1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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 ------------------------ NEUTROGENA CORPORATION (NAME OF SUBJECT COMPANY) NEUTROGENA CORPORATION (NAME OF PERSON(S) FILING STATEMENT) COMMON STOCK, PAR VALUE $.001 PER SHARE (TITLE OF CLASS OF SECURITIES) 641246 10 3 (CUSIP NUMBER OF CLASS OF SECURITIES) DONALD R. SCHORT SENIOR VICE PRESIDENT AND CHIEF FINANCIAL OFFICER 5760 WEST 96TH STREET LOS ANGELES, CALIFORNIA 90045 (310) 642-1150 (NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED TO RECEIVE NOTICE AND COMMUNICATIONS ON BEHALF OF THE PERSON(S) FILING STATEMENT) WITH COPIES TO: DAVID W. HARDACRE BLUM, PROPPER & HARDACRE INCORPORATED SUITE 905, 12100 WILSHIRE BOULEVARD LOS ANGELES, CALIFORNIA 90025 (310) 826-7900 AND JAMES C. FREUND, ESQ. SKADDEN, ARPS, SLATE, MEAGHER & FLOM 919 THIRD AVENUE NEW YORK, NEW YORK 10022 (212) 735-3000 - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------

2 ITEM 1. SECURITY AND SUBJECT COMPANY. The name of the subject company is Neutrogena Corporation, a Delaware corporation (the "Company"), and the address of the principal executive offices of the Company is 5760 West 96th Street, Los Angeles, California 90045. The title of the class of equity securities to which this statement relates is the common stock, par value $.001 per share, of the Company (the "Common Stock"). ITEM 2. TENDER OFFER OF THE PURCHASER. This statement relates to a tender offer by JNJ Acquisition Corp., a Delaware corporation (the "Purchaser") and a wholly owned subsidiary of Johnson & Johnson, a New Jersey corporation ("Parent"), disclosed in a Tender Offer Statement on Schedule 14D-1 dated August 26, 1994, (the "Schedule 14D-1"), to purchase all outstanding shares of Common Stock, together with the associated preferred stock purchase rights (the "Rights" and, together with the Common Stock, the "Shares") issued pursuant to the Rights Agreement, dated as of July 23, 1990, as amended, between the Company and U.S. Stock Transfer Corporation, as Rights Agent, at a price of $35.25 per Share, net to the seller in cash, upon the terms and subject to the conditions set forth in the Offer to Purchase, dated August 26, 1994 (the "Offer to Purchase"), and the related Letter of Transmittal (which together constitute the "Offer"). The Offer is being made pursuant to an Agreement and Plan of Merger, dated as of August 22, 1994 (the "Merger Agreement"), among Parent, the Purchaser and the Company. The Merger Agreement provides, among other things, that as soon as practicable after the consummation of the Offer and satisfaction or waiver of all conditions to the Merger, the Purchaser will be merged with and into the Company (the "Merger"), and the Company will continue as the surviving corporation (the "Surviving Corporation"). A copy of the Merger Agreement is attached hereto as Exhibit 1 and incorporated herein by reference. Based on the information in the Offer to Purchase, the principal executive offices of the Purchaser and Parent are located at One Johnson & Johnson Plaza, New Brunswick, New Jersey 08933. ITEM 3. IDENTITY AND BACKGROUND. (a) The name and address of the Company, which is the person filing this statement, are set forth in Item 1 above. (b) Each material contract, agreement, arrangement and understanding and actual or potential conflict of interest between the Company or its affiliates and (i) its executive officers, directors or affiliates and (ii) the Purchaser, its executive officers, directors or affiliates, is described in the attached Schedule I or set forth below. THE MERGER AGREEMENT The summary of the Merger Agreement contained in the Offer to Purchase which has been filed with the Securities and Exchange Commission (the "Commission"), a copy of which is enclosed with this Schedule 14D-9, is incorporated herein by reference. Such summary should be read in its entirety for a more complete description of the terms and provisions of the Merger Agreement. The following summarizes certain portions of the Merger Agreement which relate to arrangements among the Company, Parent and the Company's executive officers and directors. Board Representation. The Merger Agreement provides that promptly upon the acceptance for payment of, and payment for, any Shares by the Purchaser pursuant to the Offer, the number of directors on the Board of Directors shall be reduced to five and the Purchaser shall be entitled to designate three of such directors on the Board of Directors of the Company such that the Purchaser, subject to compliance with Section 14(f) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), will control a majority of such directors, and the Company and its Board of Directors shall, at such time, take all such action needed to cause the Purchaser's designees to be appointed to the Company's Board of Directors. Subject to applicable law, the Company is required to take all action requested by Parent necessary to effect any such election, including 1

3 mailing to its stockholders the Information Statement containing the information required by Section 14(f) of the Exchange Act and Rule 14f-1 promulgated thereunder, a copy of which is attached as Schedule I hereto. Stock Options. Pursuant to the Merger Agreement, (i) all stock options which have been granted under any stock option, stock appreciation rights ("SARs") or stock purchase plan, program or arrangement of the Company (together, the "Option Plans") and are outstanding immediately prior to the consummation of the Offer, whether or not then exercisable, shall be cancelled immediately prior to the consummation of the Offer in exchange for an amount in cash, payable at the time of such cancellation, equal to the product of (y) the number of Shares subject to such stock options immediately prior to the consummation of the Offer and (z) the excess of the price per Share to be paid in the Offer over the per Share exercise price of such stock option and (ii) all SARs which have been granted under the Option Plans and are outstanding immediately prior to the consummation of the Offer shall be cancelled immediately prior to the consummation of the Offer in exchange for an amount of cash, payable at the time of such cancellation, equal to the product of (y) the number of Shares covered by such SAR and (z) the excess of the price per Share to be paid in the Offer over the appreciation base per Share of such SAR; provided, however, that no such cash payment shall be made with respect to any SAR which is related to a stock option with respect to which such a cash payment has been made. In addition, pursuant to the Merger Agreement, any stock option or SAR not cancelled as provided in the immediately preceding sentence immediately prior to the consummation of the Offer shall be cancelled at the effective time of the Merger (the "Effective Time") in exchange for an amount in cash, payable at the Effective Time, equal to the amount which would have been paid had such stock option or SAR been cancelled immediately prior to the consummation of the Offer. Agreement with Respect to Employee Matters. The Merger Agreement provides that Parent shall cause the Surviving Corporation to take such actions as are necessary so that, for a period of not less than one year after the Effective Time, nonunion employees of the Company and its subsidiaries who continue their employment after the Effective Time will be provided employee benefits which in the aggregate are at least generally comparable to those provided to such employees as of the date of the Merger Agreement; provided, that it is understood that after the Effective Time (x) neither Parent nor the Surviving Corporation will have any obligation to issue or adopt any plans or arrangements to provide for the issuance of shares of capital stock, warrants, options, stock appreciation rights or other rights in respect of any shares of capital stock of any entity or any securities convertible or exchangeable into such shares pursuant to any such plan or program, (y) nothing therein shall require the Surviving Corporation to maintain any particular plan or arrangement and (z) nothing therein shall prevent or preclude the Surviving Corporation from continuing any requirement for employee contributions under any employee benefit plans in the same proportions as the employee-paid portion under such plans constituted prior to the Effective Time. In the Merger Agreement, Parent has stated its current intention that, following the first anniversary of the Effective Time, it will provide employee benefit plans, programs, arrangements and policies for the benefit of employees of the Company and its subsidiaries which are at least generally comparable in the aggregate to the employee benefit plans, programs, arrangements and policies for the benefit of other employees of Parent and its subsidiaries. In connection therewith, all service credited to each employee by the Company through the Effective Time (and by the Surviving Corporation thereafter) would be recognized by Parent for all purposes, including for purposes of eligibility, vesting and benefit accruals under any employee benefit plan provided by Parent for the benefit of the employees; provided, however, such service need not be credited to the extent it would result in a duplication of benefits, including, without limitation, benefit accrual service under defined benefit plans. In addition, Parent has agreed to cause the Surviving Corporation to honor (without modification) and assume certain employment agreements and individual benefit arrangements between the Company and specified executive officers. Agreement with Respect to Director and Officer Indemnification and Insurance. The Merger Agreement provides that the indemnification obligations set forth in the Company's Certificate of Incorporation and By-laws on the date of the Merger Agreement shall survive the Merger and shall not be amended, repealed or otherwise modified for a period of six years after the Effective Time in any manner that would adversely affect 2

4 the rights thereunder of individuals who on or prior to the Effective Time were directors, officers, employees or agents of the Company. Pursuant to the terms of the Merger Agreement, for a period of six years from the Effective Time, Parent has agreed, unless Parent agrees in writing to guarantee the indemnification obligations set forth in the preceding paragraph, to maintain in effect the Company's current directors' and officers' liability insurance covering those persons who are currently covered by the Company's directors' and officers' liability insurance policy; provided, however, that in no event is Parent required to expend in any one year an amount in excess of 150% of the annual premiums currently paid by the Company for such insurance which the Company has represented to Parent and the Purchaser to be $160,000 for the fiscal year ending October 31, 1994; and, provided, further, that if the annual premiums of such insurance coverage exceed such amount, Parent is obligated to obtain a policy with the greatest coverage available for a cost not exceeding such amount. The Merger Agreement provides that in the event Parent, the Surviving Corporation or any of their successors or assigns (i) consolidates with or merges into any other person and shall not be the continuing or surviving corporation or entity of such consolidation or merger or (ii) transfers all or substantially all of its properties and assets to any person, then and in each such case, proper provisions shall be made so that the successors and assigns of Parent or the Surviving Corporation, as the case may be, shall assume the obligations set forth in the preceding paragraphs. The Merger Agreement also provides that, in the event the Surviving Corporation transfers any material portion of its assets, in a single transaction or in a series of transactions, Parent will either guarantee the indemnification obligations set forth in the preceding paragraphs or take such other action to ensure that the ability of the Surviving Corporation to satisfy such indemnification obligations will not be diminished in any material respect. THE STOCKHOLDER AGREEMENT In connection with the execution of the Merger Agreement, on August 22, 1994, Parent and a foundation and certain trusts affiliated with Lloyd E. Cotsen, Chairman and Chief Executive Officer of the Company, (each a "Seller" and collectively, the "Sellers") entered into a Stockholder Agreement (the "Stockholder Agreement"), pursuant to which the Sellers have agreed to sell to the Purchaser all 9,868,996 Shares beneficially owned by them (the "Subject Shares"), representing approximately 38.4% of the outstanding Shares (35.2% of the Shares on a fully diluted basis). The following summary of the Stockholder Agreement, a copy of which is filed as Exhibit 2 hereto, is qualified in its entirety by reference to the Stockholder Agreement. Sale of the Shares. Pursuant to the Stockholder Agreement, each of the Sellers has agreed to sell to the Purchaser and the Purchaser has agreed to purchase from such Seller, the Subject Shares beneficially owned by such Seller at a price per Share equal to the price paid in the Offer. Such obligations to sell and to purchase are subject to the Purchaser having accepted Shares for payment under the Offer and there having been validly tendered and not withdrawn prior to the expiration of the Offer such number of Shares which (together with Shares subject to the Stockholder Agreement that shall not have been so tendered) would constitute a majority of the outstanding Shares. Tender of Shares. The Stockholder Agreement provides that the Sellers may tender the Subject Shares into the Offer and that the Purchaser may direct that the Sellers so tender such Subject Shares. Any Subject Shares not purchased in the Offer will be purchased at the same time as payment is made pursuant to the Offer. Representations and Warranties. The Stockholder Agreement contains various customary representations and warranties by the Sellers, including those relating to authorization, execution, delivery and performance of the Stockholder Agreement and title to the Subject Shares. Restrictions on Transfer. The Stockholder Agreement provides that each Seller shall not, except as contemplated by the terms of the Stockholder Agreement, (i) transfer (which term includes, without limitation, any sale, gift, pledge or other disposition), or consent to any transfer of, any or all of such Seller's Subject Shares or any interest therein, (ii) enter into any contract, option or other agreement of understanding 3

5 with respect to any transfer of any or all of such Subject Shares or any interest therein, (iii) grant any proxy, power-of-attorney or other authorization in or with respect to such Subject Shares, (iv) deposit such Subject Shares into a voting trust or enter into a voting agreement or arrangement with respect to such Subject Shares or (v) take any other action that would in any way restrict, limit or interfere with the performance of such Seller's obligations thereunder or the transactions contemplated thereby. Voting Rights. The Stockholder Agreement provides that at any meeting of stockholders of the Company or at any adjournment thereof or in any other circumstances upon which their vote, consent or other approval is sought, each Seller shall vote (or cause to be voted) such Seller's Subject Shares against (i) any merger agreement or merger (other than the Merger Agreement and the Merger), consolidation, combination, sale of substantial assets, reorganization, joint venture, recapitalization, dissolution, liquidation or winding up of or by the Company and (ii) any amendment of the Company's Certificate of Incorporation or By-laws or other proposal or transaction involving the Company or any of its subsidiaries which amendment or other proposal or transaction would in any manner impede, frustrate, prevent or nullify, or result in a breach of any covenant, representation or warranty or any other obligation or agreement of the Company under or with respect to, the Offer, the Merger, the Merger Agreement or any of the other transactions contemplated by the Merger Agreement (each of the foregoing in clause (i) or (ii) above, a "Competing Transaction"). Pursuant to the Stockholder Agreement, each Seller has irrevocably granted to Parent and certain officers of Parent such Seller's proxy, for and in the name, place and stead of such Seller, to vote such Seller's Subject Shares, or grant a consent or approval in respect of such Subject Shares against any Competing Transaction. Acquisition Proposals. The Stockholder Agreement provides that each Seller shall not, nor shall such Seller permit any investment bank, attorney or other adviser or representative of such Seller to, directly or indirectly, (i) solicit, initiate or encourage the submission of, any takeover proposal or (ii) participate in any discussions or negotiations regarding, or furnish to any person any information with respect to, or take any other action to facilitate any inquiries or the making of any proposal that constitutes, or may reasonably be expected to lead to, any takeover proposal. Termination. The Stockholder Agreement, and all rights and obligations of the parties thereunder, shall terminate upon the first to occur of the Effective Time or the date upon which the Merger Agreement is terminated in accordance with its terms. CERTAIN CONFLICTS Stock Options. The current directors and executive officers of the Company as a group hold stock options granted under the Option Plans to purchase an aggregate of 1,793,179 Shares at exercise prices ranging from $7.644 to $26.400 per Share. In addition, the current directors and executive officers of the Company as a group hold SARs granted under the Option Plans covering 1,205,054 Shares at an appreciation base per share ranging from $7.644 to $26.400 per Share. In accordance with the terms of the Merger Agreement, (i) each holder of a stock option granted under the Option Plans which is outstanding immediately prior to the consummation of the Offer, whether or not then exercisable, will be entitled to receive from the Company an amount in cash equal to the product of (y) the number of Shares subject to such stock option immediately prior to the consummation of the Offer and (z) the excess of the price per Share to be paid in the Offer over the per Share exercise price of such stock option and (ii) each holder of a SAR granted under the Option Plans which is outstanding immediately prior to the consummation of the Offer will be entitled to receive from the Company an amount of cash equal to the product of (y) the number of Shares covered by such SAR and (z) the excess of the price per Share to be paid in the Offer over the appreciation base per Share of such SAR. See "--The Merger Agreement -- Stock Options." Employment Agreements. The Company maintains employment agreements with certain key employees. Certain of these agreements provide for the payment of certain severance and other benefits upon termination of the executive's employment by the Company following a change in control of the Company. The acquisition by the Purchaser of Shares pursuant to the Offer will constitute a change in control for purposes of those employment agreements. 4

6 Supplemental Deferral Plan. In 1987 the Company established the Supplemental Deferral Plan (the "SDP") to provide supplemental retirement benefits to certain key employees of the Company. The SDP contains provisions which provide for the automatic 100% vesting of benefits and the crediting of interest accruals to the participants' SDP accounts if, among other things, any person other than Mr. Cotsen and his then affiliated family members becomes the beneficial owner of 50% or more of the combined voting power of the Company's then outstanding securities. The acquisition by the Purchaser of Shares pursuant to the Offer will trigger the automatic vesting provisions of the SDP and will require the crediting of interest accruals to the participants' SDP accounts. See "Executive Compensation -- Pension Plan and Other Benefits" in the Information Statement attached hereto as Schedule I. Executive Retirement Plan. On January 1, 1993 the Company put into effect an Executive Retirement Plan (the "ERP") to supplement the expected retirement benefits provided under the SDP and the Company's 401(k) Profit Sharing Plan. The ERP contains provisions which provide for the 100% vesting of benefits if the Company experiences a change in control and, upon a qualifying termination of employment, demotion or move of more than 50 miles within three years after the change in control, the ERP provides that the affected participant is entitled to a minimum benefit of 20% of such participant's Final Average Base Salary (as defined in "Executive Compensation -- Pension Plan and Other Benefits" in the Information Statement attached hereto as Schedule I) payable in a present-value lump-sum. The acquisition by the Purchaser of Shares pursuant to the Offer will trigger the 100% vesting and minimum benefit provisions of the ERP. See "Executive Compensation -- Pension Plan and Other Benefits" in the Information Statement attached hereto as Schedule I. Other Arrangements. Following the consummation of the Offer and the Merger, Mr. Cotsen has agreed to continue as Chairman of the Company, for which he will receive annual compensation of $600,000 and a grant of options to purchase 100,000 shares of Parent's common stock. Indemnification of Officers and Directors. The Company's Restated Certificate of Incorporation provides that each person who was or is made a party or is threatened to be made a party to or is otherwise involved in any action, suit or proceeding by reason of the fact that the person is or was a director or officer of the Company (or, while a director or officer of the Company, is or was serving at the request of the Company as a director, officer, employee or agent for another entity) while serving in such capacity shall be indemnified and held harmless by the Company, to the fullest extent authorized by the Delaware General Corporation Law (the "DGCL") against all expense, liability or loss (including attorneys' fees, judgments, fines, excise taxes under the Employee Retirement Income Security Act of 1974 or penalties and amounts paid or to be paid in settlement) reasonably incurred by such person in connection with such action, suit or proceeding. The Restated Certificate of Incorporation further provides that rights conferred thereby are contract rights and include the right to have the expenses incurred in defending the proceedings specified above in advance of their final disposition paid by the Company; provided that, if the DGCL requires, such payment will be made only upon delivery to the Company by the indemnified party of an undertaking to repay all amounts so advanced if it is ultimately determined that the person receiving such payments is not entitled to be indemnified under the Restated Certificate of Incorporation or otherwise. The Restated Certificate of Incorporation provides that persons entitled to be indemnified may bring suit against the Company to recover unpaid amounts claimed hereunder, and that if such suit is successful, the expense of bringing the suit will be reimbursed by the Company. The Restated Certificate of Incorporation further provides that, while it is a defense to such a suit that the person claiming indemnification has not met the applicable standards of conduct making indemnification permissible under the DGCL, the burden of proving the defense is on the Company, and neither the failure of the Company to have made a determination that indemnification is proper, nor an actual determination that the person claiming indemnification has not met the applicable standard of conduct, is a defense to the action or creates a presumption that the person claiming indemnification has not met the applicable standards of conduct. The Restated Certificate of Incorporation provides that the right to indemnification and the payment of expenses incurred in defending a proceeding in advance of its final disposition is not exclusive of any other right which any person may have or acquire under any statute, provision of the Company's Restated 5

7 Certificate of Incorporation or By-laws, or otherwise. In addition, the Company may maintain insurance, at its expense, to protect itself and any of its directors, officers, employees or agents against any expense, liability or loss, whether or not the Company would have the power to indemnify such person against such expense, liability or loss under the DGCL. The Company currently maintains such insurance for its directors and executive officers. The Company's By-laws expressly incorporate by reference the foregoing indemnification provisions. The Merger Agreement provides that the indemnification obligations set forth in the Company's Restated Certificate of Incorporation and By-laws on the date of the Merger Agreement shall survive the Merger and shall not be amended, repealed or otherwise modified for a period of six years after the Effective Time in any manner that would adversely affect the rights thereunder of individuals who on or prior to the Effective Time were directors, officers, employees or agents of the Company. Pursuant to the terms of the Merger Agreement and subject to certain limitations, for a period of six years from the Effective Time, Parent shall, unless Parent agrees in writing to guarantee the indemnification obligations set forth in the preceding paragraph, maintain in effect the Company's current directors' and officers' liability insurance covering those persons who are currently covered by the Company's directors' and officers' liability insurance policy. See "-- The Merger Agreement -- Agreement with Respect to Director and Officer Indemnification and Insurance." ITEM 4. THE SOLICITATION OR RECOMMENDATION. (a) RECOMMENDATION OF THE BOARD OF DIRECTORS. The Board of Directors has unanimously approved the Merger Agreement and the transactions contemplated thereby and unanimously recommends that all holders of Shares tender such Shares pursuant to the Offer. (b) BACKGROUND; REASONS FOR THE RECOMMENDATION. Parent and the Company have from time to time engaged in discussions and exchanges of information in an effort to examine possible joint ventures and other business arrangements. Since the beginning of 1994, the Board of Directors and Mr. Cotsen, the Company's Chairman and Chief Executive Officer, have been actively studying the current and future state of the quality skin and hair care business, the Company's strategic position, near and long-term prospects and the possibility that the Company should conduct a systematic review of its strategic alternatives, including alternatives to proceeding as an independent company, in order to increase stockholder value. In March 1994, Mr. Cotsen and a representative of Lehman Brothers Inc. ("Lehman Brothers") met to discuss the Company's retention of Lehman Brothers to assist with the Company's review of various strategic alternatives that would best serve the long-term interests of the Company's stockholders. At a meeting held on May 25, 1994, which was attended by a representative of Lehman Brothers, these matters were discussed and the Board of Directors of the Company authorized management to retain Lehman Brothers to render assistance with respect to the consideration and implementation of strategic alternatives for the Company. In addition, at the May 25, 1994 meeting, the Board of Directors of the Company reviewed a list which had been developed by Lehman Brothers to identify the leading candidates that could acquire the Company. At that meeting, the Board of Directors of the Company authorized Lehman Brothers to contact, on a confidential basis, what were considered to be the four most eligible candidates to discuss their interest in acquiring the Company. During the week of June 27, 1994, a representative of Lehman Brothers contacted senior management of each of the four most eligible candidates to arrange meetings to discuss a strategic transaction with the Company. A representative of Lehman Brothers held a meeting on July 21, 1994 with one of the acquisition candidates and a meeting on August 3, 1994 with another of the candidates. On July 20, 1994, a representative of Lehman Brothers met with Ralph Larsen, Chairman and Chief Executive Officer of Parent, and Peter 6

8 Larson, Chairman of Parent's Consumer Products Sector. At each of these meetings, Lehman Brothers inquired about the acquisition candidate's interest in exploring an acquisition of the Company. Following their initial July 20, 1994 meeting, a representative of Lehman Brothers received a telephone call from Mr. Larson expressing Parent's serious interest in exploring an acquisition of the Company. It was agreed that they would meet in New York on July 25, 1994 for more detailed discussions. At the July 25, 1994 meeting, the Lehman Brothers' representative indicated, among other considerations, that a preemptive offer for the Company would probably require a price in the range of $35 to $37 per Share in cash. At that meeting, Mr. Larson said he understood the Company's valuation parameters and indicated a willingness to proceed with discussions and due diligence on that basis, provided that the Company refrain from soliciting offers while talks with Parent were proceeding. In addition, Mr. Larson outlined certain of Parent's due diligence requirements. Following the July 25, 1994 meeting, Parent began its due diligence review of certain publicly available financial and other information regarding the Company. On August 3, 1994, Mr. Larson called a representative of Lehman Brothers and indicated that Parent was prepared to proceed with an acquisition of the Company valued at approximately $34 per Share, subject to the Company having certain minimum cash reserves and subject to completion of due diligence and the negotiation of definitive agreements. The Lehman Brothers' representative and Mr. Larson agreed that this price would be subject to further negotiation. From time to time following that call, Lehman Brothers and representatives of Parent engaged in discussions regarding, among other things, the terms of, and conditions to, any possible transaction between Parent and the Company. On August 8, 1994, the Company's Board of Directors held an informational conference call with Mr. Cotsen, a representative of Lehman Brothers and legal counsel. On that call Mr. Cotsen and the Lehman Brothers' representative reviewed the results of Lehman Brothers' initial contacts with the leading acquisition candidates and the basis upon which Parent indicated its willingness to proceed, including the valuation presented by Parent and Parent's exclusivity requirement. Following discussion of these matters at length, and after receiving advice of legal counsel, the Board of Directors authorized Lehman Brothers to proceed with its discussions with Parent on an informal exclusive basis, subject to the Board's fiduciary responsibilities. Due to the confidential nature of the proposed transaction, only Mr. Cotsen, the Company's Board of Directors, Lehman Brothers and the Company's outside legal counsel were aware that discussions between the Company and third parties were being held. As a result of increased trading activity in the Common Stock, on August 10, 1994 a representative of a news service contacted Donald R. Schort, the Company's Senior Vice President and Chief Financial Officer, who was unaware of the discussions and who indicated that the Company had no news pending. Later that day, to correct Mr. Schort's inadvertent statement, the Company issued a press release stating that it was engaged in discussions with a substantially larger company regarding the possible acquisition of the Company, that there was no assurance that any transaction would result and that the Company did not intend to make any subsequent announcements on that subject unless and until a definitive agreement was entered into or the discussions were terminated. Following the issuance of the August 10, 1994 press release, the Company and Lehman Brothers received various indications of interest in acquiring the Company from third parties. However, the Company received no offers to acquire the Company from any of the third parties. In addition, none of the third parties indicated an interest in pursuing a transaction which would provide the Company's stockholders with a price for their Shares comparable to the price range then being discussed with Parent. On August 12, 1994, representatives of Lehman Brothers and the Company's legal counsel met with representatives of Parent and Parent's financial and legal advisors to review significant business and legal issues regarding Parent's acquisition of the Company. Parent's representatives confirmed that it was a condition to Parent's willingness to enter into an agreement to acquire the Company that there be an agreement along the lines of the Stockholder Agreement and that there be certain other provisions in the event of the termination of the Merger Agreement by the Company in connection with a competing transaction. At 7

9 that meeting, the parties also discussed the possibility of Parent's acquisition of the Company in exchange for a combination of Parent's common stock and cash. On August 15, 1994, the Company and Parent entered into a confidentiality agreement preceding Parent's review of confidential information regarding the Company. Shortly thereafter, the Company decided that it preferred to pursue an all cash transaction. The Company and Parent then began negotiating the terms of a definitive agreement providing for Parent's acquisition of the Company for cash. On August 17, 1994, the Company's Board of Directors held another informational conference call with Mr. Cotsen, a representative of Lehman Brothers and legal counsel. On this call, Mr. Cotsen and Lehman Brothers reviewed the status of the negotiations with Parent, including the alternative transaction structures available and Parent's proposed valuation of the Company. Following discussion of these matters at length, the Board of Directors confirmed its preference for an all cash deal. Following further negotiations, on August 19, 1994 Parent agreed to recommend to its Board of Directors that Parent pay a price of $35.25 per Share in cash to acquire the Company. Parent's willingness to agree to that price was conditioned upon Mr. Cotsen's willingness to sign the Stockholder Agreement providing for the sale of the Shares beneficially owned by him to the Purchaser at the Offer price through a tender of such Shares in the Offer or otherwise. Negotiations between the Company and Parent continued through August 21, 1994, culminating in the Company and Parent agreeing upon a form of definitive agreement to be presented for review by the Company's Board of Directors at a meeting scheduled for August 21, 1994. On August 21, 1994, the Company's Board of Directors convened in Los Angeles, California to consider the terms of the proposed transaction. Lehman Brothers made a presentation to the Board of Directors and delivered its oral opinion as to the fairness of the $35.25 cash consideration to be paid in the Offer and the Merger to the holders of the outstanding Shares. The Company's legal counsel then advised the Board of Directors with respect to certain legal matters, including their fiduciary obligations in connection with a sale of the Company, and reviewed the principal aspects of the Merger Agreement and the Stockholder Agreement. Mr. Cotsen then presented his favorable views on the proposed transaction. The Board of Directors then analyzed and discussed the Offer, the Merger Agreement and the Merger. Mr Cotsen and the representatives of Lehman Brothers then left the meeting to permit the remaining directors to conduct further analysis and discussion among themselves and with legal counsel. After Mr. Cotsen returned to the meeting, the members of the Board of Directors present at the meeting unanimously approved the Merger Agreement and the transactions contemplated thereby and unanimously resolved to recommend acceptance of the Offer and approval and adoption of the Merger and the Merger Agreement by the Company's stockholders (if such approval is required by applicable law). The two members of the Board of Directors not present at the August 21, 1994 meeting later confirmed their approval of the matters discussed at that meeting. A copy of a press release announcing the execution of the Merger Agreement is attached hereto as Exhibit 3 and incorporated herein by reference. A copy of a letter to stockholders from the Company, which will accompany this Schedule 14D-9, is attached hereto as Exhibit 4 and incorporated herein by reference. In approving the Merger Agreement and the transactions contemplated thereby and recommending that all holders of Shares tender such Shares pursuant to the Offer, the Board of Directors considered a number of factors including: (i) the terms of the Merger Agreement and the fact that the Company will continue as an independent division of Parent following the Merger; (ii) presentations by the Chairman and Chief Executive Officer of the Company and the Company's financial advisors regarding the financial condition, results of operations, business and prospects of the Company, including the prospects if the Company were to remain independent; (iii) the results of the process undertaken to identify and solicit indications of interest from third parties with respect to a purchase of the Company; and the fact that no unsolicited offers were received by or on behalf of the Company with respect to a purchase of the Company following the public announcement that the Company was engaged in discussions regarding the possible sale of the Company; 8

10 (iv) that the $35.25 per Share Offer price represents (x) a premium of approximately 23% over the closing price for the Shares in the NASDAQ National Market System (the "NASDAQ") on August 19, 1994, the last trading day prior to the public announcement of the execution of the Merger Agreement and (y) a premium of approximately 70% over the closing price for the Shares in the NASDAQ on August 9, 1994, the last trading day prior to the public announcement that the Company was engaged in discussions regarding the possible acquisition of the Company; (v) the terms of the Stockholder Agreement, which provide that the Sellers thereunder would receive the same consideration per Share as would all other holders of Shares, thereby ensuring that the public stockholders would participate in any control premium realized in connection with the Offer and the Merger; (vi) the opinion of Lehman Brothers to the effect that, as of the date of such opinion, the $35.25 per Share cash consideration to be offered to the holders of the Shares in the Offer and the Merger is fair to such holders, from a financial point of view. A copy of the opinion of Lehman Brothers is attached hereto as Exhibit 5 and incorporated herein by reference. STOCKHOLDERS ARE URGED TO READ THE OPINION OF LEHMAN BROTHERS CAREFULLY IN ITS ENTIRETY; (vii) that the Merger Agreement permits the Company to furnish nonpublic information to, and participate in discussions and negotiations with, any third-party that has submitted a takeover proposal to the Company, if in the opinion of the Board of Directors, after consultation with counsel, the failure to take such actions would be inconsistent with the Board of Director's fiduciary duties to the Company's stockholders under applicable law; (viii) the termination provisions of the Merger Agreement, which were a condition to Parent's proposal, providing that Parent could be entitled to (x) a fee of $25 million and (y) reimbursement of expenses of up to $2.5 million upon the termination of the Merger Agreement under certain circumstances, including the modification or withdrawal of the Board of Directors' recommendation with respect to the Offer and the Merger in connection with another takeover proposal; and (ix) the ability of the Purchaser to consummate the Offer and the Merger without conditioning the Offer on obtaining any specific financing commitments. The Board of Directors did not assign relative weights to the foregoing factors or determine that any factor was of particular importance. Rather, the Board of Directors viewed its position and recommendations as being based on the totality of the information presented to and considered by it. ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED. Lehman Brothers has been retained by the Company to act as independent financial advisor to the Company with respect to the Offer, the Merger and matters arising in connection therewith. Pursuant to a letter agreement, dated June 8, 1994, between the Company and Lehman Brothers, if the Offer and the Merger are consummated, the Company has agreed to pay Lehman Brothers an aggregate fee of approximately $7.4 million for acting as financial advisor in connection with the transaction, including rendering its opinion. Lehman Brothers was paid a fee of $500,000 upon delivery of its written opinion. Such fee will be credited against the aggregate fee to be paid to Lehman Brothers by the Company pursuant to the letter agreement. The Company has also agreed to reimburse Lehman Brothers for its reasonable out-of-pocket expenses, including the reasonable fees and expenses of its counsel, and to indemnify Lehman Brothers for certain liabilities arising out of the rendering of its opinion, including liabilities arising under the federal securities laws. Lehman Brothers has provided certain investment banking services to the Company from time to time for which it has received customary compensation. In the ordinary course of its business, Lehman Brothers may actively trade the debt and equity securities of the Company and Parent for its own account and for the accounts of customers and, accordingly, may at any time hold a long or short position in such securities. 9

11 Except as disclosed herein, neither the Company nor any person acting on its behalf currently intends to employ, retain or compensate any other person to make solicitations or recommendations to security holders on its behalf concerning the Offer or the Merger. ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES. (a) Except as set forth in Schedule II hereto, no transactions in the Shares have been effected during the past 60 days by the Company or, to the best of the Company's knowledge, by any executive officer, director, affiliate or subsidiary of the Company. (b) To the best of the Company's knowledge, to the extent permitted by applicable securities laws, rules or regulations, except for gifts of Shares to family members or charitable organizations, each executive officer, director and affiliate of the Company currently intends to tender all Shares over which he or she has sole dispositive power to the Purchaser. ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY SUBJECT COMPANY. (a) Except as set forth in this Schedule 14D-9, the Company is not engaged in any negotiation in response to the Offer which relates to or would result in (i) an extraordinary transaction, such as a merger or reorganization, involving the Company or any subsidiary of the Company; (ii) a purchase, sale or transfer of a material amount of assets by the Company or any subsidiary of the Company; (iii) a tender offer for or other acquisition of securities by or of the Company; or (iv) any material change in the present capitalization or dividend policy of the Company. (b) Except as described above or in Items 3(b) or 4(b) above, there are no transactions, Board of Directors' resolutions, agreements in principle or signed contracts in response to the Offer that relate to or would result in one or more of the events referred to in Item 7(a) above. ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED. The Information Statement attached as Schedule I hereto is being furnished in connection with the possible designation by the Purchaser, pursuant to the Merger Agreement, of certain persons to be appointed to the Board of Directors of the Company other than at a meeting of the Company's stockholders. ITEM 9. MATERIAL TO BE FILED AS EXHIBITS. <TABLE> <CAPTION> EXHIBIT NO. ------- <S> <C> Exhibit 1 Agreement and Plan of Merger, dated as of August 22, 1994, by and among Neutrogena Corporation, Johnson & Johnson and JNJ Acquisition Corp. Exhibit 2 Stockholder Agreement, dated as of August 22, 1994, by and among Johnson & Johnson and Lloyd E. Cotsen, trustee of the Cotsen 1985 Trust, Lloyd E. Cotsen, trustee of the First Cotsen Charitable Unitrust, Lloyd E. Cotsen, trustee of the Second Cotsen Charitable Unitrust, Lloyd E. Cotsen, trustee of the Third Cotsen Charitable Unitrust, Lloyd E. Cotsen, trustee of the Fourth Cotsen Charitable Unitrust, Lloyd E. Cotsen, trustee of the Remainder Trust (Trust B) under the will of Joanne Cotsen (deceased), and Cotsen Family Foundation, a California nonprofit public benefit corporation Exhibit 3 Press Release issued jointly by Neutrogena Corporation and Johnson & Johnson, dated August 22, 1994 Exhibit 4 Letter to Stockholders of Neutrogena Corporation dated August 26, 1994* Exhibit 5 Opinion of Lehman Brothers Inc. dated August 22, 1994* </TABLE> - --------------- * Included in copies mailed to stockholders. 10

12 SIGNATURE After reasonable inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct. Dated: August 26, 1994 NEUTROGENA CORPORATION By /s/ LLOYD E. COTSEN ------------------------------- Lloyd E. Cotsen Chief Executive Officer 11

13 SCHEDULE I NEUTROGENA CORPORATION 5760 WEST 96TH STREET LOS ANGELES, CALIFORNIA 90045 INFORMATION STATEMENT PURSUANT TO SECTION 14(F) OF THE SECURITIES EXCHANGE ACT OF 1934 AND RULE 14F-1 THEREUNDER This Information Statement is being mailed on or about August 26, 1994 as a part of Neutrogena Corporation's (the "Company") Solicitation/Recommendation Statement on Schedule 14D-9 (the "Schedule 14D-9") to the holders of record of shares of Common Stock, par value $.001 per share, of the Company (the "Shares") at the close of business on or about August 24, 1994. You are receiving this Information Statement in connection with the possible election of persons designated by the Purchaser (as defined below) to a majority of the seats on the Board of Directors of the Company. On August 22, 1994, the Company, JNJ Acquisition Corp., a Delaware corporation (the "Purchaser"), and Johnson & Johnson ("Parent") entered into an Agreement and Plan of Merger (the "Merger Agreement") in accordance with the terms and subject to the conditions of which (i) Parent will cause the Purchaser to commence a tender offer (the "Offer") for all outstanding Shares at a price of $35.25 per Share net to the seller in cash, and (ii) the Purchaser will be merged with and into the Company (the "Merger"). In addition, on August 22, 1994, the Purchaser and a foundation and certain trusts affiliated with Lloyd E. Cotsen, Chairman and Chief Executive Officer of the Company (collectively, the "Sellers"), entered into a Stockholder Agreement pursuant to which the Sellers agreed to sell to the Purchaser all of the Shares held by them at a price of $35.25 per share. As a result of the Offer and the Merger, the Company will become a wholly owned subsidiary of Parent. The Merger Agreement requires the Company to use all reasonable efforts to cause the Purchaser's designees to be elected to the Board of Directors under the circumstances described therein. This Information Statement is required by Section 14(f) of the Exchange Act and Rule 14f-1 thereunder. See "Board of Directors and Executive Officers -- Right to Designate Directors; The Purchaser Designees." You are urged to read this Information Statement carefully. You are not, however, required to take any action. Capitalized terms used herein and not otherwise defined herein shall have the meaning set forth in the Schedule 14D-9. Pursuant to the Merger Agreement, the Purchaser commenced the Offer on August 26, 1994. The Offer is scheduled to expire at 12:00 midnight, New York City time, on September 23, 1994 unless the Offer is extended. The information contained in this Information Statement concerning the Purchaser has been furnished to the Company by the Purchaser, and the Company assumes no responsibility for the accuracy or completeness of such information. BOARD OF DIRECTORS AND EXECUTIVE OFFICERS GENERAL The Shares are the only class of voting securities of the Company outstanding. Each Share has one vote. As of August 18, 1994, there were 25,717,859 Shares outstanding. The Board of Directors is divided into three classes and currently consists of eight members. At each annual meeting of stockholders, directors constituting one class are elected for three-year terms. I-1

14 RIGHT TO DESIGNATE DIRECTORS; THE PURCHASER DESIGNEES Pursuant to the Merger Agreement, promptly upon the purchase by the Purchaser of any Shares pursuant to the Offer, the number of directors on the Company's Board of Directors shall be reduced to five and the Purchaser shall be entitled to designate three of such number of directors (the "Purchaser Designees") and the Company and its Board of Directors shall take all such action needed to cause the Purchaser Designees to be appointed to the Company's Board of Directors. The Purchaser has informed the Company that it will choose the Purchaser Designees from the directors and executive officers listed in Schedule I to the Offer to Purchase, a copy of which is being mailed to the Company's stockholders together with this Schedule 14D-9. The Purchaser has informed the Company that each of the directors and executive officers listed in Schedule I to the Offer to Purchase has consented to act as a director, if so designated. The information on such Schedule I is incorporated herein by reference. None of the Purchaser Designees (i) is currently a director of, or holds any position with, the Company, (ii) has a familial relationship with any of the directors or executive officers of the Company or (iii) to the best knowledge of the Purchaser, beneficially owns any securities (or rights to acquire any securities) of the Company. The Company has been advised by the Purchaser that, to the best of Purchaser's knowledge, none of the Purchaser Designees has been involved in any transactions with the Company or any of its directors, executive officers or affiliates which are required to be disclosed pursuant to the rules and regulations of the Commission, except as may be disclosed herein or in the Schedule 14D-9. It is expected that the Purchaser Designees may assume office at any time following the purchase by the Purchaser of Shares pursuant to the Offer, which purchase cannot be earlier than September 23, 1994, and that, upon assuming office, the Purchaser Designees will thereafter constitute at least a majority of the Board of Directors. Biographical information concerning each of the Company's current directors and executive officers is presented on the following pages. DIRECTORS <TABLE> <CAPTION> YEAR FIRST ELECTED OR APPOINTED NAME AGE DIRECTOR PRINCIPAL OCCUPATION - -------------------- --- ---------- ------------------------------------------------- <S> <C> <C> <C> CLASS I DIRECTORS (term to expire in 1995) Lloyd E. Cotsen 65 1962 Mr. Cotsen has served as the Chief Executive Officer of the Company since June 1981 (Mr. Cotsen also served as President of the Company from 1967 until his appointment, on May 16, 1991, as the Chairman of the Board of the Company). Mr. Cotsen is also a member of the Board of Directors of Sunrise Medical, Inc., a manufacturer and distributor of medical rehabilitation equipment. </TABLE> I-2

15 <TABLE> <CAPTION> YEAR FIRST ELECTED OR APPOINTED NAME AGE DIRECTOR PRINCIPAL OCCUPATION - -------------------- --- ---------- ------------------------------------------------- <S> <C> <C> <C> Kenneth Lipper 52 1986 Mr. Lipper is the Chairman and President of Lipper & Company, L.P., an investment banking and financial management firm. From 1983 to 1985, he served as Deputy Mayor of New York City. For six years prior thereto, he was a Managing Director and a General Partner of Salomon Brothers Inc., an investment banking and corporate services firm. Mr. Lipper has authored a novel ("Wall Street") as well as numerous articles on international and domestic policy and, from 1976 to 1982, served as an adjunct professor to Columbia University's School of International Affairs. Mr. Lipper is a member of the International Advisory Committee of the Federal Reserve Bank of New York. Robert A. McCabe 60 1980 Since 1987, Mr. McCabe has been President of Pilot Capital Corporation, an investment firm. For more than twenty years prior thereto, Mr. McCabe was a managing Director of Shearson Lehman Brothers Incorporated, an investment banking firm. He is also a member of the Board of Directors of Morrison Knudsen Corporation, a company engaged in engineering and construction; Thermo Instrument Systems, Inc., a manufacturer of analytical instruments; Thermo Electron Corporation, a company providing industry, utilities and government with high technology equipment and services to enhance production; Church & Dwight Co., Inc., a company engaged in the chemicals and household products businesses; and Borg-Warner Security Corp., a Company providing guard, alarm, armored and courier services. CLASS II DIRECTORS (terms to expire in 1996) Dr. Ronald E. Cape 61 1980 For more than five years prior to December 1991, Dr. Cape served as Chairman of the Board of Cetus Corporation, a leading biotechnology company. In December 1991, Cetus Corporation merged with Chiron Corporation, another leading biotechnology company, and Dr. Cape served as a director of Chiron Corporation until July 1992. Since January 1992, Dr. Cape has served as the chairman of a start-up biotechnology company, Darwin Molecular Corporation. Dr. Cape was a co-founder of Cetus in 1971. </TABLE> I-3

16 <TABLE> <CAPTION> YEAR FIRST ELECTED OR APPOINTED NAME AGE DIRECTOR PRINCIPAL OCCUPATION - -------------------- --- ---------- ------------------------------------------------- <S> <C> <C> <C> Sidney Dworkin 73 1978 Mr. Dworkin is a private investor. For more than five years prior to April 1987, Mr. Dworkin was Chief Executive Officer and a Director of Revco D.S., Inc., a retail drugstore chain, and was Chairman of the Board of that company until September 1987. Revco D.S., Inc. filed for protection under the U.S. bankruptcy code in July 1988. Mr. Dworkin is Chairman of the Board of Advanced Modular Systems, a seller of modular buildings, and of Comtrex Systems Corporation, a manufacturer of electronic cash registers. Mr. Dworkin is a member of the Board of Directors of CCA Industries, Inc., a consumer products company manufacturing beauty and health products; General Computer Corporation, a retailer of software for pharmacy and hospital computer systems and a processor of third-party claims; Northern Instruments Corporation, a manufacturer of rust prohibitive products and lubricant sensors; Interactive Technologies, Inc., a marketer and distributor of pet products; and Viragen, Inc., a manufacturer of natural alpha interferon. CLASS III DIRECTORS (terms to expire in 1997) Charles M. Diker 59 1976 Since 1986, Mr. Diker has been the Chairman of the Board of Cantel Industries Inc., a manufacturer and distributor of office furniture and medical equipment. Mr. Diker is also a member of the Board of Directors of BeautiControl Cosmetics, Inc., a direct seller and marketer of cosmetics, and of International Specialty Products, a manufacturer of specialty chemicals. Mr. Diker is also Chairman of the Board of Blanchard and Blanchard, a marketer and distributor of gourmet food products. Chester L. Firestein 64 1977 Mr. Firestein has been President of CLF Associates, a management consulting firm, since 1976. For three years prior to 1976, Mr. Firestein was President and Chief Executive Officer of Max Factor & Co., a manufacturer and marketer of cosmetics and toiletries, and from 1979 to 1985 was Chairman of the Board and Chief Executive of First Beverly Bank, a financial institution located in Beverly Hills and Century City, California. </TABLE> I-4

17 <TABLE> <CAPTION> YEAR FIRST ELECTED OR APPOINTED NAME AGE DIRECTOR PRINCIPAL OCCUPATION - -------------------- --- ---------- ------------------------------------------------- <S> <C> <C> <C> James R. McManus 60 1991 Mr. McManus has for more than the past ten years been the Chairman of the Board and Chief Executive Officer of Marketing Corporation of America, an international marketing services and management consulting firm, which also owns companies in the airline, automobile, real estate development, restaurant management and venture capital industries. Mr. McManus is a member of the Board of Directors of First Brands Corporation, a manufacturer of automotive products and plastic wrap; Au Bon Pain, a retailer of fresh bakery products; Ally & Gargano, Inc., an advertising agency; and Business Express Airlines, a regional commuter airline. Mr. McManus also serves on the Board of Trustees of Northwestern University. </TABLE> EXECUTIVE OFFICERS <TABLE> <CAPTION> YEAR FIRST APPOINTED NAME AGE OFFICER PRINCIPAL OCCUPATION - -------------------- --- ---------- ------------------------------------------------- <S> <C> <C> <C> Lloyd E. Cotsen 65 1967 Chief Executive Officer and Chairman of the Board of Directors. Allan H. Kurtzman 67 1991 President and Chief Operating Officer. Mr. Kurtzman rejoined the Company in July 1991. From February 1987 to July 1991, Mr. Kurtzman was President of Max Factor & Co. From March 1983 to February 1987, he served as President, Consumer Products Division, of Neutrogena Corporation. Sheldon L. Zimbler 50 1991 President, U.S. Division. Mr. Zimbler joined the Company in September 1991. From 1967 to September 1991, Mr. Zimbler worked for Procter and Gamble, starting as a member of the sales force and ending in the position of General Sales Manager, Health and Beauty Care Products. Christian Bardin 55 1982 President, International Division. Dasha Lewin 65 1973 Vice President, Treasurer and Secretary. </TABLE> I-5

18 <TABLE> <CAPTION> YEAR FIRST APPOINTED NAME AGE OFFICER PRINCIPAL OCCUPATION ---- --- ---------- -------------------- <S> <C> <C> <C> Donald R. Schort 52 1992 Senior Vice President and Chief Financial Officer. Mr. Schort joined the Company in October 1992. From August 1991 to August 1992, he served as Senior Vice President and Chief Financial Officer of DAK Industries, a privately held catalog marketer of consumer electronics products. DAK Industries filed for protection under the U.S. Bankruptcy Code in June 1992. Mr. Schort served as Senior Vice President and Chief Financial Officer of Ducommun Incorporated, an American Stock Exchange aerospace company, from July 1988 to July 1991. Mitchell Wortzman 44 1991 President, Dermatologics Division. Harry Wurmbrand 56 1985 Senior Vice President, Operations. </TABLE> Except as indicated above, each of the above named executive officers has been actively engaged in the business of the Company, in various management positions, for more than five years. Subject to the employment agreement described below, with respect to Mr. Kurtzman, all officers of the Company serve at the pleasure of the Board of Directors. BOARD OF DIRECTORS AND STANDING COMMITTEES OF THE BOARD During the fiscal year ended October 31, 1993, the Board of Directors held four meetings. For the fiscal year, the Directors during the term of their tenure attended all meetings of the Board of Directors and all meetings of committees of the Board of Directors on which they served. The Audit Committee of the Board of Directors met four times during the fiscal year. The Audit Committee acts as liaison between the Company's auditors and the Board of Directors and advises the Board of Directors with respect to financial and accounting matters. The members of the Audit Committee are Messrs. Diker, Dworkin, Firestein and Lipper. The Compensation Committee met three times during the fiscal year ended October 31, 1993. This committee is responsible for considering and making recommendations to the Board of Directors regarding executive compensation and is also responsible for the administration of the Company's stock option plans. The members of the Compensation Committee are Messrs. McCabe, Lipper and McManus. The Nominating Committee met one time during the fiscal year ended October 31, 1993. This committee is responsible for considering and making recommendations to the Board of Directors regarding nominees for future directors. The members of the Nominating Committee are Messrs. Cape, Diker and Lipper. Stockholders wishing to nominate director candidates may do so from the floor at the Company's Annual Meeting of Stockholders. For the fiscal year ended October 31, 1993, Directors who are not also executive officers of the Company received from the Company an annual retainer of $25,000. Directors also received an attendance fee of $2,000 per meeting for each Board meeting and $2,000 for each committee meeting not held on a day that Board meetings are held. Each Director who is not also an officer of the Company receives annually an option to purchase 5,625 shares of the Company's Common Stock under the Company's 1988 Stock Incentive Plan. PRINCIPAL STOCKHOLDERS The following table sets forth as of August 18, 1994 certain information with respect to Shares owned beneficially by the Chief Executive Officer and each of the other four most highly compensated officers of the Company, by each director of the Company, by each person known by the Company to be the beneficial owner of more than five percent of the outstanding Common Stock and by all directors and executive officers of the I-6

19 Company as a group. Beneficial ownership has been determined in accordance with Rule 13d-3 under the Exchange Act. Under this rule, certain shares may be deemed to be beneficially owned by more than one person (if, for example, persons share the power to vote or the power to dispose of the shares). In addition, shares are deemed to be beneficially owned by a person if the person has the right to acquire the shares (for example, upon exercise of an option) within 60 days of the date as of which the information is provided; in computing the percentage ownership of any person, the amount of shares is deemed to include the amount of shares beneficially owned by such person (and only such person) by reason of these acquisition rights. As a result, the percentage of outstanding shares of any person as shown in the following table does not necessarily reflect the person's actual voting power at any particular date. <TABLE> <CAPTION> NAME OF NUMBER OF SHARES PERCENT BENEFICIAL OWNER(1) BENEFICIALLY OWNED(2) OF CLASS ------------------- --------------------- -------- <S> <C> <C> Lloyd Cotsen(3)................................. 8,448,996 32.85 5760 West 96th Street Los Angeles, CA 90045 Allan Kurtzman.................................. 50,082 * Sheldon Zimbler................................. 11,000 * Daniel C. Lapouyade............................. -- -- Christian Bardin................................ 45,546 * Dr. Ronald E. Cape.............................. 69,106 * Charles M. Diker(4)............................. 367,224 1.43 Sidney Dworkin.................................. 79,773 * Chester L. Firestein(5)......................... 73,282 * Kenneth Lipper.................................. 25,312 * Robert McCabe................................... 77,556 * James R. McManus................................ 20,643 * William D. Witter, Inc.(6)...................... 1,674,833 6.51 One Citicorp Center 153 East 53rd Street New York, New York 10022 All directors and executive officers as a group (16 persons including those listed above)..... 11,159,126 43.39 </TABLE> - --------------- * Less than one percent. (1) Unless otherwise specified, and subject to applicable community property laws, each person named has sole voting and investment power with respect to the Common Stock which he beneficially owns. (2) Includes the rights of the following persons to acquire shares pursuant to the exercise of stock options which are or will be vested prior to October 17, 1994: Mr. Cotsen--250,000 shares; Dr. Cape--39,374 shares; Mr. Diker--42,186 shares; Mr. Dworkin--42,186 shares; Mr. Firestein--30,937 shares; Mr. Lipper--25,312 shares; Mr. McCabe--42,186 shares; Mr. McManus--5,625 shares; and Christian Bardin--40,936 shares. (3) Mr. Cotsen holds 2,509,850 of these shares as Trustee of the Cotsen 1985 Trust, a revocable inter vivos trust of which he is the beneficiary during his lifetime. Also included are: (i) 3,808,413 shares with respect to which Mr. Cotsen has sole voting and investment powers as trustee of a testamentary trust of which he is the income beneficiary during his lifetime; and (ii) 1,880,733 shares with respect to which Mr. Cotsen has sole voting and investment powers as trustee of four charitable remainder unitrusts. Excludes the following shares as to which Mr. Cotsen has no voting and investment powers: (i) 769,481 shares beneficially owned by Lorraine Stolaroff; (ii) 975,020 shares beneficially owned by Corinna Cotsen; and (iii) 320,000 shares beneficially owned by L. Eric Cotsen. Mr. Cotsen has a right of first refusal with respect to Mrs. Stolaroff's, Ms. Corinna Cotsen's and Mr. L. Eric Cotsen's shares, which he has waived for the limited purpose of permitting them to complete the transactions contemplated in the Merger Agreement. Also excluded are 1,670,000 shares held by the Cotsen Family Foundation, a California non-profit public benefit corporation of which Mr. Cotsen is a director. I-7

20 (4) Includes 200,293 shares held by Mr. Diker as trustee with his spouse for his minor children, as to which shares Mr. Diker disclaims beneficial ownership. The number of shares owned does not include shares owned by Mr. Diker's spouse as her separate property. (5) Includes 5,310 shares owned of record by Mr. Firestein as a trustee for his adult child, as to which shares Mr. Firestein disclaims beneficial ownership. (6) As of December 31, 1993, William D. Witter, Inc., a New York corporation ("W.D. Witter"), has informed the Company that it shares voting and dispositive power with respect to 1,552,835 of these shares. W.D. Witter has informed the Company that it shares the power to vote or dispose of these shares with its investment advisory clients for whose accounts the shares have been acquired. W.D. Witter claims sole voting and dispositive power with respect to the remaining shares. EXECUTIVE COMPENSATION The following table sets forth both cash and noncash compensation paid or to be paid by the Company to, and the amounts vested under certain of the Company's plans with respect to, Mr. Cotsen and each of the other four most highly compensated executive officers of the Company, for each of the three fiscal years ending October 31 indicated below. SUMMARY COMPENSATION TABLE <TABLE> <CAPTION> LONG TERM COMPENSATION FISCAL YEAR ANNUAL COMPENSATION ------------- NAME AND ENDED --------------------- STOCK OPTIONS ALL OTHER PRINCIPAL POSITION OCTOBER 31, SALARY BONUS GRANTED COMPENSATION(1) - -------------------------- ----------- -------- -------- ------------- --------------- <S> <C> <C> <C> <C> <C> Lloyd E. Cotsen 1993 $711,540 $480,000 200,000shs. $20,872 Chief Executive Officer 1992 650,000 600,000 -- 17,939 1991 650,000 500,000 100,000 19,667 Allan H. Kurtzman(2) 1993 606,932 -- -- -- President and Chief 1992 600,000 50,000 -- -- Operating Officer 1991(3) 123,692 30,000 200,000 -- Sheldon L. Zimbler(2) 1993 354,807 232,000 20,000 16,653 President, U.S. Division 1992 300,000 250,000 -- 33,923 1991(4) 34,615 17,000 100,000 -- Christian Bardin 1993 301,923 90,000 15,000 31,529 President, International 1992 211,266 100,000 -- 49,773 Division 1991 188,173 100,000 30,000 54,490 Daniel C. Lapouyade(5) 1993 239,700 100,000 25,000 34,427(6) President, Europe 1992 218,300 250,505 -- 11,930(6) 1991 178,800 188,210 50,000 -- </TABLE> - --------------- (1) Includes amounts accrued under the Company's 401(k) Profit Sharing Plan: Lloyd Cotsen: $14,756; Allan Kurtzman: None; Sheldon Zimbler: $14,756; Christian Bardin: $14,756 and the Company's Supplemental Deferral Plan; Lloyd Cotsen: $6,116; Allan Kurtzman: None; Sheldon Zimbler: $1,897; Christian Bardin: $16,773. Daniel Lapouyade does not participate in the Company 401(k) Profit Sharing Plan or the Supplemental Deferral Plan. (2) For a description of the employment contract between this officer and the Company, see "Employment Contracts." (3) Mr. Kurtzman joined the Company in July 1991. Excludes amounts payable to Mr. Kurtzman under his employment contract following termination of his employment with the Company, all of which vested at the commencement of his employment (see "Employment Contracts -- Allan H. Kurtzman"). (4) Mr. Zimbler joined the Company in September 1991. I-8

21 (5) Mr. Lapouyade's employment with the Company was terminated as of August 17, 1994. Mr. Lapouyade and the Company entered into a Settlement Agreement with respect to Mr. Lapouyade's employment-related claims on August 19, 1994 (the "Settlement Agreement"). (6) Represents amounts paid by the Company on behalf of Mr. Lapouyade for health and disability insurance and retirement benefits in excess of benefits mandated under French law. The following table summarizes information with respect to stock options granted to Mr. Cotsen and each of the other four most highly compensated executive officers of the Company during the fiscal year ended October 31, 1993, including the potential realizable value based upon a stock appreciation of 5% and 10% over the term of the options. OPTION GRANTS IN LAST FISCAL YEAR <TABLE> <CAPTION> INDIVIDUAL GRANTS - ----------------------------------------------------------------------------------- POTENTIAL % OF REALIZABLE VALUE AT TOTAL ASSUMED ANNUAL OPTIONS RATES OF STOCK PRICE GRANTED TO APPRECIATION EMPLOYEES EXERCISE FOR OPTION TERM OPTIONS IN FISCAL PRICE EXPIRATION --------------------- NAME GRANTED YEAR ($/SH) DATE 5%($) 10%($) - ------------------------------------- ------- ---------- -------- ---------- --------- --------- <S> <C> <C> <C> <C> <C> <C> Lloyd E. Cotsen...................... 200,000 52.3 $24.50 12/2/02 3,082,000 7,810,000 Allen H. Kurtzman.................... -- -- -- Sheldon L. Zimbler................... 20,000 5.2 24.50 12/2/02 308,200 781,000 Christian Bardin..................... 15,000 3.9 24.50 12/2/02 231,150 585,750 Daniel C. Lapouyade.................. 25,000 6.5 24.50 12/2/02 385,250 976,250 </TABLE> The following table summarizes information with respect to all exercises of stock options by Mr. Cotsen and each of the other four most highly compensated executive officers of the Company during the fiscal year ended October 31, 1993, and the value, and number of shares underlying, all in-the-money unexercised options held by each at year end. AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND YEAR END OPTION VALUES <TABLE> <CAPTION> VALUE OF UNEXERCISED SHARES NUMBER OF UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS ACQUIRED VALUE AT OCTOBER 31, 1993 AT OCTOBER 31, 1993(2) ON REALIZED ----------------------------- ----------------------------- NAME EXERCISE (1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE - --------------------------- -------- -------- ----------- ------------- ----------- ------------- <S> <C> <C> <C> <C> <C> <C> Lloyd E. Cotsen............ -- -- 250,000 300,000(4) $ -- $ 525,000 Allan H. Kurtzman.......... -- -- -- 200,000 -- 500,000 Sheldon L. Zimbler......... -- -- -- 120,000 -- -- Christian Bardin........... -- -- 40,936(3) 55,000(4) 242,549 78,750 Daniel C. Lapouyade........ -- -- -- 75,000(4) -- 78,750 </TABLE> - --------------- (1) Number of shares acquired, multiplied by closing market price on the date of exercise, less exercise price. (2) Based upon the closing price of the Common Stock on the NASDAQ National Market System on October 31, 1993 (19 1/4 per share), less the exercisable price. Options will be cancelled pursuant to the Merger Agreement for a cash payment equal to the product of (x) the number of shares subject to such options and (y) the excess of the price per share to be paid in the Offer over the per share exercise price. (3) Includes 15,625 shares which are not In-the-Money. (4) Includes unexercisable options which are not In-the-Money; Lloyd E. Cotsen: 200,000 shares; Christian Bardin: 40,000 shares; and Daniel C. Lapouyade: 60,000 shares. Mr. Lapouyade waived his right to his stock options under the terms of the Settlement Agreement. I-9

22 EMPLOYMENT CONTRACTS The Company has employment contracts with two of its five most highly compensated officers -- Allan Kurtzman and Sheldon Zimbler. All rights under Mr. Lapouyade's employment agreement were cancelled under the terms of the Settlement Agreement. Allan H. Kurtzman. Under an agreement entered into in connection with his joining the Company in July 1991, Mr. Kurtzman is employed as President and Chief Operating Officer of the Company. Under the agreement, Mr. Kurtzman is to receive annual compensation, inclusive of salary and bonus, of not less than $600,000 per year. Should Mr. Kurtzman terminate his employment prior to October 31, 1995, he will also be entitled to receive, as severance, that portion of the minimum compensation that would be due to him for the balance of the fiscal year of such termination. Mr. Kurtzman was granted an option to purchase 200,000 shares of Common Stock, which option will be cancelled for cash pursuant to the Merger Agreement (along with all other employee stock options), and is entitled (subject to eligibility) to life insurance coverage of $1,600,000 during his employment and $800,000 during the term of his consultancy, described below. Mr. Kurtzman will not be eligible to participate in the Company's 401(k) Profit Sharing Plan or Supplemental Deferral Plan (see "Pension Plan and Other Benefits," below). Commencing November 1, 1995 (or sooner, if Mr. Kurtzman terminates his employment for any reason prior thereto), and continuing for a ten-year period thereafter, Mr. Kurtzman will be an independent marketing and management consultant to the Company. So long as he makes his consulting services available to the Company, he will be entitled to receive an annual consultation fee of $350,000, and the consultation fee will continue to be paid to him or his heirs for the full ten years, regardless of his disability or death. Sheldon Zimbler. Under an agreement entered into in connection with his joining the Company in September 1991, Mr. Zimbler is currently employed as U.S. President of the Company. Under the agreement, Mr. Zimbler is to receive an annual salary of not less than $350,000, plus a bonus, as may be determined by the Board of Directors in accordance with the Company's customary practices. Mr. Zimbler was granted an option to purchase 100,000 shares of Common Stock which will be cancelled for cash pursuant to the Merger Agreement (along with all other employee stock options). Mr. Zimbler is also entitled to $450,000 in life insurance coverage. To assist Mr. Zimbler in relocating to Southern California, the Company made an unsecured $500,000 loan to Mr. Zimbler, bearing interest at a rate of 6% per annum. Under the agreement, the principal balance of the loan will be forgiven by the Company at the rate of not less than $100,000 per year, commencing September 15, 1992; Mr. Zimbler is responsible for the payment of interest. Mr. Zimbler is employed on an "at will" basis. If he is terminated for any reason prior to the full discharge of the loan, the loan will be forgiven; if Mr. Zimbler voluntarily resigns, he will be responsible for the outstanding balance. At August 1, 1994 the balance outstanding on this loan was $300,000. Other Arrangements. Following the consummation of the Offer and the Merger, Mr. Cotsen has agreed to continue as Chairman of the Company, for which he will receive annual compensation of $600,000 and a grant of options to purchase 100,000 shares of Parent's common stock. For a description of certain benefits for officers affected by a change in control of the Company, see "Pension Plan and Other Benefits," below. PENSION PLAN AND OTHER BENEFITS Neutrogena Corporation Supplemental Deferral Plan ("SDP"). In 1987 the Company established the SDP to provide supplemental retirement benefits to certain key employees of the Company. At the discretion of the Board of Directors, contributions were made annually to the SDP with interest being credited to each participant's account. Effective November 1, 1993, the Company suspended its future contributions to the SDP. Interest will continue to accrue on the deferred compensation liability. Benefits under the SDP include: (i) a short-term distribution at the end of the eighth, ninth and tenth plan years following each year in which the Company contribution was made equivalent to the contribution for that year; (ii) a retirement benefit payable over a 120-month period; and (iii) survivor, disability and termination benefits with respect to the vested portion of a participant's account. Interest is credited to I-10

23 employee accounts on a monthly basis at a rate which is subject to adjustment from time to time, and was 8.0% for certain Company contributions to participants' accounts and 7.0% for all other amounts for the fiscal year ended October 31, 1993; however, participants' accounts are not segregated from the general assets of the Company and each participant is an unsecured general creditor of the Company. The SDP contains provisions which provide for the automatic 100% vesting of benefits and the crediting of interest accruals to the participants' SDP accounts if, among other things, any person other than Mr. Cotsen and his then affiliated family members becomes the beneficial owner of 50% or more of the combined voting power of the Company's then outstanding securities. The SDP contains a provision stating that notwithstanding any other provision of the SDP, no participant may receive payments or benefits which would fail to be deductible to the Company because of Section 280G of the Internal Revenue Code of 1986, as amended. Executive Retirement Plan ("ERP"). The ERP was put into effect January 1, 1993 to supplement the expected benefits provided under the SDP and the Company's 401(k) Profit Sharing Plan. PENSION PLAN TABLE <TABLE> <CAPTION> YEARS OF SERVICE ------------------------------------------------------------ REMUNERATION 15 20 25 30 35 ------------ -------- -------- -------- -------- -------- <S> <C> <C> <C> <C> <C> $125,000........... $ 62,500 $ 62,500 $ 62,500 $ 62,500 $ 62,500 $150,000........... 75,000 75,000 75,000 75,000 75,000 $175,000........... 87,000 87,000 87,000 87,000 87,000 $200,000........... 100,000 100,000 100,000 100,000 100,000 $225,000........... 112,500 112,500 112,500 112,500 112,500 $250,000........... 125,000 125,000 125,000 125,000 125,500 $300,000........... 150,000 150,000 150,000 150,000 150,000 $400,000........... 200,000 200,000 200,000 200,000 200,000 $450,000........... 200,000 200,000 200,000 200,000 200,000 $500,000........... 200,000 200,000 200,000 200,000 200,000 </TABLE> The foregoing table shows the annual pension benefit (as a straight life annuity) payable to designated U.S. corporate officers under the ERP upon retirement at or after age 65 with five completed years of participation in the ERP. The annual benefit under the ERP is equal to 50% of a participant's average base salary over the 36 months in which his or her base salary was the highest (the "Final Average Base Salary"); provided, however, that, for purposes of computing such benefit, a participant's base salary is treated as never exceeding $400,000. For purposes of the ERP, a participant's base salary is the same as the "salary" reported in the Summary Compensation Table herein. The annual pension benefit shown in the Pension Plan Table is offset by the benefits provided under the Company's 401(k) Profit Sharing Plan and the SDP and by 50% of the participant's primary insurance amount under Social Security. The acquisition of Shares pursuant to the Offer will constitute a change in control under the ERP. Upon a change in control, all participants will be fully vested in an annual pension benefit equal to 3 1/3% of the participant's Final Average Base Salary for each complete credited year of participation in the ERP, up to a maximum of 50%. If, within three years after the change in control, the participant is involuntarily (i) terminated without cause, (ii) demoted and has his or her compensation reduced, or (iii) required to move his or her principal place of employment more than 50 miles, the present value of the participant's annual pension benefit will be immediately paid to the participant in a lump sum, and the benefit will be calculated based on a minimum of at least six years of participation in the ERP, which will result in a minimum benefit of 20% of Final Average Base Salary. I-11

24 Lloyd E. Cotsen and Allan Kurtzman are not entitled to participate in the ERP. The current base salary and the current years of credited service for the two executive officers named in the Summary Compensation Table who participate in the ERP are as follows: Christian Bardin, $282,695 and 11 years Sheldon Zimbler, $348,269 and 2 years Rabbi Trust. On May 12, 1994 the Company established a trust to secure the payment of benefits under the SDP and the ERP (the "Rabbi Trust"). The Rabbi Trust is subject to the claims of general creditors in the event of the Company's insolvency. As of August 16, 1994, the trust was funded with cash, life insurance policies and other property valued at an aggregate $3,025,000. TRANSACTIONS WITH EXECUTIVE OFFICERS AND DIRECTORS Dr. Cape, a Director of the Company, is brother of the owner of the Company's Canadian licensee (the "Licensee"). The Licensee manufactures and distributes certain of the Company's products. During the fiscal year ended October 31, 1993, the Company earned $373,000 in royalties from the Licensee and from November 1, 1993 through July 31, 1994, the Company earned $293,380 in such royalties. All transactions between the Company and the Licensee were on substantially the same terms as those prevailing at the same time for comparable transactions with non-affiliated parties. Dr. Cape has an ownership interest in, but takes no part in the management of, the Licensee. See "-- Employment Contracts -- Sheldon Zimbler" for a description of an outstanding loan from the Company to Mr. Zimbler. COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT Effective May 1, 1991, the Securities and Exchange Commission promulgated new rules under Section 16 of the Exchange Act. The Company believes that during the fiscal year ended October 31, 1993, its executive officers and directors have complied with all Section 16 filing requirements with the exception of one late report. Mr. Wortzman filed a report with respect to stock options exercised which inadvertently had not been reported in December 1992 but was reported in January 1993. I-12

25 SCHEDULE II CERTAIN TRANSACTIONS IN SHARES OF COMMON STOCK OF NEUTROGENA CORPORATION EFFECTED DURING THE PAST 60 DAYS The following shares of Common Stock were transferred by executive officers or directors of the Company as charitable contributions: <TABLE> <CAPTION> PARTY DATE NUMBER OF EFFECTING OF SHARES TRANSACTION TRANSACTION TRANSFERRED ------------------------------------------------------ ----------- ----------- <S> <C> <C> Dr. Ronald E. Cape.................................... 8/25/94 4,482 Lloyd E. Cotsen....................................... 8/2/94 5,150 8/9/94 3,550,733 Charles M. Diker...................................... 8/19/94 40,000 Chester L. Firestein.................................. 8/24/94 3,146 Dasha Lewin........................................... 8/10/94 40,000 </TABLE> II-1

26 INDEX TO EXHIBITS <TABLE> <CAPTION> EXHIBIT SEQUENTIAL NO. DESCRIPTION PAGE NUMBER - ---------- ---------------------------------------------------------------------- ----------- <C> <S> <C> Exhibit 1 Agreement and Plan of Merger, dated as of August 22, 1994, by and among Neutrogena Corporation, Johnson & Johnson and JNJ Acquisition Corp. ................................................................ Exhibit 2 Stockholder Agreement, dated as of August 22, 1994, by and among Johnson & Johnson and Lloyd E. Cotsen, trustee of the Cotsen 1985 Trust, Lloyd E. Cotsen, trustee of the First Cotsen Charitable Unitrust, Lloyd E. Cotsen, trustee of the Second Cotsen Charitable Unitrust, Lloyd E. Cotsen, trustee of the Third Cotsen Charitable Unitrust, Lloyd E. Cotsen, trustee of the Fourth Cotsen Charitable Unitrust, Lloyd E. Cotsen, trustee of the Remainder Trust (Trust B) under the will of Joanne Cotsen (deceased), and Cotsen Family Foundation, a California nonprofit public benefit corporation ........ Exhibit 3 Press Release issued jointly by Neutrogena Corporation and Johnson & Johnson, dated August 22, 1994........................................ Exhibit 4 Letter to Stockholders of Neutrogena Corporation dated August 26, 1994.................................................................. Exhibit 5 Opinion of Lehman Brothers Inc. dated August 22, 1994................. </TABLE>

1 CONFORMED COPY - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- AGREEMENT AND PLAN OF MERGER DATED AS OF AUGUST 22, 1994 AMONG JOHNSON & JOHNSON JNJ ACQUISITION CORP. AND NEUTROGENA CORPORATION - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------

2 TABLE OF CONTENTS <TABLE> <CAPTION> PAGE ---- <S> <C> <C> Parties and Recitals................................................................ 1 ARTICLE I The Offer SECTION 1.01. The Offer......................................................... 1 SECTION 1.02. Company Actions................................................... 2 ARTICLE II The Merger SECTION 2.01. The Merger........................................................ 3 SECTION 2.02. Closing........................................................... 3 SECTION 2.03. Effective Time.................................................... 3 SECTION 2.04. Effects of the Merger............................................. 4 SECTION 2.05. Certificate of Incorporation and By-Laws.......................... 4 SECTION 2.06. Directors......................................................... 4 SECTION 2.07. Officers.......................................................... 4 ARTICLE III Effect of the Merger on the Capital Stock of the Constituent Corporations; Exchange of Certificates SECTION 3.01. Effect on Capital Stock........................................... 4 SECTION 3.02. Exchange of Certificates.......................................... 5 ARTICLE IV Representations and Warranties SECTION 4.01. Representations and Warranties of the Company..................... 6 SECTION 4.02. Representations and Warranties of Parent and Sub.................. 12 ARTICLE V Covenants Relating to Conduct of Business SECTION 5.01. Conduct of Business............................................... 13 SECTION 5.02. No Solicitation................................................... 15 ARTICLE VI Additional Agreements SECTION 6.01. Stockholder Meeting; Preparation of Proxy Statement............... 16 SECTION 6.02. Access to Information; Confidentiality............................ 16 SECTION 6.03. Reasonable Efforts; Notification.................................. 17 SECTION 6.04. Stock Options Plans............................................... 17 SECTION 6.05. Indemnification and Insurance..................................... 18 SECTION 6.06. Directors......................................................... 18 SECTION 6.07. Fees and Expenses................................................. 19 </TABLE> i

3 <TABLE> <CAPTION> PAGE ---- <S> <C> <C> SECTION 6.08. Public Announcements.............................................. 19 SECTION 6.09. Rights Agreements................................................. 19 SECTION 6.10. Benefit Plans..................................................... 19 SECTION 6.11. Stop Transfer..................................................... 20 SECTION 6.12. Excess Parachute Payments......................................... 20 ARTICLE VII Conditions Precedent SECTION 7.01. Conditions to Each Party's Obligation to Effect the Merger........ 20 ARTICLE VIII Termination, Amendment and Waiver SECTION 8.01. Termination....................................................... 20 SECTION 8.02. Effect of Termination............................................. 21 SECTION 8.03. Amendment......................................................... 21 SECTION 8.04. Extension; Waiver................................................. 21 SECTION 8.05. Procedure for Termination, Amendment, Extension or Waiver......... 22 ARTICLE IX General Provisions SECTION 9.01. Nonsurvival of Representations and Warranties..................... 22 SECTION 9.02. Notices........................................................... 22 SECTION 9.03. Definitions....................................................... 23 SECTION 9.04. Interpretation.................................................... 23 SECTION 9.05. Counterparts...................................................... 23 SECTION 9.06. Entire Agreement; No Third-Party Beneficiaries.................... 24 SECTION 9.07. Governing Law..................................................... 24 SECTION 9.08. Assignment........................................................ 24 SECTION 9.09. Enforcement....................................................... 24 EXHIBITS EXHIBIT A Conditions of the Offer </TABLE> ii

4 AGREEMENT AND PLAN OF MERGER dated as of August 22, 1994, among JOHNSON & JOHNSON, a New Jersey corporation ("Parent"), JNJ ACQUISITION CORP., a Delaware corporation ("Sub") and a wholly owned subsidiary of Parent, and NEUTROGENA CORPORATION, a Delaware corporation (the "Company"). WHEREAS the respective Boards of Directors of Parent, Sub and the Company have approved the acquisition of the Company by Parent on the terms and subject to the conditions set forth in this Agreement; WHEREAS, in furtherance of such acquisition, Parent proposes to cause Sub to make a tender offer (as it may be amended from time to time as permitted under this Agreement, the "Offer") to purchase all the issued and outstanding shares of Common Stock, par value $.001 per share, of the Company (together with any associated Rights (as hereinafter defined), the "Company Common Stock"), at a price per share of Company Common Stock of $35.25 net to the seller in cash (such price, the "Offer Price"), upon the terms and subject to the conditions set forth in this Agreement; and the Board of Directors of the Company has approved the Offer and is recommending that the Company's stockholders accept the Offer; WHEREAS the respective Boards of Directors of Parent, Sub and the Company have approved the Offer and the Merger of Sub into the Company, as set forth below (the "Merger"), upon the terms and subject to the conditions set forth in this Agreement, whereby each issued and outstanding share of Company Common Stock, other than shares owned directly or indirectly by Parent or the Company and Dissenting Shares (as defined in Section 3.01(d)), will be converted into the right to receive the price per share paid in the Offer; WHEREAS, concurrently with the execution of this Agreement and as an inducement to Parent to enter into this Agreement, certain stockholders of the Company, Parent and Sub are entering into an Agreement (the "Stockholder Agreement") pursuant to which such stockholders have, among other things, agreed to tender all such stockholders' shares of Company Common Stock into the Offer; and WHEREAS Parent, Sub and the Company desire to make certain representations, warranties, covenants and agreements in connection with the Offer and the Merger and also to prescribe various conditions to the Offer and the Merger. NOW, THEREFORE, in consideration of the representations, warranties, covenants and agreements contained in this Agreement, the parties agree as follows: ARTICLE I The Offer SECTION 1.01. The Offer. (a) Subject to the provisions of this Agreement, as promptly as practicable, but in no event later than August 26, 1994, Sub shall, and Parent shall cause Sub to, commence the Offer. The obligation of Sub to, and of Parent to cause Sub to, commence the Offer and accept for payment, and pay for, any shares of Company Common Stock tendered pursuant to the Offer shall be subject to the conditions set forth in Exhibit A (any of which may be waived by Sub in its sole discretion) and to the terms and conditions of this Agreement; provided, however, that Sub shall not, without the Company's consent, waive the Minimum Condition (as defined in Exhibit A). Sub expressly reserves the right to modify the terms of the Offer, except that, without the consent of the Company, Sub shall not (i) reduce the number of shares of Company Common Stock to be purchased in the Offer, (ii) reduce the Offer Price, (iii) modify or add to the conditions set forth in Exhibit A, (iv) except as provided in the next sentence, extend the Offer, (v) change the form of consideration payable in the Offer or (vi) amend any other term of the Offer in a manner adverse to the holders of Company Common Stock. Notwithstanding the foregoing, Sub may, without the consent of the Company, (i) extend the Offer beyond the scheduled expiration date (the initial scheduled expiration date being 20 business days following commencement of the Offer), if at the scheduled expiration date of the Offer any of the conditions to Sub's obligation to accept for payment, and pay for, shares of Company Common Stock shall not be satisfied or waived, until such time as such conditions are satisfied or waived, (ii) extend the Offer for any period required by any rule, regulation, interpretation or position of the Securities and Exchange Commission (the "SEC") or the staff thereof applicable to the Offer and (iii) extend the Offer for an

5 aggregate period of not more than 10 business days beyond the latest expiration date that would otherwise be permitted under clause (i) or (ii) of this sentence if there shall not have been tendered sufficient Shares so that the Merger could be effected as provided in the last sentence of Section 6.01(a). Subject to the terms and conditions of the Offer and this Agreement, Sub shall, and Parent shall cause Sub to, accept for payment, and pay for, all shares of Company Common Stock validly tendered and not withdrawn pursuant to the Offer that Sub becomes obligated to accept for payment, and pay for, pursuant to the Offer as soon as practicable after the expiration of the Offer. (b) On the date of commencement of the Offer, Parent and Sub shall file with the SEC a Tender Offer Statement on Schedule 14D-1 with respect to the Offer, which shall contain an offer to purchase and a related letter of transmittal and summary advertisement (such Schedule 14D-1 and the documents included therein pursuant to which the Offer will be made, together with any supplements or amendments thereto, the "Offer Documents"). Parent and Sub agree that the Offer Documents shall comply as to form in all material respects with the Securities Exchange Act of 1934, as amended (the "Exchange Act") and the rules and regulations promulgated thereunder and the Offer Documents on the date first published, sent or given to the Company's stockholders, shall not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading, except that no representation is made by Parent or Sub with respect to information supplied by the Company specifically for inclusion in the Offer Documents. Each of Parent, Sub and the Company agrees promptly to correct any information provided by it for use in the Offer Documents if and to the extent that such information shall have become false or misleading in any material respect, and each of Parent and Sub further agrees to take all steps necessary to amend or supplement the Offer Documents and to cause the Offer Documents as so amended or supplemented to be filed with the SEC and to be disseminated to the Company's stockholders, in each case as and to the extent required by applicable Federal securities laws. The Company and its counsel shall be given a reasonable opportunity to review and comment upon the Offer Documents and all amendments and supplements thereto prior to their filing with the SEC or dissemination to stockholders of the Company. Parent and Sub agree to provide the Company and its counsel any comments Parent, Sub or their counsel may receive from the SEC or its staff with respect to the Offer Documents promptly after the receipt of such comments. (c) Parent shall provide or cause to be provided to Sub on a timely basis the funds necessary to accept for payment, and pay for, any shares of Company Common Stock that Sub becomes obligated to accept for payment, and pay for, pursuant to the Offer. SECTION 1.02. Company Actions. (a) The Company hereby approves of and consents to the Offer and represents that the Board of Directors of the Company, at a meeting duly called and held, duly and unanimously adopted resolutions approving this Agreement, the Offer and the Merger, determining that the terms of the Offer and the Merger are fair to, and in the best interests of, the Company's stockholders and recommending that the Company's stockholders approve and adopt this Agreement, and accept the Offer and tender their shares pursuant to the Offer. The Company has been advised by each of its directors and by each executive officer who as of the date hereof is aware of the transactions contemplated hereby, that each such person intends to tender pursuant to the Offer all shares of Company Common Stock owned by such person. (b) On the date the Offer Documents are filed with the SEC, the Company shall file with the SEC a Solicitation/Recommendation Statement on Schedule 14D-9 with respect to the Offer (such Schedule 14D-9, as amended from time to time, the "Schedule 14D-9") containing the recommendation described in paragraph (a) and shall mail the Schedule 14D-9 to the stockholders of the Company. The Company agrees that the Schedule 14D-9 shall comply as to form in all material respects with the requirements of the Exchange Act and the rules and regulations promulgated thereunder and, on the date filed with the SEC and on the date first published, sent or given to the Company's stockholders, shall not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading, except that no representation is made by the Company with respect to information supplied by Parent or Sub specifically for inclusion in the Schedule 14D-9. Each of the Company, Parent and Sub agrees promptly to correct any information provided by it for use in the Schedule 14D-9 if and to the extent that such 2

6 information shall have become false or misleading in any material respect, and the Company further agrees to take all steps necessary to amend or supplement the Schedule 14D-9 and to cause the Schedule 14D-9 as so amended or supplemented to be filed with the SEC and disseminated to the Company's stockholders, in each case as and to the extent required by applicable Federal securities laws. Parent and its counsel shall be given a reasonable opportunity to review and comment upon the Schedule 14D-9 and all amendments and supplements thereto prior to their filing with the SEC or dissemination to stockholders of the Company. The Company agrees to provide Parent and its counsel in writing with any comments the Company or its counsel may receive from the SEC or its staff with respect to the Schedule 14D-9 promptly after the receipt of such comments. (c) In connection with the Offer, the Company shall cause its transfer agent to furnish Sub promptly with mailing labels containing the names and addresses of the record holders of Company Common Stock as of a recent date and of those persons becoming record holders subsequent to such date, together with copies of all lists of stockholders, security position listings and computer files and all other information in the Company's possession or control regarding the beneficial owners of Company Common Stock, and shall furnish to Sub such information and assistance (including updated lists of stockholders, security position listings and computer files) as Parent may reasonably request in communicating the Offer to the Company's stockholders. Subject to the requirements of applicable law, and except for such steps as are necessary to disseminate the Offer Documents and any other documents necessary to consummate the Merger, Parent and Sub and their agents shall hold in confidence the information contained in any such labels, listings and files, will use such information only in connection with the Offer and the Merger and, if this Agreement shall be terminated, will, upon request, deliver, and will use their best efforts to cause their agents to deliver, to the Company all copies of such information then in their possession or control. ARTICLE II The Merger SECTION 2.01. The Merger. Upon the terms and subject to the conditions set forth in this Agreement, and in accordance with the Delaware General Corporation Law (the "DGCL"), Sub shall be merged with and into the Company at the Effective Time (as hereinafter defined). Following the Merger, the separate corporate existence of Sub shall cease and the Company shall continue as the surviving corporation (the "Surviving Corporation") and shall succeed to and assume all the rights and obligations of the Company in accordance with the DGCL. Notwithstanding the foregoing, Parent may elect at any time prior to the Merger, instead of merging Sub into the Company as provided above, to merge the Company with and into Sub; provided, however, that the Company shall not be deemed to have breached any of its representations, warranties, covenants or agreements set forth in this Agreement solely by reason of such election. In such event, the parties agree to execute an appropriate amendment to this Agreement in order to reflect the foregoing and, where appropriate, to provide that the Sub shall be the Surviving Corporation and will continue under the name "Neutrogena Corporation". At the election of Parent, any direct or indirect wholly owned subsidiary (as defined in Section 9.03) of Parent may be substituted for Sub as a constituent corporation in the Merger. In such event, the parties agree to execute an appropriate amendment to this Agreement in order to reflect the foregoing. SECTION 2.02. Closing. The closing of the Merger will take place at 10:00 a.m. on a date to be specified by the Parent or Sub, which may be on, but shall be no later than the third business day after, the day on which there shall have been satisfaction or waiver of the conditions set forth in Article VII (the "Closing Date"), at the offices of Cravath, Swaine & Moore, Worldwide Plaza, 825 Eighth Avenue, New York, N.Y. 10019, unless another date or place is agreed to in writing by the parties hereto. SECTION 2.03. Effective Time. On the Closing Date, or as soon as practicable thereafter, the parties shall file a certificate of merger or other appropriate documents (in any such case, the "Certificate of Merger") executed in accordance with the relevant provisions of the DGCL and shall make all other filings or recordings required under the DGCL. The Merger shall become effective at such time as the Certificate of Merger is duly filed with the Delaware Secretary of State, or at such other time as Sub and the Company shall 3

7 agree should be specified in the Certificate of Merger (the time the Merger becomes effective being the "Effective Time"). SECTION 2.04. Effects of the Merger. The Merger shall have the effects set forth in Section 259 of the DGCL. SECTION 2.05. Certificate of Incorporation and By-laws. (a) The certificate of incorporation of the Company as in effect immediately prior to the Effective Time shall be amended as of the Effective Time so that Section 4 of such certificate of incorporation reads in its entirety as follows: "The total number of shares of all classes of stock which the corporation shall have the authority to issue is 100 shares of Common Stock, par value $1.00 per share" and, as so amended, such certificate of incorporation shall be the certificate of incorporation of the Surviving Corporation until thereafter changed or amended as provided therein or by applicable law. (b) The By-laws of the Company as in effect at the Effective Time shall be the by-laws of the Surviving Corporation, until thereafter changed or amended as provided therein or by applicable law. SECTION 2.06. Directors. The directors of Sub immediately prior to the Effective Time shall be the directors of the Surviving Corporation, until the earlier of their resignation or removal or until their respective successors are duly elected and qualified, as the case may be. SECTION 2.07. Officers. The officers of the Company immediately prior to the Effective Time shall become the officers of the Surviving Corporation, until the earlier of their resignation or removal or until their respective successors are duly elected and qualified, as the case may be. ARTICLE III Effect of the Merger on the Capital Stock of the Constituent Corporations; Exchange of Certificates SECTION 3.01. Effect on Capital Stock. As of the Effective Time, by virtue of the Merger and without any action on the part of the holder of any shares of Company Common Stock or any shares of capital stock of Sub: (a) Capital Stock of Sub. Each share of the capital stock of Sub issued and outstanding immediately prior to the Effective Time shall be converted into and become one fully paid and nonassessable share of Common Stock, par value $1.00 per share, of the Surviving Corporation. (b) Cancellation of Treasury Stock and Parent Owned Stock. Each share of Company Common Stock that is owned by the Company or by any subsidiary of the Company and each share of Company Common Stock that is owned by Parent, Sub or any other subsidiary of Parent shall automatically be canceled and retired and shall cease to exist, and no consideration shall be delivered in exchange therefor. (c) Conversion of Common Stock. Subject to Section 3.01(d), each issued and outstanding share of Company Common Stock (other than shares to be canceled in accordance with Section 3.01(b)) shall be converted into the right to receive from the Surviving Corporation in cash, without interest, the price paid for each share of Company Common Stock in the Offer (the "Merger Consideration"). As of the Effective Time, all such shares of Company Common Stock shall no longer be outstanding and shall automatically be canceled and retired and shall cease to exist, and each holder of a certificate representing any such shares of Company Common Stock shall cease to have any rights with respect thereto, except the right to receive the Merger Consideration, without interest. (d) Shares of Dissenting Stockholders. Notwithstanding anything in this Agreement to the contrary, any issued and outstanding shares of Company Common Stock held by a person (a "Dissenting Stockholder") who objects to the Merger and complies with all the provisions of Delaware law concerning the right of holders of Company Common Stock to dissent from the Merger and require appraisal of their shares of Company Common Stock ("Dissenting Shares") shall not be converted as described in Section 3.01(c) but shall become the right to receive such consideration as may be 4

8 determined to be due to such Dissenting Stockholder pursuant to the laws of the State of Delaware. If, after the Effective Time, such Dissenting Stockholder withdraws his demand for appraisal or fails to perfect or otherwise loses his right of appraisal, in any case pursuant to the DGCL, his shares of Company Common Stock shall be deemed to be converted as of the Effective Time into the right to receive the Merger Consideration, without interest. The Company shall give Parent (i) prompt notice of any demands for appraisal of shares of Company Common Stock received by the Company and (ii) the opportunity to participate in and direct all negotiations and proceedings with respect to any such demands. The Company shall not, without the prior written consent of Parent, make any payment with respect to, or settle, offer to settle or otherwise negotiate, any such demands. SECTION 3.02. Exchange of Certificates. (a) Paying Agent. Prior to the Effective Time, Parent shall designate a bank or trust company to act as paying agent in the Merger (the "Paying Agent"), and, from time to time on, prior to or after the Effective Time, Parent shall make available, or cause the Surviving Corporation to make available, to the Paying Agent immediately available funds in amounts and at the times necessary for the payment of the Merger Consideration upon surrender of certificates representing Company Common Stock as part of the Merger pursuant to Section 3.01, it being understood that any and all interest earned on funds made available to the Paying Agent pursuant to this Agreement shall be turned over to Parent. (b) Exchange Procedure. As soon as reasonably practicable after the Effective Time, the Paying Agent shall mail to each holder of record of a certificate or certificates which immediately prior to the Effective Time represented outstanding shares of Company Common Stock (the "Certificates") whose shares were converted into the right to receive the Merger Consideration pursuant to Section 3.01, (i) a letter of transmittal (which shall specify that delivery shall be effected, and risk of loss and title to the Certificates shall pass, only upon delivery of the Certificates to the Paying Agent and shall be in such form and have such other provisions as Parent may reasonably specify) and (ii) instructions for use in effecting the surrender of the Certificates in exchange for the Merger Consideration. Upon surrender of a Certificate for cancellation to the Paying Agent or to such other agent or agents as may be appointed by the Parent, together with such letter of transmittal, duly executed, and such other documents as may reasonably be required by the Paying Agent, the holder of such Certificate shall be entitled to receive in exchange therefor the amount of cash into which the shares of Company Common Stock theretofore represented by such Certificate shall have been converted pursuant to Section 3.01, and the Certificate so surrendered shall forthwith be cancelled. In the event of a transfer of ownership of Company Common Stock which is not registered in the transfer records of the Company, payment may be made to a person other than the person in whose name the Certificate so surrendered is registered, if such Certificate shall be properly endorsed or otherwise be in proper form for transfer and the person requesting such payment shall pay any transfer or other taxes required by reason of the payment to a person other than the registered holder of such Certificate or establish to the satisfaction of Parent that such tax has been paid or is not applicable. Until surrendered as contemplated by this Section 3.02, each Certificate shall be deemed at any time after the Effective Time to represent only the right to receive upon such surrender the amount of cash, without interest, into which the shares of Company Common Stock theretofore represented by such Certificate shall have been converted pursuant to Section 3.01. No interest will be paid or will accrue on the cash payable upon the surrender of any Certificate. (c) No Further Ownership Rights in Company Common Stock. All cash paid upon the surrender of Certificates in accordance with the terms of this Article III shall be deemed to have been paid in full satisfaction of all rights pertaining to the shares of Company Common Stock theretofore represented by such Certificates, and there shall be no further registration of transfers on the stock transfer books of the Surviving Corporation of the shares of Company Common Stock which were outstanding immediately prior to the Effective Time. If, after the Effective Time, Certificates are presented to the Surviving Corporation or the Paying Agent for any reason, they shall be cancelled and exchanged as provided in this Article III, except as otherwise provided by law. (d) No Liability. None of Parent, Sub, the Company or the Paying Agent shall be liable to any person in respect of any cash delivered to a public official pursuant to any applicable abandoned property, escheat or similar law. 5

9 ARTICLE IV Representations and Warranties SECTION 4.01. Representations and Warranties of the Company. Except as set forth on the Disclosure Schedule delivered by the Company to Parent prior to the execution of this Agreement (the "Company Disclosure Schedule"), the Company represents and warrants to Parent and Sub as follows: (a) Organization, Standing and Corporate Power. Each of the Company and each of its Significant Subsidiaries (as defined below) is a corporation or partnership duly organized, validly existing and in good standing under the laws of the jurisdiction in which it is organized and has the requisite corporate or partnership power and authority to carry on its business as now being conducted. Each of the Company and its subsidiaries is duly qualified or licensed to do business and is in good standing in each jurisdiction in which the nature of its business or the ownership or leasing of its properties makes such qualification or licensing necessary, other than in such jurisdictions where the failure to be so qualified or licensed (individually or in the aggregate) would not have a material adverse effect on the Company. The Company has delivered to Parent complete and correct copies of its certificate of incorporation and by-laws and the certificates of incorporation and by-laws or other organizational documents of its Significant Subsidiaries, in each case as amended to the date of this Agreement. For purposes of this Agreement, a "Significant Subsidiary" means any subsidiary of the Company that constitutes a significant subsidiary within the meaning of Rule 1-02 of Regulation S-X of the SEC. (b) Subsidiaries. All the outstanding shares of capital stock of each Significant Subsidiary are owned by the Company, by another wholly owned subsidiary of the Company or by the Company and another wholly owned subsidiary of the Company, free and clear of all pledges, claims, liens, charges, encumbrances and security interests of any kind or nature whatsoever (collectively, "Liens"). (c) Capital Structure. The authorized capital stock of the Company consists of 100,000,000 shares of Company Common Stock and 7,000,000 shares of preferred stock, par value $.001 per share ("Company Preferred Stock"). At the close of business on August 18, 1994, (i) 25,717,859 shares of Company Common Stock and no shares of Company Preferred Stock were issued and outstanding, (ii) 1,006,985 shares of Company Common Stock were held by the Company in its treasury, (iii) 2,331,352 shares of Company Common Stock were reserved for issuance upon exercise of outstanding Stock Options (as defined in Section 6.04) and (iv) no shares of Company Common Stock and 310,713 Shares of Company Preferred Stock were reserved for issuance in connection with the rights (the "Rights") to purchase shares of Company Common Stock issued pursuant to the Rights Agreement dated as of July 23, 1990 (as amended from time to time, the "Rights Agreement"), between the Company and U.S. Stock Transfer Corporation, as Rights Agent (the "Rights Agent"). Except as set forth above, as of the date of this Agreement, no shares of capital stock or other voting securities of the Company were issued, reserved for issuance or outstanding. There are no outstanding stock appreciation rights which were not granted in tandem with a related Stock Option. All outstanding shares of capital stock of the Company are, and all shares which may be issued will be, when issued, duly authorized, validly issued, fully paid and nonassessable and not subject to preemptive rights. There are no bonds, debentures, notes or other indebtedness of the Company having the right to vote (or convertible into, or exchangeable for, securities having the right to vote) on any matters on which stockholders of the Company may vote. Except as set forth above, as of the date of this Agreement, there are no outstanding securities, options, warrants, calls, rights, commitments, agreements, arrangements or undertakings of any kind to which the Company or any of its subsidiaries is a party or by which any of them is bound obligating the Company or any of its subsidiaries to issue, deliver or sell, or cause to be issued, delivered or sold, additional shares of capital stock or other voting securities of the Company or of any of its subsidiaries or obligating the Company or any of its subsidiaries to issue, grant, extend or enter into any such security, option, warrant, call, right, commitment, agreement, arrangement or undertaking. There are not any outstanding contractual obligations of the Company or any of its subsidiaries to repurchase, redeem or otherwise acquire any shares of capital stock of the Company or any of its subsidiaries. The 6

10 Company has delivered to Parent a complete and correct copy of the Rights Agreement as amended and supplemented to the date of this Agreement. (d) Authority; Noncontravention. The Company has the requisite corporate power and authority to enter into this Agreement and, subject to approval of this Agreement by the holders of a majority of the outstanding shares of Company Common Stock, to consummate the transactions contemplated by this Agreement. The execution and delivery of this Agreement by the Company and the consummation by the Company of the transactions contemplated by this Agreement have been duly authorized by all necessary corporate action on the part of the Company, subject, in the case of this Agreement, to approval of this Agreement by the holders of a majority of the outstanding shares of Company Common Stock. This Agreement has been duly executed and delivered by the Company and, assuming this Agreement constitutes the valid and binding obligation of Parent and Sub, constitutes the valid and binding obligation of the Company, enforceable against the Company in accordance with its terms. The execution and delivery of this Agreement does not, and the consummation of the transactions contemplated by this Agreement and compliance with the provisions of this Agreement will not, conflict with, or result in any violation of, or default (with or without notice or lapse of time, or both) under, or give rise to a right of termination, cancellation or acceleration of any obligation or to loss of a material benefit under, or result in the creation of any Lien upon any of the properties or assets of the Company or any of its subsidiaries under, (i) the certificate of incorporation or by-laws of the Company or the comparable charter or organizational documents of any of its subsidiaries, (ii) any loan or credit agreement, note, bond, mortgage, indenture, lease or other agreement, instrument, permit, concession, franchise or license applicable to the Company or any of its subsidiaries or their respective properties or assets or (iii) subject to the governmental filings and other matters referred to in the following sentence, any judgment, order, decree, statute, law, ordinance, rule or regulation applicable to the Company or any of its subsidiaries or their respective properties or assets, other than, in the case of clauses (ii) or (iii), any such conflicts, violations, defaults, rights or Liens that individually or in the aggregate would not (x) have a material adverse effect on the Company, (y) impair in any material respect the ability of the Company to perform its obligations under this Agreement or (z) prevent the consummation of any of the transactions contemplated by this Agreement. No consent, approval, order or authorization of, or registration, declaration or filing with, any Federal, state or local government or any court, administrative or regulatory agency or commission or other governmental authority or agency, domestic or foreign (a "Governmental Entity"), is required by the Company or any of its subsidiaries in connection with the execution and delivery of this Agreement by the Company or the consummation by the Company of the transactions contemplated by this Agreement, except for (i) the filing of a premerger notification and report form by the Company under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act"), (ii) the filing with the SEC of (x) the Schedule 14D-9, (y) a proxy statement relating to the approval by the Company's stockholders of this Agreement (as amended or supplemented from time to time, the "Proxy Statement") and (z) such reports under Section 13(a) of the Exchange Act as may be required in connection with this Agreement and the transactions contemplated by this Agreement, (iii) the filing of the Certificate of Merger with the Delaware Secretary of State and appropriate documents with the relevant authorities of other states in which the Company is qualified to do business (iv) the filing of appropriate documents with the relevant authorities of states other than Delaware in which the Company or any of its subsidiaries is authorized to do business, (v) in connection with any state or local tax which is attributable to the beneficial ownership of the Company's or its subsidiaries, real property, if any (collectively, the "Gains Taxes"), (vi) as may be required by any applicable state securities or "blue sky" laws or state takeover laws, (vii) such filings and consents as may be required under any environmental, health or safety law or regulation pertaining to any notification, disclosure or required approval triggered by the Merger or the transactions contemplated by this Agreement, (viii) such filings, consents, approvals, orders, registrations and declarations as may be required under the laws of any foreign country in which the Company or any of its subsidiaries conducts any business or owns any assets, and (ix) such other consents, approvals, orders, authorizations, registrations, declarations and filings the failure of which to be obtained or made would not, individually or in the aggregate (A) have a material adverse effect on the Company, (B) impair in any material respect the ability of the Company to 7

11 perform its obligations under this Agreement or (C) prevent or significantly delay the consummation of the transactions contemplated by this Agreement. (e) SEC Documents; Financial Statements. The Company has filed all required reports, forms, and other documents with the SEC since November 1, 1993 (the "SEC Documents"). As of their respective dates, (i) the SEC Documents complied in all material respects with the requirements of the Securities Act of 1933 (the "Securities Act"), or the Exchange Act, as the case may be, and the rules and regulations of the SEC promulgated thereunder applicable to such SEC Documents, and (ii) none of the SEC Documents contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. Except to the extent that information contained in any SEC Document has been revised or superseded by a later-filed SEC Document filed and publicly available prior to the date of this Agreement, none of the SEC Documents contains any untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. The financial statements of the Company included in the SEC Documents comply as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto, have been prepared in accordance with generally accepted accounting principles (except, in the case of unaudited statements, as permitted by Form 10-Q of the SEC) applied on a consistent basis during the periods involved (except as may be indicated in the notes thereto) and fairly present the consolidated financial position of the Company and its consolidated subsidiaries as of the dates thereof and the consolidated results of their operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments). Except as set forth in the SEC Documents filed and publicly available prior to the date of this Agreement, and except for liabilities and obligations incurred in the ordinary course of business consistent with past practice since the date of the most recent consolidated balance sheet included in the SEC Documents filed and publicly available prior to the date of this Agreement and liabilities and obligations which would not, individually or in the aggregate, have a material adverse effect on the Company, neither the Company nor any of its subsidiaries has any liabilities or obligations of any nature (whether accrued, absolute, contingent or otherwise) required by generally accepted accounting principles to be set forth on a consolidated balance sheet of the Company and its consolidated subsidiaries or in the notes thereto. (f) Information Supplied. None of the information supplied or to be supplied by the Company for inclusion or incorporation by reference in (i) the Offer Documents, (ii) the Schedule 14D-9 or (iii) the information to be filed by the Company in connection with the Offer pursuant to Rule 14f-1 promulgated under the Exchange Act (the "Information Statement"), will, at the respective times the Offer Documents, the Schedule 14D-9 and the Information Statement are filed with the SEC or first published, sent or given to the Company's stockholders, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading. The Schedule 14D-9 and the Information Statement, will comply as to form in all material respects with the requirements of the Exchange Act and the rules and regulations thereunder, except that no representation or warranty is made by the Company with respect to statements made or incorporated by reference therein based on information supplied by Parent or Sub specifically for inclusion or incorporation by reference therein. (g) Absence of Certain Changes or Events. Except as disclosed in the SEC Documents filed and publicly available prior to the date of this Agreement, since April 30, 1994, the Company has conducted its business only in the ordinary course, and there has not been (i) any material adverse change in the Company, (ii) any split, combination or reclassification of any of its capital stock or any issuance or the authorization of any issuance of any other securities in respect of, in lieu of or in substitution for shares of its capital stock, (iii) (x) any granting by the Company or any of its subsidiaries to any officer of the Company or any of its subsidiaries of any increase in compensation, except in the ordinary course of business consistent with prior practice, as disclosed in the Company Disclosure Schedule or as was required under employment agreements in effect as of the date of the most recent audited financial 8

12 statements included in the SEC Documents filed and publicly available prior to the date of this Agreement, (y) any granting by the Company or any of its subsidiaries to any such officer of any increase in severance or termination pay, except as was required under employment, severance or termination agreements in effect as of the date of the most recent audited financial statements included in the SEC Documents filed and publicly available prior to the date of this Agreement or as disclosed on the Company Disclosure Schedule or (z) any entry by the Company or any of its subsidiaries into any employment, severance or termination agreement with any such officer, (iv) any damage, destruction or loss, whether or not covered by insurance, that has or reasonably could be expected to have a material adverse effect on the Company or (v) any change in accounting methods, principles or practices by the Company materially affecting its assets, liabilities or business, except insofar as may have been required by a change in generally accepted accounting principles. (h) Litigation. Except as disclosed in the SEC Documents filed and publicly available prior to the date of this Agreement, there is no suit, action or proceeding pending or, to the knowledge of the Company, threatened against the Company or any of its subsidiaries that, individually or in the aggregate, could reasonably be expected to have a material adverse effect on the Company; it being understood that this representation shall not include any litigation of the nature described in clauses (i)-(iv) of paragraph (a) of Exhibit A. (i) Absence of Changes in Benefit Plans. Except as disclosed in Schedule 4.01(i), Schedule 4.01(j) or in the SEC Documents filed and publicly available prior to the date of this Agreement or as required by applicable law, since November 1, 1993, there has not been any adoption or amendment in any material respect by the Company or any of its subsidiaries of any collective bargaining agreement or any Benefit Plan (as defined in Section 4.01(j) hereof). Except as disclosed in Schedule 4.01(i), Schedule 4.01(j) or the SEC Documents, there exist no employment, consulting, severance, termination or indemnification agreements, arrangements or understandings between the Company or any of its subsidiaries and any current or former officer or director of the Company or any of its subsidiaries. (j) ERISA Compliance. (i) Schedules 4.01(i) and 4.01(j) contain a list of all "employee pension benefit plans" (as defined in Section 3(2) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA")) (sometimes referred to herein as "Pension Plans"), "employee welfare benefit plans" (as defined in Section 3(1) of ERISA) and all other plans, arrangements or policies relating to stock options, stock purchases, compensation, deferred compensation, severance, fringe benefits and other employee benefits, in each case maintained, or contributed to, or required to be maintained or contributed to, by the Company, any of its subsidiaries or any other person or entity that, together with the Company, is treated as a single employer under Section 414(b), (c), (m) or (o) of the Code (each a "Commonly Controlled Entity") for the benefit of any current or former employees, officers or directors (or any beneficiaries thereof) of the Company or any of its subsidiaries (collectively, "Benefit Plans"). (ii) Each Benefit Plan has been administered in all material respects in accordance with its terms. The Company and all the Benefit Plans are all in compliance in all material respects with applicable provisions of ERISA and the Code and all other applicable laws. (iii) Neither the Company nor any Commonly Controlled Entity has suffered or otherwise caused a "complete withdrawal" or a "partial withdrawal" (as such terms are defined in Section 4203 and Section 4205, respectively, of ERISA) with respect to any "multiemployer plan" (within the meaning of Section 4001(a)(3) of ERISA) that could lead to the imposition of any withdrawal liability under Section 4201 of ERISA; and no action has been taken that alone or with the passage of time could result in either a partial or complete withdrawal by any Commonly Controlled Entity in respect of any such multiemployer plan. (iv) To the knowledge of the Company and its subsidiaries, there are no understandings, agreements or undertakings that would prevent any Benefit Plan that is an employee welfare benefit plan (including any such Benefit Plan covering retirees) from being amended or terminated without material liability to the Company or any of its subsidiaries on or at any time after the consummation of the Offer. 9

13 (v) No Commonly Controlled Entity has incurred any material liability, and no event has occurred that would result in any material liability, to a Pension Plan (other than for contributions not yet due) or to the Pension Benefit Guaranty Corporation (other than for payment of premiums not yet due) that has not been fully paid as of the date hereof. (k) Taxes. (i) Each of the Company and each of its subsidiaries has filed all Federal income tax returns and all other material tax returns and reports required to be filed by it. All such returns are complete and correct in all material respects. Each of the Company and each of its subsidiaries has paid (or the Company has paid on its subsidiaries' behalf) all taxes shown as due on such returns and all material taxes for which no return was required to be filed, and the most recent financial statements contained in the SEC Documents reflect an adequate reserve for all taxes payable by the Company and its subsidiaries for all taxable periods and portions thereof through the date of such financial statements. (ii) No material deficiencies for any taxes have been proposed, asserted or assessed against the Company or any of its subsidiaries, and no requests for waivers of the time to assess any such taxes are pending. The Federal income tax returns of the Company and each of its subsidiaries consolidated in such returns have been examined by and settled with the Internal Revenue Service for all years through 1991. (iii) As used in this Agreement, "taxes" shall include all Federal, state, local and foreign income, property, sales, excise and other taxes, tariffs or governmental charges of any nature whatsoever. (l) No Excess Parachute Payments. Sections 4.01(i), 4.01(j) and 4.01(l) of the Company Disclosure Schedule set forth all written contracts, arrangements or understandings (excluding Stock Options or SARs (as defined in Section 6.04)) pursuant to which any person may receive any amount or entitlement from the Company or the Surviving Corporation or any of their respective subsidiaries (including cash or property or the vesting of property) that may be characterized as an "excess parachute payment" (as such term is defined in Section 280G(B)(1) of the Code) (any such amount being an "Excess Parachute Payment") as a result of any of the transactions contemplated by this Agreement. To the best knowledge of the Company, no person is entitled to receive any additional payment from the Company, the Surviving Corporation, their respective subsidiaries or any other person (a "Parachute Gross-Up Payment") in the event that the 20 per cent parachute excise tax of Section 4999(a) of the Code is imposed on such person. The Board of Directors of the Company has not during the six months prior to the date of this Agreement granted to any officer, director or employee of the Company any right to receive any Parachute Gross-Up Payment. (m) Compliance with Applicable Laws. (i) Each of the Company and its subsidiaries has in effect all Federal, state, local and foreign governmental approvals, authorizations, certificates, filings, franchises, licenses, notices, permits and rights, including all authorizations under Environmental Laws ("Permits"), necessary for it to own, lease or operate its properties and assets and to carry on its business as now conducted, and there has occurred no default under any such Permit, except for the lack of Permits and for defaults under Permits which lack or default individually or in the aggregate would not have a material adverse effect on the Company. Except as disclosed in the SEC Documents filed and publicly available prior to the date of this Agreement, the Company and its subsidiaries are in compliance with all applicable statutes, laws, ordinances, rules, orders and regulations of any Governmental Entity, except for possible noncompliance which individually or in the aggregate would not have a material adverse effect on the Company. (ii) To the knowledge of the Company, each of the Company and its subsidiaries is, and has been, and each of the Company's former subsidiaries, while a subsidiary of the Company, was in compliance with all applicable Environmental Laws, except for possible noncompliance which individually or in the aggregate would not have a material adverse effect on the Company. The term "Environmental Laws" means any Federal, state, local or foreign statute, ordinance, rule, regulation, policy, permit, consent, approval, license, judgment, order, decree, injunction or other authorization, relating to: (A) Releases (as defined in 42 U.S.C. sec. 9601(22)) or threatened Releases of Hazardous Material (as hereinafter defined) into the environment or (B) the generation, treatment, storage, disposal, use, handling, manufacturing, transportation or shipment of Hazardous Material. 10

14 (iii) During the period of ownership or operation by the Company and its subsidiaries of any of their respective current or previously owned or leased properties, there have been no Releases of Hazardous Material in, on, under or affecting such properties or, to the knowledge of the Company, any surrounding site, and none of the Company or its subsidiaries have disposed of any Hazardous Material or any other substance in a manner that has led, or could reasonably be anticipated to lead to a Release except in each case for those which individually or in the aggregate are not reasonably likely to have a material adverse effect on the Company. Prior to the period of ownership or operation by the Company and its subsidiaries of any of their respective current or previously owned or leased properties, to the knowledge of the Company, no Hazardous Material was generated, treated, stored, disposed of, used, handled or manufactured at, or transported shipped or disposed of from, such current or previously owned or leased properties, and there were no Releases of Hazardous Material in, on, under or affecting any such property or any surrounding site, except in each case for those which individually or in the aggregate are not reasonably likely to have a material adverse effect on the Company. The term "Hazardous Material " means (1) hazardous substances (as defined in 42 U.S.C. sec. 9601(14)), (2) petroleum, including crude oil and any fractions thereof, (3) natural gas, synthetic gas and any mixtures thereof, (4) asbestos and/or asbestos-containing material, (5) PCBs, or materials containing PCBs in excess of 50 ppm, and any material regulated as a medical waste or infectious waste. (n) State Takeover Statutes. The Board of Directors of the Company has approved the Offer, the Merger and this Agreement and such approval is sufficient to render inapplicable to the Offer, the Merger, this Agreement and the Stockholder Agreement and the transactions contemplated by this Agreement and the Stockholder Agreement, the provisions of Section 203 of the DGCL. (o) Brokers; Schedule of Fees and Expenses. No broker, investment banker, financial advisor or other person, other than Lehman Brothers Inc., the fees and expenses of which will be paid by the Company, is entitled to any broker's, finder's, financial advisor's or other similar fee or commission in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of the Company. The estimated fees and expenses incurred and to be incurred by the Company in connection with this Agreement and the transactions contemplated by this Agreement (including the fees of the Company's legal counsel) are set forth in the Company Disclosure Schedule. The Company has provided Parent true and correct copies of all agreements between Company and Lehman Brothers Inc. (p) Opinion of Financial Advisor. The Company has received the opinion of Lehman Brothers Inc., to the effect that, as of the date of this Agreement, the consideration to be received in the Offer and the Merger by the Company's stockholders is fair to the Company's stockholders from a financial point of view, and a complete and correct signed copy of such opinion has been, or promptly upon receipt thereof will be, delivered to Parent. (q) Voting Requirements. The affirmative vote of the holders of a majority of the outstanding shares of Company Common Stock approving this Agreement is the only vote of the holders of any class or series of the Company's capital stock necessary to approve this agreement and the transactions contemplated by this Agreement. (r) Rights Agreement. The Company and the Board of Directors of the Company have taken all necessary action to (i) render the Rights Agreement inapplicable with respect to the Offer and the Merger and the other transactions contemplated by this Agreement and the Stockholder Agreement and (ii) ensure that (y) neither Parent nor Sub nor any of their Affiliates or Associates is considered to be an Adverse Person and (z) a Distribution Date (as defined in the Rights Agreement) does not occur by reason of the announcement or consummation of the Offer, the Merger or the consummation of any of the other transactions contemplated by this Agreement or the Stockholder Agreement. (s) Trademarks, etc. The Company Disclosure Schedule sets forth a true and complete list of all material patents, trademarks (registered or unregistered), trade names, service marks and copyrights and applications therefor owned, used or filed by or licensed to the Company and its subsidiaries ("Intellectual Property Rights") and, with respect to registered trademarks, contains a list of all jurisdictions in 11

15 which such trademarks are registered or applied for and all registration and application numbers. The Company or its subsidiaries owns or has the right to use, without payment to any other party, the patents, trademarks (registered or unregistered), trade names, service marks, copyrights and applications therefor referred to in such Schedule, and the consummation of the transactions contemplated hereby will not alter or impair such rights in any material respect. To the best knowledge of the Company, no claims are pending by any person with respect to the ownership, validity, enforceability or use of any such Intellectual Property Rights challenging or questioning the validity or effectiveness of any of the foregoing which claims could reasonably be expected to have a material adverse effect on the Company. (t) Distribution Agreements. The Company has made available to Parent and its representatives true and correct copies of all contracts, agreements, arrangements or understandings to which the Company or any of its subsidiaries is a party, except those that are immaterial in any one country or jurisdiction, relating to the distribution of its products or products licensed by the Company or its subsidiaries in any foreign country or jurisdiction ("Foreign Distribution Agreements"). SECTION 4.02. Representations and Warranties of Parent and Sub. Parent and Sub represent and warrant to the Company as follows: (a) Organization, Standing and Corporate Power. Each of Parent and each of its Significant Subsidiaries and Sub is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction in which each is incorporated and has the requisite corporate power and authority to carry on its business as now being conducted. Each of Parent and Sub is duly qualified or licensed to do business and is in good standing in each jurisdiction in which the nature of its business or the ownership or leasing of its properties makes such qualification or licensing necessary, other than in such jurisdictions where the failure to be so qualified or licensed (individually or in the aggregate) would not have a material adverse effect on Parent. Parent has delivered to the Company complete and correct copies of its certificate of incorporation and by-laws and the certificate of incorporation and by-laws of Sub, in each case as amended to the date of this Agreement. (b) Authority; Noncontravention. Parent and Sub have all requisite corporate power and authority to enter into this Agreement and, in the case of Parent, the Stockholder Agreement, and to consummate the transactions contemplated by this Agreement and, in the case of Parent, the Stockholder Agreement. The execution and delivery of this Agreement and, in the case of Parent, the Stockholder Agreement, and the consummation of the transactions contemplated by this Agreement and, in the case of Parent, the Stockholder Agreement have been duly authorized by all necessary corporate action on the part of Parent and Sub, as applicable. This Agreement has been duly executed and delivered by Parent and Sub and the Stockholder Agreement has been duly executed and delivered by Parent and, assuming this Agreement constitutes the valid and binding obligation of the Company, each constitutes a valid and binding obligation of each such party, enforceable against each such party in accordance with its terms. The execution and delivery of this Agreement and the Stockholder Agreement do not, and the consummation of the transactions contemplated by this Agreement and the Stockholder Agreement and compliance with the provisions of this Agreement and the Stockholder Agreement will not, conflict with, or result in any violation of, or default (with or without notice or lapse of time, or both) under, or give rise to a right of termination, cancellation or acceleration of any obligation or to loss of a material benefit under, or result in the creation of any Lien upon any of the properties or assets of Parent under, (i) the certificate of incorporation or by-laws of Parent or Sub, (ii) any loan or credit agreement, note, bond, mortgage, indenture, lease or other agreement, instrument, permit, concession, franchise or license applicable to Parent or (iii) subject to the governmental filings and other matters referred to in the following sentence, any judgment, order, decree, statute, law, ordinance, rule or regulation applicable to Parent or Sub or their respective properties or assets, other than, in the case of clauses (ii) or (iii), any such conflicts, violations, defaults, rights or Liens that individually or in the aggregate would not (x) have a material adverse effect on Parent, (y) impair in any material respect the ability of Parent and Sub to perform their respective obligations under this Agreement or the Stockholder Agreement or (z) prevent the consummation of any of the transactions contemplated by this Agreement or the Stockholder Agreement. No consent, approval, order or authorization of, or registration, declaration or filing with, any Governmental 12

16 Entity is required by Parent or Sub in connection with the execution and delivery of this Agreement and the Stockholder Agreement or the consummation by Parent or Sub, as the case may be, of any of the transactions contemplated by this Agreement and, in the case of the Parent, the Stockholder Agreement, except for (i) the filing of a premerger notification and report form under the HSR Act, (ii) the filing with the SEC of (x) the Offer Documents and (y) such reports under Sections 13(a), 13(d) and 16 of the Exchange Act as may be required in connection with this Agreement and the Stockholder Agreement and the transactions contemplated by this Agreement and the Stockholder Agreement, (iii) the filing of the Certificate of Merger with the Delaware Secretary of State and appropriate documents with the relevant authorities of other states in which the Company is qualified to do business, and (iv) such other consents, approvals, orders, authorizations, registrations, declarations and filings the failure of which to be obtained or made would not, individually or in the aggregate (A) have a material adverse effect on Parent, (B) impair the ability of Parent and Sub to perform their respective obligations under this Agreement or (C) prevent or significantly delay the consummation of any transactions contemplated by this Agreement. Neither Parent nor any of its affiliates or associates (as each such term is defined in Section 203 of the DGCL) was prior to the execution and delivery of the Stockholder Agreement, an Interested Stockholder (as such term is defined in Section 203 of the DGCL) of the Company. (c) Information Supplied. None of the information supplied or to be supplied by Parent or Sub for inclusion or incorporation by reference in the Offer Documents, the Schedule 14D-9, the Information Statement or the Proxy Statement will, in the case of the Offer Documents, the Schedule 14D-9 and the Information Statement, at the respective times the Offer Documents, the Schedule 14D-9 and the Information Statement are filed with the SEC or first published, sent or given to the Company's stockholders, or, in the case of the Proxy Statement, at the date the Proxy Statement is first mailed to the Company's stockholders or at the time of the meeting of the Company's stockholders held to vote on approval and adoption of this Agreement, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading. The Offer Documents will comply as to form in all material respects with the requirements of the Exchange Act and the rules and regulations promulgated thereunder, except that no representation or warranty is made by Parent or Sub with respect to statements made or incorporated by reference therein based on information supplied by the Company specifically for inclusion or incorporation by reference therein. (d) Brokers. No broker, investment banker, financial advisor or other person, other than J.P. Morgan & Co., Inc., the fees and expenses of which will be paid by Parent, is entitled to any broker's, finder's, financial advisor's or other similar fee or commission in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of Parent or Sub. (e) Financing. Parent has sufficient funds available to purchase all the outstanding shares on a fully diluted basis of Company Common Stock pursuant to the Offer and the Merger and to pay all fees and expenses related to the transactions contemplated by this Agreement. (f) Interim Operations of Sub. Sub was formed solely for the purpose of engaging in the transactions contemplated hereby and has not engaged in any business activities or conducted any operations other than in connection with the transactions contemplated hereby. ARTICLE V Covenants Relating to Conduct of Business SECTION 5.01. (a) Conduct of Business. During the term of this Agreement, the Company shall and shall cause its subsidiaries to carry on their respective businesses in the ordinary course and use all reasonable efforts to preserve intact their current business organizations, keep available the services of their current officers and employees and preserve their relationships with customers, suppliers, licensors, licensees, distributors and others having business dealings with them to the end that their goodwill and ongoing businesses shall be unimpaired in all material respects at the Effective Time. Without limiting the generality 13

17 of the foregoing, the Company shall not, and shall not permit any of its subsidiaries to (without Parent's prior written consent, which consent may be withheld in Parent's sole and absolute discretion): (i) (A) declare, set aside or pay any dividends on, or make any other distributions in respect of, any of its capital stock, other than dividends and distributions by any direct or indirect wholly owned subsidiary of the Company to its parent, (B) split, combine or reclassify any of its capital stock or issue or authorize the issuance of any other securities in respect of, in lieu of or in substitution for shares of its capital stock or (C) except as shall be required under any employee stock-based benefit plan, purchase, redeem or otherwise acquire any shares of capital stock of the Company or any of its subsidiaries or any other securities thereof or any rights, warrants or options to acquire any such shares or other securities; (ii) issue, deliver, sell, pledge or otherwise encumber any shares of its capital stock, any other voting securities or any securities convertible into, or any rights, warrants or options to acquire, any such shares, voting securities or convertible securities (other than the issuance of Company Common Stock upon the exercise of Employee Stock Options outstanding on the date of this Agreement in accordance with their present terms); (iii) amend its Certificate of Incorporation, By-laws or other comparable charter or organizational documents; (iv) acquire or agree to acquire (A) by merging or consolidating with, or by purchasing a substantial portion of the assets of, or by any other manner, any business or any corporation, partnership, joint venture, association or other business organization or division thereof or (B) any assets that are material, individually or in the aggregate, to the Company and its subsidiaries taken as a whole, except purchases of inventory in the ordinary course of business consistent with past practice; (v) sell, lease, license, mortgage or otherwise encumber or subject to any Lien or otherwise dispose of any of its properties or assets, except sales of inventory in the ordinary course of business consistent with past practice; (vi) (A) incur any indebtedness for borrowed money or guarantee any such indebtedness of another person, issue or sell any debt securities or warrants or other rights to acquire any debt securities of the Company or any of its subsidiaries, guarantee any debt securities of another person, enter into any "keep well" or other agreement to maintain any financial statement condition of another person or enter into any arrangement having the economic effect of any of the foregoing or (B) make any loans, advances or capital contributions to, or investments in, any other person, other than to the Company or any direct or indirect wholly owned subsidiary of the Company and other than advances to employees in the ordinary course of business consistent with past practice; (vii) make any tax election or settle or compromise any material income tax liability; (viii) pay, discharge, settle or satisfy any material claims, liabilities or obligations (absolute, accrued, asserted or unasserted, contingent or otherwise), other than the payment, discharge, settlement or satisfaction, in the ordinary course of business consistent with past practice or in accordance with their terms, of liabilities reflected or reserved against in, or contemplated by, the most recent consolidated financial statements (or the notes thereto) of the Company included in the SEC Documents filed and publicly available prior to the date of this Agreement or incurred in the ordinary course of business consistent with past practice, or waive the benefits of, or agree to modify in any manner, any confidentiality, standstill or similar agreement to which the Company or any of its subsidiaries is a party; (ix) except in the ordinary course of business, modify, amend or terminate any material contract or agreement to which the Company or any subsidiary is a party or waive, release or assign any material rights or claims; or (x) authorize any of, or commit or agree to take any of, the foregoing actions. (b) Other Actions. The Company shall not, and shall not permit any of its subsidiaries to, take any action that would result in (i) any of its representations and warranties set forth in this Agreement that are 14

18 qualified as to materiality becoming untrue, (ii) any of such representations and warranties that are not so qualified becoming untrue in any material respect or (iii) any of the conditions to the Offer set forth in Exhibit A not being satisfied (subject to the Company's right to take action specifically permitted by Section 5.02). SECTION 5.02. No Solicitation. (a) The Company shall not, nor shall it permit any of its subsidiaries to, nor shall it authorize or permit any officer, director or employee of, or any investment banker, attorney or other advisor or representative of, the Company or any of its subsidiaries to, (i) solicit or initiate, or encourage the submission of, any takeover proposal or (ii) participate in any discussions or negotiations regarding, or furnish to any person any information with respect to, or take any other action to facilitate any inquiries or the making of any proposal that constitutes, or may reasonably be expected to lead to, any takeover proposal; provided, however, that, prior to the acceptance for payment of shares of Company Common Stock pursuant to the Offer, if in the opinion of the Board of Directors, after consultation with counsel, such failure to act would be inconsistent with its fiduciary duties to the Company's stockholders under applicable law, the Company may, in response to an unsolicited takeover proposal, and subject to compliance with Section 5.02(c), (A) furnish information with respect to the Company to any person pursuant to a confidentiality agreement and (B) participate in negotiations regarding such takeover proposal. Without limiting the foregoing, it is understood that any violation of the restrictions set forth in the preceding sentence by any executive officer of the Company or any of its subsidiaries or any investment banker, attorney or other advisor or representative of the Company or any of its subsidiaries, whether or not such person is purporting to act on behalf of the Company or any of its subsidiaries or otherwise, shall be deemed to be a breach of this Section 5.02(a) by the Company. For purposes of this Agreement, "takeover proposal" means any inquiry, proposal or offer from any person relating to any direct or indirect acquisition or purchase of a substantial amount of assets of the Company or any of its subsidiaries (other than investors in the ordinary course of business) or of over 20% of any class of equity securities of the Company or any of its subsidiaries or any tender offer or exchange offer that if consummated would result in any person beneficially owning 20% or more of any class of equity securities of the Company or any of its subsidiaries, or any merger, consolidation, business combination, sale of substantially all assets, recapitalization, liquidation, dissolution or similar transaction involving the Company or any of its subsidiaries other than the transactions contemplated by this Agreement, or any other transaction the consummation of which would reasonably be expected to impede, interfere with, prevent or materially delay the Offer or the Merger or which would reasonably be expected to dilute materially the benefits to Parent of the transactions contemplated hereby. (b) Except as set forth herein, neither the Board of Directors of the Company nor any committee thereof shall (i) withdraw or modify, or propose to withdraw or modify, in a manner adverse to Parent or Sub, the approval or recommendation by such Board of Directors or any such committee of the Offer, this Agreement or the Merger, (ii) approve or recommend, or propose to approve or recommend, any takeover proposal or (iii) enter into any agreement with respect to any takeover proposal. Notwithstanding the foregoing, in the event prior to the time of acceptance for payment of shares of Company Common Stock in the Offer if in the opinion of the Board of Directors, after consultation with counsel, failure to do so would be inconsistent with its fiduciary duties to the Company's stockholders under applicable law, the Board of Directors may (subject to the terms of this and the following sentences) withdraw or modify its approval or recommendation of the Offer, this Agreement or the Merger, approve or recommend a superior proposal, or enter into an agreement with respect to a superior proposal, in each case at any time after the second business day following Parent's receipt of written notice (a "Notice of Superior Proposal") advising Parent that the Board of Directors has received a superior proposal, specifying the material terms and conditions of such superior proposal and identifying the person making such superior proposal; provided that the Company shall not enter into an agreement with respect to a superior proposal unless the Company shall have furnished Parent with written notice no later than 12:00 noon one day in advance of any date that it intends to enter into such agreement. In addition, if the Company proposes to enter into an agreement with respect to any takeover proposal, it shall concurrently with entering into such agreement pay, or cause to be paid, to Parent the Expenses (as defined in Section 6.07(b)) and the Termination Fee (as defined in Section 6.07(b)). For purposes of this Agreement, a "superior proposal" means any bona fide takeover proposal to acquire, directly or indirectly, for consideration consisting of cash and/or securities, more than 50% of the shares of Company Common Stock then 15

19 outstanding or all or substantially all the assets of the Company and otherwise on terms which the Board of Directors of the Company determines in its good faith judgment (based on the advice of a financial advisor of nationally recognized reputation) to be more favorable to the Company's stockholders than the Offer and the Merger. (c) In addition to the obligations of the Company set forth in paragraph (b), the Company shall immediately advise Parent orally and in writing of any request for information or of any takeover proposal, or any inquiry with respect to or which could lead to any takeover proposal, the material terms and conditions of such request, takeover proposal or inquiry, and the identity of the person making any such takeover proposal or inquiry. The Company will keep Parent fully informed of the status and details (including amendments or proposed amendments) of any such request, takeover proposal or inquiry. (d) Nothing contained in this Section 5.02 shall prohibit the Company from taking and disclosing to its stockholders a position contemplated by Rule 14e-2(a) promulgated under the Exchange Act or from making any disclosure to the Company's stockholders if, in the opinion of the Board of Directors of the Company, after consultation with counsel, failure to so disclose would be inconsistent with its fiduciary duties to the Company's stockholders under applicable law; provided that the Company does not, except as permitted by Section 5.02(b) withdraw or modify, or propose to withdraw or modify, its position with respect to the Offer or the Merger or approve or recommend, or propose to approve or recommend, a takeover proposal. ARTICLE VI Additional Agreements SECTION 6.01. Stockholder Meeting; Preparation of the Proxy Statement. (a) The Company will, as soon as practicable following the acceptance for payment of, and payment for, shares of Company Common Stock by Sub pursuant to the Offer, duly call, give notice of, convene and hold a meeting of the holders of the Company Common Stock (the "Stockholders Meeting") if such meeting is required by applicable law for the purpose of approving this Agreement and the transactions contemplated by this Agreement. At the Stockholders Meeting, Parent shall cause all of the shares of Company Common Stock then actually or beneficially owned by Parent, Sub or any of their subsidiaries to be voted in favor of the Merger. Notwithstanding the foregoing, if Sub or any other subsidiary of Parent shall acquire at least 90% of the outstanding shares of Company Common Stock, the parties shall, at the request of Parent, take all necessary and appropriate action to cause the Merger to become effective as soon as practicable after the expiration of the Offer without a Stockholders Meeting in accordance with Section 253 of the DGCL. (b) The Company will, at Parent's request, as soon as practicable following the expiration of the Offer, prepare and file a preliminary Proxy Statement with the SEC and will use its best efforts to respond to any comments of the SEC or its staff and to cause the Proxy Statement to be mailed to the Company's stockholders as promptly as practicable after responding to all such comments to the satisfaction of the staff. The Company will notify Parent promptly of the receipt of any comments from the SEC or its staff and of any request by the SEC or its staff for amendments or supplements to the Proxy Statement or for additional information and will supply Parent with copies of all correspondence between the Company or any of its representatives, on the one hand, and the SEC or its staff, on the other hand, with respect to the Proxy Statement or the Merger. If at any time prior to the Stockholders Meeting there shall occur any event that should be set forth in an amendment or supplement to the Proxy Statement, the Company will promptly prepare and mail to its stockholders such an amendment or supplement. The Company will not mail any Proxy Statement, or any amendment or supplement thereto, to which Parent reasonably objects. SECTION 6.02. Access to Information; Confidentiality. The Company shall, and shall cause each of its subsidiaries to, afford to Parent, and to Parent's officers, employees, accountants, counsel, financial advisers and other representatives, reasonable access during normal business hours during the period prior to the Effective Time to all their respective properties, books, contracts, commitments, personnel and records and, during such period, the Company shall, and shall cause each of its subsidiaries to, furnish promptly to Parent (a) a copy of each report, schedule, registration statement and other document filed by it during such period 16

20 pursuant to the requirements of Federal or state securities laws and (b) all other information concerning its business, properties and personnel as Parent may reasonably request. Except as required by law, Parent will hold, and will cause its officers, employees, accountants, counsel, financial advisers and other representatives and affiliates to hold, any confidential information in accordance with the Confidentiality Agreement dated as of August 15, 1994, between Parent and the Company (the "Confidentiality Agreement"). SECTION 6.03. Reasonable Efforts; Notification. (a) Upon the terms and subject to the conditions set forth in this Agreement, each of the parties agrees to use all reasonable efforts to take, or cause to be taken, all actions, and to do, or cause to be done, and to assist and cooperate with the other parties in doing, all things necessary, proper or advisable to consummate and make effective, in the most expeditious manner practicable, the Offer and the Merger, and the other transactions contemplated by this Agreement, including (i) the obtaining of all necessary actions or nonactions, waivers, consents and approvals from Governmental Entities and the making of all necessary registrations and filings (including filings with Governmental Entities, if any) and the taking of all reasonable steps as may be necessary to obtain an approval or waiver from, or to avoid an action or proceeding by, any Governmental Entity, (ii) the obtaining of all necessary consents, approvals or waivers from third parties, (iii) the defending of any lawsuits or other legal proceedings, whether judicial or administrative, challenging this Agreement or the consummation of any of the transactions contemplated by this Agreement, including seeking to have any stay or temporary restraining order entered by any court or other Governmental Entity vacated or reversed and (iv) the execution and delivery of any additional instruments necessary to consummate the transactions contemplated by, and to fully carry out the purposes of, this Agreement and the Stockholder Agreement. In connection with and without limiting the foregoing, the Company and its Board of Directors shall (i) take all action necessary to ensure that no state takeover statute or similar statute or regulation is or becomes applicable to the Offer, the Merger, this Agreement, the Stockholder Agreement or any of the other transactions contemplated by this Agreement or the Stockholder Agreement and (ii) if any state takeover statute or similar statute or regulation becomes applicable to the Offer, the Merger, this Agreement, the Stockholder Agreement or any other transaction contemplated by this Agreement or the Stockholder Agreement, take all action necessary to ensure that the Offer, the Merger and the other transactions contemplated by this Agreement may be consummated as promptly as practicable on the terms contemplated by this Agreement and otherwise to minimize the effect of such statute or regulation on the Offer, the Merger, this Agreement, the Stockholder Agreement and the other transactions contemplated by this Agreement or the Stockholder Agreement. Notwithstanding the foregoing, the Board of Directors of the Company shall not be prohibited from taking any action permitted by the terms of this Agreement. (b) The Company shall give prompt notice to Parent of (i) any representation or warranty made by it contained in this Agreement that is qualified as to materiality becoming untrue or inaccurate in any respect or any such representation or warranty that is not so qualified becoming untrue or inaccurate in any material respect or (ii) the failure by it to comply with or satisfy in any material respect any covenant, condition or agreement to be complied with or satisfied by it under this Agreement; provided, however, that no such notification shall affect the representations, warranties, covenants or agreements of the parties or the conditions to the obligations of the parties under this Agreement. SECTION 6.04. Stock Option Plans. (a) As soon as practicable following the date of this Agreement, the Board of Directors of the Company (or, if appropriate, any committee administering the Stock Option Plans (as defined below)) shall adopt such resolutions or take such other actions as are required to provide that (i) each outstanding stock option to purchase shares of Company Common Stock (a "Stock Option") heretofore granted under any stock option, stock appreciation rights or stock purchase plan, program or arrangement of the Company (collectively, the "Stock Option Plans") outstanding immediately prior to the consummation of the Offer, whether or not then exercisable, shall be cancelled immediately prior to the consummation of the Offer in exchange for an amount in cash, payable at the time of such cancellation, equal to the product of (y) the number of shares of Company Common Stock subject to such Stock Option immediately prior to the consummation of the Offer and (z) the excess of the price per share to be paid in the Offer over the per share exercise price of such Stock Option and (ii) each stock appreciation right ("SAR") granted under the Stock Option Plans outstanding immediately prior to the consummation of the Offer shall 17

21 be cancelled immediately prior to the consummation of the Offer in exchange for an amount of cash, payable at the time of such cancellation, equal to the product of (y) the number of shares of Company Common Stock covered by such SAR and (z) the excess of the price per share to be paid in the Offer over the appreciation base per share of such SAR; provided, however, that no such cash payment shall be made with respect to any SAR which is related to a Stock Option with respect to which such a cash payment has been made. Any Stock Option or SAR not cancelled in accordance with this paragraph (a) immediately prior to the consummation of the Offer, shall be cancelled at the Effective Time in exchange for an amount in cash, payable at the Effective Time, equal to the amount which would have been paid had such Stock Option or SAR been cancelled immediately prior to the consummation of the Offer. (b) All Stock Option Plans shall terminate as of the Effective Time and the provisions in any other Benefit Plan providing for the issuance, transfer or grant of any capital stock of the Company or any interest in respect of any capital stock of the Company shall be deleted as of the Effective Time, and the Company shall ensure that following the Effective Time no holder of a Stock Option or any participant in any Stock Option Plan shall have any right thereunder to acquire any capital stock of the Company, Parent or the Surviving Corporation, except as provided in Section 6.04(a). SECTION 6.05. Indemnification and Insurance. (a) The indemnification obligations set forth in the Company's certificate of incorporation and by-laws on the date of this Agreement shall survive the Merger and shall not be amended, repealed or otherwise modified for a period of six years after the Effective Time in any manner that would adversely affect the rights thereunder of individuals who on or prior to the Effective Time were directors, officers, employees or agents of the Company. (b) For six years from the Effective Time, Parent shall, unless Parent agrees in writing to guarantee the indemnification obligations set forth in Section 6.05(a), maintain in effect the Company's current directors' and officers' liability insurance covering those persons who are currently covered by the Company's directors' and officers' liability insurance policy (a copy of which has been heretofore delivered to Parent); provided, however, that in no event shall Parent be required to expend in any one year an amount in excess of 150% of the annual premiums currently paid by the Company for such insurance which the Company represents to be $160,000 for the fiscal year ending October 31, 1994; and, provided, further, that if the annual premiums of such insurance coverage exceed such amount, Parent shall be obligated to obtain a policy with the greatest coverage available for a cost not exceeding such amount. (c) In the event Parent, the Surviving Corporation or any of their successors or assigns (i) consolidates with or merges into any other person and shall not be the continuing or surviving corporation or entity of such consolidation or merger or (ii) transfers all or substantially all of its properties and assets to any person, then and in each such case, proper provisions shall be made so that the successors and assigns of Parent or the Surviving Corporation, as the case may be, shall assume the obligations set forth in this Section 6.05. In the event the Surviving Corporation transfers any material portion of its assets, in a single transaction or in a series of transactions, Parent will either guarantee the indemnification obligations referred to in Section 6.05(a) or take such other action to ensure that the ability of the Surviving Corporation to satisfy such indemnification obligations will not be diminished in any material respect. (d) This Section 6.05 shall survive the consummation of the Merger at the Effective Time, is intended to benefit the Company, Parent, the Surviving Corporation and the Indemnified Parties, and shall be binding on all successors and assigns of Parent and the Surviving Corporation. SECTION 6.06. Directors. Promptly upon the acceptance for payment of, and payment for, any shares of Company Common Stock by Sub pursuant to the Offer, the number of directors on the Board of Directors shall be reduced to five (5) and Sub shall be entitled to designate three (3) of such number of directors on the Board of Directors of the Company such that Sub, subject to compliance with Section 14(f) of the Exchange Act, will control a majority of such directors, and the Company and its Board of Directors shall, at such time, take all such action needed to cause Sub's designees to be appointed to the Company's Board of Directors. Subject to applicable law, the Company shall take all action requested by Parent necessary to effect any such election, including mailing to its stockholders the Information Statement containing the information required by Section 14(f) of the Exchange Act and Rule 14f-1 promulgated thereunder, and the Company agrees to 18

22 make such mailing with the mailing of the Schedule 14D-9 (provided that Sub shall have provided to the Company on a timely basis all information required to be included in the Information Statement with respect to Sub's designees). SECTION 6.07. Fees and Expenses. (a) Except as provided below, all fees and expenses incurred in connection with the Offer, the Merger, this Agreement and the transactions contemplated hereby shall be paid by the party incurring such fees or expenses, whether or not the Offer or the Merger is consummated. (b) The Company shall pay, or cause to be paid, in same day funds to Parent the sum of (x) all of Parent's out-of-pocket expenses in an amount up to but not to exceed $2,500,000 (the "Expenses") and (y) $25,000,000 (the "Termination Fee") upon demand if (i) Parent or Sub terminates this Agreement under Section 8.01(d), (ii) the Company terminates this Agreement pursuant to Section 8.01(e) or (iii) prior to the termination of this Agreement (other than by the Company pursuant to Section 8.01(f)), a takeover proposal shall have been made and within one year of such termination, the Company enters into an agreement with respect to, approves or recommends or takes any action to facilitate (including taking action with respect to the Rights Agreement), such takeover proposal. The amount of Expenses so payable shall be the amount set forth in an estimate delivered by Parent, subject to upward or downward adjustment (not to be in excess of the amount set forth in clause (x) above) upon delivery of reasonable documentation therefor. SECTION 6.08. Public Announcements. Parent and Sub, on the one hand, and the Company, on the other hand, will consult with each other before issuing, and provide each other the opportunity to review and comment upon, any press release or other public statements with respect to the transactions contemplated by this Agreement, including the Offer and the Merger, and shall not issue any such press release or make any such public statement prior to such consultation, except as may be required by applicable law, court process or by obligations pursuant to any listing agreement with any national securities exchange or national securities quotation system. The parties agree that the initial press release to be issued with respect to the transactions contemplated by this Agreement shall be in the form heretofore agreed to by the parties. SECTION 6.09. Rights Agreement. The Board of Directors of the Company shall take all further action (in addition to that referred to in Section 3.01(r)) requested in writing by Parent in order to render the Rights inapplicable to the Offer, the Merger, the Stockholder Agreement and the other transactions contemplated by this Agreement and the Stockholder Agreement. Except as requested in writing by Parent, during the term of this Agreement, the Board of Directors of the Company shall not (i) amend the Rights Agreement or (ii) take any action with respect to, or make any determination under, the Rights Agreement (including a redemption of the Rights) including any action to facilitate a takeover proposal; provided that any of such actions may be taken simultaneously with entering into an agreement pursuant to Section 5.02(b). SECTION 6.10. Benefit Plans. (a) Parent shall cause the Surviving Corporation to take such actions as are necessary so that, for a period of not less than one year after the Effective Time, nonunion employees of the Company and its subsidiaries who continue their employment after the Effective Time will be provided employee benefits which in the aggregate are at least generally comparable to those provided to such employees as of the date hereof; provided, that it is understood that after the Effective Time (x) neither Parent nor the Surviving Corporation will have any obligation to issue or adopt any plans or arrangements to provide for the issuance of shares of capital stock, warrants, options, stock appreciation rights or other rights in respect of any shares of capital stock of any entity or any securities convertible or exchangeable into such shares pursuant to any such plan or program, (y) nothing herein shall require the Surviving Corporation to maintain any particular plan or arrangement and (z) nothing herein shall prevent or preclude the Surviving Corporation from continuing any requirements for employee contributions under any employee benefit plans in the same proportions as the employee-paid portion under such plans constituted prior to the Effective Time. (b) It is Parent's current intention that, following the first anniversary of the Effective Time, Parent will provide employee benefit plans, programs, arrangements and policies for the benefit of employees of the Company and its subsidiaries which are at least generally comparable in the aggregate to the employee benefit plans, programs, arrangements and policies for the benefit of other employees of Parent and its subsidiaries. In connection therewith, all service credited to each employee by the Company through the Effective Time (and by the Surviving Corporation thereafter) would be recognized by Parent for all purposes, including for 19

23 purposes of eligibility, vesting and benefit accruals under any employee benefit plan provided by Parent for the benefit of the employees; provided, however, such service need not be credited to the extent it would result in a duplication of benefits, including, without limitation, benefit accrual service under defined benefit plans. (c) Parent hereby agrees to cause the Surviving Corporation to honor (without modification) and assume the employment agreements and individual benefit arrangements listed on Schedule 4.01(i). SECTION 6.11. Stop Transfer. The Company agrees with, and covenants to Parent that the Company shall not register the transfer of any certificate representing any Stockholder's Shares (as defined in the Stockholder Agreement), unless such transfer is made to Parent or Sub or otherwise in compliance with the terms of this Agreement and the Stockholder Agreement. The Company hereby agrees to inscribe upon any and all certificates representing Stockholder's Shares subject to the Stockholder Agreement and delivered to Parent for inscription pursuant thereto, the following legend: "The shares of Common Stock, $.001 par value, of Neutrogena Corporation represented by this certificate are subject to a Stockholder Agreement dated as of August 22, 1994, and may not be sold or otherwise transferred, except in accordance therewith. Copies of such Agreement may be obtained at the principal executive offices of Neutrogena Corporation." SECTION 6.12. Excess Parachute Payments. Promptly after the date of this Agreement, the Company will (i) determine the estimated amounts or entitlements that any person may receive from the Company, the Surviving Corporation or any of their respective subsidiaries (including cash or property or the vesting of property) as a result of the transactions contemplated by this Agreement (including pursuant to any Stock Option or SAR and using assumptions selected in consultation with Parent), (ii) determine whether and to what extent any such amounts or entitlements may constitute Excess Parachute Payments and (iii) provide Parent with the determinations described in clauses (i) and (ii) and the calculations relating to such determinations, including the "base rate" (as such term is defined in Section 280G(b) of the Code) of any person described in clause (i) and the estimated amount of any Excess Parachute Payment to be received by any person. ARTICLE VII Conditions Precedent SECTION 7.01. Conditions to Each Party's Obligation To Effect the Merger. The respective obligation of each party to effect the Merger is subject to the satisfaction or waiver on or prior to the Closing Date of the following conditions: (a) Stockholder Approval. This Agreement shall have been approved and adopted by the affirmative vote of the holders of a majority of the outstanding shares of Company Common Stock in accordance with applicable law and the Company's Certificate of Incorporation; provided that Parent and Sub shall vote all their shares of Company Common Stock in favor of the Merger. (b) No Injunctions or Restraints. No temporary restraining order, preliminary or permanent injunction or other order issued by any court of competent jurisdiction or other legal restraint or prohibition preventing the consummation of the Merger shall be in effect; provided, however, that each of the parties shall have used reasonable efforts to prevent the entry of any such injunction or other order and to appeal as promptly as possible any injunction or other order that may be entered. ARTICLE VIII Termination, Amendment and Waiver SECTION 8.01. Termination. This Agreement may be terminated at any time prior to the Effective Time, whether before or after approval of matters presented in connection with the Merger by the stockholders of the Company: (a) by mutual written consent of Parent and the Company; 20

24 (b) by either Parent or the Company: (i) if (x) as a result of the failure, occurrence or existence of any of the conditions set forth in Exhibit A to this Agreement the Offer shall have terminated or expired in accordance with its terms without Sub having accepted for payment any shares of Company Common Stock pursuant to the Offer or (y) Sub shall not have accepted for payment any shares of Company Common Stock pursuant to the Offer by December 31, 1994; provided, however, that the right to terminate this Agreement pursuant to this Section 8.01(b)(i) shall not be available to any party whose failure to perform any of its obligations under this Agreement results in the failure, occurrence or existence of any such condition; (ii) if any Governmental Entity shall have issued an order, decree or ruling or taken any other action permanently enjoining, restraining or otherwise prohibiting the acceptance for payment of, or payment for, shares of Company Common Stock pursuant to the Offer or the Merger and such order, decree or ruling or other action shall have become final and nonappealable; (c) by Parent or Sub prior to the purchase of shares of Company Common Stock pursuant to the Offer in the event of a breach by the Company of any representation, warranty, covenant or other agreement contained in this Agreement which (A) would give rise to the failure of a condition set forth in paragraph (e) or (f) of Exhibit A and (B) cannot be or has not been cured within 30 days after the giving of written notice to the Company; (d) by Parent or Sub if either Parent or Sub is entitled to terminate the Offer as a result of the occurrence of any event set forth in paragraph (d) of Exhibit A to this Agreement; (e) by the Company in connection with entering into a definitive agreement in accordance with Section 5.02(b), provided it has complied with all provisions thereof, including the notice provisions therein, and that it makes simultaneous payment of the Expenses and the Termination Fee; or (f) by the Company, if Sub or Parent shall have breached in any material respect any of their respective representations, warranties, covenants or other agreements contained in this Agreement, which failure to perform is incapable of being cured or has not been cured within 30 days after the giving of written notice to Parent or Sub, as applicable, except, in any case, such failures which are not reasonably likely to affect adversely Parent's or Sub's ability to complete the Offer or the Merger. SECTION 8.02. Effect of Termination. In the event of termination of this Agreement by either the Company or Parent as provided in Section 8.01, this Agreement shall forthwith become void and have no effect, without any liability or obligation on the part of Parent, Sub or the Company, other than the provisions of Section 4.01(o), Section 4.02(d), the last sentence of Section 6.02, Section 6.07, this Section 8.02 and Article IX and except to the extent that such termination results from the wilful and material breach by a party of any of its representations, warranties, covenants or agreements set forth in this Agreement. SECTION 8.03. Amendment. This Agreement may be amended by the parties at any time before or after any required approval of matters presented in connection with the Merger by the stockholders of the Company; provided, however, that after any such approval, there shall not be made any amendment that by law requires further approval by such stockholders without the further approval of such stockholders. This Agreement may not be amended except by an instrument in writing signed on behalf of each of the parties. SECTION 8.04. Extension; Waiver. At any time prior to the Effective Time, the parties may (a) extend the time for the performance of any of the obligations or other acts of the other parties, (b) waive any inaccuracies in the representations and warranties contained in this Agreement or in any document delivered pursuant to this Agreement or (c) subject to the proviso of Section 8.03, waive compliance with any of the agreements or conditions contained in this Agreement. Any agreement on the part of a party to any such extension or waiver shall be valid only if set forth in an instrument in writing signed on behalf of such party. The failure of any party to this Agreement to assert any of its rights under this Agreement or otherwise shall not constitute a waiver of those rights. 21

25 SECTION 8.05. Procedure for Termination, Amendment, Extension or Waiver. A termination of this Agreement pursuant to Section 8.01, an amendment of this Agreement pursuant to Section 8.03 or an extension or waiver pursuant to Section 8.04 shall, in order to be effective, require in the case of Parent, Sub or the Company, action by its Board of Directors or the duly authorized designee of its Board of Directors; provided, however, that in the event that Sub's designees are appointed or elected to the Board of Directors of the Company as provided in Section 6.06, after the acceptance for payment of shares of Company Common Stock pursuant to the Offer and prior to the Effective Time, the affirmative vote of a majority of the directors of the Company that were not designated by Parent or Sub shall be required by the Company to (i) amend or terminate this Agreement by the Company, (ii) exercise or waive any of the Company's rights or remedies under this Agreement, (iii) extend the time for performance of Parent's and Sub's respective obligations under this Agreement or (iv) take any action to amend or otherwise modify the Company's Certificate of Incorporation or By-laws. ARTICLE IX General Provisions SECTION 9.01. Nonsurvival of Representations and Warranties. None of the representations and warranties in this Agreement or in any instrument delivered pursuant to this Agreement shall survive the Effective Time or, in the case of the Company, shall survive the acceptance for payment of, and payment for, shares of Company Common Stock by Sub pursuant to the Offer. This Section 9.01 shall not limit any covenant or agreement of the parties which by its terms contemplates performance after the Effective Time of the Merger. SECTION 9.02. Notices. All notices, requests, claims, demands and other communications under this Agreement shall be in writing and shall be deemed given if delivered personally or sent by overnight courier (providing proof of delivery) to the parties at the following addresses (or at such other address for a party as shall be specified by like notice): (a) if to Parent or Sub, to Johnson & Johnson One Johnson & Johnson Plaza New Brunswick, NJ 08933 Facsimile: (908) 524-0400 Attention: James R. Utaski Vice President, Business Development with copies to: Johnson & Johnson One Johnson & Johnson Plaza New Brunswick, NJ 08933 Facsimile: (908) 524-2788 Attention: James R. Hilton, Esq. and Cravath, Swaine & Moore Worldwide Plaza 825 Eighth Avenue New York, NY 10019 Facsimile: (212) 474-3700 Attention: Robert A. Kindler, Esq. 22

26 (b) if to the Company, to Neutrogena Corporation 5760 West 96th Street Los Angeles, CA 90045 Facsimile: (310) 641-9280 Attention: Lloyd E. Cotsen Chairman and Chief Executive Officer with copies to: Skadden, Arps, Slate, Meagher & Flom 919 Third Avenue New York, NY 10022 Facsimile: (212) 735-3638 Attention: James C. Freund, Esq. and Blum, Propper & Hardacre 12100 Wilshire Boulevard, Suite 905 Los Angeles, CA 90025 Facsimile: (310) 826-1480 Attention: David W. Hardacre SECTION 9.03. Definitions. For purposes of this Agreement: (a) an "affiliate" of any person means another person that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, such first person; (b) "material adverse change" or "material adverse effect" means, when used in connection with the Company or Parent, any change or effect (or any development that, insofar as can reasonably be foreseen, is likely to result in any change or effect) that is materially adverse to the business, financial condition or results of operations of such party and its subsidiaries taken as a whole; (c) "person" means an individual, corporation, partnership, joint venture, association, trust, unincorporated organization or other entity; (d) a "subsidiary" of any person means another person, an amount of the voting securities, other voting ownership or voting partnership interests of which is sufficient to elect at least a majority of its Board of Directors or other governing body (or, if there are no such voting interests, 50% or more of the equity interests of which) is owned directly or indirectly by such first person; (e) "superior proposal" has the meaning assigned thereto in Section 5.02(b); and (f) "takeover proposal" has the meaning assigned thereto in Section 5.02(a). SECTION 9.04. Interpretation. When a reference is made in this Agreement to a Section, Exhibit or Schedule, such reference shall be to a Section of, or an Exhibit or Schedule to, this Agreement unless otherwise indicated. The table of contents and headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Whenever the words "include", "includes" or "including" are used in this Agreement, they shall be deemed to be followed by the words "without limitation". SECTION 9.05. Counterparts. This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement and shall become effective when one or more counterparts have been signed by each of the parties and delivered to the other parties. 23

27 SECTION 9.06. Entire Agreement; No Third-Party Beneficiaries. This Agreement and the Confidentiality Agreement constitute the entire agreements, and supersede all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter of these agreements and except for the provisions of Article III and Sections 6.04 and 6.05, are not intended to confer upon any person other than the parties any rights or remedies hereunder. SECTION 9.07. Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware, regardless of the laws that might otherwise govern under applicable principles of conflict of laws thereof. SECTION 9.08. Assignment. Neither this Agreement nor any of the rights, interests or obligations under this Agreement shall be assigned, in whole or in part, by operation of law or otherwise by any of the parties without the prior written consent of the other parties, except that Sub may assign, in its sole discretion, any of or all its rights, interests and obligations under this Agreement to Parent or to any direct or indirect wholly owned subsidiary of Parent, but no such assignment shall relieve Sub of any of its obligations under this Agreement. Subject to the preceding sentence, this Agreement will be binding upon, inure to the benefit of, and be enforceable by, the parties and their respective successors and assigns. SECTION 9.09. Enforcement. The parties agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the parties shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions of this Agreement in any court of the United States located in the State of Delaware or in Delaware state court, this being in addition to any other remedy to which they are entitled at law or in equity. In addition, each of the parties hereto (a) consents to submit itself to the personal jurisdiction of any Federal court located in the State of Delaware or any Delaware state court in the event any dispute arises out of this Agreement or any of the transactions contemplated by this Agreement, (b) agrees that it will not attempt to deny or defeat such personal jurisdiction by motion or other request for leave from any such court and (c) agrees that it will not bring any action relating to this Agreement or any of the transactions contemplated by this Agreement in any court other than a Federal or state court sitting in the State of Delaware. IN WITNESS WHEREOF, Parent, Sub and the Company have caused this Agreement to be signed by their respective officers thereunto duly authorized, all as of the date first written above. JOHNSON & JOHNSON, by /s/ RALPH S. LARSEN ------------------------------------ Name: Ralph S. Larsen Title: Chairman and Chief Executive Officer JNJ ACQUISITION CORP., by /s/ RALPH S. LARSEN ------------------------------------ Name: Ralph S. Larsen Title: Chairman and Chief Executive Officer NEUTROGENA CORPORATION, by /s/ LLOYD E. COTSEN ------------------------------------ Name: Lloyd E. Cotsen Title: Chairman and Chief Executive Officer 24

28 EXHIBIT A Conditions of the Offer ----------------------- Notwithstanding any other term of the Offer or this Agreement, Sub shall not be required to accept for payment or, subject to any applicable rules and regulations of the SEC, including Rule 14e-1(c) under the Exchange Act (relating to Sub's obligation to pay for or return tendered shares of Company Common Stock after the termination or withdrawal of the Offer), to pay for any shares of Company Common Stock tendered pursuant to the Offer unless, (i) there shall have been validly tendered and not withdrawn prior to the expiration of the Offer such number of shares of Company Common Stock which (together with shares subject to the Stockholder Agreement that shall not have been so tendered) would constitute a majority of the outstanding shares of Company Common Stock (the "Minimum Condition") and (ii) any waiting period under the HSR Act applicable to the purchase of shares of Company Common Stock pursuant to the Offer shall have expired or been terminated (the "HSR Condition"). Furthermore, notwithstanding any other term of the Offer or this Agreement, Sub shall not be required to accept for payment or, subject as aforesaid, to pay for any shares of Company Common Stock not theretofore accepted for payment or paid for, and may terminate the Offer if, at any time on or after the date of this Agreement and before the acceptance of such shares for payment or the payment therefor, any of the following conditions exists (other than as a result of any action or inaction of Parent or any of its subsidiaries which constitutes a breach of this Agreement): (a) there shall be threatened or pending by any Governmental Entity any suit, action or proceeding, (i) challenging the acquisition by Parent or Sub of any shares of Company Common Stock under the Offer or pursuant to the Stockholder Agreement, seeking to restrain or prohibit the making or consummation of the Offer or the Merger or the performance of any of the other transactions contemplated by this Agreement or the Stockholder Agreement (including the voting provisions thereunder), or seeking to obtain from the Company, Parent or Sub any damages that are material in relation to the Company and its subsidiaries taken as whole, (ii) seeking to prohibit or limit the ownership or operation by the Company, Parent or any of their respective subsidiaries of a material portion of the business or assets of the Company and its subsidiaries, taken as a whole, or Parent and its subsidiaries, taken

29 2 as a whole, or to compel the Company or Parent to dispose of or hold separate any material portion of the business or assets of the Company and its subsidiaries, taken as a whole, or Parent and its subsidiaries, taken as a whole, as a result of the Offer or any of the other transactions contemplated by this Agreement, (iii) seeking to impose material limitations on the ability of Parent or Sub to acquire or hold, or exercise full rights of ownership of, any shares of Company Common Stock accepted for payment pursuant to the Offer or purchased under the Stockholder Agreement including, without limitation, the right to vote such Company Common Stock on all matters properly presented to the stockholders of the Company, (iv) seeking to prohibit Parent or any of its subsidiaries from effectively controlling in any material respect the business or operations of the Company and its subsidiaries, taken as a whole, or (v) which otherwise is reasonably likely to have a material adverse effect on the business, financial condition or results of operations of the Company and its subsidiaries, taken as a whole; (b) there shall be any statute, rule, regulation, judgment, order or injunction enacted, entered, enforced, promulgated or deemed applicable to the Offer or the Merger, or any other action shall be taken by any Governmental Entity or court, other than the application to the Offer or the Merger of applicable waiting periods under the HSR Act, that is reasonably likely to result, directly or indirectly, in any of the consequences referred to in clauses (i) through (v) of paragraph (a) above; (c) there shall have occurred any material adverse change (or any development that, insofar as reasonably can be foreseen, is reasonably likely to result in any material adverse change) in the business, financial condition or results of operations of the Company and its subsidiaries, taken as a whole; (d) (i) the Board of Directors of the Company or any committee thereof shall have withdrawn or modified in a manner adverse to Parent or Sub its approval or recommendation of the Offer, the Merger or this Agreement, or approved or recommended any takeover proposal or (ii) the Company shall have entered into

30 3 any agreement with respect to any superior proposal in accordance with Section 5.02(b) of this Agreement; (e) any of the representations and warranties of the Company set forth in this Agreement that are qualified as to materiality shall not be true and correct and any such representations and warranties that are not so qualified shall not be true and correct in any material respect, in each case as of the date of this Agreement and as of the scheduled expiration of the Offer; (f) the Company shall have failed to perform in any material respect any material obligation or to comply in any material respect with any material agreement or covenant of the Company to be performed or complied with by it under this Agreement; (g) the Agreement shall have been terminated in accordance with its terms. Notwithstanding anything contained herein, no condition involving (i) performance of agreements by the Company or (ii) the accuracy of representations and warranties made by the Company (without giving effect to any "materiality" limitation set forth therein), shall be deemed not fulfilled, and Parent and Sub shall not be entitled to fail to accept shares of Company Common Stock for payment or terminate the Offer on such basis, if the respects in which such agreements have not been performed or the representations and warranties are inaccurate, in the aggregate, are not materially adverse to the business, financial condition or results of operations of the Company and its subsidiaries, taken as a whole. The foregoing conditions are for the sole benefit of Sub and Parent and may, subject to the terms of the Agreement, be waived by Sub and Parent in whole or in part at any time and from time to time in their sole discretion. The failure by Parent, or Sub at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right, the waiver of any such right with respect to particular facts and circumstances shall not be deemed a waiver with respect to any other facts and circumstances and each such right shall be deemed an ongoing right that may be asserted at any time and from time to time.

1 CONFORMED COPY STOCKHOLDER AGREEMENT dated as of August 22, 1994, among JOHNSON & JOHNSON, a New Jersey corporation ("Parent") and the other parties signatory hereto (each a "Stockholder"). WHEREAS, each Stockholder desires that Neutrogena Corporation, a Delaware corporation (the "Company"), Parent and JNJ Acquisition Corp., a Delaware corporation and wholly owned subsidiary of Parent ("Sub"), enter into an Agreement and Plan of Merger dated the date hereof (as the same may be amended or supplemented, the "Merger Agreement") with respect to the merger of Sub with and into the Company (the "Merger"); and WHEREAS, each Stockholder is executing this Agreement as an inducement to Parent to enter into and execute, and to cause Sub to enter into and execute, the Merger Agreement; NOW, THEREFORE, in consideration of the execution and delivery by Parent and Sub of the Merger Agreement and the mutual covenants, conditions and agreements contained herein and therein, the parties agree as follows: SECTION 1. Representations and Warranties. Each Stockholder severally represents and warrants to Parent as follows: (a) Such Stockholder is the record and beneficial owner of, or is trustee of a trust that is the record holder of, and whose beneficiaries are the beneficial owners of, the number of shares of Common Stock, par value $.001 per share, of the Company (the "Company Common Stock") set forth opposite such Stockholder's name in Schedule A hereto (such Stockholder's "Shares"). Except for such Stockholder's Shares and any other shares of Company Common Stock subject hereto, such Stockholder is not the record or beneficial owner of any shares of Company Common Stock. (b) This Agreement has been duly authorized, executed and delivered by such Stockholder and constitutes the legal, valid and binding obligation of such Stockholder, enforceable against such Stockholder in accordance with its terms. Neither the execution and delivery of this Agreement nor the consummation by such Stockholder of the transactions contemplated hereby will result in a violation of, or a default under, or conflict with, any contract, trust, commitment, agreement, understanding, arrangement or restriction of any kind to which such Stockholder is a party or bound or to which such Stockholder's Shares are subject. No trust of which such Stockholder is a trustee requires the consent of any beneficiary to the execution and delivery of this Agreement or to the consummation of the transactions contemplated hereby. If such Stockholder is married and such Stockholder's Shares constitute community property, this Agreement has been duly authorized, executed and delivered by, and constitutes a valid and binding agreement of, such Stockholder's spouse, enforceable against such person in accordance with its terms. Consummation by such Stockholder of the transactions contemplated hereby will not violate, or require any consent, approval, or notice under, any provision of any judgment, order, decree, statute, law, rule or regulation applicable to such Stockholder or such Stockholder's Shares, except for any necessary filing under the Hart-Scott-Rodino Antitrust Improvements Act of 1976. (c) Such Stockholder's Shares and the certificates representing such Shares are now and at all times during the term hereof will be held by such Stockholder, or by a nominee or custodian for the benefit of such Stockholder, free and clear of all liens, claims, security interests, proxies, voting trusts or agreements, understandings or arrangements or any other encumbrances whatsoever, except for any such encumbrances or proxies arising hereunder or under the existing terms of a trust of which such Stockholder is the trustee. (d) No broker, investment banker, financial adviser or other person is entitled to any broker's, finder's, financial adviser's or other similar fee or commission in connection with the transactions contemplated hereby based upon arrangements made by or on behalf of such Stockholder.

2 (e) Such Stockholder understands and acknowledges that Parent is entering into, and causing Sub to enter into, the Merger Agreement in reliance upon such Stockholder's execution and delivery of this Agreement. Such Stockholder acknowledges that the irrevocable proxy set forth in Section 4 is granted in consideration for the execution and delivery of the Merger Agreement by Parent and Sub. SECTION 2. Purchase and Sale of Shares. Each Stockholder hereby severally agrees to sell to Sub, and Sub hereby agrees to purchase, all Shares set forth opposite such Stockholder's name on Schedule A hereto, at a price per share equal to the price paid in the Offer; provided that such obligation to sell and such obligation to purchase is subject to Sub having accepted Shares for payment under the Offer and the Minimum Condition having been satisfied. Such Stockholder may tender such Shares into the Offer and Sub may direct that such Stockholder tender such Shares. Any Shares not purchased in the Offer will be purchased at the same time as payment is made under the Offer. SECTION 3. Covenants. Each Stockholder severally agrees with, and covenants to, Parent and, with respect to paragraph (c) below, each beneficiary of any revocable trust for which any Stockholder serves as trustee, agrees with and covenants to Parent, as follows: (a) Such Stockholder shall not, except as contemplated by the terms of this Agreement, (i) transfer (which term shall include, without limitation, for the purposes of this Agreement, any sale, gift, pledge or other disposition), or consent to any transfer of, any or all of such Stockholder's Shares or any interest therein, (ii) enter into any contract, option or other agreement of understanding with respect to any transfer of any or all of such Shares or any interest therein, (iii) grant any proxy, power-of-attorney or other authorization in or with respect to such Shares, (iv) deposit such Shares into a voting trust or enter into a voting agreement or arrangement with respect to such Shares or (v) take any other action that would in any way restrict, limit or interfere with the performance of its obligations hereunder or the transactions contemplated hereby. (b) Subject to Section 8, such Stockholder shall not, nor shall it permit any investment banker, attorney or other adviser or representative of such Stockholder to, directly or indirectly, (i) solicit, initiate or encourage the submission of, any takeover proposal or (ii) participate in any discussions or negotiations regarding, or furnish to any person any information with respect to, or take any other action to facilitate any inquiries or the making of any proposal that constitutes, or may reasonably be expected to lead to, any takeover proposal. Without limiting the foregoing, it is understood that any violation of the restrictions set forth in the preceding sentence by an investment banker, attorney or other adviser or representative of such Stockholder, whether or not such person is purporting to act on behalf of such Stockholder or otherwise, shall be deemed to be a violation of this Section 3(b) by such Stockholder. (c) Such Stockholder, and any beneficiary of a revocable trust for which such Stockholder serves as trustee, shall not take any action to revoke or terminate such trust or take any other action which would restrict, limit or frustrate in any way the transactions contemplated by this Agreement. Each such beneficiary hereby acknowledges and agrees to be bound by the terms of this Agreement applicable to it. (d) At any meeting of stockholders of the Company or at any adjournment thereof or in any other circumstances upon which their vote, consent or other approval is sought, such Stockholder shall vote (or cause to be voted) such Stockholder's Shares against (i) any merger agreement or merger (other than the Merger Agreement and the Merger), consolidation, combination, sale of substantial assets, reorganization, joint venture, recapitalization, dissolution, liquidation or winding up of or by the Company and (ii) any amendment of the Company's Certificate of Incorporation or By-laws or other proposal or transaction involving the Company or any of its subsidiaries which amendment or other proposal or transaction would in any manner impede, frustrate, prevent or nullify, or result in a breach of any covenant, representation or warranty or any other obligation or agreement of the Company under or with respect to, the Offer, the Merger, the Merger Agreement or any of the other transactions contemplated by the Merger Agreement (each of the foregoing in clause (i) or (ii) above, a "Competing Transaction"). SECTION 4. Grant of Irrevocable Proxy; Appointment of Proxy. (a) Each Stockholder hereby irrevocably grants to, and appoints, Parent and James R. Utaski, James R. Hilton and Peter S. Galloway, in 2

3 their respective capacities as officers of Parent, and any individual who shall hereafter succeed to any such office of Parent, and each of them individually, such Stockholder's proxy and attorney-in-fact (with full power of substitution), for and in the name, place and stead of such Stockholder, to vote such Stockholder's Shares, or grant a consent or approval in respect of such Shares against any Competing Transaction. (b) Such Stockholder represents that any proxies heretofore given in respect of such Stockholder's Shares are not irrevocable, and that any such proxies are hereby revoked. (c) Such Stockholder hereby affirms that the irrevocable proxy set forth in this Section 4 is given in connection with the execution of the Merger Agreement, and that such irrevocable proxy is given to secure the performance of the duties of the Stockholder under this Agreement. Such Stockholder hereby further affirms that the irrevocable proxy is coupled with an interest and may under no circumstances be revoked. Such Stockholder hereby ratifies and confirms all that such irrevocable proxy may lawfully do or cause to be done by virtue hereof. Such irrevocable proxy is executed and intended to be irrevocable in accordance with the provisions of Section 212(e) of the Delaware General Corporation Law (the "DGCL"). SECTION 5. Certain Events. Each Stockholder agrees that this Agreement and the obligations hereunder shall attach to such Stockholder's Shares and shall be binding upon any person or entity to which legal or beneficial ownership of such Shares shall pass, whether by operation of law or otherwise, including without limitation such Stockholder's heirs, guardians, administrators or successors. In the event of any stock split, stock dividend, merger, reorganization, recapitalization or other change in the capital structure of the Company affecting the Company Common Stock, or the acquisition of additional shares of Company Common Stock or other voting securities of the Company by any Stockholder, the number of Shares listed in Schedule A beside the name of such Stockholder shall be adjusted appropriately and this Agreement and the obligations hereunder shall attach to any additional shares of Company Common Stock or other voting securities of the Company issued to or acquired by such Stockholder. SECTION 6. Legend. Each Stockholder agrees that such Stockholder will deliver to the Company, within 5 business days after the date hereof, any and all certificates representing such Stockholder's Shares in order that the Company may inscribe upon such certificates the following legend: "The shares of Common Stock, $.001 par value, of Neutrogena Corporation represented by this certificate are subject to a Stockholder Agreement dated as of August 22, 1994, and may not be sold or otherwise transferred, except in accordance therewith. Copies of such Agreement may be obtained at the principal executive offices of Neutrogena Corporation." SECTION 7. Voidability. If prior to the execution hereof, the Board of Directors of the Company shall not have duly and validly authorized and approved by all necessary corporate action, this Agreement, the Merger Agreement and the transactions contemplated hereby and thereby, so that by the execution and delivery hereof (a) Parent or Sub would become, or could reasonably be expected to become an "interested stockholder" with whom the Company would be prevented for any period pursuant to Section 203 of the DGCL or the Certificate of Incorporation of the Company from engaging in any "business combination" (as such terms are defined in Section 203 of the DGCL) or (b) the issuance of Rights (as defined in the Rights Agreement) in accordance with the Rights Agreement would be triggered, then this Agreement shall be void and unenforceable until such time as such authorization and approval shall have been duly and validly obtained. SECTION 8. Stockholder Capacity. No person executing this Agreement who is or becomes during the term hereof a director or officer of the Company makes any agreement or understanding herein in his or her capacity as such director or officer. Each Stockholder signs solely in his or her capacity as the record holder and beneficial owner of, or the trustee of a trust whose beneficiaries are the beneficial owners of, such Stockholder's Shares and nothing herein shall limit or affect any actions taken by a Stockholder in its capacity as an officer or director of the Company to the extent specifically permitted by the Merger Agreement. SECTION 9. Further Assurances. Each Stockholder shall, upon request of Parent, execute and deliver any additional documents and take such further actions as may reasonably be deemed by Parent to be 3

4 necessary or desirable to carry out the provisions hereof and to vest the power to vote such Stockholder's Shares as contemplated by Section 4 in Parent and the other irrevocable proxies described therein. SECTION 10. Termination. This Agreement, and all rights and obligations of the parties hereunder, shall terminate upon the first to occur of (i) the Effective Time of the Merger or (ii) the date upon which the Merger Agreement is terminated in accordance with its terms. SECTION 11. Miscellaneous. (a) Capitalized terms used and not otherwise defined in this Agreement shall have the respective meanings assigned such terms in the Merger Agreement. (b) All notices, request, claims, demands and other communications under this Agreement shall be in writing and shall be deemed given if delivered personally or sent by overnight courier (providing proof of delivery) to the parties at the following addresses (or at such other address for a party as shall be specified by like notice): (i) if to Parent, to the address set forth in Section 9.02 of the Merger Agreement; and (ii) if to a Stockholder, to the address set forth in Schedule A hereto, or such other address as may be specified in writing by such Stockholder. (c) The headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. (d) This Agreement may be executed in two or more counterparts, all of which shall be considered one and the same agreement and shall become effective as to any Stockholder when one or more counterparts have been signed by each of Parent and such Stockholder and delivered to Parent and such Stockholder. (e) This Agreement (including the documents and instruments referred to herein) constitutes the entire agreement, and supersedes all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof. (f) This Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware, regardless of the laws that might otherwise govern under applicable principles of conflicts of laws thereof. (g) Neither this Agreement nor any of the rights, interests or obligations under this Agreement shall be assigned, in whole or in part, by operation of law or otherwise, by any of the parties without the prior written consent of the other parties, except by laws of descent. (h) If any term, provision, covenant or restriction herein, or the application thereof to any circumstance, shall, to any extent, be held by a court of competent jurisdiction to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions herein and the application thereof to any other circumstances, shall remain in full force and effect, shall not in any way be affected, impaired or invalidated, and shall be enforced to the fullest extent permitted by law. (i) Each Stockholder agrees that irreparable damage would occur and that Parent would not have any adequate remedy at law in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that Parent shall be entitled to an injunction or injunctions to prevent breaches by any Stockholder of this Agreement and to enforce specifically the terms and provisions of this Agreement in any court of the United States located in the State of Delaware or in Delaware state court, this being in addition to any other remedy to which they are entitled at law or in equity. In addition, each of the parties hereto (i) consents to submit such party to the personal jurisdiction of any Federal court located in the State of Delaware or any Delaware state court in the event any dispute arises out of this Agreement or any of the transactions contemplated hereby, (ii) agrees that such party will not attempt to deny or defeat such personal jurisdiction by motion or other request for leave from any such court and (iii) agrees that such party will not bring any action relating to this Agreement of any of the transactions contemplated hereby in any court other than a Federal court sitting in the State of Delaware or a Delaware state court. (j) No amendment, modification or waiver in respect of this Agreement shall be effective against any party unless it shall be in writing and signed by such party. 4

5 IN WITNESS WHEREOF, Parent and the Stockholders have caused this Agreement to be duly executed and delivered as of the date first written above. <TABLE> <S> <C> JOHNSON & JOHNSON, by /s/ RALPH S. LARSEN -------------------------------------------- Name: Ralph S. Larsen Title: Chairman and Chief Executive Officer LLOYD E. COTSEN, TRUSTEE OF THE COTSEN 1985 TRUST, by /s/ LLOYD E. COTSEN -------------------------------------------- Name: Lloyd E. Cotsen Title: Trustee LLOYD E. COTSEN, TRUSTEE OF THE FIRST COTSEN CHARITABLE UNITRUST, by /s/ DASHA LEWIN -------------------------------------------- Name: Dasha Lewin Title: Special Trustee LLOYD E. COTSEN, TRUSTEE OF THE SECOND COTSEN CHARITABLE UNITRUST, by /s/ DASHA LEWIN -------------------------------------------- Name: Dasha Lewin Title: Special Trustee LLOYD E. COTSEN, TRUSTEE OF THE THIRD COTSEN CHARITABLE UNITRUST, by /s/ DASHA LEWIN -------------------------------------------- Name: Dasha Lewin Title: Special Trustee LLOYD E. COTSEN, TRUSTEE OF THE FOURTH COTSEN CHARITABLE UNITRUST, by /s/ DASHA LEWIN -------------------------------------------- Name: Dasha Lewin Title: Special Trustee </TABLE> 5

6 <TABLE> <S> <C> LLOYD E. COTSEN, TRUSTEE OF THE REMAINDER TRUST (TRUST B) UNDER THE WILL OF JOANNE COTSEN, DECEASED, by /s/ LLOYD E. COTSEN -------------------------------------------- Name: Lloyd E. Cotsen Title: Trustee COTSEN FAMILY FOUNDATION, A CALIFORNIA NON-PROFIT PUBLIC BENEFIT CORP., by /s/ DASHA LEWIN -------------------------------------------- Name: Dasha Lewin Title: Chief Financial Officer and Secretary </TABLE> 6

7 FORM OF SCHEDULE A <TABLE> <CAPTION> NUMBER OF PERCENTAGE OF SHARES STOCKHOLDER NATURE OF OWNERSHIP SHARES OWNED OUTSTANDING ----------- ------------------- ------------ -------------------- <S> <C> <C> <C> Lloyd E. Cotsen, Record & Beneficial 2,509,850 9.8% Trustee of the Cotsen 1985 Trust *Lloyd E. Cotsen, Record & Beneficial 148,000 .58% Trustee of The First Cotsen Charitable Unitrust *Lloyd E. Cotsen, Record & Beneficial 148,000 .58% Trustee of The Second Cotsen Charitable Unitrust *Lloyd E. Cotsen, Record & Beneficial 148,000 .58% Trustee of The Third Cotsen Charitable Unitrust *Lloyd E. Cotsen, Record & Beneficial 1,436,733 5.6% Trustee of The Fourth Cotsen Charitable Unitrust Lloyd E. Cotsen, Record & Beneficial 3,808,413 14.8% Trustee of the Remainder Trust (Trust B) under The Will of JoAnne Cotsen, Deceased Cotsen Family Foundation, Record 1,670,000 6.5% a California Non-Profit Public Benefit Corp. </TABLE> - --------------- * Executed by Dasha Lewin, Special Trustee. 7

1 [LOGO] CONTACT: ROBERT V. ANDREWS -- MEDIA RELATIONS JOHNSON & JOHNSON (908) 524-3535 ANNIE LO -- INVESTOR RELATIONS JOHNSON & JOHNSON (908) 524-6491 DONALD R. SCHORT NEUTROGENA CORPORATION (310) 642-1150 DAVID HARDACRE BLUM, PROPPER & HARDACRE (310) 826-7900 FOR IMMEDIATE RELEASE JOHNSON & JOHNSON TO ACQUIRE NEUTROGENA CORPORATION FOR $35.25 PER SHARE New Brunswick, NJ (August 22, 1994) -- Johnson & Johnson, the world's leading health care corporation, and Neutrogena Corporation, producer of high quality skin and hair care products, today announced they have entered into a definitive agreement through which Johnson & Johnson will acquire Neutrogena. Under the agreement, Johnson & Johnson (NYSE: JNJ) is to begin a cash tender offer for all outstanding shares of Neutrogena (NASDAQ: NGNA) common stock for $35.25 per share. Any shares not purchased in the offer will be acquired for the same price in cash, in a second-step merger. Neutrogena has approximately 25,700,000 shares outstanding. The boards of directors of both companies have given approval to the acquisition. Johnson & Johnson Board Chairman Ralph S. Larsen termed the acquisition "a very important strategic addition to our substantial worldwide skin and hair care business." He added, "We are pleased to have been able to enter into this agreement with Neutrogena." Lloyd E. Cotsen, chairman and chief executive officer of Neutrogena, said: "Our stated corporate goal -- to be a growth-oriented company with an image for credibility and trust in the care and maintenance of healthy looking skin and hair -- will, in fact, be enhanced with our association with Johnson & Johnson. Throughout the world, Johnson & Johnson has established a strong presence and reputation that we have long admired, and we now look forward to joining in a partnership spirit to optimize the potential of the Neutrogena family of products." Mr. Cotsen has entered into an agreement with Johnson & Johnson under which he has agreed to tender all 9,869,000 shares beneficially owned by him in the offer. All outstanding Neutrogena options to purchase shares, a total of approximately 2,300,000 shares, will be acquired for cash at the offer price. The offer and merger are subject to the purchase of a majority of the outstanding shares of Neutrogena common stock, as well as other customary conditions including clearance under the Hart-Scott-Rodino Anti-

2 Trust Improvements Act. The offer will begin by Friday, August 26, and will remain open for a minimum of 20 business days. Lehman Brothers Inc. provided financial advisory services to Neutrogena's Board of Directors and has rendered a fairness opinion on this transaction. In the event an unsolicited, alternative transaction is agreed to by Neutrogena, there would be a total fee payable to Johnson & Johnson of $27.5 million. Johnson & Johnson, with 1993 sales of $14.14 billion, is the world's leading and most comprehensive manufacturer of health care products serving the consumer, pharmaceutical, diagnostic and professional markets. Johnson & Johnson has 79,000 employees and 167 operating companies in more than 50 countries around the world, selling products in more than 150 countries. Neutrogena had 1993 sales of $282 million. Neutrogena's high quality skin and hair care products are sold in 72 countries. The company is headquartered in Los Angeles and has 840 employees.

1 [NEUTROGENA CORPORATION LETTERHEAD] August 26, 1994 Dear Stockholder: I am pleased to announce that on August 22, 1994, Neutrogena Corporation and Johnson & Johnson entered into an Agreement and Plan of Merger providing for the acquisition of all outstanding shares of common stock of the Company at a price of $35.25 per share in cash. J&J, through a wholly owned subsidiary, has today commenced a cash tender for all outstanding shares of common stock of the Company at a price of $35.25 per share net in cash to effectuate the purchase of the Company. Under the Merger Agreement, the tender offer will be followed by a merger in which any remaining shares of the Company's common stock not tendered will be converted into the right to receive $35.25 per share in cash, without interest. Based upon, among other things, the opinion of Lehman Brothers Inc. to the effect that the consideration to be offered to the Company's stockholders in the tender offer and the merger is fair, from a financial point of view, to such stockholders, the Board has unanimously determined that the tender offer and the merger are in the best interest of the stockholders of the Company. Accordingly, the Board has approved the merger (subject to stockholder approval, if required) and hereby unanimously recommends that the stockholders of the Company accept the offer and tender their shares pursuant to the tender offer. As a condition to J&J's offer, a foundation and certain trusts with which I am affiliated agreed to sell all 9,868,996 shares of common stock of the Company held by them, representing approximately 38.4% of the Company's outstanding common shares, to J&J at $35.25 per share pursuant to the tender offer or otherwise. The tender offer is conditioned upon, among other things, there being validly tendered and not withdrawn a majority of the shares of common stock outstanding (the "Minimum Condition"). Accordingly, the Minimum Condition will be satisfied by the tender of the shares held by the affiliated foundation and trusts and by the holders of at least 12% of the Company's outstanding common shares. Enclosed for your consideration are copies of the Purchaser's tender offer materials and the Company's Solicitation/Recommendation Statement on Schedule 14D-9 being filed today with the Securities and Exchange Commission. All of these documents should be read carefully. In particular, I call your attention to Item 4 of the Company's Schedule 14D-9, which describes the reasons for the Board's recommendation and which stockholders may wish to consider before taking action with respect to the offer. Your Board, management and I thank you for your loyal support throughout the years. I think it has paid off! I hope you concur. Sincerely, /s/ Lloyd E. Cotsen ------------------------------------ Lloyd E. Cotsen Chief Executive Officer and Chairman of the Board of Directors

1 LEHMAN BROTHERS August 22, 1994 Board of Directors Neutrogena Corporation 5760 West 96th Street Los Angeles, California 90045 Members of the Board: We understand that Johnson & Johnson ("Johnson & Johnson"), JNJ Acquisition ("Sub"), a wholly owned subsidiary of Johnson & Johnson, and Neutrogena Corporation (the "Company") have entered into an Agreement and Plan of Merger dated as of August 22, 1994 (the "Agreement") regarding the acquisition of the Company by Johnson & Johnson (the "Proposed Transaction"). The Agreement provides that Sub will make a tender offer to purchase all of the currently issued and outstanding shares of common stock of the Company at $35.25 per share in cash (the "Offer"). Any shares not purchased in the Offer will be acquired for the same price in cash in a second-step merger of Sub with and into the Company (the "Merger"). The terms and conditions of the Proposed Transaction are set forth in more detail in the Agreement. We have been requested by the Company to render our opinion with respect to the fairness, from a financial point of view, to the Company's stockholders of the consideration to be offered to such stockholders in the Offer and the Merger. We have not been requested to opine as to, and our opinion does not in any manner address, the Company's underlying business decision to proceed with or effect the Proposed Transaction. In arriving at our opinion, we reviewed and analyzed: (i) the Agreement; (ii) publicly available information concerning the Company which we believe to be relevant to our inquiry; (iii) financial and operating information with respect to the business and operations of the Company; (iv) a trading history of the common stock of the Company over the last five years and a comparison of such trading histories with those of other companies which we deemed relevant; (v) a comparison of the historical financial results and present financial condition of the Company with those of other companies which we deemed relevant; (vi) a comparison of the financial terms of the Proposed Transaction with the financial terms of certain other recent transactions which we deemed relevant; (vii) the results of our efforts to solicit indications of interest from third parties with respect to a purchase of the Company; and (viii) unsolicited indications of interest and other communications received by or on behalf of the Company with respect to a purchase of the Company following the public announcement by the Company on August 10, 1994 that it was engaged in merger discussions with an unidentified third party. In addition, we have had discussions with the management of the Company concerning its business, operations, assets, financial condition and prospects, and undertook such other studies, analyses and investigations as we deemed appropriate. We have assumed and relied upon the accuracy and completeness of the financial and other information used by us in arriving at our opinion without independent verification and have further relied upon the assurances of management of the Company that they are not aware of any facts that would make such information inaccurate or misleading. In arriving at our opinion, we have not been furnished with any financial forecasts from the Company beyond fiscal 1994. In addition, we have not conducted a physical inspection of the properties and facilities of the Company and have not made nor obtained any evaluations or appraisals of the assets or liabilities of the Company. Our opinion is necessarily based upon market, economic and other conditions as they exist on, and can be evaluated as of, the date of this letter. Based upon and subject to the foregoing, we are of the opinion as of the date hereof that, from a financial point of view, the consideration to be offered to the Company's stockholders in the Offer and the Merger is fair to such stockholders.

2 We have acted as financial advisor to the Company in connection with the Proposed Transaction and will receive a fee for our services which is contingent upon the consummation of the Proposed Transaction. In addition, the Company has agreed to indemnify us for certain liabilities which may arise out of the rendering of this opinion. We also have performed various investment banking services for the Company in the past and have received customary fees for such services. In the ordinary course of our business, we actively trade in the debt and equity securities of the Company and Johnson & Johnson for our own account and for the accounts of our customers and, accordingly, may at any time hold a long or short position in such securities. This opinion is solely for the use and benefit of the Board of Directors of the Company. This opinion is not intended to be and does not constitute a recommendation to any stockholders of the Company as to whether to accept the consideration to be offered to such stockholder in connection with the Offer or how such stockholder should vote with respect to the Merger. Very truly yours, LEHMAN BROTHERS