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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________________
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of
earliest event reported): October 5, 1994
BORDEN, INC.
_______________________________________________________________________
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
New Jersey I-71 13-0511250
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(State or other jurisdiction (Commission (IRS Employer
of incorporation) file number)
Identification No)
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180 East Broad St., Columbus, OH 43215
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(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: 614-225-4000
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ITEM 5. OTHER EVENTS
On October 5, 1994, RJR Nabisco Holdings
Corp., a Delaware corporation ("Holdings"), filed a Registration Statement on
Form S-4 (the "Registration Statement") with the Securities and Exchange
Commission (the "Commission") under the Securities Act of 1933, as amended, for
the registration of 353,680,264 shares of Holdings common stock, par value of
$.01 per share ("Holdings Shares"). The Registration Statement was filed by
Holdings in connection with the exchange offer (the "Offer") to be commenced by
Borden Acquisition Corp., a New Jersey corporation ("Purchaser"), and a
subsidiary of Whitehall Associates, L.P. ("Whitehall"), an affiliate of
Kohlberg Kravis Roberts & Co. ("KKR"), for all of the outstanding shares of
common stock, par value $.625 per share ("Company Shares") of Borden, Inc., a
New Jersey corporation (the "Company"), pursuant to the Agreement and Plan of
Merger, dated as of September 23, 1994, among Purchaser, Whitehall and the
Company (the "Merger Agreement"). In addition, the Conditional Purchase/Stock
Option Agreement, dated as of September 23, 1994, by and among Whitehall,
Purchaser and the Company (the "Option Agreement") was executed concurrently
with the Merger Agreement. The Merger Agreement and the Option Agreement were
filed with the Commission on September 27, 1994 as exhibits to the Company's
Current Report on Form 8-K, dated September 11, 1994, and are incorporated
herein by reference.
In connection with the filing of the
Registration Statement, the Company hereby makes the following disclosure
regarding the background and reasons for the Company's decision to enter into
the Merger Agreement and the Option Agreement. At the time the Offer is
commenced, in connection with the filing by Purchaser of a Schedule 14D-1
pursuant to the Securities Exchange Act of 1934, as amended, and the rules and
regulations thereunder (the Exchange Act"), the Company will file a Schedule
14D-9 with the Commission under the Exchange Act, which Schedule 14D-9 will
contain the Company's formal recommendation with respect to the Offer and
additional information required by the Exchange Act.
BACKGROUND
The decision by the Board of Directors of the
Company (the "Board") to enter into the Merger Agreement reflected, in part, an
assessment of the risks and potential benefits of ongoing restructuring efforts
against the risks and benefits of a transaction that would offer all
shareholders the opportunity to receive a premium for their Company Shares
payable in
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Holdings Shares. A significant factor in the Board's deliberation was the
history of the Company's prior restructuring efforts. Set forth below is a
summary of the events that led to the Board's decision.
1992 RESTRUCTURING PLAN. In October 1992,
the Company announced its third restructuring program since 1989 (the "1992
Restructuring Plan"). The 1992 Restructuring Plan was aimed at integrating the
numerous acquisitions the Company had made, reducing costs and reversing a
downward trend in earnings. In conjunction with the 1992 Restructuring Plan,
the Company established a restructuring reserve of $642 million (pretax)
charged against third quarter 1992 results, which reduced the Company's 1992
year end stockholders' equity to $1.13 billion, down from $1.69 billion in
1989, before the successive restructurings began.
The 1992 Restructuring Plan did not achieve
the anticipated results. The Company's first quarter 1993 net income was $27.2
million and earnings per share was $.20, an 43.0% decline in net income from
the same period in 1992 (excluding a charges in 1993 and 1992 for accounting
changes). Sales in the first quarter of 1993 fell 7.2% to $1.30 billion, from
$1.40 billion in the same period of 1992. In the second quarter of 1993,
earnings per share declined 76.4% to $0.13 from $0.55 in the second quarter of
1992. Net income of $18.5 million was down 76.7% from $79.3 million in the
second quarter of 1992. Sales were $1.35 billion, down 6.0% from $1.44 billion
in the second quarter of 1992.
In early 1993, at the initiation of KKR,
representatives of KKR met with Anthony S. D'Amato, then Chairman and Chief
Executive Officer of the Company, Lawrence O. Doza, then Vice President and
Chief Financial Officer, and a representative of the Company's financial
advisor, CS First Boston Corporation ("First Boston"), to discuss a possible
transaction involving KKR and the Company. After discussion, Mr. D'Amato
advised KKR's representatives that the Company did not wish to pursue a
transaction with KKR at that time.
DEVELOPMENT OF 1993 RESTRUCTURING PLAN. In
1993, the Company began to develop alternatives to the 1992 Restructuring Plan.
In addition, in June 1993, the Company hired Ervin R. Shames as President and
Chief Operating Officer. Mr. Shames joined the Company with 22 years of
experience in the food business, including positions as President and Chief
Executive Officer of General Foods USA and President of Kraft USA. On July 28,
1993, the Company announced that it was reviewing its portfolio of businesses
to identify those it would retain and those it would not, and was reducing the
quarterly cash
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dividend on the common stock to $0.15 per share from $0.30 per share.
During the fall of 1993, the Company
accelerated the review of its portfolio of businesses and its strategic
alternatives. Booz Allen & Hamilton Inc. ("Booz Allen"), a business consulting
firm, was asked to assess the existing businesses and their long-term potential
and to recommend which businesses to retain and which to divest. In September
1993, First Boston was retained by the Company to provide financial advice with
respect to this program. In October 1993, the Board engaged Lazard Freres &
Co. ("Lazard Freres") to act as financial advisor to the Board with regard to
the consideration of strategic alternatives. The Board also engaged Wachtell,
Lipton, Rosen & Katz, which had previously advised the Company in special
situations, as special counsel.
The Company's third quarter 1993 results
showed a net loss of $9.4 million, or $0.07 per share, versus a net loss in the
third quarter of 1992 of $1.8 million, or $.01 per share before the charge for
the 1992 Restructuring Plan. Sales in the third quarter of 1993 fell to $1.39
billion from $1.53 billion in the comparable period of 1992. Nearly all of the
principal businesses of the Company posted substantial declines versus prior
year performance.
In November 1993, Company management with the
assistance of Booz Allen presented to the Board a plan (the "1993 Restructuring
Plan") for restructuring the portfolio of the Company's businesses. The 1993
Restructuring Plan provided for major divestitures, including the sale of the
Company's North American snacks business, its seafood business, its jams and
jellies business and certain other businesses and products representing, in the
aggregate, annual revenues of approximately $1.25 billion, or nearly 20% of
projected 1993 sales of $6.75 billion. The 1993 Restructuring Plan also aimed
at improving the Company's domestic dairy business, largely through volume
recovery and cost reduction, and contemplated retention of nearly all of the
non-food businesses. The 1993 Restructuring Plan envisioned cost reductions
phased in over two years, reaching an annualized savings rate of $100 million
by the end of 1995. These savings were to be achieved through a combination of
divestitures and productivity gains.
Under the 1993 Restructuring Plan, which was
reviewed by Booz Allen, management projected 1994 earnings per share at the
upper end of the $0.75 to $1.00 per share range of estimates by securities
analysts, and set performance targets for annual earnings per share growth in
1995 and 1996 of at least double the food industry average, sales growth of 6%
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annually and an increase in return on investment from a range of 5% to 6% in
1994 to 12% in 1996. Further, the 1993 Restructuring Plan contemplated a
further reduction in the Company's quarterly cash dividend from $0.15 per share
to $0.075 per share, and a $752.3 million pretax restructuring charge against
1993 fourth quarter earnings of which approximately $637.4 million was for
business divestitures and $114.9 million for organizational restructuring.
EVALUATION OF 1993 RESTRUCTURING PLAN AND
POSSIBLE SALE OF THE COMPANY. In reviewing the proposed 1993 Restructuring
Plan, the Board considered that continued poor performance would reduce
financial flexibility (which, in turn, could limit the Company's ability to
raise capital at attractive rates and to pursue strategic growth
opportunities); that the 1993 Restructuring Plan was premised on significant
turnarounds within a year or slightly longer in the Company's dairy and pasta
business and improvements in almost all of the Company's other divisions; that
many of the asset sales included in the 1993 Restructuring Plan would be
difficult and time-consuming to consummate; that the dividend payout might not
be sustainable even at the reduced rate contemplated; and that a number of key
management positions were held by new managers, making it difficult to assess
the likelihood of success of the 1993 Restructuring Plan. The Board also took
into consideration the fact that the Company was highly leveraged and exposed
to liquidity risk by virtue of its relatively high ratio of short-term debt
(particularly commercial paper) to total debt in the event of rating agency
downgrades, and that the 1993 Restructuring Plan would leave the Company with
debt coverages less favorable than the median for investment grade companies
and without tangible net worth.
After weighing these risks and considering
that previous restructuring efforts had not achieved targeted results and after
receiving two unsolicited inquiries regarding the sale of the Company, one from
KKR and one from another party, the Board determined to instruct Lazard Freres
to make contacts with a selected group of companies considered to be potential
buyers of the Company. The potential buyers contacted by Lazard Freres
consisted primarily of industrial buyers rather than financial buyers, because
Lazard Freres believed that a leveraged buyout did not appear to be feasible
given the Company's operating performance and high debt levels. Lazard Freres,
however, did contact KKR because of its prior indication of interest in the
Company and its ownership interest in Holdings. KKR, in turn, brought the
possibility of a transaction with the Company to the attention of Holdings.
The other party that had previously contacted the Company was also contacted by
Lazard Freres.
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In response to Lazard Freres's solicitations,
only Holdings and one other company expressed interest in obtaining information
about the Company. Both Holdings and the other potential buyer (the "Potential
Buyer") entered into confidentiality agreements with the Company and commenced
due diligence. Holdings, however, after preliminary meetings, declined to
pursue its interest. Holdings indicated that, due to the then-current trading
price of the Company Shares, Holding's own indebtedness and the debt levels of
the Company, Holdings was unwilling to proceed with an acquisition of the
Company. In addition, Holdings said that it had determined that its strategic
interest was in substantially less than all of Borden's businesses.
At a Board meeting held on December 9, 1993,
Lazard Freres indicated that the Potential Buyer appeared to be interested in
acquiring all of the Company. At the Board meeting, management recommended
that the Company proceed with the 1993 Restructuring Plan it had previously
recommended. The Board, however, determined that, given the risks inherent in
the 1993 Restructuring Plan, talks with the Potential Buyer should continue,
and the decision as to whether to implement the 1993 Restructuring Plan was
postponed. That same day, the Board accepted the resignation of Anthony S.
D'Amato, as Chairman and Chief Executive Officer, and appointed Frank J. Tasco,
a Director of the Company and retired Chairman and Chief Executive Officer of
Marsh & McLennan Companies, Inc., as Chairman of the Board of the Company, and
Ervin R. Shames, as Chief Executive Officer.
On December 21, 1993 the Potential Buyer
indicated that it would not be interested in pursuing an acquisition of the
entire Company but that it would be willing to explore the acquisition of just
the Company's Packaging and Industrial Products Division ("PIP") and a
concurrent investment in the remaining food company. However, the indicated
price levels would not have generated proceeds sufficient to reduce the
Company's debt to a level appropriate to the remaining food business. Thus,
the Board rejected this suggestion in part because it was advised that such a
divestiture would leave the Company undercapitalized. The Board then
instructed management to prepare the 1993 Restructuring Plan for final
approval.
1993 RESTRUCTURING PLAN ADOPTED; GOALS SET.
On January 4, 1994, the Board formally approved the 1993 Restructuring Plan.
Over the previous months, the Board had received from management and Booz Allen
an extensive review of the Company's 50 distinct domestic and international
businesses. The Company announced that, with the help of its
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financial advisors, the Board had evaluated a full range of alternatives for
the Company, including sale or merger, and that the Company was not aware of
any third party expressing interest in proposing such transactions. The Board
also reviewed the alternative of liquidation and concluded that adverse tax
consequences and the uncertainties involved in the sale of the Company in parts
rendered this alternative unattractive.
In announcing the 1993 Restructuring Plan,
the Company stated that it had set financial goals, including earnings per
share for 1994 at the upper end of the $0.75 to $1.00 range of analysts'
estimates, cash flow of $400 million to $450 million after capital expenditures
and including divestiture proceeds, substantially all of which was intended to
be applied to debt repayment, and cost reductions reaching an annualized rate
of $70 million to $85 million by the end of the year.
As a result of the write-off related to the
implementation of the 1993 Restructuring Plan, the Company's stockholders'
equity as of December 31, 1993 was reduced to $245.9 million.
PROGRESS UNDER THE 1993 RESTRUCTURING PLAN.
Following the adoption of the 1993 Restructuring Plan, the Board, with the
assistance of its financial advisors and management, closely monitored its
implementation and the associated divestitures. In its 1993 Annual Report
which was issued in late March 1994, the Company acknowledged that the success
of the 1993 Restructuring Plan depended on multiple divestitures at anticipated
prices, sharply reduced costs throughout the Company, a reversal of the weak
sales and income performance of the Company's pasta business and a turnaround
of the Company's domestic dairy operations, which, based on early 1994 results,
would be a significant challenge.
The Company's first quarter 1994 earnings per
share were $.04 and net income was $5.8 million. In its announcement of first
quarter results, the Company also stated that its earnings projections for 1994
were then "in line" with the current range of analyst projections of $.70 to
$.95 per share, as opposed to the January 1994 earnings per share target at the
"upper end" of the $.75 to $1.00 range.
In June 1994, the Board and management became
increasingly concerned about the Company's progress in achieving the cost
reductions and earnings improvements targeted under the 1993 Restructuring
Plan. The Board and management were particularly concerned that the failure to
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achieve significant progress by that time would make it difficult to reach the
targets for 1994 and subsequent years.
FURTHER RESTRUCTURING CONTEMPLATED IN LIGHT
OF SIX-MONTH RESULTS. On July 26, 1994, management advised the Board that it
would begin to explore possible modifications to the 1993 Restructuring Plan
which might involve the sale or closure of all or part of the dairy operations
and other businesses. The Board determined that the alternative of a sale of
the entire Company should also be explored again. The Board was told that the
only parties that had contacted the Company since January 1994 were KKR and
Japonica Partners ("Japonica").
On May 24, 1994, Japonica wrote to Mr. Tasco
stating that Japonica was interested in an equity investment in the Company as
a "proactive white knight." In response, the Board authorized Lazard Freres to
contact Japonica to investigate, on behalf of the Board, Japonica's interest in
the Company and its capacity to effectuate a transaction involving the Company.
On June 13, 1994, Mr. Tasco wrote to
Japonica, advising them that Lazard Freres was acting as the Company's
financial advisor and was authorized to represent the Company in discussions
with third parties. Subsequently, a representative of Japonica contacted
Lazard Freres, but did not propose any transaction and did not provide any
evidence of Japonica's source of funds for any transaction, despite Lazard
Freres's repeated inquiries. (Japonica, in letters to Mr. Tasco, disputed the
foregoing characterization of its contacts with Lazard Freres although it never
stated that it had proposed a transaction or provided evidence of its financial
resources).
Accordingly, on July 16, 1994, Mr. Tasco
wrote to Japonica explaining that in light of the serious challenges facing the
Company, it was disinclined to pursue discussions with a party who was unable
or unwilling to make substantive proposals or to provide any evidence of its
financial capacity. At no point during any of its contacts with the Company or
its advisors did Japonica make any substantive proposal or provide evidence of
its ability to finance any transaction with respect to the Company. (The
Company's written correspondence with Japonica is filed as exhibits to this
report and the discussion herein of such correspondence is qualified by
reference to the texts thereof, see Item 7).
Pursuant to its decision to explore the
alternative of a sale of the Company, the Board, at its July 26, 1994 meeting,
instructed Lazard Freres to respond to KKR's prior contacts. Based on the
advice of Lazard Freres and given the
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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.
On July 27, 1994, the Company announced that
for the second quarter of 1994, it had net income of $11.1 million or $.08 per
share compared with income from continuing operations of $30.5 million, or
$0.22 per share, in the same period of 1993. Net sales rose 1.3% to $1.37
billion from $1.35 billion in the second quarter of 1993. The six-month
results included continuing losses in the Company's dairy business that were
considerable. The Company stated that it was moving more slowly than it had
hoped in achieving the goals of the 1993 Restructuring Plan. The Company
further stated that each of the Company's businesses must contribute to the
Company's objectives by virtue of market position, growth prospects, profit
potential or some combination of those objectives. In light of this, the
Company further stated that it was reviewing progress to date and planned to
take any corrective measure that might become necessary. The Company announced
that, given its results in the first half of 1994, it was clear that its
earlier expectation of earnings for the year would not be realized, and did not
give a further earnings forecast.
The results for the first half of 1994 also
caused the Board and management to focus on the liquidity of the Company. In
connection with the 1993 Restructuring Plan, the Company obtained an amendment
to its only financial covenant, a covenant related to the net worth of the
Company. The amendment required achievement of financial ratios that would be
met under the goals of the 1993 Restructuring Plan. The Board and management
were particularly concerned about the level of the Company's short-term
liabilities, including the commercial paper used to finance operations. The
Board was advised that, if earnings continued below the amounts forecasted in
the 1993 Restructuring Plan and the Company undertook a further restructuring,
its debt ratings could be lowered and its ability to issue commercial paper
could be limited. In early July 1994 the Company sought to increase its $520
million credit facilities on terms which were substantially the same terms as
existed previously for a majority of the facilities. Due in part to the
five-year term of the proposed facility and the existence of other Company
credit facilities with terms more favorable to the lenders, these efforts met
resistance in the marketplace. Later in July 1994 the Company determined to
pursue a larger bridge facility that would consolidate the Company's bank lines
and backstop its commercial paper. Accordingly, the Company obtained $1.4
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billion, 2-1/2 year financing facilities in August 1994 from a group of banks
led by Citibank, N.A. and Credit Suisse.
PROPOSED 1994 RESTRUCTURING PLAN. At a
special meeting of the Board on August 16, 1994, management presented further
analysis of the alternatives available to the Company. First Boston provided a
financial analysis for each such alternative and management recommended a plan
to further reconfigure the Company (the "Proposed 1994 Restructuring Plan").
The Proposed 1994 Restructuring Plan provided for the divestiture of the dairy
business (excluding cheese), the Company's largest business, which was
depleting the Company's earnings and cash. Management advised the Board that,
in its view, the Company did not have the time or the resources to turn the
dairy business around. While the sale of the dairy business would improve cash
flow, it was expected to generate a substantial writeoff without meaningful
debt reduction. Management also recommended the additional sale of two
profitable businesses from the PIP division, Wallcoverings and Packaging
Resources, principally in order to generate cash to reduce debt.
The Proposed 1994 Restructuring Plan also
called for realigning the Company into two operating divisions: Consumer
Packaged Products and Worldwide Adhesives and Resins, and significantly
reducing costs in the Company's continuing operations by substantial personnel
reductions and other programs. As part of the Proposed 1994 Restructuring
Plan, management also recommended that the Board reduce the quarterly cash
dividend on the Company Shares to $0.01 per share. The Board was advised that
adoption of the Proposed 1994 Restructuring Plan would require a significant
charge of approximately $500 million (after-tax) in the third quarter of 1994,
resulting in substantial negative shareholders' equity. In addition, the Board
was advised that in the third quarter of 1994, the Company would likely incur
additional pre-tax charges of approximately $95 million as a result of less
than estimated proceeds from the divestiture of discontinued operations
pursuant to the 1993 Restructuring Plan and could possibly incur certain other
balance sheet adjustments of up to $100 million. Management had projected that
the Company's 1994 earnings per share would be $0.50 without a restructuring,
and earnings per share under the Proposed 1994 Restructuring Plan were
projected to be $0.47 for 1994, $0.75 for 1995, $0.84 for 1996, $1.10 for 1997
and $1.21 for 1998. The Proposed 1994 Restructuring Plan called for a
reduction in the Company's debt level from $2.287 billion in 1994 to $1.659
billion in 1996 and $1.294 billion in 1998. After presentation by management
and the Company's financial advisors, the Board authorized management to
finalize the details of the Proposed 1994
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Restructuring Plan with a view to its formal approval and announcement in early
September 1994.
DEVELOPING THE KKR PROPOSAL. On August 3,
1994, KKR signed a confidentiality agreement (the "Confidentiality Agreement")
and began to receive certain nonpublic information concerning the Company,
specifically the Company's then-current "base case" projections for 1994
showing earnings per share of $0.50 and net income from continuing operations
of $71 million. The Confidentiality Agreement contained certain provisions
that would prohibit KKR from making an unsolicited tender offer for the
Company's stock. On the same day, KKR proposed exploring a transaction, the
consideration for which would be securities owned by partnerships controlled by
KKR. Following the Board meeting of August 16, 1994, KKR communicated to
Lazard Freres that it would be interested in pursuing a transaction with the
Company in which it would pay a "meaningful" premium to the Company's trading
price using Holdings Shares as currency. At a special meeting of the Board on
August 18, 1994, management conveyed this to the Board. Management explained
that KKR would require "due diligence" meetings with the senior management of
the Company before it would be in a position to formalize a proposal.
Management further indicated that KKR would be willing to make a decision prior
to the September 7, 1994 Board meeting at which the Board intended to take
final action on the Proposed 1994 Restructuring Plan.
During the course of the Board's
deliberations concerning continuing discussions with KKR, Mr. Shames expressed
his view that the Proposed 1994 Restructuring Plan was achievable and should be
pursued by the Company. He said that implementation of the Proposed 1994
Restructuring Plan would make the Company more saleable if the Board chose to
sell the Company in the future. He said that he believed that it was
imperative to commence implementing the Proposed 1994 Restructuring Plan
without additional delays. Cognizant that the Company's prior restructuring
plans had fallen short of their goals and that further restructuring efforts
posed significant risks, the Board determined that it was in the best interests
of the Company and its shareholders to continue discussions with KKR prior to
acting on the Proposed 1994 Restructuring Plan. The Board, therefore, directed
management, with the assistance of Lazard Freres and First Boston, to proceed
with KKR to determine whether KKR would make a proposal that would provide a
premium for all shareholders. At the same time, management was instructed to
prepare to implement the Proposed 1994 Restructuring Plan on September 7, 1994,
as had been contemplated, so that there would be no delay in the event that an
acceptable proposal from KKR did not materialize
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.
On August 22, 1994, Lazard Freres met with
KKR. KKR expressed interest in meeting with management to conduct due
diligence and indicated that it would be ready to make a definitive proposal by
September 7, 1994. On August 25 and 26, 1994, Lazard Freres, First Boston and
members of senior management met with KKR in Columbus, Ohio to conduct due
diligence. On September 2, 1994, KKR proposed an offer to acquire 75% of the
Company through an exchange offer for approximately 100 million Company Shares,
at $13.50 per share, and a conditional purchase/stock option agreement wherein
it would have the right to acquire 28,138,000 Company Shares for $11 per share,
with the consideration in both cases to be paid in Holdings Shares valued at
market. Over the course of the next three days, management of the Company,
Lazard Freres, and First Boston negotiated with KKR and Morgan Stanley & Co.,
KKR's investment banker, particularly with respect to KKR's willingness to
pursue an offer to acquire the entire Company.
On September 7, 1994, the Board met to
consider both the management's Proposed 1994 Restructuring Plan and the KKR
proposal that had resulted from the negotiations upon the understanding that
these were the two viable alternatives available to the Company. During the
meeting, management again reviewed for the Directors the principal elements of
the Proposed 1994 Restructuring Plan. Management then summarized the KKR
proposal. Responding to the Company's request for an offer that could be made
for all of the Company Shares, KKR proposed to acquire 100% of the Company
Shares at $13.50 per share, payable in Holdings Shares, through an exchange
offer for all of the Company Shares followed by a merger in which any Company
Shares remaining outstanding would receive the same consideration that had been
paid in the exchange offer. Under New Jersey law, such a merger would require
the affirmative vote of 66-2/3% of the Company's outstanding shares. KKR's
proposal was contingent upon the Company agreeing to enter into a conditional
purchase/stock option agreement for up to approximately 28,138,000 Company
Shares, payable in Holdings Shares, at $11 per share. In addition, the KKR
proposal contemplated certain fees and reimbursements for KKR on terms to be
negotiated. Finally, KKR proposed that it would be entitled to board
representation proportionate to its ownership, subject to a minimum of 40%
representation if it acquired 28,138,000 Company Shares (approximately 19.9% of
the total then outstanding Company Shares) pursuant to the exercise of its
option or otherwise. The proposal was contingent on completion of due
diligence, and the exchange offer would be contingent on certain waivers being
obtained under the Company's credit facilities. The proposal was not otherwise
subject to financing. Both the Board and its advisors believed that KKR
intended to keep current management, to offer
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management an opportunity to obtain an equity interest in the surviving
enterprise and to restructure the Company. However, the Board was advised that
KKR had no substantive discussions of these matters, had made no commitments to
management and had made no decision with respect to the precise nature of its
restructuring plan. Management advised the Board that it understood that any
decisions by KKR would be made only after it had completed a thorough analysis
of the Company.
In reporting to the Board on the
negotiations, the Company's representatives indicated that they wished to
ensure that, in the event of a competing transaction proposal, KKR would not be
able both to profit on the conditional purchase/stock option agreement and to
obtain a "topping" fee. KKR had not yet agreed to that point. The
representatives also reported to the Board that the Company had requested that
KKR provide some post-transaction guarantee of the price level of the Holdings
Shares that would be issued to the Company's shareholders in the exchange
offer. However, these representatives indicated that it appeared that while
KKR had stated that it would negotiate a "collar" of approximately 10% around
the trading price for Holdings Shares at the time the transaction was announced
to protect the value that the Company's shareholders would receive in the
exchange offer, KKR had refused to consider any post-exchange offer guarantee
of the trading value of Holdings Shares. The representatives said that they
would press for a wider collar on the Holdings Share price but that they did
not believe that a post-transaction guarantee would be achievable in the
negotiations. The representatives indicated that they were seeking to reduce
as much as possible the fees requested by KKR.
Although the Board thought that the $13.50
per Company Share price then offered was too low and that certain of the other
terms proposed by KKR were not acceptable, the Board instructed the Company's
negotiators to go back to KKR to seek to improve the price and to seek to
negotiate satisfactory arrangements with respect to the other terms of the
transaction. The Board took this action in the belief that a satisfactory
proposal could be elicited from KKR. The Board considered that such a proposal
would offer the shareholders of the Company a premium for their Company Shares
in the form of a highly liquid security, which presented its own risks and
opportunities. At the same time, the Board noted that while the Proposed 1994
Restructuring Plan was designed to improve the Company's operating results and
reduce its debt, it nonetheless had significantly lower earnings projections
than previous restructuring plans and that it entailed significant risks to the
equity value of the Company. These risks included, in particular, the
consequences of having substantial
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negative net worth, the possibility of a credit rating downgrade and, if
results of operations and divestiture proceeds were not realized as planned,
the risk of further deterioration in the Company's financial condition. The
Board also considered the risk that the announcement of the Proposed 1994
Restructuring Plan would have a negative effect on the trading price for the
Company Shares, thereby implicitly increasing the premium inherent in a
transaction with KKR. The Board took into account the fact that the previous
restructuring attempts by the Company had fallen short of their goals. The
Board adjourned the meeting in order to permit the Company's negotiators to
proceed.
In negotiations on September 7 and 8, 1994
KKR indicated that it would be willing to increase its offer price to $14.25
per Company Share, and that the collar would be approximately 13%, depending on
the price of Holdings Shares on the day that the transaction was announced.
KKR also accepted the Company's position that KKR not profit as a result of
exercising the option in circumstances where KKR had received a topping fee,
and agreed that it would receive a 33-1/3% representation on the Board as a
minimum if it purchased 28,138,000 Company Shares, or approximately 19.9% of
the outstanding Company Shares, pursuant to exercise of the option. KKR
insisted on the payment of (1) a $20 million "commitment" fee, (2) a $50
million "topping" fee, against which the commitment fee would be credited, and
(3) expense reimbursement of up to $15 million. The September 7, 1994 Board
meeting re-convened on September 9, 1994. Mr. Shames said that he believed
that the Proposed 1994 Restructuring Plan could be accomplished and was a
better alternative for the Company. In that regard, Mr. Shames stated he
believed that it was the wrong time to sell the Company because successfully
pursuing the Proposed 1994 Restructuring Plan would result, over time, in
greater value for shareholders than that reflected in the KKR proposal.
Nonetheless, after careful consideration of all the factors before it, the
Board of Directors voted to authorize management to proceed to negotiate
agreements with KKR on the terms outlined, to complete the Company's due
diligence investigation of Holdings, and to permit KKR to complete its due
diligence of the Company. Mr. Shames abstained from the vote of the directors.
At a special meeting held by the Board on
September 11, 1994, the Board authorized the Company to enter into an
agreement-in-principle (the "Letter of Intent") with KKR's affiliate,
Whitehall. The Letter of Intent expressed the intent of the parties to
negotiate a definitive merger agreement on substantially the terms already
described to the Board. KKR had also requested a condition in the merger
-13-
<PAGE> 15
agreement dealing with the refinancing of the Company's debt because, as a
result of its due diligence and in anticipation of costs related to the
proposed transactions, KKR believed that the Company's bank credit facilities
should be increased to provide a cushion for working capital needs and their
maturities extended. It was agreed that this condition would be limited to
terms to be set forth in the merger agreement. The Letter of Intent also
provided for the payment of a $20 million commitment fee to KKR (which was
subsequently paid) and, in consideration of the Letter of Intent and such fee,
KKR agreed that, if for any reason no merger agreement was entered into, KKR
would be required to purchase 28,138,000 Company Shares for $11 per share,
payable in Holdings Shares, providing the Company with a saleable asset of over
$300 million that could be used to reduce debt or for other purposes. The
Letter of Intent also provided for the payment of the $50 million "topping" fee
(reduced by the $20 million commitment fee) in the event that, during the
pendency of the Letter of Intent a third party made a "Transaction Proposal"
which was subsequently consummated. (The Letter of Intent was filed with the
Company's Form 8-K, dated September 12, 1994. The description of the Letter of
Intent contained herein is qualified by reference to the full text of the
Letter of Intent.)
The Letter of Intent was announced on
September 12, 1994 and the parties proceeded to negotiate definitive
agreements. Following the announcement on September 12, 1994 that the Company
had entered into the Letter of Intent with Whitehall, Japonica wrote again to
the Company, reiterating its interest in acting as a "proactive white knight."
The Company responded with a letter to Japonica indicating that the Board was
prepared to explore all serious, substantive proposals with a view to
maximizing the value of the Company Shares. The Company noted that none of
Japonica's communications had contained any actual proposal, but it indicated
that if Japonica had a proposal that it believed would maximize shareholder
value and that could be effected, Japonica should contact Lazard Freres, who
would arrange a meeting.
On September 15, 1994, Japonica wrote again
to the Company demanding that the Company forward to Japonica all material and
information provided to other potential bidders, including KKR. In response,
the Company wrote to Japonica the next day indicating once more that, although
none of its communications had yet included any concrete proposal or provided
the information regarding financing that the Company had requested, the Board
remained willing to explore all serious substantive proposals. In response to
Japonica's request for information that had been provided to other
-14-
<PAGE> 16
bidders, the Company enclosed a form of confidentiality agreement, already
executed by the Company, for Japonica's signature. The confidentiality
agreement did not contain any "stand-still" provisions. Japonica did not
return the confidentiality agreement.
On September 19, 1994, the Company offered to
meet with Japonica and to make available to it certain senior members of
management and the Company's legal and financial advisors on the assumption
that, in view of its persistence, Japonica must have believed that it had a
proposal to maximize shareholder value that could be effectuated. A meeting
was arranged for September 21, 1994. At the meeting, Japonica indicated that
it did not wish to sign the confidentiality agreement. Japonica presented a
"Letter of Continuing Interest" with regard to the Company and attached to it
certain materials with respect to its "Dynamic Tension(TM)" management
philosophy. Although the "Letter of Continuing Interest" contained various
nonspecific suggestions with respect to the Company, it did not contain, and
upon questioning by representatives of the Company and its advisors, Japonica
did not make, any proposal for the Company. Japonica also refused to provide
any information with respect to its financing resources. The Company indicated
that it would consider any credible proposal that Japonica chose to make, and,
subject to execution of the confidentiality agreement, provide appropriate
confidential information.
On September 22, 1994, the Board convened to
consider the Merger Agreement and the Option Agreement (collectively, the
"Agreements") which had been negotiated with KKR. At the meeting the Board
reviewed in detail the proposed terms of the transaction. The Board received
an updated report on the Company's results of operations and financial
condition. The Board also reviewed investor reaction to the announcement of
the Letter of Intent, the correspondence and meeting with Japonica, the due
diligence that had been performed on Holdings, the presentations of Lazard
Freres and First Boston and the fairness opinions delivered by Lazard Freres
and First Boston.
At the September 22, 1994 Board meeting the
Board, with Mr. Shames abstaining, voted to approve the Agreements and the
transactions contemplated thereby, to recommend to the shareholders of the
Company that they accept the Offer, that they tender their Company Shares to
Purchaser and that, if required by applicable law, they approve and adopt the
Merger Agreement. Mr. Shames repeated the views he expressed on September 9,
1994 and stated that he was also abstaining because he felt a conflict arising
from the issue of his future
-15-
<PAGE> 17
involvement in the Company (although he stated that he had no agreements with
KKR). The Board further authorized a press release relating to the Agreements,
and a letter to be sent to Japonica, following the execution of the Agreements,
indicating that the Company's agreements with KKR's affiliate, Whitehall, do
not preclude the Board's consideration of a proposal by Japonica, and that the
Board is interested in obtaining the best possible transaction for the
Company's shareholders and should Japonica decide to make a substantive
proposal, the Board is prepared to work with Japonica to that end. The Board
indicated that if Japonica chose to submit a proposal, it should specify the
means and sources of financing. The letter noted that Japonica had failed to
provide information as to its ability to finance the type of transactions it
had referred to even though the Board had been requesting that information for
several months.
After the Board meeting, the Company and KKR
finalized the details of the Agreements and on September 23, 1994, the Company,
Purchaser and Whitehall entered into the Merger Agreement and the Option
Agreement. The terms of the transactions were announced in a joint press
release issued on September 23, 1994.
REASONS FOR THE EXCHANGE OFFER AND MERGER; RECOMMENDATION OF THE BOARD OF
DIRECTORS OF THE COMPANY
The Board of Directors of the Company has
determined that the Merger Agreement and the Option Agreement and the
transactions contemplated thereby, including the Offer and Merger, taken
together, are fair to the shareholders of the Company and recommends that
holders of Company Shares accept the Offer (following its commencement), tender
their Company Shares thereunder to the Purchaser and, if required by applicable
law, approve and adopt the Merger Agreement. This determination and
recommendation was made by the entire Board, with Ervin R. Shames, the
Company's Chief Executive Officer, abstaining.
As described above under "Background," the
Board was confronted with two realistic choices: to approve the Proposed 1994
Restructuring Plan or to authorize the Company to enter into the Merger
Agreement. The Board's decision to enter into the Merger Agreement was based
in large part upon balancing the risks and opportunities of the Proposed 1994
Restructuring Plan recommended by management against the risks and benefits of
the Merger Agreement. On the one hand, the Board considered the Proposed 1994
Restructuring Plan to involve risk to the equity value of the Company in the
short run and, if the restructuring
-16-
<PAGE> 18
were to be unsuccessful, a substantial future risk. On the other hand,
although the Merger Agreement offers all shareholders the opportunity to
receive a premium for their Company Shares, because the form of consideration
to be paid to shareholders is Holdings Shares, the Board took into account the
risk to the Holdings Shares because of tobacco developments (including
litigation, legislation and governmental regulation) that the Board recognized
were not determinable. In balancing the two alternatives, the Board determined
that the transactions contemplated by the Merger Agreement were the less risky
and preferable alternative.
The recommendation by the Board that the
Company's stockholders accept the Offer and tender their Company Shares is not,
and should not be considered to be, a recommendation that the Company's
shareholders continue to own or, alternatively, make a decision to sell the
Holdings Shares acquired by such holders as a result of the Offer or the
Merger.
In its deliberations, the Board considered a
number of factors including, without limitation, the following:
(i) The Board's knowledge of the
business, operations, properties, assets, financial condition, operating
results and prospects of the Company, including in particular its close
monitoring of the adoption and implementation of the 1993 Restructuring Plan,
and the failure of that plan to attain its goals (see "Background" for a
description of the 1993 Restructuring Plan);
(ii) The Board's knowledge and judgments
as to the results of the Company's restructurings in 1989, 1991 and 1992, and
their failure to achieve the anticipated results;
(iii) The Board's judgment as to the
future prospects of the Company in light of management's Proposed 1994
Restructuring Plan (see "Background" for a description of the Proposed 1994
Restructuring Plan), which the Board viewed as posing significant risks for the
equity value of the Company including that it would result in the Company
having a substantial negative net worth; that it would require the sale of some
of the Company's profitable businesses; that there were risks inherent in
selling such businesses and attendant uncertainties as to what prices could be
realized; and that the proposed restructuring would still leave the Company
highly leveraged with a significant amount of indebtedness even after
application of the proceeds from the sales of the businesses. The Board
considered that the projected earnings for the Company following implementation
of the proposed restructuring
-17-
<PAGE> 19
would not, based upon the advice of Lazard Freres, likely result in an implied
stock price (using earnings multiples of comparable companies) exceeding $14.25
for a significant period of time;
(iv) The view expressed by the Company's
Chief Executive Officer that the Proposed 1994 Restructuring Plan could be
accomplished and that it was a better alternative for the Company (see
"Background");
(v) The oral and written presentations
of First Boston and Lazard Freres and the opinions of First Boston and Lazard
Freres that, as of September 22, 1994, the consideration to be received by the
stockholders of the Company (other than KKR and its affiliates) in the Offer
and the Merger is fair to such stockholders from a financial point of view.
These opinions were based on drafts of the Agreements and were subsequently
reconfirmed in writing upon the financial advisors' review of the definitive
agreements. Such opinions, which are subject to limitations, qualifications
and assumptions, including those relating to the absence of adverse future
developments in Holdings' tobacco business, are filed as exhibits to this
report and should be read in their entirety;
(vi) The terms and conditions of the
Merger Agreement and the Option Agreement; the Board considered in particular
the "no-solicitation" provision of the Merger Agreement, the fees and expense
reimbursements payable to KKR and the termination provisions of the Merger
Agreement and concluded that the terms of the Merger Agreement and the Option
Agreement would not preclude the Board from considering alternative transaction
proposals for the Company;
(vii) Possible alternatives to the Offer
and the Merger, including continuing to operate the Company as an independent
public company, approving the further restructuring proposed by the Company's
management, or liquidating the Company, as well as a range of potential values
to the Company's stockholders associated with such alternatives determined with
the assistance of the Company's financial advisors, the timing of effectuating
such alternatives and the likelihood of achieving those values;
(viii) Information concerning the business,
financial condition and results of operations of Holdings, including the
reports of the results of the due diligence investigation of Holdings; in that
connection the Board took into account that the impact on Holdings from
litigation (including pending and future matters as well as class action
litigation), legislation (pending and future) and governmental regulation
(present and
-18-
<PAGE> 20
future) involving tobacco products was unknowable and could be devastating with
respect to the value of Holdings Shares;
(ix) The historical market prices of the Company Shares and the Holdings
Shares;
(x) The fact that the consideration to
be received by the Company's stockholders in the Offer and the Merger
represented a premium over the trading price of the Company Shares prior to the
announcement of the Letter of Intent. In this regard, the Board considered the
risk that announcement of the Proposed 1994 Restructuring Plan might negatively
impact the trading price of the Company Shares;
(xi) The fact that the consideration to
be received by stockholders of the Company in the Offer and the Merger will
consist of equity securities of Holdings, a widely followed, publicly-traded
company, affording them a significant degree of liquidity should the Company's
stockholders determine to sell Holdings Shares acquired in the Offer or the
Merger;
(xii) The fact that the Offer is for all
of the outstanding Company Shares and holders of Company Shares have the right
to choose whether or not to exchange their shares in the Offer;
(xiii) The taxable nature of the transaction;
(xiv) The correspondence from, and the
results of, the discussions and the meeting with Japonica and its
representatives, the fact that no specific transaction was proposed by
Japonica, that Japonica would provide no information with respect to its
potential sources of financing and that the Merger Agreement does not, in the
Board's judgment, preclude consideration by the Board of any proposal made by
Japonica or any other party; (copies of the correspondence between the Company
and Japonica have been filed as an exhibit to this Report, see Item 7); and
(xv) The fact that the efforts to sell
the Company in late 1993 were not successful and that despite the public
disclosure that the Company was considering a number of alternatives for the
Company, including the possible sale or merger of the Company, no third party
contacted the Company subsequent to such announcement except Whitehall and
Japonica and only Whitehall made a proposal to acquire the Company (see
"Background").
In reaching the conclusion that the holders
of Company Shares will receive fair value in the Offer and the
-19-
<PAGE> 21
Merger, in Holdings Shares, the Company's Board considered the opinions of its
financial advisors (copies of which are filed herewith as exhibits, see Item
7), its knowledge of the Company's businesses and discussions with the
Company's management and the Company's and Board's financial advisors of their
views concerning the businesses, financial condition and prospects of Holdings.
The Board, with the assistance of the Company's financial advisors, also
considered recent and current market prices of Holdings Shares, on which the
exchange ratio for the Offer and the Merger was based. The analyses and
opinions of both of the Company's financial advisors were for the information
of the Company's directors and do not constitute a recommendation to the
Company's shareholders concerning any action they may take in connection with
the Offer, the Merger or Holdings Shares. Neither financial advisor nor the
Company's directors intend for any other party, including the Company's
stockholders, to have any rights or causes of action as a result of the
delivery of the opinions or the related analyses and advice or the inclusion of
the opinions as exhibits to this Form 8-K.
The foregoing discussion of the information
and factors considered and given weight by the Board is not intended to be
exhaustive. In view of the variety of factors considered in connection with
its evaluation of the Offer and the Merger, the Board did not find it
practicable to, and did not quantify or otherwise assign relative weights to,
the specific factors considered in reaching its determination. In addition,
individual members of the Company's Board of Directors may have given different
weights to different factors.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION
AND EXHIBITS
CORRESPONDENCE WITH JAPONICA PARTNERS
1. Letter from P.B. Kazarian to F.J. Tasco -- 5/24/94
2. Letter from P.B. Kazarian to F.J. Tasco -- 6/5/94
3. Letter from Japonica Partners to J. Rosenfeld -- 6/8/94
4. Letter from F.J. Tasco to Japonica Partners -- 6/13/94
5. Letter from P.B. Kazarian to J. Rosenfeld -- 6/20/94
6. Letter from P.B. Kazarian to M. David-Weill -- 6/24/94
7. Letter from P.B. Kazarian to F.J. Tasco -- 7/5/94
8. Letter from P.B. Kazarian to F.J. Tasco -- 7/14/94
9. Letter from F.J. Tasco to P.B. Kazarian -- 7/19/94
10. Letter from Japonica Partners to J. Rosenfeld 7/26/94
11. Letter from Japonica Partners to F.J. Tasco -- 7/26/94
-20-
<PAGE> 22
12. Letter from P.B. Kazarian to F.J. Tasco -- 8/11/94
13. Letter from P.B. Kazarian to F.J. Tasco -- 8/19/94
14. Letter from Japonica Partners to E.R. Shames with
attached list of questions to management -- 9/7/94
15. Letter from P.B. Kazarian to F.J. Tasco -- 9/13/94
16. Letter from A.L. Miller to P.B. Kazarian -- 9/14/94
17. Letter from Japonica Partners to F.J. Tasco -- 9/15/94
18. Letter from F.J. Tasco to P.B. Kazarian with attached
confidentiality letter -- 9/16/94
19. Letter from Japonica Partners to F.J. Tasco -- 9/17/94
20. Letter from F.J. Tasco to P.B. Kazarian -- 9/19/94
21. Letter from Japonica Partners to F.J. Tasco
with "Dynamic Tension" and Management Principles attachments --
9/21/94
22. Letter from Japonica Partners to Borden, Inc. Board
of Directors -- 9/22/94
23. Letter from F.J. Tasco to P.B. Kazarian -- 9/23/94
24. Letter from A.R. Brownstein to M. Nussbaum -- 9/26/94
25. Letter from Japonica Partners to F.J. Tasco -- 9/27/94
26. Letter from M. Nussbaum to M. Lipton -- 10/5/94
27. Letter from Japonica Partners to Board of Directors --
10/5/94
FAIRNESS OPINIONS
28. Opinion of CS First Boston Corporation, dated September 22, 1994
29. Opinion of Lazard Freres & Co., dated September 22, 1994
-21-
<PAGE> 23
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BORDEN, INC.
Date: October 5, 1994 James C. Van Meter
---------------------------
James C. Van Meter
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer
& Duly Authorized Signing
Officer)
-22-
<PAGE> 24
EXHIBIT INDEX
Exhibit
No.
- - -------
1. Letter from P.B. Kazarian to F.J. Tasco -- 5/24/94
2. Letter from P.B. Kazarian to F.J. Tasco -- 6/5/94
3. Letter from Japonica Partners to J. Rosenfeld -- 6/8/94
4. Letter from F.J. Tasco to Japonica Partners -- 6/13/94
5. Letter from P.B. Kazarian to J. Rosenfeld -- 6/20/94
6. Letter from P.B. Kazarian to M. David-Weill -- 6/24/94
7. Letter from P.B. Kazarian to F.J. Tasco -- 7/5/94
8. Letter from P.B. Kazarian to F.J. Tasco -- 7/14/94
9. Letter from F.J. Tasco to P.B. Kazarian -- 7/19/94
10. Letter from Japonica Partners to J. Rosenfeld 7/26/94
11. Letter from Japonica Partners to F.J. Tasco -- 7/26/94
12. Letter from P.B. Kazarian to F.J. Tasco -- 8/11/94
13. Letter from P.B. Kazarian to F.J. Tasco -- 8/19/94
14. Letter from Japonica Partners to E.R. Shames with
attached list of questions to management -- 9/7/94
15. Letter from P.B. Kazarian to F.J. Tasco -- 9/13/94
16. Letter from A.L. Miller to P.B. Kazarian -- 9/14/94
17. Letter from Japonica Partners to F.J. Tasco -- 9/15/94
18. Letter from F.J. Tasco to P.B. Kazarian with attached
confidentiality letter -- 9/16/94
19. Letter from Japonica Partners to F.J. Tasco -- 9/17/94
20. Letter from F.J. Tasco to P.B. Kazarian -- 9/19/94
21. Letter from Japonica Partners to F.J. Tasco with "Dynamic
Tension" and Management Principles attachments -- 9/21/94
22. Letter from Japonica Partners to Borden, Inc. Board
of Directors -- 9/22/94
23. Letter from F.J. Tasco to P.B. Kazarian -- 9/23/94
24. Letter from A.R. Brownstein to M. Nussbaum -- 9/26/94
25. Letter from Japonica Partners to F.J. Tasco -- 9/27/94
26. Letter from M. Nussbaum to M. Lipton -- 10/5/94
27. Letter from Japonica Partners to Board of Directors -- 10/5/94
28. Opinion of CS First Boston CORPORATION, dated September 22, 1994
29. Opinion of Lazard Freres & Co., dated September 22, 1994
-23-
<PAGE> 1
EXHIBIT 1
[LETTERHEAD OF JAPONICA PARTNERS]
VIA FACSIMILE
HIGHLY CONFIDENTIAL
May 24, 1994
Mr. Frank J. Tasco
Chairman
Borden Inc.
277 Park Avenue
New York, NY 10172
Dear Frank:
Given your public disclosure of the Board's efforts
to sell the Company, we wish to meet.
Our first preference is as a "white knight".
We are inclined to entertain a materially higher
valuation if the snack and other targeted businesses are not liquidated.
We should meet forthwith.
Best Health,
/s/ Paul
------------------------
Paul B. Kazarian
Managing Partner
<PAGE> 1
EXHIBIT 2
[LETTERHEAD OF JAPONICA PARTNERS]
VIA FACSIMILE
HIGHLY CONFIDENTIAL
June 5, 1994
Mr. Frank J. Tasco
Chairman
Borden Inc.
277 Park Avenue
New York, NY 10172
Dear Frank:
Wrote to you on May 24th.
Given your public disclosure of the Board's efforts
to sell the Company, we wish to meet.
Our first preference is as a "white knight".
We are inclined to entertain a materially higher
valuation if the snack and other targeted businesses are not liquidated.
We should meet forthwith.
Best Health,
/s/ Paul B. Kazarian
------------------------
Paul B. Kazarian
Managing Partner
<PAGE> 1
EXHIBIT 3
[Letterhead of
Japonica Partners]
Confidential
June 8, 1994
Jerry Rosenfeld
Lazard Freres & Co.
One Rockefeller Plaza
32nd floor
New York, New York 10020
Dear Mr. Rosenfeld:
Responding to your phone message.
We are advised to obtain written bona fides as to your role and authorization
in this matter prior to commencing conversation with you.
Preferably, such written confirmation should originate from your principal.
Please fax such representation by the close of business today.
In advance, we thank you.
Sincerely,
/s/ Japonica Partner
----------------------
JAPONICA PARTNERS
<PAGE> 1
EXHIBIT 4
[LETTERHEAD OF BORDEN, INC.]
June 13, 1994
Japonica Partners
30 Kennedy Plaza
Providence, R. I. 02903
Dear Sirs:
In response to your June 8 letter, please be advised that Lazard Freres & Co.
is Borden's investment banker and as such is duly authorized to represent
Borden in discussions with third parties concerning Borden affairs.
Very truly yours,
/s/ Frank J. Tasco
------------------------
Frank J. Tasco
Chairman
cc: E. Shames
<PAGE> 1
EXHIBIT 5
[LETTERHEAD OF JAPONICA PARTNERS]
VIA FACSIMILE
CONFIDENTIAL
June 20, 1994
Jerry Rosenfeld
Lazard Freres & Co.
One Rockefeller Plaza, 32nd floor
New York, NY 10020
Dear Mr. Rosenfeld:
Received a written communication from Frank Tasco. Telephoned you yesterday
and left a message.
Please feel free to call at your earliest convenience.
Sincerely,
/s/ Paul B. Kazarian
------------------------
Paul B. Kazarian
Managing Partner
cc: F. Tasco
<PAGE> 1
EXHIBIT 6
[LETTERHEAD OF JAPONICA PARTNERS]
VIA FACSIMILE
CONFIDENTIAL
June 24, 1994
Michel DAVID-WEILL
Lazard Freres & Co.
One Rockefeller Plaza
New York, NY 10020
Dear Mr. DAVID-WEILL:
Received the attached letter from Borden, Inc.'s Chairman Mr. Frank J. Tasco
suggesting we contact your firm in connection with our interest in the Company.
Prior to our receipt of Mr. Tasco's letter, a Mr. J. Rosenfeld from your
organization had called, but efforts to reach him subsequent to Mr. Tasco's
letter have been to no avail.
Given the sensitivity of this topic, your guidance in understanding the proper
protocol in communicating with your organization would be greatly appreciated.
Please feel free to call.
Sincerely,
/s/ Paul B. Kazarian
------------------------
Paul. B. KAZARIAN
Managing Partner
[Omitted from this letter is an attachment which is filed separately as exhibit
4 to this Form 8-K]
<PAGE> 1
EXHIBIT 7
[LETTERHEAD OF JAPONICA PARTNERS]
VIA FACSIMILE
HIGHLY CONFIDENTIAL
July 5, 1994
Frank J. Tasco
Chairman
Borden, Inc.
277 Park Avenue
New York, NY 10172
Dear Frank:
With your letter of June 13, 1994 on file, we spoke with the designated Lazard
partner. On behalf of his firm, he communicated the following.
If we wish to submit a more specific proposal, it would be reviewed by Mr.
Martin Lipton and the Board.
In all fairness, Lazard's view of the Company's situation, as indicated below,
was less than encouraging:
1. the Company is too complicated to understand
from the outside,
2. the Company cannot pay down its current debt
load,
3. the sale of substantial assets is the heart &
soul of management's plan for the Company,
4. investors have responded negatively to
management's plan with a considerable
valuation decline, and
5. the Board would not reconsider the sale of
the snack businesses despite:
a. the erosion of shareholder value
cited in point 4,
b. sale proceeds are likely to amount
to a small fraction of initial
expectations, and
c. the loss of a major portion of the
"Value Gap" recovery.
<PAGE> 2
Frank J. Tasco
July 5, 1994
Page 2
Nevertheless, we remain interested in the Company's situation and are inclined
to entertain a higher valuation towards maximizing shareholder value if the
snack and other remaining targeted businesses are retained.
Your constructive and expeditious guidance to advance a friendly initiative
would be appreciated.
Respectfully,
/s/ Paul B. Kazarian
------------------------
Paul B. Kazarian
Managing Partner
<PAGE> 1
EXHIBIT 8
[LETTERHEAD OF JAPONICA PARTNERS]
VIA FACSIMILE
HIGHLY CONFIDENTIAL
July 14, 1994
Frank J. Tasco
Chairman
Borden, Inc.
277 Park Avenue
New York, NY 10172
Dear Frank:
Respectfully, awaiting your response.
Received your recent letter.
It would be appropriate and appreciated if we heard from you prior to what one
source indicated was a July 26th Board meeting.
To reiterate, we are inclined to entertain a materially higher valuation
towards maximizing shareholder value if the snack and other remaining targeted
businesses are retained.
The on-going sale of assets in order to repay bank loans may reduce the upper
range of the Company's "Value Gap" and the potential value recovery by up to
$500 million.
As we have indicated, our preference is that of a pro-active white knight.
Sincerely,
/s/ Paul
------------------------
Paul B. Kazarian
Managing Partner
<PAGE> 1
EXHIBIT 9
[LETTERHEAD OF BORDEN, INC.]
July 19, 1994
Mr. Paul B. Kazarian
Managing Partner
Japonica Partners
30 Kennedy Plaza
Providence, Rhode Island 02903
Dear Mr. Kazarian:
I am in receipt of your letters of July 5th and July 14th, 1994.
Mr. Rosenfeld repeatedly asked your colleague Mr. Fahmey questions relating to
the financial resources of your group and the proposed sources of funds for the
transaction you are suggesting. Your colleague avoided answering these
questions. We take this to mean that you do not have financing. Mr. Rosenfeld
did not suggest that Borden is unable to pay down its current debt load or
comment upon the anticipated proceeds of the asset sales program. He simply
expressed the view, consistent with the above, that financing the acquisition
of Borden is a complex matter.
Borden faces serious challenges and it is doing its best to address them. Any
distraction from these efforts entails a severe cost which could only be
justified if it were likely to produce a material benefit for the Company. On
this basis we do not believe it is in Borden's interest to pursue this matter
further with you.
Yours sincerely,
/s/ Frank J. Tasco
- - ----------------------------
Frank J. Tasco
Chairman
<PAGE> 1
EXHIBIT 10
[LETTERHEAD OF JAPONICA PARTNERS]
VIA FACSIMILE
HIGHLY CONFIDENTIAL
July 26, 1994
Jerry Rosenfeld
General Partner - Investment Banker
Lazard Freres & Co.
One Rockefeller Plaza, 32nd Floor
New York, NY 10020
Dear Mr. Rosenfeld:
We are alarmed by the statements contained in the attached letter from Mr.
Frank Tasco referencing our telephone conversation.
Assuming such statements accurately represent your reporting of our
conversation, such actions are beyond gross negligence and are both potentially
destructive to shareholder value and -- obviously -- would not merit protection
under any indemnification agreements with the Company.
We expect immediate retraction of these statements.
In direct contrast to the statements in Mr. Tasco's letter, records of our
conversation clearly indicate the following:
Point 1. Never during our conversation was
any transaction as referenced in
the attached letter suggested,
discussed or even mentioned.
Point 2. You did not ask any questions
relating to our financial
resources. In fact, you
complemented Japonica Partners on
being a credible and highly
successful firm with a good
reputation.
Point 3. You specifically stated that Borden
cannot pay down its current debt
load.
Point 4. You repeatedly stated that the
Board would not reconsider the sale
of the snack businesses despite:
a. the erosion of shareholder value
as investors have responded
negatively to
<PAGE> 2
Jerry Rosenfeld
July 26, 1994
Page 2
management's plan with a considerable
valuation decline.
b. sale proceeds are likely to
amount to a small fraction of
initial expectations, and
c. the loss of a major portion of
the "Value Gap" recovery.
To reiterate, we expect full retraction of these statements in writing prior to
your next communication with the Company.
Regards,
/s/ Japonica Partners
- - -------------------------
JAPONICA PARTNERS
Attachment
[Omitted from this letter is an attachment which is filed separately as exhibit
9 to this Form 8-K]
<PAGE> 1
EXHIBIT 11
[LETTERHEAD OF JAPONICA PARTNERS]
VIA FACSIMILE
HIGHLY CONFIDENTIAL
July 26, 1994
Mr. Frank J. Tasco
Chairman
Borden Inc.
277 Park Avenue
New York, NY 10172
Dear Frank:
Received your recent letter.
Importantly, there appears to be a significant miscommunication with your
advisor that needs to be corrected at the Board-level.
In direct contrast to the statements in your letter, records of our telephonic
conversation with the Lazard Freres investment banker on June 27th clearly
indicate the following:
Point 1. Never during our conversation was
any transaction as referenced in
your letter suggested, discussed or
even mentioned.
Point 2. The Lazard Freres General Partner
did not ask any questions relating
to our financial resources. In
fact, he complemented Japonica
Partners on being a credible and
highly successful firm with a good
reputation.
Point 3. He specifically stated that Borden
cannot pay down its current debt
load (See attached).
Point 4. He repeatedly stated that the Board
would not reconsider the sale of
the snack business (See attached)
despite:
a. the erosion of shareholder value
as investors have reacted
negatively to management's
plan with a considerable
valuation decline
b. sale proceeds are likely to
amount to a small fraction of
initial expectations, and
<PAGE> 2
Frank J. Tasco
July 26, 1994
Page 2
c. the loss of a major portion of
the "Value Gap" recovery.
We have asked for and expect a retraction from your investment banker.
Furthermore, we will consult with advisors as to whether continued
non-principal communication is appropriate.
As for the concluding paragraph of your letter, it is 100% incongruent with the
facts. To reiterate, we are inclined to entertain a materially higher
valuation towards maximizing shareholder value if the snack and other remaining
targeted businesses are retained.
The on-going sale of assets in order to repay bank loans may reduce the upper
range of the Company's "Value Gap" and the potential value recovery by up to
$500 million.
As we have indicated, our preference is that of a pro-active white knight.
Respectfully.
/s/ JAPONICA PARTNERS
- - -------------------------
JAPONICA PARTNERS
Attachment
[Omitted from this letter is an attachment which is filed separately as exhibit
7 to this Form 8-K]
<PAGE> 1
EXHIBIT 12
[LETTERHEAD OF JAPONICA PARTNERS]
VIA FACSIMILE
HIGHLY CONFIDENTIAL
August 11, 1994
Frank J. Tasco
Chairman
Borden, Inc.
277 Park Avenue
New York, NY 10172
Dear Frank:
Continuing to review your latest July letter with our advisors. Will respond
forthwith.
To reiterate, we are inclined to entertain a materially higher valuation
towards maximizing shareholder value if the snack and other remaining targeted
businesses are retained.
The on-going sale of assets in order to repay bank loans may reduce the upper
range of the Company's "Value Gap" and the potential value recovery by up to
$500 million.
As we indicated, our preference is that of a pro-active white knight.
Respectfully,
/s/ Paul
------------------------
Paul B. Kazarian
Managing Partner
cc: List
<PAGE> 1
EXHIBIT 13
[LETTERHEAD OF JAPONICA PARTNERS]
VIA FACSIMILE
HIGHLY CONFIDENTIAL
August 19, 1994
Mr. Frank J. Tasco
Chairman
Borden, Inc.
277 Park Avenue
New York, NY 10172
Dear Frank:
We view the latest news regarding the continuing and expanding liquidation of
the Company's businesses and the increasing pressure exerted by creditors with
great alarm. Comments involving the specter of a bankruptcy filing are even
more disturbing.
Prospects of further dividend reduction or elimination are of concomitant
relevance and continue the trend of ignoring the interests of equity holders in
favor of creditors.
In this context, issues regarding lender liability, equitable subordination,
and fraudulent conveyance are of direct relevance and serious concern.
Given the urgency of this matter, and your pattern of delayed or non-responses,
we are willing to entertain your suggestions as to an appropriate meeting time
and place. Please provide such suggestions by noon today.
If you choose not to adequately address this issue, we may have no choice but
to consider, among other alternatives, communicating with the Company's Board
members and the creditors involved.
As we have indicated, our preference is that of a pro-active white knight.
Very truly yours,
/s/ Paul B. Kazarian
------------------------
Paul B. Kazarian
Managing Partner
cc: List
<PAGE> 1
EXHIBIT 14
[LETTERHEAD OF JAPONICA PARTNERS]
VIA FACSIMILE
HIGHLY CONFIDENTIAL
September 7, 1994
Mr. Ervin R. Shames
President and CEO
Borden, Inc.
180 East Broad Street
Columbus, Ohio 43215-3799
Dear Mr. Shames:
We respectfully request that all stockholders be
expeditiously provided with information and answers to the attached questions.
Filing such information with the SEC and/or
scheduling an analyst/shareholders meeting may be an appropriate first step.
Very truly yours,
/s/ JAPONICA PARTNERS
------------------------
JAPONICA PARTNERS
cc: List
<PAGE> 2
Highly Confidential Draft
September 7, 1994
06:15 PM
September 6th Questions to Management
Cash Flow
1. Without proceeds from asset sales, how much 1st half interest expense
would have been paid?
2. With first half negative free cash flow of $62 million before
proceeds from asset sales, what is the Company's targets for free
cash flow in 1994 and 1995 excluding proceeds from assets sales?
3. How can management be meeting its cash flow targets when net debt
(including A/R financing, TMI, discontinued operations and other off
balance sheet financing) has remained essentially unchanged?
4. With the latest asset sale of Jays, reportedly selling for between
12% to 14% of sales, how can management be meetings its target of
$400 million in net proceeds from asset sales? Will the remaining
snack assets be sold at similar revenue multiples? Please provide
expected asset sale proceeds.
5. Would a 5th major restructuring cause 1995 free cash flow to be
negative? What would be the estimated cash cost of such a
restructuring?
6. Will the Company provide shareholders with monthly, or at a minimum,
quarterly itemized cash flow targets and results? Components of
operating cash flow should include restructuring cash costs,
discontinued business cash costs, individual asset sale proceeds,
working capital components, depreciation, deferred and current taxes,
Other Assets and Other, Net.
7. How much will annualized interest expense increased from that
projected in early 1994 given deteriorating credit spread costs,
essentially no debt reduction by mid-year, rising interest rates and
increased financing fees?
8. Without the apparent decrease in quarter to quarter cash interest to
book interest ratio of approximately $12 million and the positive
cash tax effect of $11 million, wouldn't Free Cash Flow after the $87
million in asset proceeds be nominal to negative? Will second half
cash expense increase proportionately? Please explain the $11
million cash tax line item.
9. Please provide components of Other assets and Other, net in the
annual and quarterly cash flows.
1
<PAGE> 3
Highly Confidential Draft
September 7, 1994
06:15 PM
September 6th Questions to Management (cont.)
10. What are the debt repayment requirements in 1994 and 1995?
11. What is the status of the $52 million in IRS contested items?
12. Given the apparent delay in cash spending on restructuring and
capital expenditures to conserve cash in the first half, what will be
the impact on second half free cash flow? How has this affected
planned cost reductions and the Company's competitive position?
Please provide revised 1994 cap-ex projections.
Bank Debt
13. What are waiver provisions for covenant violations under the new bank
loan agreement? What percentage of the banks must agree for covenant
amendments?
14. What are upcoming 1994 and 1995 monthly/quarterly covenant compliance
dates, and what are these covenants? Please provide statistics and
definitions.
15. Can the holders of the Company's zero-coupon bonds demand redemption
for cash in 1997, or can the Company compel them to accept stock (see
page 24 of the 1993 Annual Report)?
16. What is the dollar amount of dividend "basket" cushion under the new
bank agreement?
17. If the new bank agreement fees total $20 to $30 million, will this be
funded with additional debt?
18. How much, if any, does the cost of the bank debt increase with rating
downgrades?
19. When will the Company file a copy of the new bank agreement with the
SEC?
20. How much commercial paper is currently issued and outstanding? What
are the projections for the remainder of the year? How much
commercial paper will be classified as long-term debt?
21. Given the possibility that monthly bank covenant requirements to pay
down debt are top priority, would shareholders' needs be
subordinated?
2
<PAGE> 4
Highly Confidential Draft
September 7, 1994
06:15 PM
September 6th Questions to Management (cont.)
Operating
22. What are the Company's new EPS estimates for 1994 and 1995?
23. Is the approximately 220 and 330 basis point gross and operating
margin decline, respectively, for the first six months in 1994
considered "on target?"
24. What effect, if any, would a major reduction to the already reduced
capital expenditure further weaken the Company's competitive position
and jeopardize product quality?
25. Will any recent "me-too" new products out-perform past new product
introductions? Also, what has been the total unexpensed cash cost of
new products introduced or re-introduced over the past 12 months?
26. Given some estimates that pasta operating profit up-side is $5
million to $10 million per quarter, does that mean domestic pasta
sales of an estimated $120 million broke even in the second quarter?
27. Do the 80% of brands market share improvement comments apply to only
about $100 million of quarterly domestic product sales when domestic
pasta and dairy are excluded?
28. With the exception of major asset sales, are current management's
plans essentially the same as those in 1992, including the addition
of new management and focus on brand equity?
29. What are the components of the $7.7 million change in Other (income)
and expense, net between second quarter 1993 and 1994 that provided
almost all the earnings in the second quarter 1994.
30. With the sale of snacks and other businesses, as well as the
speculated disposal of dairy, will the Company suffer a significant
loss of competitive advantage and leverage with its retailers and
consumers?
31. Did pasta dollar market share, not tonnage volume, decline by one
point in the second quarter, as shown by IRI?
32. How much of Dairy's increased operating loss was associated with the
introduction of "low bidding" business strategies?
3
<PAGE> 5
Highly Confidential Draft
September 7, 1994
06:15 PM
September 6th Questions to Management (cont.)
33. How many of the supposedly reduced employees are still getting paid,
or retained and paid as consultants, e.g., P.R. consultant? What is
the annualized dollar amount?
Restructuring and Sale of Assets
34. Would any disposal and restructuring expenses associated with dairy
and/or other assets eliminate any incremental proceeds from asset
sale?
35. Given Chairman Tasco's statements in early 1994 that improving Dairy
was the single greatest potential for increasing shareholder value in
the near term, has this changed?
36. Would any up-side shareholder value be lost from asset sales with
insufficient proceeds to pay down significant debt?
37. If the North American food business is at break-even levels before
interest, could further downsizing be expected to reverse the
negative trend?
38. Quantify the impact of any expected increase in overhead burden rate
resulting from major asset sales. How is overhead and fixed burden
allocated among the various dairy products?
39. How much as been paid and committed to be paid to outside consultants
and advisors, both business and legal, in 1993 and 1994?
40. What was the peak operating profit of discontinued businesses and
dairy during the past 5 years?
41. How much expense and cash costs associated with Columbus and New York
headquarters have been historically and currently allocated to
discontinued operations and dairy? How has that recently changed?
42. Given that the Dairy business provided $90 million in operating
income in 1991, has the opportunity to recover that potential value
been essentially eliminated?
43. Given that the $1.2 billion in sales from discontinued operations
operated profitably as recently as 1991, does the disposal of these
businesses and the mounting phase-out losses eliminate the potential
to recover that lost value?
4
<PAGE> 6
Highly Confidential Draft
September 7, 1994
06:15 PM
September 6th Questions to Management (cont.)
44. With regards to the $1.2 billion in sales from discontinued
businesses and the Dairy business, is the loss of operating profit
and potential shareholder value consistent with management's stated
objective of building shareholder value?
Accounting
45. Should the TMI and Sale of accounts receivable debt and associated
financing expenses be classified as debt and interest expense,
respectively? What is the all-in cost of the A/R program, and where
is it classified?
46. Is actual total debt currently at approximately $2.5 billion and
interest at $170 to $180 million, with TMI and A/R sales classified
as debt?
47. How much debt and interest expense is being allocated to discontinued
operations?
48. Are operating earnings significantly lower if restructuring charge
reversals are added back to the P&L?
49. Given the $94 million pretax charge for asset write downs and changes
in accounting estimates primarily relating to the cost of consumer
and trade promotions in 1993, is there any write down expected in
1994 relating to consumer and trade promotions?
50. Please provide disclosure of balance sheet, P&L and cash flow
information relating to discontinued operations. Given the frequent
statements that results are on target, please provide the targets as
well.
51. Should the 2nd quarter environmental charge be considered a one-time
charge given the recent reduction in spending? (1993 expected
spending was $18.4 million, and actual spending was only $4.3
million). See Annual Reports.
5
<PAGE> 1
EXHIBIT 15
[LETTERHEAD OF JAPONICA PARTNERS]
VIA FACSIMILE
September 13, 1994
Mr. Frank J. Tasco
Chairman
Borden, Inc.
277 Park Avenue
New York, NY 10172
Dear Frank:
You should not be surprised by our phone call first thing this morning and this
letter. The situation reported in today's press concerning your agreement to
an ownership swap for securities held by an LBO firm is clearly contrary to
representations made by you and your advisors.
We have communicated repeatedly in writing and by phone since May 24, 1994 (see
attached Listing of 14 Correspondences). As previously stated,
1. Our intent remains that of a pro-active white knight, a
role now of greater necessity.
2. We are inclined to entertain a materially higher valuation
to maximize shareholder value if the remaining targeted
businesses are not liquidated.
Contra-fiduciary behavior is not acceptable nor is a massive decline in
shareholder value and evisceration of Company fundamentals.
Again, we urge you to respond constructively and immediately. Your "duty of
loyalty" and "duty of care" can not be abdicated.
Sincerely,
/s/ Paul B. Kazarian
------------------------
Paul B. Kazarian
Managing Partner
<PAGE> 2
Borden, Inc.
Listing of Correspondence
<TABLE>
<CAPTION>
Date Recipient Sender
---------------- ---------------- -----------------
<S> <C> <C>
1. May 24, 1994 Frank Tasco Japonica Partners
2. June 5, 1994 Frank Tasco Japonica Partners
3. June 8, 1994 Jerry Rosenfeld Japonica Partners
- Lazard
4. June 13, 1994 Japonica Partners Frank Tasco
5. June 20, 1994 Jerry Rosenfeld Japonica Partners
- Lazard
6. June 24, 1994 David-Weill Japonica Partners
- Lazard
7. July 5, 1994 Frank Tasco Japonica Partners
8. July 14, 1994 Frank Tasco Japonica Partners
9. July 19, 1994 Japonica Partners Frank Tasco
10. July 26, 1994 Frank Tasco Japonica Partners
11. July 26, 1994 Jerry Rosenfeld Japonica Partners
- Lazard
12. August 11, 1994 Frank Tasco Japonica Partners
13. August 19, 1994 Frank Tasco Japonica Partners
14. September 7, 1994 Ervin Shames Japonica Partners
</TABLE>
<PAGE> 1
EXHIBIT 16
[LETTERHEAD OF BORDEN, INC.]
September 14, 1994
Mr. Paul B. Kazarian
Managing Partner
Japonica Partners
30 Kennedy Plaza
Providence, RI 02903
Dear Mr. Kazarian:
Mr. Tasco has authorized me to respond to your letter to him dated
September 13, 1994, as follows.
Borden's Board has consistently maintained that it is prepared to
explore all serious, substantive proposals with a view to maximizing the value
of the Borden shares. We note that none of your communications referenced in
your letter contained any proposal. If you have a proposal that you wish to
discuss with us that in your view meets such criteria and can be effected,
please advise us of same through our investment banker, Louis Perlmutter of
Lazard Freres & Co., (212) 632-6152, and he will arrange a meeting with you.
Very truly yours,
/s/ Allan L. Miller
------------------------
Allan L. Miller
ALM:lm
VIA FACSIMILE
cc: Louis Perlmutter
<PAGE> 1
EXHIBIT 17
[LETTERHEAD OF APONICA PARTNERS]
VIA FACSIMILE
September 15, 1994
Frank J. Tasco
Borden, Inc.
180 East Broad Street
Columbus, OH 43215-3799
Dear Mr. Tasco:
Received your fax this morning. This response, apparently from your Law
Department, claiming a continuing willingness to explore alternatives to
maximize shareholder value, is nothing short of outrageous.
Since May of this year, and through almost a dozen written communications and
incessant phone calls, we have relentlessly tried to establish a constructive
dialogue to act as a proactive white knight and to maximize shareholder value.
Our numerous attempts to establish such a dialogue and your refusals to do so
are irrefutably well documented.
We even contacted your investment banker, who during our conversation
complemented Japonica on being a credible and highly successful firm with a
good reputation. That conversation was thereafter misrepresented, distorted
and conveniently reconstructed to justify your refusal to establish a dialogue
as referenced above. Indeed, in your July 19th letter regarding a proposed
transaction, you concluded that "we do not believe it is in Borden's interest
to pursue this matter further with you."
It is difficult to conclude that anything less than a situation of tilting the
playing field has been carefully designed. In fact, padlocking the entrance to
the process and seeking to shackle the competition in order to advance a
preferred suitor's proposal seem to be more apt characterizations.
Your refusal and failure to act consistently with your duty to maximize
shareholder value, and the defensive, in fact hostile, responses by you and
your advisors are well documented and will not go without notice.
These actions and disingenuous statements to the contrary raise questions as to
violations of duty of loyalty and duty of care.
<PAGE> 2
Frank J. Tasco
September 15, 1994
Page 2
Also, such behavior and the history of recent events raise issues of gross
negligence.
Months ago, you should have and could have provided us with equal treatment to
the Whitehall group and others, including equal information and response time.
Your advisor's comments to us that Borden is too complex to understand from the
outside and that neither a financial nor a strategic buyer could make an
acquisition work can only be viewed as further examples -- in a pattern of
behavior -- of your attempts to preclude us from the process.
In this context, the Whitehall agreement and related provisions must be treated
with suspect and questionable validity. This issue should not be under
emphasized, nor should aspects of bad faith. We should also note that since
the Board has determined that the Company should be sold, executing asset sales
and/or non-ordinary business contracts/agreements may diminish shareholder
value and is therefore impermissible.
Despite the many contra-fiduciary obstacles that you and your advisors have,
and will undoubtedly continue to erect, we seek to press forward, determined to
maximize shareholder value as a proactive white knight.
Please immediately deliver to Japonica Partners all material and information
provided to other potential bidders, including the Whitehall group. We are
also willing to visit sites where such information is maintained.
Sincerely,
/s/ JAPONICA PARTNERS
------------------------
JAPONICA PARTNERS
cc: List
<PAGE> 1
EXHIBIT 18
[LETTERHEAD OF BORDEN, INC.]
September 16, 1994
Mr. Paul B. Kazarian,
Managing Partner
Japonica Partners
30 Kennedy Plaza
Providence, Rhode Island 02903
Dear Mr. Kazarian:
We are in receipt of your letter of September 15, 1994. That letter
as well as your previous correspondence and our responses, including this one,
have been communicated to our Board.
You continue to mischaracterize our previous communications with you.
Our Board has consistently maintained that it is prepared to explore all
serious, substantive proposals in a view to maximizing the value of the Borden
shares. None of the communications received from you to date have included any
proposal. In early July our financial advisor repeatedly asked your colleague
questions concerning the financial resources of your group and the proposed
sources of funds for any proposals you are considering. Your colleague refused
to answer these questions. Your refusal to provide us with any basis for
concluding that discussions with your group would be likely to produce a
material benefit for Borden was the reason that we determined in July not to
pursue discussions.
Let me reiterate our position as it is today and as it has
consistently been. If you have a proposal that you wish to discuss with us
that in your view can be effected and will lead to maximizing the value of the
Borden shares, please advise us of the same and we will meet with you. In that
regard, we have enclosed a form of Confidentiality Agreement which would be a
predicate for such a meeting. It is the same form of agreement that was agreed
to by KKR except that it does not include certain standstill provisions that
were agreed to by KKR. We would prefer that you arrange such a meeting through
our investment banker, Louis Perlmutter of Lazard Freres & Co., telephone
number (212) 632-6152, fax number (212) 632-6054, although management personnel
would be available for such a meeting if it were to be appropriate. If you
would prefer, you may contact our General Counsel, Allan Miller, telephone
number (614) 225-4884, fax number (614) 225-7133, about such a meeting
<PAGE> 2
Mr. Paul B. Kazarian
September 16, 1994
Page 2
and, in any event, the signed confidentiality letter should be returned to Mr.
Miller.
Very truly yours,
/s/ Frank J. Tasco
-------------------------
Frank J. Tasco
Enc.
cc: Louis Perlmutter
Allan Miller
<PAGE> 3
[LETTERHEAD OF BORDEN, INC.]
September 16, 1994
Japonica Partners
30 Kennedy Plaza
Providence, RI 02903
Attention: Mr. Paul B. Kazarian
Dear Mr. Kazarian:
You have requested information concerning Borden, Inc. (the
"Company") in connection with a possible transaction with the Company or its
shareholders. You will treat confidentially any information furnished to you
by or on behalf of the Company (the "Evaluation Material"; provided, however,
that the term "Evaluation Material" does not include, and your confidentiality
obligations hereunder do not apply to, information which was or becomes
generally available on a non-confidential basis).
You will not use the Evaluation Material in any way detrimental to
the Company or its shareholders; provided, however, that you may disclose any
Evaluation Material to your directors, officers, employees, agents, advisors,
potential financing sources or affiliates who need to know such information for
the purpose of evaluating the transaction (it being understood that they shall
be informed by you of the confidential nature of such information and that by
receiving such information they are agreeing to be bound by this agreement).
In the event that you are requested in any proceeding to disclose any
Evaluation Material, you will give the Company prompt notice of such request so
that the Company may seek an appropriate protective order. If in the absence
of a protective order you are nonetheless compelled to disclose Evaluation
Material, you may disclose such information without liability hereunder;
provided, however, that you give the Company written notice of the information
to be disclosed as far in advance of its disclosure as is practicable and, upon
the Company's request and at the Company's expense, use your best efforts to
obtain assurances that confidential treatment will be accorded to such
information.
You hereby acknowledge that you are aware of the restrictions imposed
by the United States securities laws on any person who has received from an
issuer material, nonpublic information from purchasing or selling securities of
such issuer
<PAGE> 4
Japonica Partners
September 16, 1994
Page 2
or from communicating such information to any other person under circumstances
in which it is reasonably foreseeable that such person is likely to purchase or
sell such securities in reliance upon such information.
You shall not make any disclosure concerning the subject matter of
the prior paragraphs, including that you are having or have had discussions
with the Company, and the Company will not make disclosure of such discussions
which identifies you or your affiliates as parties thereto, except in either
case as expressly provided in this agreement; provided that you or the Company
may make such disclosure if either has received the written opinion of counsel
(which opinion shall be provided to the other party reasonably in advance of
such disclosure) that such disclosure must be made in order not to commit a
violation of law and, if the action which is to be disclosed was in violation
of the prior paragraph, such disclosure expressly states such violation.
For two years from the date hereof, (i) you agree not to initiate
contact (except for those contacts made in the ordinary course of business)
with any officer or employee of the Company regarding its business, operations,
prospects or finances, except with the prior consent of the Company and (ii)
you will not directly solicit (which shall not include executives brought to
your attention with that person's knowledge) for hire any person known to you
to be employed by the Company in an executive capacity.
Upon the Company's request you will promptly redeliver to the Company
all copies of the Evaluation Material and will destroy all memoranda, notes and
other writings prepared by you or your directors, officers, employees, agents
or affiliates based on the Evaluation Material. You understand that neither
the Company nor any of its representatives or advisors makes any representation
or warranty as to the accuracy or completeness of any Evaluation Material which
may be furnished to you. You agree that neither the Company nor its
representatives or advisors shall have any liability to you or any of your
representatives resulting from the use of the Evaluation Material.
You agree that money damages would not be a sufficient remedy for any
breach of this agreement by you or your directors, officers, employees, agents
or affiliates, and that in addition to all other remedies the Company shall be
entitled to specific performance and injunctive or other equitable relief as a
remedy for any such breach, and you further agree to waive and to use your best
efforts to cause your directors,
<PAGE> 5
Japonica Partners
September 16, 1994
Page 3
officers, employees, agents or affiliates to waive, any requirements for the
securing or posting of any bond in connection with such remedy.
This agreement shall be governed by and construed in accordance with
the laws of the State of New Jersey, without giving effect to its conflict of
laws principles or rules.
If you are in agreement with the foregoing, please so indicate by
signing and returning one copy of this agreement which will constitute an
agreement between you and the Company with respect to the matters set forth
herein.
Very truly yours,
BORDEN, INC.
By: /s/ Allan L. Miller
----------------------
Allan L. Miller
Senior Vice President
Confirmed and Agreed to:
JAPONICA PARTNERS
By:
----------------------
Name:
Title:
<PAGE> 1
EXHIBIT 19
[LETTERHEAD OF JAPONICA PARTNERS]
September 17, 1994
Frank J. Tasco
Borden, Inc.
180 East Broad Street
Columbus, OH 43215-3799
Dear Mr. Tasco:
Upon review of your fax this morning, several points are worth note:
POINT I: SEMANTIC SOPHISTRY: Your comments as to why Japonica Partners has
been denied opportunity to act as a proactive white knight and maximize
shareholder value are both factually inaccurate and logically inconsistent.
Your attempts at semantic sophistry will not remedy concerns of irreparable
harm or breaches of duty.
POINT II: 117-DAY DISADVANTAGE: At a minimum, your actions to date have
impeded the maximization of shareholder value by 117 days, giving a preferred
suitor at least a 117-day advantage.
POINT III: EQUAL ACCESS TO INFORMATION: Our team remains prepared to meet
immediately in Columbus, New York, or any other location in order to obtain the
information provided to Whitehall.
Please immediately fax to us today a list of all such material and information,
which must currently exist. Also, please provide us with a listing of all
meetings and communications, both written and verbal, including specific dates
and content, between Borden and its advisors and Whitehall.
POINT IV: ANSWERS TO SEPTEMBER 7TH QUESTIONS: On Wednesday, September 7th, 10
days ago, we provided you with the attached list of questions in order to
advance our efforts as a proactive white knight seeking to maximize shareholder
value. We understand these were distributed to the Board at that time. These
inquiries were provided before the Whitehall agreement was executed, and should
have been answered prior to advancing with such an agreement.
<PAGE> 2
Frank J. Tasco
September 7, 1994
Page 2
POINT V: "LEVEL PLAYING FIELD" PROCEDURES: Given your actions to date,
continuing to discourage Japonica Partners' effort to maximize shareholder
value (as a proactive white knight) and encouraging a preferred suitor is
totally inappropriate. A procedure to develop a fair and level playing field
must be established immediately.
In this regard, you should provide Japonica Partners with, at a minimum,
immediate notice and sufficient time to respond prior to contemplating any
further actions between Borden and Whitehall. And, all should be made aware
that communications, directly or indirectly, to Whitehall of our efforts are
prohibited.
Our legal advisors will be sent the faxed September 16th letter agreement.
Obviously, this should not be used by you to further delay providing us with a
listing of items referenced in points III and IV.
As we have stated repeatedly, we are open to meet with you to discuss the above
today, tomorrow or as soon as possible. Given that 117 days have passed since
our first communication, it is incumbent upon you to accelerate efforts
regarding Japonica Partners. If you don't wish to extend the courtesy of
proposing a date, time and location for a meeting, we suggest Providence as
early as Sunday, September 18, 1994.
As mentioned in our September 15th letter, since the Board has determined that
the Company should be sold, executing asset sales and/or non-ordinary business
contracts/agreements may diminish shareholder value and is therefore
impermissible.
As Japonica Partners has stated innumerable times since May 24th, our
preference is that of a proactive white knight in order to maximize shareholder
value.
Sincerely,
/s/ JAPONICA PARTNERS
------------------------------
JAPONICA PARTNERS
cc: List, incl. Borden, Allan L. Miller and Louie Perlmutter
[Omitted from this letter is an attachment which is filed separately as exhibit
14 to this Form 8-K]
<PAGE> 1
EXHIBIT 20
[LETTERHEAD OF BORDEN, INC.]
September 19, 1994
Mr. Paul B. Kazarian
Managing Partner
Japonica Partners
30 Kennedy Plaza
Providence, Rhode Island 02903
Dear Mr. Kazarian:
Your fax dated September 17th was received by us this morning. We
note that, like all of your previous communications, it contains no proposal
for Borden or its shareholders. Nonetheless, on the assumption that you have a
proposal that in your view can be effected and will lead to maximizing the
value of the Borden shares, representatives of Borden and its advisors are
prepared to meet with you at the offices of our lawyers, Wachtell, Lipton,
Rosen & Katz, 51 West 52nd Street, 33rd floor, New York, New York on Wednesday,
September 21st, at 2:00 p.m. subject only to your agreement to appropriate
confidentiality arrangements. We await your (or your counsel's) comments on
the confidentiality letter we sent you.
Very truly yours,
/s/ Frank J. Tasco
------------------------
Frank J. Tasco
cc: Martin Nussbaum, Esq.
<PAGE> 1
EXHIBIT 21
[LETTERHEAD OF JAPONICA PARTNERS]
September 21, 1994
Mr. Frank J. Tasco
Chairman
Borden, Inc.
277 Park Avenue
New York, NY 10172
Dear Frank:
INTRODUCTION:
We are writing this letter to express our continuing interest (the
Letter of Continuing Interest "LCI") in effecting a significant transaction
with Borden or its shareholders to enable shareholders to receive substantially
greater value than would be available to them under the Whitehall scheme while
restoring Borden's business to positive levels of achievement. As we have said
repeatedly from the outset we wish to act as a proactive white knight; and the
board's determination to sell Borden mandates that the board accept us in that
role.
To that end we are forming a new entity, Buckeye Partners, to effect
the transaction. Through Buckeye, Japonica Partners will pursue the objective
of rebuilding Borden as an independent company, headquartered in Columbus.
We do not wish to divert your focus by reminding you of the history
of our attempts to communicate with you (see, for example, attached letters);
but the unwillingness of the board or its advisors to state your objectives has
increased the difficulty in specifically addressing those objectives. Because
we neither have had access to the materials that you provided to Whitehall nor
have been given the opportunity to conduct due diligence, this letter is based
on the assumption that the information publicly available about Borden would be
confirmed by a review of those materials and the due diligence process. As you
probably inferred from the long period of time we have been writing to you, we
have conducted an extensive review of Borden and its operations; and in our
view, we believe that a beneficial transaction can be consummated.
Against this background we wish to state the principles and
alternatives which would govern the transaction we propose.
<PAGE> 2
Mr. Frank J. Tasco
September 21, 1994
Page 2
VALUE ASSESSMENT:
The target which we believe to be attainable for shareholders with a
continuing interest in the company is $22 to $25 per share during 1995.
Currently, our intent would be to pay between $16 and $18 per share.
This is the value that would serve as the basis for determining the
consideration to be received by Borden or its shareholders, and the additional
capital needed by Borden to achieve its corporate and business objectives and
policies. Such valuation could include mediums of exchange in addition to
transaction securities.
STRUCTURAL ALTERNATIVES:
From reports carried in the business press it appears that a
substantial number of Borden's shareholders wish to have the opportunity to
recoup lost value by participating in Borden's future growth. We propose to
offer them chance to do so if they so choose. While we are prepared to accept
a broad range of ownership levels, in order to assure liquidity, we understand
that the minimum continued participation should equal at least 10% of the
equity. Given what may be a large interest in continuing ownership, if the
shareholders so elect, their continued ownership could range as high as 80%.
Because the board has expressed a desire to deliver to shareholders
consideration in the form of shares in another publicly held company, we are
prepared to address this apparent desire under which shares of a major, highly
regarded, New York Stock Exchange, Fortune 500 company could constitute all or
a portion of consideration to be paid to Borden and its shareholders.
MAINTAINING AND RESTORING BORDEN'S VALUE:
Our positive operating philosophy of Dynamic Tension will enable us
to restore Borden's luster and create jobs for the operating workforce that is
the core of productivity and the restoration of shareholder value. (See
attached Exhibits on "Dynamic Tension" and Management Principles). Central to
this objective is the infusion of equity that will permit the execution of this
program and lead to growth of stock value through appreciation and restoration
of dividends to at least their former levels.
Our computations have been made without giving effect to compensation
that could be paid to Whitehall and its affiliates; and we believe that it is
incumbent on the directors of
<PAGE> 3
Mr. Frank J. Tasco
September 21, 1994
Page 3
Borden to take all appropriate steps to minimize the reduction in shareholder
value that would result from such compensation. We presume that you have the
ability to do so in the proper exercise of your fiduciary duty.
Because of our confidence in Borden's future, and in contrast to the
Whitehall transaction, we would not divert cash to fees and would accept equity
and/or warrants. Similarly, as we have repeatedly written to you, realization
of value requires that Borden cease its asset divestitures, especially since
the prices that have been obtained reflect past non-performace and financial
pressure to sell rather than full value for excellent results and strategic
opportunity. Obtaining consent from Whitehall for such sales is of no moment
since they are not the controlling shareholders of Borden. In short, the sale
of assets is inconsistent with value realization for Borden's current owners.
Under the "Dynamic Tension" rebuilding plan, certain under-performing
businesses would be allowed to operate as an independent business unit,
facilitating their rapid restructuring and eliminating the risks to Borden's
better performing business.
Another component for consideration is to immediately restore
Borden's dividend to a higher level to accommodate the individual investor who
depends on this income.
FINANCIAL SUBSTANCE:
As you can see, the objectives and effects of a transaction would be
to enhance the value of Borden's businesses and shares. Your advisor has
previously complimented Japonica Partners on being a credible and highly
successful firm with a good reputation. In the past, attempts to divert
attention from the substance of our proposals by efforts to shift attention to
financeability have been shown to be both foolish and futile. As evidenced by
the fully financed CNW offer of $1.6 billion and a successfully concluded
Allegheny International transaction, financing has always been available to
implement a sound strategy -- even at a time when our own resources were more
limited. We have received numerous expressions of interest in providing
financing by substantial institutions; but we will not conclude arrangements
and incur the related commitment expenses until terms and structure are agreed
to with by Borden.
<PAGE> 4
Mr. Frank J. Tasco
September 21, 1994
Page 4
SHAREHOLDER DEMOCRACY:
Contrary to the views expressed by some of your advisors, we also
believe that the shareholders should have a determinative role in selecting
among the alternatives available to them. We would therefore structure the
transaction in a non-coercive manner so as to enable your shareholders to
decide whether they agree that our transaction is in their best interest and in
the best interest of their company.
Importantly, shareholders should be allowed to vote on both proposals
on an equal footing basis. Positioning the process to facilitate this election
is consistent both with principals of American corporate democracy and the
board's fiduciary duty to maximize shareholder value.
JAPONICA PARTNERS' TRACK RECORD:
The Borden shareholders can take comfort from Japonica Partners's
established history of maximizing shareholder value and concluding transactions
which others have characterized as difficult or impossible. CNW and Allegheny
International were both companies where financing had collapsed for management
sponsored transactions. CNW's management buyout with a major LBO firm had
collapsed at substantially lower levels than the final sale price. Allegheny
International's management buyout proposal could not get any financing, and
many major buyout firms passed on what became an American success story. On
the basis of analysis initially conducted from the outside and confirmed by due
diligence, we identified value that created substantial shareholder wealth in
both instances.
CONCLUSION:
Consistent with our role of proactive white knight, we look forward
to working with you to conduct a meaningful due diligence, concluding a
definitive agreement, closing a transaction and delivering enhanced value to
your shareholders.
Allowing shareholders to vote on both proposals on an equal footing
basis is clearly consistent with the board's fiduciary duty to maximize
shareholder value.
<PAGE> 5
Mr. Frank J. Tasco
September 21, 1994
Page 5
Finally, asset sales prior to resolution of the situation must be put
on hold.
Very truly yours,
/s/ JAPONICA PARTNERS
---------------------
JAPONICA PARTNERS
[Omitted from this letter are attachments which are filed separately as
exhibits 1, 10, 11, 12, 14 and 19 to this Form 8-K]
<PAGE> 6
DYNAMIC TENSION (TM) CYCLE
[Graphic: circles connected by clockwise arrows containing the following
texts:
Productivity
Improvement
& Training
Lower
cost
Product
More
Competitive
Pricing
= Greater
Market
Share
New
Products +
More P&M
Expenditure
Increased
Sales
Job
Growth
[Surrounding central shape with the text:]
"Greater Shareholder Wealth"
JAPONICA PARTNERS & CO.
<PAGE> 7
JAPONICA PARTNERS & CO.
Management Principles
[Graphic with boxes containing the following texts:]
Consistency, Predictability & Growth.
Profitability is a state of mind.
Keep it simple.
If you can't measure it, you can't manage it.
Management's job is to identify and successfully implement investment
opportunities that permit us to achieve the financial targets we set.
Building an effective management process through shared values of involvement,
intensity, discipline and persistence.
There are no mature markets, only mature managers who need to be rejuvenated or
replaced.
Wear out the soles of your shoes before the seat of your pants.
Continuous training. Continuous betterment.
<PAGE> 1
EXHIBIT 22
[LETTERHEAD OF JAPONICA PARTNERS]
BY FACSIMILE
FOR IMMEDIATE DELIVERY
September 22, 1994
Board of Directors
Borden, Inc.
277 Park Avenue
New York, NY 10172
Dear Board Members:
Japonica Partners write this letter regarding our September 21st letter and
meeting of same day. We find it difficult to understand how your actions are
designed to maximize shareholder value:
1. MISLEADING A COMPETING SUITOR:
In addition to your unresponsive actions since May 24th, Borden's
treasurer David Kelly's comments on Friday, September 9th were, to
say the least misleading. He clearly stated that we can assume that
until the Board of Directors meets on the last Tuesday of September
there would not be a meeting, that nothing would be announced, that
nothing significant was taking place other than going through a
normal course of review. This pattern of actions can only be viewed,
at a minimum as disadvantaging, if not seeking to preclude a
competing offer.
Mr. Kelly's misrepresentations were only one of a continuing pattern
of attempting to delay, deflect and discourage Japonica's efforts.
That course of conduct delayed by approximately 4 months Japonica's
ability to create the fully developed proposal you now request.
Japonica Partners has been requesting a constructive dialogue with
you for at least 120 days. These requests went unanswered. Only
three days ago you agreed to meet. Given your knowledge of
Japonica's interest for over 120 days, and given that a competing,
apparently preferred suitor has been given access reportedly for a
year or more, it is absolutely unreasonable to expect that a
competing suitor present a fully detailed, comprehensive proposal in
3 days, with at a minimum a 120 day disadvantage.
<PAGE> 2
Borden, Inc.
September 22, 1994
Page 2
Nonetheless, we provided you with a menu of options, with
considerable detail, to discuss and consider.
2. CONTRA-FIDUCIARY SECTION 10:
Your advisors stated that they cannot assist by providing a sense of
direction that would provide greater shareholder value than an
arguably coercive Whitehall stock swap. Although surprising, this
appears consistent with the contra-fiduciary Section 10 of the
September 12th letter of intent between Ervin Shames and Whitehall
Associates, L.P., which provides that the Company shall not:
. . . . authorize or permit any of its officers . . . to (a) solicit,
initiate, encourage (including by way of furnishing information), or
take any other action to facilitate, any inquiry or the making of any
proposal which constitutes, or may reasonably be expected to lead to,
any acquisition or purchase of a substantial amount of assets of, or
equity interest in, the Company or any of its subsidiaries or any
tender offer (including a self tender offer) or exchange offer,
merger, consolidation, business combination, sale of substantially
all assets . . . or enter into negotiations or discussions regarding
any of the foregoing, or furnish to any other person any information
with respect to its business, properties or assets . . . or otherwise
cooperate in any way with, or assist or participate in, facilitate or
encourage, any effort or attempt by any other person to do or seek
any of the foregoing. . . .
Whether or not comparable provisions may sometimes be appropriate,
Section 10 cannot be justified when Japonica Partners was ignored in
favor of a Whitehall proposal that is unattractive rather than
pre-emptive.
The board has an obligation to maximize shareholder value. Japonica
Partners has offered to work with the Company to develop a competing
and more attractive offer that would maximize shareholder value.
Each of the Board members has a personal fiduciary duty to Borden's
shareholders to exercise care in conducting him or herself in the
affairs of the Company, especially when it comes to maximizing
shareholder value. That duty would include working with a proactive
"white knight" such as Japonica Partners in developing an attractive
competing offer to the Whitehall proposal.
<PAGE> 3
Borden, Inc.
September 22, 1994
Page 3
However, the September 11th letter of intent apparently prohibits you
from doing so. The Board members have an unresolvable conflict:
honoring Section 10 of the Company's agreement with Whitehall would
apparently preclude management from working with Japonica Partners to
develop a competing offer, which in turn would violate their duty to
the shareholders. Providing sought after guidance to Japonica
Partners in selecting among the range of options proposed would
apparently breach the September 11 agreement. This appears to be an
untenable conflict in which the Board has been placed.
3. MENU OF ALTERNATIVES:
We presented the Company with a wide ranging menu of options, all
designed to maximize shareholder value, all of which we were willing
to discuss. A value of between $16 and $18 was suggested. A view to
achieving a share price in the range of $22 to $25 in 1995 was also
included in the discussion. We suggested an equity infusion between
$200 million and $500 million. Acquiring outstanding stock for cash
and/or stock was yet another option presented, so was an increase in
the dividend.
In our pursuit of maximizing shareholder value through a constructive
process, we sought guidance from your advisors and representatives
and the Company's management representatives and advisors with
respect to a preferred course of action. We received absolutely no
direction. In fact, we were told that neither the Company nor its
advisors could not give any such direction. Our repeated attempts to
establish a positive dialogue to maximize shareholder value were
casually dismissed.
4. ACCESS TO COMPARABLE INFORMATION:
We have also asked management for a list, merely by description, of
information and materials provided to Whitehall, as a first step in
the signing of a confidentiality agreement to obtain information on
the Company. Not only did management refuse to provide such a list,
it would not assure us that the Company would necessarily give us the
same information it furnished to Whitehall. Only after an hour of
discussions and after numerous requests did your representatives
indicate that they would
<PAGE> 4
Borden, Inc.
September 22, 1994
Page 4
even give us a copy of lawsuits filed which are publicly available
but which have not been disclosed.
5. TIME FRAME:
You should establish a time frame that would allow for a process that
would -- in the interest of maximizing shareholder value -- place
both proposals on a level playing field.
6. SHAREHOLDER VOTE ON COMPETING PROPOSALS:
You are urged to exercise your fiduciary duty, establish a process to
ensure a level playing field and put the competing proposals to a
vote by shareholders. We further ask that you instruct your advisors
to expedite negotiating a confidentiality agreement and provide a
list of the information given Whitehall and to insure that Japonica
Partners receives no less than what Whitehall received.
Again, we urge you to consider these issues and your fiduciary duty to maximize
shareholder value with absolute urgency.
Respectfully,
/s/ JAPONICA PARTNERS
----------------------
JAPONICA PARTNERS
<PAGE> 1
EXHIBIT 23
[LETTERHEAD OF BORDEN, INC.]
September 23, 1994
Mr. Paul B. Kazarian
Managing Partner
Japonica Partners
30 Kennedy Plaza
Providence, Rhode Island 02903
Dear Mr. Kazarian:
The Board of Directors has reviewed your "letter of continuing
interest" dated September 21, 1994 and the "Dynamic Tension" and Management
Principles attachments to that letter. The Board also reviewed your September
22 letter.
You have still not proposed any particular transaction. If you wish
to propose any transaction, please do so. Our agreements with Whitehall do not
preclude our consideration of a proposal by you. If you choose to submit a
proposal, please specify the means and sources of financing. Your letters
again failed to provide information as to your ability to finance the type of
transactions you refer to even though we have been requesting that information
for several months.
The Borden Board of Directors is interested in obtaining the best
possible deal for the Borden Shareholders and should you decide to make a
substantive proposal we are prepared to work with you to that end.
Very truly yours,
/s/ Frank J. Tasco
------------------
Frank J. Tasco
<PAGE> 1
EXHIBIT 24
[LETTERHEAD OF WACHTELL, LIPTON, ROSEN & KATZ]
September 26, 1994
BY HAND
Martin Nussbaum, Esq.
Shereff, Friedman,
Hoffman & Goodman
919 Third Avenue
New York, New York 10022
Re: Borden, Inc.
Dear Marty:
Further to your client's letter of September 22, 1994, the Borden
Board has instructed me to ask you again if you or your clients have any
comments on the Confidentiality Agreement delivered to you on September 16,
1994. As I have indicated to you previously, we will attempt to accommodate
all reasonable comments.
Very truly yours,
/s/ Andrew R. Brownstein
------------------------
Andrew R. Brownstein
ARB:lb
<PAGE> 1
EXHIBIT 25
[LETTERHEAD OF JAPONICA PARTNERS]
VIA FACSIMILE
HIGHLY CONFIDENTIAL
September 27, 1994
Frank J. Tasco
Borden, Inc.
277 Park Avenue
New York, NY 10172
Dear Mr. Tasco:
Until a transaction is closed, we respectfully request that:
1. Borden not sell any more assets
2. Borden publicly disclose the sale prices, revenues, and purchasers of
all asset sales in the past 12 months
3. No decisions be culminated other than in the ordinary course of
business
4. Neither Whitehall nor its affiliates be allowed to manage or
participate in the management of the Company, and
5. The $1.4 billion bank financing agreement be filed with the SEC
immediately.
The recent sale of Campfire marshmallows for a reported $5 million and Jays for
a reported 12% of almost $100 million in revenues must be either reversed or
halted immediately. Further, the role, backgrounds, and compensation of all
advisors in the divestiture process should be disclosed.
We are exploring alternatives to assist Borden's shareholders as a pro-active
white knight, and hope that we may yet receive good faith guidance from you to
assist in providing a meaningful choice to maximize shareholder value.
Parenthetically, the semantic sophistry contained in your communications is
absurdly transparent and will not be responded to herein.
Cordially,
/s/ JAPONICA PARTNERS
JAPONICA PARTNERS
<PAGE> 1
EXHIBIT 26
[LETTERHEAD OF SHEREFF, FRIEDMAN, HOFFMAN & GOODMAN]
October 5, 1994
Martin Lipton, Esq.
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
Re: Borden, Inc.
Dear Marty,
I am writing at the request and on behalf of our client, Japonica
Partners. As you are aware Japonica has expressed to the Borden, Inc. board a
continuing interest in providing to Borden's shareholders a more attractive
alternative than the proposed transaction with Whitehall Associates, L.P. At
our meeting in your offices Japonica sought to work cooperatively with Borden
in formulating a proposal that could best serve this objective, but was told
that in the view of Borden and its financial advisors, it was more appropriate
for Borden's representatives to respond to a proposal.
As requested at that meeting, Japonica is currently working on a
proposal which it anticipates forwarding to Borden in a timely manner.
However, its ability to formulate a proposal and the potential attractiveness
of a proposal are being diminished by Borden's announced intention to continue
divestitures.
Japonica has written to Borden on numerous occasions to express its
view that the sales of Borden's businesses are not in the interest of Borden's
shareholders, especially at the price levels being realized. The
persuasiveness of this view has been strengthened by the execution of the
agreements with Whitehall. Because the value of Borden shares is fixed in
those agreements, Borden shareholders can receive no value as a result of
divestitures. On the other hand, by reducing the size of Borden's asset base,
there is less opportunity to develop value that can be shared with Borden's
shareholders. Furthermore, any other interested parties, such as Japonica,
will find it more difficult to formulate attractive proposals when the
composition of Borden is in such flux.
Accordingly, maximizing shareholder value, the stated objective of
Borden's representatives at our meeting, will be best served by a
discontinuation of the divestitures. I submit that the fiduciary duty of
Borden's board requires that it do no less.
At our meeting, Japonica requested an opportunity to meet with
Borden's board. We were told that this request would be communicated at the
next board meeting; but as yet we have heard no reply. Japonica again requests
the opportunity to meet with Borden's directors to discuss with them
alternatives available to Borden's shareholders.
Best regards.
Sincerely,
/s/ Marty
---------------
Martin Nussbaum
MN:md
cc: Paul B. Kazarian
<PAGE> 1
Exhibit 27
[JAPONICA PARTNERS' LETTERHEAD]
October 5, 1994
VIA FACSIMILE
Board of Directors
Borden, Inc.
277 Park Avenue
New York, New York 10172
Dear Board Members:
1. JAPONICA PREPARING PROPOSAL
We are in the process of preparing a proposal that seeks to create greater
value than the RJR stock cram-down for Borden's shareholders, employees,
customers, and suppliers. Consistent with industry practice, a proposal's
financing and sources of funds will follow the determination of a transaction
structure and the submission of such a proposal. As previously stated, our
preference is as a proactive white knight.
As you undoubtedly realize, the sale of assets at characteristically
liquidation prices, if allowed to continue, may not only eradicate up to $700
million in business revenue, but may substantially impair shareholder value,
and seek to erect yet another obstacle to structuring the financing for an
alternate proposal. Conversely, these assets could be a key ingredient in the
rebuilding of Borden, an integral part of our proposal.
2. POSTPONING THE ASSET SALES
It is difficult to see anything but upside potential to postponing the sale of
assets until the current situation is resolved. Asset sales are not required
by Borden's proposed transaction with Whitehall, and the proceeds of such sales
do not appear to increase the value to be realized by Borden's shareholders.
On the other hand, altering the composition and diminishing the size of
Borden's business as a result of divestitures not only reduces Borden's value,
but also makes it more difficult to evaluate Borden and formulate an alternate
proposal.
<PAGE> 2
3. JAYS SOLD AT 12% OF REVENUE
Only a few weeks ago, it was reported that the almost $100 million-in-sales
Jays snack business was sold for no more than $12 million, or 12% of revenue.
It was also reported that Borden purchased Jays for about $30 million in 1986
and spent millions in new, state-of-the-art automated equipment and expanded
capacity.
4. $5 PER SHARE LOSS IN VALUE
How can a continuation of this liquidation be justified when shareholders have
been punished with a loss of approximately $5 per share since the asset sale
program was announced in January, at which time the stock was trading as high
as $18-3/8?
In fact, some have suggested that a continuation for the sale of assets may be
yet another tactic to discourage a competing proposal and obstruct the
maximization of shareholder value.
5. THE MISLEADING $25 MILLION ASSET SALE LIMIT
Statements that Borden's pre-takeover asset sales are limited to $25 million
seem to be grossly misleading, given that assets generating $500 million to
$700 million in sales are currently on-the-block but are excluded from the
transparent limit. Furthermore, the Company's continued non-disclosure of the
terms associated with the sale of assets, including the roles and fees paid to
various advisers can only be viewed as another effort to cover-up the on-going
liquidation. (See attached listing of 1994 Known Asset Sales)
Please exercise your fiduciary duty of care and duty of loyalty and put an end
to the apparent liquidation of Borden's assets.
Respectfully,
JAPONICA PARTNERS
See Attached
<PAGE> 3
Exhibit 27
Borden, Inc.
1994 Known Asset Sales
Date Business Sold
----- -------------
1. May-94 Borden Ice Cream Japan
2. May-94 U.S. Claim Products
3. May-94 Bennett's Sauces
4. May-94 Foodservice Division
5. Jul-94 Bama Jams
6. Jul-94 Accent Hobby
7. Aug-94 Jays snacks
8. Sep-94 Campfire marshmallows
9. Oct-94 Heller, France
10. Oct-94 Humbrol, U.K.
-2-
<PAGE> 1
EXHIBIT 28
[LETTERHEAD OF CS FIRST BOSTON CORPORATION]
September 22, 1994
Board of Directors
Borden, Inc.
277 Park Avenue
New York, NY 10172
Gentlemen and Madame:
You have requested our opinion as to the fairness, from a financial point of
view, to the holders of Common Stock, par value $.625 per share (the "Company
Shares"), of Borden, Inc., a New Jersey corporation ("Borden" or the
"Company"), other than Kohlberg Kravis Roberts & Co. ("KKR") and its
affiliates, of the consideration to be received by Borden's stockholders
pursuant to the Merger Agreement expected to be dated as of September 22, 1994
among Borden Acquisition Corp., a New Jersey corporation ("Acquisition"),
Whitehall Associates, L.P., a Delaware limited partnership ("Whitehall"), and
the Company (the "Merger Agreement"). The Merger Agreement provides for an
exchange offer (the "Exchange Offer") and subsequent merger (the "Merger"; the
Exchange Offer and Merger, together, the "Transaction") in which each Company
Share (other than treasury stock and shares owned by Whitehall or any of its
subsidiaries) will be exchanged for a number of shares of Common Stock, par
value $.01 per share ("RN Shares"), of RJR Nabisco Holdings Corp., a Delaware
corporation ("RN"), determined by dividing $14.25 by the average of the average
of the high and low sales prices of RN Shares as reported on the New York Stock
Exchange Composite Tape on each of the ten consecutive trading days immediately
preceding the second trading day prior to the date of expiration of the
Exchange Offer, but subject to the limitation that in no event will Borden
stockholders receive more than 2.375 RN shares nor less than 1.78125 RN Shares
for each Company Share.
In arriving at our opinion, we have reviewed, among other things, the letter of
intent dated as of September 11, 1994 between the Company and Whitehall (the
"Letter of Intent"), a draft of the Merger Agreement and a draft of the
Conditional Purchase/Stock Option Agreement expected to be dated as of
September 22, 1994 by and among Whitehall, Acquisition and the
<PAGE> 2
Company (the "Option Agreement"), as well as certain publicly available
business and financial information relating to each of RN and the Company. We
have also reviewed certain other information, including financial forecasts
provided to us by each of RN and the Company. We have met with RN's management
and representatives of KKR and with the Company's management to discuss the
past and current operations and financial condition and prospects of each of RN
and the Company, respectively. We have also considered certain financial and
stock market data for each of RN and the Company and we have compared that data
with similar data for other publicly held companies in businesses similar to
those of RN and the Company, respectively, and we have considered the financial
terms of certain other business combinations that have recently been effected.
We also considered such other information, financial studies, analyses and
investigations and financial, economic and market criteria that we deemed
relevant.
In connection with our review, we have not assumed any responsibility for
independent verification of any of the foregoing information and have relied on
its being complete and accurate in all material respects. With respect to the
financial forecasts, we have assumed that they have been reasonably prepared on
bases reflecting the best currently available estimates and judgments of each
of RN's and the Company's management as to the future financial performance of
RN and the Company, respectively. We express no view as to such forecasts or
the assumptions on which they are based (which, in the case of RN, includes the
assumption that RN's tobacco business will not become subject to materially
more burdensome litigation costs or regulatory requirements) and there cannot
be any assurance that actual results of the Company or RN will not differ
materially from those reflected in the projections. We have not assumed any
responsibility for an independent evaluation or appraisal of the assets or
liabilities of RN or the Company, nor have we been furnished with any such
appraisals. In rendering our opinion, we have assumed that the execution
versions of the Merger Agreement and the Option Agreement will not differ
materially from the drafts we have reviewed, that the Transaction will be
consummated on the terms described in the Merger Agreement and the Option
Agreement, without any waiver of any terms or conditions by the Company and
that obtaining the necessary regulatory approvals for the Transaction will not
have an adverse effect on RN or on the trading value of the RN Shares.
In giving this opinion we have assumed, with your consent, that there will not
be any material adverse effect on RN or on the trading value of the RN Shares
as a result of or relating to (x) the proposal, enactment or adoption after the
date hereof
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<PAGE> 3
of any laws or regulations (including the imposition of additional taxes on the
manufacture, sale or distribution of tobacco products) by any federal, state,
local or other jurisdiction or any governmental or regulatory body or agency
thereunder relating to, arising out of, or otherwise affecting the tobacco
industry, including without limitation the manufacture, sale, distribution or
use of tobacco products, or (y) any judicial or administrative proceeding
initiated or decided after the date hereof, including any civil or criminal
litigation or arbitration relating to or arising out of or otherwise involving
or affecting RN, the tobacco industry, or any other company engaged in said
industry, including without limitation the manufacture, sale, distribution or
use of tobacco products. We are not in a position to make an independent
evaluation of these matters and we assume no responsibility for and express no
view with respect to these matters.
Our opinion addresses only the fairness from a financial point of view of the
consideration to be received by stockholders of the Company, other than KKR and
its affiliates, in each of the Exchange Offer and the Merger. We do not
express any views on any other terms of the Transaction or any related
agreements or arrangements, including any transactions which might occur among
KKR, RN and the Company after consummation of the Exchange Offer or the Merger.
Our opinion also does not address the Company's underlying business decision to
effect the Transaction. We were not requested to, and did not, solicit third
party offers to acquire all or any part of the Company or participate in
efforts other advisors may have made to solicit alternative offers. Our
opinion is necessarily based solely upon information available to us and
business, market, economic and other conditions as they exist on, and can be
evaluated as of, the date hereof. This opinion does not represent our opinion
as to what the value of the RN Shares to be exchanged for Company Shares
actually will be when the Exchange Offer or the Merger is consummated. As a
result of the limitation on the number of RN Shares to be received as described
in the first paragraph of this letter, such actual value could be higher or
lower than $14.25 per share at such times. Because of the large aggregate
amount of RN shares being issued to stockholders of the Company and other
factors, such securities may trade initially at prices below those at which
they would trade on a fully distributed basis.
We have acted as financial advisor to the Company in connection with the
Transaction and will receive a fee for our services, a significant portion of
which is contingent upon KKR's acquisition of a majority of the outstanding
Company Shares. In the
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<PAGE> 4
past, we have provided investment banking services for the Company, RN and KKR
for which we have received customary compensation. In the ordinary course of
our business, we actively trade the debt and equity securities of both the
Company and RN for our own account and for the accounts of customers and,
accordingly, may at any time hold a long or short position in such securities.
It is understood that this opinion is only for the information of the Board of
Directors of the Company. However, this opinion may be included in its
entirety in any proxy statement or exchange offer recommendation statement on
Schedule 14D-9 from the Company to holders of Company Shares. This opinion may
not, however, be summarized, excerpted from or otherwise publicly referred to
without our prior written consent. In addition, we may not be otherwise
publicly referred to without our prior consent.
Based upon and subject to the foregoing, it is our opinion that, as of the date
hereof, the consideration to be received by the stockholders of the Company,
other than KKR and its affiliates, in each of the Exchange Offer and the Merger
is fair to such stockholders from a financial point of view.
Very truly yours,
CS FIRST BOSTON CORPORATION
by /s/ CS First Boston Corporation
-------------------------------
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<PAGE> 1
EXHIBIT 29
[LETTERHEAD OF
LAZARD FRERES & CO.]
September 22, 1994
The Board of Directors
Borden, Inc.
180 East Broad Street
Columbus, OH 43215
Dear Members of the Board:
You have requested our opinion as to the fairness, from a financial
point of view, to the holders of shares of Common Stock, par value $.625 per
share ("Company Common Stock"), of Borden, Inc. (the "Company") of the
consideration to be received in a series of transactions (collectively, the
"Transactions") pursuant to the Agreement and Plan of Merger, to be entered
into among the Company, Whitehall Associates, L.P. ("WA") and Borden
Acquisition Corp. ("Merger Co."), a draft of which, dated September 19, 1994
(the "Merger Agreement"), has been furnished to us. The terms of the Merger
Agreement provide, among other things, that (i) WA promptly will offer to
exchange (the "Exchange Offer"), for each outstanding share of Company Common
Stock, a number (the "Appli- cable Number") of shares of common stock, par
value $.01 per share ("RJR Common Stock"), of RJR Nabisco Holdings Corp.
("RJR"), having a trading value (as determined in the Merger Agreement) equal
to $14.25; provided that the Applicable Number may not be less than 1.78125 nor
exceed 2.375, and (ii) following the consummation of the Exchange Offer,
subject to, among other things, WA having obtained the favorable vote of
holders of at least 66 2/3% of the outstanding shares of Company Common Stock,
Merger Co. will merge with and into the Company, and each of the remaining
outstanding shares of Company Common Stock (other than shares owned by the
Company as treasury stock or owned by WA, Merger Co. or any other subsidiary of
WA) will be converted into the right to receive the Applicable Number of shares
of RJR Common Stock.
<PAGE> 2
In connection with the rendering of this opinion, we have:
(i) Reviewed the terms and conditions of the Merger Agreement
and the financial terms of the Transactions as set forth therein, and the
Conditional Purchase/Stock Option Agreement, to be entered into among the
Company, WA and Merger Co., a draft of which, dated September 19, 1994
(the "Option Agreement"), has been furnished to us;
(ii) Analyzed certain historical business and financial
information relating to the Company and RJR, including the Annual Reports
to Stockholders and Annual Reports on Forms 10-K for each of the fiscal
years ended December 31, 1990 through 1993, and the Quarterly Reports on
Forms 10-Q of the Company and RJR for the quarters ended March 31, 1994
and June 30, 1994;
(iii) Reviewed certain financial forecasts and other data
provided to us by the Company and each of RJR and WA relating to the
businesses of the Company and RJR, respectively, including the most recent
business plan for the Company prepared by the Company's senior management,
in the form furnished to us;
(iv) Conducted discussions with members of senior managements of
the Company and each of RJR and WA with respect to the businesses and
prospects of the Company and RJR, respectively, and the strategic
objectives of each;
(v) Reviewed public information with respect to certain other
companies in the lines of businesses we believe to be generally comparable
in whole or in part to the businesses of the Company and RJR and reviewed
the financial terms of certain other business combinations that have
recently been effected;
(vi) Reviewed the historical stock prices and trading volumes of
Common Stock of the Company and RJR; and
(vii) Conducted such other financial studies, analyses and
investigations as we deemed appropriate.
We have relied upon the accuracy and completeness of the financial
and other information concerning the Company and RJR that have been received by
us and have not assumed any responsibility for independent verification of such
information or any independent valuation or appraisal of any of the assets of
the Company or RJR nor have we been furnished with any such
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<PAGE> 3
appraisals. With respect to financial forecasts, we have assumed that they
have been reasonably prepared on bases reflecting the best currently available
estimates and judgements of management of the Company and RJR as to the future
financial performance of the Company and RJR, respectively. We assume no
responsibility for and express no view as to such forecasts or the assumptions
on which they are based.
Our opinion is necessarily based on economic, monetary, market and
other conditions as in effect on, and the information made available to us as
of, the date hereof. In that regard, as you are aware, we are not in a
position to make an independent evaluation of the matters discussed below.
Accordingly, for purposes of this opinion, we have assumed, with your
concurrence, that no material adverse effect on RJR or on the trading value of
RJR Common Stock will result from (x) the proposal, enactment or adoption after
the date hereof of any laws or regulations (including the imposition of
additional taxes on the manufacture, sale or distribution of tobacco products)
by any federal, state, local or other jurisdiction or any governmental or
regulatory body or agency thereunder relating to, arising out of, or otherwise
affecting the tobacco industry, including without limitation the manufacture,
sale, distribution or use of tobacco products, or (y) any judicial or
administrative proceeding decided after the date hereof, including any civil or
criminal litigation or arbitration, relating to or arising out of or otherwise
involving or affecting RJR, the tobacco industry, or any other company engaged
in said industry, including without limitation the manufacture, sale, dis-
tribution or use of tobacco products. We assume no responsibility for and
express no view with respect to the matters described in the previous sentence.
In rendering our opinion, we have assumed that the actual Agreement
and Plan of Merger and the actual Conditional Purchase/Stock Option Agreement,
entered into among the parties thereto, will be identical in all material
respects to the Merger Agreement and the Option Agreement, respectively, and
that the Transactions will be consummated on the terms described in the Merger
Agreement, without any waiver of any terms or conditions by the Company and
that obtaining the necessary regulatory approvals for the Transactions will not
have an adverse effect on RJR or on the trading value of RJR Common Stock. In
addition, we note that because of the large number of Shares of RJR Common
Stock being issued to stockholders of the Company and other factors, such
securities may trade initially at prices below those at which they would trade
on a fully distributed basis.
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<PAGE> 4
We are acting as financial advisor to the Company's Board of
Directors in connection with the Transactions and will receive fees for such
services, a substantial portion of which fees are contingent upon the
consummation of the Transactions. Our firm has in the past provided and is
currently providing investment banking and financial advisory services to the
Company and has received fees for rendering such services. Our firm has in the
past also provided investment banking and financial advisory services to RJR
and affiliates of WA and has received fees for rendering such services.
Our engagement and the opinion expressed herein are solely for the
benefit of the Company's Board of Directors and are not on behalf of, and are
not intended to confer rights or remedies upon, RJR, WA, any stockholder of the
Company or RJR or any other person. It is understood that, except for
inclusion of this letter in its entirety in a proxy statement or exchange offer
recommendation statement on Schedule 14D-9 from the Company to holders of
shares of Company Common Stock relating to the Transactions, this letter may
not be disclosed or otherwise referred to without our prior written consent,
except as may otherwise be required by law or by a court of competent
jurisdiction.
Based on and subject to the foregoing, we are of the opinion that, as
of the date hereof, the consideration to be paid to the stockholders of the
Company (other than WA, Merger Co. or any other subsidiary of WA) in the
Exchange Offer and the Merger is fair to such stockholders, from a financial
point of view.
Very truly yours,
/s/ Lazard Freres & Co.
-----------------------
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