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Executive Summary

JEFFREY MARTIN's CHANGE OF OWNERSHIP CONTINGENCY PLANS were adopted last summer after it hired investment banker Morgan Stanley in June to explore "strategic alternatives," including merger possibilities, the firm disclosed in its most recent proxy statement. At the same time the company's board approved a new termination benefits plan, and also modified an existing employee stock option plan to prepare for a change in control of the firm. Chairman Martin Himmel, who with his wife owns 64.1% of Jeffrey Martin, appears to be aggressively pursuing the sale of the company's consumer products brands. The stock option and termination benefits plans are an attempt to retain key management while Morgan Stanley looks for suitors. "The purpose of the [termination benefits] plan is to provide incentives to employees of the company to remain at their jobs and to give them peace of mind about the possible financial consequences of any transaction," the proxy states. Under the plan, severance payment levels previously established by the company are automatically doubled. The amended stock option plan addresses any cancellation of stock options that would result from a change in control over the company. "Each option holder would be entitled to receive . . . an amount in cash for each share subject to the options equal to the difference between the highest price paid in the change of control transaction less the exercise price of the options," the proxy explains. In a cash deal, the payment would be made for all shares whether or not the options had been vested in accordance with their original schedule. Under a pooling of interest transaction, however, the vesting of stock options would not be accelerated and payments would be made for options not vested at the time of the deal. In contrast to previous years, Jeffrey Martin struggled in fiscal 1986. Sales slipped 17% to $51.7 mil. for the year ended July 31, while net earnings plummeted 88% to $474,000. The company attributed the poor results to slackening sales of Topol, its highest volume product, in an extremely competitive toothpaste market. The firm's balance sheet remains strong, however. During fiscal 1986, Jeffrey Martin's cash position improved 67% to $14.5 mil. as accounts receivable, inventories and prepaid expenses all declined. The company, which carries no long-term debt, also showed an improvement in its acid test ratio, which rose from 3.7 in fiscal 1985 to roughly four in 1986. Besides Topol, other familiar company brands include: Doan's Pills, Compoz, Lavoris mouthwash, Porcelana, Cuticura and Ayds appetite suppressants.

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