Merger and (ii) against any action or agreement
which would impede, interfere with or prevent the Merger, including any other
extraordinary corporate transaction such as a merger, reorganization or
liquidation involving the Company and a third party or any other proposal by a
third party to acquire the Company. Such irrevocable proxy shall terminate on
termination of the Stockholder Agreement.
During the term of the Stockholder Agreement, McKesson has agreed that it
will not (subject to certain exceptions) (i) transfer, or enter into any
contract, option, agreement or other understanding with respect to the transfer
of, its Shares, (ii) grant any proxy, power of attorney or other authorization
or consent in or with respect to its Shares, (iii) deposit its Shares in any
voting trust or enter into any voting agreement or arrangement with respect to
such Shares, or (iv) take any other action that would in any way restrict, limit
or interfere with the performance of its obligations pursuant to the Stockholder
Agreement.
The Stockholder Agreement shall terminate upon the earlier of (i)
termination of the Merger Agreement, either in accordance with its terms by a
party thereto or by mutual agreement of the parties
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thereto, or (ii) the date that the Purchaser pays for the Shares of McKesson
pursuant to the Stockholder Agreement, provided that certain provisions
specified in the Stockholder Agreement will survive such termination. Neither
party has any other unilateral right to terminate the Stockholder Agreement.
The Stockholder Agreement also includes provisions relating to (i) a
one-time contribution to be made by the Purchaser to certain benefit plans
maintained by McKesson and in which certain Company employees participate, and
(ii) the indemnification of the Purchaser and the Parent by McKesson with
respect to certain breaches of representations and warranties of the Company
concerning benefit plans of McKesson in which Company employees are participants
and certain tax liabilities which may affect the Company. McKesson also agreed
to enter into an amendment to the Services Agreement, pursuant to which McKesson
will provide to the Company certain consultation services on terms and
conditions no less favorable to the Company than provided in the Services
Agreement prior to such amendment, for a period not to exceed six months after
the Effective Time.
CONFIDENTIALITY AGREEMENT
The following is a summary of certain provisions of the Confidentiality
Agreement, dated October 10, 1996 between the Company, McKesson and the Parent
(the "Confidentiality Agreement"). The following summary of the Confidentiality
Agreement does not purport to be complete and is qualified by reference to the
text of the Confidentiality Agreement, a copy of which is filed as Exhibit 3
hereto and incorporated herein by reference.
The Confidentiality Agreement contains customary provisions pursuant to
which, among other matters, the Parent agreed to keep confidential all
nonpublic, confidential or proprietary information furnished to it by the
Company or McKesson relating to the Company, subject to certain exceptions (the
"Confidential Information"), and to use the Confidential Information solely in
connection with the consideration of a possible business transaction involving
the Company, the Parent and McKesson (a "Transaction"). The Parent agreed in the
Confidentiality Agreement that, for a period of three years from the date
thereof, unless invited in writing by the Company or McKesson, respectively, it
would not, among other things, acquire or offer to acquire any securities or
assets of the Company or McKesson or enter into or propose to enter into any
business combination involving the Company or McKesson or seek to influence the
management of the Company or McKesson. The Parent further agreed that, for a
period of two years from the date of the Confidentiality Agreement, it would not
interfere with the Company's employment relationship with any person who becomes
known to the Parent in connection with the Transaction.
OWNERSHIP OF SHARES
Based solely on the information set forth in Section 9 ("Certain Information
concerning the Parent and the Offeror") included in the Offer to Purchase
contained in the Schedule 14D-1 (the "Offer to Purchase"), the Company
understands that G. Craig Sullivan, the Chairman of the Board and Chief
Executive Oficer of Parent, owns 2,500 Shares.
ARRANGEMENTS WITH EXECUTIVE OFFICERS, DIRECTORS OR AFFILIATES OF THE COMPANY
STOCK OPTIONS. As of November 30, 1996, the current directors and executive
officers of the Company as a group held 207,425 stock options (the "Options")
granted under the Company's 1986 Stock Option Plan to purchase shares of Common
Stock at the full market price of the stock on the day the option is granted.
The total number of Options outstanding as of November 26, 1996 was 1,127,137.
In accordance with the terms of the Merger Agreement, the Company is to take all
actions necessary to provide that, immediately prior to the consummation of the
Offer, (i) each Option outstanding, whether or not then exercisable or vested,
shall be cancelled or repurchased by the Company and (ii) in consideration of
such cancellation or repurchase, and except to the extent that Parent or the
Offeror and the holder of
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such Option otherwise agree, the Company shall pay to the holder of any such
Option an amount equal to the product of (x) the number of Shares subject to
such Options and (y) the excess of the Merger Consideration (as defined in the
Merger Agreement) over the exercise price of such Options. Notwithstanding the
foregoing, if it is determined that compliance with any of the foregoing would
cause any individual subject to Section 16 of the Exchange Act to become subject
to the profit recovery provisions thereof, any options held by such individual
will be cancelled or repurchased, as the case may be, as promptly thereafter as
possible so as not to subject such individual to any liability pursuant to
Section 16.
RESTRICTED SHARES. As of November 30, 1996, all directors and officers as a
group held 63,325 shares granted under the Company's 1988 Restricted Stock Plan,
including 29,925 shares subject to possible forfeiture that have been granted to
Mr. Evans, 8,600 to Mr. Caron, 3,000 to Mr. McCafferty and 5,000 to Ms. Metzler.
The Company's 1988 Restricted Stock Plan provides, in relevant part, that, in
the event of a change in control of the Company, all restrictions on outstanding
restricted stock grants shall immediately lapse. The consummation of the Merger
and the transactions contemplated under the Merger Agreement constitute a change
in control for purposes of the 1988 Restricted Stock Plan.
ESOP AND PSIP PLANS. As of November 30, 1996, all officers and directors as
a group held 5,776 shares issued pursuant to the Company's Profit-Sharing
Investment Plan ("PSIP"). For the fiscal year ended March 31, 1996 (i) employer
matching cash contributions made under the Supplemental PSIP, an unfunded,
nonqualified plan established because of limitations on annual contributions to
the PSIP contained in the Internal Revenue Code, were as follows: Mr. Evans,
$4,794 and Mr. Caron, $908; (ii) stock contributions made by McKesson to the
named executives' Employee Stock Ownership Plan accounts under the McKesson
PSIP, were as follows: Mr. Evans, $7,052; Mr. Caron, $7,120; and Ms. Metzler,
$5,820; and (iii) above-market interest accrued on deferred compensation for Mr.
Caron in the amount of $470. Under the Stockholder Agreement, at the Effective
Time, the Offeror will transfer to McKesson $265,000 as a contribution to the
Employee Stock Ownership Plan and PSIP plans maintained by McKesson in respect
of the 1996 plan year in full satisfaction of all obligations of the Company to
contribute to such McKesson plans, which exclude all plans sponsored or
maintained solely by the Company. McKesson has agreed to cause an amount equal
to this contribution to be distributed to employees of the Company and its
subsidiaries in accordance with the provisions of such plans.
RETIREMENT PLAN. Certain employees of the Company participate in the
McKesson Corporation Retirement Plan (the "McKesson Plan"). The costs of
participation in the McKesson Plan are paid by the Company. Annual benefits are
generally equal to a percentage of final average pay (averaged over the highest
consecutive five-year period out of the last 15 years of service preceding
retirement) up to Covered Compensation (the average of the Social Security wage
bases over the 35 year period ending with the year the participant attains or
will attain Social Security Retirement Age) plus a percentage of final average
pay exceeding Covered Compensation, the total of which is multiplied by years of
creditable service up to a maximum of 30 years. As of March 31, 1996, the
following individuals had the number of years of creditable service indicated:
Mr. Evans, 5 years; Mr. McCafferty, 0 years; Mr. Caron, 11 years; and Ms.
Metzler, 17 years.
Mr. Evans also participates in the McKesson Corporation 1984 Executive
Benefit Retirement Plan (the "EBRP"). The benefit under the EBRP is a percentage
of final average pay based on years of service or is determined by the Board of
Directors. The maximum benefit is 60% of final average pay. The total paid under
the EBRP is not reduced by Social Security benefits but is reduced by those
benefits payable on a single life basis under the McKesson Plan. Based on
retirement at age 65, the annual combined benefit payable to Mr. Evans under the
McKesson Plan and the EBRP would be approximately $290,885.
Pursuant to the Stockholder Agreement, at the Effective Time, the Purchaser
has agreed to transfer to McKesson an amount not to exceed $130,000 reasonably
determined by McKesson in accordance with past practice, representing a
quarterly contribution to McKesson's Retirement Plan in respect of the 1996 plan
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year in full satisfaction of all obligations of the Company to contribute to
such plans sponsored by McKesson, which exclude all plans sponsored or
maintained solely by the Company.
INCENTIVE PLANS. The Company has five incentive plans: the FY1997 Incentive
Plan for Business Managers, the 1989 Short Term Incentive Plan (the "STIP"), the
Employee Incentive Plan (for non-executive Company employees), the International
Incentive Plan (for international business managers), and the Sales Incentive
Plan for sales managers. Pursuant to the Merger Agreement, the Company Board on
November 26, 1996 amended each of the Incentive Plans as follows: The Company's
Incentive Plan for Business Managers was immediately terminated. The Employee
Incentive Plan shall, immediately following the Effective Time, be terminated
and all participants will receive a cash payment equal to their target bonus as
though the budgeted target had been achieved. Each of the Company's 1989 Short
Term Incentive Plan, the International Incentive Plan, and the Company's Sales
Incentive Plan, shall be terminated on April 1, 1997, and the aggregate amount
of individual bonus targets payable to participants in those Incentive Plans
shall be determined as soon as practicable after the Effective Time as though
the budgeted target for Fiscal Year 1997 had been achieved; individual cash
payments shall be modified to reflect individual performance; provided, however,
that such participant either (i) has remained employed with the Company through
March 31, 1997 or (ii) was terminated by the Company on or prior to such date
but after December 31, 1996, other than for cause. Notwithstanding the
foregoing, each of Mr. Evans and Mr. McCafferty shall receive such cash payment
immediately following the Effective Time.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL
ARRANGEMENTS. The Company generally does not have employment agreements with
its executive officers. However, the Company has entered into a termination
agreement with Mr. Evans and an employment agreement with Steven Booker. As of
April 1, 1994 the Company entered into a termination agreement with Mr. Evans
providing for payment of severance benefits upon the termination of his
employment following a "change in control" of the Company (defined in the
agreement as the occurrence of certain specified events, including the
consummation of the transactions contemplated by the Merger Agreement). Mr.
Evans' agreement, which will remain in effect until terminated by the Company
Board, provides for the payment of benefits upon a change in control of the
Company or of McKesson and actual or constructive termination of employment
within two years of such change. In the event of termination of employment under
the agreement, the Company would pay to Mr. Evans as severance pay in a cash
lump sum an amount equal to 2.99 times his "severance pay base", subject to
adjustment as described below. "Severance pay base" means the executive's "base
amount" determined under section 280G of the Internal Revenue Code. The amount
of severance benefits paid would be no higher than the amount that is not
subject to disallowance of deduction under Section 280G of the Internal Revenue
Code. If terminated, accrual of service for Mr. Evans would continue under the
McKesson Executive Benefit Retirement Plan and he would continue to participate
in the McKesson Executive Medical Plan and Executive Survivor Benefits Plan for
a minimum of twelve months, plus one month for each year of service with a
maximum benefit of twenty-four months.
For purposes of the termination agreement, a "change in control" is
generally deemed to occur if (a) any person (as defined in the Securities
Exchange Act of 1934, as amended) excluding the Company or any of its
subsidiaries, a trustee or any fiduciary holding securities under an employee
benefit plan of the Company or any of its subsidiaries, an underwriter
temporarily holding securities pursuant to an offering of such securities or a
corporation owned, directly or indirectly, by stockholders of the Company in
substantially the same proportions as their ownership of the Company, is or
becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of securities of the Company representing 30% or
more of the combined voting power of the Company's then outstanding securities;
or (b) during any period of not more than two consecutive years, individuals who
at the beginning of such period constitute the Company Board and any new
director (other than a director designated by a person who has entered into an
agreement with the Company to effect a transaction described in clause (a), (c)
or (d) of this paragraph) whose election by the Company Board or nomination
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for election by the Company's stockholders was approved by a vote of at least
two-thirds (2/3) of the directors then still in office who either were directors
at the beginning of the period or whose election or nomination for election was
previously so approved, cease for any reason to constitute a majority thereof;
or (c) the stockholders of the Company approve a merger or consolidation of the
Company with any other corporation, other than (i) a merger or consolidation
which would result in the voting securities of the Company outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of the surviving
entity), in combination with the ownership of any trustee or other fiduciary
holding securities under an employee benefit plan of the Company, at least 50%
of the combined voting power of the voting securities of the Company or such
surviving entity outstanding immediately after such merger or consolidation, or
(ii) a merger or consolidation effected to implement a recapitalization of the
Company (or similar transaction) in which no person acquires more than 50% of
the combined voting power of the Company's then outstanding securities; or (d)
the stockholders of the Company approve a plan of complete liquidation of the
Company or an agreement for the sale or disposition by the Company of all or
substantially all of the Company's assets.
The Company entered into an employment agreement with Steven Booker, Vice
President--Sales Automotive Division, as of March 15, 1995 providing that in the
event that, prior to March 15, 1997, Mr. Booker is terminated due to a "change
in control" Mr. Booker shall be paid, in addition to any other sums that may be
due and owing to him, the amount of one year's salary calculated at the rate of
salary paid to him on the date of such termination. A "change in control" is
deemed if McKesson ceases to be the "beneficial owner" (as defined in Rule 13d-3
under the Securities Exchange Act of 1934), directly or indirectly, of
securities of the Company representing more than 50% of the combined voting
power of the Company's then outstanding securities.
CHANGE IN SEVERANCE POLICY. Effective October 1, 1996, the Company amended
its severance policy to provide benefits to those employees who experience
actual or constructive termination of employment within one year following a
"change in control" of the Company. "Change in control" is deemed to occur if,
among other things, the stockholders of the Company approve a merger or
consolidation of the Company with any other corporation, other than (i) a merger
or consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity), in combination with the ownership of any trustee or other
fiduciary holding securities under an employee benefit plan of the Company, at
least 50% of the combined voting power of the voting securities of the Company
or such surviving entity outstanding immediately after such merger or
consolidation, or (ii) a merger or consolidation effected to implement a
recapitalization of the Company (or similar transaction) in which no person
acquires 50% of the combined voting power of the Company's then outstanding
securities. If an employee is determined as eligible for severance benefits, the
Company shall continue to pay the employer contribution for such employee's
medical and dental plan COBRA coverage for a period of three months following
the termination date or the date benefit coverage is provided by another
employer, whichever occurs first. Executive and other officers will receive
benefit continuation for up to six months.
INDEMNITY AGREEMENTS. McKesson has agreed under certain circumstances to
indemnify directors of the Company, other than individuals who are directors of
McKesson, against certain liabilities, including liabilities under applicable
securities laws. Under the terms of each Indemnity Agreement, McKesson may
terminate the agreements on thirty day's prior written notice.
ARRANGEMENTS BETWEEN THE COMPANY AND MCKESSON
SERVICES AGREEMENT. The summary of the Services Agreement, dated July 1,
1986 between the Company and McKesson which is contained in the Company's Proxy
Statement dated as of June 18, 1996 and attached hereto as Exhibit 4, is
incorporated herein by reference. Under the Stockholder Agreement, at or prior
to the Effective Time, McKesson will enter into an amendment to the Services
Agreement pursuant to which McKesson will provide to the Company consultation
services with respect to legal, tax,
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personnel, information systems, risk management and insurance matters relating
to the Company for a period not to exceed six months after the Effective Time.
McKesson will provide such consultation services to the Company at an hourly
rate of $135, and expenses and third party costs incurred in providing these
services must be approved prior to incurrence.
TAX ALLOCATION AGREEMENT. The Company was included in McKesson's
consolidated federal income tax returns for tax periods ending May 13, 1993.
Pursuant to a Tax Allocation Agreement dated as of July 1, 1986 between the
Company and McKesson (the "Tax Allocation Agreement"), adjustments to federal
income tax liabilities for periods in which the Company was included in
McKesson's consolidated federal income tax returns are allocated between the
Company and the other businesses conducted by McKesson and its affiliates. The
agreement requires the Company to reimburse McKesson for any tax audit
adjustment of taxes attributable to it which were reported on McKesson's
consolidated federal income tax returns. Tax refunds will be the property of the
party bearing economic responsibility for the applicable tax. The Tax Allocation
Agreement also provides for the allocation of state franchise or corporate
income taxes which the Company and McKesson are required or permitted to pay on
a combined or "unitary" basis so that, in general, the Company is treated as a
separate taxpayer. Under the terms of the Merger Agreement, the Tax Allocation
Agreement survives without modification following the Effective Time.
OTHER ARRANGEMENTS. Refer to Item 3--Arrangements with Executive Officers,
Directors or Affiliates of the Company.
ITEM 4. THE SOLICITATION OR RECOMMENDATION.
(a) RECOMMENDATION OF THE BOARD OF DIRECTORS.
The Board of Directors has unanimously approved and adopted the Merger
Agreement and the transactions contemplated thereby and unanimously recommends
that all holders of Shares tender their Shares pursuant to the Offer.
(B) BACKGROUND; REASONS FOR THE RECOMMENDATION.
Since the middle of 1995, the Company Board and management have been
studying the current and future state of the automotive aftermarket industry,
the Company's strategic position in that industry, the Company's near- and
long-term prospects and the possibility that the Company should conduct a
systematic review of its strategic alternatives, including the possible sale of
the Company.
In the summer of 1995, certain members of the Company's and McKesson's
respective management teams and a representative of PaineWebber met to review
various strategic alternatives that might be available to the Company and to
discuss the Company's retention of PaineWebber to assist with the Company's
review of such alternatives that would best serve the long-term interests of the
Company and its stockholders.
Over the next year, the Company and McKesson were engaged, from time to
time, in discussions and exchanges of information with representatives of
PaineWebber in an effort to examine possible acquisition and other business
opportunities for the Company.
In August and early September 1996, two parties (collectively, the
"Preemptive Group"), separately expressed an interest in potentially acquiring
the Company on an exclusively negotiated basis. The discussions among the
Company, McKesson and each of the two parties concerned an acquisition of the
Company for a price in excess of $22 per Share. The Company furnished certain
requested financial and operating information to each of the two parties
pursuant to confidentiality agreements, and various conversations between the
Company's and each of the two parties' respective advisors occurred. Following a
review of the information, both parties indicated that they would not be able to
pursue an acquisition at the price level initially indicated.
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On September 26, 1996, a meeting of the Company Board was held to discuss
strategic alternatives for the Company. At this meeting, PaineWebber identified
and reviewed a list of leading candidates that could be expected to have an
interest in acquiring the Company. At this meeting, although no determination to
engage in any business combination transaction was made, the Company Board
authorized PaineWebber to contact, on a confidential basis, what were considered
to be the five candidates most likely to have a high level of interest in
acquiring the Company (collectively, the "Initial Group") to assess their
interest. The Initial Group included the two parties previously referred to as
the Preemptive Group. During the week of September 30, 1996, a representative of
PaineWebber contacted senior management of each of the parties included in the
Initial Group.
During early October, PaineWebber had contacts with one industry
participant, one household consumer products company (namely, the Parent), one
automotive aftermarket company and various intermediaries and financial advisors
inquiring whether the Company would be interested in exploring some form of
transaction.
During the week of October 7, 1996, the Company authorized PaineWebber to
contact additional parties that were likely to have an interest in considering,
and financial resources required to consummate, a possible business combination
involving the Company. PaineWebber contacted fourteen such additional parties.
Of the nineteen parties ultimately contacted, a total of eleven expressed
initial interest, executed a confidentiality agreement and received a
confidential memorandum concerning the Company. Of these eleven parties, four
expressed a high level of interest in pursuing a potential business combination
and submitted, on or about October 19, 1996, initial indications of interest at
prices ranging from $20 to $22 per Share. Of the four parties submitting initial
indications of interest, one subsequently retracted its indication of interest.
During the period from October 24, 1996 to November 15, 1996, the remaining
three interested parties, including the Parent (collectively, the "Final
Group"), conducted detailed additional due diligence involving a presentation by
the Company's management and a detailed review of confidential information
provided by the Company in a data room.
During the morning of November 12, 1996, the Company Board met to review the
status of PaineWebber's discussions with the three parties included in the Final
Group, which included the Parent.
On November 13, 1996, PaineWebber was advised by one of the parties in the
Final Group, which had been one of the parties included in the Preemptive Group,
that, following its due diligence investigation and because of the competitive
nature of the process that was being undertaken, such party would not be
submitting a final proposal to acquire the Company. Such party also indicated
that although it remained very interested in pursuing an acquisition of the
Company, its further analysis suggested a valuation of the Company of less than
$19 per Share compared to its initial indication of interest of at least $20 per
Share.
On November 15, PaineWebber was advised by the second of the parties in the
Final Group that, following its review of the Company's operations and
prospects, its revised valuation estimate was in the range of $19 to $20 per
share. On November 18, 1996, PaineWebber was advised by such party that it would
require an additional two weeks to complete its due diligence investigation and,
as a result, would not be able to submit a final offer and a mark-up of a
definitive Agreement and Plan of Merger and Stockholder Agreement by November,
19, 1996, the date previously requested for such submissions by PaineWebber. In
a conversation on November 20, 1996 with PaineWebber, a representative of such
party indicated that its final valuation range would ultimately be lower than
$19 per Share and that there was no certainty that even with two additional
weeks of due diligence, it would be able to submit a final offer. On November
22, 1996, a representative of this party sent a letter to PaineWebber stating
that, after further review of the information provided by the Company and
discussion among its senior management, it had decided not to pursue an
acquisition proposal for the Company.
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During the morning of November 18, 1996, the Company's Chief Executive
Officer received a telephone call from a party (the "Other Party") in response
to a call placed by the Company's Chief Executive Officer to the Other Party on
October 21, 1996. The Other Party had previously submitted, in a letter dated
January 18, 1996, an indication of interest to acquire the Company at a price of
$18.75 per Share. In the November 18, 1996 call, a representative of the Other
Party inquired about the status of the Company's ongoing process of exploring
alternatives to maximize stockholder value and was made generally aware of the
status of the process, including the time frame in which alternatives were being
evaluated by the Company. The representative from the Other Party was also told
that, if it was interested in an acquisition of the Company, the Other Party
should promptly initiate its consideration of a transaction. In response to an
inquiry from the Company's financial advisor, the Other Party indicated that, in
light of the improvement in the Company's operations since the date of its
initial indication of interest, subject to due diligence investigation, the
Other Party would probably be willing to offer a per Share amount greater than
the amount indicated in its January 18, 1996 letter. To facilitate the Other
Party's due diligence investigation, PaineWebber offered, over the course of a
number of conversations on November 18 and November 19, to deliver the relevant
information available in the data room that the Other Party might need to
evaluate the opportunity further. PaineWebber also offered to make the data room
and the Company's management available to meet with representatives of the Other
Party. On November 20, 1996, the Other Party advised PaineWebber that, after
further consideration, and due to the expedited time frame, it would not be able
to proceed at this stage with its due diligence process but would deliver a
letter to the Company stating its continuing interest in a potential acquisition
of the Company. In a letter dated November 20, 1996, the Other Party submitted a
non-binding expression of interest to acquire the Company at a price equal to at
least $20 per Share. The Other Party's proposal was subject to a number of
conditions, including (i) obtaining corporate approvals, (ii) the completion of
due diligence and (iii) the negotiation and execution of a mutually acceptable
definitive purchase agreement. The letter stated that the Other Party would be
prepared to submit a definitive proposal within four weeks of access to
confidential information and the Company's management.
On November 20, 1996, the Parent submitted a binding proposal to acquire all
the outstanding Shares of the Company at a price of $18 per Share, which
proposal assumed that the Company's previously declared quarterly dividend to
stockholders of record on December 2, 1996, would not be paid. The Parent
submitted, together with its proposal, its mark-up of a definitive Agreement and
Plan of Merger, providing for an all-cash tender offer to be followed by a
back-end merger at the same price, and Stockholder Agreement, providing that
McKesson would tender, or cause to be tendered, all of the Shares owned by it,
each of which agreements had been previously furnished to Parent.
On November 21, 1996, representatives of McKesson, the Company, Skadden,
Arps, Meagher, Slate & Flom LLP ("Skadden, Arps") and PaineWebber held
conversations to evaluate the proposal that had been received from Parent. That
same day, a representative of PaineWebber contacted Parent's financial advisor
and stated that, although Parent's proposal did not contain financing and
anti-trust-related risks associated with other business combination transactions
that might be available to the Company, the Parent needed to work on value and
the certainty of closing set forth in Parent's proposal.
On November 22, 1996, a representative of PaineWebber advised a
representative of the Parent's financial advisor that he believed that, if the
Parent were willing to (i) increase its indicated offer price to $19.25 per
Share (inclusive of the payment of the previously declared quarterly dividend of
$0.16 per Share) and (ii) amend the mark-up of the proposed Merger Agreement to
reflect terms more customary for transactions involving the business combination
of a publicly traded company, PaineWebber would recommend to the Company a
business combination with the Parent.
That same day, a representative of the Parent's financial advisor stated to
a representative of PaineWebber that the Parent was prepared to increase its
offer to $19.09 per Share and permit the payment of the previously declared
quarterly dividend of $0.16 per Share. After additional conversations
15
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between representatives of Skadden, Arps and Parent's outside counsel regarding
the terms of the proposed Merger Agreement, contract negotiations with Parent
were scheduled for November 24, 1996.
During this period, representatives of PaineWebber and the Company's
management periodically provided information to members of the Company Board
concerning the progress of discussions with Parent. During the afternoon of
November 22, 1996, the two independent members of the Company Board unaffiliated
with McKesson held separate telephonic meetings with the Company's Chief
Executive Officer, a representative of McKesson and a representative of
PaineWebber. During this informational telephone call, the independent directors
were provided an update of recent events and discussions with both Parent and
the Other Party. Following these telephone calls with the independent members of
the Company Board, the Company's Chief Executive Officer called a representative
of the Other Party to advise that developments with respect to a possible
transaction with the Company had accelerated and that the Other Party, if it
continued to be interested, should expedite its consideration of a transaction.
The Company's Chief Executive Officer was advised that the Other Party would not
pursue a transaction with the Company at this time and would await the outcome
of the process.
Negotiations between the Company and Parent continued through November 26,
1996, culminating in the Company and McKesson agreeing upon forms of a
definitive Merger Agreement and Stockholder Agreement, respectively, to be
presented for review by separate meetings of the Company Board and the Board of
Directors of McKesson scheduled for November 26, 1996.
On the morning of November 26, 1996, after completion of the negotiations
concerning the proposed Agreement and Plan of Merger and Stockholder Agreement,
the Board of Directors of McKesson (the "McKesson Board") held a meeting to
review, with the advice and assistance of McKesson's legal advisors and
PaineWebber, the proposed Agreement and Plan of Merger and the transactions
contemplated thereby, including the Offer, the Merger and the Stockholder
Agreement and other potential alternatives, including the non-binding expression
of interest that had been received from the Other Party, as set forth in its
letter dated November 20, 1996. Following a number of questions from, and
discussion among, the directors, the McKesson Board unanimously (i) approved the
disposition of the Shares owned by McKesson pursuant to the Merger Agreement;
(ii) determined that the disposition of such Shares pursuant to the Merger
Agreement is expedient and in the best interests of McKesson and its
stockholders; and (iii) approved the Stockholder Agreement and the transactions
contemplated thereby.
Following the conclusion of the meeting of the Board of Directors of
McKesson, the Company Board held a meeting to review, with the advice and
assistance of the Company's legal advisors and PaineWebber, the proposed
Agreement and Plan of Merger and the transactions contemplated thereby,
including the Offer, the Merger and the Stockholder Agreement and other
potential alternatives, including the expression of interest from the Other
Party. At the meeting, Skadden, Arps reviewed the terms of the Merger Agreement
and PaineWebber rendered to the Company Board its written opinion that, based
upon and subject to various considerations and assumptions set forth therein,
the cash consideration of $19.09 per Share to be received by the holders of the
Shares pursuant to the Offer and the Merger is fair to such holders from a
financial point of view. Following a number of questions from, and discussion
among, the directors, the Company Board unanimously (i) approved the Merger
Agreement and the transactions contemplated thereby, (ii) determined that the
Merger Agreement and the transactions contemplated thereby are fair to and in
the best interests of the Company and the Company's stockholders, and (iii)
recommended that the Company's stockholders tender their Shares in the Offer and
approve and adopt the Merger Agreement and the Merger.
Immediately following the conclusion of the two Board meetings, the parties
thereto executed the Merger Agreement and the Stockholder Agreement. The
Company, McKesson and the Parent issued press releases announcing the
transactions shortly before the closing of the New York Stock Exchange and
Nasdaq on November 26, 1996. An amendment to the Merger Agreement, dated as of
December 1, 1996
16
<PAGE>
clarifying the treatment of the Services Agreement was subsequently entered into
among the Company, Parent and the Purchaser.
In approving the Merger Agreement and the transactions contemplated thereby
and recommending that all holders of Shares tender their Shares pursuant to the
Offer, the Company Board considered a number of factors including the following:
(i) the familiarity of the Company Board with the business, results of
operations, properties and financial condition of the Company and the nature
of the industry in which the Company operates, based, in part, upon
presentations by management of the Company, including the prospects if the
Company were to remain independent;
(ii) the Company's competitive position and current trends in the
automotive aftermarket industry;
(iii) the terms of the Merger Agreement and Stockholder Agreement,
including the proposed structure of the Offer and Merger involving a cash
tender offer for all outstanding Shares to be followed by a merger for the
same consideration, thereby enabling all stockholders of the Company to
obtain cash for their Shares concurrently at the earliest possible time;
(iv) the results of the process undertaken to identify and solicit
proposals from third parties to enter into a transaction with Company;
(v) the non-binding expression of interest received from the Other Party
was subject to significant conditions, including the completion of due
diligence and the obtaining of internal approvals, and the delays and
uncertainties related thereto in comparison with the Company's receipt of a
fully financed, binding proposal from the Parent;
(vi) the offer price of $19.09 per Share was in excess of the highest
closing sales price for the Shares as quoted on the Nasdaq National Market
System over the preceding fifty-two weeks;
(vii) the presentation of PaineWebber at the November 26, 1996 meeting
of the Company Board and the opinion of PaineWebber to the effect that as of
the date of the opinion, the $19.09 per Share cash consideration to be
received by the holders of the Shares pursuant to the Offer and the Merger
is fair from a financial point of view to such holders. A copy of the
opinion of PaineWebber, which sets forth the factors considered and the
assumptions made by PaineWebber, is attached hereto, is filed as Exhibit 10
to this Schedule 14D-9 and is incorporated herein by reference. Stockholders
are urged to read the opinion of PaineWebber carefully in its entirety;
(viii) the fact that McKesson, as holder of approximately 54.4% of the
Shares, was prepared to endorse the terms of the Merger Agreement and the
Stockholder Agreement, which provide that McKesson would receive the same
consideration per Share with the same timing of receipt 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;
(ix) the termination provisions of the Merger Agreement, the
incorporation of which was a condition of the Parent's proposal, providing
that the Parent could be entitled to a termination fee of $11.0 million upon
the termination of the Merger Agreement under certain circumstances,
including as a result of the withdrawal of the Company Board's
recommendation with respect to the Offer and the Merger;
(x) the Merger Agreement permits the Company Board (a) to participate in
discussions or negotiations with or furnish information to any third party
if the Company Board determines in good faith, after consultation with its
counsel, that the failure to participate in such discussions or negotiations
or to furnish such information may constitute a breach of the Company
Board's fiduciary
17
<PAGE>
duties under applicable law and (b) to terminate the Merger Agreement in
certain circumstances in the exercise of its fiduciary duties;
(xi) the Stockholder Agreement may be terminated by termination of the
Merger Agreement, whether in accordance with its terms by a party thereto or
by mutual agreement of the parties thereto;
(xii) the representation and warranty of the Parent and the Purchaser
that they have sufficient funds available to them to consummate the Offer
and the Merger; and
(xiii) the availability of appraisal rights under Section 262 of the
DGCL for Dissenting Shares.
The Company Board did not assign relative weights to the factors or
determine that any factor was of particular importance. Rather, the Company
Board 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.
PaineWebber was retained, pursuant to the terms of a letter agreement, dated
September 25, 1996, to undertake an analysis to enable PaineWebber to provide an
opinion to the Company Board as to the fairness to the stockholders of the
Company, from a financial point of view, of the consideration to be received by
the stockholders of the Company pursuant to the terms of the Merger Agreement.
The Company has agreed to pay PaineWebber the following fees: (a) in connection
with rendering its fairness opinion, a fee in the amount of $500,000, payable on
the date that PaineWebber delivers its opinion, which fee is payable without
regard to the conclusion set forth in such opinion, and (b) a transaction fee in
the amount of $2,900,000, payable upon the closing of the sale transaction and
from which the fairness opinion fee will be deducted. The Company has also
agreed to reimburse PaineWebber for all its out-of-pocket expenses, including
the fees and expenses of its legal counsel, in an amount not to exceed $100,000
and to indemnify PaineWebber for certain liabilities arising out of the
rendering of its opinion.
In addition, PaineWebber is currently acting as financial advisor to
McKesson on an unrelated assignment and will receive a fee upon consummation of
such other assignment. In the ordinary course of business, PaineWebber may trade
the securities of the Company for its own account and for the accounts of its
customers and, accordingly, may at any time hold long or short positions in such
securities.
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) 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, 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.
18
<PAGE>
(b) None
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED.
DGCL 203
Section 203 of the DGCL purports to regulate certain business combinations
of a corporation organized under Delaware law, such as the Company, with a
stockholder beneficially owning 15% or more of the outstanding voting stock of
such corporation (an "Interested Stockholder"). Section 203 provides, in
relevant part, that the corporation shall not engage in any business combination
for a period of three years following the date such stockholder first becomes an
Interested Stockholder unless (i) prior to the date the stockholder first
becomes an Interested Stockholder, the board of directors of the corporation
approved either the business combination or the transaction which resulted in
the stockholder becoming an Interested Stockholder, (ii) upon becoming an
Interested Stockholder, the Interested Stockholder owned at least 85% of the
voting stock of the corporation outstanding at the time the transaction
commenced, or (iii) on or subsequent to the date the stockholder becomes an
Interested Stockholder, the business combination is approved by the board of
directors and authorized at an annual or special meeting of stockholders by the
affirmative vote of at least two-thirds of the outstanding voting stock which is
not owned by the Interested Stockholder. The Company's Board of Directors has
approved the Merger Agreement and the Stockholder Agreement and the transactions
contemplated thereby, including the Offer and the Merger, for the purposes of
Section 203 of the DGCL.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NO.
- ------------
<S> <C>
Exhibit 1 Agreement and Plan of Merger, dated as of November 26, 1996, by and among Armor
All Products Corporation, The Clorox Company and Shield Acquisition
Corporation.
Exhibit 1.1 First Amendment to the Agreement and Plan of Merger, dated as of December 1,
1996, by and among Armor All Products Corporation, The Clorox Company and
Shield Acquisition Corporation.
Exhibit 2 Stockholder Agreement, dated as of November 26, 1996 by and among McKesson
Corporation, The Clorox Company and Shield Acquisition Corporation.
Exhibit 3 Confidentiality Agreement, dated October 10, 1996, by and among Armor All
Products Corporation, McKesson Corporation and The Clorox Company.
Exhibit 4 Pages 2 through 16 of Armor All Products Corporation's Proxy Statement dated
June 18, 1996 relating to its Annual Meeting of Stockholders.
Exhibit 5 Tax Allocation Agreement.
Exhibit 6 Form of Indemnity Agreement.
Exhibit 7 Press Release issued by Armor All Products Corporation dated November 26, 1996.
Exhibit 8 Press Release issued by The Clorox Company, dated November 26, 1996.
Exhibit 9 Letter to Stockholders of Kenneth M. Evans, dated December 2, 1996.*
Exhibit 10 Opinion of PaineWebber Incorporated, dated December 2, 1996.*
</TABLE>
- ------------------------
* Included in copies of the Schedule 14D-9 mailed to stockholders.
19
<PAGE>
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: December 2, 1996
By: /s/ Kenneth M. Evans
--------------------------------------
Kenneth M. Evans
PRESIDENT AND CHIEF EXECUTIVE OFFICER
20
<PAGE>
SCHEDULE I
ARMOR ALL PRODUCTS CORPORATION
6 LIBERTY DRIVE
ALISO VIEJO, CALIFORNIA 92656
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 December 2, 1996 as a
part of the Solicitation/Recommendation Statement on Schedule 14D-9 (the
"Schedule 14D-9") of Armor All Products Corporation (the "Company") to the
holders of record of shares of Common Stock, par value $.01 per share, of the
Company (the "Shares"). You are receiving this Information Statement in
connection with the possible election of persons designated by the Parent (as
defined below) to a majority of the seats on the Board of Directors of the
Company (the "Company Board").
On November 26, 1996, the Company, Shield Acquisition Corporation, a
Delaware corporation (the "Purchaser"), and The Clorox Company, a Delaware
corporation ("Parent"), entered into an Agreement and Plan of Merger, as
amended, (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 any and all outstanding Shares at a price of $19.09 per
Share, net to the seller in cash, without interest thereon, and (ii) the
Purchaser will be merged with and into the Company (the "Merger"). As a result
of the Offer and the Merger, the Company will become a wholly owned subsidiary
of Parent.
The Merger Agreement provides that, promptly after the purchase of a
majority of the outstanding Shares pursuant to the Offer, the Parent shall be
entitled to designate directors (the "Parent Designees") on the Company Board as
will give the Parent representation proportionate to its ownership interest. The
Merger Agreement requires the Company to take such action as Parent may request
to cause the Parent Designees to be elected to the Company Board under the
circumstances described therein. This Information Statement is required by
Section 14(f) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act") and Rule 14f-1 thereunder. See "Board of Directors and Executive
Officers-Right to Designate Directors; The Parent Designees."
The following information is based on the Company's Proxy Statement, dated
as of June 18, 1996, and except as indicated, such information is given as of
that date.
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
December 2, 1996. The Offer is scheduled to expire at 12:00 midnight, New York
City time, on December 30, 1996, unless the Offer is extended.
The information contained in this Information Statement concerning the
Parent and the Purchaser has been furnished to the Company by the Parent, and
the Company assumes no responsibility for the accuracy or completeness of such
information.
21
<PAGE>
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 November 30, 1996, there were
21,369,447 Shares outstanding. The Company Board currently consists of seven
members with no vacancies. Each director holds office until such director's
successor is elected and qualified or until such director's earlier resignation
or removal.
RIGHT TO DESIGNATE DIRECTORS; THE PARENT DESIGNEES
The Merger Agreement provides that promptly after the purchase of a majority
of the outstanding Shares pursuant to the Offer, the Parent shall be entitled to
designate the number of directors, rounded up to the next whole number, on the
Company Board that equals the product of (i) the total number of directors on
the Company Board (giving effect to the election of any additional directors
described in this paragraph) and (ii) the percentage that the voting power
represented by such number of Shares so purchased bears to the voting power
represented by the total number of outstanding Shares, and the Company has
agreed to take all action necessary to cause to be created vacancies for that
number of directors which the Parent is entitled to designate and, with respect
to each vacancy created, to take all action necessary to effect the election of
the Parent Designees. Notwithstanding the foregoing, the Company and the Parent
will use their respective best efforts to ensure that at least three of the
members of the Company Board shall, at all times prior to the Effective Time, be
Continuing Directors (as defined in the Merger Agreement).
The Parent has informed the Company that it will choose the initial Parent
Designees from among William F. Ausfahl, Edward A. Cutter, G.E. Johnston and
Karen M. Rose. Certain information with respect to such persons is included on
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 Parent has
informed the Company that each of such individuals has consented to act as a
director, if so designated. The information with respect to such individuals on
such Schedule I is incorporated herein by reference. If necessary, the Parent
may choose additional or other Parent Designees, subject to the requirements of
Rule 14f-1.
Based solely on the information set forth in Section 9 ("Certain Information
concerning the Parent and the Offeror") included in the Offer to Purchase, none
of the Parent Designees (i) is currently a director of, or holds any position
with, the Company, (ii) has a familial relationship with any directors or
executive officers of the Company or (iii) to the best knowledge of the
Purchaser, beneficially owns any securities (or rights to acquire such
securities) of the Company. The Company has been advised by the Parent that, to
the best of the Parent's knowledge, none of the Parent 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 Parent Designees may assume office at any time
following the purchase by the Purchaser of a majority of the outstanding Shares
pursuant to the Offer, which purchase cannot be earlier than December 30, 1996,
and that, upon assuming office, the Parent Designees will thereafter constitute
at least a majority of the Board of Directors.
22
<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
DIRECTORS OF THE COMPANY
The following table sets forth certain information with respect to the
current directors of the Company as of November 30, 1996.
<TABLE>
<CAPTION>
DIRECTOR
NAME AGE SINCE PRINCIPAL OCCUPATION OR EMPLOYMENT AND DIRECTORSHIPS
- -------------------- --- -------- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
William A. 55 1991 Vice President Human Resources and Administration of McKesson Corporation ("McKesson")
Armstrong........... since April 1, 1993; Vice President Administration from January 1992 to April 1993; Vice
President from July 1991 until January 1992; Executive Assistant to the Office of the
Chief Executive from April 1990 until January 1992. Mr. Armstrong is a member of the
Compensation Committee of the Company.
Jon S. Cartwright... 59 1993 Director Emeritus and Senior Adviser of the Center for Telecommunications Management
("CTM"), a research, education and publishing center affiliated with the University of
Southern California ("USC") Graduate School of Business Administration, since January
1995. Executive Director of CTM from January 1990 to January 1995; Professor of Management
and Organization at the USC Graduate School of Business Administration from January 1992
to January 1995, and Associate Professor from January 1990 to January 1992. Mr. Cartwright
is Chairman of the Audit Committee of the Company and a member of the Compensation
Committee of the Company.
Kenneth M. Evans.... 55 1991 President and Chief Executive Officer since April 1991. Mr. Evans is also a director of
the O'Brien Corporation.
David L. Mahoney.... 42 1992 Vice President of McKesson since 1990, and President Pharmaceutical and Retail Services
since August 1996. President of McKesson's Pharmaceutical Services Group from February to
August 1996. President of McKesson's Healthcare Delivery Systems, Inc. subsidiary from
September 1994 until December 1995, Vice President Strategic Planning of McKesson from
July 1990 to September 1994. Mr. Mahoney is a Director of Cytel Corporation.
David E. McDowell... 54 1992 Chairman of the Board since April 1992. Chairman and CEO of Medaphis Corporation since
October 31, 1996. Employed as a Senior Adviser to McKesson from May to October 1996;
formerly he was President, Chief Operating Officer and a director of McKesson from January
1992 until he resigned effective May 20, 1996. Vice President and General Manager, Quality
and Chief Information Officer of International Business Machines Corporation ("IBM") from
November 1990 until January 1992; President of IBM's National Service Division from July
1987 until November 1990. He is also a director of Medaphis Corporation. Mr. McDowell is
Chairman of the Compensation Committee of the Company and a member of the Audit Committee
of the Company.
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
DIRECTOR
NAME AGE SINCE PRINCIPAL OCCUPATION OR EMPLOYMENT AND DIRECTORSHIPS
- -------------------- --- -------- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Karen Gordon Mills.. 42 1994 President of MMP Group, Inc., a management company providing consulting and investment
banking services, since 1993; Managing Director and Chief Operating Officer, Industrial
Group, E. S. Jacobs & Company, from 1983 to 1993. Director of Triangle Pacific Corp.,
Arrow Electronics, Inc., Telex Communications, Inc., and The Scotts Company. Ms. Mills is
a member of the Audit Committee of the Company.
Alan Seelenfreund... 60 1986 Chairman of the Board and Chief Executive Officer of McKesson since November 1989. He is
also a director of McKesson and Pacific Gas and Electric Company.
</TABLE>
EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth certain information with respect to the
current executive officers of the Company as of November 30, 1996.
<TABLE>
<CAPTION>
NAME AGE POSITION WITH COMPANY AND BUSINESS EXPERIENCE
- ---------------------- --- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
David E. McDowell..... 54 Chairman of the Board since April 1992. Chairman and CEO of Medaphis Corporation since October 31,
1996. Employed as a Senior Adviser to McKesson from May to October 1996; formerly he was President,
Chief Operating Officer and a director of McKesson from January 1992 until he resigned effective
May 20, 1996. Vice President and General Manager, Quality and Chief Information Officer of IBM from
November 1990 until January 1992; President of IBM's National Service Division from July 1987 until
November 1990. He is also a director of Medaphis Corporation. Mr. McDowell is Chairman of the
Compensation Committee of the Company and a member of the Audit Committee of the Company.
Kenneth M. Evans...... 55 President and Chief Executive Officer and a Director since April 1991. Service with the Company--5
years.
Michael G. 57 Executive Vice President and Chief Financial Officer since September 1995; Executive Vice President
McCafferty............ and Chief Financial Officer of Mattel, Inc. from 1993 to 1995; Senior Vice President and Treasurer
of Mattel, Inc. from 1985 to 1993. Service with the Company--1 year.
Michael A. Caron...... 45 Senior Vice President since October 1991; President of Armor All International, a division of the
Company, since August 1993; Senior Vice President, Marketing from October 1991 to August 1993 and
Senior Vice President, Marketing/International Operations from April 1989 to October 1991. Service
with the Company--11 years.
Gayle F. Metzler...... 42 Vice President, Human Resources since 1992; Vice President, Personnel and Administration from 1988
to 1992. Service with the Company--18 years.
Gordon Hyde........... 42 Vice President, Operations since July 1996. Service with the Company--4 months.
</TABLE>
There are no family relationships between any of the executive officers or
directors of the Company. The executive officers are elected annually to serve
until the first meeting of the Company Board following
24
<PAGE>
the next annual meeting of stockholders and until their successors are elected
and have qualified, or until death, resignation or removal, whichever is sooner.
There are no arrangements or understandings between any of the executive
officers of the Company and other persons relating to their selection as
officers.
There have been no events under any bankruptcy act, no original proceedings,
and no judgments or injunctions material to the evaluation of the ability and
integrity of any director or executive officer during the past five years.
COMMITTEES AND MEETINGS OF THE BOARD OF DIRECTORS
The Company Board has designated two standing committees--an Audit Committee
and a Compensation Committee. The members of each standing committee are
appointed by the Company Board and serve a term coexistent with that of the
Company Board that appointed such committee.
The Audit Committee, composed of three directors, held two meetings during
the year ended March 31, 1996. The Audit Committee recommends to the Company
Board the retention or discharge of the Company's independent auditors and
reviews the scope, extent and procedures of the audit and the fees to be paid
therefor. The Audit Committee also reviews the audit results, and approves the
audited financial statements and recommends to the Company Board their inclusion
in the annual report to stockholders; consults with the independent auditors,
the internal auditors and management on the adequacy of internal accounting
controls; and performs such other functions as may be necessary in the efficient
discharge of its duties.
The Compensation Committee, composed of three directors, held five meetings
during the year ended March 31, 1996. The Compensation Committee serves as the
administrative committee for the Company's stock option plan, restricted stock
plan, deferred compensation plan, and all other incentive plans; reviews and
makes recommendations to the Company Board with respect to the salary and other
terms and conditions of employment of the Chief Executive Officer and approves
salaries and other terms and conditions of employment of all other officers and
of other employees of the Company above specified salary grades, and examines
and makes recommendations to the Company Board regarding the Company's overall
compensation program for managerial level employees.
The Company Board held six meetings during the year ended March 31, 1996.
Attendance at Company Board and Committee meetings combined averaged
approximately 94%. Each director, except for Mr. Seelenfreund, attended more
than 75% of the combined total meetings of the Company Board and Committees of
the Company Board on which the director served at any time during the year.
COMPENSATION OF DIRECTORS
During the fiscal year ended March 31, 1996, each director who was not an
employee of the Company or of McKesson received an annual retainer of $15,000,
payable quarterly; a stipend of $1,000 for each Company Board or Committee
meeting attended; and reimbursement for all expenses incurred in attending such
meetings. Directors who are employees of the Company or of McKesson receive no
additional compensation for their services as members of the Company Board or
any Company Board Committee. In addition, the nonemployee directors also receive
nonqualified stock options under the provisions of the 1986 Stock Option Plan,
which provide that each nonemployee director, on the date of the Annual Meeting
of Stockholders at which he or she is first elected to the Company Board, is to
receive an option to purchase 5,000 shares of Common Stock, which is immediately
exercisable in full but expires in five equal annual installments. On the date
of each subsequent annual meeting, each continuing nonemployee director
automatically receives an option to purchase an additional 1,000 shares, which
is immediately exercisable in full. Subject to the above-mentioned expiration
provisions, the term of each option is five years.
25
<PAGE>
Under the Company's Deferred Compensation Administration Plan (the "DCAP"),
any director entitled to compensation for services as a director may make an
irrevocable election to defer receipt of all or a portion of his or her annual
retainer and meeting fees, (but not less than $5,000), until such person ceases
to be a director or attains age 65, whichever is later, or at such other time as
is specified by the director, after which payments are made in any number of
approximately equal annual installments over such period of years, not exceeding
fifteen, as is elected by the director. In the event of a change in control of
the Company (as defined in the DCAP) deferred funds shall be distributed
immediately upon the effective date of the change. One director currently
participates in the DCAP.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
David E. McDowell, Chairman of the Compensation Committee, was employed by
McKesson as a Senior Adviser during the fiscal year ended March 31, 1996, and
William A. Armstrong, a member of the Committee, is Vice President Human
Resources and Administration of McKesson. The third member of the Committee, Jon
S. Cartwright, is an independent outside director. See Certain Relationships and
Related Transactions.
SUMMARY COMPENSATION TABLE
The following table sets forth the compensation for services in all
capacities to the Company for the three fiscal years ended March 31, 1994, 1995
and 1996 of the Chief Executive Officer, and each of the other four most highly
compensated executive officers of the Company in fiscal year 1996.
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
-------------------------------------
AWARDS
ANNUAL COMPENSATION ------------------------ PAYOUTS
--------------------------------------- RESTRICTED -----------
OTHER ANNUAL STOCK LTIP
NAME AND PRINCIPAL COMPENSATION AWARDS OPTIONS/ PAYOUTS
POSITION(1) YEAR SALARY($) BONUS($) ($)(2) ($)(3) SARS(#) ($)
- ----------------------------- --------- ----------- ----------- ------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Kenneth M. Evans, 1996 $ 312,000 $ 0 $35,428(5) $ 81,875 15,000 $ 0
President and CEO 1995 300,000 170,000 -- 118,250 20,000 91,530
1994 285,000 290,000 -- 347,900 15,000 112,500
Michael G. McCafferty, 1996 134,615 0 -- 49,125 35,000 0
Executive Vice President
and Chief Financial
Officer(6)
Michael A. Caron, 1996 177,500 0 -- 32,750 6,500 0
Senior Vice President 1995 169,000 47,000 -- 43,000 7,000 44,800
and President of Armor 1994 163,600 54,000 -- 43,050 3,000 56,900
All International
Donald N. Weinberger, 1996 151,000 0 -- 0 0 0
Vice President
Operations(6)
Steven L. Kliff, 1996 165,212 0 -- 0 0 0
Senior Vice President 1995 175,000 47,000 -- 43,000 6,500 41,000
Consumer Products(6) 1994 158,250 70,000 -- 61,500 5,000 0
<CAPTION>
ALL OTHER
NAME AND PRINCIPAL COMPENSATION
POSITION(1) ($)(4)
- ----------------------------- -------------
<S> <C>
Kenneth M. Evans, $ 13,646
President and CEO 50,154
32,508
Michael G. McCafferty, 0
Executive Vice President
and Chief Financial
Officer(6)
Michael A. Caron, 10,298
Senior Vice President 37,247
and President of Armor 21,332
All International
Donald N. Weinberger, 9,268
Vice President
Operations(6)
Steven L. Kliff, 4,685
Senior Vice President 29,413
Consumer Products(6) 9,368
</TABLE>
- ------------------------------
(1) Mr. McDowell, who serves as Chairman of the Board of the Company, receives
no compensation from the Company.
(2) Except as noted in the footnotes below, the dollar value of perquisites and
other personal benefits for each named executive officer during fiscal year
1996 was less than established reporting thresholds.
(3) All shares awarded in fiscal years 1996 and 1995 were performance-based and
the restrictions will lapse at the end of fiscal years 2000 and 1999,
respectively, if the Company meets specified financial goals. Of the
restricted shares awarded in fiscal year 1994, 12,500 shares awarded to Mr.
Evans, are being released in annual increments of 25% beginning one year
after the date of the award, provided that Mr. Evans remains in the
employment of the Company on the dates on which the restrictions lapse. The
26
<PAGE>
remaining restricted shares awarded in fiscal year 1994 were
performance-based and will be released at the end of fiscal year 1998 if the
Company attains a specified goal of compounded growth in profit before tax
for the four-year period ending on March 31, 1998. Dividends are paid on the
shares at the same rate as paid to all other stockholders. The 1988
Restricted Stock Plan provides that, in the event of a change in control of
the Company or of McKesson (as defined in the plan), all restrictions on
outstanding restricted stock grants shall immediately lapse. As of March 31,
1996, the number of shares of restricted stock outstanding to each named
executive officer and the market value of the shares (based upon the closing
stock price of $16.375 on Friday, March 29, 1996), respectively, were as
follows: Mr. Evans, 33,050 and $541,194; Mr. McCafferty, 3,000 and $49,125;
Mr. Caron, 8,600 and $140,825; Mr. Weinberger, 5,400 and $88,425; and Mr.
Kliff, 0 and $0.
(4) For fiscal year 1996, includes the aggregate value of (i) the Company's
matching stock contributions under the Profit-Sharing Investment Plan
("PSIP"), a plan designed to qualify as an employee stock ownership plan
under the Internal Revenue Code (the "Code"), allocated to the accounts of
the named executive officers, as follows: Mr. Evans, $1,800; Mr. Caron,
$1,800; and Mr. Weinberger, $1,800; (ii) employer matching cash
contributions under the Supplemental PSIP, an unfunded, nonqualified plan
established because of limitations on annual contributions to the PSIP
contained in the Code, as follows: Mr. Evans, $4,794; Mr. Caron, $908; and
Mr. Weinberger, $780; (iii) stock contributions made by McKesson to the
named executives' ESOP accounts under the McKesson PSIP, as follows: Mr.
Evans, $7,052; Mr. Caron, $7,120; Mr. Weinberger, $6,688; and Mr. Kliff,
$4,685; and (iv) above-market interest accrued on deferred compensation for
Mr. Caron in the amount of $470.
(5) Includes $13,618 imputed interest on the loan to Mr. Evans described under
"Indebtedness of Executive Officers" on page 21.
(6) Mr. McCafferty's employment with the Company commenced on September 11,
1995; Mr. Weinberger became an executive officer on September 1, 1995 and
his employment with the Company terminated in June 1996; and Mr. Kliff's
employment with the Company terminated on January 31, 1996.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
----------------------------------------------------
% OF TOTAL GRANT DATE
OPTIONS VALUE
GRANTED TO ---------------
EMPLOYEES EXERCISE OR GRANT DATE
OPTIONS/SARS IN FISCAL BASE PRICE EXPIRATION PRESENT
NAME GRANTED(#)(1) YEAR ($/SH) DATE VALUE(2)
- ---------------------------------------------- ------------- ----------- ----------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
Kenneth M. Evans.............................. 15,000 7.16 $ 16.00 1/23/06 $ 60,720
Michael G. McCafferty......................... 25,000 11.93 17.50 9/20/05 110,688
10,000 4.77 16.00 1/23/06 40,480
Michael A. Caron.............................. 6,500 3.10 16.00 1/23/06 26,312
Donald N. Weinberger(3)....................... 0 0 0 0 0
Steven L. Kliff(3)............................ 0 0 0 0 0
</TABLE>
- ------------------------
(1) During fiscal year 1996, options to purchase an aggregate of 211,500 shares
were granted to 59 optionees at option prices ranging from $16.00 to $19.25
with a weighted average option price of $16.48. All options granted to
employees are for ten-year terms and are granted at fair market value and
exercisable in installments of 25% per year beginning one year after the
date of grant, except that the grant of 25,000 shares to Mr. McCafferty on
September 20, 1995, at the exercise price of $17.50 per share, vests in full
on the first anniversary of the date of grant. Optionees may satisfy the
exercise price by submitting currently owned shares and/or cash. Income tax
withholding obligations may be satisfied by electing to have the Company
withhold shares otherwise issuable under the option with a fair market value
equal to such obligations. The Company has not granted any stock
appreciation rights.
(2) In accordance with Securities and Exchange Commission rules, a modified
Black-Scholes option pricing model was chosen to estimate the grant date
present value of 25.3% for the options set forth in this table. The
assumptions used in calculating the reported value include: stock
volatility, 35.09%; interest rate, 5.65%; annual dividend, $.64; exercise
period, 10 years; reductions of approximately 9.61% to reflect the
probability of forfeiture due to termination prior to vesting, and
approximately
27
<PAGE>
10.37% to reflect the probability of a shortened option term due to
termination of employment prior to the option expiration date. The Company
does not believe that the Black-Scholes model, or any other model, can
accurately determine the value of an option. Accordingly, there is no
assurance that the value realized by an executive, if any, will be at or
near the value estimated by the Black-Scholes model. Future compensation
resulting from option grants is based solely on the performance of the
Company's stock price.
(3) Mr. Weinberger became an executive officer on September 1, 1995 and his
employment with the Company terminated in June 1996; Mr. Kliff's employment
with the Company terminated on January 31, 1996.
28
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
SHARES ACQUIRED NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
ON EXERCISE VALUE REALIZED OPTIONS AT IN-THE-MONEY OPTIONS
------------------------------ ------------------------------ FISCAL YEAR-END AT FISCAL YEAR-END
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE (#) ($)(1)
- ---------------------- ------------- --------------- ------------- --------------- --------------------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
Kenneth M. Evans --0-- $ --0-- 90,000 45,000 $ 305,000 $ 5,625
Michael G. McCafferty --0-- --0-- --0-- 35,000 --0-- 3,750
Michael A. Caron --0-- --0-- 34,938 15,312 86,581 2,438
Donald N.
Weinberger(2) 2,825 16,306 23,600 6,875 10,781 --0--
Steven L. Kliff(2) --0-- --0-- 18,563 --0-- 34,125 --0--
</TABLE>
- ------------------------------
(1) Calculated based upon the fair market value share price of $16.375 on
Friday, March 29, 1996, less the share price to be paid on exercise. There
is no guarantee that if and when these options are exercised they will have
this value.
(2) Mr. Weinberger became an executive officer on September 1, 1995 and his
employment with the Company terminated in June 1996; Mr. Kliff's employment
with the Company terminated on January 31, 1996.
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
The Company's executive compensation program is administered by the
Compensation Committee (the "Committee") of the Company Board. The Committee is
composed of three directors. One of the members is an employee of McKesson, one
is an officer of McKesson and the third is an independent outside director. The
Committee is responsible for administering the Company's stock option and
restricted stock plans, reviewing and making recommendations to the full Company
Board with respect to the salary, incentive compensation and other terms and
conditions of employment of the Chief Executive Officer and approving salaries,
incentive compensation and other terms and conditions of employment of the other
executive officers named in the Summary Compensation Table (the "executive
officers") and other officers and key employees of the Company in and above
specified salary grade levels.
The following report was prepared by the members of the Committee (whose
names appear at the end of the report) to provide the Company's stockholders
with an explanation of the Company's compensation policies, and the criteria
used in designing compensation programs and setting compensation levels for the
executive officers, and specifically, the compensation of the Chief Executive
Officer during fiscal year 1996.
In its deliberations concerning compensation of executive officers, the
Committee considers the following factors: (1) the Company's performance in
comparison with previously set objectives and against the prior year's
achievement, (2) the individual performance of each executive officer, (3) a
number of comparative compensation surveys, which are supplied by professional
compensation consultants approved by the Committee and retained by the Company
for this purpose, and other material concerning compensation levels and stock
grants at similar companies, such as compensation information disclosed in the
proxy statements of other companies, (4) the overall competitive environment for
executives and the level of compensation needed to attract and retain executive
talent, and (5) the recommendations of professional compensation consultants.
Companies used in comparative analyses for executive compensation purposes are
selected with the assistance of these professional compensation consultants.
Such companies represent a broad cross-section of consumer product companies and
are selected based on a variety of factors including similarity in financial
attributes, size and complexity to the Company. The companies used in
comparative analyses for executive compensation purposes include some of the
companies in the Peer Group Index used in the Performance Graph, as well as
other companies. The Committee relies on a broad array of companies in various
industries for comparative analysis of executive compensation because it
believes that the Company's competitors for executive talent are more varied
than
29
<PAGE>
the companies included in the Peer Group Index chosen for comparing stockholder
return in the Performance Graph.
The Company's compensation program is designed to enhance stockholder value
by linking a large part of the executives' compensation directly to performance.
The objective is to provide base salary for executives at approximately the 60th
percentile for executives at similar companies, while providing an opportunity
to achieve total compensation (including base salary, annual bonus and long-term
incentives) at the 75th percentile or above for exceptional performance.
COMPONENTS OF COMPENSATION
The Company's compensation package consists of base salary, a short-term
incentive plan, and long-term incentives (stock and cash). Base pay is reviewed
annually. Actual base salary is based on individual performance, competitive pay
practices and level of responsibility. Competitive pay practices are determined
through job evaluation and market comparisons. The fiscal year 1996 salaries of
executive officers were determined primarily on the basis of each executive
officer's performance and responsibility, the Corporation's performance, and
competitive salary level market data. Increases in fiscal year 1996 salaries
reflected the Committee's determination that compensation levels should be
increased to remain competitive, given each executive officer's performance, the
Company's performance in fiscal year 1996 and the competitive environment for
executive talent.
The Short-Term Incentive Plan ("STIP") rewards participants for reaching
profit targets related to required rates of return. For fiscal year 1996, the
measures included goals for pre-tax income at specified levels of investment.
Individual executives' target values vary by level of responsibility, are set as
a percentage of base salary and are competitive with those paid to executive
officers at companies in the comparison group. The annual incentive award an
executive officer is eligible to receive can range from zero to three times the
incentive award percentage assigned to his or her position. STIP awards were not
paid to the executive officers for fiscal year 1996, because the Company's
financial performance was below the targets set forth in the plan.
The Company has three executive compensation plans to help achieve long-term
performance objectives. The three plans are the Stock Option Plan, the
Restricted Stock Plan and the Long-Term Incentive Plan ("LTIP"). One-third of
competitive long-term incentive value is intended to be provided by stock
options, one-third by restricted stock and one-third by the cash LTIP. The LTIP
provides cash awards based solely on the Company's results over three-year
periods. Goals for this plan are set annually for the successive three-year
period. These goals are designed to focus an executive officer's attention on
long-term growth balanced with return to stockholders. The measures of financial
performance currently in use for the LTIP are profit before tax in excess of a
specified percentage return on assets employed. LTIP awards were not paid to the
executive officers for the three-year period ended March 31, 1996, because the
Company's financial performance was below the minimum targets required for
payout under the plan. No further performance periods remain open under the LTIP
which has been discontinued as an element of compensation for executive
officers.
In March 1996, the Board of Directors established an incentive plan for
strategic business unit managers, including certain officers, for fiscal year
1997 ("FY1997 Incentive Plan"). The FY1997 Incentive Plan provides for
performance awards payable in cash upon achievement of predetermined earnings
per share targets for fiscal year 1997. Payment of the cash awards, if earned,
will be paid in two equal installments--50% at the end of fiscal year 1997 and
50% at the end of fiscal year 1998.
The Company's 1986 Stock Option Plan is designed to strengthen the link
between the interests of stockholders and management. Stock options are
generally granted annually and provide executives a ten-year period, subject to
specified vesting requirements, to purchase shares of Common Stock at the full
market price of the stock on the day the option is granted. Annual grants are
generally equal to the target percent of pay described above modified by
performance. In addition, the Committee considers the size of
30
<PAGE>
prior grants, but does not take into account the number of options currently
held by an executive officer in determining annual award levels. The number of
options needed to provide the target percent of pay is determined by use of a
modified Black-Scholes model for valuing stock options.
The Company's 1988 Restricted Stock Plan was established to provide strong
incentive for highly qualified executives to remain with the Company as well as
to strengthen their link to stockholders through increased stock ownership.
Grants of restricted stock are considered annually. The current general practice
is for restrictions to lapse only if performance goals are met during a
four-year period. The measure used to determine if restrictions will lapse on
the performance-based shares awarded in fiscal year 1996 will be the compounded
increase in profit before tax over a four-year period.
The Company has not yet adopted a policy regarding the recently enacted $1
million annual limitation on the federal income tax deductibility of
compensation paid to any executive officer. However, it has been determined that
the new limitations did not impact the Company in fiscal year 1996. At the
present time, there are no executive officers whose compensation meets or
exceeds the $1 million annual limit nor is it expected that an executive officer
will reach this limit in fiscal year 1997. The Committee's present intention is
to comply with the requirements of Section 162(m) unless the Committee concludes
that required changes would not be in the best interests of the Company or its
stockholders.
COMPENSATION OF THE PRESIDENT AND CHIEF EXECUTIVE OFFICER
During fiscal year 1996, the Committee reviewed the performance of the
President and CEO, Kenneth M. Evans, and approved his stock option and
restricted stock awards using the same criteria that were used to determine
awards for the executive officers discussed at the beginning of this report. Mr.
Evans' compensation for fiscal year 1996 is shown in the Summary Compensation
Table.
On April 1, 1995, the Committee, with the concurrence of the full Company
Board, increased Mr. Evans' annual salary from $300,000 to $312,000 based on the
Company's performance for fiscal year 1995 and competitive market data on salary
levels. Given the Company's disappointing operating results in fiscal year 1996,
Mr. Evans, at his request, did not receive a salary increase at the end of the
year. Additionally, since the profit targets established under the STIP and the
performance goals established under the LTIP for the respective one-year and
three-year incentive periods ended March 31, 1996 were not met, no awards were
paid to Mr. Evans under either plan in fiscal year 1996.
The stock option award to Mr. Evans made in January 1996 was based on the
Committee's assessment of his overall performance during a difficult year and on
the Committee's philosophy that stock ownership by management aligns
management's interests more closely with those of the Company's stockholders.
The restrictions imposed on the restricted stock award granted to Mr. Evans in
January 1996 will lapse in fiscal year 2000 only if specific performance
objectives for compound growth in profit before tax are met.
It is the Committee's view that the total compensation package for Mr. Evans
was based on an appropriate balance of (1) the Company's performance, (2) his
individual performance, and (3) competitive practice.
The Compensation Committee
David E. McDowell, CHAIRMAN
William A. Armstrong
Jon S. Cartwright
31
<PAGE>
PERFORMANCE GRAPH
Set forth below is a line graph comparing the performance of the Company's
Common Stock during the period April 1, 1991 through March 31, 1996 with the
NASDAQ Stock Market Index, and a peer group composed of the following seventeen
consumer products companies: Alberto-Culver Company, Church & Dwight Co., Inc.,
Eljer Industries, Inc., First Brands Corporation, Kimball International, Inc.,
Lancaster Colony Corporation, La-Z-Boy Chair Company, National Presto
Industries, Inc., NCH Corporation, Oneida Ltd., Royal Appliance Mfg. Co., RPM,
Inc., The Scotts Company, Stanhome Inc., The Valspar Corporation, WD-40 Company,
and Wynn's International, Inc. The Company is not included in the peer group.
Pratt & Lambert, Inc., formerly a member of the peer group, has been removed
because it is no longer a publicly-held company. Total Return Indices reflect
reinvested dividends and are weighted on a market capitalization basis at the
time of each reported data point. The stock price performance depicted in the
performance graphs shown below is not necessarily indicative of future price
performance.
FIVE-YEAR CUMULATIVE TOTAL RETURN*
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
ARMOR ALL NASDAQ COMPOSITE PEER GROUP
<S> <C> <C> <C>
1991 $100.00 $100.00 $100.00
1992 $111.40 $127.45 $118.49
1993 $181.94 $146.51 $123.26
1994 $191.07 $158.15 $126.24
1995 $220.05 $175.93 $128.51
1996 $173.91 $238.88 $150.50
</TABLE>
- ------------------------
* Assumes $100 invested in Armor All Common Stock and in each index on March
31, 1991 and that all dividends are reinvested.
EMPLOYMENT CONTRACTS AND TERMINATION
OF EMPLOYMENT AND CHANGE IN CONTROL ARRANGEMENTS
The disclosure set forth under "Arrangements with Executive Officers,
Directors or Affiliates of the Company" in Item 3 of Schedule 14D-9 is
incorporated by reference herein.
RETIREMENT PLAN
Employees of the Company participate in the McKesson Corporation Retirement
Plan (the "McKesson Plan"). The costs of participation in the McKesson Plan are
paid by the Company.
32
<PAGE>
The table below illustrates, as of March 31, 1996, the estimated annual
benefits payable upon retirement at age 65 under the McKesson Plan in the
specified compensation and years-of-service classifications. The benefits are
computed as single life annuity amounts.
<TABLE>
<CAPTION>
FIVE YEAR AVERAGE
------------------------------------------
YEARS OF SERVICE
------------------------------------------
COMPENSATION 15 20 25 30
- ---------------------------------------------------------------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
$150,000.............................................................. $ 29,432 $ 39,242 $ 49,053 $ 58,864
200,000.............................................................. 29,432 39,242 49,053 58,864
300,000.............................................................. 29,432 39,242 49,053 58,864
400,000.............................................................. 29,432 39,242 49,053 58,864
500,000.............................................................. 29,432 39,242 49,053 58,864
600,000.............................................................. 29,432 39,242 49,053 58,864
700,000.............................................................. 29,432 39,242 49,053 58,864
</TABLE>
Annual benefits are generally equal to a percentage of final average pay
(averaged over the highest consecutive five-year period out of the last 15 years
of service preceding retirement) up to Covered Compensation (the average of the
Social Security wage bases over the 35 year period ending with the year the
participant attains or will attain Social Security Retirement Age) plus a
percentage of final average pay exceeding Covered Compensation, the total of
which is multiplied by years of creditable service up to a maximum of 30 years.
Compensation covered under the McKesson Plan is defined as base pay plus
overtime and/or annual bonus as disclosed in the Summary Compensation Table for
the named executive officers and as limited by Section 401(a)(17) of the Code.
As of March 31, 1996, the following individuals had the number of years of
creditable service indicated: Mr. Evans, 5 years; Mr. McCafferty, 0 years; Mr.
Caron, 11 years; and Mr. Weinberger, 7 years prior to the termination of his
employment in June 1996.
Mr. Evans also participates in the McKesson Corporation 1984 Executive
Benefit Retirement Plan (the "EBRP"). The benefit under the EBRP is a percentage
of final average pay based on years of service or is determined by the Board of
Directors. The maximum benefit is 60% of final average pay. The total paid under
the EBRP is not reduced by Social Security benefits but is reduced by those
benefits payable on a single life basis under the McKesson Plan. Based on
retirement at age 65, the annual combined benefit payable to Mr. Evans under the
McKesson Plan and the EBRP would be approximately $290,885.
INDEBTEDNESS OF EXECUTIVE OFFICERS
During fiscal year 1996 Mr. Evans' maximum aggregate indebtedness to the
Company, and the amount outstanding at May 15, 1996, was $400,000. This amount
relates to an interest-free loan extended to Mr. Evans and secured by a deed of
trust on certain residential property owned by him. The principal amount of the
loan is payable upon the earlier of (i) termination of Mr. Evans' employment
with the Company, or (ii) sale of the property, unless the loan is then secured
by a separate deed of trust on real property purchased by Mr. Evans as his
principal residence.
No other director or executive officer was indebted to the Company in an
amount exceeding $60,000 at any time during fiscal year 1996.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On July 1, 1986, the Company entered into a Services Agreement, (the
"Services Agreement") with McKesson, of which Mr. Seelenfreund is an officer and
director, Messrs. Armstrong and Mahoney are officers and Mr. McDowell is a
former Senior Adviser, officer and director. Pursuant to the Services Agreement,
McKesson has agreed to provide certain corporate staff services to the Company.
For the fiscal year ended March 31, 1996, the amount charged the Company by
McKesson for such services was
33
<PAGE>
$519,000, exclusive of insurance and outside professional services that are
billed separately. This charge is modified annually to reflect changes in
McKesson's costs of providing these services. Such services include treasury and
financial, legal, corporate secretary, tax, internal audit, planning and
corporate development, accounting advice, and employee benefit, personnel and
payroll services. The Company can request, and McKesson may provide, data
processing, computer programming and other services to supplement the
capabilities of the Company. McKesson has agreed to make available to the
Company certain employee benefit plans and also has agreed to allow Corporation
employees to continue to participate in McKesson's retirement plan and employee
stock ownership plans. The Company has agreed to contribute annually to the
plans the amount necessary to fund employee participation. The Company is also
insured under McKesson's property and casualty insurance program for limits of
liability and deductibles deemed appropriate for the Company's risk exposures
and size. Premiums are based on the Company's risk exposure and historical loss
experience.
The Services Agreement is automatically renewed for successive one-year
terms unless terminated and is reviewed annually by the Company's Chief
Financial Officer with the independent nonemployee directors. The Agreement will
be terminated if McKesson should own less than a majority of the outstanding
voting stock of the Company, or upon 120 days' prior written notice by either
party, or upon such earlier date as the parties may mutually agree to in
writing. The Services Agreement will be amended in connection with the Merger
Agreement. The Services Agreement provides that McKesson's liability with
respect to any loss or damages arising in connection with the provision of
services to the Company is limited to amounts billed for such services.
Pursuant to the Services Agreement, the Company's U.S. operations
participate on a daily basis in a cash management program administered by
McKesson. Under this arrangement, the Company invests any excess cash under the
cash management program, has access to the cash invested and meets cash
requirements through borrowing from McKesson. All amounts invested with McKesson
are deposited in a separate bank account in the Company's name. The Company
receives interest from McKesson on funds deposited under the program, or pays
interest to McKesson on funds borrowed, at a rate equal to the monthly Federal
Reserve Composite Rate for 7-day commercial paper less one-tenth of one percent
for funds deposited under the program and plus one-half of one percent for funds
borrowed from McKesson. The Services Agreement provides that McKesson will make
available that amount of cash necessary to provide the Company with sufficient
funds to meet its needs as defined in its annual capital and operating budget
and that the Company will pay McKesson an annual credit facility fee of $25,000.
At March 31, 1996, the Company had invested $17,359,000 under the cash
management program at an interest rate of 5.3%. The maximum amount invested by
the Company under the cash management program at any month end during the fiscal
year ended March 31, 1996 was $37,875,000. In the fiscal year ended March 31,
1996, the Company received from McKesson net interest in the amount of
$1,486,000 pursuant to this arrangement. The Merger Agreement provides that all
monies held by McKesson pursuant to the cash management program shall be
remitted to the Company at the Effective Time.
Under the terms of the Acquisition Agreement dated July 1, 1986 pursuant to
which McKesson transferred the business of its Armor All Products Division to
the Company (the "Acquisition Agreement"), McKesson and the Company have agreed
that, so long as McKesson owns at least a majority of the outstanding voting
stock of the Company, McKesson will refer to the Company any business
opportunities McKesson deems appropriate concerning appearance protection
products applicable to the automotive aftermarket. McKesson has complete
discretion to determine which products or ideas the Company may develop or fund.
McKesson has not established objective criteria to utilize in exercising its
discretion. Such determinations will be made on a case-by-case basis as such
opportunities arise. McKesson has no obligation to refer to the Company ideas or
products whether or not related to appearance protection products applicable to
the automotive aftermarket. McKesson is currently in the business of
distributing appearance protection products, and will continue to be entitled to
distribute such products and any other products it deems appropriate. The
Company is entitled to retain and develop any product or idea within
34
<PAGE>
the scope of its intended operations which it develops through its own
facilities or staff. McKesson is not obligated to fund, or permit the Company to
fund, development of any product or idea, if McKesson concludes that such
development is not in the Company's best interests.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth information as of November 30, 1996, with
respect to the only persons known by the Company to be the beneficial owners of
more than five percent of its outstanding Common Stock, which is the Company's
only class of voting securities.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
NAME AND ADDRESS OF BENEFICIAL PERCENT OF
OF BENEFICIAL OWNER OWNERSHIP CLASS
- --------------------------------------------------------------------------------- ------------------ -----------
<S> <C> <C>
McKesson Corporation............................................................. 11,624,900 54.4
One Post Street Sole voting and
San Francisco, CA 94104 investment power
David L. Babson & Co., Inc....................................................... 1,193,700(1) 5.6
One Memorial Drive
Cambridge, MA 02142
RCM Capital Management........................................................... 1,674,000(2) 7.8
Four Embarcadero Center
Suite 3000
San Francisco, CA 94111
Travelers Group Inc.............................................................. 1,233,070(3) 5.8
388 Greenwich Street
New York, NY 10013
</TABLE>
- ------------------------
(1) This information is based on a Schedule 13G filed with the Securities and
Exchange Commission, reporting that as of December 31, 1995, David L. Babson
& Co., Inc., a registered investment adviser, had sole voting power as to
546,750 shares, shared voting power as to 646,950 shares, and sole
dispositive power as to 1,193,700 shares.
(2) This information is based on an amendment to a Schedule 13G filed with the
Securities and Exchange Commission by RCM Capital Management ("RCM"), on its
own behalf and that of its general partner, RCM Limited L.P., and RCM
Limited L.P.'s general partner, RCM General Corporation, reporting that as
of December 31, 1995, RCM, a registered investment adviser, had sole voting
power as to 1,502,000 shares, shared dispositive power as to 27,000 shares,
and sole dispositive power as to 1,647,000 shares.
(3) This information is based on a Schedule 13G filed with the Securities and
Exchange Commission, reporting that as of December 31, 1995, Travelers Group
Inc., a parent holding company, had shared voting and dispositive power as
to all 1,233,070 shares.
35
<PAGE>
SECURITY OWNERSHIP OF DIRECTORS AND OFFICERS
The following table indicates as to each director and each of the executive
officers named in the Summary Compensation Table who were employed by the
Company on November 30, 1996 and as to all directors and officers as a group,
the number of shares and percentage of the Company's Common Stock beneficially
owned as of November 30, 1996:
<TABLE>
<CAPTION>
AMOUNT AND NATURE
OF BENEFICIAL
NAME OWNERSHIP(1)
- -------------------------------------------------------------------------- ------------------
<S> <C>
William A. Armstrong...................................................... -0-
Jon S. Cartwright......................................................... 6,000(2)(4)
Kenneth M. Evans.......................................................... 151,417(2)(3)
David L. Mahoney.......................................................... -0-
David E. McDowell......................................................... -0-
Karen Gordon Mills........................................................ 6,000(2)
Alan Seelenfreund......................................................... -0-
Michael A. Caron.......................................................... 58,200(2)(3)
Michael G. McCafferty..................................................... 30,500(3)
Gayle F. Metzler.......................................................... 33,384(2)(3)
Gordon Hyde............................................................... -0-
All Directors and Officers as a Group (13 persons)........................ 286,901(2)(3)
</TABLE>
- ------------------------
(1) Unless otherwise indicated, the nature of beneficial ownership for all
shares is sole voting and investment power (or with voting and investment
power shared with a spouse). The shares represent less than 1% of the
outstanding shares for every person, and 1.3% for all directors and officers
as a group.
(2) Includes shares that may be acquired within 60 days after November 30, 1996
through the exercise of stock options granted under the Company's 1986 Stock
Option Plan, as follows: Mr. Evans, 110,000; Mr. Caron, 35,125; Mr.
McCafferty, 27,500; Ms. Metzler, 24,800; 23,600; Mr. Cartwright, 5,000; Ms.
Mills, 5,000; and all directors and officers as a group, 207,425.
(3) Includes shares held under the Company's Profit-Sharing Investment Plan and
as to which the participant has sole voting but no investment power, as
follows: Mr. Evans, 1,297; Mr. Caron, 2,677; Ms. Metzler, 1,802; and all
directors and officers as a group, 5,776; 29,925 shares subject to possible
forfeiture granted to Mr. Evans, 8,600 to Mr. Caron, 3,000 to Mr.
McCafferty, 5,000 to Ms. Metzler and 63,325 shares to all directors and
officers as a group under the Company's 1988 Restricted Stock Plan; and 200
shares held by a member of the group as joint trustee for his minor
children, as to which shares he disclaims beneficial ownership.
(4) Includes 1,000 shares held in a revocable trust for the benefit of Mr.
Cartwright and his spouse who are the beneficiaries of such trust.
36
<PAGE>
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Under the federal securities laws, the Company's directors, its executive
officers and any persons holding (as defined in the rules and regulations of the
Securities and Exchange Commission) more than ten percent of the Company's
Common Stock are required to report their initial ownership of the Company's
Common Stock and any subsequent changes in that ownership to the Securities and
Exchange Commission (the "Commission"), the Nasdaq Stock Market and the Company.
For fiscal year 1996 and for fiscal year 1997 through the date hereof, these
filing requirements were satisfied, except that one director, Jon S. Cartwright,
inadvertently failed to report the transfer of his directly-owned shares to a
family trust on Form 5 for fiscal year 1995, but subsequently reported this
transaction on a Form 5 for fiscal year 1996. In making this disclosure, the
Company has relied solely on written representations of its directors and
executive officers and its ten percent holders and/or copies of the reports that
they have filed with the Commission.
37
<PAGE>
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
ARMOR ALL PRODUCTS CORPORATION
THE CLOROX COMPANY
AND
SHIELD ACQUISITION CORPORATION
DATED AS OF
NOVEMBER 26, 1996
<PAGE>
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS
<TABLE>
<S> <C> <C>
Section 1.1 Definitions............................................................. 5
ARTICLE II
THE OFFER
Section 2.1 The Offer............................................................... 8
Section 2.2 Company Actions......................................................... 8
Section 2.3 Stockholder Lists....................................................... 9
Section 2.4 Directors............................................................... 9
Section 3.1 The Merger.............................................................. 10
Section 3.2 Closing................................................................. 10
Section 3.3 Effective Time.......................................................... 10
Section 3.4 Effects of the Merger................................................... 10
Section 3.5 Certificate of Incorporation and By-Laws................................ 10
Section 3.6 Directors and Officers of the Surviving Corporation..................... 10
Section 3.7 Stockholders' Meeting................................................... 10
Section 3.8 Conversion of Shares.................................................... 11
Section 3.9 Conversion of Sub's Common Stock........................................ 11
Section 3.10 Exchange of Shares; Payment............................................. 11
Section 3.11 Dissenting Shares....................................................... 12
Section 3.12 Company Option Plans.................................................... 12
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Section 4.1 Organization............................................................ 13
Section 4.2 Capitalization.......................................................... 13
Section 4.3 Authorization; Validity of Agreement.................................... 14
Section 4.4 No Violations; Consents and Approvals................................... 14
Section 4.5 Reports................................................................. 15
Section 4.6 Absence of Certain Changes.............................................. 15
Section 4.7 No Undisclosed Liabilities.............................................. 15
Section 4.8 Schedule 14D-9; Offer Documents; Proxy Statement........................ 16
Section 4.9 Litigation; Compliance with Law......................................... 16
Section 4.10 Employee Benefit Plans; ERISA........................................... 16
Section 4.11 Real Property........................................................... 17
Section 4.12 Intellectual Property................................................... 17
Section 4.13 Computer Software....................................................... 18
Section 4.14 Material Contracts...................................................... 18
Section 4.15 Taxes................................................................... 18
Section 4.16 Environmental Matters................................................... 19
Section 4.17 Affiliated Party Transactions........................................... 19
Section 4.18 No Brokers.............................................................. 20
</TABLE>
2
<PAGE>
<TABLE>
<S> <C> <C>
ARTICLE V
REPRESENTATIONS AND WARRANTIES
OF PURCHASER AND SUB
Section 5.1 Organization............................................................ 20
Section 5.2 Authorization; Validity of Agreement.................................... 20
Section 5.3 No Violations; Consents and Approvals................................... 20
Section 5.4 Schedule 14D-9; Offer Documents; Proxy Statement........................ 21
Section 5.5 Sufficient Funds........................................................ 21
Section 5.6 Beneficial Ownership of Shares.......................................... 21
Section 5.7 No Brokers.............................................................. 21
ARTICLE VI
COVENANTS
Section 6.1 Conduct of Business by the Company Pending the Merger................... 22
Section 6.2 Acquisition Proposals................................................... 23
Section 6.3 Access to Information................................................... 24
Section 6.4 Best Efforts............................................................ 24
Section 6.5 Consents................................................................ 24
Section 6.6 HSR Filings............................................................. 25
Section 6.7 Public Announcements.................................................... 26
Section 6.8 Employee Agreements..................................................... 26
Section 6.10 Indemnification; Directors' and Officers' Insurance..................... 27
Section 6.11 Certain Arrangements.................................................... 28
ARTICLE VII
CONDITIONS
Section 7.1 Conditions to Each Party's Obligation to Effect the Merger.............. 29
Section 7.2 Conditions to the Obligation of the Company to Effect the Merger........ 29
Section 7.3 Conditions to Obligations of Purchaser and Sub to Effect the Merger..... 29
Section 7.4 Exception............................................................... 29
ARTICLE VIII
TERMINATION
Section 8.1 Termination............................................................. 30
Section 8.2 Effect of Termination................................................... 30
Section 8.3 Termination Fee......................................................... 31
ARTICLE IX
MISCELLANEOUS
Section 9.1 Fees and Expenses....................................................... 31
Section 9.2 Amendment; Extension and Waiver......................................... 31
Section 9.3 Survival................................................................ 31
Section 9.4 Notices................................................................. 31
Section 9.5 Interpretation.......................................................... 32
Section 9.6 Headings; Schedules..................................................... 32
</TABLE>
3
<PAGE>
<TABLE>
<S> <C> <C>
Section 9.7 Counterparts............................................................ 32
Section 9.8 Entire Agreement........................................................ 32
Section 9.9 Severability............................................................ 32
Section 9.10 Governing Law........................................................... 33
Section 9.11 Assignment.............................................................. 33
Section 9.12 Specific Performance; Submission to Jurisdiction........................ 33
Section 9.13 Brokerage Fees and Commissions.......................................... 33
CONDITIONS TO THE TENDER OFFER ............................................................ Annex A
</TABLE>
4
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (this "AGREEMENT"), dated as of November 26,
1996, by and among Armor All Products Corporation, a Delaware corporation (the
"COMPANY"), The Clorox Company, a Delaware corporation ("PURCHASER"), and Shield
Acquisition Corporation, a Delaware corporation and a wholly owned subsidiary of
Purchaser ("SUB").
RECITALS:
WHEREAS, the respective boards of directors of Purchaser, Sub and the
Company have each approved the acquisition of the Company by Purchaser upon the
terms and subject to the conditions set forth in this Agreement; and
WHEREAS, the parties intend that the acquisition of the Company by Purchaser
be effected by Sub commencing a cash tender offer for the Shares (as defined
hereinafter) to be followed by the merger of Sub with and into the Company with
the Company as the surviving corporation in such merger, all as provided by and
in accordance with this Agreement; and
WHEREAS, as a condition to the obligations of Purchaser and Sub hereunder
and in consideration of the transactions contemplated hereby, McKesson
Corporation, a Delaware corporation and a stockholder of the Company
("STOCKHOLDER"), concurrently herewith is entering into a Stockholder Agreement
(the "STOCKHOLDER AGREEMENT"), dated as of the date hereof, with Purchaser and
Sub, in the form attached hereto as Exhibit A, pursuant to which Stockholder has
agreed to tender its Shares in the Offer and to grant Sub a proxy with respect
to the voting of its Shares in favor of the Merger (as such terms are defined
herein) upon the terms and subject to the conditions set forth therein; and
WHEREAS, the Company, Purchaser and Sub desire to make certain
representations, warranties, covenants and agreements in connection with such
cash tender offer and merger.
NOW, THEREFORE, in consideration of the foregoing and the mutual
representations, warranties, covenants and agreements set forth herein, and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1 DEFINITIONS
<TABLE>
<CAPTION>
DEFINED IN
TERM SECTION
- ------------------------------------------------------------------------------ -------------
<S> <C>
ABO........................................................................... 6.9(c)
Acquisition Proposal.......................................................... 6.2(b)
Agreement..................................................................... Preamble
Applicable Amount............................................................. 3.11
Audits........................................................................ 4.15(c)
Awards........................................................................ 3.11
Board......................................................................... 2.2(a)
Certificates.................................................................. 3.10(b)
Closing....................................................................... 3.2
Closing Date.................................................................. 3.2
Common Stock.................................................................. 2.1(a)
Company....................................................................... Preamble
Company Disclosure Letter..................................................... Article IV
Company Employee.............................................................. 6.9(b)
Company SEC Documents......................................................... 4.5
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
DEFINED IN
TERM SECTION
- ------------------------------------------------------------------------------ -------------
<S> <C>
Confidentiality Agreement..................................................... 6.3(b)
DB Employees.................................................................. 6.9(c)
DGCL.......................................................................... 3.1
Dissenting Shares............................................................. 3.11(a)
Effective Time................................................................ 3.3
Environmental Laws............................................................ 4.17(a)
ERISA Affiliate............................................................... 4.10(a)
Governmental Entity........................................................... 4.4(b)
Indemnified Parties........................................................... 6.11(b)
Intellectual Property......................................................... 4.12
Merger........................................................................ 3.1
Merger Consideration.......................................................... 3.8(a)
Moody's....................................................................... 3.10(a)
Offer......................................................................... 2.1(a)
Offer Documents............................................................... 2.1(b)
Offer Price................................................................... 2.1(a)
Offer to Purchase............................................................. 2.1(a)
Option........................................................................ 3.11
Option Plans.................................................................. 3.11
Order......................................................................... 6.6(b)
Paying Agent.................................................................. 3.10(a)
PBGC.......................................................................... 4.10(b)
Plans......................................................................... 4.10(a)
Preferred Stock............................................................... 4.2(a)
Proxy Statement............................................................... 3.7(c)
Purchaser..................................................................... Preamble
Purchaser DB Plan............................................................. 6.9(c)
Restricted Stock Units........................................................ 3.11
Retirement Plan............................................................... 6.9(c)
S&P........................................................................... 3.10(a)
SARs.......................................................................... 3.11
SEC........................................................................... 2.1(b)
Service Agreement............................................................. 6.11
Shares........................................................................ 2.1(a)
Special Meeting............................................................... 3.7(a)
Stockholder................................................................... Recitals
Sub........................................................................... Preamble
Surviving Corporation......................................................... 3.1
Termination Plan.............................................................. 4.10(h)
</TABLE>
"AGGREGATE MERGER CONSIDERATION" means the product of (i) the Merger
Consideration and (ii) the number of Shares outstanding immediately prior to the
Effective Time, other than Shares owned by Purchaser, Sub or any Subsidiary of
the Company, Purchaser or Sub and each Share held in the treasury of the
Company.
"ANTITRUST LAW" means the Sherman Act, as amended, the Clayton Act, as
amended, the HSR Act, the Federal Trade Commission Act, as amended, and all
other federal, state and foreign statutes, rules, regulations, orders, decrees,
administrative and judicial doctrines, and other laws that are designed or
intended to prohibit, restrict or regulate actions having the purpose or effect
of monopolization or restraint of trade.
6
<PAGE>
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMPANY MATERIAL ADVERSE EFFECT" means any event, condition or circumstance
that would be or would be reasonably likely to have a material adverse effect on
the properties, assets, condition (financial or otherwise) or results of
operations of the Company and its Subsidiaries, taken as a whole, but excluding
any such effect resulting from (a) general economic conditions and any
occurrence or condition affecting generally the industries in which the Company
and its Subsidiaries operate or (b) any decrease in revenues of the Company
following the date of this Agreement.
"CONTINUING DIRECTOR" means (a) any member of the Board of Directors of the
Company as of the date hereof, (b) any member of the Board who is unaffiliated
with, and not a designated director or other nominee of, Purchaser or Sub or
their respective subsidiaries, and (c) any successor of a Continuing Director
who is (i) unaffiliated with, and not a designated director or other nominee of,
Purchaser or Sub or their respective subsidiaries and (ii) recommended to
succeed a Continuing Director by a majority of the Continuing Directors then on
the Board.
"DOJ" means the Antitrust Division of the United States Department of
Justice.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"FORMER STOCKHOLDERS" means the stockholders of the Company immediately
prior to the Effective Time.
"FTC" means the Federal Trade Commission.
"GAAP" means generally accepted accounting principles in effect in the
United States of America at the time of determination, and which are applied on
a consistent basis during the periods involved.
"HSR ACT" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, and the rules and regulations promulgated thereunder.
"LIENS" means all mortgages, claims, charges, liens, security interests,
pledges, options, easements, rights of way, or other encumbrances of any nature
whosoever.
"PERMITTED LIENS" means (i) Liens for water and sewage charges and current
taxes not yet due and payable or being contested in good faith by appropriate
proceedings, (ii) mechanics', carriers', workers', repairers', materialmen's,
warehousemen's and other similar Liens arising or incurred in the ordinary
course of business, (iii) such other Liens as would not in the aggregate have a
Company Material Adverse Effect and (iv) Liens arising or resulting from any
action taken by Purchaser or Sub.
"PERSON" means an individual, partnership, joint venture, trust,
corporation, limited liability company or other entity (including, without
limitation, any government or political subdivision or any agency, department or
instrumentality thereof).
"PURCHASER MATERIAL ADVERSE EFFECT" means any event, condition or
circumstance that would or would be reasonably likely to have a material adverse
effect on the properties, assets, condition (financial or otherwise), or results
of operations of Purchaser and its Subsidiaries, taken as a whole, but excluding
any such effect resulting from general economic conditions and any occurrence or
condition affecting generally the industries in which Purchaser or its
Subsidiaries operate.
"PURCHASER PLANS" means employee benefit plans, as defined in Section 3(3)
of ERISA, or such nonqualified employee benefit or deferred compensation plans,
stock option bonus or incentive plans or other employee benefit or fringe
benefit programs that may be in effect generally for employees of Purchaser or
its Subsidiaries from time to time.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
7
<PAGE>
"SUBSIDIARY" of a Person means any entity of which the securities or other
ownership interest having ordinary voting power to elect a majority of the board
of directors or other persons performing similar functions are at the time
directly or indirectly owned by such Person.
"TAXES" means any and all taxes, charges, fees, levies or other assessments,
including, without limitation, income, gross receipts, excise, real or personal
property, sales, withholding, social security, retirement, unemployment,
occupation, use, service, net worth, payroll, franchise, transfer and recording
taxes, imposed by any federal, state, local or foreign taxing authority, and
shall include any interest, penalties or additions to tax.
"TAX RETURN" means any report, return, document, declaration or other
information or filing required to be supplied to any federal, state, local or
foreign taxing authority with respect to Taxes.
ARTICLE II
THE OFFER
Section 2.1 THE OFFER.
(a) Sub shall, and Purchaser shall cause Sub to, as promptly as practicable,
but in no event later than December 2, 1996, commence (within the meaning of
Rule 14d-2 under the Exchange Act) an offer to purchase for cash (the "OFFER")
any and all of the Company's outstanding shares of common stock, par value $.01
per share (the "SHARES" or the "COMMON STOCK"), at a price not less than $19.09
per Share, net to the seller in cash (the "OFFER PRICE"). The Offer shall have a
scheduled expiration date 20 business days following the commencement thereof.
The Sub shall, and Purchaser shall cause Sub to, accept for payment and pay for
all Shares tendered pursuant to the terms of the Offer as soon as such actions
are permitted under applicable law, subject only to the conditions set forth in
Annex A hereto and shall be made pursuant to an offer to purchase (the "OFFER TO
PURCHASE") containing the terms set forth in this Agreement and the other
conditions set forth in Annex A hereto. Sub shall not, and Purchaser shall not
permit Sub to, decrease the Offer Price, extend the expiration date of the Offer
beyond the twentieth business day following commencement thereof or otherwise
amend any other condition of the Offer in any manner adverse to the holders of
the Shares without the prior written consent of the Company; PROVIDED, HOWEVER,
that Sub may extend the expiration date of the Offer if (i) one or more
conditions set forth in Annex A hereto shall not be satisfied or (ii) Purchaser
reasonably determines, with the prior approval of the Company (such approval not
to be unreasonably withheld or delayed) that such extension is necessary to
comply with any legal or regulatory requirements relating to the Offer.
Purchaser will not tender into the Offer any Shares beneficially owned by it.
The Company agrees that no Shares held by the Company or any Subsidiary of the
Company will be tendered pursuant to the Offer.
(b) On the date of the commencement of the Offer, Purchaser and Sub shall
file with the United States Securities and Exchange Commission (the "SEC") a
Tender Offer Statement on Schedule 14D-1 with respect to the Offer which will
include, as exhibits, an Offer to Purchase and a form of letter of transmittal
and summary advertisement (together with any amendments and supplements thereto,
the "OFFER DOCUMENTS"). The Company and its counsel shall be given a reasonable
opportunity to review and comment on the Offer Documents before they are filed
with the SEC. In addition, Sub agrees to provide the Company and its counsel in
writing with any comments Purchaser, Sub or their counsel may receive from time
to time from the SEC or its staff with respect to the Offer Documents promptly
after the receipt thereof.
Section 2.2 COMPANY ACTIONS.
(a) The Company hereby consents to the Offer and represents that its Board
of Directors (the "BOARD") at a meeting duly called and held, has (i) determined
as of the date hereof that each of the Offer and the Merger is fair to and in
the best interests of the stockholders of the Company, and (ii) resolved to
recommend acceptance of the Offer and approval and adoption of this Agreement by
the stockholders of
8
<PAGE>
the Company; PROVIDED, HOWEVER, that such recommendations may be withdrawn,
modified or amended to the extent that the Board determines in good faith, after
consultation with its counsel, that the failure to take such action may
constitute a breach of the Board's fiduciary duties under, or otherwise violate,
applicable law. The Company further represents that PaineWebber Incorporated has
delivered to the Board its opinion that the consideration to be received by the
stockholders pursuant to the Offer and the Merger is fair to such stockholders
from a financial point of view based on, and subject to, the assumptions and
qualifications set forth in such opinion. Subject to the provisions of Article
VIII, the Company hereby agrees to use its best efforts to file a
Solicitation/Recommendation Statement on Schedule 14D-9 (the "SCHEDULE 14D-9")
containing such recommendations with the SEC and to mail such Schedule 14D-9 to
the stockholders of the Company contemporaneous with the commencement of the
Offer, but in any event not later than 10 business days following the
commencement of the Offer.
(b) Purchaser and its counsel shall be given a reasonable opportunity to
review and comment on the Schedule 14D-9 and any amendments thereto before they
are filed with the SEC. In addition, the Company agrees to provide Purchaser,
Sub and their counsel in writing with any comments the Company or its counsel
may receive from time to time from the SEC or its staff with respect to the
Schedule 14D-9 promptly after the receipt thereof.
Section 2.3 STOCKHOLDER LISTS. In connection with the Offer, the Company
will promptly furnish Sub with mailing labels, security position listings and
any available listing or computer file containing the names and addresses of the
record holders of the Shares as of a recent date and shall furnish Sub with such
information and assistance as Sub or its agents may reasonably request in
communicating the Offer to the record and beneficial holders of the Shares.
Subject to the requirements of applicable law, and except for such steps as are
necessary to disseminate the Offer Documents, Purchaser and Sub shall hold in
confidence the information contained in any of such labels, lists and files,
will use such information only in connection with the Offer and the Merger, and,
if this Agreement is terminated, will deliver to the Company all copies of such
information then in their possession.
Section 2.4 DIRECTORS. Promptly after the purchase of a majority of the
outstanding Shares pursuant to the Offer, Purchaser shall be entitled to
designate up to such number of directors, rounded up to the next whole number,
on the Board as will give Purchaser representation on the Board equal to the
product of the number of directors on the Board, after giving effect to the
directors elected pursuant to this Section, and the percentage that the voting
power represented by such number of Shares so purchased bears to the voting
power represented by the total number of outstanding Shares, to be elected as
soon as practicable after notice by Purchaser to the Company of its desire to
have such directors so elected. The Company shall, at the request of Purchaser,
take all action necessary to cause to be created vacancies for that number of
directors which Purchaser is entitled to designate under this Section and, with
respect to each vacancy created, shall take all action necessary to effect the
election of such number of Purchaser's designees to the Board of Directors,
including, if required by applicable law, mailing to its stockholders the
information required by section 14(f) of the Exchange Act and Rule 14f-1
promulgated thereunder. Purchaser and Sub will provide to the Company in
writing, and be solely responsible for, any information with respect to such
companies and their nominees, officers, directors and affiliates required by
Section 14(f) of the Exchange Act and Rule 14f-1 thereunder. Following the
election or appointment of Purchaser designees to the Board any amendment of
this Agreement, any termination of this Agreement by the Company, any extension
of time for performance of any of the obligations of Purchaser or Sub under this
Agreement, any waiver of any condition to the obligations of the Company or any
of the Company's rights under this Agreement or other action by the Company
under this Agreement shall be effected only by the action of a majority of the
directors of the Company then in office who are Continuing Directors.
Notwithstanding the provisions of this Section 2.4, the parties hereto shall use
their respective best efforts to ensure that at least three of the members of
the Board of shall, at all times prior to the Effective Time be, Continuing
Directors.
9
<PAGE>
ARTICLE III
THE MERGER
Section 3.1 THE MERGER. Upon the terms and subject to conditions of this
Agreement and in accordance with the Delaware General Corporation Law (the
"DGCL"), at the Effective Time, Sub shall be merged with and into the Company
(the "MERGER"). Following the Merger, the separate corporate existence of Sub
shall cease and the Company shall continue as the surviving corporation (the
"SURVIVING CORPORATION").
Section 3.2 CLOSING. The closing of the Merger (the "CLOSING") shall take
place at the offices of Skadden, Arps, Slate, Meagher & Flom LLP, Four
Embarcadero Center, San Francisco, California at 10:00 a.m., local time, on the
second business day after the conditions to the parties' obligation to effect
the Merger contained in Article VII have been satisfied or waived (the "CLOSING
DATE"), unless another date or place is agreed to in writing by the parties
hereto.
Section 3.3 EFFECTIVE TIME. On or as soon as practicable following the
Closing, the parties shall cause the Merger to be consummated by causing a
certificate of merger or, if applicable, a certificate of ownership and merger
with respect to the Merger to be executed, filed and recorded in accordance with
the relevant provisions of the DGCL. The Merger shall become effective at the
time of the filing with the Secretary of State of the State of Delaware of such
certificate of merger or certificate of ownership and merger in accordance with
the relevant provisions of the DGCL or at such later time as shall be specified
in the certificate of merger or certificate of ownership and merger (the
"EFFECTIVE TIME").
Section 3.4 EFFECTS OF THE MERGER. The Merger shall have the effects set
forth in the DGCL and any other applicable law.
Section 3.5 CERTIFICATE OF INCORPORATION AND BY-LAWS. Subject to Section
6.11(b) hereof, the Certificate of Incorporation and By-Laws of Sub as in effect
at the Effective Time shall be the Certificate of Incorporation and By-Laws of
the Surviving Corporation, provided that Article First of the Certificate of
Incorporation of the Surviving Corporation shall be amended to read in its
entirety as follows: "FIRST" The name of the Corporation is Armor All Products
Corporation."
Section 3.6 DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION. The
directors of Sub immediately prior to the Effective Time shall be the initial
directors of the Surviving Corporation and will hold office from the Effective
Time until their respective successors are duly elected or appointed and
qualified or until their earlier death, resignation or removal in the manner
provided in the Certificate of Incorporation and By-laws of the Surviving
Corporation, or as otherwise provided by law. The officers of the Company
immediately prior to the Effective Time shall be the initial officers of the
Surviving Corporation and will hold office from the Effective Time until their
respective successors shall have been duly elected or appointed and qualified or
until their earlier death, resignation or removal in the manner provided in the
Certificate of Incorporation and By-laws of the Surviving Corporation, or as
otherwise provided by law.
Section 3.7 STOCKHOLDERS' MEETING. If required by applicable law in order
to consummate the Merger, the Company, acting through its Board, shall, in
accordance with applicable law:
(a) duly call, give notice of, convene and hold a special meeting of its
stockholders (the "SPECIAL MEETING") as soon as practicable following
acceptance for payment of shares pursuant to the Offer for the purpose of
considering and taking action upon this Agreement;
(b) subject to its fiduciary duties under applicable laws as advised by
counsel, the Company shall prepare and file with the SEC (and Purchaser and
Sub shall cooperate with the Company in such preparation and filing) a
preliminary proxy statement relating to this Agreement and the transactions
contemplated hereby and include in the preliminary proxy statement and the
definitive version thereof the recommendation of the Board referred to in
Section 2.2(a) hereof; and
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(c) subject to its fiduciary duties under applicable laws as advised by
counsel, use its commercially reasonable efforts to (i) obtain and furnish
the information required to be included by it in the Proxy Statement, and,
after consultation with Purchaser, respond promptly to any comments made by
the SEC with respect to the preliminary proxy statement and cause a
definitive proxy statement (the "PROXY STATEMENT") to be mailed to its
stockholders following acceptance for payment of shares pursuant to the
Offer and (ii) obtain the necessary approvals of this Agreement by its
stockholders.
Purchaser will provide the Company with the information concerning Purchaser
and Sub required to be included in the Proxy Statement and will vote, or cause
to be voted, all Shares owned by it or its Subsidiaries in favor of approval and
adoption of this Agreement and the Merger.
Section 3.8 CONVERSION OF SHARES. At the Effective Time:
(a) Each Share issued and outstanding immediately prior to the Effective
Time (other than (i) Shares to be cancelled in accordance with Section
3.8(b) and (ii) Dissenting Shares, if any) shall, by virtue of the Merger
and without any action on the part of the holder thereof, automatically be
converted into the right to receive $19.09 in cash, or any higher price paid
per Share in the Offer (the "MERGER CONSIDERATION"), payable to the holder
thereof, without interest thereon, upon the surrender of the certificate
formerly representing such Share.
(b) Each Share issued and outstanding immediately prior to the Effective
Time owned by Purchaser, Sub or any Subsidiary of the Company, Purchaser or
Sub and each Share held in the treasury of the Company immediately prior to
the Effective Time shall, by virtue of the Merger and without any action on
the part of the holder thereof, automatically be cancelled and cease to
exist at and after the Effective Time and no consideration shall be paid
with respect thereto.
Section 3.9 CONVERSION OF SUB'S COMMON STOCK. Each share of common stock,
par value $.01 per share, of Sub issued and outstanding immediately prior to the
Effective Time shall, by virtue of the Merger and without any action on the part
of the holder thereof, automatically be converted into and thereafter represent
one validly issued, fully paid and nonassessable share of common stock, par
value $.01 per share, of the Surviving Corporation.
Section 3.10 EXCHANGE OF SHARES; PAYMENT. (a) Prior to the Effective Time,
the Company shall designate a federally-insured commercial bank with a combined
capital and surplus of at least $1,000,000,000 to act as Paying Agent in the
Merger (the "PAYING AGENT"). Immediately prior to the Effective Date, Purchaser
will take all steps necessary to enable and cause it or the Surviving
Corporation to deposit with the Paying Agent, in trust for the benefit of the
Former Stockholders, the Aggregate Merger Consideration, in immediately
available funds, for disbursement to the Former Stockholders in the manner set
forth below. The funds on deposit shall be invested by the Paying Agent, as
directed by and for the benefit of and shall be payable to the Surviving
Corporation; PROVIDED, that such investments shall be limited to direct
obligations of the United States of America, obligations for which the full
faith and credit of the United States of America is pledged to provide for the
payment of principal and interest, commercial paper rated of the highest quality
by Moody's Investors Service, Inc. ("MOODY'S") or Standard & Poor's Ratings
Group, a division of McGraw-Hill, Inc. ("S&P"), and certificates of deposit
issued by a commercial bank whose long-term debt obligations are rated at least
A2 by Moody's or at least A by S&P, in each case having a maturity not in excess
of one year.
(b) Promptly after (or, if agreed by the Purchaser and the Company, prior
to) the Effective Time, the Paying Agent shall hand deliver or mail to each
holder of record, as of the Effective Time, of an outstanding certificate or
certificates which immediately prior to the Effective Time represented Shares
(the "CERTIFICATES"), a form letter of transmittal (which shall specify that
delivery shall be effected, and risk of loss and title to a Certificate shall
pass, only upon proper delivery of such Certificate to the Paying Agent) and
instructions for use of such letter of transmittal in effecting the surrender of
a Certificate and obtaining payment therefor. Upon the later of the Effective
Time and surrender to the Paying Agent of a
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Certificate, together with such letter of transmittal duly executed, the holder
of such Certificate shall in exchange therefor be entitled to receive cash in an
amount equal to the product of the number of Shares represented by such
Certificate multiplied by the Merger Consideration to be paid by the Paying
Agent within five business days of receipt of such documentation. No interest
will be paid or accrued on any amount payable upon the surrender of a
Certificate. If payment is to be made to a person other than the person in whose
name a Certificate surrendered is registered, it shall be a condition of payment
that the Certificate so surrendered shall be properly endorsed or otherwise in
proper form for transfer and that the person requesting such payment shall pay
transfer or other taxes required by reason of the payment to a person other than
the registered holder of the Certificate surrendered or establish to the
satisfaction of the Paying Agent that such tax has been paid, is not applicable
or provides assurances satisfactory to the Paying Agent that any such tax will
be paid by such person. Until surrendered in accordance with the provisions of
this Section 3.10(b), each Certificate representing a Share (other than
Certificates representing Shares held in the treasury of the Company, or owned
by Purchaser, Sub or any Subsidiary of the Company, Purchaser or Sub and
Dissenting Shares, if any) shall represent for all purposes only the right to
receive the Merger Consideration, and shall have no other rights.
Notwithstanding the foregoing, any funds remaining with the Paying Agent six
months following the Effective Time shall be returned to Purchaser or the
Surviving Corporation, as specified by Purchaser, after which time the Former
Stockholders, subject to applicable law, shall look only to the Surviving
Corporation for payment of the Merger Consideration, without interest thereon,
and shall have no greater rights against the Surviving Corporation than may be
accorded to general creditors of the Surviving Corporation under Delaware law.
(c) After the Effective Time there shall be no transfers of Shares on the
stock transfer books of the Surviving Corporation. If, after the Effective Time,
Certificates are presented to the Surviving Corporation, they shall be cancelled
and exchanged as provided in this Section 3.10.
(d) If any Certificate shall have been lost, stolen or destroyed, upon the
making of an affidavit of that fact by the person claiming such Certificate to
be lost, stolen or destroyed, the Surviving Corporation shall pay or cause to be
paid in exchange for such lost, stolen or destroyed Certificate the Merger
Consideration for Shares represented thereby. When authorizing such payment of
the Merger Consideration in exchange therefor, the Board of Directors of the
Surviving Corporation may, in its discretion and as a condition precedent to the
payment thereof, require the owner of such lost, stolen or destroyed Certificate
to give the Surviving Corporation a bond in such sum as it may direct as
indemnity against any claim that may be made against the Surviving Corporation
with respect to the Certificate alleged to have been lost, stolen or destroyed.
Section 3.11 DISSENTING SHARES. Notwithstanding anything in this Agreement
to the contrary, holders of Shares who have properly exercised, perfected and
not subsequently withdrawn or lost their appraisal rights with respect thereto
in accordance with Section 262 of the DGCL (the "DISSENTING SHARES") shall not
have any of such Shares converted into or become exchangeable for the right to
receive the Merger Consideration, and holders of such Shares shall be entitled
only to such rights as are granted by such Section 262, including the right to
receive payment of the appraised value of such Shares in accordance with the
provisions of such Section 262 unless and until such holders fail to perfect or
shall have effectively withdrawn or lost their rights to appraisal and payment
under the DGCL. If, after the Effective Time, any such holder fails to perfect
or shall have effectively withdrawn or lost such right, each of such holder's
Shares shall thereupon be treated as if it had been converted into and to have
become exchangeable for, at the Effective Time, the right to receive the Merger
Consideration without interest thereon, as provided in Section 3.8(a) hereof and
such Shares shall no longer be Dissenting Shares.
Section 3.12 COMPANY OPTION PLANS. The Company shall take all actions
necessary to provide that, immediately prior to the consummation of the Offer,
(i) each outstanding stock option ("OPTIONS") outstanding under the Company's
1986 Stock Option Plan, whether or not then exercisable or vested, shall be
cancelled or repurchased by the Company and (ii) in consideration of such
cancellation or repurchase, and except to the extent that Purchaser or Sub and
the holder of any such Option otherwise agree, the
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Company shall pay to the holder of each Option an amount in respect thereof
equal to the product of (A) the Applicable Amount, multiplied by (B) the number
of Shares subject thereto (such payment to be net of applicable withholding
taxes). The term "APPLICABLE AMOUNT" shall mean the excess of (A) the Merger
Consideration, over (B) the exercise price of such Option. The total number of
Options outstanding as of the date of this Agreement is 1,127,137 and a schedule
of the exercise prices of such Options is set forth in Section 4.2 of the
Company Disclosure Letter.
Section 3.13 SUPPLEMENTARY ACTION. If at any time after the Effective
Time, any further assignments or assurances in law or any other things are
necessary or desirable to vest or to perfect or confirm of record in the
Surviving Corporation the title to any property or rights of either of the
constituent corporations, or otherwise to carry out the provisions of this
Agreement, the officers and directors of the Surviving Corporation are hereby
authorized and empowered on behalf of the respective constituent corporations,
in the name of and on behalf of the appropriate constituent corporation, to
execute and deliver any and all things necessary or proper to vest or to perfect
or confirm title to such property or rights in the Surviving Corporation, and
otherwise to carry out the purposes and provisions of this Agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as otherwise disclosed to Purchaser in a letter delivered to it prior
to the execution hereof (the "COMPANY DISCLOSURE LETTER"), the Company
represents and warrants to Purchaser as follows:
Section 4.1 ORGANIZATION. Each of the Company and its Subsidiaries is a
corporation or other entity duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation or organization
and has all requisite corporate power and authority to own, lease and operate
its properties and to carry on its business as it is now being conducted, except
where failure to be so existing and in good standing would not in the aggregate
have a Company Material Adverse Effect. Each of the Company and its Subsidiaries
is duly qualified or licensed to do business as a foreign corporation and is in
good standing in each jurisdiction in which the nature of the business conducted
by it makes such qualification or licensing necessary, except where the failure
to be so duly qualified, licensed and in good standing or to have such power and
authority, or to be so qualified or licensed would not, individually or in the
aggregate, have a Company Material Adverse Effect. The Company has heretofore
delivered to Purchaser a complete and correct copy of each of its Certificate of
Incorporation and By-Laws, as currently in effect.
Section 4.2 CAPITALIZATION.
(a) As of the date hereof, the authorized capital stock of the Company
consists of 40,000,000 shares of Common Stock, par value $.01 per share, and
10,000,000 shares of preferred stock, par value $.01 per share (the "PREFERRED
STOCK"). As of the date hereof, (i) 21,369,447 shares of Common Stock are issued
and outstanding (including all restricted stock), (ii) no shares of Common Stock
are issued and held in the treasury of the Company and (iii) there are no shares
of Preferred Stock issued and outstanding. All the outstanding shares of the
Company's capital stock are duly authorized, validly issued, fully paid and non-
assessable. Except as set forth in Section 4.2(a) of the Company Disclosure
Letter, as of the date hereof, there are no existing, and at the Effective Time
there will not be, (i) options, warrants, calls, preemptive rights,
subscriptions or other rights, convertible securities, agreements or commitments
of any character obligating the Company or any of its Subsidiaries to issue,
transfer or sell any shares of capital stock or other equity interest in, the
Company or any of its Subsidiaries or securities convertible into or
exchangeable for such shares or equity interests, (ii) contractual obligations
of the Company or any of its Subsidiaries to repurchase, redeem or otherwise
acquire any capital stock of the Company or any of its Subsidiaries of the
Company or (iii) voting trusts or similar agreements to which the Company is a
party with respect to the voting of the capital stock of the Company.
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(b) Except as set forth in Section 4.2(b) of the Company Disclosure Letter,
all of the outstanding shares of capital stock (or equivalent equity interests
of entities other than corporations) of each of the Company's Subsidiaries are
beneficially owned, directly or indirectly, by the Company.
Section 4.3 AUTHORIZATION; VALIDITY OF AGREEMENT.
(a) The Company has the requisite corporate power and authority to execute
and deliver this Agreement and, subject to approval of its stockholders as
contemplated by Section 3.7(a) hereof, to consummate the transactions
contemplated hereby. The execution and delivery by the Company of this Agreement
and the consummation of the transactions contemplated hereby have been duly and
validly authorized by the Board and, except for those actions contemplated by
Section 2.2 hereof and approval and adoption of this Agreement by the holders of
a majority of the outstanding shares of the Common Stock, no other corporate
proceedings on the part of the Company are necessary to authorize the execution
and delivery of this Agreement by the Company and the consummation of the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by the Company and, assuming due authorization, execution and delivery
of this Agreement by each of Purchaser and Sub, is a valid and binding
obligation of the Company enforceable against the Company in accordance with its
terms, except as such enforceability may be subject to or limited by bankruptcy,
insolvency, reorganization, or other similar laws, now or hereafter in effect,
affecting the enforcement of creditors' rights generally, and except that the
availability of equitable remedies, including specifi performance, may be
subject to the discretion of the court before which any proceeding therefor may
be brought.
(b) The Board of Directors has taken all actions necessary to render the
provisions of Section 203 of the DGCL inapplicable to the transactions
contemplated by this Agreement.
Section 4.4 NO VIOLATIONS; CONSENTS AND APPROVALS.
(a) Neither the execution, delivery or performance of this Agreement by the
Company nor the consummation by the Company of the transactions contemplated
hereby (i) violate any provision of the Certificate of Incorporation or By-Laws
of the Company, (ii) except as set forth in Section 4.4(a) of the Company
Disclosure Letter, result in a violation or breach of, or constitute a default
(or give rise to any right of termination, amendment, cancellation or
acceleration) under, any of the terms, conditions or provisions of any material
note, bond, mortgage, indenture, guarantee, other evidence of indebtedness,
license, contract, agreement or other instrument to which the Company or any of
its Subsidiaries is a party or by which any of them or any of their properties
or assets may be bound or (iii) to the best knowledge of the Company, violate
any order, writ, judgment, injunction, decree, law, statute, rule or regulation
applicable to the Company, any of its Subsidiaries or any of their properties or
assets; except in the case of clauses (ii) or (iii) for such violations,
breaches or defaults which, individually or in the aggregate, would not (A) have
a Company Material Adverse Effect, (B) materially adversely affect the ability
of the Company to consummate the transactions contemplated in this Agreement, or
(C) become applicable as a result of the business or activities in which
Purchaser or Sub is or proposes to be engaged or as a result of any acts or
omissions by, or the status of any facts pertaining to, Purchaser or Sub.
(b) Except as disclosed in Section 4.4(b) of the Company Disclosure Letter,
no filing or registration with, notification to, or authorization, consent or
approval of, any court, legislative, executive or regulatory authority or agency
(a "GOVERNMENTAL ENTITY") is required in connection with the execution and
delivery of this Agreement by the Company or the consummation by the Company of
the transactions contemplated hereby, except for (i) filings with the FTC and
with the DOJ pursuant to the HSR Act, (ii) applicable requirements under the
Exchange Act, (iii) the filing of the certificate of merger or, if applicable, a
certificate of ownership and merger with the Secretary of State, (iv) applicable
requirements under corporation or "BLUE SKY" laws of various states, and (v)
such other consents, approvals, orders, authorizations, notifications,
registrations, declarations and filings the failure of which to be obtained or
made which, individually or in the aggregate, would not (A) have a Company
Material Adverse Effect, (B) materially adversely affect the ability of the
Company to consummate the transactions contemplated in this
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Agreement, or (C) become applicable as a result of the business or activities in
which Purchaser or Sub is or proposes to be engaged or as a result of any acts
or omissions by, or the status of any facts pertaining to, Purchaser or Sub.
Section 4.5 REPORTS. The Company has filed all reports required to be
filed by it with the SEC pursuant to the Exchange Act since March 31, 1994
(collectively, the "COMPANY SEC DOCUMENTS"). None of the Company SEC Documents,
as of their respective filing dates, contained, and none of the Company SEC
Documents filed after the date hereof will contain, any untrue statement of a
material fact or omitted, or will omit, to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. Each of the
consolidated balance sheets (including the related notes) included in the
Company SEC Documents fairly presents in all material respects the consolidated
financial position of the Company and its Subsidiaries as of the respective
dates thereof, and the other related statements (including the related notes)
included therein fairly present in all material respects the results of
operations and the changes in financial position of the Company and its
Subsidiaries for the respective periods or as of the respective dates set forth
therein. Each of the financial statements (including the related notes) included
in the Company SEC Documents has been prepared in all material respects in
accordance with GAAP during the periods involved, except as otherwise noted
therein.
Section 4.6 ABSENCE OF CERTAIN CHANGES. Except as disclosed in (a) the
Company SEC Documents filed as of the date hereof; (b) the Company's audited
consolidated financial statements for the fiscal year ended March 31, 1996
previously delivered to Purchaser, and (c) Section 4.6 of the Company Disclosure
Letter, since September 30, 1996 through the date hereof, there has not been,
occurred or arisen, whether or not in the ordinary course of business:
(i) any Company Material Adverse Effect;
(ii) any material change in or exception to the Company's policy of not
accepting returns of products shipped to customers;
(iii) any material change in the terms and conditions of the Company's
arrangements with its copackers;
(iv) any sales incentive or bonus program or trade promotion spending or
allowance (including customer allowances and performance-based promotion
spending), whether for the benefit of Company employees, distributors,
representatives, or customers, that would reasonably be expected to increase
trade inventories in anticipation of the transactions contemplated by this
Agreement or that would have the effect of rewarding any person other than
as a result of achieving the targets set forth in the Company's Sales
Incentive Plan, a copy of which has been previously provided to Purchaser;
or
(v) any action or occurrence which, if it occurred after the date hereof
would be a violation of any of Section 6.1(a) through (g) and 6.1(i) through
(n).
Section 4.7 NO UNDISCLOSED LIABILITIES. Except (a) for liabilities and
obligations disclosed or provided for in the Company SEC Documents filed with
respect to periods ending after September 30, 1996 or incurred in the ordinary
course of business since September 30, 1996 and (b) for liabilities and
obligations incurred in connection with the Offer and the Merger, since
September 30, 1996 neither the Company nor any of its Subsidiaries has incurred
any liabilities or obligations material to the Company and its Subsidiaries,
taken as a whole, that would be required to be reflected or reserved against in
a consolidated balance sheet of the Company and its Subsidiaries prepared in
accordance with GAAP as applied in preparing the consolidated balance sheet of
the Company and its Subsidiaries as of March 31, 1996 contained in the Company's
Annual Report on Form 10-K for the fiscal year ended March 31, 1996.
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Section 4.8 SCHEDULE 14D-9; OFFER DOCUMENTS; PROXY STATEMENT. None of the
information supplied by the Company for inclusion in the Schedule 14D-9, the
Offer Documents or the Proxy Statement, including any amendments thereto, will
be false or misleading with respect to any material fact or will 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. Except for information supplied by Purchaser in writing for
inclusion therein, the Proxy Statement and the Schedule 14D-9, including any
amendments thereto, will comply in all material respects with the Exchange Act.
Section 4.9 LITIGATION; COMPLIANCE WITH LAW. As of the date hereof, except
as set forth in Section 4.9 of the Company Disclosure Letter or as disclosed in
the Company SEC Documents, there is no action, suit, proceeding or, to the best
knowledge of the Company, investigation pending or, to the best knowledge of the
Company, threatened, involving the Company or any of its Subsidiaries, or any of
their properties or assets, by or before any court, governmental or regulatory
authority or by any third party that would have a Company Material Adverse
Effect. The businesses of the Company and its Subsidiaries are not being
conducted in violation of any applicable law, ordinance, rule, regulation,
decree or order of any court or governmental entity, except for violations that
in the aggregate would not, individually or in the aggregate, have a Company
Material Adverse Effect.
Section 4.10 EMPLOYEE BENEFIT PLANS; ERISA. (a) Section 4.10(a) of the
Company Disclosure Letter lists each "employee benefit plan" (as defined in
Section 3(3) of ERISA), and all other employee benefit, bonus, incentive, stock
option (or other equity-based), severance, change in control and fringe benefit
plans maintained for the benefit of, or contributed to by the Company or its
Subsidiaries or any trade or business, whether or not incorporated (an "ERISA
AFFILIATE"), that would be deemed a "single employer" within the meaning of
Section 4001 of ERISA, for the benefit of any employee or former employee of the
Company or any of its subsidiaries (the "PLANS"). The Company has made available
to Purchaser copies of each of the Plans, including all amendments to date.
(b) Except as set forth in Section 4.10(b) of the Company Disclosure
Schedule, each of the Plans that is subject to ERISA complies with ERISA and the
applicable provisions of the Code, except for any such violations that would
not, individually or in the aggregate, have a Company Material Adverse Effect.
Except as set forth in Section 4.10(b) of the Company Disclosure Schedule, each
of the Plans intended to be "qualified" within the meaning of Section 401(a) of
the Code has been determined by the Internal Revenue Service to be so qualified
and the Company knows of no fact or set of circumstances that would adversely
affect such qualification prior to the Effective Time. Except as set forth in
Section 4.10(b) of the Company Disclosure Letter, none of the Plans is subject
to Title IV of ERISA. No "reportable event", as such term is defined in Section
4043(b) of ERISA (for which the 30-day notice requirement to the Pension Benefit
Guaranty Board has not been waived) has occurred with respect to any Plan,
except where the occurrence of any such event would not have a Company Material
Adverse Effect. There are no pending or, to the best knowledge of Company,
threatened claims (other than routine claims for benefits) by, on behalf of or
against any of the Plans or any trusts related thereto, except for any such
claims that would not, individually or in the aggregate, have a Company Material
Adverse Effect.
(c) Except as set forth in Section 4.10(c) of the Company Disclosure Letter,
no Plan provides benefits, including without limitation, death or medical
benefits (whether or not insured), with respect to any employees of the Company
or any of its Subsidiaries beyond their retirement or other termination of
service (other than (i) coverage mandated by applicable law, (ii) death benefits
or retirement benefits under any "employee pension plan," as that term is
defined in Section 3(2) of ERISA, or (iii) benefits the full cost of which is
borne by the current or former employee (or his or her beneficiary)).
(d) No Plan has incurred an "Accumulated Funding Deficiency" (as defined in
Section 302(a) of ERISA or Section 412(a) of the Code), whether or not waived,
except where the occurrence of any such event would not have a Company Material
Adverse Effect.
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(e) Except as set forth in Section 4.10(e) of the Company Disclosure Letter,
none of the Company, its Subsidiaries or any ERISA Affiliate has incurred a
"withdrawal" or "partial withdrawal", as defined in Sections 4203 and 4205 of
ERISA, from any Plan that has resulted in an unpaid liability of the Company,
any of its Subsidiaries or any ERISA Affiliate, except where the occurrence of
any such event would not have a Company Material Adverse Effect.
(f) Except as set forth in Section 4.10(f) of the Company Disclosure
Schedule, with respect to each employee benefit plan (as defined in Section 3(3)
of ERISA) which is referred to in Section 4.10(a) (including for this purpose
any terminated plan or arrangement that would be described in Section 4.10(a) if
not terminated) and which is (or was) subject to Part 4 of Subtitle B of Title I
of ERISA, none of the following now exists or has existed within the six-year
period ending on the date hereof:
(i) any act or omission by the Company or any of its Subsidiaries, or by
any director, officer or employee thereof, or, to the knowledge of the
Company or any of its Subsidiaries, by any other person, constituting a
violation of Section 404 or 405 of ERISA; or
(ii) any act or omission which constitutes a violation of Section 406 or
407 of ERISA and is not exempted by Section 408 of ERISA or which
constitutes a violation of Section 4975(c) of the Code and is not exempted
by Section 4975(d) of the Code.
(g) Each Plan has been maintained in substantial compliance with its terms,
and all contribution, premiums or other payments due from the Company or any of
its Subsidiaries to (or under) any such plan or arrangement have been fully paid
or adequately provided for on the financial statements provided in the Company
SEC Documents for the fiscal quarter ended September 30, 1996. Except as
described in Section 4.10(g) of the Company Disclosure Letter there has been no
amendment, written interpretation or announcement (whether or not written) by
the Company or any of its Subsidiaries with respect to, or change in employee
participation or coverage under, any such plan or arrangement that would
increase materially the expense of maintaining such plans or arrangements,
individually or in the aggregate, above the level of expense incurred with
respect thereto provided in the Company SEC Documents for the fiscal quarter
ended September 30, 1996.
(h) Except as described in Section 4.10(h) of the Company Disclosure Letter,
neither the Company nor any of its Subsidiaries has any material liability under
or in connection with any terminated plan or arrangement that would constitute a
"Plan" as defined in Section 4.10(a) if not terminated (a "TERMINATED PLAN"),
and all benefits accrued under each such terminated plan or arrangement,
including benefits funded through any related trust, insurance contract, annuity
contract, custodial account or similar funding method, have been paid or
distributed to the persons entitled thereto in accordance with its terms. Each
Terminated Plan intended to be qualified under Section 401(a) of the Code was so
qualified, and each related trust, insurance contract, annuity contract or
custodial account was exempt from taxation under Section 501(a) of the Code, at
the time of termination and at all times when payment or distribution of
benefits was made subsequent to or in connection with such termination.
Section 4.11 REAL PROPERTY. Section 4.11 of the Company Disclosure Letter
identifies all real property owned, leased or used by the Company or its
Subsidiaries for or in the conduct its business. The Company has, either
directly or through its Subsidiaries, (x) good title to, free and clear of all
Liens other than Permitted Liens, or (y) rights by lease or other agreement to
use, all real property used by the Company and its Subsidiaries, except where
the failure to have such title or rights would not have a Company Material
Adverse Effect. All real property leases of property under which the Company or
any of its Subsidiaries is a lessee or lessor, are valid, binding and
enforceable in all material respects in accordance with their terms and, to the
best knowledge of the Company, there are no existing material defaults
thereunder.
Section 4.12 INTELLECTUAL PROPERTY. As of the date hereof, there are no
pending or threatened claims of which the Company or its Subsidiaries have been
given written notice, by any person against their use of
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any trademarks, trade names, service marks, service names, mark registrations,
logos, assumed names and copyright registrations, formulas, trade secrets,
know-how, patents and all applications therefor which are owned by the Company
or its Subsidiaries or are used in the operation of the Company and its
Subsidiaries as currently conducted (collectively, the "INTELLECTUAL PROPERTY").
The Company and its Subsidiaries have such ownership of or such rights by
license, lease or other agreement to the Intellectual Property as are necessary
to permit them to conduct their respective businesses as currently conducted,
except where the failure to have such right would not have a Company Material
Adverse Effect. The Company is not in default of any agreement pursuant to which
the Company has rights to use any Intellectual Property except where such
default would not have a Company Material Adverse Effect.
Section 4.13 COMPUTER SOFTWARE. To the best knowledge of the Company, the
Company and its Subsidiaries have such title or such rights by license, lease or
other agreement to the computer software programs which are owned, licensed,
leased or otherwise used by the Company and its Subsidiaries and which are
material to the conduct of their businesses as currently conducted, as are
necessary to permit the conduct of their businesses as currently conducted,
except where the failure to have such right would not have a Company Material
Adverse Effect.
Section 4.14 MATERIAL CONTRACTS. Except as disclosed in Section 4.14 of
the Company Disclosure Letter, to the best knowledge of the Company, all
material agreements to which the Company or its Subsidiaries are parties are
valid, binding and enforceable in all material respects in accordance with their
terms and neither the Company nor any of its Subsidiaries nor any other party to
any such contract is in default under such agreements, other than such defaults,
if any, that would not, individually or in the aggregate, have a Company
Material Adverse Effect.
Section 4.15 TAXES. Except as set forth in Section 4.15 of the Company
Disclosure Letter:
(a) each of the Company and the Subsidiaries have (I) duly filed with
the appropriate governmental authorities all Tax Returns required to be
filed by it other than those Tax Returns the failure of which to file would
not have a Company Material Adverse Effect and such Tax Returns are true,
correct and complete in all material respects, and (II) duly paid in full or
made provision in accordance with GAAP for the payment of all Taxes for all
taxable periods or portions thereof ending on or before the date hereof;
(b) each of the Company and the Subsidiaries have complied in all
material respects with all applicable laws, rules and regulations relating
to the payment and withholding (including backup withholding) of Taxes;
(c) no federal, state, local or foreign audits or other administrative
proceedings or court proceedings ("AUDITS") are presently pending with
regard to any Taxes or Tax Returns of the Company or the Subsidiaries and
none of the Company or the Subsidiaries has received written notice of any
such Audits;
(d) there are no material Liens for Taxes upon any property or assets of
the Company or the Subsidiaries, except for Permitted Liens;
(e) the income Tax Returns of the Company and its Subsidiaries have been
examined by the Internal Revenue Service (or the applicable statutes of
limitation for the assessment of federal income Taxes for such periods have
expired) for all periods through the taxable year ended 1995.
(f) the Company has made available to the Purchaser correct and complete
copies of all federal Tax Returns of the Company and the Subsidiaries filed
from May 13, 1993 forward; PROVIDED, HOWEVER, with respect to taxable years
in which the Company was a member of the consolidated group of which
Stockholder was the common parent, only PRO FORMA federal Tax Returns or
summaries thereof have been made available; and summaries of examination
reports and income tax audit reports of the Company or the Subsidiaries.
Except with respect to the Audits described in subsection (c) of this
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Section 4.15, no waiver or extension of any statute of limitations is in
effect with respect to Taxes or Tax Returns of the Group.
(g) Neither the Company nor any Subsidiary is a "consenting corporation"
within the meaning of Section 341(f) of the Internal Revenue Code of 1986,
as amended (the "Code"), and none of the assets of the Company nor any
Subsidiary are subject to an election under Section 341(f) of the Code.
Neither the Company nor any Subsidiary is a party to any Tax allocation or
sharing agreement. No member of the Group is a party to any safe harbor
lease within the meaning of Section 168(f)(8) of the Code, as in effect
prior to amendment by the Tax Equity and Fiscal Responsibility Act of 1982.
None of the Company or any Subsidiary has entered into any compensatory
agreements with respect to the performance of services which payment
thereunder would result in a nondeductible expense to the Group pursuant to
Section 280G of the Code or an excise tax to the recipient of such payment
pursuant to Section 4999 of the Code. Neither the Company nor any Subsidiary
has agreed, nor is it required to make, any future adjustment under Code
Section 481(a) by reason of a change in accounting method or otherwise.
Section 4.14 of the Company Disclosure Letter contains an accurate and
complete description of the Company's and each of the Subsidiary's tax
carryforwards, excess loss accounts, and deferred intercompany transactions.
Except as otherwise disclosed in Section 4.15 of the Company Disclosure
Letter, the Company and each of the Subsidiaries has no net operating losses
or other tax attributes presently subject to limitation under Code Sections
382, 383, or 384, or the federal consolidated return regulations. None of
the Company or any of its Subsidiaries is an entity that is characterized as
a partnership for federal income tax purposes.
(h) None of the Company or any Subsidiary has participated (or will
participate) in any international boycott as defined in Code Section 999.
Section 4.16 ENVIRONMENTAL MATTERS. Except as set forth in Section 4.16 of
the Company Disclosure Letter, to the knowledge of the Company, (a) the Company
and its Subsidiaries are in material compliance with all federal, state, and
local laws governing pollution or the protection of human health or the
environment ("ENVIRONMENTAL LAWS"), except in each case where noncompliance with
Environmental Laws would not reasonably be expected, individually or in the
aggregate, to have a Company Material Adverse Effect, (b) neither the Company
nor any of its Subsidiaries nor, to the best knowledge of the Company, any of
its copackers, has received any written notice with respect to the business of,
or any property owned or leased by, the Company or any of its Subsidiaries from
any Governmental Entity or third party alleging that the Company or any of its
Subsidiaries or any of its products is not in material compliance with any
Environmental Law, (c) there has been no release of a Hazardous Substance, as
that term is defined in the Comprehensive Environmental Response, Compensation,
and Liability Act, 42 U.S.C. Section 9601 ET SEQ. and used in California Health
and Safety Code Section 25359.7, in excess of a reportable quantity on any real
property owned or leased by the Company or any of its Subsidiaries that is used
for the business of the Company or any of its Subsidiaries and (d) neither the
Company nor any of its Subsidiaries has received any written claims that the
Company is in violation of California's Proposition 65 or, since January 1,
1993, relating to any injuries to any workers of a substantial nature dealing
with the Company's products, whether employed by the Company or any co-packer or
any customer.
Section 4.17 AFFILIATED PARTY TRANSACTIONS. Except as set forth on Section
4.17 of the Company Disclosure Letter, no contracts or agreements in which the
amount involved exceeds $60,000 are in effect as of the date hereof between the
Company or its Subsidiaries on the one hand, and affiliates of the Company, on
the other hand. For purposes of this Section 4.17 an "affiliate" of any Person
shall mean any other person directly or indirectly controlling or controlled by
or under direct or indirect common control with such Person. For the purposes of
this definition, "control", when used with respect to any Person means the power
to direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings that correspond to
the foregoing.
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Section 4.18 NO BROKERS. The Company has not employed any broker or finder
or incurred any liability for any brokerage fees, commissions or finders' fees
in connection with the transactions contemplated by this Agreement, except for
PaineWebber Incorporated ("PaineWebber"), whose fees and expenses in an
aggregate amount equal to $3,000,000 shall be borne by the Company, and the
Company shall not be liable for any such fees and expenses in excess of such
amount.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
OF PURCHASER AND SUB
Purchaser and Sub, jointly and severally, represent and warrant to the
Company as follows:
Section 5.1 ORGANIZATION. Purchaser is a corporation duly organized,
validly existing and in good standing under the laws of Delaware and Sub is a
corporation duly organized, validly existing and in good standing under the laws
of Delaware and has all requisite corporate power and authority to own, lease
and operate its properties and to carry on its business as now being conducted
except where failure to be so existing and in good standing or to have such
power and authority would not in the aggregate have a Purchaser Material Adverse
Effect. Each of Purchaser and Sub is qualified or licensed to do business as a
foreign corporation and is in good standing in each jurisdiction in which the
nature of the business conducted by it makes such qualification or licensing
necessary, except where the failure to be so duly qualified, licensed and in
good standing would not have a Purchaser Material Adverse Effect. Purchaser has
heretofore 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 currently in effect. Since the date of its
incorporation, Sub has not engaged in any activities other than in connection
with or as contemplated by this Agreement or in connection with arranging any
financing required to consummate the transactions contemplated hereby.
Section 5.2 AUTHORIZATION; VALIDITY OF AGREEMENT. Each of Purchaser and
Sub has the requisite corporate power and authority to execute and deliver this
Agreement and to consummate the transactions contemplated hereby. The execution
and delivery by Purchaser and Sub of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly authorized by the
respective boards of directors of Purchaser and Sub, and by Purchaser as the
sole stockholder of Sub, and no other corporate proceedings on the part of
Purchaser or Sub are necessary to authorize the execution and delivery of this
Agreement by Purchaser and Sub and the consummation of the transactions
contemplated hereby. This Agreement has been duly executed and delivered by
Purchaser and Sub and, assuming due authorization, execution and delivery of
this Agreement by the Company, is a valid and binding obligation of each of
Purchaser and Sub, enforceable against each of them in accordance with its
terms, except as such enforceability may be subject to or limited by bankruptcy,
insolvency, reorganization or other similar laws, now or hereafter in effect,
affecting the enforcement of creditors' rights generally, except that the
availability of equitable remedies, including specific performance, may be
subject to the discretion of the court before which any proceeding therefor may
be brought.
Section 5.3 NO VIOLATIONS; CONSENTS AND APPROVALS.
(a) Neither the execution, delivery or performance of this Agreement by
Purchaser and Sub nor the consummation by Purchaser and Sub of the transactions
contemplated hereby (i) violate any provision of the respective certificate of
incorporation or by-laws of Purchaser or Sub, (ii) result in a violation or
breach of, or constitute (with or without due notice or lapse of time or both) a
default (or give rise to any right of termination, cancellation or acceleration)
under, any of the terms, conditions or provisions of any material note, bond,
mortgage, indenture, guarantee, other evidence of indebtedness, license,
contract, agreement or other instrument to which Purchaser or any of its
Subsidiaries is a party or by which any of them or any of their assets may be
bound or (iii) violate any order, writ, judgment, injunction, decree, law,
statute, rule or regulation applicable to Purchaser, any of its Subsidiaries or
any of their properties or assets; except in
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the case of clauses (ii) and (iii) for violations, breaches or defaults which
(A) would not have a Purchaser Material Adverse Effect, (B) materially adversely
affect the ability of either Purchaser or Sub to consummate the transactions
contemplated in this Agreement or (C) become applicable as a result of the
business or activities in which Purchaser or Sub is or proposes to be engaged or
as a result of any acts or omissions by, or the status of any facts pertaining
to, the Company.
(b) No filing or registration with, notification to, or authorization,
consent or approval of, any Governmental Entity is required in connection with
the execution and delivery of this Agreement by Purchaser and Sub or the
consummation by Purchaser and Sub of the transactions contemplated hereby,
except (i) filings with the FTC and with the DOJ pursuant to the HSR Act, (ii)
applicable requirements under the Exchange Act, (iii) the filing of the
certificate of merger or, if applicable, a certificate of ownership and merger
with the Secretary of State, (iv) applicable requirements under corporation or
"blue sky" laws of various states, and (v) such other consents, approvals,
orders, authorizations, notifications, registrations, declarations and filings
the failure of which to be obtained or made (A) would not have a Purchaser
Material Adverse Effect, (B) would not materially adversely affect the ability
of Purchaser or Sub to consummate the transactions contemplated in this
Agreement, or (C) become applicable as a result of the business or activities in
which Purchaser or Sub is or proposes to be engaged or as a result of any acts
or omissions by, or the status of any facts pertaining to, the Company.
Section 5.4 SCHEDULE 14D-9; OFFER DOCUMENTS; PROXY STATEMENT. None of the
information supplied by Purchaser or Sub for inclusion in the Offer Documents,
the Schedule 14D-9 or the Proxy Statement, including any amendments thereto,
will be false or misleading with respect to any material fact or will 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. Except for information supplied by the Company in writing
for inclusion in the Offer Documents, the Offer Documents will comply in all
material respects with the Exchange Act.
Section 5.5 SUFFICIENT FUNDS. Purchaser and Sub have sufficient funds
available, in cash or pursuant to existing credit agreements or binding
commitments in effect on the date of this Agreement, to purchase all Shares on a
fully diluted basis at the price per Share set forth in Section 2.1 hereof and
to perform all of their obligations, and the obligations of the Company
following the Merger, hereunder.
Section 5.6 BENEFICIAL OWNERSHIP OF SHARES. None of Purchaser, Sub or any
of their respective "affiliates" or "associates" (as those terms are defined in
Rule 12b-2 of the General Rules and Regulations under the Exchange Act)
"beneficially owns" (as that term is defined in Rule 13d-3(a) under the Exchange
Act) any Shares or any securities convertible into or exchangeable for Shares.
Section 5.7 NO BROKERS. Neither Purchaser nor Sub has employed any broker
or finder or incurred any liability for any brokerage fees, commissions or
finders' fees in connection with the transactions contemplated by this
Agreement, except for Morgan Stanley & Co. Incorporated, whose fees shall be
borne by Purchaser.
Section 5.8 INVESTIGATION BY PURCHASER. Each of Purchaser and Sub has
conducted its own independent review and analysis of the businesses, assets,
condition, operations and prospects of the Company and its Subsidiaries and
acknowledges that each of Purchaser and Sub has been provided access to the
properties, premises and records of the Company and its Subsidiaries for this
purpose. In entering into this Agreement, Purchaser and Sub have relied solely
upon their own investigation and analysis, and each of Purchaser and Sub:
(a) acknowledges that none of the Company, its Subsidiaries or any of
their respective directors, officers, employees, affiliates, agents or
representatives makes any representation or warranty, either express or
implied, as to the accuracy or completeness of any of the information
provided or made available to Purchaser or their agents or representatives
prior to the execution of this Agreement, and
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(b) agrees, to the fullest extent permitted by law, that none of the
Company, its Subsidiaries or any of their respective directors, officers,
employees, stockholders, affiliates, agents or representatives shall have
any liability or responsibility whatsoever to Purchaser or Sub on any basis
(including, without limitation, in contract or tort, under federal or state
securities laws or otherwise) based upon any information provided or made
available, or statements made, to Purchaser prior to the execution of this
Agreement, except that the foregoing limitations shall not apply to the
Company to the extent (i) the Company makes the specific representations and
warranties set forth in Article IV of this Agreement or (ii) Stockholder
makes the specific representations and warranties set forth in Section 1(f)
or (3) of the Stockholder Agreement or makes the covenant set forth in
Section 9 of the Stockholder Agreement, but always subject to the
limitations and restrictions contained herein and therein.
ARTICLE VI
COVENANTS
Section 6.1 CONDUCT OF BUSINESS BY THE COMPANY PENDING THE MERGER. During
the period from the date hereof to the consummation of the Offer, except as
Purchaser shall otherwise agree in writing, as required by applicable law, or as
otherwise contemplated by this Agreement, the Company and its Subsidiaries shall
conduct their respective businesses in the ordinary course, consistent with past
practice. Further, the Company shall use reasonable efforts to preserve intact
the business organization of the Company and each of its Subsidiaries, to keep
available the services of its and their present officers and key employees in
good standing, and to preserve the goodwill of those having business
relationships with it and its Subsidiaries. Without limiting the generality of
and in addition to the foregoing, and except as set forth in the Company
Disclosure Letter hereto or as otherwise provided in this Agreement, prior to
the consummation of the Offer, neither the Company nor any of its Subsidiaries
will, without the prior written consent of Purchaser:
(a) amend its charter or by-laws;
(b) authorize for issuance, issue, sell, deliver or agree or commit to
issue, sell or deliver (whether through the issuance or granting of options,
warrants, commitments, subscriptions, rights to purchase or otherwise) any
stock of any class or any other securities, except by the Company in
connection with the exercise of employee options granted and outstanding
before the date of this Agreement;
(c) split, combine or reclassify any shares of its capital stock,
declare, set aside or pay any dividend or other distribution (whether in
cash, stock or property or any combination thereof) in respect of its
capital stock or redeem or otherwise acquire any of its securities or any
securities of its subsidiaries; PROVIDED that the Company may pay to holders
of the Shares the regular quarterly dividend of $0.16 per Share previously
declared by the Company, the record date and payment date for which have
previously been fixed by the Board as December 2, 1996 and January 2, 1997,
respectively;
(d) (i) incur or assume any material long-term debt or, except in the
ordinary course of business consistent with past practice under existing
lines of credit, incur or assume any material short-term debt; (ii) assume,
guarantee, endorse or otherwise become liable or responsible (whether
directly, contingently or otherwise) for any material obligations of any
other person except wholly owned Subsidiaries of the Company in the ordinary
course of business and consistent with past practices; or (iii) make any
material loans, advances or capital contributions to, or investments in, any
other person (other than loans or advances to the Company's Subsidiaries and
customary loans or advances to employees in accordance with past practices);
(e) enter into, adopt or materially amend any bonus, profit sharing,
compensation, severance, termination, stock option, stock appreciation
right, restricted stock, performance unit, pension,
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retirement, deferred compensation, employment, severance or other employee
benefit agreements, trusts, plans, funds or other arrangements of or for the
benefit or welfare of any Company Employee, or increase in any manner the
compensation or fringe benefits of any Company Employee or pay any benefit
not required by any existing plan and arrangement (including, without
limitation, the granting of stock options, stock appreciation rights, shares
of restricted stock or performance units) or enter into any contract,
agreement, commitment or arrangement to do any of the foregoing; PROVIDED,
HOWEVER, that nothing herein shall prohibit normal increases in wages or
salary or immaterial fringe benefits in the ordinary course of business that
are consistent with the past practices;
(f) acquire, sell, lease or dispose of any assets outside the ordinary
course of business or any assets that are material, individually or in the
aggregate, to the Company and its Subsidiaries, taken as a whole, or enter
into any material commitment or transaction outside the ordinary course of
business;
(g) except as may be required by law and except as set forth on the
Company Disclosure Letter, take any action to terminate or amend any of its
employee benefit plans with respect to or for the benefit of Company
Employees;
(h) hire any employee other than to replace an employee; PROVIDED,
HOWEVER, that the annual salary of such replacement employee shall not
exceed $50,000;
(i) pay, discharge or satisfy any claims (including claims of
stockholders), liabilities or obligations (absolute, accrued, asserted or
unasserted, contingent or otherwise), except for the payment, discharge or
satisfaction of (i) liabilities or obligations in the ordinary course of
business consistent with past practice or in accordance with their terms as
in effect on the date hereof, (ii) liabilities reflected or reserved against
in, or contemplated by, the Company's consolidated audited financial
statements (or in the notes thereof) dated September 30, 1996, or waive,
release, grant, or transfer any rights of material value or modify or change
in any material respect any existing license, lease, contract or other
document, other than in the ordinary course of business consistent with past
practice;
(j) change any material accounting principle used by it, except for such
changes as may be required to be implemented following the date of this
Agreement pursuant to generally accepted accounting principles or rules and
regulations of the SEC promulgated following the date hereof;
(k) take any action that would result in any of its representations and
warranties in this Agreement becoming untrue in any material respect;
(l) make any material change in or exception to the Company's policy of
not accepting returns of products shipped to customers;
(m) make any material change in the terms and conditions of the
Company's arrangements with its copackers; or
(n) take, or agree in writing or otherwise to take, any of the foregoing
actions.
Section 6.2 ACQUISITION PROPOSALS.
(a) The Company and its Subsidiaries will not, and will cause their
respective officers, directors, employees and investment bankers, attorneys or
other agents retained by the Company or any of its Subsidiaries not to, (i)
initiate or solicit, directly or indirectly, any inquiries or the making of any
Acquisition Proposal, or (ii) except as permitted below, engage in negotiations
or discussions with, or furnish any information or data to any third party
relating to an Acquisition Proposal (other than the transactions contemplated
hereby). Notwithstanding anything to the contrary contained in this Section 6.2
or in any other provision of this Agreement, the Company and the Board (i) may
participate in discussions or negotiations (including, as a part thereof, making
any counterproposal) with or furnish information to any third party if the Board
determines in good faith, after consultation with its counsel, that the failure
to
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participate in such discussions or negotiations or to furnish such information
may constitute a breach of the Board's fiduciary duties under applicable law,
and (ii) shall be permitted to (X) take and disclose to the Company's
stockholders a position with respect to the Offer or the Merger or another
tender or exchange offer by a third party, or amend or withdraw such position,
pursuant to Rules 14d-9 and 14e-2 of the Exchange Act or (Y) make disclosure to
the Company's stockholders, in each case if the Board determines in good faith,
after consultation with its counsel, that the failure to take such action may
constitute a breach of the Board's fiduciary duties under, or otherwise violate,
applicable law. The Company shall promptly provide Purchaser with a copy of any
written Acquisition Proposal received and inform Purchaser promptly and on a
reasonable basis of the status and content of any discussions with such a third
party (provided that the Company shall not be obligated so to provide such
Acquisition Proposal or to inform Purchaser if the Board determines in good
faith, after consultation with its counsel, that such action may constitute a
breach of the Board's fiduciary duties under applicable law).
(b) For purposes of this Agreement, "ACQUISITION PROPOSAL" shall mean any
bona fide proposal made by a third party to acquire (i) beneficial ownership (as
defined under Rule 13(d) of the Exchange Act) of a majority equity interest in
the Company pursuant to a merger, consolidation or other business combination,
sale of shares of capital stock, tender offer or exchange offer or similar
transaction involving the Company including, without limitation, any single or
multi-step transaction or series of related transactions which is structured in
good faith to permit such third party to acquire beneficial ownership of a
majority or greater equity interest in the Company or (ii) all or substantially
all of the business or assets of the Company (other than the transactions
contemplated by this Agreement).
Section 6.3 ACCESS TO INFORMATION.
(a) Between the date of this Agreement and the consummation of the Offer,
during normal business hours, the Company will give Purchaser and its authorized
representatives reasonable access to all offices and other facilities and to all
books and records of it and its Subsidiaries, will permit Purchaser to make such
inspections as it may reasonably require and will cause its officers and those
of its Subsidiaries to furnish Purchaser with such financial and operating data
and other information as Purchaser may from time to time reasonably request,
which information shall include, without limitation, a copy of the Company's
Customer Tracking Report (showing orders and shipments by customer), which shall
be delivered to Purchaser substantially concurrently with its distribution to
the Company's senior management. The Company will provide access to management
of the Company regularly to discuss timing of shipments. Purchaser and its
authorized representatives will conduct all such inspections in a manner which
will minimize any disruptions of the business and operations of the Company and
its Subsidiaries.
(b) Purchaser, Sub, and the Company agree that the provisions of the
confidentiality agreement among the Company, Stockholder and Purchaser, dated as
of October 10, 1996 (the "CONFIDENTIALITY AGREEMENT") shall remain binding and
in full force and effect and that the terms of the Confidentiality Agreement are
incorporated herein by reference.
(c) Any furnishing of information pursuant hereto or any investigation shall
not affect Purchaser's and Sub's right to rely on the representations and
warranties made by the Company in this Agreement. Except as otherwise provided
by law, Purchaser, the Company and Sub each agrees to maintain all information
received pursuant to the terms of this Agreement and the Confidentiality
Agreement in accordance with the terms and conditions of the Confidentiality
Agreement.
Section 6.4 BEST EFFORTS. Subject to the terms and conditions herein
provided, each of the parties hereto agrees to use its best efforts to take, or
cause to be taken, all action, and to do, or cause to be done, all things
necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this Agreement.
Section 6.5 CONSENTS. Each of the Company, Purchaser and Sub shall
cooperate, and use their respective best efforts, in as timely a manner as is
reasonably practicable, to make all filings and obtain all
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licenses, permits, consents, approvals, authorizations, qualifications and
orders of governmental authorities and other third parties necessary to
consummate the transactions contemplated by this Agreement. Each of the parties
hereto will furnish to the other party such necessary information and reasonable
assistance as such other persons may reasonably request in connection with the
foregoing and will provide the other party with copies of all filings made by
such party with any Governmental Entity or any other information supplied by
such party to a Governmental Entity in connection with this Agreement and the
transactions contemplated hereby.
Section 6.6 HSR FILINGS.
(a) In addition to and without limiting the agreements contained in Section
6.5 hereof, Purchaser, Sub and the Company will (i) take promptly all actions
necessary to make the filings required of Purchaser, Sub or any of their
affiliates under the HSR Act, (ii) comply at the earliest practicable date with
any formal or informal inquiry including, but not limited to, any request for
additional information or documentary material received by Purchaser, Sub or any
of their affiliates from the FTC or DOJ pursuant to the HSR Act and (iii)
cooperate with the Company in connection with any filing of the Company under
the HSR Act and in connection with responding to or resolving any investigation
or other inquiry concerning the transactions contemplated by this Agreement
commenced by either the FTC or DOJ or state attorneys general.
(b) In furtherance and not in limitation of the covenants contained in
Sections 6.5 and Section 6.6(a) hereof, Purchaser, Sub and the Company shall
each use their best efforts to resolve such objections, if any, as may be
asserted with respect to the Offer, the Merger or any other transactions
contemplated by this Agreement under any Antitrust Law whether such objection is
raised by a private party or governmental or regulatory authority. If any
administrative, judicial or legislative action or proceeding is instituted (or
threatened to be instituted) challenging the Offer, the Merger or any other
transactions contemplated by this Agreement as violative of any Antitrust Law,
each of the parties hereto agrees to cooperate and use its best efforts
vigorously to contest and resist any such action or proceeding, and to have
vacated, lifted, reversed or overturned any decree, judgment, injunction or
other order (whether temporary, preliminary or permanent) (any such decree,
judgment, injunction or other order is hereafter referred to as an "ORDER") that
is in effect and that restricts, prevents or prohibits consummation of the
Offer, the Merger or any other transactions contemplated by this Agreement,
including, without limitation, by vigorously pursuing all available avenues of
administrative and judicial appeal and all available legislative actions. Each
of Purchaser and Sub also agrees to use its best efforts to take such action,
including, without limitation, agreeing to hold separate or to divest any of the
businesses, product lines, or assets of Purchaser or Sub or any of their
affiliates or, following the consummation of the Offer or the Effective Time, of
the Company or any of its Subsidiaries, as may be required (a) by the applicable
governmental or regulatory authority (including without limitation the FTC, DOJ
or any state attorney general) in order to resolve such objections as such
governmental or regulatory authority may have to such transactions under such
Antitrust Law, or (b) by any domestic or foreign court or other tribunal, in any
action or proceeding brought by a private party or governmental or regulatory
authority challenging such transactions as violative of any Antitrust Law, in
order to avoid the entry of, or to effect the dissolution, vacating, lifting or
reversal of, any Order that has the effect of restricting, preventing or
prohibiting the consummation of any such transactions. The entry by a court or
other tribunal, in any action or proceeding brought by a private party or
governmental or regulatory authority challenging the transactions contemplated
hereby as violative of any Antitrust Law, of an Order permitting such
transactions, but requiring that any of the businesses, product lines or assets
of any of Purchaser, Sub or any of their affiliates or, following the
consummation of the Offer or the Effective Time, of the Company or any of its
Subsidiaries be divested or held separate by Purchaser and Sub, or that would
otherwise limit Purchaser's or Sub's freedom of action with respect to, or their
ability to retain, the Company, any of its Subsidiaries or any businesses,
product lines or assets thereof or any of Purchaser's or Sub's or their
respective affiliates' other businesses, product lines or assets, shall not be
deemed a failure to satisfy any of the conditions specified in Article VII
hereof.
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Notwithstanding the foregoing, the Company shall not be required to divest or
hold separate or otherwise take or commit to take any action that, prior to the
Effective Time, limits its freedom of action with respect to, or its ability to
retain, its Subsidiaries or any of their respective businesses, product lines or
assets.
(c) Each of the Company, Purchaser and Sub shall promptly inform the other
party of any material communication received by such party from the FTC, DOJ or
any other governmental or regulatory authority regarding any of the transactions
contemplated hereby. Purchaser and Sub will advise the Company promptly in
respect of any understandings, undertakings or agreements (oral or written)
Purchaser or Sub proposes to make or enter into with the FTC, DOJ or any other
governmental or regulatory authority in connection with the transactions
contemplated hereby.
Section 6.7 PUBLIC ANNOUNCEMENTS. Each of Purchaser, Sub and the Company
agrees that it will not issue any press release or otherwise make any public
statement with respect to this Agreement or the transactions contemplated hereby
without the prior consent of the other party, which consent shall not be
unreasonably withheld or delayed; PROVIDED, HOWEVER, that such disclosure can be
made without obtaining such prior consent if (i) the disclosure is required by
law or by obligations imposed pursuant to any listing agreement with the Nasdaq
National Market and (ii) the party making such disclosure has first used its
best efforts to consult with the other party about the form and substance of
such disclosure.
Section 6.8 EMPLOYEE AGREEMENTS. Purchaser agrees, and agrees to cause the
Surviving Corporation, to honor and be bound by the terms of the agreements with
officers of the Company set forth in Section 6.8 of the Company Disclosure
Letter.
Section 6.9 EMPLOYEE BENEFITS.
(a) As of the Effective Time, Company employees will be terminated from
future participation in Stockholder's Employee Benefit Plans (as defined in
subsection (e) below). The benefits to be paid to Company employees under each
Employee Benefit Plan sponsored or maintained by the Stockholder shall not be
increased by any service to the Company following the Effective Time. Purchaser
and Sub assume no responsibility for any benefits, liabilities or contributions
to, or costs of administration of, Stockholder's Employee Benefit Plans (which
excludes the Armor All PSIP and any other plans sponsored or maintained solely
by the Company) except for the Contribution Obligation (as defined in the
Stockholder Agreement). Except as expressly provided herein, Purchaser and Sub
agree to provide Company employees employee benefit and compensation plans,
policies and arrangements (other than severance plans) at a level no less
favorable than provided to Purchaser employees of comparable status; PROVIDED,
HOWEVER, that for a period of one year following the Effective Time, Company
employees shall also be provided a severance benefit no less favorable than
provided by the Company as of the date hereof; PROVIDED HOWEVER, that the
foregoing shall not prohibit the Surviving Corporation from amending such
severance benefit plans to clarify any ambiguities therein.
(b) Purchaser agrees to permit Company employees to participate immediately
as of the Effective Date in its medical, dental, disability and life insurance
plans without imposition of preexisting condition exclusions or waiting periods
prior to participation and with full credit for deductibles and copayments paid
in respect of the current plan year. Purchaser agrees to allow participation in
its retiree medical plan to Company employees on a basis no less favorable than
provided to Purchaser employees of comparable status and to grant eligibility
and vesting credit in such retiree medical plans for service with the Company or
the Stockholder.
(c) Purchaser agrees to provide Company employees with service credit for
all purposes, including without limitation, eligibility to participate, and
vesting (other than Purchaser's severance plan, for which such Company employees
are not eligible, and Supplemental Executive Retirement Plan) under each of
Purchaser's Employee Benefit Plans for service with the Company or Stockholder.
(d) The Company shall, prior to December 2, 1996, amend each of the
Company's Incentive Plan for Business Managers, the 1989 Short Term Incentive
Plan, the Employee Incentive Plan and the Sales
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Incentive Plan as follows: The Company's Incentive Plan for Business Managers
shall, immediately following the date hereof, be terminated forthwith. The
Employee Incentive Plan shall, immediately following the Effective Time, be
terminated and all participants shall receive a cash payment equal to their
target bonus as though the budgeted target had been achieved. Each of the
Company's 1989 Short Term Incentive Plan, International Incentive Plan, and the
Company's Sales Incentive Plan, shall, on April 1, 1997, be terminated and the
aggregate amount of individual bonus targets payable to participants in those
Incentive Plans shall be determined as soon as practicable after the Effective
Time as though the budgeted target for Fiscal Year 1997 had been achieved;
individual cash payments shall be modified to reflect individual performance;
PROVIDED, HOWEVER, that such participant either (i) has remained employed with
the Company through March 31, 1997 or (ii) was terminated by the Company on or
prior to such date but after December 31, 1996, other than for cause; PROVIDED
FURTHER, that the participants in the Company's 1989 Short Term Incentive Plan
previously identified in writing to Purchaser shall receive such cash payment
immediately following the Effective Time. Effective April 1, 1997, Company
employees will become eligible to participate in Purchaser's incentive plans at
a level comparable to that of other Purchaser's employees immediately prior to
the date hereof. As of the Effective Time, Company employees will participate in
all of Purchaser's Employee Benefit Plans, including without limitation,
vacation, medical and survivor plans on a basis no less favorable than provided
to Purchaser employees of comparable status, but excluding executive retirement
and severance plans.
(e) For purposes of this Section 6.9 "Employee Benefit Plans" shall mean
employee benefit plans, incentive compensation, severance, health and welfare
plans or policies, whether or not subject to regulation under ERISA.
Section 6.10 INDEMNIFICATION; DIRECTORS' AND OFFICERS' INSURANCE.
(a) In the event of any threatened or actual claim, action, suit, proceeding
or investigation, whether civil, criminal or administrative, including, without
limitation, any such claim, action, suit, proceeding or investigation by or in
the right of the Company or any of its Subsidiaries, in which any of the present
officers or directors (the "INDEMNIFIED PARTIES") of the Company or any of its
Subsidiaries is, or is threatened to be, made a party by reason of the fact that
he or she is or was a director, officer, employee or agent of the Company or any
of its Subsidiaries, or is or was serving at the request of the Company or any
of its Subsidiaries as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, whether
before or after the Effective Time, the parties hereto agree to cooperate and
use their best efforts to defend against and respond thereto. It is understood
and agreed that the Company shall indemnify and hold harmless, and after the
Effective Time the Surviving Corporation and Purchaser, jointly and severally,
shall indemnify and hold harmless, as and to the full extent permitted by
applicable law, each such Indemnified Party against any losses, claims, damages,
liabilities, costs, expenses (including reasonable attorneys' fees and
expenses), judgments, fines and amounts paid in settlement in connection with
any such claim, action, suit, proceeding or investigation, and in the event of
any such claim, action, suit, proceeding or investigation (whether arising
before or after the Effective Time), (i) the Indemnified Parties may retain
counsel satisfactory to them, and the Company, or the Surviving Corporation and
Purchaser after the Effective Time, shall pay all reasonable fees and expenses
of such counsel for the Indemnified Parties promptly as statements therefor are
received and (ii) the Company and the Surviving Corporation and Purchaser will
use their respective reasonable efforts to assist in the vigorous defense of any
such matter; PROVIDED, that neither the Company nor the Surviving Corporation
nor Purchaser shall be liable for any settlement effected without its prior
written consent (which consent shall not be unreasonably withheld); and PROVIDED
FURTHER that the Surviving Corporation and Purchaser shall have no obligation
hereunder to any Indemnified Party when and if a court of competent jurisdiction
shall ultimately determine, and such determination shall have become final and
non-appealable, that indemnification of such Indemnified Party in the manner
contemplated hereby is prohibited by applicable law. Any Indemnified Party
wishing to claim indemnification under this Section 6.11, upon learning of any
such claim, action, suit, proceeding or investigation, shall notify the
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Company and, after the Effective Time, the Surviving Corporation and Purchaser,
thereof (but the failure to so notify an indemnifying party shall not relieve it
from any liability which it may have hereunder, except to the extent such
failure prejudices such party). The Indemnified Parties as a group may retain
only one law firm to represent them with respect to each such matter unless
there is, under applicable standards of professional conduct, a conflict on any
significant issue between the positions of any two or more Indemnified Parties.
(b) Until the Effective Time the Company shall keep in effect Article Tenth
of its Certificate of Incorporation and Article IX of its By-Laws, and,
thereafter, Purchaser shall cause the Surviving Corporation to keep in effect in
its By-Laws a provision for a period of not less than six years from the
Effective Time (or, in the case of matters occurring prior to the Effective Time
which have not been resolved prior to the sixth anniversary of the Effective
Time, until such matters are finally resolved) which provides for
indemnification of the Indemnified Parties to the full extent permitted by the
DGCL.
(c) Purchaser shall cause to be maintained in effect for not less than six
years from the Effective Time the current policies of the directors' and
officers' liability insurance maintained by the Company, if any, (provided that
Purchaser may substitute therefor policies of at least the same coverage
containing terms and conditions which are no less advantageous) with respect to
matters occurring prior to the Effective Time; PROVIDED, HOWEVER, that if the
aggregate annual premiums for such insurance at any time during such period
shall exceed 200% of the per annum rate of premium currently paid by the Company
and its Subsidiaries for such insurance on the date of this Agreement, if any,
then Purchaser shall cause the Company (or the Surviving Corporation if after
the Effective Time) to, and the Company (or the Surviving Corporation if after
the Effective Time) shall, provide the maximum coverage that shall then be
available at an annual premium equal to 200% of such rate, and Purchaser, in
addition to the indemnification provided above in this Section 6.11, shall
indemnify the Indemnified Parties for the balance of such insurance coverage on
the same terms and conditions as though Purchaser were the insurer under those
policies.
Section 6.11 CERTAIN ARRANGEMENTS. Effective as the Effective Time, the
Company shall cause the termination of that certain Services Agreement, dated as
of July 1, 1986 between the Company and Stockholder, as amended through April 1,
1996 (the "SERVICES AGREEMENT"), and all monies held by Stockholder pursuant to
the cash management program shall be remitted to the Company upon such
termination; PROVIDED, HOWEVER, that nothing in this provision shall impact or
cause the termination of that certain Tax Allocation Agreement, dated as of July
1, 1986 between the Company and Stockholder.
Section 6.12 MERGER WITHOUT MEETING OF STOCKHOLDERS. Notwithstanding the
foregoing, in the event that Purchaser or Sub shall acquire at least 90 percent
of the outstanding Shares, the parties hereto agree, at the request of
Purchaser, to take all appropriate and necessary action to cause the Merger to
become effective, as soon as practicable after the expiration or termination of
the Offer and the completion of all activities necessary to finance the
consummation of the Merger and the transactions contemplated hereby, without a
meeting of stockholders of the Company, in accordance with Section 253 of the
DGCL.
Section 6.13 INCREMENTAL VOLUME PLAN. Promptly following the date hereof,
the Company shall (i) amend its Third Quarter Incremental Volume Plan referred
to in Section 4.6 of the Company Disclosure Letter to extend the measurement
period for determining whether the incremental sales volume targets of such Plan
have been satisfied to include the fourth quarter of fiscal year 1997, and (ii)
take all steps reasonably necessary to communicate to customers eligible to
participate in such plan that the Company will honor its Third Quarter
Incremental Volume Plan with respect to shipments made in the fourth quarter of
fiscal year 1997 and to Company sales personnel responsible for such customers.
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ARTICLE VII
CONDITIONS
Section 7.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE
MERGER. The respective obligation of each party to effect the Merger shall be
subject to the satisfaction at or prior to the Effective Time of each of the
following conditions:
(a) If required by the DGCL, this Agreement and the Merger shall have been
approved and adopted by the requisite vote of the stockholders of the Company in
accordance with applicable provisions of the Company's Certificate of
Incorporation and the DGCL;
(b) No statute, rule, regulation, order, decree or injunction shall have
been enacted, entered, promulgated or enforced by any Governmental Entity of
competent jurisdiction which prohibits the consummation of the Merger or makes
the Merger illegal;
(c) The Offer shall not have been terminated in accordance with its terms
prior to the purchase of any Shares; and
(d) Any applicable waiting period applicable to the consummation of the
Merger under the HSR Act shall have expired or been terminated.
Section 7.2 CONDITIONS TO THE OBLIGATION OF THE COMPANY TO EFFECT THE
MERGER. The obligation of the Company to effect the Merger is further subject
to the satisfaction or waiver at or prior to the Effective Time of the following
additional conditions:
(a) The representations and warranties of Purchaser and Sub contained in
this Agreement shall be true and correct in all material respects at and as of
the Effective Time as if made at and as of such time unless limited by their
terms to a prior date;
(b) Each of Purchaser and Sub shall have performed in all material respects
its obligations under this Agreement required to be performed by it at or prior
to the Effective Time pursuant to the terms hereof; and
(c) The Company shall have received a certificate of the President, an
Executive Vice President, a Senior Vice President or the Chief Financial Officer
of Purchaser as to the satisfaction of the conditions set forth in Section
7.2(a) and (b).
Section 7.3 CONDITIONS TO OBLIGATIONS OF PURCHASER AND SUB TO EFFECT THE
MERGER. The obligations of Purchaser and Sub to effect the Merger are further
subject to the satisfaction or waiver at or prior to the Effective Time of the
following additional conditions:
(a) The representations and warranties of the Company contained in this
Agreement shall be true and correct in all material respects at and as of the
Effective Time as if made at and as of such time unless limited by their terms
to a prior date;
(b) The Company shall have performed in all material respects each of its
obligations under this Agreement required to be performed by it at or prior to
the Effective Time pursuant to the terms hereof; and
(c) Purchaser shall have received a certificate of the President, an
Executive Vice President, a Senior Vice President or the Chief Financial Officer
of the Company as to the satisfaction of the conditions set forth in Section
7.3(a) and (b).
Section 7.4 EXCEPTION. The conditions set forth in Section 7.3 hereof
shall cease to be conditions to the obligations of the parties if Sub shall have
accepted for payment and paid for Shares validly tendered pursuant to the Offer;
PROVIDED that the terms of this exception will be deemed satisfied if Sub fails
to accept for payment any Shares pursuant to the Offer in violation of the terms
thereof.
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ARTICLE VIII
TERMINATION
Section 8.1 TERMINATION. Notwithstanding anything herein to the contrary,
this Agreement may be terminated and the Merger may be abandoned at any time
prior to the Effective Time, whether before or after stockholder approval
thereof:
(a) By mutual written consent of Purchaser, the Sub and the Company;
(b) By Purchaser and Sub, on the one hand, or the Company, on the other
hand, if the Effective Time shall not have occurred on or before January 31,
1997 from the date hereof;
(c) By either Purchaser and Sub on the one hand, or the Company, on the
other hand, if the Offer shall expire or have been terminated in accordance with
its terms without any Shares being purchased thereunder but only, in the case of
termination by Purchaser and Sub, if the Sub shall not have been required by the
terms of the Offer or this Agreement to purchase any Shares pursuant to the
Offer;
(d) By Purchaser and Sub, on the one hand, or the Company, on the other
hand, if any court of competent jurisdiction in the United States or other
United States governmental body shall have issued an order, decree or ruling or
taken any other action permanently restraining, enjoining or otherwise
prohibiting the Merger and such order, decree, ruling or other action shall have
become final and nonappealable;
(e) By Purchaser or Sub, on the one hand, or the Company, on the other hand,
if the other party shall have failed to comply in any material respect with any
of the material obligations contained in this Agreement to be complied with or
performed by such party at or prior to such date of termination, and such
failure continues for 20 business days after the actual receipt by such party of
a written notice from the other party setting forth in detail the nature of such
failure;
(f) By Purchaser, if any required approval of the stockholders of the
Company shall not have been obtained by reason of the failure to obtain the
required vote upon a vote held at a duly held meeting of stockholders or at any
adjournment thereof;
(g) By Purchaser, if the Company shall have (i) withdrawn its approval or
recommendation of this Agreement or the Merger, (ii) recommended any Acquisition
Proposal from a person other than Purchaser; or
(h) By the Company if, prior to the purchase of Shares pursuant to the
Offer, either (i) a third party shall have made an Acquisition Proposal that the
Board determines in good faith, after consultation with its financial advisor,
is more favorable to the Company and the holders of Shares than the transactions
contemplated by this Agreement or (ii) other than in response to an Acquisition
Proposal, the Board determines in good faith, after consultation with its
counsel, that the failure so to terminate this Agreement may constitute a breach
of the Board's fiduciary duties under applicable law.
Notwithstanding anything to the contrary contained in this Section 8.1, the
Company shall not be permitted to terminate, or consent to the termination of,
this Agreement without the approval of a majority of the Continuing Directors.
Section 8.2 EFFECT OF TERMINATION. In the event of the termination of this
Agreement as provided in Section 8.1, written notice thereof shall forthwith be
given to the other party or parties specifying the provision hereof pursuant to
which such termination is made, and this Agreement shall forthwith become null
and void, without liability or obligation on the part of Purchaser, Sub or the
Company except as set forth in Sections 6.3(b), 9.1 and 9.13 hereof. Nothing
contained in this Section 8.2 shall relieve any party from liability for any
willful breach of this Agreement.
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Section 8.3 TERMINATION FEE. If this Agreement is terminated (i) by either
party pursuant to Section 8.1(f), (ii) by Purchaser or Sub pursuant to Section
8.1(e) or (g), or (iii) by the Company pursuant to Section 8.1(h), and, in each
such case, if the Company is not then entitled to terminate this Agreement by
reason of Section 8.1(e), then, in addition to any other rights or remedies that
may be available to Purchaser, the Company shall pay Purchaser promptly and in
no event later than two business days after receipt of notice of termination
pursuant to the relevant provision of Section 8.1 (by wire transfer of
immediately available funds to an account designated by Purchaser) a fee of
$11.0 million.
ARTICLE IX
MISCELLANEOUS
Section 9.1 FEES AND EXPENSES. Except as contemplated by this Agreement,
all costs and expenses incurred in connection with this Agreement and the
consummation of the transactions contemplated hereby shall be paid by the party
incurring such expenses.
Section 9.2 AMENDMENT; EXTENSION AND WAIVER. Subject to applicable law,
this Agreement may be amended, modified and supplemented in any and all
respects, whether before or after any vote of the stockholders of the Company
contemplated hereby, by written agreement of the parties hereto, pursuant to
action taken by their respective Boards of Directors (which, in the case of the
Company, shall include the affirmative vote of a majority of the Continuing
Directors), at any time prior to the Closing Date with respect to any of the
terms contained herein; PROVIDED, HOWEVER, that after the approval of this
Agreement by the stockholders of the Company, no such amendment, modification or
supplement shall reduce or change the consideration to be received by the
Company's stockholders in the Merger.
Section 9.3 SURVIVAL. (a) The respective representations, warranties,
covenants and agreements of Purchaser, Sub and the Company contained herein or
in any certificates or other documents delivered prior to or as of the Effective
Time shall not survive beyond the Effective Time, (b) notwithstanding this
Section 9.3 the covenants and agreements of the parties hereto to be performed
following the Effective Time (including by the Surviving Corporation after the
Merger) shall survive the Effective Time without limitation which by their terms
contemplate performance after the Effective Time, including, without limitation,
the covenants and agreements set forth in Sections 6.3(b), 6.8, 6.9, 6.10, 9.1
and 9.13 hereof.
Section 9.4 NOTICES. All notices and other communications hereunder shall
be in writing and shall be deemed given upon (a) transmitter's confirmation of a
receipt of a facsimile transmission, (b) confirmed delivery by a standard
overnight carrier or when delivered by hand or (c) the expiration of five
business days after the day when mailed in the United States by certified or
registered mail, postage prepaid, addressed at the following addresses (or at
such other address for a party as shall be specified by like notice)
(a) if to the Company, to:
Armor All Products Corporation
6 Liberty
Aliso Viejo, California 92656
Telephone: (714) 362-0600
Facsimile: (714) 362-0752
Attention: Kenneth Evans
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with a copy to:
Skadden, Arps, Slate, Meagher
& Flom LLP
919 Third Avenue
New York, New York 10022
Telephone: (212) 735-3000
Facsimile: (212) 735-2000
Attention: Paul T. Schnell
and
(b) if to Purchaser or Sub, to:
The Clorox Company
1221 Broadway
Oakland, California 94612
Telephone: (510) 271-7700
Facsimile: (510) 271-1652
Attention: General Counsel
with a copy to:
Morrison & Foerster LLP
345 California Street
San Francisco, California 94104
Telephone: (415) 677-7000
Facsimile: (415) 677-7522
Attention: John W. Campbell
Section 9.5 INTERPRETATION. When a reference is made in this Agreement to
Sections, such reference shall be to a Section of this Agreement unless
otherwise indicated. Whenever the words "include", " includes" or "including"
are used in this Agreement they shall be deemed to be followed by the words
"without limitation". The phrase "made available" when used in this Agreement
shall mean that the information referred to has been made available if requested
by the party to whom such information is to be made available.
Section 9.6 HEADINGS; SCHEDULES. 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. Any matter disclosed pursuant to the Company
Disclosure Letter shall be deemed to be disclosed for all purposes under this
Agreement but such disclosure shall not be deemed to be an admission or
representation as to the materiality of the item so disclosed.
Section 9.7 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which shall
be considered one and the same agreement.
Section 9.8 ENTIRE AGREEMENT. This Agreement, together with the
Confidentiality Agreement and the Stockholder's Agreement, constitutes the
entire agreement, and supersedes all other prior negotiations, commitments,
agreements and understandings (written and oral), among the parties with respect
to the subject matter hereof.
Section 9.9 SEVERABILITY. If any term, provision, covenant or restriction
of this Agreement is held by a court of competent jurisdiction or other
authority to be invalid, void, unenforceable or against its regulatory policy,
the remainder of the terms, provisions, covenants and restrictions of this
Agreement shall remain in full force and effect and shall in no way be affected,
impaired or invalidated.
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Section 9.10 GOVERNING LAW. This Agreement shall be governed and construed
in accordance with the laws of the State of Delaware without giving effect to
the principles of conflicts of law thereof.
Section 9.11 ASSIGNMENT. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the other parties. Subject to the preceding sentence, this Agreement
will be binding upon, inure to the benefit of and be enforceable by, the parties
and their respective successors and assigns, and except to the extent necessary
to enforce the provisions of Sections 3.12, 6.8, 6.9 and 6.11, the provisions of
this Agreement are not intended to confer upon any person other than the parties
hereto any rights or remedies hereunder.
Section 9.12 SPECIFIC PERFORMANCE; SUBMISSION TO JURISDICTION. Each of the
parties hereto acknowledges and agrees that in the event of any breach of this
Agreement, each non-breaching party would be irreparably and immediately harmed
and could not be made whole by monetary damages. It is accordingly agreed that
the parties hereto (a) will waive, in any action for specific performance, the
defense of adequacy of a remedy at law and (b) shall be entitled, in addition to
any other remedy to which they may be entitled at law or in equity, to compel
specific performance of this Agreement in any action instituted in any state or
federal court sitting in Orange County, California. The parties hereto consent
to personal jurisdiction in any such action brought in any state or federal
court sitting in Orange County, California and to service of process upon it in
the manner set forth in Section 9.4 hereof.
Section 9.13 BROKERAGE FEES AND COMMISSIONS. Except as previously
disclosed in writing, the Company hereby represents and warrants to Purchaser
with respect to the Company, and Purchaser hereby represents and warrants to the
Company with respect to Purchaser and Sub, that no person or entity is entitled
to receive from the Company or Purchaser and Sub, respectively, any investment
banking, brokerage or finder's fee or fees for financial consulting or advisory
services in connection with this Agreement or any of the transactions
contemplated hereby.
IN WITNESS WHEREOF, Purchaser, Sub and the Company have caused this
Agreement to be signed by their respective officers thereunto duly authorized as
of the date first written above.
ARMOR ALL PRODUCTS CORPORATION
By: /s/ KENNETH M. EVANS______________
Name: Kenneth M. Evans
Title: President and Chief
Executive Officer
THE CLOROX COMPANY
By: /s/ EDWARD A. CUTTER______________
Name: Edward A. Cutter
Title: Senior Vice
President--General Counsel
and Secretary
SHIELD ACQUISITION CORPORATION
By: /s/ EDWARD A. CUTTER______________
Name: Edward A. Cutter
Title: Vice President and
Secretary
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ANNEX A
CONDITIONS TO THE TENDER OFFER
Notwithstanding any other provision of the Offer, Sub shall not be required
to purchase any Shares tendered, and may terminate or amend the Offer, if on or
after December 2, 1996, any of the following events shall occur:
(a) the Company shall have breached in any material respect any of its
representations, warranties, covenants or agreements contained in the Merger
Agreement; or
(b) there shall be any statute, rule, regulation, decree, order or
injunction promulgated, enacted, entered or enforced by any United States
federal or state government, governmental authority or court which would (i)
make the acquisition by the Sub of a material portion of the Shares illegal, or
(ii) otherwise prohibit or restrict consummation of the Offer or the Merger;
(c) the Merger Agreement shall have been terminated in accordance with its
terms; or
(d) the Company or its Subsidiaries shall have suffered a change that would
result in a Company Material Adverse Effect.
The foregoing conditions are for the sole benefit of Sub and may be asserted
by Sub regardless of the circumstances giving rise to such conditions, or may be
waived by Sub in whole or in part at any time and from time to time in its
reasonable discretion.
A-1
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FIRST AMENDMENT TO THE AGREEMENT AND PLAN OF MERGER
THIS FIRST AMENDMENT ("FIRST AMENDMENT"), dated as of December 1, 1996, by
and among Armor All Products Corporation, a Delaware corporation (the
"COMPANY"), The Clorox Company, a Delaware corporation ("PURCHASER"), and Shield
Acquisition Corporation, a Delaware corporation and a wholly owned subsidiary of
Purchaser ("SUB").
RECITALS
A. The Company, Purchaser and Sub have entered into an Agreement and Plan of
Merger dated as of November 26, 1996 (the "MERGER AGREEMENT").
B. Purchaser, Sub and McKesson Corporation, a Delaware corporation and, as
of the date hereof, the record and beneficial owner of approximately 54.4% of
the issued and outstanding shares of common stock, par value $0.01 per share, of
the Company (the "STOCKHOLDER") have entered into a Stockholder Agreement dated
as of November 26, 1996 (the "STOCKHOLDER AGREEMENT").
C. The Company, Purchaser and Sub have agreed to amend the Merger Agreement
as set forth below.
NOW THEREFORE, in consideration of the foregoing and the mutual agreements
set forth herein, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. DEFINITIONS. Capitalized terms used and not otherwise defined in this
Agreement shall have the respective meanings assigned to such terms in the
Merger Agreement.
2. CERTAIN ARRANGEMENTS. Section 6.11 of the Merger Agreement shall be
deleted and replaced in its entirety as follows:
Section 6.11 CERTAIN AGREEMENTS. At or prior to the Effective Time, the
Company shall cause that certain Services Agreement, dated as of July 1,
1986 between the Company and Stockholder, as amended through April 1, 1996
(the "SERVICES AGREEMENT"), to be amended in the manner set forth in Section
8(f) of the Stockholder Agreement; PROVIDED, HOWEVER, that all monies held
by Stockholder pursuant to the cash management program shall be remitted to
the Company at the Effective Time; PROVIDED, FURTHER, that nothing in this
provision shall impact or cause the termination of that certain Tax
Allocation Agreement, dated as of July 1, 1986 between the Company and
Stockholder.
3. MISCELLANEOUS.
(a) The headings contained in this First Amendment are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this First Amendment.
(b) This First Amendment may be executed in two or more counterparts, each
of which shall be deemed an original but all of which shall be considered one
and the same agreement.
(c) This First Amendment shall be governed by, and construed in accordance
with, the laws of the State of Delaware without giving effect to the principles
of conflicts of laws thereof.
(d) Except as specifically provided herein, the Merger Agreement shall
remain in full force and effect. In the event of any inconsistency between the
provisions of this First Amendment and any provision of the Merger Agreement,
the terms and provisions of this First Amendment shall govern and control.
<PAGE>
IN WITNESS WHEREOF, the Company, Purchaser and Sub have caused this First
Amendment to be duly executed and delivered as of the date first written above.
ARMOR ALL PRODUCTS CORPORATION
By /s/ KENNETH M. EVANS
------------------------------------
Name: Kenneth M. Evans
Title: President and Chief Executive
Officer
THE CLOROX COMPANY
By /s/ KAREN M. ROSE
------------------------------------
Name: Karen M. Rose
Title: Vice President--Treasurer
SHIELD ACQUISITION CORPORATION
By /s/ KAREN M. ROSE
------------------------------------
Name: Karen M. Rose
Title: Treasurer
<PAGE>
STOCKHOLDER AGREEMENT
STOCKHOLDER AGREEMENT (this "AGREEMENT"), dated as of November 26, 1996, by
and among The Clorox Company, a Delaware corporation ("PURCHASER"), Shield
Acquisition Corporation, a Delaware corporation and a wholly owned subsidiary of
Purchaser ("SUB"), and McKesson Corporation, a Delaware corporation
("STOCKHOLDER").
WHEREAS, Stockholder is, as of the date hereof, the record and beneficial
owner of 11,624,900 shares of common stock, par value $0.01 per share (the
"COMMON STOCK") of Armor All Products Corporation, a Delaware corporation (the
"COMPANY"); and
WHEREAS, Purchaser, Sub and the Company concurrently herewith are entering
into an Agreement and Plan of Merger, dated as of the date hereof (the "MERGER
AGREEMENT"), which provides, among other things, for the acquisition of the
Company by Purchaser by means of a cash tender offer (the "OFFER") for any and
all of the outstanding shares of Common Stock and for the subsequent merger (the
"MERGER") of Sub with and into the Company upon the terms and subject to the
conditions set forth in the Merger Agreement; and
WHEREAS, Stockholder and the Company are parties to a Services Agreement
dated as of July 1, 1986 between the Company and Stockholder, as amended through
April 1, 1996 (the "SERVICES AGREEMENT"), under which Stockholder provides
certain corporate support, employee benefit and other services to the Company
and a Tax Allocation Agreement dated as of July 1, 1986 whereby, among other
things, Stockholder was permitted to file consolidated income tax returns in
which the Company was included for certain tax years of the Company (the "TAX
ALLOCATION AGREEMENT"); and
WHEREAS, certain employees of the Company are participants in Plans (as that
term is defined in the Merger Agreement) maintained by Stockholder for the
benefit of such employees and identified in the Merger Agreement (the
"STOCKHOLDER PLANS");
WHEREAS, as a condition to the willingness of Purchaser and Sub to enter
into the Merger Agreement, and in order to induce Purchaser and Sub to enter
into the Merger Agreement, Stockholder has agreed, to enter into this Agreement.
NOW, THEREFORE, in consideration of the execution and delivery by Purchaser
and Sub of the Merger Agreement and the foregoing and the mutual
representations, warranties, covenants and agreements set forth herein and
therein, and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto agree as follows:
Section 1. REPRESENTATIONS AND WARRANTIES OF STOCKHOLDER. Stockholder
hereby represents and warrants to Purchaser and Sub as follows:
(a) Stockholder is the record and beneficial owner of 11,624,900 shares of
Common Stock (as may be adjusted from time to time pursuant to Section 6 hereof
the "SHARES"), of which 6,939,759 shares (the "EXCHANGE SHARES") are deposited
with The First National Bank of Chicago ("FNB"), as Exchange Agent, pursuant to
that certain Exchange Agent Agreement, dated as of March 14, 1994, between
Stockholder and FNB, as Exchange Agent (the "EXCHANGE AGENT AGREEMENT"), and
that certain Indenture, dated March 14, 1994, between Stockholder and FNB, as
Trustee (the "INDENTURE").
(b) Stockholder is a corporation duly organized, validly existing and in
good standing under the laws of Delaware, has all requisite corporate power and
authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby, and has taken all necessary corporate action
to authorize the execution, delivery and performance of this Agreement.
(c) This Agreement has been duly authorized, executed and delivered by
Stockholder and constitutes the legal, valid and binding obligation of
Stockholder, enforceable against Stockholder in accordance with its terms,
except (i) as limited by applicable bankruptcy, insolvency, reorganization,
moratorium and other
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<PAGE>
laws of general application affecting enforcement of creditors' rights
generally, and (ii) the availability of the remedy of specific performance or
injunctive or other forms of equitable relief may be subject to equitable
defenses and would be subject to the discretion of the court before which any
proceeding therefor may be brought.
(d) Neither the execution and delivery of this Agreement nor the
consummation by 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 Stockholder is a party or bound or to which the Shares are subject. To the
best of Stockholder's knowledge, consummation by 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 Stockholder or the Shares, except for any necessary
filing under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR ACT"), or state takeover laws.
(e) The Shares and the certificates representing Shares are now and at all
times during the term hereof will be held by Stockholder, or by a nominee or
custodian for the benefit of 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 (i) the Exchange
Shares, which are subject to the terms and provisions of the Indenture and the
Exchange Agent Agreement providing for the exchange of Debentures (as defined in
the Indenture) for the Exchange Shares by the holders of Debentures upon the
circumstances and subject to the terms set forth therein, and (ii) any such
encumbrances or proxies arising hereunder.
(f) Except as set forth in the Company Disclosure Letter of the Merger
Agreement, the representations and warranties of the Company in Section 4.10 of
the Merger Agreement, to the extent that they relate to any Stockholder Plan,
are true and accurate as of the date of this Agreement.
Section 2. REPRESENTATIONS AND WARRANTIES OF PURCHASER AND SUB. Each of
Purchaser and Sub hereby, jointly and severally, represents and warrants to
Stockholder as follows:
(a) Each of Purchaser and Sub is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation, has all requisite corporate power and authority to execute and
deliver this Agreement and to consummate the transactions contemplated hereby,
and has taken all necessary corporate action to authorize the execution,
delivery and performance of this Agreement.
(b) This Agreement has been duly authorized, executed and delivered by each
of Purchaser and Sub and constitutes the legal, valid and binding obligation of
each of Purchaser and Sub, enforceable against each of them in accordance with
its terms, except (i) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting
enforcement of creditors' rights generally and (ii) the availability of the
remedy of specific performance or injunctive or other forms of equitable relief
may be subject to equitable defenses and would be subject to the discretion of
the court before which any proceeding therefor may be brought.
(c) Neither the execution and delivery of this Agreement nor the
consummation by each of Purchaser and Sub 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 each of Purchaser and Sub is a party or bound.
To the best knowledge of each of Purchaser and Sub, consummation by each of
Purchaser and Sub 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 each of Purchaser
and Sub except for any necessary filing under the HSR Act or state takeover
laws.
Section 3. PURCHASE AND SALE OF SHARES. Stockholder hereby agrees that it
shall, and direct the Exchange Agent pursuant to Section 15.8 of the Indenture
and pursuant to the Exchange Agent
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<PAGE>
Agreement to, tender the Shares into the Offer and that it shall not, nor direct
the Exchange Agent to, withdraw any Shares so tendered. Sub hereby agrees to
purchase all the Shares so tendered at a price per Share equal to $19.09 or such
higher price per Share as may be offered by Sub in the Offer; PROVIDED that
Sub's obligation to accept for payment and pay for the Shares in the Offer is
subject to all the terms and conditions of the Offer set forth in the Merger
Agreement and Annex A thereto. Simultaneously with or prior to its tender of the
Shares into the Offer Stockholder shall deliver to Sub an affidavit stating,
under penalty of perjury, the Seller's U.S. taxpayer identification number and
that the Stockholder is not a foreign person, pursuant to Section 1445(b)(2) of
the Internal Revenue Code of 1986, as amended.
Section 4. TRANSFER OF SHARES. Prior to the termination of this Agreement,
except as otherwise provided herein and in the Indenture and the Exchange Agent
Agreement, Stockholder shall not: (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 the Shares
or any interest therein; (ii) enter into any contract, option or other agreement
or understanding with respect to any transfer of any or all of the Shares or any
interest therein; (iii) grant any proxy, power-of-attorney or other
authorization or consent in or with respect to the Shares; (iv) deposit the
Shares into a voting trust or enter into a voting agreement or arrangement with
respect to the 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.
Section 5. GRANT OF IRREVOCABLE PROXY; APPOINTMENT OF PROXY.
(a) Stockholder hereby irrevocably grants to, and appoints, Purchaser and
any nominee thereof, Stockholder's proxy and attorney-in-fact (with full power
of substitution), for and in the name, place and stead of Stockholder, to vote
the Shares, or grant a consent or approval in respect of the Shares, in
connection with any meeting of the stockholders of the Company (i) in favor of
the Merger, and (ii) against any action or agreement which would impede,
interfere with or prevent the Merger, including any other extraordinary
corporate transaction, such as a merger, reorganization or liquidation involving
the Company and a third party or any other proposal of a third party to acquire
the Company.
(b) Stockholder represents that any proxies heretofore given in respect of
the Shares are not irrevocable, and that such proxies are hereby revoked.
(c) Stockholder hereby affirms that the irrevocable proxy set forth in this
Section 5 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
Stockholder under this Agreement. Stockholder hereby further affirms that the
irrevocable proxy is coupled with an interest and, except as set forth in
Section 8 hereof, is intended to be irrevocable in accordance with the
provisions of Section 212(e) of the Delaware General Corporation Law (the
"DGCL").
Section 6. CERTAIN EVENTS. In the event of any stock split, stock
dividend, merger, reorganization, recapitalization or other change in the
capital structure of the Company affecting the Common Stock, or the acquisition
of additional shares of Common Stock or other securities or rights of the
Company by Stockholder, the number of Shares shall be adjusted appropriately,
and this Agreement and the obligations hereunder shall attach to any additional
shares of Common Stock or other securities or rights of the Company issued to or
acquired by Stockholder.
Section 7. FURTHER ASSURANCES. Stockholder shall, upon request of
Purchaser or Sub, execute and deliver any additional documents and take such
further actions as may reasonably be deemed by Purchaser or Sub to be necessary
or desirable to carry out the provisions hereof and to vest the power to vote
the Shares as contemplated by Section 5 hereof in Purchaser.
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<PAGE>
Section 8. COVENANTS.
(a) At the Effective Time Sub shall transfer to Stockholder (i) $265,000 as
a contribution to the ESOP and PSIP plans maintained by Stockholder and (ii) an
additional amount not to exceed $130,000 reasonably determined by Stockholder in
accordance with past practice, representing a quarterly contribution to
Stockholder's Retirement Plan in respect of the 1996 plan year in full
satisfaction of all obligations of the Company to contribute to such Stockholder
Plans, which exclude all plans sponsored or maintained solely by the Company
(the "CONTRIBUTION OBLIGATION"). Stockholder shall cause an amount equal to such
contribution to be distributed to, or for the benefit of, employees of the
Company and the Subsidiaries in accordance with the provisions of such
Stockholder Plans.
(b) Stockholder shall pay all expenses for any medical, dental, disability
or life insurance claim incurred by or on behalf of any current or former
employee of the Company or the Subsidiaries prior to the Effective Time whether
or not such claim is submitted or paid prior to the Effective Time. Stockholder
will continue to provide benefits under its retiree medical plan to those
persons receiving benefits at the Effective Time.
(c) From and after the date hereof to the Effective Time, Stockholder shall
not, and shall not permit the Company to, make any elections, or change any
existing elections, with respect to Taxes (as that term is defined in the Merger
Agreement), without the prior written consent of Purchaser.
(d) From and after the date that Sub shall have purchased and paid for all
of the Shares of Stockholder pursuant to Section 3 hereof, Stockholder shall
make available to Purchaser any and all records and other materials in
Stockholder's possession or control that relate to any of the Company's filings
or returns relating to Taxes, Tax audits affecting the Company, or any other
records relating to Taxes of the Company or for which the Company may be
responsible.
(e) Stockholder shall continue to reimburse the Company for any foregone
federal tax deductions relating to state income or franchise taxes for any
period ending on or before the Effective Time during which the Company was part
of a California unitary tax filing with Stockholder or any Affiliate of
Stockholder.
(f) At or prior to the Effective Time, Stockholder shall enter into an
amendment to the Services Agreement pursuant to which Stockholder shall provide
to the Company consultation services with respect to legal, tax, personnel,
information systems, risk management and insurance matters relating to the
Company on terms and conditions no less favorable to the Company than provided
in the Services Agreement prior to such amendment for a period not to exceed six
months after the Effective Time; PROVIDED, HOWEVER, that such consultation
services shall be provided to the Company at an hourly rate of $135, and
expenses and third party costs incurred in providing such consultation services
shall be approved prior to such incurrence.
Section 9. INDEMNIFICATION. From and after the Closing Date, Stockholder
shall protect, defend, indemnify and hold harmless Purchaser and Company from
any claims, liabilities, costs or expenses arising out of (i) any breach or
inaccuracy of the representation set forth in Section 1(f) of this Agreement and
(ii) all Taxes (including without limitation any obligation to contribute to the
payment of any Taxes determined on a consolidated, combined or unitary basis
with respect to a group of corporations that includes or included the Company to
the extent that such obligation to contribute exceeds an amount attributable to
Taxes of or attributable to the Company or its Subsidiaries) which are imposed
on the Stockholder or any member (other than the Company or its Subsidiaries) of
the consolidated, unitary or combined group which includes or included the
Company or its Subsidiaries that Purchaser or the Company or its Subsidiaries
pay, or otherwise satisfy in whole or in part, or that result in liens or
encumbrances on any assets of the Company or its Subsidiaries or Purchaser.
Section 10. TERMINATION. This Agreement, and all rights and obligations of
the parties hereunder, shall terminate immediately upon the earlier of (a) the
date upon which the Merger Agreement is
4
<PAGE>
terminated in accordance with its terms (i) by either Purchaser and Sub, on the
one hand, or the Company, on the other hand, or (ii) by mutual written consent
of Purchaser, Sub and the Company, or (b) the date that Sub shall have purchased
and paid for all of the Shares of Stockholder pursuant to Section 3 hereof;
PROVIDED, HOWEVER, that (A) the indemnification obligation set forth in clauses
(i) and (ii) of Section 9 hereof shall survive for a period equal to (i) three
years following the Effective Time and (ii) the applicable statute of
limitations, respectively and (B) the covenants set forth in Section 8(a)
through (e) shall survive without limitation and the covenant set forth in
Section 8(f) shall survive for the period specified therein. The proxy given
pursuant to Section 5 hereof shall be automatically revoked and be of no further
force or effect, without further action on the part of any party hereto,
immediately upon the termination of this Agreement.
Section 11. EXPENSES. All fees and expenses incurred by any one party
hereto shall be borne by the party incurring such fees and expenses.
Section 12. PUBLIC ANNOUNCEMENTS. Each of Purchaser, Sub and the Company
agrees that it will not issue any press release or otherwise make any public
statement with respect to this Agreement or the transactions contemplated hereby
without the prior consent of the other party, which consent shall not be
unreasonably withheld or delayed; PROVIDED, HOWEVER, that such disclosure can be
made without obtaining such prior consent if (i) the disclosure is required by
law or by obligations imposed pursuant to any listing agreement with the Nasdaq
National Market and (ii) the party making such disclosure has first used its
best efforts to consult with the other party about the form and substance of
such disclosure.
Section 13. MISCELLANEOUS.
(a) Capitalized terms used and not otherwise defined in this Agreement shall
have the respective meanings assigned to such terms in the Merger Agreement.
(b) All notices and other communications hereunder shall be in writing and
shall be deemed given upon (i) transmitter's confirmation of a receipt of a
facsimile transmission, (ii) confirmed delivery by a standard overnight carrier
or when delivered by hand or (iii) the expiration of five business days after
the day when mailed in the United States by certified or registered mail,
postage prepaid, addressed at the following addresses (or at such other address
for a party as shall be specified by like notice):
(A) if to Stockholder, to:
McKesson Corporation
One Post Street
37th Floor
San Francisco, California 94104
Telephone: (415) 983-8300
Facsimile: (415) 983-8826
Attention: General Counsel
with a copy to:
Skadden, Arps, Slate, Meagher
& Flom LLP
919 Third Avenue
New York, New York 10022
Telephone: (212) 735-3000
Facsimile: (212) 735-2000
Attention: Paul T. Schnell
5
<PAGE>
and
(B) if to Purchaser or Sub, to:
The Clorox Company
1221 Broadway
Oakland, California 94612
Telephone: (510) 271-7700
Facsimile: (510) 271-1652
Attention: General Counsel
with a copy to:
Morrison & Foerster LLP
345 California Street
San Francisco, California 94104
Telephone: (415) 677-7000
Facsimile: (415) 677-7522
Attention: John W. Campbell
(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, each of
which shall be deemed an original but all of which shall be considered one and
the same agreement.
(e) This Agreement (including the Merger Agreement and any other documents
and instruments referred to herein) constitutes the entire agreement, and
supersedes all prior agreements and understandings, whether written and oral,
among the parties hereto 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 without giving effect to the principles of
conflicts of laws thereof.
(g) Neither this Agreement nor any of the rights, interests or obligations
hereunder shall be assigned by any of the parties hereto (whether by operation
of law or otherwise) without the prior written consent of the other parties.
Subject to the preceding sentence, this Agreement will be binding upon, inure to
the benefit of and be enforceable by, the parties and their respective
successors and assigns, and the provisions of this Agreement are not intended to
confer upon any person other than the parties hereto any rights or remedies
hereunder.
(h) If any term, provision, covenant or restriction herein is held by a
court of competent jurisdiction or other authority to be invalid, void or
unenforceable or against its regulatory policy, the remainder of the terms,
provisions, covenants and restrictions of this Agreement shall remain in full
force and effect and shall in no way be affected, impaired or invalidated.
(i) Each of the parties hereto acknowledges and agrees that in the event of
any breach of this Agreement, each non-breaching party would be irreparably and
immediately harmed and could not be made whole by monetary damages. It is
accordingly agreed that the parties hereto (i) will waive, in any action for
specific performance, the defense of adequacy of a remedy at law and (ii) shall
be entitled, in addition to any other remedy to which they may be entitled at
law or in equity, to compel specific performance of this Agreement in any action
instituted in any state or federal court sitting in Orange County. The parties
hereto consent to personal jurisdiction in any such action brought in any state
or federal court sitting in Orange County and to service of process upon it in
the manner set forth in Section 11(b) hereof.
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<PAGE>
(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.
IN WITNESS WHEREOF, Purchaser, Sub and Stockholder have caused this
Agreement to be duly executed and delivered as of the date first written above.
THE CLOROX COMPANY
By /s/ EDWARD A. CUTTER
------------------------------------
Name: Edward A. Cutter
Title: Senior Vice
President--General
Counsel and Secretary
SHIELD ACQUISITION CORPORATION
By /s/ EDWARD A. CUTTER
------------------------------------
Name: Edward A. Cutter
Title: Vice President and Secretary
MCKESSON CORPORATION
By /s/ WILLIAM A. ARMSTRONG
------------------------------------
Name: William A. Armstrong
Title: Vice President Human
Resources and Administration
7
<PAGE>
CONFIDENTIAL
October 10, 1996
The Clorox Company
1221 Broadway
Oakland, CA 94612-1888
Attention: Steven S. Silberblatt
Director of Business Development
Gentlemen:
We understand that The Clorox Company desires to engage in certain
discussions with Armor All Products Corporation (the "Company"), and McKesson
Corporation ("McKesson"), a holder of a majority of the issued and outstanding
shares of capital stock of the Company, in order to evaluate a possible
transaction (the "Transaction") involving you, the Company and McKesson. You
have requested that we furnish you with certain information relating to the
Company which is nonpublic, confidential or proprietary in nature. All such
information (whether documentary, computerized or oral) furnished after the date
hereof by the Company or McKesson or their respective directors, officers,
employees, affiliates, representatives (including, without limitation, financial
advisors, attorneys and accountants) or agents (collectively, "our
Representatives") to you or your directors, officers, employees, affiliates,
representatives (including, without limitation, financial advisors, attorneys
and accountants) or agents (collectively, "your Representatives") and all
analyses, compilations, forecasts, studies, summaries, notes, data and other
documents and materials in whatever form maintained, whether prepared by you,
your Representatives or others, which contain or reflect, or are generated from,
any such information or which reflect your or your Representatives' review of,
or your interest in, the Transaction is hereinafter referred to as the
"Information." The term Information will not, however, include information which
(i) is currently known to you or is or becomes generally available to the public
other than as a result of a disclosure by you or your Representatives or (ii) is
or becomes available to you on a non-confidential basis from a source (other
than the Company, McKesson or our Representatives) that is not prohibited from
disclosing such information to you by a legal, contractual, fiduciary or other
obligation to the Company or McKesson.
As a condition to, and in consideration of the Company and McKesson engaging
in further discussions with you and of the Company and McKesson providing you
with Information, you acknowledge and agree as follows:
1. You and your Representatives (i) will keep the Information
confidential and will not (except as permitted by this Agreement or after
compliance with paragraph 3 below or as required by applicable law,
regulation or legal process), without our prior written consent, disclose
any Information in any manner whatsoever, and (ii) will not use any
Information other than in connection with your consideration of the
Transaction. You further agree to disclose the Information only to your
Representatives (a) who need to know the Information for the purpose of
evaluating the Transaction, (b) who are informed by you of the confidential
nature of the Information and (c) who agree to be bound by the terms of this
agreement. You agree to cause your Representatives to observe the terms of
this agreement and will be responsible for any breach of this agreement by
any of your Representatives.
2. Except as may be required by law or as otherwise permitted by this
agreement, without the prior written consent of the Company and McKesson,
you and your Representatives will not disclose to any person any information
regarding a possible Transaction or any information relating in any way
1
<PAGE>
to the Information, including, without limitation (i) that any
investigations, discussions or negotiations are taking or have taken place
concerning a possible Transaction, including the status thereof or the
termination of discussions or negotiations with the Company or McKesson,
(ii) any of the terms, conditions or other facts with respect to any such
possible Transaction or of your consideration of a possible Transaction or
(iii) that this agreement exists, that Information exists or has been
requested or made available or any opinion or view with respect to the
Company, McKesson or the Information. In this regard, the Company and
McKesson have advised you of their concern regarding the potential for harm
to the Company and McKesson that could result from disclosure of the
foregoing or of Information. The term 'person' as used herein will be
interpreted broadly to include, without limitation, any corporation,
company, entity, partnership, partner, group, individual, potential joint
bidder or cobidder or source of financing. The Company and McKesson shall
have a similar duty of confidentiality with respect to your interest and
negotiations.
3. In the event that you or any of your Representatives are requested
or required (by oral questions, interrogatories, requests for information or
documents, subpoena, civil investigative demand, any informal or formal
investigation by any government or governmental agency or authority or
otherwise) to disclose any of the Information, you will notify the Company
and McKesson promptly in writing so that we may seek a protective order or
other appropriate remedy or, in our sole discretion, waive compliance with
the terms of this agreement. You and your Representatives agree not to
oppose any action by the Company and McKesson to obtain a protective order
or other appropriate remedy is obtained. In the event that no such
protective order or other remedy is obtained, or that the Company and
McKesson waive compliance with the terms of this agreement, you and your
Representatives will furnish only that portion of the Information which you
are advised by counsel is legally required and will cooperate with the
Company and McKesson to obtain reliable assurance that confidential
treatment will be accorded the Information.
4. If you determine not to proceed with the Transaction, you will
promptly inform McKesson and the Company. You acknowledge and agree that the
Company and McKesson have made no decision to pursue any Transaction and you
agree that the Company and McKesson will have the right in their sole
discretion, without giving any reason therefor, at any time to terminate
discussions with you concerning a possible Transaction, to elect not to
pursue any such Transaction, or to pursue the Transaction without your
involvement. You and your Representatives agree, immediately upon a request
from McKesson, the Company or our Representatives, to return to the Company
and McKesson all Information, and no copies, extracts or other reproductions
of the Information shall be retained by you or your Representatives. Any
portion of the Information that consists of analyses, compilations,
forecasts, studies, summaries, notes, data or other documents or materials
prepared by you or your Representatives, in lieu of being returned to the
Company and McKesson, may be destroyed by you, to the extent that they
reveal or reflect any Information, in which event one of your authorized
officers shall provide certification to the Company and McKesson that such
materials have in fact been so destroyed. However, one copy of the
Information may be retained by your outside attorneys in a file to which
access is restricted to them, to be used solely as a record of the
Information that was disclosed to you. Any oral Information will continue to
be subject to the provisions of this Agreement.
5. You and your Representatives acknowledge that none of the Company,
McKesson nor their Representatives, nor any of their respective officers,
directors, employees, agents or controlling persons within the meaning of
Section 20 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), makes any express or implied representation or warranty as to the
accuracy or completeness of the Information. You and your Representatives
agree that no such person will have any liability to you or any of your
Representatives on any basis (including, without limitation, in contract,
tort, under federal or state securities laws or otherwise), and neither you
nor your Representatives will make any claims whatsoever against such
persons, with respect to or arising out of the
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<PAGE>
Transaction, whether as a result of this agreement, any other written or
oral expression with respect to the Transaction, your participation in
evaluating the possible Transaction or the procedures therefor your review
of the Company, the use of the Information by you or your Representatives,
any errors therein or omissions from the Information, or otherwise. You and
your Representatives further agree that you are not entitled to rely on the
accuracy or completeness of the Information and that you will be entitled to
rely solely on such representations and warranties as may be included in any
definitive agreement with respect to the Transaction, subject to such
limitations and restrictions as may be contained therein.
6. You are aware, and you will advise your Representatives who are
informed of the matters that are the subject of this agreement, of the
restrictions imposed by the United States securities laws on the purchase or
sale of securities by any person who has received material, nonpublic
information from the issuer of such securities and on the communication of
such information to any other person.
7. You represent and warrant that as of the date hereof, neither you
nor any of your subsidiaries beneficially owns any securities of McKesson or
the Company. You agree that, for a period of three years from the date of
this agreement, whether or not McKesson shall continue to own any voting
securities of the Company, neither you nor any of your Representatives, on
your behalf, will, unless and until such shall hereafter have been
specifically invited in writing by the Company: (i) acquire, offer to
acquire, or agree to acquire, directly or indirectly, by purchase or
otherwise, any voting securities or direct or indirect rights to acquire any
voting securities of the Company or any subsidiary thereof or (other than in
the ordinary course of business) any assets of the Company or any subsidiary
or division thereof, (ii) make, or in any way participate in, directly or
indirectly, any "solicitation" of "proxies" (as such terms are used in the
rules of the Securities and Exchange Commission) to vote, or seek to advise
or influence any person or entity with respect to the voting of, any voting
securities of the Company, (iii) make any public announcement with respect
to, or submit a proposal for, or offer of (with or without conditions) any
merger, consolidation, business combination, tender or exchange offer,
restructuring, recapitalization or other extraordinary transaction of or
involving the Company or any of its subsidiaries or its securities or
assets, (iv) form, join or in any way participate in a "group" (as defined
in Section 13(d)(3) of the Exchange Act) in connection with any voting
securities of the Company, (v) otherwise act, alone or in concert with
others, to seek to control or influence the management, Board of Directors
or policies of the Company, or (vi) have any discussions or enter into any
arrangements, understandings or agreements (whether written or oral) with,
or advise, assist or encourage, any other persons in connection with any of
the foregoing. You also agree that, for a period of three years from the
date of this agreement, neither you nor any of your Representatives, on your
behalf, will, unless and until such shall hereafter have been specifically
invited in writing by McKesson: (i) acquire, offer to acquire, or agree to
acquire, directly or indirectly, by purchase or otherwise, any voting
securities or direct or indirect rights to acquire any voting securities of
McKesson or any subsidiary thereof or (other than in the ordinary course of
business) any assets of McKesson or any subsidiary or division thereof, (ii)
make, or in any way participate in, directly or indirectly, any
"solicitation" of "proxies" (as such terms are used in the rules of the
Securities and Exchange Commission) to vote, or seek to advise or influence
any person or entity with respect to the voting of, any voting securities of
McKesson, (iii) make any public announcement with respect to, or submit a
proposal for, or offer of (with or without conditions) any merger,
consolidation, business combination, tender or exchange offer,
restructuring, recapitalization or other extraordinary transaction of or
involving McKesson or any of its subsidiaries or its securities or assets,
(iv) form, join or in any way participate in a "group" (as defined in
Section 13(d)(3) of the Exchange Act) in connection with any voting
securities of McKesson, (v) otherwise act, alone or in concert with others,
to seek to control or influence the management, Board of Directors or
policies of McKesson, or (vi) have any discussions or enter into any
arrangements, understandings or agreements (whether written or oral) with,
or advise, assist or encourage, any other persons in connection with any of
the foregoing. You and your Representatives, on your behalf, also agree
during such period not to make
3
<PAGE>
any proposal, statement or inquiry, or disclose any intention, plan or
arrangement, whether written or oral, inconsistent with the foregoing, or
request the Company or McKesson or any of their Representatives, directly or
indirectly, to amend, waive or terminate any provision of this paragraph.
You will promptly advise the Company or McKesson, as the case may be, of any
inquiry or proposal made to you with respect to any of the foregoing,
including the specifics thereof in reasonable detail. The representation and
restrictions contained in this paragraph do not apply to any securities of
McKesson or the Company that may be owned solely for investment purposes by
any employee benefit plan which is presently maintained on behalf of your
employees, or by any Representative on behalf of its employees, provided
that said ownership does not exceed 1% of the total number of outstanding
shares of any class of voting securities of the Company or McKesson. The
representation and restrictions contained in this paragraph also will not
prevent your financial advisor from engaging in trading or brokerage
transactions in the ordinary course of its business as presently conducted,
provided that neither said advisor nor its affiliates will acquire
beneficial ownership of more than 1% of the total number of outstanding
shares of any class of voting securities of the Company or McKesson.
8. You agree that, for a period of two years from the date of this
agreement, you will not, directly or indirectly, solicit for employment or
hire any employee of the Company or any subsidiary thereof with whom contact
was made or who became known to you in connection with your consideration of
the Transaction; provided, however, that the foregoing provision will not
prevent you from employing any such person who contacts you on his or her
own initiative without any direct or indirect solicitation by or
encouragement from you, or is contacted solely on the initiative of one of
your Representatives who had no knowledge or involvement in the Information
or consideration of a Transaction.
9. You acknowledge and agree that if the Company determines to pursue a
Transaction, it may establish procedures and guidelines (the "Procedures")
for the submission of proposals with respect to any Transaction with or
involving the Company and McKesson. You and your Representatives agree to
act in accordance with the Procedures and to be bound by the terms and
conditions that may be established pursuant to the Procedures, including
adhering to any timing conditions that may be established relating to when
proposals for such a Transaction may be submitted. You acknowledge and agree
that (a) the Company and McKesson and their respective Representatives are
free to conduct the process leading up to a possible Transaction as the
Company and McKesson and their respective Representatives, in their sole
discretion, determine (including, without limitation, by negotiating with
any third party and entering into a preliminary or definitive agreement
without prior notice to you or any other person), and (b) each of the
Company and McKesson reserves the right, in its sole discretion, to change
the Procedures relating to its consideration of the Transaction at any time
without prior notice to you or any other person, to reject any and all
proposals made by you or any of your Representatives with regard to the
Transaction, and to terminate discussions and negotiations with you at any
time and for any reason.
10. You and your Representatives agree not to initiate or maintain
contact (except for those contacts made in the ordinary course of business)
with any officer, director, employee or agent of the Company except with the
express prior permission of an officer of the Company or McKesson who are
informed of the matters that are the subject of this Agreement.
11. (a) You agree that the Company and McKesson would be irreparably
injured by a breach of this agreement by you or your Representatives, that
monetary remedies would be inadequate to protect us against any actual or
threatened breach of this agreement by you or by your Representatives, and,
without prejudice to any other rights and remedies otherwise available to
us, you agree to the granting of equitable relief, including injunctive
relief and specific performance, in our favor without proof of actual
damages. You agree to reimburse the Company and McKesson for their costs
4
<PAGE>
and expenses (including, without limitation, reasonable legal fees and
expenses) incurred to remedy any and all breaches of this agreement.
(b) This agreement shall inure to the benefit of and be binding upon
each of you, the Company and McKesson and the respective successors and
persons in control of you, the Company and McKesson, notwithstanding any
sale or disposition by McKesson of all or any portion of its interest in the
Company. It is further agreed that no failure or delay in exercising any
right, power or privilege hereunder will operate as a waiver thereof, nor
will any single or partial exercise thereof preclude any other or further
exercise thereof or the exercise of any right, power or privilege hereunder.
(c) This agreement will be governed by and construed in accordance with
the laws of the State of California, without regard to the principles of
conflict of laws thereof.
(d) This agreement contains the entire agreement between you and us
concerning the subject matter hereof and supersedes all previous agreements,
written or oral, relating to the subject matter hereof. No modifications of
this agreement or waiver of the terms and conditions hereof will be binding
upon you, the Company or McKesson unless approved in writing by each of you,
the Company and McKesson.
(e) If any provision of this agreement shall, for any reason, be
adjudged by any court of competent jurisdiction to be invalid or
unenforceable, such judgment shall not affect, impair or invalidate the
remainder of this agreement but shall be confined in its operation to the
provision of this agreement directly involved in the controversy in which
such judgment shall have been rendered.
(f) This agreement may be executed in counterparts, each of which shall
be deemed to be an original, but all of which shall constitute the same
agreement. You warrant that the person who executes this agreement on your
behalf has full corporate authority to do so.
(g) This agreement shall expire three years from the date hereof.
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<PAGE>
Please confirm your agreement with the foregoing by signing and returning to
the undersigned the duplicate copy of this letter enclosed herewith.
Very truly yours,
PAINEWEBBER INCORPORATED
on the behalf of
ARMOR ALL PRODUCTS CORPORATION
By /s/ Fuad Sawaya
-----------------------------------
Fuad A. Sawaya
Managing Director
PAINEWEBBER INCORPORATED
on the behalf of
McKESSON CORPORATION
By /s/ Fuad Sawaya
-----------------------------------
Fuad A. Sawaya
Managing Director
Accepted and Agreed to as of
the date first written above:
THE CLOROX COMPANY
By /s/ Steven Silberblatt
- -----------------------------------------
Name: Steven Silberblatt
Title: Director of Business Development
6
<PAGE>
EXHIBIT 4
PAGES 2 THROUGH 16 OF THE PROXY STATEMENT DATED JUNE 18, 1996
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth information as of June 3, 1996, with respect
to the only persons known by the Corporation to be the beneficial owners of more
than five percent of its outstanding Common Stock, which is the Corporation's
only class of voting securities.
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE PERCENT
OF BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP OF CLASS
- ------------------------------------------------------------------------------------------ ----------------------- --------
<S> <C> <C>
McKesson Corporation ..................................................................... 11,624,900 54.5
One Post Street Sole voting and
San Francisco, CA 94104 investment power
David L. Babson & Co., Inc. .............................................................. 1,193,700(1) 5.6
One Memorial Drive
Cambridge, MA 02142
RCM Capital Management ................................................................... 1,674,000(2) 7.8
Four Embarcadero Center
Suite 3000
San Francisco, CA 94111
Travelers Group Inc. ..................................................................... 1,233,070(3) 5.8
388 Greenwich Street
New York, NY 10013
</TABLE>
- ------------------------
(1) This information is based on a Schedule 13G filed with the Securities and
Exchange Commission, reporting that as of December 31, 1995, David L. Babson
& Co., Inc., a registered investment adviser, had sole voting power as to
546,750 shares, shared voting power as to 646,950 shares, and sole
dispositive power as to 1,193,700 shares.
(2) This information is based on an amendment to a Schedule 13G filed with the
Securities and Exchange Commission by RCM Capital Management ("RCM"), on its
own behalf and that of its general partner, RCM Limited L.P., and RCM
Limited L.P.'s general partner, RCM General Corporation, reporting that as
of December 31, 1995, RCM, a registered investment adviser, had sole voting
power as to 1,502,000 shares, shared dispositive power as to 27,000 shares,
and sole dispositive power as to 1,647,000 shares.
(3) This information is based on a Schedule 13G filed with the Securities and
Exchange Commission, reporting that as of December 31, 1995, Travelers Group
Inc., a parent holding company, had shared voting and dispositive power as
to all 1,233,070 shares.
McKesson Corporation ("McKesson") intends to vote its shares in favor of the
nominees for election to the Board of Directors listed herein and for approval
of the proposed amendments to the Corporation's 1986 Stock Option Plan as
described in this Proxy Statement. Since the holders of Common Stock do not have
cumulative voting rights and since McKesson's shares represent more than 50% of
the outstanding shares of Common Stock entitled to be voted at the meeting,
McKesson will be able to elect the entire Board of Directors and approve the
proposed amendments to the 1986 Stock Option Plan.
<PAGE>
SECURITY OWNERSHIP OF DIRECTORS AND OFFICERS
The following table indicates as to each director and each of the executive
officers named in the Summary Compensation Table who were employed by the
Corporation on March 31, 1996 and as to all directors and officers as a group,
the number of shares and percentage of the Corporation's Common Stock
beneficially owned as of June 3, 1996:
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
NAME BENEFICIAL OWNERSHIP (1)
- --------------------------------------------------------------------------------------- -------------------------
<S> <C>
William A. Armstrong................................................................... --0--
Jon S. Cartwright...................................................................... 6,000(2)
Kenneth M. Evans....................................................................... 131,417(2)(3)
David L. Mahoney....................................................................... --0--
David E. McDowell...................................................................... --0--
Karen Gordon Mills..................................................................... 6,000(2)
Alan Seelenfreund...................................................................... --0--
Michael A. Caron....................................................................... 52,013(2)(3)
Michael G. McCafferty.................................................................. 3,000(3)
Donald N. Weinberger................................................................... 32,739(2)(3)
All Directors and Officers as a Group (13 persons)..................................... 261,953(2)(3)
</TABLE>
- ------------------------
(1) Unless otherwise indicated, the nature of beneficial ownership for all
shares is sole voting and investment power (or with voting and investment
power shared with a spouse). The shares represent less than 1% of the
outstanding shares for every person, and 1.2% for all directors and officers
as a group.
(2) Includes shares that may be acquired within 60 days after June 3, 1996
through the exercise of stock options granted under the Corporation's 1986
Stock Option Plan, as follows: Mr. Evans, 90,000; Mr. Caron, 34,938; Mr.
Weinberger, 23,600; Mr. Cartwright, 5,000; Ms. Mills, 5,000; and all
directors and officers as a group, 179,338.
(3) Includes shares held under the Corporation's Profit-Sharing Investment Plan
and as to which the participant has sole voting but no investment power, as
follows: Mr. Evans, 1,297; Mr. Caron, 2,677; Mr. Weinberger, 1,555; and all
directors and officers as a group, 7,331; 33,050 shares subject to possible
forfeiture granted to Mr. Evans, 8,600 to Mr. Caron, 3,000 to Mr.
McCafferty, 5,400 to Mr. Weinberger, and 55,050 shares to all directors and
officers as a group under the Corporation's 1988 Restricted Stock Plan;
1,000 shares held in a family trust by a member of the group, as to which
the holder and his spouse have shared voting and investment power, and 200
shares held by a member of the group as joint trustee for his minor
children, as to which shares he disclaims beneficial ownership.
ELECTION OF DIRECTORS
It is the intention of the persons named in the enclosed form of proxy,
unless authorization to do so is withheld, to vote for the election of the seven
nominees named below, to serve as directors until the next annual meeting of
stockholders and until their successors shall have been elected and qualified.
If any nominee should be unavailable for election, an event which is not
presently anticipated, the proxies will be voted for the election of such other
person or persons as shall be determined by the persons named in the enclosed
form of proxy in accordance with their judgment, or the number of authorized
directors may be reduced.
Following is information concerning the nominees for election at the
meeting. Each nominee has consented to being named in this Proxy Statement and
to serve if elected. All nominees are currently
2
<PAGE>
serving as directors and were elected by the stockholders at the 1995 Annual
Meeting. Ages shown are as of June 3, 1996.
WILLIAM A. ARMSTRONG
Age 55. Vice President Human Resources and Administration of McKesson since
April 1, 1993; Vice President Administration from January 1992 to April 1993;
Vice President from July 1991 until January 1992; Executive Assistant to the
Office of the Chief Executive from April 1990 until January 1992. Mr. Armstrong
has been a director of the Corporation since 1991 and is a member of the
Compensation Committee.
JON S. CARTWRIGHT
Age 59. Director Emeritus and Senior Adviser of the Center for
Telecommunications Management ("CTM"), a research, education and publishing
center affiliated with the University of Southern California ("USC") Graduate
School of Business Administration, since January 1995. Executive Director of CTM
from January 1990 to January 1995; Professor of Management and Organization at
the USC Graduate School of Business Administration from January 1992 to January
1995, and Associate Professor from January 1990 to January 1992. Mr. Cartwright
has been a director of the Corporation since 1993 and is Chairman of the Audit
Committee and a member of the Compensation Committee.
KENNETH M. EVANS
Age 54. President and Chief Executive Officer and a director of the
Corporation since April 1991. Mr. Evans is also a director of the O'Brien
Corporation.
DAVID L. MAHONEY
Age 41. Vice President of McKesson since 1990, and President of its
Pharmaceutical Services Group since February 1996. Formerly he was President of
McKesson's Healthcare Delivery Systems, Inc. subsidiary from September 1994
until December 1995, and served as Vice President Strategic Planning of McKesson
from July 1990 to September 1994. Mr. Mahoney has been a director of the
Corporation since 1992.
DAVID E. MCDOWELL
Age 53. Chairman of the Board since April 1992. Employed as a Senior Adviser
to McKesson Corporation since May 20, 1996; formerly he was President, Chief
Operating Officer and a director of McKesson from January 1992 until he resigned
effective May 20, 1996. Vice President and General Manager, Quality and Chief
Information Officer of International Business Machines Corporation (IBM) from
November 1990 until January 1992; President of IBM's National Service Division
from July 1987 until November 1990. He is also a director of Medaphis
Corporation. Mr. McDowell has been a director of the Corporation since 1992 and
is Chairman of the Compensation Committee and a member of the Audit Committee.
KAREN GORDON MILLS
Age 42. President of MMP Group, Inc., a management company providing
consulting and investment banking services, since 1993; Managing Director and
Chief Operating Officer, Industrial Group, E. S. Jacobs & Company, from 1983 to
1993. Director of Triangle Pacific Corp., Arrow Electronics, Inc., Telex
Communications, Inc., and The Scotts Company. Ms. Mills has been a director of
the Corporation since 1994 and is a member of the Audit Committee.
3
<PAGE>
ALAN SEELENFREUND
Age 59. Chairman of the Board and Chief Executive Officer of McKesson since
November 1989. He is also a director of McKesson and Pacific Gas and Electric
Company. Mr. Seelenfreund has been a director of the Corporation since 1986.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Under the federal securities laws, the Corporation's Directors, its
executive officers and any persons holding (as defined in the rules and
regulations of the Securities and Exchange Commission) more than ten percent of
the Corporation's Common Stock are required to report their initial ownership of
the Corporation's Common Stock and any subsequent changes in that ownership to
the Securities and Exchange Commission (the "Commission"), the NASDAQ Stock
Market and the Corporation. For fiscal year 1996, these filing requirements were
satisfied, except that one director, Jon S. Cartwright, inadvertently failed to
report the transfer of his directly-owned shares to a family trust on Form 5 for
fiscal year 1995, but subsequently reported this transaction on a Form 5 for
fiscal year 1996. In making this disclosure, the Corporation has relied solely
on written representations of its Directors and executive officers and its ten
percent holders and/or copies of the reports that they have filed with the
Commission.
COMMITTEES AND MEETINGS OF THE BOARD OF DIRECTORS
The Board of Directors has designated two standing committees--an Audit
Committee and a Compensation Committee. The members of each standing committee
are appointed by the Board of Directors and serve a term coexistent with that of
the Board that appointed such committee.
The Audit Committee, composed of three directors, held two meetings during
the year ended March 31, 1996. The Audit Committee recommends to the Board the
retention or discharge of the Corporation's independent auditors and reviews the
scope, extent and procedures of the audit and the fees to be paid therefor. The
Committee also reviews the audit results, and approves the audited financial
statements and recommends to the Board their inclusion in the annual report to
stockholders; consults with the independent auditors, the internal auditors and
management on the adequacy of internal accounting controls; and performs such
other functions as may be necessary in the efficient discharge of its duties.
The Compensation Committee, composed of three directors, held five meetings
during the year ended March 31, 1996. The Compensation Committee serves as the
administrative committee for the Corporation's stock option plan, restricted
stock plan, deferred compensation plan, and all other incentive plans; reviews
and makes recommendations to the Board with respect to the salary and other
terms and conditions of employment of the Chief Executive Officer and approves
salaries and other terms and conditions of employment of all other officers and
of other employees of the Corporation above specified salary grades, and
examines and makes recommendations to the Board regarding the Corporation's
overall compensation program for managerial level employees.
The Board of Directors held six meetings during the year ended March 31,
1996. Attendance at Board and Committee meetings combined averaged approximately
94%. Each director, except for Mr. Seelenfreund, attended more than 75% of the
combined total meetings of the Board and Committees of the Board on which the
director served at any time during the year.
The Board of Directors will consider nominees for director recommended by
stockholders. Any stockholder who wishes to recommend a nominee should submit
the recommendation in writing to the Vice President and Corporate Secretary of
the Corporation, c/o McKesson Corporation, One Post Street, San Francisco, CA
94104.
4
<PAGE>
COMPENSATION OF DIRECTORS
During the fiscal year ended March 31, 1996, each director who was not an
employee of the Corporation or of McKesson received an annual retainer of
$15,000, payable quarterly; a stipend of $1,000 for each Board or Committee
meeting attended; and reimbursement for all expenses incurred in attending such
meetings. Directors who are employees of the Corporation or of McKesson receive
no additional compensation for their services as members of the Board or any
Board committee. In addition, the nonemployee directors also receive
nonqualified stock options under the provisions of the 1986 Stock Option Plan,
which provide that each nonemployee director, on the date of the Annual Meeting
of Stockholders at which he or she is first elected to the Board, is to receive
an option to purchase 5,000 shares of Common Stock, which is immediately
exercisable in full but expires in five equal annual installments. On the date
of each subsequent annual meeting, each continuing nonemployee director
automatically receives an option to purchase an additional 1,000 shares, which
is immediately exercisable in full. Subject to the above-mentioned expiration
provisions, the term of each option is five years.
Under the Corporation's Deferred Compensation Administration Plan (the
"DCAP"), any director entitled to compensation for services as a director may
make an irrevocable election to defer receipt of all or a portion of his or her
annual retainer and meeting fees, (but not less than $5,000), until such person
ceases to be a director or attains age 65, whichever is later, or at such other
time as is specified by the director, after which payments are made in any
number of approximately equal annual installments over such period of years, not
exceeding fifteen, as is elected by the director. In the event of a change in
control of the Corporation (as defined in the DCAP) deferred funds shall be
distributed immediately upon the effective date of the change. One director
currently participates in the DCAP.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
David E. McDowell, Chairman of the Compensation Committee, is employed by
McKesson as a Senior Adviser, and William A. Armstrong, a member of the
Committee, is Vice President Human Resources and Administration of McKesson. The
third member of the Committee, Jon S. Cartwright, is an independent outside
director. (See the discussion of Certain Relationships and Related Transactions
on page 15.)
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
The Corporation's executive compensation program is administered by the
Compensation Committee (the "Committee") of the Board of Directors. The
Committee is composed of three directors. One of the members is an employee of
McKesson, one is an officer of McKesson and the third is an independent outside
director. The Committee is responsible for administering the Corporation's stock
option and restricted stock plans, reviewing and making recommendations to the
full Board with respect to the salary, incentive compensation and other terms
and conditions of employment of the Chief Executive Officer and approving
salaries, incentive compensation and other terms and conditions of employment of
the other executive officers named in the Summary Compensation Table (the
"executive officers") and other officers and key employees of the Corporation in
and above specified salary grade levels.
The following report was prepared by the members of the Committee (whose
names appear at the end of the report) to provide the Corporation's stockholders
with an explanation of Armor All's compensation policies, and the criteria used
in designing compensation programs and setting compensation levels for the
executive officers, and specifically, the compensation of the Chief Executive
Officer during fiscal year 1996.
In its deliberations concerning compensation of executive officers, the
Committee considers the following factors: (1) the Corporation's performance in
comparison with previously set objectives and against the prior year's
achievement, (2) the individual performance of each executive officer, (3) a
number of comparative compensation surveys, which are supplied by professional
compensation consultants approved by the Committee and retained by the
Corporation for this purpose, and other material
5
<PAGE>
concerning compensation levels and stock grants at similar companies, such as
compensation information disclosed in the proxy statements of other companies,
(4) the overall competitive environment for executives and the level of
compensation needed to attract and retain executive talent, and (5) the
recommendations of professional compensation consultants. Companies used in
comparative analyses for executive compensation purposes are selected with the
assistance of these professional compensation consultants. Such companies
represent a broad cross-section of consumer product companies and are selected
based on a variety of factors including similarity in financial attributes, size
and complexity to the Corporation. The companies used in comparative analyses
for executive compensation purposes include some of the companies in the Peer
Group Index used in the Performance Graph, as well as other companies. The
Committee relies on a broad array of companies in various industries for
comparative analysis of executive compensation because it believes that the
Corporation's competitors for executive talent are more varied than the
companies included in the Peer Group Index chosen for comparing stockholder
return in the Performance Graph.
The Corporation's compensation program is designed to enhance stockholder
value by linking a large part of the executives' compensation directly to
performance. The objective is to provide base salary for executives at
approximately the 60th percentile for executives at similar companies, while
providing an opportunity to achieve total compensation (including base salary,
annual bonus and long-term incentives) at the 75th percentile or above for
exceptional performance.
COMPONENTS OF COMPENSATION
The Corporation's compensation package consists of base salary, a short-term
incentive plan, and long-term incentives (stock and cash). Base pay is reviewed
annually. Actual base salary is based on individual performance, competitive pay
practices and level of responsibility. Competitive pay practices are determined
through job evaluation and market comparisons. The fiscal year 1996 salaries of
executive officers were determined primarily on the basis of each executive
officer's performance and responsibility, the Corporation's performance, and
competitive salary level market data. Increases in fiscal year 1996 salaries
reflected the Committee's determination that compensation levels should be
increased to remain competitive, given each executive officer's performance, the
Corporation's performance in fiscal year 1996 and the competitive environment
for executive talent.
The Short-Term Incentive Plan ("STIP") rewards participants for reaching
profit targets related to required rates of return. For fiscal year 1996, the
measures included goals for pre-tax income at specified levels of investment.
Individual executives' target values vary by level of responsibility, are set as
a percentage of base salary and are competitive with those paid to executive
officers at companies in the comparison group. The annual incentive award an
executive officer is eligible to receive can range from zero to three times the
incentive award percentage assigned to his or her position. STIP awards were not
paid to the executive officers for fiscal year 1996, because the Company's
financial performance was below the targets set forth in the plan.
The Corporation has three executive compensation plans to help achieve
long-term performance objectives. The three plans are the Stock Option Plan, the
Restricted Stock Plan and the Long-Term Incentive Plan ("LTIP"). One-third of
competitive long-term incentive value is intended to be provided by stock
options, one-third by restricted stock and one-third by the cash LTIP. The LTIP
provides cash awards based solely on the Corporation's results over three-year
periods. Goals for this plan are set annually for the successive three-year
period. These goals are designed to focus an executive officer's attention on
long-term growth balanced with return to stockholders. The measures of financial
performance currently in use for the LTIP are profit before tax in excess of a
specified percentage return on assets employed. LTIP awards were not paid to the
executive officers for the three-year period ended March 31, 1996, because the
Company's financial performance was below the minimum targets required for
payout under the plan. No further performance periods remain open under the LTIP
which has been discontinued as an element of compensation for executive
officers.
6
<PAGE>
In March 1996, the Board of Directors established an incentive plan for
strategic business unit managers, including the named executive officers, except
for Mr. Weinberger, for fiscal year 1997 ("FY1997 Incentive Plan"). The FY1997
Incentive Plan provides for performance awards payable in cash upon achievement
of predetermined earnings per share targets for fiscal year 1997. Payment of the
cash awards, if earned, will be paid in two equal installments--50% at the end
of fiscal year 1997 and 50% at the end of fiscal year 1998.
The Corporation's 1986 Stock Option Plan is designed to strengthen the link
between the interests of stockholders and management. Stock options are
generally granted annually and provide executives a ten-year period, subject to
specified vesting requirements, to purchase shares of Common Stock at the full
market price of the stock on the day the option is granted. Annual grants are
generally equal to the target percent of pay described above modified by
performance. In addition, the Committee considers the size of prior grants, but
does not take into account the number of options currently held by an executive
officer in determining annual award levels. The number of options needed to
provide the target percent of pay is determined by use of a modified
Black-Scholes model for valuing stock options.
The Corporation's 1988 Restricted Stock Plan was established to provide
strong incentive for highly qualified executives to remain with the Corporation
as well as to strengthen their link to stockholders through increased stock
ownership. Grants of restricted stock are considered annually. The current
general practice is for restrictions to lapse only if performance goals are met
during a four-year period. The measure used to determine if restrictions will
lapse on the performance-based shares awarded in fiscal year 1996 will be the
compounded increase in profit before tax over a four-year period.
The Corporation has not yet adopted a policy regarding the recently enacted
$1 million annual limitation on the federal income tax deductibility of
compensation paid to any executive officer. However, it has been determined that
the new limitations did not impact the Corporation in fiscal year 1996. At the
present time, there are no executive officers whose compensation meets or
exceeds the $1 million annual limit nor is it expected that an executive officer
will reach this limit in fiscal year 1997. The Committee's present intention is
to comply with the requirements of Section 162(m) unless the Committee concludes
that required changes would not be in the best interests of the Corporation or
its stockholders.
COMPENSATION OF THE PRESIDENT AND CHIEF EXECUTIVE OFFICER
During fiscal year 1996, the Committee reviewed the performance of the
President and CEO, Kenneth M. Evans, and approved his stock option and
restricted stock awards using the same criteria that were used to determine
awards for the executive officers discussed at the beginning of this report. Mr.
Evans' compensation for fiscal year 1996 is shown in the Summary Compensation
Table on page 11.
On April 1, 1995, the Committee, with the concurrence of the full Board,
increased Mr. Evans' annual salary from $300,000 to $312,000 based on the
Corporation's performance for fiscal year 1995 and competitive market data on
salary levels. Given the Corporation's disappointing operating results in fiscal
year 1996, Mr. Evans, at his request, did not receive a salary increase at the
end of the year. Additionally, since the profit targets established under the
STIP and the performance goals established under the LTIP for the respective
one-year and three-year incentive periods ended March 31, 1996 were not met, no
awards were paid to Mr. Evans under either plan in fiscal year 1996.
The stock option award to Mr. Evans made in January 1996 was based on the
Committee's assessment of his overall performance during a difficult year and on
the Committee's philosophy that stock ownership by management aligns
management's interests more closely with those of the Corporation's
stockholders. The restrictions imposed on the restricted stock award granted to
Mr. Evans in January 1996 will lapse in fiscal year 2000 only if specific
performance objectives for compound growth in profit before tax are met.
7
<PAGE>
It is the Committee's view that the total compensation package for Mr. Evans
was based on an appropriate balance of (1) the Corporation's performance, (2)
his individual performance, and (3) competitive practice.
The Compensation Committee
David E. McDowell, CHAIRMAN
William A. Armstrong
Jon S. Cartwright
PERFORMANCE GRAPH
Set forth below is a line graph comparing the performance of the
Corporation's Common Stock during the period April 1, 1991 through March 31,
1996 with the NASDAQ Stock Market Index, and a peer group composed of the
following seventeen consumer products companies: Alberto-Culver Company, Church
& Dwight Co., Inc., Eljer Industries, Inc., First Brands Corporation, Kimball
International, Inc., Lancaster Colony Corporation, La-Z-Boy Chair Company,
National Presto Industries, Inc., NCH Corporation, Oneida Ltd., Royal Appliance
Mfg. Co., RPM, Inc., The Scotts Company, Stanhome Inc., The Valspar Corporation,
WD-40 Company, and Wynn's International, Inc. The Corporation is not included in
the peer group. Pratt & Lambert, Inc., formerly a member of the peer group, has
been removed because it is no longer a publicly-held company. Total Return
Indices reflect reinvested dividends and are weighted on a market capitalization
basis at the time of each reported data point. The stock price performance
depicted in the performance graphs shown below is not necessarily indicative of
future price performance.
FIVE-YEAR CUMULATIVE TOTAL RETURN*
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
ARMOR ALL NASDAQ COMPOSITE PEER GROUP
<S> <C> <C> <C>
1991 $100.00 $100.00 $100.00
1992 $111.40 $127.45 $118.49
1993 $181.94 $146.51 $123.26
1994 $191.07 $158.15 $126.24
1995 $220.05 $175.93 $128.51
1996 $173.91 $238.88 $150.50
</TABLE>
- ------------------------
* Assumes $100 invested in Armor All Common Stock and in each index on March 31,
1991 and that all dividends are reinvested.
8
<PAGE>
SUMMARY COMPENSATION TABLE
The following table sets forth the compensation for services in all
capacities to the Corporation for the three fiscal years ended March 31, 1994,
1995 and 1996 of the Chief Executive Officer, and each of the other four most
highly compensated executive officers of the Corporation in fiscal year 1996.
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
-----------------------------------
AWARDS
ANNUAL COMPENSATION ------------------------ PAYOUTS
--------------------------------------- RESTRICTED ---------
OTHER ANNUAL STOCK LTIP ALL OTHER
NAME AND COMPENSATION AWARDS OPTIONS/ PAYOUTS COMPENSATION
PRINCIPAL POSITION(1) YEAR SALARY ($) BONUS ($) ($)(2) ($)(3) SARS (#) ($) ($)(4)
- ---------------------------- --------- ----------- ----------- ------------- ----------- ----------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Kenneth M. Evans, .......... 1996 $ 312,000 $ 0 $ 35,428(5) $ 81,875 15,000 $ 0 $ 13,646
President and CEO 1995 300,000 170,000 -- 118,250 20,000 1,530 50,154
1994 285,000 290,000 -- 347,900 15,000 112,500 32,508
Michael G. McCafferty, ..... 1996 134,615 0 -- 49,125 35,000 0 0
Executive Vice President
and Chief Financial
Officer(6)
Michael A. Caron, .......... 1996 177,500 0 -- 32,750 6,500 0 10,298
Senior Vice President and 1995 169,000 47,000 -- 43,000 7,000 44,800 37,247
President of Armor All 1994 163,600 54,000 -- 43,050 3,000 56,900 21,332
International
Donald N. Weinberger, ...... 1996 151,000 0 -- 0 0 0 9,268
Vice President
Operations(6)
Steven L. Kliff, ........... 1996 165,212 0 -- 0 0 0 4,685
Senior Vice President 1995 175,000 47,000 -- 43,000 6,500 41,000 29,413
Consumer Products(6) 1994 158,250 70,000 -- 61,500 5,000 0 9,368
</TABLE>
- ------------------------------
(1) Mr. McDowell, who serves as Chairman of the Board of the Corporation,
receives no compensation from the Corporation.
(2) Except as noted in the footnotes below, the dollar value of perquisites and
other personal benefits for each named executive officer during fiscal year
1996 was less than established reporting thresholds.
(3) All shares awarded in fiscal years 1996 and 1995 were performance-based and
the restrictions will lapse at the end of fiscal years 2000 and 1999,
respectively, if the Corporation meets specified financial goals. Of the
restricted shares awarded in fiscal year 1994, 12,500 shares awarded to Mr.
Evans, are being released in annual increments of 25% beginning one year
after the date of the award, provided that Mr. Evans remains in the employ
of the Corporation on the dates on which the restrictions lapse. The
remaining restricted shares awarded in fiscal year 1994 were
performance-based and will be released at the end of fiscal year 1998 if the
Corporation attains a specified goal of compounded growth in profit before
tax for the four-year period ending on March 31, 1998. Dividends are paid on
the shares at the same rate as paid to all other stockholders. The 1988
Restricted Stock Plan provides that, in the event of a change in control of
the Corporation or of McKesson (as defined in the plan), all restrictions on
outstanding restricted stock grants shall immediately lapse. As of March 31,
1996, the number of shares of restricted stock outstanding to each named
executive officer and the market value of the shares (based upon the closing
stock price of $16.375 on Friday, March 29, 1996), respectively, were as
follows: Mr. Evans, 33,050 and $541,194; Mr. McCafferty, 3,000 and $49,125;
Mr. Caron, 8,600 and $140,825; Mr. Weinberger, 5,400 and $88,425; and Mr.
Kliff, 0 and $0.
(4) For fiscal year 1996, includes the aggregate value of (i) the Corporation's
matching stock contributions under the Profit-Sharing Investment Plan
("PSIP"), a plan designed to qualify as an employee stock ownership plan
under the Internal Revenue Code (the "Code"), allocated to the accounts of
the named executive officers, as follows: Mr. Evans, $1,800; Mr. Caron,
$1,800; and Mr. Weinberger, $1,800; (ii) employer matching cash
contributions under the Supplemental PSIP, an unfunded, nonqualified plan
established because of limitations on annual contributions to the PSIP
contained in the Code, as follows: Mr. Evans, $4,794; Mr. Caron, $908; and
Mr. Weinberger, $780; (iii) stock contributions made by McKesson to the
named executives' ESOP accounts under the McKesson PSIP, as follows: Mr.
Evans, $7,052; Mr. Caron, $7,120; Mr. Weinberger, $6,688; and Mr. Kliff,
$4,685; and (iv) above-market interest accrued on deferred compensation for
Mr. Caron in the amount of $470.
(5) Includes $13,618 imputed interest on the loan to Mr. Evans described under
"Indebtedness of Executive Officers" on page 15.
(6) Mr. McCafferty's employment with the Corporation commenced on September 11,
1995; Mr. Weinberger became an executive officer on September 1, 1995; and
Mr. Kliff's employment with the Corporation terminated on January 31, 1996.
9
<PAGE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------------------
% OF TOTAL GRANT DATE VALUE
OPTIONS GRANTED EXERCISE OR ----------------
OPTIONS/SARS TO EMPLOYEES BASE PRICE EXPIRATION GRANT DATE
NAME GRANTED (#)(1) IN FISCAL YEAR ($/SH) DATE PRESENT VALUE(2)
- -------------------------------------- --------------- --------------- ------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
Kenneth M. Evans...................... 15,000 7.16 $ 16.00 1/23/06 $ 60,720
Michael G. McCafferty................. 25,000 11.93 17.50 9/20/05 110,688
10,000 4.77 16.00 1/23/06 40,480
Michael A. Caron...................... 6,500 3.10 16.00 1/23/06 26,312
Donald N. Weinberger.................. --0-- --0-- --0-- --0-- --0--
Steven L. Kliff....................... --0-- --0-- --0-- --0-- --0--
</TABLE>
- ------------------------
(1) During fiscal year 1996, options to purchase an aggregate of 211,500 shares
were granted to 59 optionees at option prices ranging from $16.00 to $19.25
with a weighted average option price of $16.48. All options granted to
employees are for ten-year terms and are granted at fair market value and
exercisable in installments of 25% per year beginning one year after the
date of grant, except that the grant of 25,000 shares to Mr. McCafferty on
September 20, 1995, at the exercise price of $17.50 per share, vests in full
on the first anniversary of the date of grant. Optionees may satisfy the
exercise price by submitting currently owned shares and/or cash. Income tax
withholding obligations may be satisfied by electing to have the Corporation
withhold shares otherwise issuable under the option with a fair market value
equal to such obligations. The Corporation has not granted any stock
appreciation rights.
(2) In accordance with Securities and Exchange Commission rules, a modified
Black-Scholes option pricing model was chosen to estimate the grant date
present value of 25.3% for the options set forth in this table. The
assumptions used in calculating the reported value include: stock
volatility, 35.09%; interest rate, 5.65%; annual dividend, $.64; exercise
period, 10 years; reductions of approximately 9.61% to reflect the
probability of forfeiture due to termination prior to vesting, and
approximately 10.37% to reflect the probability of a shortened option term
due to termination of employment prior to the option expiration date. The
Corporation does not believe that the Black-Scholes model, or any other
model, can accurately determine the value of an option. Accordingly, there
is no assurance that the value realized by an executive, if any, will be at
or near the value estimated by the Black-Scholes model. Future compensation
resulting from option grants is based solely on the performance of the
Corporation's stock price.
10
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
SHARES NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
ACQUIRED ON VALUE OPTIONS AT FISCAL YEAR-END IN-THE- MONEY OPTIONS AT
EXERCISE REALIZED (#) FISCAL YEAR-END ($)(1)
------------- ------------- -------------------------- --------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------ ------------- ------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Kenneth M. Evans.............. --0-- $ --0-- 90,000 45,000 $ 305,000 $ 5,625
Michael G. McCafferty......... --0-- --0-- --0-- 35,000 --0-- 3,750
Michael A. Caron.............. --0-- --0-- 34,938 15,312 86,581 2,438
Donald N. Weinberger.......... 2,825 16,306 23,600 6,875 10,781 --0--
Steven L. Kliff............... --0-- --0-- 18,563 --0-- 34,125 --0--
</TABLE>
- ------------------------
(1) Calculated based upon the fair market value share price of $16.375 on
Friday, March 29, 1996, less the share price to be paid on exercise. There
is no guarantee that if and when these options are exercised they will have
this value.
EMPLOYMENT CONTRACTS AND TERMINATION
OF EMPLOYMENT AND CHANGE IN CONTROL ARRANGEMENTS
The Corporation does not have employment agreements with its executive
officers. However, as of April 1, 1994 it entered into termination agreements
with Messrs. Evans and Kliff providing for payment of severance benefits upon
their termination of employment following a "change in control" of the
Corporation (defined in the agreements as the occurrence of certain specified
events). Mr. Kliff's agreement was cancelled when his employment terminated on
January 31, 1996. Mr. Evans' agreement, which will remain in effect until
terminated by the Board of Directors, provides for the payment of benefits upon
a change in control of the Corporation or of McKesson and actual or constructive
termination of employment within two years of such change. In the event of
termination of employment under the agreement, the Corporation shall pay to the
executive as severance pay in a cash lump sum an amount equal to 2.99 times his
"severance pay base", subject to adjustment as described below. "Severance pay
base" means the executive's "base amount" determined under Section 280G of the
Internal Revenue Code. The amount of severance benefits paid shall be no higher
than the amount that is not subject to disallowance of deduction under Section
280G of the Internal Revenue Code. Accrual of service for Mr. Evans would
continue under the McKesson Executive Benefit Retirement Plan and he would
continue to participate in the McKesson Executive Medical Plan and Executive
Survivor Benefits Plan for a minimum of twelve months, plus one month for each
year of service with a maximum benefit of twenty-four months.
For purposes of the termination agreements, a "change in control" is
generally deemed to occur if (a) any person (as defined in the Securities
Exchange Act of 1934, as amended) excluding the Corporation or any of its
subsidiaries, a trustee or any fiduciary holding securities under an employee
benefit plan of the Corporation or any of its subsidiaries, an underwriter
temporarily holding securities pursuant to an offering of such securities or a
corporation owned, directly or indirectly, by stockholders of the Corporation in
substantially the same proportions as their ownership of the Corporation, is or
becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of securities of the Corporation representing 30%
or more of the combined voting power of the Corporation's then outstanding
securities; or (b) during any period of not more than two consecutive years,
individuals who at the beginning of such period constitute the Board and any new
director (other than a director designated by a person who has entered into an
agreement with the Corporation to effect a transaction described in clause (a),
(c) or (d) of this paragraph) whose election by the Board or nomination for
election by the Corporation's stockholders was approved by a vote of at least
two-thirds (2/3) of the directors then still in office who either were directors
at the beginning of the period or whose election or nomination for election was
previously so approved, cease for any reason to constitute a majority thereof;
or (c) the
11
<PAGE>
shareholders of the Corporation approve a merger or consolidation of the
Corporation with any other corporation, other than (i) a merger or consolidation
which would result in the voting securities of the Corporation outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of the surviving
entity), in combination with the ownership of any trustee or other fiduciary
holding securities under an employee benefit plan of the Corporation, at least
50% of the combined voting power of the voting securities of the Corporation or
such surviving entity outstanding immediately after such merger or
consolidation, or (ii) a merger or consolidation effected to implement a
recapitalization of the Corporation (or similar transaction) in which no person
acquires more than 50% of the combined voting power of the Corporation's then
outstanding securities; or (d) the shareholders of the Corporation approve a
plan of complete liquidation of the Corporation or an agreement for the sale or
disposition by the Corporation of all or substantially all of the Corporation's
assets.
On April 1, 1996 the Corporation entered into a settlement agreement with
Mr. Kliff, in connection with the termination of his employment (the
"Agreement"), whereby it agreed to pay to Mr. Kliff the cash sums of (i)
$350,000 in settlement of certain claims, and (ii) $5,563 in reimbursement for
the cost of six months of premiums on an HMO medical/group health insurance
policy. The Agreement also provides for the extension until June 30, 1996 of the
period within which Mr. Kliff may exercise all stock options which were
exercisable on the date his employment terminated, and the waiver by the
Corporation of $11,095 in interest on his outstanding loan (see "Indebtedness of
Executive Officers" on page 15). The Agreement also contains standard provisions
such as a mutual release of claims, continuing confidentiality obligations as to
the terms of the Agreement, except as required by law, and protection of
proprietary information.
RETIREMENT PLAN
Employees of the Corporation participate in the McKesson Corporation
Retirement Plan (the "McKesson Plan"). The costs of participation in the
McKesson Plan are paid by the Corporation.
The table below illustrates, as of March 31, 1996, the estimated annual
benefits payable upon retirement at age 65 under the McKesson Plan in the
specified compensation and years-of-service classifications. The benefits are
computed as single life annuity amounts.
<TABLE>
<CAPTION>
YEARS OF SERVICE
------------------------------------------
FIVE YEAR AVERAGE COMPENSATION 15 20 25 30
- ---------------------------------------------------------------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
$150,000.............................................................. $ 29,432 $ 39,242 $ 49,053 $ 58,864
200,000.............................................................. 29,432 39,242 49,053 58,864
300,000.............................................................. 29,432 39,242 49,053 58,864
400,000.............................................................. 29,432 39,242 49,053 58,864
500,000.............................................................. 29,432 39,242 49,053 58,864
600,000.............................................................. 29,432 39,242 49,053 58,864
700,000.............................................................. 29,432 39,242 49,053 58,864
</TABLE>
Annual benefits are generally equal to a percentage of final average pay
(averaged over the highest consecutive five-year period out of the last 15 years
of service preceding retirement) up to Covered Compensation (the average of the
Social Security wage bases over the 35 year period ending with the year the
participant attains or will attain Social Security Retirement Age) plus a
percentage of final average pay exceeding Covered Compensation, the total of
which is multiplied by years of creditable service up to a maximum of 30 years.
Compensation covered under the McKesson Plan is defined as base pay plus
overtime and/or annual bonus as disclosed in the Summary Compensation Table for
the named executive officers and as limited by Internal Revenue Code Section
401(a)(17).
As of March 31, 1996, the following individuals had the number of years of
creditable service indicated: Mr. Evans, 5 years; Mr. McCafferty, 0 years; Mr.
Caron, 11 years; and Mr. Weinberger, 7 years.
12
<PAGE>
Mr. Evans also participates in the McKesson Corporation 1984 Executive
Benefit Retirement Plan (the "EBRP"). The benefit under the EBRP is a percentage
of final average pay based on years of service or is determined by the Board of
Directors. The maximum benefit is 60% of final average pay. The total paid under
the EBRP is not reduced by Social Security benefits but is reduced by those
benefits payable on a single life basis under the McKesson Plan. Based on
retirement at age 65, the annual combined benefit payable to Mr. Evans under the
McKesson Plan and the EBRP would be approximately $290,885.
INDEBTEDNESS OF EXECUTIVE OFFICERS
During fiscal year 1996 Mr. Evans' maximum aggregate indebtedness to the
Corporation, and the amount outstanding at May 15, 1996, was $400,000. This
amount relates to an interest-free loan extended to Mr. Evans and secured by a
deed of trust on certain residential property owned him. The principal amount of
the loan is payable upon the earlier of (i) termination of Mr. Evans' employment
with the Corporation, or (ii) sale of the property, unless the loan is then
secured by a separate deed of trust on real property purchased by Mr. Evans as
his principal residence.
A loan in the amount of $300,000 to finance home repair and improvements was
extended to Mr. Kliff in a prior fiscal year. The loan required annual interest
payments at the rate of 4% per annum. Mr. Kliff's maximum aggregate indebtedness
to the Corporation during fiscal year 1996 was $300,000 and the amount
outstanding at March 31, 1996 was $196,000. Under the terms of his Agreement
with the Corporation (see discussion under "Employment Contracts and Termination
of Employment and Change in Control Arrangements" on page 13), this balance was
paid in full in April 1996.
No other director or executive officer was indebted to the Corporation in an
amount exceeding $60,000 at any time during fiscal year 1996.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On July 1, 1986, the Corporation entered into a Services Agreement, (the
"Agreement") with McKesson, of which Mr. Seelenfreund is an officer and
director, Messrs. Armstrong and Mahoney are officers and Mr. McDowell is a
Senior Adviser. Pursuant to the Agreement, McKesson has agreed to provide
certain corporate staff services to the Corporation. For the fiscal year ended
March 31, 1996, the amount charged the Corporation by McKesson for such services
was $519,000, exclusive of insurance and outside professional services that are
billed separately. This charge is modified annually to reflect changes in
McKesson's costs of providing these services. Such services include treasury and
financial, legal, corporate secretary, tax, internal audit, planning and
corporate development, accounting advice, and employee benefit, personnel and
payroll services. The Corporation can request, and McKesson may provide, data
processing, computer programming and other services to supplement the
capabilities of the Corporation. McKesson has agreed to make available to the
Corporation certain employee benefit plans and also has agreed to allow
Corporation employees to continue to participate in McKesson's retirement plan
and employee stock ownership plans. The Corporation has agreed to contribute
annually to the plans the amount necessary to fund employee participation. The
Corporation is also insured under McKesson's property and casualty insurance
program for limits of liability and deductibles deemed appropriate for the
Corporation's risk exposures and size. Premiums are based on the Corporation's
risk exposure and historical loss experience.
The Agreement is automatically renewed for successive one-year terms unless
terminated and is reviewed annually by the Corporation's Chief Financial Officer
with the independent nonemployee directors. The Agreement will be terminated if
McKesson should own less than a majority of the outstanding voting stock of the
Corporation, or upon 120 days' prior written notice by either party, or upon
such earlier date as the parties may mutually agree to in writing. The Agreement
provides that McKesson's liability with respect to any loss or damages arising
in connection with the provision of services to the Corporation is limited to
amounts billed for such services.
13
<PAGE>
Pursuant to the Agreement, the Corporation's U.S. operations participate on
a daily basis in a cash management program administered by McKesson. Under this
arrangement, the Corporation invests any excess cash under the cash management
program, has access to the cash invested and meets cash requirements through
borrowing from McKesson. All amounts invested with McKesson are deposited in a
separate bank account in the Corporation's name. The Corporation receives
interest from McKesson on funds deposited under the program, or pays interest to
McKesson on funds borrowed, at a rate equal to the monthly Federal Reserve
Composite Rate for 7-day commercial paper less one-tenth of one percent for
funds deposited under the program and plus one-half of one percent for funds
borrowed from McKesson. The Agreement provides that McKesson will make available
that amount of cash necessary to provide the Corporation with sufficient funds
to meet its needs as defined in its annual capital and operating budget and that
the Corporation will pay McKesson an annual credit facility fee of $25,000. At
March 31, 1996, the Corporation had invested $17,359,000 under the cash
management program at an interest rate of 5.3%. The maximum amount invested by
the Corporation under the cash management program at any month end during the
fiscal year ended March 31, 1996 was $37,875,000. In the fiscal year ended March
31, 1996, the Corporation received from McKesson net interest in the amount of
$1,486,000 pursuant to this arrangement.
Under the terms of the Acquisition Agreement dated July 1, 1986 pursuant to
which McKesson transferred the business of its Armor All Products Division to
the Corporation (the "Acquisition Agreement"), McKesson and the Corporation have
agreed that, so long as McKesson owns at least a majority of the outstanding
voting stock of the Corporation, McKesson will refer to the Corporation any
business opportunities McKesson deems appropriate concerning appearance
protection products applicable to the automotive aftermarket. McKesson has
complete discretion to determine which products or ideas the Corporation may
develop or fund. McKesson has not established objective criteria to utilize in
exercising its discretion. Such determinations will be made on a case-by-case
basis as such opportunities arise. McKesson has no obligation to refer to the
Corporation ideas or products whether or not related to appearance protection
products applicable to the automotive aftermarket. McKesson is currently in the
business of distributing appearance protection products, and will continue to be
entitled to distribute such products and any other products it deems
appropriate. The Corporation is entitled to retain and develop any product or
idea within the scope of its intended operations which it develops through its
own facilities or staff. McKesson is not obligated to fund, or permit the
Corporation to fund, development of any product or idea, if McKesson concludes
that such development is not in the Corporation's best interests.
14
<PAGE>
EXHIBIT 5
TAX ALLOCATION AGREEMENT
BETWEEN
MCKESSON CORPORATION
AND
ARMOR ALL PRODUCTS CORPORATION
DATED AS OF JULY 1, 1986
<PAGE>
TAX ALLOCATION AGREEMENT
THIS AGREEMENT dated as of July 1, 1986, is between McKesson Corporation, a
Maryland corporation ("McKesson"), and Armor All Products Corporation, a
Delaware corporation ("Armor All").
INTRODUCTION
A. McKesson is the common parent corporation of an affiliated group of
corporations within the meaning of Section 1504(a) of the Internal Revenue Code
of 1954, as amended (the "Code"), and Armor All is a member of said affiliated
group.
B. McKesson and Armor All deem it appropriate to define the method by which
the Federal income tax liability of the affiliated group shall be allocated
between the parties and the manner in which such allocated liability shall be
paid.
ACCORDINGLY, the parties hereto agree as follows:
1. DEFINITIONS
The following terms as used in this Agreement shall have the meanings set
forth below:
(a) "McKesson Group" shall mean the affiliated group of corporations
within the meaning of Section 1504(a) of the Code of which McKesson is the
common parent.
(b) "Member" shall mean each includible member of the McKesson Group.
(c) "Consolidated Return" shall mean a consolidated Federal income tax
return filed pursuant to Section 1501 of the Code.
(d) "Regulations" shall mean the Treasury regulations as in effect from
time to time.
(e) "IRS" shall mean the Internal Revenue Service.
(f) "Consolidated Tax Liability" shall mean the consolidated Federal
income tax liability of the McKesson Group for any taxable year for which
the McKesson Group files a Consolidated Return.
(g) "Separate Return Tax Liability" shall mean the Federal income tax
liability of a member computed as if it had filed a separate Federal income
tax return for the applicable taxable year with the modifications set forth
in Section 1.1552-1(a)(2)(ii) of the Regulations. If the computation of a
Member's Separate Return Tax Liability as provided herein does not result in
a positive amount, such Member's Separate Return Tax Liability shall be
deemed to be zero.
(h) "Separate Tax Liability" shall mean the amount determined under
Section 2 hereof.
(i) "Additional Amount" shall mean the amount determined under Section 3
hereof.
2. SEPARATE TAX LIABILITY
(a) If a Consolidated Return is filed by the McKesson Group for any
taxable year, the Separate Tax Liability of Armor All for such taxable year
shall be the amount set forth in paragraph (b) hereof as modified by
paragraph (c) hereof.
(b) The amount referred to in this paragraph (b) shall be an amount
equal to that portion of the Consolidated Tax Liability for such taxable
year that the Armor All Separate Return Tax Liability for such taxable year
bears to the sum of the Separate Return Tax Liabilities of all Members for
such taxable year; PROVIDED, HOWEVER, that such amount shall not exceed the
Consolidated Tax Liability for such taxable year.
(c) The amount computed pursuant to paragraph (b) above shall be
increased by 100% of the excess, if any, of the Armor All Separate Return
Tax Liability for such taxable year over such amount.
2
<PAGE>
3. ADDITIONAL AMOUNT
If a Consolidated Return is filed by the McKesson Group for any taxable
year, the Additional Amount shall be equal to 100% of the amount, if any, by
which the Consolidated Tax Liability for such taxable year has been decreased by
reason of the inclusion of Armor All in the McKesson Group for such taxable
year.
4. PAYMENTS
For each taxable year with respect to which McKesson files, or it is
reasonably anticipated that McKesson will file, a Consolidated Return which
includes Armor All, payment of the Separate Tax Liability or the Additional
Amount with respect to such taxable year shall be made as follows:
(a) On or before the 15th day of the fourth month of such taxable year,
McKesson and Armor All shall estimate the Separate Tax Liability or the
Additional Amount for such taxable year.
(b) Armor All shall pay to McKesson or McKesson shall pay to Armor All,
as the case may be, on or before each of the due dates upon which McKesson
shall make payment of estimates of the Federal income taxes for such taxable
year one-fourth of the amount estimated pursuant to paragraph (a) above (the
"Estimated Amount"). If, after paying any such installment of the Estimated
Amount, McKesson and Armor All make a new estimate, the amount of each
remaining installment (if any) shall be the amount which would have been
payable if the new estimate had been made when the first estimate for the
taxable year was made, increased or decreased, as applicable, by the amount
computed by dividing:
(i) the difference between (A) the amount of the Estimated Amount
required to be paid before the date on which the new estimate is made,
and (B) the amount of the Estimated Amount which would have been required
to be paid before such date if the new estimate had been made when the
first estimate was made, by (ii) the number of installments remaining to
be paid on or after the date on which the new estimate is made.
(c) If, after the end of each such taxable year with respect to which
McKesson filed, or reasonably anticipates that it will file, a Consolidated
Return which includes Armor All, it is determined that the actual Separate
Tax Liability or Additional Amount for such taxable period exceeds the
aggregate amount paid pursuant to subparagraph (b) above with respect to
such taxable period, then such excess shall be paid on or before the later
of (i) the 15th day of the third month after the end of such taxable period
and (ii) the date on which such excess is finally determined, which shall be
not later than 60 days after the Consolidated Return for such taxable period
is filed.
(d) If, after the end of such taxable year with respect to which
McKesson filed, or reasonably anticipates that it will file, a Consolidated
Return which includes Armor All, it is determined that the amount paid
pursuant to subparagraph (b) above with respect to such taxable period
exceeds the actual Separate Tax Liability or Additional Amount for such
taxable period, then such excess shall be paid on or before the later of (i)
the 15th day of the third month after the end of such taxable period and
(ii) the date on which such excess is finally determined, which shall be not
later than 60 days after the Consolidated Return for such taxable period is
filed.
5. CARRYBACKS
(a) If the McKesson Group has a consolidated unused investment credit, a
consolidated unused foreign tax, a consolidated excess charitable contribution,
a consolidated net capital loss or a consolidated net operating loss, as such
terms are defined in the Regulations (a "Consolidated Excess Amount") for any
taxable year, the portion of such Consolidated Excess Amount which is
attributable to a Member (the "Separate Excess Amount") shall be computed in
accordance with Section 1.1502-79 of the Regulations.
(b) If such Consolidated Excess Amount is carried back to a prior taxable
year of the McKesson Group during which Armor All was a Member or was not in
existence, then the amounts due under this
3
<PAGE>
Agreement for such prior taxable year shall be redetermined by taking into
account such Consolidated Excess Amount and any Separate Excess Amounts
allocable to such taxable year.
(c) Payment of any amount due under this Section 5 shall be made on the date
that a credit or refund is allowed with respect to the taxable year to which
such payment relates and shall include any interest attributable thereto under
Section 6611 of the Code.
6. SUBSEQUENT ADJUSTMENTS
If any adjustments (other than adjustments made pursuant to Section 5
hereof) are made to the income, gains, losses, deductions or credits of the
McKesson Group for a taxable year during which Armor All is a member, whether by
reason of the filing of an amended return or a claim for refund with respect to
such taxable year or an audit with respect to such taxable year by the IRS, the
amounts due under this Agreement for such taxable year shall be redetermined by
taking into account such adjustments. If, as a result of such redetermination,
any amounts due under this Agreement shall differ from the amounts previously
paid, then payment of such difference shall be made (a) in the case of an
adjustment resulting in a credit or refund, on the date on which such credit or
refund is allowed with respect to such adjustment or (b) in the case of an
adjustment resulting in the assertion of a deficiency, on the date on which such
deficiency is paid. Any amounts due under this Section 6 shall include any
interest attributable thereto under Section 6601 or 6611 of the Code, as the
case may be, and any penalties or additional amounts which may be imposed.
7. CARRYBACKS FROM SEPARATE RETURN YEARS
If, for any separate return year, as defined in Section 1.1502-1 of the
Regulations, Armor All has a net operating loss, a net capital loss or is
entitled to credits against tax which, under the applicable provisions of the
Code and the Regulations, may be carried back to a taxable year during which
Armor All was a Member, McKesson shall pay to Armor All the amount of any refund
or credit or Federal income tax that McKesson receives as a result of the
carryback of such losses or credits. Such payment shall be made not later than
60 days after McKesson receives such refund or credit and shall include any
interest attributable thereto under Section 6611 of the Code.
8. DETERMINATIONS
All determinations required hereunder shall be made by the independent
public accountants regularly employed by the McKesson Group at the time that
such determination is required to be made. Such determinations shall be binding
and conclusive upon the parties for purposes hereof.
9. PROCEDURAL MATTERS
McKesson shall prepare and file the Consolidated Return and any other
returns, documents or statements required to be filed with the IRS with respect
to the determination of the Federal income tax liability of the McKesson Group.
In its sole discretion, McKesson shall have the right with respect to any
Consolidated Returns which it has filed or will file, (a) to determine (i) the
manner in which such returns, documents or statements shall be prepared and
filed, including, without limitation, the manner in which any item of income,
gain, loss, deduction or credit shall be reported, (ii) whether any extensions
may be requested and (iii) the elections that will be made by any Member, (b) to
contest, compromise or settle any adjustment or deficiency proposed, asserted or
assessed as a result of any audit of such returns by the IRS, (c) to file,
prosecute, compromise or settle any claim for refund and (d) to determine
whether any refunds, to which the McKesson Group may be entitled, shall be paid
by way of refund or credited against the tax liability of the McKesson Group.
Armor All hereby irrevocably appoints McKesson as its agent and attorney-in-fact
to take such action (including the execution of documents) as McKesson may deem
appropriate to effect the foregoing.
4
<PAGE>
10. STATE TAXES
In the event that McKesson or Armor All, or both, pays any state tax
liability or deficiency on the basis that they are parts of the same unitary
business, as that term has been applied under the California Revenue and
Taxation code Sections 25101-25139 and analogous provisions of other state
taxing statutes,
(a) in the case Armor All pays any state tax liability or deficiency which
exceeds its liability or deficiency on a separate return basis, McKesson shall
pay to Armor All the amount by which the liability or deficiency exceeds Armor
All's liability or deficiency on a separate return basis, on the date which
Armor All pays all liability or deficiency, or;
(b) in the case Armor All pays any state tax liability or deficiency which
is less than its liability or deficiency on a separate return basis, Armor All
shall pay to McKesson the amount by which its liability or deficiency on a
separate return basis exceeds the liability or deficiency actually paid, on the
date the liability or deficiency is paid, or;
(c) in the case Armor All is allowed a credit or refund which it would not
be allowed on a separate return basis, Armor All shall pay to McKesson the
amount of such credit or refund on the date when such credit or refund is
allowed to Armor All.
Any amounts due under this Section 10 include any interest attributable
thereto under the law of the taxing state, and any penalties or additional
amounts which may be imposed. This Section 10 does not affect the separate
responsibility of McKesson and Armor All, respectively, with regard to state tax
adjustments not attributable to treating McKesson and Armor All as parts of the
same unitary business.
11. MISCELLANEOUS PROVISIONS
(a) This Agreement contains the entire understanding of the parties hereto
with respect to the subject matter contained herein. No alteration, amendment or
modification of any of the terms of this Agreement shall be valid unless made by
an instrument signed in writing by an authorized officer of each party hereto.
(b) This Agreement has been made in and shall be construed and enforced in
accordance with the laws of the State of California from time to time obtaining.
(c) This Agreement shall be binding upon and inure to the benefit of each
party hereto and its respective successors and assigns.
(d) This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
(e) The headings of the paragraphs of this Agreement are inserted for
convenience only and shall not constitute a part hereof.
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed and their respective corporation seals to be affixed hereto, all on the
date first above written.
<TABLE>
<S> <C> <C>
MCKESSON CORPORATION
Attest:
By:
- ------------------------------ -----------------------------------------
Title:
ARMOR ALL PRODUCTS CORPORATION
Attest:
By:
- ------------------------------ -----------------------------------------
Title:
Attest:
By:
- ------------------------------ -----------------------------------------
Title:
</TABLE>
6
<PAGE>
EXHIBIT 6
FORM OF INDEMNITY AGREEMENT
This Indemnity Agreement (this "Agreement"), dated as of [ , 19 ],
is among McKesson Corporation, a Maryland corporation ("McKesson"), Armor All
Products Corporation, a Delaware corporation (the "Company"), and [ ]
(the "Director").
INTRODUCTION
A. The Director is contemplating becoming a member of the Board of Directors
of the Company.
B. McKesson owns a majority of the common stock of the Company.
C. As an inducement to the Director to serve as a director of the Company,
McKesson agrees to indemnify the Director upon the terms and conditions
hereinafter set forth.
Accordingly, the parties hereto agree as follows:
1. AGREEMENT TO INDEMNIFY. McKesson agrees to indemnify and hold harmless
the Director from all claims, liabilities, losses, damages, costs and expenses
(including, without limitation, court costs and attorneys' fees) which may be
asserted against him, or which he may sustain or incur, as a result of his
service as a Director of the Company (including service on any committee of the
Board of Directors of the Company), or as a result of any action or omission
which he is alleged to have taken or omitted to take as a director of the
Company, during any period of time prior to termination of this Agreement
pursuant to paragraph 10 hereof, irrespective of the time when any such claim
may be asserted; provided, however, that the indemnification herein provided
shall not extend to any act or omission with respect to which it shall be
finally adjudged that the liability of the Director arose out of conduct or an
omission that: (a) involved a knowing and culpable violation of law, (b) enabled
the Director to derive an improper benefit from the Company, (c) showed a
conscious disregard for the Director's duties to the Company that was reckless
under the circumstances, or (d) constituted a sustained and unexcused pattern of
inattention that amounted to an abdication of the Director's duty to the
Company. The Director shall not submit any claim to McKesson under this
Agreement until the Director has made a claim for indemnification to the
Company, and under any applicable insurance policy, and has failed to receive
full payment of such claim within sixty (60) days after such submission.
2. DUTY TO DEFEND; ADVANCE OF EXPENSES. In case any proceeding (including
any government investigation) shall be instituted or claim asserted involving
the Director, the Director shall promptly notify McKesson and the Company in
writing. Unless the Director is otherwise being represented by counsel
reasonably satisfactory to the Director, McKesson and the Company, and who is
retained and paid by McKesson, the Company or an insurance carrier, McKesson and
the Company shall retain counsel reasonably satisfactory to the Director to
represent the Director and any other person McKesson and Company may designate
in such proceeding (except where such representation would be inappropriate due
to actual or potential differing interests), and McKesson or the Company shall
pay the reasonable fees and disbursements of such counsel related to such
proceeding. In any such proceeding, the Director shall have the right to retain
his own counsel, but the fees and expenses of such counsel shall be at the
expense of the Director unless (i) McKesson, the Company and the Director shall
have mutually agreed to the retention of such counsel or (ii) the named parties
to any such proceeding (including any impleaded parties) include McKesson, the
Company and the Director and representation of all of the parties by the same
counsel would be inappropriate due to actual or potential differing interests
between them. It is understood that McKesson and the Company shall not, in
connection with any proceeding or related proceedings in the same jurisdiction,
be liable for the reasonable fees and expenses of more than one separate firm
(in addition to any local counsel) for the Director (except where such
representation is inappropriate due to differing interests), and that all such
fees and expenses shall be reimbursed as they are incurred. Neither McKesson nor
the Company shall be liable for any settlement of any proceeding effected
without its written consent, but if settled with such consent or if there be a
final judgment for the plaintiff, McKesson
<PAGE>
agrees to indemnify the Director from and against any loss or liability by
reason of such settlement or judgment. In the event that it shall ultimately be
determined in a final judgment that the Director was not entitled to be
indemnified hereunder as a result of conduct or an omission referred to in any
of the clauses (a) through (d) of Paragraph 1 above, the Director agrees to
reimburse McKesson and the Company for the amount of any fees or disbursements
paid by them on behalf of such Director in such proceeding.
3. DIRECTOR'S OBLIGATION TO SERVE; EFFECT OF DIRECTOR'S RESIGNATION. By
executing a counterpart of this Agreement, the Director signifies his present
intention to serve as a director of the Company. However, nothing herein
contained shall obligate the Director to continue to so serve as a director, and
the resignation of the Director shall not operate to deprive the Director of the
benefits of this Agreement.
4. GOVERNING LAW. The validity, interpretation, enforceability and
performance of this Agreement shall be governed by and construed in accordance
with the law of the State of Delaware, without reference to its rules on
conflict of laws.
5. CONSENT TO JURISDICTION. It is agreed that in the event of the failure
of McKesson to pay any amount claimed to be due hereunder, McKesson, at the
request of the Director, will submit to the jurisdiction of any court of
competent jurisdiction within the State of California or Delaware, and will
comply with all requirements necessary to give such court jurisdiction, and all
matters arising hereunder shall be determined in accordance with the law and
practice of such court.
It is further agreed that service of process in such suit may be made upon
McKesson Corporation, One Post Street, San Francisco, California 94104, Attn:
Vice President and General Counsel, and that in any suit instituted against
McKesson under this Agreement, McKesson will abide by the final decision of such
court or of any appellate court in the event of an appeal.
6. INDIVIDUAL STATUS OF DIRECTORS. Nothing herein contained shall be
deemed to make the Director responsible for any act or omission of any other
Director, nor to create rights or obligations among the directors, as such.
7. AGREEMENT NOT EXCLUSIVE. The right to indemnification provided to the
Director under this Agreement shall be independent of, and neither subject to
nor in derogation of, any other rights to indemnification or exculpation to
which the Director may be entitled, including, without limitation, any such
rights which may be assertable under the General Corporation Law of the State of
Delaware or any other law, the Certificate of Incorporation or By-Laws of
McKesson or the Company, or any policy of insurance. In the event that McKesson
or the Company makes payment to or defends the Director under this Agreement,
the Director agrees to pursue in his own name and at McKesson's or the Company's
request and expense any rights to indemnification or insurance which he may
possess and to turn over to McKesson or the Company any proceeds recovered to
the extent the Director, or counsel retained on the Director's behalf, has
otherwise received reimbursement, or payment under this Agreement.
8. NOTICES. All notices and other communications hereunder will be in
writing and effective when mailed by certified or registered mail, delivered
personally or sent by telex, facsimile transmission or telegraph to McKesson or
the Company, One Post Street, San Francisco, CA 94104, Attn: Vice President and
General Counsel, and to the Director at the address indicated below his
signature to this Agreement, or such other address as any party hereto may from
time to time so communicate.
9. SEVERABILITY. If any provision of this Agreement, or the application
thereof to any person, place or circumstance, shall be held by a court of
competent jurisdiction to be invalid, unenforceable or void, the remainder of
this Agreement and such provisions as applied to other persons, places and
circumstances shall remain in full force and effect.
10. TERMINATION. McKesson may terminate this Agreement on thirty (30)
days' prior written notice given in the manner provided in Paragraph 8. No such
termination or cessation of being a party shall operate to deprive the Director
of the benefit of this Agreement with respect to any conduct or omission of
2
<PAGE>
the Director that is alleged to have occurred prior to the effective date of
such termination on cessation of being a party and for which indemnification is
provided by this Agreement.
11. COUNTERPARTS. This Agreement may be signed in any number of
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
12. AMENDMENT. No amendment of this Agreement shall be effective with
respect to any party hereto unless such party shall have consented in writing to
such amendment. By an instrument in writing, any party may waive compliance by
another party with any provision of this Agreement with which such other party
was or is obligated to comply, provided that such waiver shall not operate as a
waiver of, or estoppel with respect to, any party other than the party waiving
such compliance in writing or any other or subsequent failure. No failure to
exercise and no delay in exercising any right, remedy or power hereunder shall
operate as a waiver thereof.
IN WITNESS WHEREOF the parties hereto have executed this Agreement as of the
date hereinabove set forth.
<TABLE>
<S> <C> <C>
MCKESSON CORPORATION
By /s/ NAME
-----------------------------------------
[ ]
</TABLE>
Its President & Chief Operating Officer
<TABLE>
<S> <C> <C>
ARMOR ALL PRODUCTS CORPORATION
By /s/ NAME /s/ NAME
----------------------------------- -----------------------------------
[ ] Name: [ ]
</TABLE>
Its Vice President & Secretary
Address: c/o McKesson Corporation
One Post Street
San Francisco, CA 94104
3
<PAGE>
EXHIBIT 7
ARMOR ALL
CONTACT: MICHAEL MCCAFFERTY/EXECUTIVE VICE PRESIDENT
AND CHIEF FINANCIAL OFFICER
714-448-4215
ARMOR ALL AGREES TO MERGE WITH CLOROX
ALISO VIEJO, CALIF., TUESDAY, NOVEMBER 26, 1996--Armor All Products
Corporation (NASDAQ:ARMR) and The Clorox Company (NYSE:CLX) jointly announced
that they have reached agreement on the terms of a tender offer whereby Clorox
would acquire all the outstanding shares of Armor All for $19.09 share. Armor
All's regularly quarterly dividend of $0.16 per share will also be paid January
2, 1997, to shareholders of record on December 2, 1996.
"This merger combines the marketing and product development skills of two
companies widely respected and recognized for their expertise in brand
management--which will result in a stronger, more dynamic enterprise," said Ken
Evans, Armor All president and chief executive officer.
Separately, McKesson Corp. (NYSE:MCK) agreed to tender its 55% ownership
interest, or 11.6 million shares, into the offer. Under the terms of the
agreement, Clorox is expected to commence the tender offer on December 2 and to
close before the end of the year. The offer is subject to satisfaction on normal
conditions including expiration of the waiting period under the provisions of
the Hart-Scott-Rodino Act.
"Armor All is a great brand equity with leading positions in the market and
extraordinarily high consumer awareness and satisfactions ratings," said Clorox
Chairman and chief executive officer, Craig Sullivan. He continued, "This
acquisition is right on target with our strategy of finding strong equities in
new categories close in to what we do and where we can add value."
Based in Oakland, California, Clorox is the nation's leading manufacturer of
home cleaning products. The company develops, manufactures and sells grocery
store products both domestically and internationally. In the most recent fiscal
year ending June 30, Clorox had net earnings of $222 million on sales of $2.2
billion.
San Francisco based, McKesson Corp. through its U.S. Health Care business,
its Canadian subsidiary, Media Health and Pharmaceutical Services, and its
minority interest in Mexico's Nadro, S.A., is the largest distributor of
pharmaceuticals and health care products in North America.
Armor All Products is the nation's leading marketer of automotive appearance
products. The Company's home care division, located in Charleston, South
Carolina, markets products designed to protect, clean and beautify surfaces in
and around the home. Armor All International markets and sells the Armor All
brand automotive products in more than 70 countries around the world.
###
ARMOR ALL PRODUCTS CORPORATION / / 6 LIBERTY, ALISO VIEJO, CALIFORNIA 92656
/ / (714) 362-0600 FAX (714)362-0619 INTERNATIONAL FAX (714) 362-0530
<PAGE>
NEWS RELEASE
FOR IMMEDIATE RELEASE
CLOROX WILL ACQUIRE ARMOR ALL, THE LEADING LINE OF AUTOMOTIVE CLEANING
PRODUCTS
MOVE EXTENDS CLOROX'S CLEANING EXPERTISE INTO A MAJOR NEW CATEGORY
OAKLAND, Calif. -- (BUSINESS WIRE)--Nov. 26, 1996--The Clorox Company
(CLX-NY, PSE), a leading consumer products manufacturer, said today that
it will add the top line of automotive cleaning products to its portfolio
with the planned acquisition of Armor All Products Corporation (ARMR-NASDAQ).
Clorox and Armor All have entered into an agreement and plan of merger under
which Clorox will make a tender offer for 100 percent of Armor All's common
stock at a price of $19.09 per share for a total of approximately $400
million. Armor All's board of directors has unanimously approved the agreement
and recommended that Armor All's stockholders accept the Clorox offer.
McKesson Corporation, which owns 55 percent of Armor All's common stock, has
agreed to tender all of its shares.
The tender offer is expected to commence on Dec. 2, 1996 and to close before
the end of the year. Armor All's regular quarterly dividend of 16 cents per
share, declared Nov. 12, 1996, will be paid on Jan. 2, 1997 to stockholders
of record Dec. 2, 1996.
Clorox plans to fund the acquisition with cash and short-term borrowings.
The acquisition is expected to be modestly dilutive, with Clorox's fiscal
year 1997 earnings impacted by about 2-3 percent. This is based on
preliminary estimates, and actual results may vary.
Based in Orange County (Calif.), Armor All reported fiscal 1996 revenues of
$186 million. Some 73 percent of sales, or about $136 million, was in U.S.
automotive cleaners. The balance was in international Armor All sales and in
a line of domestic do-it-yourself home care products.
Armor All leads the $710 million automotive cleaning products market with a
30 percent share, and has about a 60 percent share of the $170 million
protectant segment.
"This acquisition is right on target with our strategy of finding strong
equities in new categories close in to what we do and where we can add
value," said Clorox chairman and CEO Craig Sullivan.
"Armor All is a great brand equity with leading positions in the market and
extraordinarily high consumer awareness and satisfaction ratings," Sullivan
continued. "This acquisition is a logical extension of our home cleaning
expertise into a market where we will have a leading position. It fits
virtually all of our criteria for acquisitions into new categories."
<PAGE>
Sullivan noted that the key benefits consumers want in their cleaning
products, whether in the home or in the garage, are identical. They want
surfaces to be clean and new looking with minimal effort. They want to
protect their investments, and they take satisfaction in making their
possessions look new again.
Clorox plans to achieve significant synergies with its other core businesses
in marketing and manufacturing, and in R&D, "where our goal is to lead the
category in product quality and performance," Sullivan stated. He added that
the automotive cleaner market is a favorable environment for Clorox's
marketing strengths and that "Armor All" is a strong advertisable brand name.
Since about half of Armor All volume is sold to customers with whom Clorox
already does business, there is a significant opportunity to improve delivery
efficiency for these customers. Many customers will be able to pool orders
with other Clorox products for greater savings. "We also look forward to
developing a positive growth relationship with new customers in the retail
automotive channel," Sullivan added.
Internationally, Armor All will add mass to Clorox businesses in Canada,
Mexico, Puerto Rico and Japan, all places where Clorox already has operations.
Dollar sales for the $710 million automotive cleaning products market were up
approximately 5.3 percent for the 12 months ended August 1996. In the
protectant segment, which Armor All created 25 years ago and continues to
lead, dollar sales were up approximately 5.6 percent. Armor All products also
lead the wash, tire cleaner and wheel cleaner segments.
Clorox believes several factors may drive growth faster in automotive
cleaning than in home cleaning. Among them, vehicle ownership is up 20
percent over the past 10 years and exceeds the population's growth rate.
Consumers are keeping their cars longer, and older cars are more likely to be
washed and polished at home. And because new car prices are increasing
faster than salaries, consumers are more attentive to protecting their
investment.
In addition to its line of home cleaning products, The Clorox Company
manufactures and markets bleaches, cat litters and insecticides, charcoal
briquettes, salad dressings and sauces. The company had net earnings of $222
million on sales of $2.2 billion for the year ended June 30.
This announcement contains forward looking statements relating to the
integration of the Armor All business into Clorox's business. The Private
Securities Litigation Reform Act of 1995 provides a safe harbor for such
statements provided the Company makes note of risk factors associated with
them. Therefore the Company points out that acquisitions involved a number of
risks which can cause actual results to be materially different from
unexpected results. There can be no assurance that Clorox will be able to
successfully integrate and then manage Armor All without unanticipated costs,
delays or problems.
CONTACT: The Clorox Company
Fred Reicker, 510/271-7291 (Media) 510/351-7548 (home)
Karen Rose, 510/271-7385 (Investors)
Ughetta Ugolini, 510/271-2270 (Investors)
or
McKesson
Janet Bley, 415/983-9357
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT
PURSUANT TO SECTION 14(D)(4) OF THE
SECURITIES EXCHANGE ACT OF 1934
------------------------
ARMOR ALL PRODUCTS
CORPORATION
(Name of Subject Company)
ARMOR ALL PRODUCTS
CORPORATION
(Name of Person(s) Filing Statement)
COMMON STOCK, PAR VALUE $.01 PER SHARE
(Title of Class of Securities)
042256 10 7
(CUSIP Number of Class of Securities)
KENNETH M. EVANS
PRESIDENT AND CHIEF EXECUTIVE OFFICER
6 LIBERTY
ALISO VIEJO, CALIFORNIA 92656-3829
(Name, address and telephone number of person authorized to receive
notice and communications on behalf of the person(s) filing statement).
WITH A COPY TO:
KENTON J. KING, ESQ.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
FOUR EMBARCADERO CENTER
SAN FRANCISCO, CALIFORNIA 94111
415-984-6400
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
EXHIBIT 10
INVESTMENT BANKING DIVISION
PaineWebber Incorporated
1283 Avenue of the Americas
New York, NY 10019
212 713-2000
PaineWebber Incorporated
November 26, 1996
Board of Directors
Armor All Products Corporation
6 Liberty
Aliso Viejo, CA 92656
Madame and Gentlemen:
Armor All Products Corporation, a Delaware corporation ("Armor All" or the
"Company"), The Clorox Company, a Delaware corporation (the "Acquiring
Company"), and Shield Acquisition Corporation, a Delaware corporation and
wholly-owned subsidiary of the Acquiring Company ("Sub"), propose to enter into
an agreement and plan of merger (the "Merger Agreement"). The Merger Agreement
provides for, among other things, a cash tender offer by Sub to acquire all of
the Company's common stock, par value $.01 per share (the "Common Stock"), at a
price of $19.09 per share (the "Tender Offer"). Any shares of the Common Stock
not purchased pursuant to the Tender Offer will be acquired for the same price
in cash in a second-step merger of Sub with and into the Company in accordance
with the Delaware General Corporation Law (the "Merger"). The terms and
conditions of the proposed Tender Offer and the Merger (collectively, the
"Transaction") are set forth in more detail in the Merger Agreement.
You have asked us whether or not, in our opinion, the consideration to be
received by the holders of Common Stock pursuant to the Tender Offer and the
Merger is fair to such holders from a financial point of view.
In arriving at the opinion set forth below, we have, among other things:
(1) Reviewed the Company's Annual Reports, Forms 10-K and related financial
information for the three fiscal years ended March 31, 1996;
(2) Reviewed the Company's Forms 10-Q and related financial information for
the three months ended June 30, 1996 and the six months ended September
30, 1996;
(3) Reviewed the Acquiring Company's Annual Reports, Forms 10-K and related
financial information for the three fiscal years ended June 30, 1996;
(4) Reviewed the Acquiring Company's Forms 10-Q and related financial
information for the three months ended September 30, 1996;
(5) Reviewed certain information, including financial forecasts, relating to
the business, earnings, cash flow, assets and prospects of the Company
furnished to us by the Company;
(6) Conducted discussions with members of senior management of the Company
concerning the Company's business and prospects;
(7) Reviewed the historical market prices and trading activity for the
Common Stock and compared them with those of certain publicly-traded
companies which we deemed relevant;
(8) Compared the results of operations of the Company with those of certain
publicly-traded companies which we deemed relevant;
<PAGE>
(9) Compare the proposed financial terms of the Transaction with the
financial terms of certain other business combinations which we deemed
relevant;
(10) Reviewed the draft dated November 26, 1996 of the Agreement and
Stockholder Agreement, respectively; and
(11) Reviewed such other financial studies and analyses and performed such
other investigations and took into account such other matters as we
deemed necessary, including our assessment of general economic, market
and monetary conditions.
In preparing our opinion, we have relied on the accuracy and completeness of
all information that was publicly available or supplied or otherwise made
available to us by or on behalf of the Company, and we have not assumed any
responsibility to independently verify such information. With respect to the
financial forecasts examined by us, we have assumed that they were reasonably
prepared on bases reflecting the best currently available estimates and good
faith judgments of the Company management as to the future performance of the
Company. In arriving at our opinion, we have not been furnished with any
financial forecasts from the Company for periods after fiscal 1997. In addition,
we have not undertaken, and have not been provided with, an independent
evaluation or appraisal of the assets or liabilities (contingent or otherwise)
of the Company and have assumed that all assets or liabilities (contingent or
otherwise, known or unknown) of the Company are as set forth in its consolidated
financial statements. At the Company's request, we have contacted a number of
potential acquirors of the Company. Such potential acquirors were selected by
the Company and us from a group of companies most likely to be interested in an
acquisition of the Company and we express no opinion as to whether any person
might offer more for the Common Stock than is being offered by the Acquiring
Company.
It is understood that this letter is solely for the benefit and use of the
Board of Directors of the Company in its consideration of the Tender Offer and
the Merger. This letter does not constitute a recommendation to any holder of
the Common Stock as to whether to tender shares of Common Stock pursuant to the
Tender Offer or whether to vote in favor of the Merger and should not be relied
upon by any stockholder as such. This opinion does not address the relative
merits of the Transactions and any other transactions or business strategies
discussed by the Board of Directors of the Company as alternatives to the Merger
Agreement or the underlying business decision of the Board of Directors of the
Company to proceed with or effect the Transactions.
PaineWebber is currently acting as financial advisor to the Company in
connection with the Transaction and will receive a fee upon delivery of this
opinion and upon consummation of the Merger. In addition, PaineWebber is
currently acting as financial advisor to the Company's parent, McKesson
Corporation, on an unrelated assignment and will receive a fee upon consummation
of such other assignment.
In the ordinary course of our business, PaineWebber may trade the securities
of the Company for its own account and for the accounts of its customers and,
accordingly, may at any time hold long or short positions in such securities.
On the basis of, and subject to the foregoing, we are of the opinion that
the consideration to be received by the holders of the Common Stock pursuant to
the Tender Offer and the Merger is fair to such holders from a financial point
of view.
Very truly yours,
/s/ PAINEWEBBER INCORPORATED
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