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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14D-1
(AMENDMENT NO. 1)
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TENDER OFFER STATEMENT
PURSUANT TO SECTION 14(D)(1)
OF THE SECURITIES EXCHANGE ACT OF 1934
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BORDEN, INC.
(Name of Subject Company)
-------------------
BORDEN ACQUISITION CORP.
WHITEHALL ASSOCIATES, L.P.
KKR PARTNERS II, L.P.
(Bidders)
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COMMON STOCK, PAR VALUE $.625 PER SHARE
(Title of Class of Securities)
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099599102
(CUSIP Number of Class of Securities)
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HENRY R. KRAVIS
KOHLBERG KRAVIS ROBERTS & CO.
9 WEST 57TH STREET, SUITE 4200
NEW YORK, NEW YORK 10019
(212) 750-8300
(Name, Address and Telephone Number of Person Authorized
to Receive Notices and Communications on Behalf of Bidders)
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COPY TO:
CHARLES I. COGUT, ESQ.
SIMPSON THACHER & BARTLETT
425 LEXINGTON AVENUE
NEW YORK, NEW YORK 10017
(212) 455-2000
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<PAGE>
This Amendment No. 1 amends and supplements the Tender Offer Statement on
Schedule 14D-1 filed on November 22, 1994 (as amended from time to time, the
"Schedule 14D-1") relating to the offer by Borden Acquisition Corp., a New
Jersey corporation (the "Purchaser"), a subsidiary of Whitehall Associates, L.P.
(the "Partnership"), an affiliate of Kohlberg Kravis Roberts & Co., L.P.
("KKR"), upon the terms and subject to the conditions set forth in the Offering
Circular/Prospectus dated November 22, 1994 (the "Offering Circular/Prospectus")
and in the related Letter of Transmittal (collectively, the "Exchange Offer"),
to exchange shares of common stock, par value $.01 per share (the "Holdings
Common Stock"), of RJR Nabisco Holdings Corp., a Delaware corporation
("Holdings"), owned by the Purchaser or its affiliates for all outstanding
shares (the "Borden Shares") of common stock, par value $.625 per share
(collectively, the "Borden Common Stock"), and the associated Preferred Stock
Purchase Rights (the "Rights"), of Borden, Inc., a New Jersey corporation
("Borden"), not already owned by the Purchaser or its affiliates. Unless
otherwise indicated, all capitalized terms used but not defined herein shall
have the meanings assigned to them in the Offering Circular/Prospectus.
ITEM 10. ADDITIONAL INFORMATION.
Item 10(c) of the Schedule 14D-1 is hereby amended and supplemented as
follows:
On November 24, 1994, the Commission of the European Communities issued a
Decision Letter, pursuant to Article 6(1)(b) of Council Regulation 4064/89
declaring the proposed acquisition of Borden by an affiliate of KKR compatible
with the common market and with the functioning of the EEA Agreement.
Item 10(e) of the Schedule 14D-1 is hereby amended and supplemented as
follows:
On November 30, 1994, a putative class action captioned Petersen, et al., v.
Borden, Inc., et al., Case No. 94 CIV 8648, was filed by purported shareholders
of Borden in the United States District Court for the Southern District of New
York against Borden, members of Borden's board of directors, Holdings, members
of Holdings' board of directors, KKR, certain partners and executives of KKR,
and Borden's financial advisors, Lazard Freres and First Boston. The complaint
alleges, among other things, (1) violations of Sections 14(e) and 20(a) of the
Securities Exchange Act of 1934, as amended, by Borden, KKR and Borden's board
of directors; (2) violations of Section 11 of the Securities Act of 1933, as
amended, by Lazard Freres, First Boston and certain officers and directors of
Holdings and partners or executives of KKR; and (3) breach of fiduciary duty by
Borden and Borden's board of directors, which breach of fiduciary duty allegedly
was aided and abetted by KKR. The complaint seeks equitable relief, including,
among other things, a preliminary injunction and declaratory relief, as well as
money damages. A copy of the complaint is attached hereto as Exhibit 11(g)(23)
and is incorporated herein by reference.
ITEM 11. MATERIAL TO BE FILED AS EXHIBITS.
<TABLE>
<S> <C>
11(g)(23) Class Action Complaint, Petersen, et al. v. Borden, Inc., et al., Case No. 94 CIV
8648, dated November 30, 1994.
</TABLE>
1
<PAGE>
SIGNATURE
After due 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.
BORDEN ACQUISITION CORP.
By: /s/ SCOTT M. STUART
..................................
Name: Scott M. Stuart
Title: Vice President
WHITEHALL ASSOCIATES, L.P.
By: KKR Associates, a limited
partnership, its General Partner
By: /s/ HENRY R. KRAVIS
..................................
Name: Henry R. Kravis
Title: General Partner
KKR PARTNERS II, L.P.
By: KKR Associates, a limited
partnership, its General Partner
By: /s/ HENRY R. KRAVIS
..................................
Name: Henry R. Kravis
Title: General Partner
Date: December 2, 1994
2
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EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT PAGE
NO. DESCRIPTION NO.
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<S> <C> <C>
11(g)(23) Class Action Complaint, Petersen, et al. v. Borden, Inc., et al., Case No.
94 CIV 8648, dated November 30, 1994......................................
</TABLE>
EXHIBIT-11.(g)(23)
CLASS ACTION
COMPLAINT
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Civil Action No.
JURY DEMAND
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
JAMES PETERSEN, SIDNEY GLICK, BARBARA LUBIN, MARTIN H. OLESH,
PAMELA SKULSKY, MARTIN WEBER, NORMAN WEISS, STELLA COHORSKY,
ABRAHAM JOSEPH, ROBERT WARING, ROBERT STROUGO, THOMAS TASSONE,
MOISE KATZ, CHARLES MILLER, WILLIAM STEINER, PAUL L. KOHNSTAMM,
JERRY KRIM, BERNARD STEPAK, DANIEL MARCUS, KATHLEEN DWYER,
PITTMAN NEUROSURGICAL P.A. Defined Benefit Plan U.T.D. 9/1/77 and
R. Clinton Pittman Trustee, MARGARET ALESSI, JOSEPH RABINOVITS,
ESTATE OF HENRY F. WANGER, GEORGE MAZETY, JEFFREY E. KASSOWAY,
TERRY STAPLES, ROBERT LEWIS and ERICA HARTMAN,
Plaintiffs,
- against -
BORDEN, INC., ERVIN SHAMES, FRANK J. TASCO, FREDERICK E. HENNIG,
WILBERT J. LEMELLE, ROBERT B. LUCIANO, H. BARCLAY MORLEY, JOHN E.
SEXTON, PATRICIA CARRY STEWART, RJR NABISCO HOLDINGS CORP.,
KOHLBERG KRAVIS ROBERTS & CO., L.P., CHARLES M. HARPER, STEPHEN
R. WILSON, ROBERT S. ROATH, H. JOHN GREENIAUS, JAMES W. JOHNSTON,
JAMES H. GREENE, JR., HENRY R. KRAVIS, PAUL E. RAETHER, LAWRENCE
R. RICCIARDI, CLIFTON S. ROBBINS, GEORGE R. ROBERTS, SCOTT M.
STUART, MICHAEL T. TOKARZ, JOHN T. CHAIN, JR., JOHN L. CLENDENIN,
JOHN G. MEDLIN, JR., ROZANNE L. RIDGWAY, LAZARD FRERES & CO. and
CS FIRST BOSTON GROUP, INC.,
Defendants.
Plaintiffs and all others similarly situated, by
and through their attorneys, allege upon personal knowledge as to
allegations concerning themselves and upon information and belief
as to all other matters as follows:
<PAGE>
1. This class action is brought by
plaintiffs, shareholders of defendant Borden, Inc. ("Borden" or
the "Company") for declaratory and injunctive relief, or,
alternatively, for monetary damages resulting from the individual
defendants' repeated breaches of the disclosure and fiduciary duties
owed by them, as directors of Borden, to plaintiffs, and defendants
Kohlberg Kravis Roberts & Co., L.P.'s ("KKR"), RJR Nabisco Holdings
Corp. ("RJR"), Lazard Freres & Co. ("Lazard") and CS First Boston
("First Boston") knowing direct participation in and aiding and
abetting of those breaches. The breaches occurred, and are
continuing, in connection with directors' decision to sell Borden
and their abject failure to carry out their fiduciary and disclosure
duties to Borden shareholders in the many respects hereinafter
described.
SUMMARY OF THE COMPLAINT
2. Contrary to what the defendants
are telling the world about KKR's offer to pay $14.25 for every
Borden share -- that it is a "premium of 22.6 percent" and that
it is the "best available alternative for Borden shareholders" --
the merger agreement signed by Borden and KKR, in truth, does
nothing more than force Borden shareholders to pay KKR $65
million for the privilege of assuming one half of KKR's tobacco
liability in exchange for selling their company on the cheap.
Remarkably for 1994, KKR, in true 1980s style, has conceived and
executed the first win/win tender offer. If the offer is
successful, and KKR obtains the tender of over 50% of the
outstanding shares of
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Borden, KKR earns $65 million and owns Borden. If the offer is
unsuccessful, and KKR receives less than 50% in the tender offer,
KKR earns $65 million and obtains effective control of Borden by
virtue of a 19.9% stock option and the 16% of Borden KKR already
owns. The offer is even more diabolical in concealing the true
nature of the "back end" the Borden shareholders will receive
following the merger. While a "collar" protects the value of the
securities to be received by tendering shareholders, no such
collar protects those Borden shareholders who do not tender.
Once the merger is consummated, non-tendering shareholders will
receive "the same number" of RJR shares offered in the exchange,
but the value of those shares is likely to be diminished as a
-----
result of both the dilutive entry of millions of new, freely
tradeable, RJR shares into the marketplace, as well as the price
depression in RJR stock which will follow the sale of many of
those newly tradeable shares by former Borden shareholders who do
not wish to be shareholders of RJR.
2. With the willing collusion of the majority
of the Borden board of directors, KKR has obtained an agreement
that allows it to gain control of Borden at a discount to the
true value of the corporation win, lose, or draw -- and receive
$65 million for their trouble. In fact, the entire deal is
nothing more than a mosaic of violations of the federal
securities laws and breaches of fiduciary duty.
3. The public filings of Borden and KKR
failed to properly disclose:
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(a) that while non-tendering Borden shareholders will
receive the same number of RJR shares as those received by
tendering shareholders in the exchange offer, the value of those
shares is likely to be materially less. Borden's sole disclosure
on this issue states that "nontendering shareholders will receive
the same consideration for each Borden share as was paid in the
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exchange offer." (emphasis added) This statement is materially
misleading because the value is likely to be less than the value
of the shares received in the exchange.
(b) that in evaluating whether the KKR proposal was the
best alternative for the company, the Board did not take into
account the results of the third quarter of 1994 -- the first up
quarter in three years;
(c) the full details of why the executive in charge of
the Company and its restructuring refused to agree to the KKR
offer and abstained from all voting on the merger;
(d) the fact that KKR need only obtain the tender of a
mere 25% of Borden shares in order to reach the "Minimum
Condition" of the offer;
(e) the fact that if RJR stock drops by as little as
1/2 a point between November 22, and the undetermined date upon
which the exchange ratio will be set, Borden stockholders will
receive not $14.25 per share, but materially less -- and how much
less is
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simply the product of how low RJR stock goes, and how long the
offer stays open;
(f) the fact that the value of the consideration to be
received by Borden pursuant to the Stock Option is considerably
less than the $300 million face value of the RJR stock;
(g) that another bona fide bidder had made a proposal
for the company at significantly more per share than the KKR bid;
(h) that Lazard and First Boston are in fact acting as
underwriters for this largest secondary offering in history, and
being compensated as such;
(i) that the consideration to be received by the Borden
shareholders in the offer is subject to enormous, quantifiable
risk as a result of the tobacco component of RJR's business;
(j) that RJR's spin-off of 17% to 19% of its food
business in an initial public offering and the subsequent
absolute right of RJR to sell off the remaining 80% of that
business leaves tendering Borden shareholders with the risk that
they may be trading their shares in a preeminent food business
for shares in a tobacco business; and,
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(k) the full details of why RJR terminated the agreement
in principle relating to the Borden tender offer, signed by RJR
and KKR.
4. The Borden board has breached its
fiduciary duties to the stockholders by agreeing to a merger with
KKR:
(a) while knowing of the interest of other qualified
and bona fide bidders for Borden, and without taking any steps to
---- ----
inform themselves as to the actual amount that such interested
parties were willing to pay for Borden;
(b) without taking steps to inform themselves as to the
true value of Borden in a fair auction or other process and
thereby agreeing to sell the company for a price which was at
least more than $1.75 per share less than its true value as
measured against the bottom of the range of value offered by a
competing bidder;
(c) by entering into a merger agreement which contains
provisions designed not only to thwart, impede, delay, and/or
make prohibitively expensive bona fide competing bids for Borden,
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but also to guarantee a "concentration of influence" and
"significant influence" over Borden by KKR, including:
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(i) A lock up stock option (the "Stock Option"),
which allows KKR to purchase 19.9% of Borden's outstanding common
stock (approximately 28,138,000 shares) at the favorable price of
$11 per share, payable in RJR stock, and permits KKR to obtain
over 33% of Borden's board seats if the KKR offer is
unsuccessful; and,
(ii) A disproportionate number of success fees and
"topping fees" which, in the aggregate, amount to no less than
$65 million -- $20 million of which has already been paid to KKR.
(d) where the sole consideration to be paid to Borden
shareholders consists of shares of RJR which the directors knew
was in danger of severe decline due to (i) the inherent risk of
RJR's tobacco holdings; (ii) the recent announcement of RJR's
public offering of 17% - 20% of its non-tobacco assets and the
absolute right of RJR to dispose of the remaining 80%; and, (iii)
the dilutive effect of the entry into the market of at least 109
million and at most 354 million shares of freely tradable RJR
common shares;
(e) refusing to obtain an expert opinion on the risks
inherent in tobacco liability and the effect such liability might
have on the consideration to be received by the Borden
stockholders;
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<PAGE>
(f) refusing to and failing to meet, discuss, or
negotiate in good faith with known and identified bona fide
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competing bidders for Borden who were willing to offer, and did
offer, to Borden and its stockholders financial consideration and
other terms which were substantially better than those offered by
KKR.
(g) without taking steps to inform themselves in any
manner whatsoever whether Japonica Partners ("Japonica"), was
willing to pay more for Borden than KKR; and,
(h) making materially false and misleading statements to
Borden's shareholders with respect to the sale of Borden to KKR.
5. Each of the Borden Director Defendants
in their actions and inaction were acting under the domination of
Borden's existing management, whose sole motivation is to deliver
Borden to KKR in order to enrich themselves and secure continuing
employment with the merged entity.
THE JURISDICTION AND PARTIES
6. This is a class action which arises
under Section 14(e) of the Securities Exchange Act of 1934 ("1934
Act"), 15 U.S.C. 78n(e), Section 11 of the Securities Act of 1933
(the "1933 Act"), 15 U.S.C. Paragraph 77k and applicable
principles of common law. This Court has jurisdiction pursuant to
Section 27 of the
-8-
<PAGE>
1934 Act, Section 22 of the 1933 Act, 28 U.S.C. Paragraph 1331,
and principles of supplemental jurisdiction.
7. Venue is proper in this district pursuant
to Section 27 of the Exchange Act, 15 U.S.C. Sec. 78aa, and 288
U.S.C. Secs. 1391(b) and (c). A substantial part of the events
giving rise to the claims alleged herein occurred in this
district, including the dissemination of false and misleading
statements in connection with the tender offer for Borden.
8. In connection with the acts and conduct
alleged in this complaint, defendants, directly and indirectly,
used the means and. instrumentalities of interstate commerce,
including the mails and telephone communication, and the
facilities of the national securities markets, namely, the New
York Stock Exchange.
9. Plaintiffs herein are, and at all times
relevant to this action have been, owners of the shares of the
common stock of defendant Borden.
10. Defendant Borden is a New Jersey
corporation maintaining its principal place of business at 180
East Broad Street, Columbus, Ohio 43215. Borden is engaged
primarily in manufacturing, processing, purchasing and
distributing a broad range of products, including a variety of
consumer food products, consumer and industrial adhesives, and
plastic films and packaging.
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<PAGE>
11. The following defendants are, and at all
times relevant hereto, have been directors and officers of Borden
(collectively, the "Director Defendants").
12. Defendant Ervin Shames ("Shames") is, and
at all relevant times hereto has been, a director of Borden, and
its President and Chief Executive Officer.
13. Defendant Frank J. Tasco ("Tasco") is, and
at all times relevant hereto has been, Chairman of the Board of
Borden.
14. Defendants Frederick E. Hennig ("Hennig"),
Wilbert J. Lemelle ("Lemelle"'), Robert P. Luciano ("Luciano"),
H. Barclay Morley ("Morley"), John E. Sexton ("Sexton") and
Patricia Carry Stewart ("Stewart") are, and at all times relevant
hereto have been, directors of Borden.
15. Defendant RJR is a Delaware corporation
with its principal place of business located at 1301 Avenue of
the Americas, New York, New York. RJR, through its wholly owned
subsidiary RJR Nabisco, Inc., is a global leader in the food and
tobacco industries.
16. Defendant KKR is a Delaware limited
partnership with its principal offices located at 9 West 57th
Street, New York, New York 10019. KKR is a "buyout firm" that
owns a substantial interest in, among others, RJR. According to
an April 11, 1994 proxy statement of RJR, KKR, through its
affiliate KKR Associates, owns 566,766,236 shares or 48.9% of the
RJR
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common stock outstanding. An affiliate of KKR, Whitehall
Associates, L.P. is the owner of Borden Acquisition Corp., the
offeror in the KKR tender offer. Whitehall Associates is the
beneficial owner of 16% of the outstanding common stock of
Borden.
17. The following defendants are officers
and/or directors of RJR and/or general or limited partners or
executives of KKR (collectively, the "KKR Defendants").
18. Defendant Charles M. Harper ("Harper") is,
and at all times relevant hereto has been, an RJR director, and
is its Chief Executive Officer and Chairman of the Board.
19. Defendant Stephen R. Wilson ("Wilson") is,
and at all times relevant hereto has been, Executive Vice
President and Chief Financial Officer of RJR
20. Defendant Robert S. Roath ("Roath") is,
and at all times relevant hereto has been, Senior Vice President
and Controller of RJR.
21. Defendant H. John Greeniaus ("Greeniaus")
is, and at all times relevant hereto has been, a director of RJR
and is the Chairman and Chief Executive Officer of Nabisco Foods
Group.
22. Defendant James W. Johnston ("Johnston")
is a director of RJR and has served, at all times relevant
hereto, as Chairman and Chief Executive Officer of R.J. Reynolds
Tobacco Company.
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<PAGE>
23. Defendant James H. Greene, Jr. ("Greene")
is, and at all times relevant hereto has been, a director of RJR,
and a general partner of KKR and affiliated companies.
24. Defendant Henry R. Kravis ("Kravis") is,
and at all times relevant hereto has been, a director of RJR and
a general partner of KKR and affiliated companies.
25. Defendant Paul E. Raether ("Raether") is,
and at all times relevant hereto has been, a director of RJR and
a general partner of KKR and affiliated companies.
26. Defendant Lawrence R. Ricciardi
("Ricciardi") is, and at all times relevant hereto has been, a
director of RJR and its President and General Counsel.
27. Defendant Clifton S. Robbins ("Robbins")
is, and at all times relevant hereto has been, a director of RJR
and an executive of KKR and a limited partner of a KKR affiliate.
28. Defendant George R. Roberts ("Roberts")
is, and at all times relevant hereto has been, a director of RJR
and a general partner of KKR and a KKR affiliate.
29. Defendant Scott M. Stuart ("Stuart") is,
and at all times relevant hereto has been, a director of RJR and
an executive of KKR and a limited partner of a KKR affiliate.
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<PAGE>
30. Defendant Michael T. Tokarz ("Tokarz") is,
and at all times relevant hereto has been, a director of RJR and
a general partner of KKR and a KKR affiliate.
31. Defendants John T. Chain, Jr. ("Chain"),
John L. Clendenin ("Clendenin"), John G. Medlin, Jr. ("Medlin")
and Rozanne L. Ridgway ("Ridgway") are and at all times relevant
hereto have been directors of RJR.
32. Defendant Lazard is engaged in the
business of, among other things, investment banking and the
rendering of expert advice with respect to mergers and
acquisitions. Beginning in October, 1993, Lazard advised Borden
with respect to the consideration of certain transactions,
including the proposed Exchange Offer and Merger Agreement.
Lazard acted as an "underwriter" within the meaning of Section
11 of the 1933 Act in connection with the Exchange Offer.
33. Defendant First Boston is a Delaware
Corporation with its principal executive offices located at Park
Avenue Plaza, New York, New York, 10055. First Boston, through
its wholly owned subsidiaries, is engaged in, among other things,
investment banking and the rendering of expert advice with
respect to mergers and acquisitions. Beginning in September,
1993, First Boston provided financial advice to Borden in
connection with certain proposed transactions, including the
proposed Exchange Offer and Merger Agreement. First Boston acted
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as an "underwriter" within the meaning of Section 11 of the 1933
Act in connection with the Exchange Offer.
CLASS ACTION ALLEGATIONS
34. Plaintiffs bring this action on their own
behalf and as a class action pursuant to Rule 23 of the Federal
Rules of Civil Procedure, on behalf of all common stockholders of
Borden (except defendants herein and any person, firm, trust,
corporation, or other entity related to or affiliated with any of
the defendants and except for all persons seeking to buy Borden
as an entity, either by friendly or hostile means) who are being
deprived of the opportunity to maximize the value of their Borden
stock by the wrongful acts of the defendants described herein
(the "Class").
35. This action is properly maintainable as a
class action for the following reasons:
a. The Class is so numerous that
joinder of all members is impracticable. There are approximately
141,814,967 shares of Borden common stock outstanding owned by
approximately 37,946 shareholders of record. The members of the
Class are scattered throughout the United States and are so
numerous as to make it impracticable to bring them all before
this Court.
b. No unusual difficulties are
likely to be encountered in the management of this Class Action.
The
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<PAGE>
likelihood of individual Class members prosecuting separate
claims is remote.
c. There are questions of law and
fact which are common to the Class and which predominate over the
questions affecting any individual Class member, including
whether the defendants have breached the fiduciary duties owed by
them to plaintiffs and members of the Class and the duties of
disclosure mandated by the federal securities laws by reason of:
(i) disseminating or permitting the
dissemination of public false and misleading statements concerning
the sale of the Company to KKR; and,
(ii) whether defendants' acts violate the
Securities Act of 1933 and the Securities and Exchange Act of
1934 and the rules and regulations promulgated thereunder;
(iii) engaging in plans and schemes to
unlawfully thwart offers and proposals from third parties;
(iv) approving and causing Borden to approve
and agree to onerous "lock up" provisions with KKR without any
reasonable basis;
(v) failing to adequately inform themselves
prior to entering into a merger agreement with KKR; and
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(vi) failing to conduct an auction of the
company in order to maximize shareholder value;
(vii) whether plaintiffs and the other members
of the Class will be irreparably damaged were the transactions
contemplated of herein consummated.
d. Plaintiffs are committed to
prosecuting this action and have retained competent counsel
experienced in litigation of this nature. The claims of
plaintiffs are typical of the claims of the other members of the
Class and plaintiffs have the same interests as the other members
of the Class. Plaintiffs are adequate representatives of the
Class.
e. The prosecution of separate
actions by individual members of the Class would create the risk
of inconsistent or varying adjudication with respect to
individual members of the Class which would establish
incompatible standards of conduct for the parties opposing the
Class.
f. Defendants have acted and are
about to act on grounds generally applicable to the Class,
thereby making appropriate final injunctive or corresponding
rescissory relief with respect to the Class as a whole.
36. For the reasons stated herein, a Class
action is superior to other available methods for the fair and
efficient adjudication of the claims asserted herein.
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SUBSTANTIVE ALLEGATIONS
Background
37. Borden is a Fortune 500 company whose main
emphasis is the food business. Borden's food assets include
snacks, jams and jellies, pasta, dairy (including cheese) and
seafood. Through its Packaging and Industrial Products Division
Borden produces wallcoverings and packaging. In addition, Borden
has a large adhesive and resin business. The largest division,
and that for which Borden is best known, is the dairy business.
Between 1989 and 1992 Borden made numerous acquisitions and saw
its debt load rise while its earnings and stock price fell. In
September, 1993, Borden shares traded at $19.875, a twelve month
high. Prior to that, Borden's share price had been in the $30
range.
Initial Overtures BY KKR
38. In early 1993, at a time when Borden was
reevaluating its goals under a restructuring plan instituted in
1992, Borden received an unsolicited expression of interest from
KKR. Borden, having struggled for years to overcome declining
earnings and falling sales through various failed restructuring
plans, decided to enter into discussions with KKR, at the
initiation of KKR, in order to determine whether a sale of the
Company was a suitable alternative to restructuring.
Representatives of KKR met with management of the Company and the
Company's financial advisor, First Boston. Prior to that meeting
KKR neither signed a confidentiality agreement, nor proffered
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evidence of firm financing. Following those discussions, Borden
informed KKR that it did not wish to proceed with a sale of the
company. The Borden board had apparently concluded to continue to
try to revive the Company, and remain independent. Despite the
termination of those discussions, KKR remained interested in
acquiring Borden.
The 1993 Restructuring Plan
39. Having decided to forego a sale of the
company, the Borden board decided to replace management and
pursue a more vigorous restructuring. To that end, the Company
hired Ervin Shames as President and Chief Operating Officer in
June 1993. Shames was hired for his expertise in the food
business and given the mandate to review the assets of the
Company and identify which assets to retain and which to divest
in an effort to restructure the Company. To assist Mr. Shames,
the Company hired the consulting firm of Booz Allen & Hamilton,
Inc. ("Booz Allen") and the investment bank, First Boston. Borden
also retained the law firm of Wachtell, Lipton, Rosen & Katz as
special counsel to the Company and retained Lazard, to help the
Company analyze its "strategic alternatives."
40. In the fall of 1993, Mr Shames and his
advisors presented the Borden board with a new plan for
restructuring the Company. The plan called for major
divestitures, including the sale of the North American snacks
business, its seafood business, its jams and jellies business,
and other businesses which, in the
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aggregate, amounted to approximately 20% of the Company's
projected sales for 1993.
The Board Hedges Its Bets
41. Despite having been told by the Company
that it was not interested in a transaction with KKR, KKR
continued to express an interest in acquiring Borden throughout
1993, and was even able to obtain non-public information about
the 1993 restructuring plan. In December 1993, the Borden board,
aware that two unsolicited inquiries regarding the sale of the
company had been received, one from KKR and one from Hanson PLC
("Hanson"), instructed Lazard to make limited inquiries of
potential buyers, including KKR. KKR, together with Lazard, then
brought the possibility of a transaction with Borden to the
attention of RJR, a company controlled by KKR. The talks with RJR
did not however, produce a proposed transaction. Just as in the
earlier discussion, no confidentiality agreement was signed, nor
was evidence of financing proffered before substantive meetings
were held.
42. On December 9, 1993, Lazard informed the
board that Hanson had surfaced and was interested in acquiring
all of the Company. At a board meeting, the board decided to
continue the 1993 restructuring plan as its primary goal, but
also to pursue discussions with Hanson. Those discussions
resulted in a proposal for Hanson to acquire the Company's
Packaging and Industrial Products Division and make a concurrent
investment in
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the remaining food businesses. The board rejected this proposal
and in January of 1994, the board approved the 1993 restructuring
plan. Despite early problems reaching the goals set by the 1993
plan through the first half of 1994, in the third quarter of 1994
Borden reported its first positive results in three years, with
sales rising by 3.9%. During the course of implementing the 1993
restructuring plan, but prior to the results for the third
quarter, the board decided to revisit the idea of selling the
Company as an alterative to seeing the restructuring through.
Borden Is Up For Sale
43. On May 24, 1994, in response to public
disclosures that Borden might be up for sale, Japonica Partners
("Japonica"), a company headed by former a Goldman Sachs
investment banker, Paul Kazarian ("Kazarian"), wrote to Borden
and expressed an interest in entering into a transaction with the
Company and seeking a meeting to discuss the possible
transaction. Kazarian, the former chairman of Sunbeam-Oster,
Inc., which was acquired by Kazarian with some $660 million in
financing, is a well known turnaround expert. Kazarian recently
turned around the consumer products company, Allegheny
International. Kazarian's May 24 letter, and subsequent letters,
went unanswered. It was not, in fact, until the middle of June,
that Borden responded to Kazarian's letters, and informed him
that his attention should be directed to Lazard. Japonica
attempted to reach Lazard and after some time during which its
calls were not returned, Japonica's overtures were rebuffed.
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44. On July 5, 1994, Kazarian wrote to Tasco,
the Chairman of Borden, expressing continued interest in making a
proposal and relaying Lazard's less than up-beat appraisal of the
Company's situation. That letter, as well, went unanswered.
Lazard and Tasco continued to refuse to have substantive
discussions with Japonica and took the position that Japonica was
avoiding answering questions regarding the proposed source of
funds for the transaction Japonica was proposing. Japonica, for
its part, denied that any questions relating to financing were
posed by Lazard, and continued to seek a meeting to discuss its
proposal.
45. On July 26, the Borden board met and
instructed Lazard to pursue discussions with KKR. The board did
not consider pursuing discussions with Japonica, nor did it
consider seeking proposals from any other party, including the
previous potential purchaser, Hanson. The board concluded that
"given the publicity concerning the Company's efforts to find a
buyer in late 1993 and the lack of inquiries, the Board
determined that it was reasonable to conclude that no other
bidder was interested." Thus, the board relied solely on the
negative results of a limited, 6 month long, market canvass as
the basis for pursuing discussions with only their suitor of
choice -- KKR. Indeed, at the time of the 1993 market check, the
stock of Borden was trading in the high twenties, ten points
higher than July -- making Borden a more attractive target in July
1994 than in December of 1993.
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46. On July 27, 1994, the Company announced
its results for the second quarter of 1994. Net income continued
to decline, to $.08 per share, compared to $.22 per share in the
same period of 1993. Net sales, however, rose 1.3% against the
same comparable period one year earlier. The results were,
however, below the expectations set in the 1993 restructuring
plan and caused the Company to reconsider, once again, its
restructuring goals. In order to further its restructuring plans,
the Company obtained a $1.4 billion, 2 1/2 year financing
facility from a syndicate of banks lead by Citibank and Credit
Suisse. The Company also began to develop a new 1994
restructuring plan which called for a divestiture of the majority
of the dairy business, the main drain on the Company's earnings
and cash, as well as the sale of two profitable assets of the
Packaging and Industrial Products Division in order to generate
cash to reduce debt. Working with its advisors, the board
authorized management to finalize the details of the proposed
1994 plan with a view toward its formal approval in early
September 1994.
Borden Rebuffs Japonica and Embraces KKR
47. Aware of the news regarding the latest
restructuring plan, Japonica continued to seek a meeting with
Borden. Its overtures were again met with silence from Borden.
Notwithstanding Borden's continued refusal to meet with Japonica,
on August 3, 1994, a confidentiality agreement was signed with
KKR pursuant to which KKR was provided with nonpublic information
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concerning the Company, including projections. KKR then proposed
exploring a transaction with Borden, the consideration for which
would be securities owned by partnerships controlled by KKR. On
August 16, KKR, through Lazard, communicated to Borden a proposal
to acquire Borden using KKR controlled RJR stock as the
consideration. On August 18, the board was informed at a formal
meeting that KKR would require further due diligence before it
could proffer a definitive proposal.
48. Over the objections of Shames, the board
determined to shift its emphasis from the restructuring to the
pursuit of a premium transaction with KKR. Shames stressed that
the 1994 plan was achievable and would, in the long run, maximize
shareholder value and, in the event the board chose to sell, make
the company more saleable. Management was directed to complete
the plans for the new restructuring, but Lazard was directed to
pursue a transaction with KKR. The board never directed Lazard to
enter into substantive discussions with Japonica to evaluate
whether a higher, offer could be obtained in that transaction,
nor was Japonica allowed access to nonpublic information
concerning the Company.
49. On September 7, the board met once again
and was informed of the state of negotiations with KKR. KKR
agreed to offer $14.25 of RJR stock per Borden share and agreed
on a collar, whereby the shareholders of Borden would reap the
benefit if RJR stock rose about $8 per share and would bear the
burden if the stock fell below $6 per share. The likelihood of
RJR stock
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reaching the upside of the collar was, however, remote as RJR had
not traded in this range in 1994, and in fact traded near or
below $6 throughout 1994. KKR also agreed not to profit from the
19.9% stock option in the event a topping bid was made by a third
party. KKR, however, insisted on receiving a $20 million up front
"fee," a topping fee of $50 million, and expense reimbursement of
up to $15 million. Once again Shames stated his belief that the
restructuring plan was the best alternative for the Company. Over
Shames objections, the board voted to allow management to proceed
with the KKR negotiations.
50. On September 11, 1994, the board
authorized the Company to enter into an agreement in principle
with KKR. The agreement called for KKR to exchange RJR stock
worth $14.25 for each share of Borden stock so long as RJR stock
trades between $6 and $8 per share. The agreement also called for
the immediate payment of a $20 million fee to KKR, a 19.9% stock
option at $11 per share, payable in RJR stock and a $50 million
topping fee. The agreement was announced on September 12. At the
same time, RJR announced that following KKR's successful
acquisition of Borden, RJR would issue Borden $500 million of
newly issued common shares in exchange for newly issued Borden
common shares representing a 20% interest in Borden and a warrant
to acquire an additional 10% of Borden shares. The RJR minority
interest was an integral part of the transaction agreed to by the
Borden board.
51. In the face of these announcements,
Japonica
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continued to write to Borden and attempted obtain information and
a substantive meeting. In response to Japonica's repeated
requests, the Company finally forwarded a form confidentiality
agreement for Japonica's signature and on September 17, Borden
finally relented and agreed to a meeting with Japonica on
September 21. At that meeting, and by letter, Japonica proposed
paying between $16 and $18 per share in a combination of cash and
securities. Japonica went on to outline its past abilities to
arrange financing in transactions of comparable size and gave
assurances that such could be arranged in the present
transaction. Unbeknownst to Japonica, Lazard, with whom Japonica
was meeting, had shortly before entered into a new fee
arrangement with Borden, whereby Lazard would receive $3 million
in fees upon the execution of the Merger Agreement with KKR and
an additional $7 million in fees in the event that KKR acquired
at least 50.1% of the outstanding shares of Borden. First Boston
entered into an identical agreement on September 22. Thus, the
investment bankers had no incentive whatsoever to present a bona
----
fide proposal by Japonica to the Borden board. Indeed, these
----
fees, far from being the usual "success fees" paid to financial
advisors for producing a premium transaction, are, in fact,
underwriting fees -- paid to Lazard and First Boston in exchange
for bringing KKR's secondary offering to market through the
Borden shareholders.
Borden Accepts KKR's Offer
52. On September 22, the board met and
considered the
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merger agreement (the "Merger Agreement") and the Conditional
Purchase/Option Agreement (the "Option Agreement"). Once again,
with Shames abstaining, the board voted in favor of the KKR
transaction and on September 23, a joint press release was issued
detailing the Merger Agreement and the Option Agreement. The
Director Defendants approved the Merger Agreement after only
limited deliberation and consideration during part of a single
day, and without seeking information concerning any other offers,
even though they knew that other bona fide offerors, such as
---- ----
Japonica, existed and were interested in acquiring Borden.
53. The consideration to be received by
Borden's shareholders and agreed to by the Director Defendants
was grossly inadequate in that it was only slightly more than the
nine-year low for the price of Borden shares. Under the terms of
the Merger Agreement, the consideration will be common stock of
RJR valued at $14.25 provided that no more than 2.375 RJR shares
and no fewer than 1.78125 RJR shares will be exchanged for each
Borden share. Thus, although the consideration purportedly has an
imputed value of $14.25, if RJR stock falls below $6 per share,
the Borden shares will be exchanged for less than that amount.
Most important, the Merger Agreement does not require termination
of the transaction if the price of the RJR stock falls below this
collar.
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54. In accepting this price for Borden shares,
the board failed to make any inquiry into what the value of the
RJR stock to be received by the Borden shareholders would be at
the time the shareholders actually receive it. The board failed
to ask its advisors to render an opinion as to the effect of the
entry into the freely tradable market for those shares of no less
than 109 million to 145 million RJR shares as a consequence of
the exchange offer. In addition, the board failed to evaluate the
risk of liability stemming from RJR's tobacco interests.
The Board did not require the two financial advisors to opine on
such risk -- indeed, the board accepted the excuses of Lazard and
First Boston that their expertise did not extend into that area.
Moreover, the board did not retain an advisor whose expertise
would allow such expert to opine on the risk of tobacco liability
and its potential effect on the consideration to be received by
Borden shareholders.
55. The Merger Agreement also contains other
material terms which disadvantage Borden's shareholders and were
intended to thwart and impede any other competing bid: (i) the
payment of a $20 million fee, in cash, to KKR upon execution of
the letter of intent; (ii) the guarantee of reimbursement of
expenses up to $15 million; (iii) the payment of a $50 million
topping fee; and (iv) the payment of an additional $30 million
fee, in cash, in the event that KKR acquires over 50% of the
outstanding shares of Borden.
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<PAGE>
56. In addition, the Merger Agreement coerces
the Borden shareholders to tender into the offer in order to
avoid losing value on the "back-end" of the transaction. In a
variation of the classic "coercive two-tier tender offer", which
offers cash on the front end and securities of indeterminate
value on the back-end (after the merger has been consummated) and
thus compels shareholders to rush to tender in order to get the
"certain" consideration, here, the Borden shares of non-tendering
(back-end) shareholders will "be converted into the right to
receive that number of fully paid, and non-assessable shares of
[RJR] common stock equal to the final exchange ratio" as set in
the exchange offer. The coercive element is that while a "collar"
protects the value of the securities to be received by tendering
shareholders, no such collar protects those Borden shareholders
who do not tender. Once the merger is consummated, non-tendering
shareholders will merely receive "the same number" of RJR shares
offered in the exchange, but the value of those shares is likely
to be diminished as a result of both of the dilutive entry of
millions of new, freely tradeable, RJR shares into the
marketplace, as well as the price depression in RJR stock which
will follow the sale of many of those newly tradeable shares by
former Borden shareholders who do not wish to be shareholders of
RJR. The prospect of losing value in this way will serve to
compel Borden shareholders to tender into the exchange offer.
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57. The Stock Option Agreement also contains
material terms which disadvantage Borden shareholders in the
event that the merger is not consummated. These terms like the
aforementioned, are designed to coerce Borden shareholders into
tendering into the offer. If the Merger is not consummated, KKR
will control, in addition to the shares of Borden already owned,
the number of shares acquired in the exchange offer and the
option shares pursuant to the Stock Option Agreement by which
Borden has granted to KKR the irrevocable right to purchase 19.9%
of the outstanding shares of Borden at $11 per share, payable in
RJR stock. Despite the statements by the defendants that the
option payment would give Borden $300 million in liquid assets,
which could be used to pay down debt -- the real value of the RJR
stock will be far less. The underwriting fees alone required to
bring the stock to market would depress the price far below that
level, even without taking into account the dilutive effect of
the entry into the market of that amount of freely tradable RJR
stock.
58. Indeed, the Option becomes mandatory in
the event that KKR acquires more than 41% of Borden shares
(including the 16% of Borden shares already owned by KKR) but
less than 50%. In addition, Borden has agreed that in the event
KKR acquires no less than 19.9% of the outstanding shares of
Borden, KKR has the right to control 33 1/3% of the seats on the
Borden board. The net effect of the Stock Option Agreement is
thus to allow KKR to obtain virtual control of Borden even if it
acquires not one
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<PAGE>
share in the exchange offer, and absolute control if a mere 25%
of Borden shareholders tender into the offer. The coercive effect
of the option is therefore manifest -- with 16% of Borden shares
in hand, and an additional 19.9% guaranteed to it, KKR need only
obtain that 25% to insure complete control of Borden. The Borden
board has contracted away control of the company in favor of KKR
no matter what -- a virtual majority squeeze-out. In the face of
these devices (which were designed and intended to lock up the
deal in favor of the board's favored suitor) Japonica has thus
far been deterred from making a competing offer for the Company.
Post Agreement Events
59. On October 25, RJR announced that its was
unable to reach a definitive agreement with KKR regarding a
minority position in Borden, ostensibly over "certain accounting
issues." Coincidentally, a mere three days later, RJR announced
that its Nabisco subsidiary was selling 51 million shares of its
class A common stock in an Initial Public Offering amounting to
between 17.4% and 19.5% of Nabisco's common equity, with the
remaining equity interest residing in the Class B common stock
which will be retained by RJR. Borden was informed of Nabisco's
intentions prior to the announcement and the filing of the
registration statement. As part of the registration statement,
Nabisco has stated that RJR "has informed Nabisco that its
current intent is to continue to hold all of the Class B common
stock . . . However, [RJR] has no agreement with Nabisco not to
sell or
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distribute such shares, and there can be no assurance concerning
the period of time during which [RJR] will maintain its
beneficial ownership of Common Stock."
60. This development exposes Borden
shareholders to the very real risk that RJR will, in future, sell
the remainder of its Nabisco holdings, fully separating the
tobacco interests of RJR from the food interests of Nabisco. To
Borden's shareholders, this means that they are being coerced
into accepting a security in a combined food and tobacco
business, which could in the very near future become a security
in an exclusively tobacco business -- with all the risks that
entails - a fact which was has not been disclosed by the
defendants.
61. Neither the Borden board, nor its
advisors, analyzed the effect of the-Nabisco spin-off and the
failure of KKR to secure RJR as a minority owner of the merged
company. These two events are likely to have a significant effect
on the consideration to be received by the Borden shareholders in
the exchange offer.
62. In addition, the 1994 restructuring, as
Shames had predicted, began to bear fruit. On October 25, 1994,
management reported the third quarter results for the Company.
Despite a net loss of $.92 cents per share (including charges of
$52.2 million for the KKR fees and expenses) the Company posted
gains in sales of 3.9%. But for the pretax charges, the Company
would have earned $.12 per share. The board failed to give
adequate
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<PAGE>
consideration to the nascent success of Mr. Shames' restructuring
plan in giving final approval to the exchange offer. Indeed, it
has been widely reported that KKR will undertake to continue the
1994 restructuring plan and will sell off the dairy business and
certain assets of the Products division following the acquisition
of control of Borden.
63. After having expended countless hours,
millions of shareholder dollars, and enormous management energies
on numerous restructurings, the board, faced with the possibility
of real success, simply cut and ran. The board, in a blatant
abdication of its fiduciary duties, whether from fatigue or lack
of will, decided to have done with the problem of turning around
the company and turned over the store to KKR at a grossly
inadequate price. As one investor noted "The board of directors
of Borden is the same board that let this company deteriorate
over the last couple of years. They just agreed to this
transaction and walked away from the problem." In addition, the
Merger Agreement secures for certain members of the board and
management of the company continued employment with the merged
entity and a guarantee of option payments in excess of $2
million, thus revealing the self interest in entrenchment and
enrichment of the Director Defendants.
64. Following the announcement of the Merger
Agreement the Company has been contacted by various entities
seeking to explore an alternative transaction. All have been met
with inattention by the board and its advisors. One investment
banker
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for Borden was quoted, anonymously, as saying they were told "not
to waste their time" trying to find a superior transaction for
the Borden shareholders.
COUNT I
(Violations of Sections 14(e) and 20(a)
of the Securities and Exchange Act of 1934
and Against Defendants Borden,
KKR and the Director Defendants)
--------------------------------------------
65. Plaintiffs repeat and reallege the
allegations in paragraphs 1 through 64 of this complaint.
66. In connection with the KKR tender offer,
Borden filed its Form 14D-9, Solicitation/Recommendation
Statement pursuant to Section 14(d)(4) of the 1934 Act. In
connection with the offer, KKR has also filed a Form 14D-1
pursuant to the 1934 Act. Both the 14D-9 and the 14D-1 are
materially false and misleading for the following reasons:
a. Borden's Form 14D-9 misleadingly represents that
non-tendering Borden shareholders will receive the "same
consideration" as was paid in the exchange.
b. They falsely represent that in evaluating whether the
KKR proposal was the best alternative for the company, the Board
considered the results of the third quarter of 1994.
c. They fail to reveal the full details of why the
executive in charge of the Company and its
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restructuring refused to agree to the KKR offer and abstained
from all voting on the merger.
d. They fail to state the fact that KKR need only
actually obtain the tender of a mere 25% of Borden shares in
order to reach the "Minimum Condition" of the offer.
e. They omit to disclose the fact that if RJR stock
drops by as little as $.50 per share between November 22, and the
undetermined date upon which the exchange ratio will be set,
Borden stockholders will receive not $14.25 per share, but
materially less. In fact, as of the filing of this complaint, RJR
stock is trading within 1/8 of a point of the collar.
f. They falsely stated that the value of the
consideration to be received by Borden pursuant to the Stock
Option is $300 million.
g. They falsely stated that no other bona fide bidder
made a proposal for the company at significantly more per share
than the KKR bid.
h. They failed to disclose that Lazard and First
Boston are in fact acting as underwriters for the largest
secondary offering in history, and being compensated as such.
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i. They falsely stated that the consideration to be
received by the Borden shareholders in the offer is subject to
"unknowable" risk as a result of the tobacco component of RJR's
business when the risk can be quantified.
j. They fail to disclose that RJR's spin-off of 17%
to 19% of its food business in an initial public offering and the
subsequent absolute right of RJR to sell of the remaining 80% of
that business leaves tendering Borden shareholders with the risk
that they may be trading their shares in a preeminent food
business for shares in a tobacco business.
k. They falsely stated that RJR terminated the
agreement in principle relating to the Borden tender offer,
signed by RJR and KKR over accounting issues.
67. The 14D-9 and 14D-1 are communications to
Borden shareholders intended to solicit the tender of shares into
the KKR tender offer and to effectuate the merger to which the
Director Defendants committed the Company.
68. Section 14(e) provides, in pertinent part,
as follows:
It shall be unlawful for any person to make any untrue
statement of a material fact or omit to state any material
fact necessary in order to make the statements made, in
light of the circumstances under which they are made, not
misleading, it shall be unlawful for any person to make
any untrue statement
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of material fact or omit to state any material fact
necessary in order to make the statements made, in light
of the circumstances under which they are made, not
misleading, or to engage in any fraudulent, deceptive,
or manipulative acts or practices, in connection with
any tender offer or request or invitation for tenders,
or any solicitation of security holders in opposition to
or in favor of any such offer, request, or invitation.
69. In disseminating the 14D-9 and 14D-l, the
individual defendants intentionally, or with reckless disregard,
misrepresented and omitted material facts, as set forth above.
The individual defendants purpose in doing so was to disseminate
communications which would induce Borden shareholders to tender
their shares in the tender offer and thereby effectuate the
merger.
70. The 14D-9 was disseminated by the Director
Defendants on behalf of Borden. Thus, these defendants, who
constitute the majority of the board of Borden and controlled the
Company, participated in the violation of Section 14(e) and are
liable for such violations under Section 20(a) of the 1934 Act.
71. Defendant KKR knew that the 14D-9 and the
14D-1 contained false and misleading statements and omissions and
that the solicitations were intended to induce Borden
shareholders to tender their shares to KKR, thereby benefitting
KKR at the expense of plaintiffs and the Class.
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72. As a result of the actions of the
defendants, plaintiffs and other members of the Class have been,
and will be, damaged in that they will have been provided with
the false and misleading solicitations and their decision to
tender shares to defendant KKR will be influenced by the
materially false and misleading 14D-9 and 14D-1.
73. Plaintiffs and the Class have no
adequate remedy at law.
COUNT II
(Violations of Section 11 of the
Securities Act of 1933 Against Lazard,
First Boston and the KKR Defendants)
------------------------------------
74. Plaintiffs repeat and reallege the
allegations in paragraphs 1 through 64 of this complaint.
75. Pursuant to Section 11 of the Securities
Act of 1933, the Class is entitled to injunctive relief "[i]n
case any part of the registration statement, when such part
became effective, contained an untrue statement of a material
fact required to be stated therein or necessary to make the
statements therein not misleading . . . ." Alternatively, the
Class is entitled to recover damages, jointly and severally from
defendants, as follows:
a. RJR as the Registrant;
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b. the KKR Defendants who are directors of RJR as
signatories to the Registration Statement, and/or directors and
officers of RJR; and,
c. Lazard and First Boston as Underwriters for the
offering.
76. Pursuant to a Registration Rights
Agreement between KKR and RJR, RJR filed a registration statement
pursuant to the 1933 Act in relation to the KKR tender offer, and
incorporates an offering circular and prospectus (the "Offering
Materials"). The offering materials were declared effective on
November 22, 1994. Said offering materials contained untrue
statements of material facts and omitted facts necessary in order
to make the statements made, in light of the circumstances under
which they were made, not misleading. Those untrue statements are
as follows:
a. the Offering Materials falsely state that no
other bidder made a proposal for the company at significantly
more per share than the KKR bid; and
b. the Offering Material falsely state that Lazard
and First Boston are acting solely as financial advisors to
Borden when, in fact, they are acting as underwriters for this
largest secondary offering in history, and being compensated as
such.
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77. As a direct and proximate result of the
defendants wrongful conduct, plaintiffs and the Class will suffer
irreparable harm in connection with the offering of RJR common
stock and have no adequate remedy at law.
78. The KKR Defendants, Lazard and First Boston
were responsible for the materially false and misleading contents
of the Offering Materials.
79. Plaintiffs and members of the Class have
been solicited to accept the securities issued pursuant to the
Offering Materials and are without knowledge of the materially
false statements and omissions alleged herein.
80. Neither the named plaintiff nor any member
of the Class seeks to recover for purchases of RJR securities
after RJR had made generally available to security holders an
earnings statement covering a period of at least twelve months
beginning after the effective date of the Registration Statement
and Prospectus.
81. This action was commenced within one year
from when plaintiffs and other Class members were solicited to
accept issued pursuant to the registration, and within the time
provided in the appropriate statute of limitations.
82. Plaintiffs do not allege in this Section
II claim that the defendants, or any of them, were guilty of
scienter, that is, of any scheme to defraud or of any
misrepresentations or
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omissions that were made intentionally or recklessly.
COUNT III
(Breach of Fiduciary Duty Against Defendants
Borden, the Director Defendants and KKR)
----------------------------------------
83. Plaintiffs repeat and reallege the
allegations in paragraphs 1 through 64 of this complaint.
84. By the acts described above and in breach
of their fiduciary duties to plaintiffs and the other members of
the Class, the Director Defendants are unfairly attempting to
influence plaintiffs and other members of the Class to tender
their Borden shares to KKR in order to benefit defendants. The
Director Defendants were and are under a duty:
a. to fully inform themselves before taking, or
agreeing to refrain from taking, action;
b. to elicit, promote, consider, and evaluate
reasonable and bona fide offers for the Company;1
---- ----
c. to act in the interest of the equity owners of the
Company;
d. not to erect unreasonable barriers to superior
offers for the Company;
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<PAGE>
e. not to act in their own personal self-interest or
in the personal interest of other board members;
f. to maximize shareholder value;
g. to obtain the best financial and other terms when
the Company, or control of the Company, is for sale or the
Company's independent existence will be materially altered by a
transaction;
h. to establish a process designed to obtain the
highest possible price for the Company; to assure that a "level
playing field" exists when more than one bidder for the company
emerges, and not to favor one bidder over another during the
"auction" process unless it is designed to assure and is
reasonably related to achieving the best possible price;
i. to act with complete candor in communications with
the shareholders and to ensure that their statements are true and
complete in all material respects and are not materially
misleading; and
j. to act in accordance with their fundamental duties
of care and loyalty.
85. In connection with the conduct described
herein, the Director Defendants violated each of the fiduciary
duties
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identified in Paragraph 84 above. In summary, the breaches
consisted of agreeing to the merger with KKR:
a. while knowing of the interest of other qualified
and bona fide bidders for Borden but failing to take any steps to
---- ----
inform themselves as to the actual amount that such interested
parties were willing to pay for Borden;
b. without taking steps to inform themselves as to
the true value of Borden in a fair auction or other process
thereby agreeing to sell the company for a price and which was at
least more than $1.75 per share less than its true value;
c. by entering into a merger agreement which contains
provisions designed not only to thwart, impede, delay, and/or
make prohibitively expensive bona fide competing bids for Borden,
---- ----
but also to guarantee a "concentration of influence" and
"significant influence" over Borden by KKR, including:
(i) A lock up stock option (the "Stock Option"),
which allows KKR to purchase 19.9% of Borden's outstanding common
stock (approximately 28,138,000 shares) at the favorable price of
$11 per share, payable in RJR stock, and thus permits KKR to
obtain over 33% of Borden's board seats if the KKR offer is
unsuccessful; and,
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(ii) A disproportionate numbers of success fees and
"topping fees" which, in the aggregate, amount to no less than
$65 million -- $20 million of which has already been paid to KKR.
d. where the sole consideration to be paid to Borden
shareholders consists of shares of RJR which the directors knew
was in danger of severe decline due to: (i) the inherent risk of
RJR's tobacco holdings (ii) the recent announcement of RJR's
public offering of 17% - 20% of its non-tobacco assets and the
absolute right of RJR to dispose of the remaining 80%; and, (iii)
the dilutive effect of the entry into the market of at least 109
million and at most 354 million shares of freely tradable RJR
common shares;
e. refusing to obtain an expert opinion on the risks
inherent in tobacco liability and the effect such liability might
have on the consideration to be received by the Borden
stockholders;
f. refusing to and failing to meet, discuss, or
negotiate in good faith with known and identified bona fide
---- ----
competing bidders for Borden who were willing to offer, and did
offer to Borden and its stockholders financial consideration and
other terms which were substantially better than those offered by
KKR.
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g. without taking steps to inform themselves in any
manner whatsoever whether Japonica Partners ("Japonica"), was
willing to pay more for Borden than KKR; and,
h. making materially false and misleading statements
to Borden's shareholders with respect to the sale of Borden to
KKR.
86. If the breaches of fiduciary duty described
herein are permitted to continue and are not remedied through the
equitable powers of this Court, the shareholders of Borden will
lose control of, and their equity interest in, the Company
through a transaction designed and entered into not to benefit
the shareholders, but the Director Defendants, management and
KKR. Unless the transaction is enjoined, the shareholders will
forever lose the opportunity to have the value of their Company
arrived at through competitive bidding on a level playing field
and the opportunity that other bidders may come forward and
construct a transaction that financially superior to that offered
by KKR. Damages for the losses suffered by plaintiffs and the
Class are not readily or easily calculable and cannot, in any
case, compensate them for special losses involved in the
structuring of a sale of their Company as they only have one
company to sell and once disposed of it will be forever gone.
87. Plaintiffs have no adequate remedy at law.
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WHEREFORE, Plaintiffs demand judgment and
preliminary and permanent relief, including injunctive relief, in
their favor and in favor of the Class and against the defendants
as follows:
A. Declaring that this action is properly
maintainable as a class action under Rule 23 of the Federal Rules
of Civil Procedure.
B. Declaring and decreeing that the KKR
Merger Agreement and Stock Option Agreement were entered into in
breach of the fiduciary duties of the Director Defendants and is
therefore unlawful and unenforceable.
C. Enjoining defendants from proceeding
with the Merger Agreement and Stock Option Agreement.
D. Enjoining defendants from consummating
the acquisition of Borden, or a business combination with a third
party, unless and until the Company adopts and implements a
procedure or process, such as an auction, to obtain the highest
possible price for the Company.
E. Invalidating as unlawful and in breach
of the fiduciary duties of the Director Defendants the Stock
Option Agreement and the topping fee and expense reimbursement
provisions of the Merger Agreement.
F. Invalidating as unlawful and in breach of
the fiduciary duties of the Director Defendants the payment of
the
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$20 million initial fee paid to KKR on or about September 12,
1994 and directing its return to Borden.
G. Invalidating as unlawful and in breach of
the fiduciary duties of the Director Defendants the agreement to
pay an additional $30 million to KKR in the event KKR acquires
more than 50% of the outstanding common stock of Borden.
H. Declaring that the defendants have
violated Sections 14(e) and 20(a) of the 1934 Act.
I. Declaring that defendants RJR, the RJR
directors, Lazard and First Boston have violated Section 11 of
the 1933 Act.
J. Rescinding, to the extent already
implemented, the Merger Agreement or any terms thereof.
K. Requiring defendants to publicly
disseminate a communication, in a form deemed appropriate by the
Court, retracting and correcting the false and misleading
statements contained the in the 14D-9 and 14D-1 and supplying the
material information omitted therefrom.
L. Enjoining the complained of transaction
or any related transactions.
M. Ordering defendants, jointly and
severally, to pay to plaintiffs and the Class all damages
suffered and to be suffered by them as a result of the acts and
transactions alleged herein.
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N. Awarding plaintiffs the costs and
disbursements of the action, including allowance for plaintiffs
reasonable attorneys' and experts' fees; and
O. Granting such other relief as may be just
and proper in the premises.
JURY DEMAND
-----------
Trial by jury demanded.
Dated: November 30, 1994
Respectfully submitted,
ABBEY & ELLIS
By: /s/ Mark Gardy
------------------------------
Arthur N. Abbey, Esq.(AA-8074)
Mark C. Gardy, Esq. (MG-0338)
Seth Lapidow, Esq. (SL-7033)
212 East 39th Street
New York, New York 10016
(212) 889-3700
Joseph Weiss, Esq.
Joseph D. Cohen, Esq.
LAW OFFICES OF JOSEPH H. WEISS
319 Fifth Avenue
New York, New York 10016
(212) 532-4171
Stanley Wolfe, Esq
Stephen Ramos, Esq.
Genna C. Drisco11, Esq.
BERGER & MONTAGUE
1622 Locust Street
Philadelphia, PA 19103
(215) 875-3000
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Daniel Krasner, Esq.
Lawrence P. Kolker, Esq.
WOLF, HALDENSTEIN, ADLER
FREEMAN & HERZ
270 Madison Avenue
New York, NY 10016
(212) 545-4600
CHARLES PIVEN, ESQ.
The Legg Mason Tower
111 South Calvert Street
Suite 2700
Baltimore, Maryland 21202
(410) 332-0030
STULL, STULL & BRODY
6 East 45th Street
New York, NY 10017
(212) 687-7230
MILBERG WEISS BERSHAD HYNES
& LERACH
One Pennsylvania Plaza
49th Floor
New York, New York 10119
(212) 594-5300
KAUFMAN, MALCHMANN, KIRBY
& SQUIRE
919 Third Avenue
New York, NY 10022
(212) 371-6600
WECHSLER, SKIRNICK, HARWOOD
HALEBIAN & FEFFER
555 Madison Avenue
New York, New York 10022
(212) 935-7400
GARWIN, BRONZAFT GERSTEIN
& FISHER
1501 Broadway
Suite 1416
New York, NY 10036
(212) 398-0055
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A. ARNOLD GERSHON, ESQ.
295 Madison Avenue
New York, New York 10017
(212) 684-3033
ZACKARY STARR, ESQ.
275 Madison Avenue
New York, New York 10016
(212) 808-5533
ELWOOD S. SIMON AND ASSOCIATES
Bloomfield Center
1533 N. Woodward Avenue
Suite 315
Bloomfield Hills, MI 48304
(810) 646-9730
KOHN, NAST & GRAF, P.C.
2400 One Reading Center
1101 Market Street
Philadelphia, PA 19107
(215) 238-1700
SIROTA & SIROTA
747 Third Avenue
New York, New York 10017
(212) 759-5555
Curtis V. Trinko, Esq.
LAW OFFICES OF
CURTIS V. TRINKO
310 Madison Avenue
14th Floor
New York, NY 10017
(212) 490-9550
Sam Sporn, Esq.
SCHOENGOLD & SPORN
233 Broadway
New York, New York 10279
(212) 964-0046
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Harold Obstfeld, Esq.
SILVERMAN, HARNES OBSTFELD
& HARNES
750 Lexington Avenue
New York, New York 10022
(212) 754-2333
Lynda Grant, Esq.
GOODKIND, LABATON, RUDOFF
& SUCHAROW
100 Park Avenue
New York, NY 10017
(212) 907-0700
Frederic S. Fox, Esq.
KAPLAN, KILSHEIMER & FOX
685 Third Avenue
New York, New York 10017
I. Stephen Rabin, Esq.
RABIN & GARLAND
275 Madison Avenue
34th Floor
New York, New York 10016
(212) 682-1818
- and -
Kenneth A. Elan, Esq.
291 Broadway
Suite 1501
New York, New York 10007
(212) 619-0261
(212) 267-7464
Frank Morris, Esq.
MORRIS AND MORRIS
1105 North Market Street
Suite 1600
Wilmington, DE 19801
(302) 426-0400
Alfred G. Yates, Jr.
ALFRED G. YATES LAW FIRM
519 Allegheny Building
429 Forbes Avenue
Pittsburgh, PA 15219
(412) 391-5164
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Amy M. Riel, Esq.
GOLSTEIN TILL LITE & REIKEN
744 Broad Street, Suite 800
Newark, New Jersey 07102
(201) 623-3000
Miles M. Tepper, Esq.
LAW OFFICES OF MILES M. TEPPER
7 Becker Farm Road
Roseland, New Jersey 07068
(201) 740-1881
Co-Liaison Counsel
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