<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended: DECEMBER 31, 1994 Commission file number: 1-71
----------------- ----
BORDEN, INC.
New Jersey 13-0511250
- - --------------------------------------- -----------------------------------
(State of incorporation) (I.R.S. Employer Identification No.)
180 East Broad St., Columbus, OH 43215 614-225-4000
- - --------------------------------------- -----------------------------------
(Address of principal executive offices) (Registrant's telephone number)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
Common stock par value $0.625* New York Stock Exchange ("NYSE")
Preferred Share Purchase Rights** NYSE
8 3/8% Sinking Fund Debentures NYSE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No .
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein and will not be contained, to the
best of registrant's knowledge, in any amendment to this Form 10-K. [x].
Aggregate market value in thousands of the voting stock held by nonaffiliates
of the Registrant based upon the average bid and asked prices of such stock on
March 14, 1995: $0.*
Number of shares of Common Stock, $0.625 par value, outstanding as of the
close of business on March 14, 1995: 0.* Number of shares of common stock, par
value $0.01 per share, outstanding as of the close of business on
March 14, 1995: 170,273,814
*The common stock, par value $.625 per share, was cancelled and retired
pursuant to the merger of Borden, Inc. with and into Borden Acquisition Corp.
on March 14, 1995. Such common stock will be delisted from the NYSE and
exchanges in Switzerland and Tokyo.
**All Preferred Share Purchase Rights were redeemed on December 20, 1994.
DOCUMENTS INCORPORATED BY REFERENCE
Document Incorporated
-------- ------------
none none
================================================================================
The Exhibit Index is located herein at sequential pages 52 through 57.
<PAGE> 2
PART I
Item 1. Business
- - ------- --------
The Company was incorporated on April 24, 1899. Borden is engaged primarily in
manufacturing, processing, purchasing and distributing a broad range of
products through three business segments: Consumer Packaged Products, Dairy
Products, and Packaging & Industrial Products.
Corporate departments provide certain centralized services for all operating
units. The Company's executive and administrative offices are located in
Columbus, Ohio. Production facilities are located throughout the United States
and in many foreign countries.
The consumer packaged products segment currently includes the following
businesses: pasta and pasta sauces, bakery products, processed cheese,
non-dairy creamer, sweetened condensed milk, reconstituted lemon and lime
juices, bouillon, confections, dehydrated soups, whole milk powder and consumer
adhesives.
The dairy products segment currently includes homogenized milk, ice cream,
sherbet, yogurt, cottage cheese, frozen novelties, low-fat dairy products,
milk-based products for foodservice trade, and fruit drinks.
The packaging and industrial segment currently includes wallcoverings,
transparent wrapping film, adhesives for the forest products industry, foundry
and industrial resins, and flexible packaging.
Domestic products for the consumer packaged products and the dairy segments are
marketed primarily through food brokers and distributors, and to a lesser
extent, directly to wholesalers, retail stores, foodservice businesses, food
processors, institutions and governmental agencies. Domestic products for the
packaging and industrial segment are sold throughout the United States to
industrial users and, in the case of consumer products, by in-house and
independent sales forces to distributors, wholesalers, jobbers and retailers.
To the extent practicable, international distribution techniques parallel those
used in the United States. However, raw materials, production considerations,
pricing competition, government policy toward industry and foreign investment,
and other factors may vary substantially from country to country for both
industry segments.
The Company's businesses in all industry segments must deal with intense
competition on local and national levels, both in the United States and in
foreign markets. Total advertising and promotion expense in support of Borden
products was $552.6 million in 1994, $735.5 million in 1993 and $698.0 million
in 1992.
The Company has undertaken numerous restructuring efforts in recent years in an
effort to reduce expenses by streamlining operations and to divest unprofitable
business lines. See "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations" herein. In addition, following
extensive analysis of the effects of such restructuring efforts, and numerous
other factors, in September 1994, the Company entered into a merger agreement
providing for the acquisition of all of the Company's outstanding common stock
by affiliates of Kohlberg Kravis Roberts & Co. ("KKR") in exchange for shares
of RJR Nabisco Holdings Corp. ("RJR Holdings") common stock owned by affiliates
of KKR. As part of the acquisition, in December 1994, affiliates of KKR
acquired 69.5% of the outstanding common stock of the Company in exchange for
shares of RJR Holdings common stock pursuant to an exchange offer and the
2
<PAGE> 3
exercise of an option (the "Option") to purchase 28,138,000 shares of the
Company's common stock, which were issued from the Company's treasury.
Thereafter, affiliates of KKR contributed to the Company approximately 69
million additional shares of RJR Holdings common stock and received shares of
the Company's common stock as consideration therefor. In February 1995, these
RJR Holdings shares, together with the approximately 51 million RJR Holdings
shares received by the Company upon exercise of the Option, were sold by the
Company in a registered public offering for aggregate proceeds of approximately
$662 million. The acquisition was completed on March 14, 1995 following
approval of the merger (the "Merger") of the Company with and into an affiliate
of KKR by shareholders of the Company at a special meeting held on that date.
As a result of the Merger, as of March 14, 1995, affiliates of KKR own 100% of
the Company's outstanding common stock.
Following the Merger, affiliates of KKR contributed an additional 111,047,230
shares of RJR Holdings common stock to the Company and will receive additional
Company equity securities as consideration therefor. RJR Holdings has been
requested to register the additional RJR Holdings shares acquired by the
Company and, on March 15, 1995, a registration statement was filed with the
Securities and Exchange Commission relating to the offering of such shares from
time to time. Such registration statement has not yet been declared effective
by the Commission and no offers or sales will be made until such registration
statement becomes effective.
The primary raw materials used by the businesses of the consumer packaged
products segment are flour, tomato products, milk and cheese. The primary raw
material used by the dairy segment is raw milk. The primary raw materials used
by the packaging and industrial segment businesses are polyvinyl chloride
resins, methanol, phenol and formaldehyde. Raw materials are generally
available from numerous sources in sufficient quantities but are subject to
price fluctuations which cannot always be passed on to the Company's customers.
Long-term purchase agreements are used in certain circumstances to assure
availability of adequate raw material supplies at guaranteed prices.
Research and development expenditures were $26.3 million in 1994, $31.9 million
in 1993 and $30.8 million in 1992. The development and marketing of new
products are carried out at the division level and integrated with quality
controls for existing product lines.
Working capital for all segments is generally funded through operations or
short-term borrowings.
Segment operating income (loss) is total revenue less operating expenses. In
computing segment operating income (loss), none of the following items have
been deducted from revenue: general corporate expenses, interest expense and
Federal, state and local income taxes.
Identifiable assets by segment are those assets that are used in the segment's
continuing operations. Corporate assets consist primarily of cash and
equivalents, investments, prepaid expenses, fixed assets and deferred taxes.
At December 31, 1994, the Company had approximately 32,400 employees. The
Company believes that its relationships with its union and non-union employees
are generally good.
3
<PAGE> 4
<TABLE>
BORDEN, INC.
INFORMATION ABOUT THE COMPANY'S OPERATIONS
BY INDUSTRY SEGMENT
(in millions)
<CAPTION>
1994 1993 1992
--------- --------- ---------
<S> <C> <C> <C>
Sales to Unaffiliated Customers:
Consumer Packaged Products $ 2,332.1 $ 2,380.5 $ 2,617.8
Dairy Products 1,277.0 1,298.9 1,450.0
Packaging and Industrial 2,017.0 1,826.9 1,803.9
--------- --------- ---------
$ 5,626.1 $ 5,506.3 $ 5,871.7
========= ========= =========
Segment Operating Income (Loss):
Consumer Packaged Products $ 107.4 $ 128.5 $ 116.4
Dairy Products (425.3) (84.2) (7.0)
Packaging and Industrial 201.5 150.0 124.6
--------- --------- ---------
(116.4) 194.3 234.0
General Corporate (Expense) Income (222.3) (153.3) (141.9)
Interest Expense (130.7) (125.1) (116.6)
--------- --------- ---------
Loss Before Income Taxes,
Cumulative Effect of Accounting Changes
and Discontinued Operations $ (469.4) $ (84.1) $ (24.5)
========= ========= =========
Identifiable Assets at Year End:
Consumer Packaged Products $ 1,435.5 $ 1,510.4 $ 2,798.3
Dairy Products 315.4 575.5 740.4
Packaging and Industrial 1,242.0 1,114.0 1,353.6
--------- --------- ---------
2,992.9 3,199.9 4,892.3
Discontinued Operations 40.5 222.2
Corporate Assets 788.9 449.6 353.7
--------- --------- ---------
$ 3,822.3 $ 3,871.7 $ 5,246.0
========= ========= =========
Depreciation and Amortization Expense:
Consumer Packaged Products $ 70.7 $ 122.2 $ 124.9
Dairy Products 44.4 43.4 43.2
Packaging and Industrial 45.9 46.8 47.4
Capital Expenditures:
Consumer Packaged Products $ 54.5 $ 75.8 $ 167.8
Dairy Products 23.9 27.7 37.8
Packaging and Industrial 54.7 57.9 71.9
Unusual or Infrequently Occurring Items
Included in Segment Operating
Income (Loss):*
Consumer Packaged Products $ (34.5) $ (91.8) $ (191.1)
Dairy Products (338.7) (33.2) (24.6)
Packaging and Industrial 4.9 (7.5) (55.0)
--------- --------- ---------
$ (368.3) $ (132.5) $ (270.7)
========= ========= =========
<FN>
* See Management's Discussion and Analysis on pages 11 to 12 for a review of unusual or infrequently occurring items
included in income.
</TABLE>
4
<PAGE> 5
<TABLE>
BORDEN, INC.
INFORMATION ABOUT THE COMPANY'S OPERATIONS
BY INDUSTRY SEGMENT
(in millions)
(continued)
<CAPTION>
1994 1993 1992
--------- --------- ---------
Geographic Information
- - ----------------------
<S> <C> <C> <C>
Net Sales:
United States $ 3,694.6 $ 3,620.9 $ 3,928.7
Europe 908.4 914.8 979.2
Other 1,023.1 970.6 963.8
--------- --------- ---------
$ 5,626.1 $ 5,506.3 $ 5,871.7
========= ========= =========
Operating (Loss) Income:
United States $ (299.1) $ 82.7 $ 155.1
Europe 75.4 73.7 54.4
Other 107.3 37.9 24.5
--------- --------- ---------
$ (116.4) $ 194.3 $ 234.0
========= ========= =========
Identifiable Assets:
United States $ 2,589.8 $ 2,408.0 $ 3,534.4
Europe 783.1 695.2 858.0
Other 408.9 546.3 853.6
Discontinued operations 40.5 222.2
--------- --------- ---------
$ 3,822.3 $ 3,871.7 $ 5,246.0
========= ========= =========
Unusual or Infrequently Occurring Items
Included in Segment Operating
(Loss) Income:
United States $ (380.5) $ (89.0) $ (165.9)
Europe 11.4 (2.9) (38.2)
Other 0.8 (40.6) (66.6)
--------- --------- ---------
$ (368.3) $ (132.5) $ (270.7)
========= ========= =========
___________________________________________________________________________________________________________________________________
</TABLE>
Item 2. Properties
- - ------ ----------
As of December 31, 1994 the Company operated 21 domestic consumer packaged
product manufacturing and processing facilities in 13 states and Puerto Rico.
The most significant of these facilities are an Illinois plant producing
Cracker Jack, bouillon and dehydrated soup; the Arizona, Massachusetts,
Michigan, Minnesota, and Missouri pasta plants and the Pennsylvania snacks
plant. In addition, the Company operated 45 foreign food manufacturing and
processing facilities located principally in Canada, Latin America and Western
Europe.
As of December 31, 1994, the Company operated 43 domestic dairy processing
facilities in 22 states. The most significant of these facilities are the milk
processing facilities in Texas, and the milk and cultured products facilities
in Utah, Hawaii and Illinois.
As of December 31, 1994 the Company operated 36 domestic packaging and
industrial manufacturing and processing facilities in 19 states, the most
significant being the Resinite plants in Georgia, Massachusetts and Texas; the
Proponite plant in Massachusetts; the forest products adhesives plants in
Oregon and North Carolina; and a specialty resins plant in Kentucky. In
addition, the Company operated 58 foreign packaging and industrial
manufacturing and processing facilities located principally in Brazil, Canada,
the Far East and Western Europe.
The Company's manufacturing and processing facilities are generally well
maintained and effectively utilized. Substantially all facilities are owned by
the Company.
5
<PAGE> 6
Borden is actively engaged in complying with environmental protection laws, as
well as various Federal and state statutes and regulations relating to
manufacturing, processing and distributing its many products. In this
connection, the Company incurred capital expenditures of $7.1 million in 1994
compared to $4.3 million in 1993 and $16.6 million in 1992. The Company
estimates that it will spend $13.2 million for environmental control facilities
during 1995.
Item 3. Legal Proceedings
- - ------- -----------------
Environmental Proceedings
- - -------------------------
The Company has been notified that it is or may be a potentially responsible
party with respect to the cleanup of certain waste sites (currently
approximately 50 in number) in proceedings brought under the Comprehensive
Environmental Response, Compensation and Liability Act ("CERCLA") or similar
state environmental laws. While the Company cannot predict with certainty the
total cost of such cleanup, the Company's ultimate liability will depend on
many factors including its volumetric share of waste, the financial viability
of other responsible parties, the remediation methods and technology used, the
amount of time necessary to accomplish remediation, and the availability of
insurance coverage. The Company has established reserves for environmental
remediation costs for these and other sites in amounts which it believes are
probable and reasonably estimable. Based on currently available information
and analysis, the Company believes that it is reasonably possible that costs
associated with such sites may exceed current reserves by amounts that may
prove insignificant or by amounts, in the aggregate, up to approximately $40
million. This estimate of the range of reasonably possible additional costs is
less certain than the estimates upon which reserves are based, and in order to
establish the upper limit of such range, assumptions least favorable to the
Company among the range of reasonably possible outcomes were used. In
estimating both its current reserves for environmental remediation and the
possible range of additional costs, the Company has not assumed that it will
bear the entire cost of remediation of every site to the exclusion of other
known potentially responsible parties who may be jointly and severally liable.
The ability of other potentially responsible parties to participate has been
taken into account, based generally on the parties' probable contribution on a
per site basis. No attempt has been made to discount the estimated amounts to
net present value, and no amounts have been recorded for potential recoveries
from insurance carriers. Based upon previous experience and the information
presently available, however, management believes that, as of the date hereof,
future costs incurred will not have a material adverse effect on the financial
condition of the Company.
Private actions against the Company and numerous other defendants are currently
pending in U.S. District Court in Baton Rouge, Louisiana alleging personal
injuries and property damage in connection with a waste disposal site in
Louisiana. Similar actions are pending in state court in Camden, New Jersey in
connection with a waste disposal site in New Jersey and in state court in Los
Angeles, California in connection with a landfill site in Monterey Park,
California (September 1994).
The U.S. Environmental Protection Agency ("EPA") has issued a notice of
violation alleging the violation of air pollution regulations by a plant in
Massachusetts (September 1988).
A notice of violation has been issued by the Maine Department of Environmental
Protection (April 1991) alleging the violation of certain solid waste and
wetlands regulations at a Scarborough, Maine facility.
A notice of violation has been issued by the Puerto Rican sewer and water
authority (July 1994) alleging violations of wastewater regulations by an ice
cream plant in Mantecados Nevada, Puerto Rico.
6
<PAGE> 7
BORDEN CHEMICALS AND PLASTICS LIMITED PARTNERSHIP
In 1987, the Company's basic chemical and PVC resin businesses located at
Geismar, Louisiana and Illiopolis, Illinois were acquired by the Borden
Chemicals and Plastics Limited Partnership ("BCP"). Under an Environmental
Indemnity Agreement ("EIA"), the Company has agreed, subject to certain
conditions and limitations, to indemnify BCP from certain environmental
liabilities arising from facts or circumstances that existed and requirements
in effect prior to November 30, 1987, and share on an equitable basis those
arising from facts or circumstances existing and requirements in effect both
prior to and after such date. No claim can be made by BCP under the EIA after
November 30, 2002 and no claim can, with certain exceptions, be made with
respect to the first $500,000 of liabilities which Borden would otherwise be
responsible for thereunder in any year, but such excluded amounts may not
exceed $3.5 million in the aggregate. Excluded amounts under the EIA have
aggregated approximately $2.2 million through December 31, 1994. Accordingly,
certain BCP legal proceedings are discussed below.
In 1985 the Louisiana Department of Environmental Quality ("LDEQ") and the
Company entered into a Settlement Agreement that called for the implementation
of a long-term groundwater and soil remediation program at the Geismar complex
to address contaminants. Borden and BCP have implemented the Settlement
Agreement, and have worked in cooperation with the LDEQ to remediate the
groundwater and soil contamination. BCP believes that it already has
sufficiently identified the extent of the groundwater plume. Nevertheless, BCP
intends to drill and test some additional groundwater wells for the purpose of
addressing issues raised by the LDEQ concerning whether the extent of the
groundwater contamination has been identified. The Company has paid
substantially all of the costs to date of the Settlement Agreement with LDEQ.
It is unknown how long the remediation program will continue or whether the
LDEQ will require BCP to incur costs to take further remedial measures in
response to data generated by the planned additional groundwater wells. If the
LDEQ requires BCP to take further remedial measures, a portion of such costs
may be covered under the EIA.
In February 1993, an EPA Administrative Law Judge held that the Illiopolis,
Illinois facility violated CERCLA and the Emergency Planning and Community
Right to Know Act ("EPCRA") by failing to report certain relief valve releases
which occurred between February 1987 and July 1989, that BCP and the Company
believe are exempt from CERCLA and EPCRA reporting. BCP's petition for
reconsideration was denied, a penalty hearing has been scheduled and further
appeals are possible if the parties cannot reach an agreement. Management does
not believe that any ultimate penalty arising from this proceeding would have a
material adverse effect on the Company.
On October 27, 1994, the U.S. Department of Justice ("DOJ") acting on behalf of
the EPA, filed an action against BCP and its General Partner, BCP Management,
Inc., a wholly owned subsidiary of the Company, in U.S. District Court for the
Middle District of Louisiana. The complaint seeks civil penalties for alleged
violations of the Resource Conservation and Recovery Act ("RCRA"), CERCLA and
the Clean Air Act as well as corrective action, at the Geismar facility. BCP
plans to vigorously defend against all the allegations. Prior to the filing of
the complaint, BCP and the DOJ had engaged in settlement discussions and are
currently engaged in such discussions. If BCP is unsuccessful in defending
itself against the allegations, it could be subject to penalties, costs for
corrective action and costs needed to obtain a RCRA permit.
As to penalties, although the maximum statutory penalties that would apply in a
successful enforcement action by the government would be in excess of $150.0
million, BCP believes, assuming it is unsuccessful and based on information
currently available to it, that the more likely amount of any liability for
civil penalties would not exceed several million dollars.
7
<PAGE> 8
If unsuccessful, BCP could also be subject to costs for facility-wide
corrective action to address the contamination at the Geismar complex. The
cost of any corrective action could be material to BCP, depending on the scope
of such corrective action which cannot be determined at this time.
The extent to which any costs that may be incurred by BCP as the result of the
above described legal proceedings will be subject to the EIA will depend, in
large part, on whether such costs or penalties are attributable to facts or
circumstances that existed and requirements in effect prior to November 30,
1987. The costs that may be subject to the EIA have not yet been determined.
Other Legal Proceedings
- - -----------------------
The States of West Virginia, Ohio and Louisiana have filed suits (12/93, 8/93
and 10/94) alleging antitrust violations in connection with the sale of milk to
schools in certain of their school districts. A private antitrust suit filed
in Federal Court in Oklahoma (4/93) on behalf of four school districts sought,
but was denied class action certification. Although Federal Grand Jury
investigations are pending in Oklahoma (8/92), Ohio (2/93) and the Plains
States (9/93), only the Plains States investigation is continuing. Private
antitrust suits alleging price fixing of wholesale/retail accounts have been
filed in Florida (7/93) and Virginia (9/93).
The Company is a defendant in litigation in Montreal, Canada involving
allegations of personal injury or property damage arising from the
misapplication of, or defects in, a urea-formaldehyde foam insulation product
which the Company manufactured from 1973 through 1980. The litigation, which
was tried from September 1983 through December 1989, was dismissed by the trial
court in December 1991. An Appeal filed by plaintiffs will be heard in late
1995.
In December 1994, the Company agreed to a proposed settlement in twelve
putative class actions that were filed by purported Company shareholders in the
New Jersey and Ohio state courts against the Company, members of the Board and,
in two of the cases, Kohlberg Kravis Roberts & Co.("KKR"). These actions
alleged among other things, that the Company was being sold at too low a price,
and that the Company's directors breached their fiduciary duties by failing to
"auction" the Company and by "locking up" a transaction that was not in the
best interests of shareholders. KKR was alleged to have aided and abetted
these breaches of fiduciary duty. The complaints sought preliminary and
permanent relief, including a preliminary injunction, damages in an unspecified
amount and attorneys' fees. In connection with the proposed settlement, the
defendants agreed to take certain actions under the Agreement and Plan of
Merger and Conditional Purchase/Stock Option Agreement both between the Company
and KKR, and both dated as of September 23, 1994 as amended; agreed to publish
certain information in an Offering Circular supplement; agreed to cause the
Company's Board of Directors to include up to two independent directors until
such time as the merger is completed; and agreed to arrange a meeting between
plaintiffs' counsel and the Company's investment bankers. The proposed
settlement is subject to court approval.
The Company has also been named as a defendant in a shareholder derivative
action filed against RJR Nabisco Holdings Corp.("RJR") in the Court of Chancery
of the State of Delaware. That action alleges that the proposed acquisition by
RJR of a stake in the Company constitutes a breach of the fiduciary duty of
loyalty of RJR's Board of Directors because the transaction is unfair to the
public shareholders of RJR. The complaint seeks to enjoin RJR's purchase of
Company shares and damages in an unspecified amount.
The Company is involved in other litigation throughout the United States which
is considered to be in the ordinary course of the Company's business.
The Company believes, based upon the information it presently possesses, and
taking into account its established reserves for estimated liability and its
insurance coverage, that the ultimate outcome of the foregoing proceedings and
actions is
8
<PAGE> 9
unlikely to have a materially adverse effect on the Company's financial
position or operating results.
Item 4. Submission of Matters to a Vote of Security Holders
- - ------- ---------------------------------------------------
No matter was submitted during the fourth quarter of 1994 to a vote of security
holders, through the solicitation of proxies or otherwise.
PART II
Item 5. Market for the Registrant's Common Equity and Related
- - ------- -----------------------------------------------------
Stockholder Matters
-------------------
Prior to the Merger, the Company's common stock, par value $.625 per share, was
traded on the New York Stock Exchange and exchanges in Tokyo, Japan; and Basel,
Geneva, Lausanne and Zurich, Switzerland. As a result of such Merger, all such
common stock was cancelled and retired and will be de-listed from trading on
such exchanges. Following the Merger, the Company's authorized common stock
consists of 300,000,000 shares, with a par value of $0.01 per share,
170,273,814 of which are issued and outstanding and held by affiliates of
KKR. No shares of such common stock trade on any exchange.
The high and low stock price and dividend payments by quarter for the last two
fiscal years is presented in Footnote 18 on page 38.
The high and low sales prices of the Company's common stock, par value $.625
per share, on the last trading day for such stock on the New York Stock
Exchange, March 14, 1995, were $13.50 and $13.25, respectively. The closing
sale price on such date was $13.25 per share.
9
<PAGE> 10
Item 6. Selected Financial Data
- - ------- -----------------------
Following is the five-year selected financial data for the years 1990 through
1994.
<TABLE>
- - ------------------------------------------------------------------------------------------------------------------------------------
FIVE YEAR SELECTED FINANCIAL DATA
(All dollar and share amounts in millions--except per share data)
<CAPTION>
FOR THE YEARS 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
SUMMARY OF EARNINGS
Net sales $5,626.1 $5,506.3 $5,871.7 $5,924.1 $6,272.6
Net (loss) income from
continuing operations (539.0) (56.9) (38.7) 279.9 291.5
Net (loss)income (597.7) (630.7) (364.4) 294.9 319.6
- - ------------------------------------------------------------------------------------------------------------------------------------
Net (loss) income per common share
from continuing operations $ (3.75) $ (0.40) $ (0.27) $ 1.90 $ 1.97
Net (loss) income per
common share (4.16) (4.47) (2.54) 2.00 2.16
- - ------------------------------------------------------------------------------------------------------------------------------------
Dividends:
Common share $ 0.252 $ 0.90 $ 1.185 $ 1.12 $1.035
Preferred series B share 1.32 1.32 1.32 1.32 1.32
- - ------------------------------------------------------------------------------------------------------------------------------------
Average number of common shares
outstanding during the year 143.7 141.0 143.4 147.6 147.9
- - ------------------------------------------------------------------------------------------------------------------------------------
FINANCIAL STATISTICS
Capital expenditures $ 147.7 $ 177.0 $ 286.2 $ 376.0 $ 331.1
Inventories 514.9 490.4 641.1 655.4 665.5
Property, plant and equipment, net 1,106.9 1,336.7 1,788.1 1,903.7 1,706.8
Depreciation and amortization 169.4 224.0 227.6 216.9 197.3
Total assets 3,822.3 3,871.7 5,246.0 5,461.3 5,284.3
Current assets 1,623.4 1,290.2 1,927.5 1,921.2 2,026.1
Current liabilities 1,529.2 1,371.5 1,807.8 1,413.7 1,847.0
Working capital (deficiency) 94.2 (81.3) 119.7 507.5 179.1
Current ratio 1.1:1 0.9:1 1.1:1 1.4:1 1.1:1
Long-term debt $1,379.0 $1,240.8 $1,329.9 $1,345.8 $1,339.8
Total debt to adjusted total
capitalization 81% 69% 55% 41% 53%
Shareholders' equity (deficiency) $ (92.1) $ 245.9 $1,126.3 $1,974.5 $1,841.6
Liquidating value of
preferred stock (.2) (.2) (.2) (.2) (.2)
Equity per common share
at year end (0.54) 1.74 8.01 13.39 12.50
Return on average shareholders'
equity * * * 15.6% 18.3%
- - ------------------------------------------------------------------------------------------------------------------------------------
SHAREHOLDER DATA
Outstanding common shares
at year end 169.9 141.4 140.6 147.5 147.3
- - ------------------------------------------------------------------------------------------------------------------------------------
Market price of common stock:
At year end $ 12 1/4 $ 17 $ 28 5/8 $ 32 5/8 $ 29 7/8
Range during year 18 3/8-11 29 1/8-14 3/8 34 7/8-26 1/4 38 3/4-27 1/2 37 7/8-27
- - ------------------------------------------------------------------------------------------------------------------------------------
Number of common shareholders 20,889 40,927 38,953 39,234 39,010
- - ------------------------------------------------------------------------------------------------------------------------------------
EMPLOYEE DATA
Payroll $1,072.7 $1,116.4 $1,123.8 $1,133.6 $1,135.5
Average number of employees 35,000 39,500 41,900 44,400 46,300
- - ------------------------------------------------------------------------------------------------------------------------------------
<FN>
*Not meaningful because of net loss.
</TABLE>
10
<PAGE> 11
Item 7. Management's Discussion and Analysis of Financial Condition
- - ------- -----------------------------------------------------------
and Results of Operations
-------------------------
Overview
- - --------
The Company has undertaken numerous restructuring efforts in recent years in an
effort to reduce expenses by streamlining operations and to divest unprofitable
business lines. In addition, following extensive analysis of the effects of
such restructuring efforts, and numerous other factors, in September 1994, the
Company entered into a merger agreement providing for the acquisition of all of
the Company's outstanding common stock by affiliates of KKR in exchange for
shares of RJR Holdings common stock owned by affiliates of KKR. As part of the
acquisition, in December 1994, affiliates of KKR acquired 69.5% of the
outstanding common stock of the Company in exchange for shares of RJR Holdings
common stock pursuant to an exchange offer and the exercise of the Option
to purchase 28,138,000 shares of the Company's common stock, which were issued
from the Company's treasury. Thereafter, affiliates of KKR contributed to the
Company approximately 69 million additional shares of RJR Holdings common
stock and will receive shares of the Company's common stock as consideration
therefor. In February 1995, these RJR Holdings shares, together with the
approximately 51 million RJR Holdings shares received by the Company upon
exercise of the Option, were sold by the Company in a registered public
offering for aggregate proceeds of approximately $662 million. The acquisition
was completed on March 14, 1995 following approval of the Merger by
shareholders of the Company at a special meeting held on that date. As a
result of the merger, as of March 14, 1995, affiliates of KKR own 100% of the
Company's common stock.
The Company reported a third consecutive year of losses in 1994. Contributing
to the losses for each of the three years were certain unusual or infrequently
occurring pretax charges to income, as shown in the table below.
<TABLE>
<CAPTION>
PRETAX CHARGES TO INCOME
(In millions) 1994 1993 1992
<S> <C> <C> <C>
- - ------------------------------------------------------------------------------------------
Restructuring $ 64.4 $114.9 $297.8
Reversal of prior restructuring (49.3)
Merger and other expenses 105.2
Fees on terminated or renegotiated
debt agreements 64.0
Dairy impairment 263.8
Cheese impairment 28.9
Other asset writedowns and changes
in accounting estimates 73.6 94.1
Gain on sale of businesses (59.3) (14.8)
------ ------ ------
Total continuing operations 491.3 194.2 297.8
------ ------ ------
Loss on disposal 104.5 637.4
Restructuring 79.4
Reversal of prior restructuring (9.8)
------ ------ ------
Total discontinued operations 94.7 637.4 79.4
------ ------ ------
Total pretax charges to income $586.0 $831.6 $377.2
====== ====== ======
- - ------------------------------------------------------------------------------------------
</TABLE>
11
<PAGE> 12
<TABLE>
<CAPTION>
The allocation of these charges by division was as follows:
(In millions) 1994 1993 1992
<S> <C> <C> <C>
- - --------------------------------------------------------------------------------------------------------------
Consumer Packaged Products $ 34.5 $ 91.8 $ 191.1
Dairy Products 338.7 33.2 24.6
Packaging and Industrial (4.9) 7.5 55.0
------- ------- -------
368.3 132.5 270.7
Corporate 123.0 61.7 27.1
------- ------- -------
Total continuing operations $ 491.3 $ 194.2 $ 297.8
======= ======= =======
- - --------------------------------------------------------------------------------------------------------------
</TABLE>
The 1994 restructuring program includes $13.0 million for administrative
headcount reductions and $51.4 million for Dairy and Pasta plant closings,
partly offset by a credit of $49.3 million in continuing operations and a
credit of $9.8 million in discontinued operations for the reversal of prior
restructuring charges. Management reviewed the prior restructuring programs in
light of events that occurred during 1994 and determined that a portion of the
reserves for these programs would not be utilized.
Merger expenses of $105.2 million in 1994 primarily includes fees paid to KKR
and financial advisors and other incremental expenses directly related to the
Merger. Additionally, the Company incurred $64.0 million of expenses to
renegotiate its $1.4 billion credit facility and for payments to terminate
other debt agreements.
Impairment writedowns of goodwill, plant and equipment of $263.8 million for
Dairy and $28.9 million for cheese were recorded in 1994 due to ongoing and
projected operating losses at certain profit centers, which indicated that the
carrying values of such assets were not expected to be recovered by their
future undiscounted cash flows. Consistent with the Company's accounting
policy (see page 24) future cash flows were measured at the profit center level
which is the level at which the Dairy division is managed. Future cash flows
were based on forecasted trends for individual operations and assumed capital
spending in line with expected requirements.
Also in 1994, the Company recorded a pretax charge of $73.6 million for other
asset writedowns and changes in accounting estimates, primarily related to
increases in the Company's estimated general insurance liabilities, especially
worker's compensation.
Partly offsetting these charges was a net pretax gain of $59.3 million from
selling two international businesses and one domestic business which were not
part of the discontinued operations plan of 1993.
In 1993 the Company recorded a pretax charge to provide for a business
divestiture program. The program involved the divestment of North American
snacks, seafood, jams and jellies, and various other businesses, for which a
pretax charge of $637.4 million, $490.0 million after tax, was recorded for
estimated losses on disposal. The businesses to be divested had 1993 net sales
of $1.194 billion, or 17.8% of total 1993 sales. Proceeds in 1994 from
divestitures amounted to $232.2 million, which was approximately equal to
original estimates except for snacks divestitures, in which a significant
shortfall occurred. The shortfall in proceeds resulted in an additional pretax
provision for loss on disposal of $104.5 million partially offset by the $9.8
million restructuring reversal during third quarter 1994.
The 1994 operating results for the businesses being divested were charged
against the reserve for the loss on disposal. The operating results for the
years ended December 31, 1993 and 1992 and the estimated losses on disposal
have been segregated and reported net of tax as discontinued operations.
All except two of the businesses to be divested were sold in 1994. The Company
anticipates that the sale of these businesses will be completed in 1995.
Proceeds from the remaining sales will be used to reduce debt.
12
<PAGE> 13
Net assets of $40.5 million and $222.2 million related to the discontinued
operations have been segregated in the Consolidated Balance Sheets at December
31, 1994 and 1993, respectively. These amounts consist primarily of working
capital, property, plant and equipment, and intangibles, net of the estimated
losses on disposal.
Also in 1993, the Company recorded a pretax charge of $94.1 million for asset
writedowns and changes in accounting estimates primarily relating to the cost
of consumer and trade promotions. In addition, fourth quarter 1993 results
include a pretax gain of $14.8 million on the sale of a European packaging
operation.
In 1993 the Company adopted Statement of Financial Accounting Standard (SFAS)
No. 112, "Employers' Accounting for Postemployment Benefits," retroactive to
January 1, 1993. The cumulative effect of the accounting change reduced first
quarter and 1993 net income by $18.0 million, or $.13 per share. The
accounting change had no significant effect on 1993 income before cumulative
effect of accounting changes.
During 1992 the Company adopted SFAS No. 106 "Employers' Accounting for
Postretirement Benefits Other Than Pensions" and No. 109 "Accounting for Income
Taxes." These accounting changes reduced 1992 net income before the cumulative
effect of accounting changes by $8.1 million, or $.06 per share. The
cumulative effect of the accounting changes as of January 1, 1992 reduced 1992
net income by $229.0 million, or $1.60 per share.
Including the effect of the pretax charges discussed on page 11 and accounting
changes, the Company had net losses of $597.7 million or $4.16 per share in
1994, $630.7 million or $4.47 per share in 1993, and $364.4 million or $2.54
per share in 1992.
<TABLE>
RESTRUCTURING CHARGES
Following is a schedule of restructuring reserve balances at the end of the
last three years by major component and the amounts charged to income:
<CAPTION>
1994 Balances at December 31,
Charge to Restructuring ---------------------------------
(In millions) Income Reversal 1994 1993 1992
<S> <C> <C> <C> <C> <C>
- - ------------------------------------------------------------------------------------------------------------------
1994 RESTRUCTURING:
Business Re-engineering $ 13.0 $ 13.0
Closure and Consolidation 51.4 51.4
------- -------
64.4 64.4
------- -------
1993 RESTRUCTURING:
Business
Re-engineering 90.6 $ (41.0) 13.2 $ 89.0
Business Divestitures 16.3 (4.5) 4.0 16.3
Closure and Consolidation 8.0 0.0 8.0
------- ------- ------- -------
114.9 (45.5) 17.2 113.3
------- ------- ------- -------
1992 RESTRUCTURING:
Business
Re-engineering 46.4 (13.0) 0.4 6.8 $ 44.1
Business Divestitures 161.5 15.1 0.8 11.8 71.7
Closure and Consolidation 169.3 (15.7) 4.3 14.0 73.6
------- ------- ------- ------- -------
377.2 (13.6) 5.5 32.6 189.4
------- ------- ------- ------- -------
$ 556.5 $ (59.1) $ 87.1 $ 145.9 $ 189.4
======= ======= ======= ======= =======
- - ------------------------------------------------------------------------------------------------------------------
</TABLE>
The 1994 restructuring reversal includes $49.3 million for continuing
operations and $9.8 million relating to discontinued operations. The 1992
restructuring charge includes $79.4 million relating to discontinued
operations.
The 1994 restructuring charge of $64.4 million includes $13.0 million for
administrative severance covering approximately 85 positions and $51.4 million
for several dairy and pasta plant closings in early 1995. Included in the
$51.4 million is severance, asset write-offs and other exit costs.
13
<PAGE> 14
The 1993 restructuring charge of $114.9 million consisted of three parts. The
business re-engineering is primarily $76.5 million of severence and other
personnel costs as a result of an administrative downsizing. The majority of
the 1994 restructuring reversal of $59.1 million related to this item, due to
actual terminations of approximately 525 employees versus an original plan of
approximately 1800 employees. Additionally, it included $14.1 million to
reorganize dairy operations by closing certain administrative centers.
Business divestitures represents an increase in the estimated costs to divest
an international operation which was provided for in the 1992 restructuring
reserve. Closure and consolidation costs of $8.0 million were provided for the
expected loss on divestiture of a small operation.
The 1992 restructuring charge of $377.2 million was primarily for divestitures
and plant closings. Although some ongoing costs remain, virtually all of the
1992 restructuring programs had been completed at December 31, 1994.
Cash spending in 1994 relating to the 1993 and 1992 restructuring programs was
$71.9 million. The 1994 pretax income benefit approximated the amount of
spending. During 1994 restructuring proceeds from the sale of a business were
$40.4 million. Cash spending in 1994 of $3.4 million related to discontinued
operations and will produce no future income benefits. Of the remaining $87.1
million of restructuring reserves, approximately $45 million represents cash
charges, the majority of which are expected to be incurred in 1995. Personnel
and related costs are expected to be reduced in excess of $20.0 million
annually in 1995 because of the employee terminations from the 1993 and 1992
restructuring programs. There are no significant offsetting expenses to these
savings.
<TABLE>
RESULTS OF CONTINUING OPERATIONS
Following is a three year comparison of division sales and operating (loss) income:
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------------
(Dollars in millions) 1994 1993 1992
- - -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
DIVISION SALES
Consumer Packaged Products $2,332.1 41% $2,380.5 43% $2,617.8 44%
Dairy Products 1,277.0 23 1,298.9 24 1,450.0 25
Packaging and Industrial Products 2,017.0 36 1,826.9 33 1,803.9 31
-------- --- -------- --- -------- ---
Total $5,626.1 100% $5,506.3 100% $5,871.7 100%
======== === ======== === ======== ===
DIVISION OPERATING (LOSS) INCOME
Consumer Packaged Products $ 107.4 * % $ 128.5 66% $ 116.4 50%
Dairy Products (425.3) * (84.2) (43) (7.0) (3)
Packaging and Industrial Products 201.5 * 150.0 77 124.6 53
-------- --- -------- --- -------- ---
Total (116.4) * % 194.3 100% 234.0 100%
=== === ===
Discontinued operations, net of tax (58.7) (555.8) (85.9)
Other expense and income not
allocable to divisions and
income taxes (422.6) (269.2) (512.5)
-------- -------- --------
Net loss $ (597.7) $ (630.7) $ (364.4)
======== ======== ========
* Not meaningful
- - -------------------------------------------------------------------------------------------------------------------
</TABLE>
Net sales in 1994 increased 2.2% to $5.626 billion from $5.506 billion in 1993.
Net sales in 1993 decreased 6.2% from $5.872 billion in 1992.
14
<PAGE> 15
<TABLE>
<CAPTION>
The 1992-1994 restructuring (reversals)/charges included in operating income are allocated by division as follows:
(In millions) 1994 1993 1992
- - -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Consumer Packaged Products $ (7.3) $ 16.3 $ 191.1
Dairy Products 48.4 22.1 24.6
Packaging and Industrial Products (13.6) 55.0
-------- ------- -------
27.5 38.4 270.7
Not allocable to divisions (12.4) 76.5 27.1
-------- ------- -------
15.1 114.9 297.8
Income tax benefit 5.7 37.5 65.0
-------- ------- -------
Reversals/charges, net of tax $ 9.4 $ 77.4 $ 232.8
======== ======= =======
- - -----------------------------------------------------------------------------------------------
</TABLE>
The loss from continuing operations was $539.0 million in 1994, $56.9 million
in 1993 and $38.7 million in 1992. Excluding restructuring charges, continuing
operations produced a loss of $529.6 million in 1994, and income of $20.5
million and $194.1 million in 1993 and 1992, respectively.
Division operating income included pretax restructuring charges of $27.5
million, $38.4 million and $270.7 million in 1994, 1993 and 1992, respectively.
1994 division operating income decreased 159.9% to a loss of $116.4 million
from income of $194.3 million in 1993, while 1993 decreased 17.0% from $234.0
million in 1992. Excluding the charges, 1994 operating results decreased
138.2% and 1993 results decreased 53.9% from the respective prior years.
A significant portion of the Company's operating income is generated by foreign
operations and can be affected by currency fluctuations. Most of this exposure
is attributable to the translation of income generated by these foreign
operations in their functional currency; functional currency operating results
are not hedged. When appropriate, the Company will hedge cash flow transaction
exposures, including hedging of cash flows related to exports or imports
denominated in currencies different from the functional currency of the
operating unit.
The effect of changes in foreign currency exchange rates was immaterial in 1994
compared to 1993. The effect of changes in foreign currency exchange rates
adversely impacted sales and division operating income in 1993 compared to
1992. Had exchange rates remained unchanged from the prior year, sales and
operating income in 1993 would have been approximately $140 million and $30
million higher, respectively. Foreign countries where the Company has
significant operations include Brazil, Canada, Colombia, England, Germany and
Italy.
During 1994 the Company was reorganized into three operating divisions:
Consumer Packaged Products, Dairy Products, and Packaging and Industrial
Products. Consumer Packaged Products is comprised of niche grocery, pasta and
sauce, cheese products, consumer adhesives, international milk powder, European
bakery products and several European grocery and pasta businesses. Dairy
Products includes fluid milk, ice cream and cultured milk products. Packaging
and Industrial Products includes primarily wallcoverings, adhesives and resins,
and plastic films and packaging.
Consumer Packaged Products 1994 sales decreased 2.0% to $2.332 billion from
$2.380 billion in 1993 primarily due to divestitures that occurred during 1993.
Consumer Packaged Products operating income of $107.4 million in 1994 declined
16.4% from income of $128.5 million in 1993. Gains were achieved in both
International Foods and Niche Grocery Products, offsetting operating income
declines in North American Pasta and Diversified Products.
Consumer Packaged Products 1993 sales decreased 9.1% to $2.380 billion from
$2.618 billion in 1992 due primarily to volume declines in pasta; the
divestitures of Laura Scudder's, Southwest Snacks and Deran candy; decreases in
most niche grocery products; and a slight decline in International Foods. The
volume declines were due to increased
15
<PAGE> 16
competition from low-priced branded and private label products, the adjusting
of promotions to reduce "trade loading," as well as customer service issues in
pasta. Excluding restructuring charges, 1993 operating income decreased
substantially compared to 1992 primarily as a result of volume declines and
higher wheat costs which could not be fully recovered in product pricing due to
the competitive environment, and due to the negative impact of foreign exchange
rate fluctuations as well as declines in European grocery and pasta and Puerto
Rican businesses.
The Dairy Products operating loss in 1994 was $425.3 million versus the loss of
$84.2 million in 1993. In addition to impairment and restructuring charges,
the downward operating trend experienced in 1993 continued in 1994. Sales
declined 1.7% to $1.277 billion from $1.299 billion. Dollar sales were up for
fluid milk in most market regions, but lower in ice cream.
Dairy Products 1993 sales decreased 10.4% to $1.299 billion from $1.450 billion
in 1992 due primarily to volume declines in fluid milk and ice cream. The
volume declines were due to increased competition from low-price branded and
private label products, as well as pricing issues. Operating results decreased
to a loss of $84.2 million compared to a loss of $7.0 million in 1992.
Excluding restructuring charges, 1993 operating income decreased substantially
compared to 1992 primarily as a result of volume declines and higher raw milk
and cream costs which could not be fully recovered in product pricing due to
the competitive environment.
Packaging and Industrial Products reported record sales of $2.017 billion, an
increase of 10.4% from the $1.827 billion in 1993. North American Resins
contributed most of the gain, with a smaller increase in North American
Plastics Operations. The division also reported record operating income of
$201.5 million for 1994, an increase of 34.3% over the $150.0 million in 1993.
The North American and Latin American Resins businesses were each up strongly,
as was the contribution to income from BCP. Higher income in North American
Plastics Operations more than offset a decline in Europe, and results were even
in Worldwide Decorative Products.
Packaging and Industrial Products' 1993 sales increased 1.3% to $1.827 billion
from $1.804 billion in 1992 primarily as a result of increases in the North
American operations of forest products adhesives, resins and wallcoverings,
partially offset by decreases in most of the European businesses. Operating
income increased 20.4% to $150.0 million from $124.6 million in 1992.
Excluding restructuring charges, 1993 operating income decreased 16.5% compared
to 1992 as a result of the negative impact of foreign exchange rate
fluctuations and the continuing effects of the European recession on European
packaging and resins, partially offset by improvements in North American
adhesives and resins and worldwide wallcoverings. The effect of foreign
exchange rate changes negatively impacted 1993 operating income by 9.6%.
Interest expense in 1994 increased as a result of higher interest rates.
Interest expense in 1993 increased as a result of increased average debt
levels. Interest expense in 1992 decreased from the prior year due to lower
average debt levels and lower interest rates.
Income tax expense of $33.6 million was recorded in 1994 compared to a benefit
of $210.8 million in 1993 and $30.9 million in 1992. Income tax for 1994 was
an expense rather than a benefit due to $122.4 million of expenses that are not
deductible for income tax purposes, a $49.5 million provision related to
foreign source earnings and a $55.6 million adjustment for estimated prior
liabilities. The low effective tax rate in both 1993 and 1992 reflects certain
restructuring expenses with reduced tax benefits.
The net deferred tax asset at December 31, 1994 was $370.2 million. Of this
amount $410.4 million represents deferred tax assets (net of valuation
allowances) relating to future tax deductions, tax loss and tax credit
carryovers and other future tax benefits, with the remainder being a net
foreign liability of $40.2 million. In order to realize the net deferred asset
the Company will need to generate approximately
16
<PAGE> 17
$1,175.0 million of future taxable income before the expiration of the
carryforward periods. The deferred tax benefits are expected to be fully
utilized through the future operating benefits generated by the divestiture and
restructuring programs. An operating loss for domestic income tax purposes
occurred in 1994, amounting to approximately $361 million. Operating losses
can be carried back three years and forward 15 years.
FINANCIAL POSITION
At December 31, 1994 the Company's financial position was not strong. At the
end of 1994, liabilities exceeded assets by $92.1 million. However, the
Company expects positive cash flow from operations and divestitures in 1995,
has reduced its common stock dividend, and in December 1994, signed a new five
year $2.075 billion credit agreement with various domestic and foreign lending
institutions. Borrowings under the credit agreement bear interest at LIBOR
plus 1.75% or prime plus 1.75%; the margin on borrowings increases to LIBOR
plus 2.25% if the Company's public debt ratings fall below BB and Ba2. The
unused portion of the credit agreement at December 31, 1994 was $743.6 million.
The effective interest rate on outstanding borrowings under the credit
agreement at December 31, 1994 was 7.94%.
The Credit Agreement contains certain restrictions on the activities of the
Company and its subsidiaries, including restrictions on liens, the incurrence
of indebtedness, mergers and consolidations, sales of assets, investments,
payment of dividends, changes in business, prepayments of certain indebtedness,
transactions with affiliates, capital expenditures, changes in control of the
Company and the use of proceeds from asset sales and certain debt and equity
issuances. In addition, the Company has agreed under the Credit Agreement to
maintain a minimum ratio of EBITDA (Earnings Before Interest, Taxes,
Depreciation and Amortization) to interest expense beginning in June 1995 and a
maximum ratio of total debt to EBITDA. At the end of 1994, the Company was not
in violation of such restrictions and covenants.
During 1994 the Company's long-term debt and commercial paper ratings were
downgraded to Ba1 and Non-Prime by Moody's and to BBB and P-3 by Standard &
Poor's. This action increased the Company's cost of borrowing in 1994 and will
increase the Company's cost of borrowing in future years.
The Company cut its quarterly common stock dividend during 1994 from $0.075 to
$0.01. In January 1995, the Company announced that no common stock dividend
would be paid prior to the pending merger with KKR.
The Company's current ratio at December 31, 1994 was 1.1 to 1. During 1995
operating and divestment cash sources should be sufficient to meet the Company's
current liabilities. Current maturities of long-term debt coming due during
1995 aggregate approximately $252 million. In January 1995 the Company filed
a registration statement for the issuance of up to $2 billion of debt and/or
preferred stock securities, some of which may be issued during 1995.
In December 1994 affiliates of KKR exercised an option to purchase 28,138,000
of the Company's common shares at $11.00 per share. The Company issued the
shares from treasury stock and received 51,106,768 RJR Holdings common shares
as proceeds, with an approximate market value at year end of $281 million.
After the exercise of the option, affiliates of KKR owned approximately 69.5%
of the Company's outstanding common shares.
On February 15, 1995 affiliates of KKR contributed an additional 68,893,232
shares of RJR Holdings common stock to the Company in exchange
for $380.3 million of Borden, Inc. capital stock to be issued later in 1995.
These RJR Holdings shares and the 51,106,768 shares discussed above were sold
by the Company on February 16, 1995. Net proceeds of $662.4 million were
realized from the sale which were used by the Company to reduce debt and
minority interest. The sale resulted in an after tax loss
17
<PAGE> 18
of $51.7 million which will be reflected in the Company's first quarter 1995
financial statements.
Following the Merger, affiliates of KKR contributed an additional 111,047,230
shares of RJR Holdings common stock to the Company and will receive additional
Company equity securities as consideration therefor. RJR Holdings has been
requested to register the additional RJR Holdings shares acquired by the
Company and, on March 15, 1995, a registration statement was filed with the
Securities and Exchange Commission relating to the offering of such shares from
time to time. Such registration statement has not yet been declared effective
by the Commission and no offers or sales will be made until such registration
statement becomes effective.
LIQUIDITY AND CAPITAL RESOURCES
Cash (used) provided from operating activities in 1994, 1993 and 1992 was
$(250.8) million, $552.3 million and $292.9 million, respectively. Cash
provided from operating activities decreased in 1994 due primarily to declines
in operating results and spending in connection with restructuring programs.
Cash provided from operating activities in 1993 increased from the prior year
primarily due to the sale of receivables of $400.0 million. Capital
expenditures decreased 16.6% from 1993 to $147.7 million in 1994, while 1993
capital expenditures of $177.0 million decreased 38.2% from 1992. These
decreases were primarily the result of the completion in 1992 of capital
expenditures relating to the 1989 reconfiguration program. Capital
expenditures in 1995 are expected to approximate $225 million.
During 1993 the Company acquired a U.S. dairy operation for a total cost of
$9.5 million. The Company acquired a bakery operation, a foodservice
operation, a foundry resin operation and a rigid plastics operation in 1992 for
a total cost of $20.1 million.
Short term debt decreased $198.6 million in 1994 and decreased $536.2 million
in 1993. The decrease in short-term debt in 1993 was primarily the result of
the proceeds from the sale of receivables being used to repay commercial paper.
In 1994, 1993 and 1992 long-term debt financing provided $615.8, $274.6 and
$45.2 million, respectively. The 1994 financing reflects the five year credit
agreement signed in December 1994. The 1993 financing includes proceeds from a
$250.0 million issuance of 30-year, 7 7/8% debentures which were used primarily
to repay short-term commercial paper.
The Company expects to have adequate liquidity during 1995 due to cash flows
from operations and divestitures, amounts available under the credit agreement,
and proceeds from the sale of RJR Holdings common stock discussed
earlier.
18
<PAGE> 19
Item 8. Financial Statements and Supplementary Data
- - ------- -------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended
(In millions except per share data) December 31, 1994 1993 1992
<S> <C> <C> <C>
- - --------------------------------------------------------------------------------------------------------------------------
REVENUE
Net Sales $5,626.1 $5,506.3 $5,871.7
- - --------------------------------------------------------------------------------------------------------------------------
COSTS AND EXPENSES
Cost of goods sold 4,243.4 4,078.6 4,301.9
Marketing, general and administrative
expenses 1,238.1 1,223.7 1,163.6
Restructuring charges 15.1 114.9 297.8
Impairment of long lived assets 292.7
Interest expense 130.7 125.1 116.6
Equity in income of affiliates (16.7) (16.0) (19.4)
Minority interest 41.1 40.7 39.7
Other expense and (income), net 151.1 23.4 (4.0)
Income taxes 69.6 (27.2) 14.2
-------- -------- --------
6,165.1 5,563.2 5,910.4
-------- -------- --------
- - --------------------------------------------------------------------------------------------------------------------------
EARNINGS
Loss from continuing operations (539.0) (56.9) (38.7)
Discontinued operations:
Loss from operations (65.8) (85.9)
Loss on disposal (58.7) (490.0)
-------- -------- --------
Loss before extraordinary item and
cumulative effect of accounting
changes (597.7) (612.7) (124.6)
Extraordinary loss on early retirement
of debt (10.8)
Cumulative effect of change in accounting
for:
Postemployment benefits (18.0)
Postretirement benefits other than
pensions (189.0)
Income taxes (40.0)
-------- -------- --------
Net loss $ (597.7) $ (630.7) $ (364.4)
======== ======== ========
- - --------------------------------------------------------------------------------------------------------------------------
SHARE DATA
Loss from continuing operations $ (3.75) $ (.40) $ (.27)
Discontinued operations:
Loss from operations (.47) (.60)
Loss on disposal (0.41) (3.47)
-------- -------- --------
Loss before extraordinary item and
cumulative effect of accounting
changes (4.16) (4.34) (.87)
Extraordinary loss on early retirement
of debt (.07)
Cumulative effect of change in accounting
for:
Postemployment benefits (.13)
Postretirement benefits other than
pensions (1.32)
Income taxes (.28)
--------- -------- --------
Net loss per common share $ (4.16) $ (4.47) $ (2.54)
======== ======== ========
Cash dividends paid per common share $ 0.252 $ 0.90 $ 1.185
Average number of common shares
outstanding during the period 143.7 141.0 143.4
- - --------------------------------------------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements
</TABLE>
19
<PAGE> 20
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(In millions except share and per share data) December 31, 1994 1993
- - -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
- - -----------------------------------------------------------------------------------------------------------------------
CURRENT ASSETS
Cash and equivalents $ 125.3 $ 100.3
Accounts receivable (less allowance for doubtful
accounts of $13.6 and $8.9, respectively) 411.8 334.7
Inventories:
Finished and in process goods 331.0 319.4
Raw materials and supplies 183.9 171.0
Investment securities 281.1
Other current assets 249.8 142.6
Net assets of discontinued operations 40.5 222.2
-------- --------
1,623.4 1,290.2
-------- --------
- - -----------------------------------------------------------------------------------------------------------------------
INVESTMENTS AND OTHER ASSETS
Investments in and advances to affiliated companies 86.9 91.3
Deferred income taxes 284.0 225.4
Other assets 119.0 126.6
-------- --------
489.9 443.3
-------- --------
- - -----------------------------------------------------------------------------------------------------------------------
PROPERTY AND EQUIPMENT
Land 95.2 105.5
Buildings 574.2 609.6
Machinery and equipment 1,893.1 1,949.3
-------- --------
2,562.5 2,664.4
Less accumulated depreciation (1,455.6) (1,327.7)
-------- --------
1,106.9 1,336.7
-------- --------
- - -----------------------------------------------------------------------------------------------------------------------
INTANGIBLES
Intangibles resulting from business acquisitions
(net of accumulated amortization of $182.8
and $189.8, respectively) 602.1 801.5
-------- --------
- - -----------------------------------------------------------------------------------------------------------------------
$3,822.3 $3,871.7
======== ========
- - -----------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements
20
<PAGE> 21
<TABLE>
<CAPTION>
(In millions except share and per share data) December 31, 1994 1993
- - -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
- - -----------------------------------------------------------------------------------------------------------------------
CURRENT LIABILITIES
Debt payable within one year $ 331.9 $ 410.6
Accounts and drafts payable 498.0 433.3
Restructuring reserve 87.1 145.9
Income taxes 146.3 56.5
Other current liabilities 465.9 325.2
-------- --------
1,529.2 1,371.5
-------- --------
- - -----------------------------------------------------------------------------------------------------------------------
OTHER
Long-term debt 1,379.0 1,240.8
Deferred income taxes 44.3 47.1
Non-pension postemployment benefit obligations 348.6 353.8
Other long-term liabilities 108.7 103.8
Minority interest 504.6 508.8
-------- --------
2,385.2 2,254.3
-------- --------
- - -----------------------------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Common stock - $0.625 par value
Authorized 480,000,000 shares
Issued 194,983,374 shares 121.9 121.9
Paid-in capital 120.0 88.1
Accumulated translation adjustment (140.9) (171.1)
Minimum pension liability and other (145.4) (95.5)
Retained earnings 201.8 835.1
-------- --------
157.4 778.5
Less common stock in treasury
(at cost) - 25,124,740 shares and
53,625,339 shares, respectively (249.5) (532.6)
-------- --------
(92.1) 245.9
-------- --------
- - -----------------------------------------------------------------------------------------------------------------------
$3,822.3 $3,871.7
======== ========
- - -----------------------------------------------------------------------------------------------------------------------
</TABLE>
21
<PAGE> 22
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended
(In millions) December 31, 1994 1993 1992
<S> <C> <C> <C>
- - ----------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (597.7) $ (630.7) $ (364.4)
Adjustments to reconcile net loss
to net cash from operating activities:
Depreciation and amortization 169.4 224.0 227.6
Loss on disposal of discontinued
operations 94.7 637.4
Impairment losses 292.7
Restructuring (56.9) 52.5 316.5
Non-pension postemployment
benefit obligation (5.2) 36.1 317.7
Sale of receivables (150.0) 400.0
Net changes in assets and liabilities:
Trade receivables (43.8) 47.8 (30.3)
Inventories (44.2) 21.2 1.0
Trade payables 65.8 (0.5) (4.4)
Current and deferred taxes 24.0 (242.4) (175.3)
Other assets 40.7 49.1 (9.6)
Other, net 104.9 (122.1) 14.1
Discontinued operations (145.2) 79.9
-------- ------- -------
(250.8) 552.3 292.9
-------- ------- -------
- - ----------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES*
Capital expenditures (147.7) (177.0) (286.2)
Divestiture of businesses 409.1 53.4 123.0
Purchase of businesses (9.5) (20.1)
-------- ------- -------
261.4 (133.1) (183.3)
-------- ------- -------
- - ----------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES*
(Decrease)increase in short-term debt (198.6) (536.2) 255.5
Reduction in long-term debt (372.7) (128.7) (266.1)
Long-term debt financing 615.8 274.6 45.2
Dividends paid (35.6) (126.7) (170.4)
Issuance of stock under stock options
and benefits and awards plans 5.5 12.1 3.9
-------- -------- --------
14.4 (504.9) (131.9)
-------- -------- --------
- - ----------------------------------------------------------------------------------------------------------------------------
Increase/(decrease)increase in cash and equivalents 25.0 (85.7) (22.3)
Cash and equivalents at beginning of year 100.3 186.0 208.3
-------- -------- --------
Cash and equivalents at end of year $ 125.3 $ 100.3 $ 186.0
======== ======== ========
- - ----------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid $ 136.2 $ 133.3 $ 130.4
Taxes paid 8.0 20.5 67.1
- - ----------------------------------------------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements
*NONCASH INVESTING AND FINANCING ACTIVITIES
Investment in RJR Holdings Stock $( 281.1)
Treasury Stock issued to KKR Affiliates 309.5
See Notes 11 and 17 to the Consolidated Financial Statements
</TABLE>
22
<PAGE> 23
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Minimum
Accumulated Pension
Common Paid-In Translation Liability Retained Treasury
(In millions) Stock Capital Adjustment & Other Earnings Stock
<S> <C> <C> <C> <C> <C> <C>
- - --------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1991 $126.2 $314.9 $(51.3) $ (1.4) $2,127.3 $(541.2)
Net loss (364.4)
Cash dividends (170.4)
Translation adjustments (77.0)
Stock issued for preferred
series B converted, exercised
options and benefits and
awards plans 2.3 1.6
Stock purchased and retired (4.3) (234.2)
Minimum pension liability
adjustment (1.8)
- - --------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1992 121.9 83.0 (128.3) (3.2) 1,592.5 (539.6)
Net loss (630.7)
Cash dividends (126.7)
Translation adjustments (42.8)
Stock issued for preferred
series B converted, exercised
options and benefits and
awards plans 5.1 7.0
Minimum pension liability
adjustment (92.3)
- - --------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1993 121.9 88.1 (171.1) (95.5) 835.1 (532.6)
Net loss (597.7)
Cash dividends (33.2)
Stock rights redemption
payment, $0.01 2/3 per right-
Note 9 (2.4)
Translation adjustments 30.2
Treasury stock issued to KKR affiliates 30.1 279.4
Stock issued for preferred
series B converted, exercised
options and benefits and
awards plans 1.8 3.7
Minimum pension liability
adjustment (11.8)
Valuation allowance-securities (38.1)
- - --------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1994 $121.9 $120.0 $(140.9) $(145.4) $201.8 $(249.5)
- - --------------------------------------------------------------------------------------------------------------------------
<FN>
See Notes to Consolidated Financial Statements
</TABLE>
23
<PAGE> 24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions except per share data)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Significant accounting policies followed by the company, as summarized below,
are in conformity with generally accepted accounting principles.
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include the
accounts of Borden, Inc. and its subsidiaries, after elimination of material
intercompany accounts and transactions. The Company's proportionate share of
the net earnings of unconsolidated 20% to 50% owned companies is included in
income. The carrying value of these companies approximates Borden's interest
in their underlying net assets. Investments of less than 20% ownership are
carried at cost.
CASH AND EQUIVALENTS/STATEMENTS OF CASH FLOWS - The Company considers all
highly liquid investments purchased with an original maturity of three months
or less to be cash equivalents. The effect of exchange rate changes on cash
flows is not material.
INVENTORIES - Inventories are stated at the lower of cost or market. Cost is
determined using the average cost and first-in, first-out methods.
PROPERTY AND EQUIPMENT - Land, buildings and machinery and equipment are
carried at cost.
Depreciation is recorded on the straight-line basis by charges to costs and
expenses at rates based on estimated useful lives of properties (average rates
for buildings 3.5%; machinery and equipment 6.5%).
Major renewals and betterments are capitalized. Maintenance, repairs and minor
renewals are expensed as incurred. When properties are retired or otherwise
disposed of, related cost and accumulated depreciation are removed from the
accounts.
INTANGIBLES - The excess of purchase price over net tangible assets of
businesses acquired is carried as intangibles in the consolidated balance
sheets. It is the Company's policy to carry intangibles arising prior to
November 1, 1970 at cost, while those arising after that date are amortized on
a straight-line basis over not more than forty years.
IMPAIRMENT - The carrying value of property, equipment and intangibles is
evaluated periodically in relation to the operating performance and future
undiscounted cash flows of the underlying businesses. Adjustments are made if
the sum of expected future cash flows is less than book value.
REVENUE RECOGNITION - Revenues are recognized when products are shipped.
ADVERTISING AND PROMOTION EXPENSE - Production costs of future media
advertising are deferred until the advertising occurs. All other advertising
and promotion costs are expensed when incurred or expensed ratably over the
year in relation to sales.
INCOME TAXES - In 1992 the Company adopted Statements of Financial Accounting
Standard (SFAS) No. 109 "Accounting for Income Taxes," which requires the use
of the liability method of accounting for deferred income taxes.
The provision for income taxes includes Federal, foreign, state and local
income taxes currently payable and those deferred because of temporary
differences between the financial statement and tax bases of assets and
liabilities. A substantial portion of the undistributed earnings of foreign
subsidiaries has been reinvested and is not
24
<PAGE> 25
expected to be remitted to the parent company. Accordingly, no Federal income
taxes have been provided on such earnings. The cumulative amount of reinvested
earnings was approximately $730.0 at December 31, 1994. The determination of
the tax effect relating to such earnings is not practicable.
PENSION AND RETIREMENT SAVINGS PLANS - Most of the Company's employees are
covered under one of the Company's pension plans or one of the union-sponsored
plans to which the Company contributes.
Substantially all domestic and Canadian employees participate in the Company's
retirement savings plans. The Company's cost of providing the retirement
savings plans represents its matching of eligible contributions made by
participating employees and is recognized as a charge to income in the year the
cost is incurred.
NON-PENSION POSTEMPLOYMENT BENEFITS - The Company provides certain health and
life insurance benefits for eligible retirees and their dependents. In 1992
the Company adopted SFAS No 106 "Employers' Accounting for Postretirement
Benefits Other Than Pensions" whereby the cost of postretirement benefits is
accrued during employees' working careers. The cost of providing these
benefits was previously recognized as a charge to income in the period the
benefits were paid. The Company elected to immediately recognize this
obligation rather than amortize it over future periods.
The Company provided certain other postemployment benefits to qualified former
or inactive employees. In 1993 the Company adopted, effective January 1, 1993,
SFAS No. 112 "Employers' Accounting for Postemployment Benefits." The standard
requires that the cost of benefits provided to former or inactive employees
after employment, but before retirement, be accrued when it is probable that a
benefit will be provided. The cost of providing these benefits was previously
recognized as a charge to income in the period the benefits were paid.
FOREIGN CURRENCY TRANSLATIONS - Assets and liabilities of foreign affiliates
are generally translated at current exchange rates, and related translation
adjustments are reported as a component of shareholders' equity. Income
statement accounts are translated at the average rates during the period. For
entities in highly inflationary countries, a combination of current and
historical rates are used in translating assets and liabilities and related
exchange adjustments are included in net income.
EARNINGS PER SHARE - Earnings per common share are computed based on the
weighted average number of common shares outstanding.
FINANCIAL INSTRUMENTS - The Company uses forward exchange contracts and
currency swaps to reduce the effect of the fluctuations in foreign currency
rates. The Company hedges certain net foreign investments, firm commitments
and transactions denominated in foreign currencies. Gains and losses on
forward contracts are deferred and offset against foreign exchange gains or
losses on the underlying hedged item. Premiums on currency swaps which hedge
net foreign investments are recorded in the accumulated translation adjustment
account to offset translation adjustments.
The Company uses interest rate swaps to manage interest rate risk. The net
interest differentials from these swaps are recorded in interest expense.
The fair values of financial instruments are estimated based on quotes from
brokers or current rates offered for instruments with similar characteristics.
The Company does not hold or issue derivative financial instruments for trading
purposes.
25
<PAGE> 26
2. DISCONTINUED OPERATIONS AND RESTRUCTURING CHARGES
In 1993 and 1994 the Company recorded pretax charges of $637.4 and $104.5,
respectively, to provide for a comprehensive divestiture and restructuring
program which includes the divestment of North American snacks, seafood, jams
and jellies and other businesses. All except two of the businesses were sold
in 1994.
The results indicated below for the businesses being divested have been
reported separately as discontinued operations in the Consolidated Statements
of Income. 1994 results were charged against the reserve for loss on disposal.
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
- - -------------------------------------------------------------------------------------------------------------
Sales $ 868.7 $1,193.8 $1,270.9
Loss before income taxes (69.1) (102.0) (131.0)
Income tax (benefit) expense (24.4) (36.2) (45.1)
Net loss from
discontinued operations (44.7) (65.8) (85.9)
- - -------------------------------------------------------------------------------------------------------------
</TABLE>
The Company anticipates that the sale of the two remaining operations will be
completed in 1995. The Company intends to use net proceeds from the sales of
the operations to reduce debt. There is a provision for future operating
losses of $1.3 at December 31, 1994.
Net assets of $40.5 related to the discontinued operations have been segregated
in the December 31, 1994 Consolidated Balance Sheet. This amount consists of
the assets and liabilities of the businesses to be sold less the estimated
losses on disposal.
Information about restructuring charges is provided on pages 13 to 14 and is an
integral part of the Consolidated Financial Statements.
3. ACCOUNTS RECEIVABLE
The Company has an agreement which expires in 1999 that enables the Company to
sell accounts receivable without recourse. At December 1994 and 1993, $250.0
and $400.0, respectively, of accounts receivable were sold.
Accounts receivable include tax refund receivables of $14.1 and $103.3 at
December 31, 1994 and 1993, respectively.
26
<PAGE> 27
4. DEBT, LEASE OBLIGATIONS AND RELATED COMMITMENTS
Debt outstanding at December 31, 1994 and 1993 is as follows:
<TABLE>
<CAPTION>
1994 1993
------------------------- ---------------------------
Due Due
Within Within
(In millions) Long-Term One Year Long-Term One Year
<S> <C> <C> <C> <C>
- - -------------------------------------------------------------------------------------------------------------------
Borrowings under credit line $ 381.6 $ 213.4
16 1/2% Australian Dollar Notes due 1994 $ 66.8
9 7/8% Notes due 1997 78.1 $ 78.1
Medium Term Notes, Series A
(at an average rate of
7.8% and 7.8%, respectively) 66.5 33.5 100.0 50.0
Zero-Coupon Convertible Bonds due
2002 272.5 257.6
9.2% Debentures due 2021 117.1 117.1
7.875% Debentures due 2023 250.0 250.0
Sinking fund debentures:
8 3/8% due 2016 78.5 78.5
9 1/4% due 2019 48.7 48.7
Commercial paper (at average rate
of 3.6%) 200.0
Industrial Revenue Bonds (at an
average rate of 8.4% and 8.4%,
respectively) 54.9 0.3 55.2 0.3
Other (at an average rate
of 6.1% and 9.1%, respectively) 31.1 4.7 55.6 14.8
- - -------------------------------------------------------------------------------------------------------------------
Total current maturities
of long-term debt 251.9 131.9
Short-term debt:
Commercial paper (at an average
rate of 3.6%) 59.0
Other (primarily foreign bank loans
at an average rate of 7.7% and 5.4%,
respectively) 80.0 219.7
- - -------------------------------------------------------------------------------------------------------------------
Total debt $1,379.0 $ 331.9 $1,240.8 $410.6
======== ======== ======== ======
- - -------------------------------------------------------------------------------------------------------------------
</TABLE>
The Company entered into a five year $2.075 billion credit agreement in
December 1994. The credit agreement includes a $1,295.0 credit line, a $300.0
facility for the sale of accounts receivable, and a $480.0 term loan for T.M.I.
Associates L.P. (see Note 6 to the Consolidated Financial Statements for
additional information on T.M.I. Associates L.P.). The credit agreement
contains certain restrictions on the activities of the Company and its
subsidiaries, including restrictions on liens, the incurrence of indebtedness,
mergers and consolidations, sales of assets, investments, payment of dividends,
changes in business, prepayments of certain indebtedness, transactions with
affiliates, capital expenditures, changes in control of the Company and the use
of proceeds from asset sales and certain debt and equity issuances. In
addition, the stock of a number of subsidiaries of the Company have been
pledged as collateral, and the Company has agreed under the Credit Agreement to
maintain a minimum ratio of EBITDA (Earnings Before Interest, Taxes,
Depreciation and Amortization) to interest expense beginning in June 1995 and a
maximum ratio of total debt to EBITDA. At the end of 1994, the Company was not
in violation of such restrictions and covenants.
27
<PAGE> 28
Aggregate maturities of long-term debt and minimum annual rentals under
operating leases at December 31, 1994 are as follows:
<TABLE>
<CAPTION>
Long-Term Minimum Rentals on
Debt Operating Leases
- - ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
1995 $ 251.9 $ 62.6
1996 171.7 50.9
1997 173.9 40.3
1998 4.7 25.8
1999 197.4 21.9
2000 and beyond 831.3 70.3
- - ---------------------------------------------------------------------------------------------------------
</TABLE>
Maturities relating to amounts borrowed against the $1.295 billion credit line
are $213.4 in 1995, $122.0 in 1996, $61.0 in 1997, $3.6 in 1998 and $195.0 in
1999. In conjunction with the sale of the RJR Holdings stock which occurred
February 16, 1995, the amounts due in 1995 and 1996 were repaid on February 27,
1995.
The average amount of short-term commercial paper outstanding was $305.6 during
1994 and $341.7 during 1993, and the average amount of other short-term debt
was $164.8 during 1994 and $189.7 during 1993. The respective weighted average
interest rates for short-term commercial paper and other short-term debt were
4.2% and 6.7% during 1994 and 3.3% and 7.4% during 1993. Maximum month-end
borrowings were $590.0 in 1994 and $440.0 in 1993 for short-term commercial
paper, and $214.8 in 1994 and $219.7 in 1993 for other short-term debt. The
Company had $743.6 available for borrowing under its five year credit agreement
at December 31, 1994.
The Company capitalizes interest related to the cost of constructing fixed
assets. The total interest costs incurred and the portions capitalized were
$131.4 and $0.6 in 1994, $126.2 and $1.2 in 1993, and $151.1 and $3.1 in 1992.
5. INCOME TAXES
In 1992 the Company adopted SFAS No. 109 which requires the use of the
liability method of accounting for deferred income taxes. The cumulative
effect as of January 1, 1992 of the change was a deferred tax expense of $40.0,
or $.28 per share. The effect of the accounting change in 1992 was to decrease
the net loss by $3.1, or $.02 per share.
<TABLE>
Comparative analysis of the provisions (benefits) for income taxes from
continuing and discontinued operations and the loss on disposal of discontinued
operations follows:
<CAPTION>
1994 1993 1992
- - -----------------------------------------------------------------------------------------------------------
CURRENT
<S> <C> <C> <C>
Federal $ (39.1) $ (28.7) $ 5.6
State and Local 2.5 (.3) 5.9
Foreign 41.5 27.1 47.3
------- ------- -------
4.9 (1.9) 58.8
------- ------- -------
- - -----------------------------------------------------------------------------------------------------------
DEFERRED
Federal 39.5 (175.2) (80.6)
State and Local 5.5 (32.1) (8.2)
Foreign (16.3) (1.6) (.9)
------- ------- -------
28.7 (208.9) (89.7)
------- ------- -------
- - -----------------------------------------------------------------------------------------------------------
$ 33.6 $(210.8) $ (30.9)
======= ======= =======
- - -----------------------------------------------------------------------------------------------------------
</TABLE>
The 1994 income tax expense of $33.6 included expense of $69.6 from continuing
operations, partially offset by a benefit of $36.0 from loss on disposal of
discontinued operations.
The 1993 tax benefit of $210.8 was comprised of $27.2 from continuing
operations, $36.2 from losses of discontinued operations and $147.4 from loss
on disposal of discontinued operations.
28
<PAGE> 29
The 1992 tax benefit of $30.9 consists of a tax expense of $14.2 from
continuing operations and a tax benefit of $45.1 from discontinued operations.
The tax expense related to continuing operations reflects write offs of
intangibles and other assets with reduced tax basis in connection with certain
businesses divested under the 1992 restructuring program.
The deferred tax provisions in 1994, 1993 and 1992 include $80.5, $(196.6), and
$(116.3), respectively, for the tax effects of costs and expenses related to
the restructuring programs and the disposal of discontinued operations which
are deductible for income tax purposes subsequent to their recognition for book
purposes, when the assets are disposed or expenditures incurred. The deferred
tax provisions in 1994, 1993 and 1992 also reflect the tax effects of
accelerated depreciation of $6.4, $13.7, and $11.7, respectively, and pension
contributions with tax effects of $3.4, $6.0, and $6.2, respectively.
<TABLE>
Reconciliations of the differences between income taxes computed at Federal
statutory tax rates and consolidated provisions for income taxes are as
follows:
<CAPTION>
1994 1993 1992
- - -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income taxes computed at
Federal statutory tax rate $(197.4) $(280.0) $ (52.8)
State tax provision, net of
Federal benefits 5.2 (22.6) (2.2)
Foreign tax differentials (1.7) 0.1 1.7
Foreign source income subject
to U.S. taxation 49.5
Capital loss benefit (17.9)
Write-offs of assets with lower
tax bases and differences
in tax rates 75.8 4.3 40.0
Losses and merger and other
expenses not deductible for tax 46.6 81.3
Adjustment of prior estimates 55.6
Other - net 6.1 0.3
- - -------------------------------------------------------------------------------------------------------
Provision for income taxes $ 33.6 $(210.8) $ (30.9)
======== ======= =======
- - -------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
The domestic and foreign components of loss before income taxes, extraordinary
loss and cumulative effect of accounting changes are as follows:
<CAPTION>
1994 1993 1992
- - -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Domestic $(647.1) $(878.9) $(195.3)
Foreign 83.0 55.4 39.8
- - -------------------------------------------------------------------------------------------------------
$(564.1) $(823.5) $(155.5)
======= ======= =======
- - -------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
The net current and non-current components of deferred income taxes recognized
in the balance sheet at December 31, 1994 and 1993 follow:
<CAPTION>
1994 1993
- - -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net current asset $130.5 $ 44.0
Net non-current asset 239.7 178.3
- - -------------------------------------------------------------------------------------------------------
Net asset $370.2 $222.3
====== ======
- - -------------------------------------------------------------------------------------------------------
</TABLE>
The net deferred tax asset at December 31, 1994 consisted of an asset of $410.4
related to Federal income taxes and a net foreign liability of $40.2.
29
<PAGE> 30
<TABLE>
The tax effects of the significant temporary differences and loss and credit
carryforwards which comprise the deferred tax assets and liabilities at
December 31, 1994 and 1993 follow:
<CAPTION>
1994 1993
- - ---------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Non-pension post-employment benefit
obligations $134.2 $131.7
Restructuring and other reserves 45.7 140.1
Divestiture reserve 73.3 147.4
Accrued expenses and other expenses 76.0 50.8
Foreign property, plant and equipment 19.1 14.1
Minimum pension liability 65.8 58.5
Loss and credit carryforwards 303.5 108.6
Dairy impairment 57.4
Other prepaids 44.1
Other 7.3
------ ------
Gross deferred tax assets 819.1 658.5
Valuation allowance (68.5) (58.7)
------ ------
750.6 599.8
LIABILITIES
Property, plant, equipment, and intangibles 214.9 236.5
Foreign property, plant, equipment/other 59.8
Certain foreign intangibles 24.9 26.4
Deferred gain on sale of partnership interest 17.2 21.0
Pension and health plan contributions 43.7 26.5
Prepaid expenses and deferred charges 52.4
Other 19.9 14.7
------ ------
Gross deferred tax liabilities 380.4 377.5
- - ---------------------------------------------------------------------------------------------------
Net asset $370.2 $222.3
====== ======
- - ---------------------------------------------------------------------------------------------------
</TABLE>
The net change in valuation allowances of $9.8 in 1994 and $15.8 in 1993
primarily relates to loss carryforwards of foreign operations which are not
expected to be realized.
The net deferred tax asset at December 31, 1994 was $370.2. Of this amount,
$410.4 represents deferred tax assets (net of valuation allowances) related to
future tax benefits. Realization of the deferred tax asset is dependent on the
generation of approximately $1,175.0 of future taxable income.
Management believes that it is more likely than not that this future income
will be generated over the 15 year carryforward period applicable to loss
carryforwards. This belief is based on an analysis of the future plans of the
Company's new owners and management, the expected future benefits resulting
from the 1994 and earlier restructuring programs, the effect of the
divestitures of unprofitable operations and various cost reduction plans.
Management has considered the limitations on loss carryforwards resulting from
the change in ownership of the Company in reaching this conclusion.
In addition, there is also the possibility of the future profitable sale of
various business units. Management also considered in its assessment that over
$1 billion of the prior years' losses were related to items that could be
considered one time charges (see discussion on page 11) that offset operating
income that can be expected to continue.
The Internal Revenue Service has examined the Company's tax returns for the
period 1989-1990 and has proposed adjustments to the utilization of certain
capital losses. Full disallowance of the contested items could result in a net
charge to earnings in excess of $100.0, including penalties and interest. The
Company disagrees with the
30
<PAGE> 31
position of the Service, will contest the proposed adjustments and believes it
has meritorious support for its position. The Company expects that the ultimate
resolution of this matter, after considering amounts already provided, will not
have a material effect on its financial position.
6. MINORITY INTEREST
In 1991 three wholly owned subsidiaries of the Company contributed $1,700.5 in
assets to T.M.I. Associates, L.P., a Delaware limited partnership (the
Partnership), in exchange for a 77.28% general partner interest in the
Partnership. The contributed assets consisted of selected trademarks which are
licensed to the Company pursuant to exclusive long-term license agreements, a
long-term note guaranteed by the Company and cash. Additionally, an outside
investor contributed $500.0 in cash to the Partnership in exchange for a 22.72%
limited partner interest. The Partnership, whose purpose is to invest in and
manage a portfolio of assets, is a separate and distinct legal entity from the
Company. For financial reporting purposes the Partnership's assets,
liabilities and earnings are consolidated with those of the Company, and the
limited partner's interest in the Partnership is included in the Company's
financial statements as minority interest.
Under an agreement signed in December 1994, the Company may be required during
1995 to purchase a majority ownership interest in the limited partnership that
owns 22.72% of T.M.I. Associates L.P. The purchase price would be
approximately $18.0. If this purchase occurs, $500.0 currently classified as
minority interest would be reclassified as long-term debt.
7. PENSION AND RETIREMENT SAVINGS PLANS
For most salaried employees, the Company's pension plans provide benefits
generally based on compensation and credited service. For most hourly
employees, the plans provide benefits based on specified amounts per year of
credited service.
<TABLE>
<CAPTION>
Following are the components of the net pension expense (credit) recognized by the Company:
1994 1993 1992
- - ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost-benefits
earned during the period $ 14.6 $ 13.4 $ 13.7
Interest cost on the projected
benefit obligation 41.7 45.6 46.3
Actual return on plan assets 2.1 (20.0) (18.9)
Net amortization and deferral (52.4) (34.2) (42.6)
- - ----------------------------------------------------------------------------------------------------------
Net pension expense(credit) $ 6.0 $ 4.8 $ (1.5)
======= ====== ======
- - ----------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
The weighted average rates used to determine net periodic pension expense were as follows:
1994 1993 1992
- - ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Discount rate 7.6% 8.8% 8.5%
Rate of increase in future
compensation levels 4.5% 5.4% 5.3%
Expected long-term rate of
return on plan assets 9.1% 10.2% 10.1%
- - ----------------------------------------------------------------------------------------------------------
</TABLE>
Most employees not covered by the Company's plans are covered by collectively
bargained agreements which are generally effective for five years. Under
Federal pension law, there would be continuing liability to these pension
trusts if the Company ceased all or most participation in any such trust, and
under certain other specified conditions. Operations were charged $5.1, $5.8,
and $7.0 in 1994, 1993 and 1992, respectively, for payments to pension trusts
on behalf of employees not covered by the Company's plans.
31
<PAGE> 32
<TABLE>
The funded status of the plans and amounts included in the Company's balance
sheets at December 31, 1994 and 1993 were as follows:
<CAPTION>
1994 1993
----------------------------- ----------------------------
Plan Assets Accumulated Plan Assets Accumulated
Exceed Benefits Exceed Benefits
Accumulated Exceed Accumulated Exceed
Benefits Plan Assets Benefits Plan Assets
- - -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Plan assets at fair value $ 124.0 $ 354.0 $ 134.3 $ 378.2
Actuarial present value of:
Vested benefit obligations (99.7) (401.9) (106.0) (456.2)
Accumulated benefit
obligations (102.4) (419.7) (108.8) (474.5)
------- ------- ------- -------
Projected benefit obligations (121.5) (424.8) (128.4) (484.1)
------- ------- ------- -------
Plan assets greater(less) than
projected benefit obligation 2.5 (70.8) 5.9 (105.9)
Unrecognized prior service
(benefit) (0.2) (5.5) (1.6) (7.5)
Unrecognized loss 35.4 196.4 37.3 187.2
Unrecognized net transition
(asset) obligation (0.4) (12.3) (0.5) (15.5)
Minimum liability adjustment (174.9) (156.3)
- - -----------------------------------------------------------------------------------------------------------------
Net pension asset (liability) $ 37.3 $ (67.1) $ 41.1 $ (98.0)
======= ======= ======= =======
- - -----------------------------------------------------------------------------------------------------------------
</TABLE>
The weighted average discount rates and rates of increase in future
compensation levels used in determining the projected benefit obligation were
8.8% and 5.2%, respectively, as of December 31, 1994, and 7.6% and 4.5%,
respectively, as of December 31, 1993.
Plan assets consist primarily of equity securities and corporate obligations.
At December 20, 1994 all Company stock in the plan was converted to shares of
RJR Nabisco stock. At December 31, 1993 the plan held 2,185,000 shares of
Company common stock with a market value of $37.1, on which dividends of $1.7
were received.
In accordance with SFAS No. 87 the Company recorded an additional minimum
pension liability for underfunded plans, representing the excess of accumulated
benefits over plan assets and accrued pension costs, of $18.6 and $148.3 at
December 31, 1994 and 1993, respectively. This liability, which had no effect
on income, reduced equity by $11.8 and $92.3, net of income taxes, in 1994 and
1993, respectively.
Charges to operations for matching contributions under the Company's retirement
savings plans in 1994, 1993 and 1992 amounted to $9.7, $16.1 and $20.6,
respectively. Eligible salaried and hourly non-bargaining employees may
contribute up to 5% of their pay (7% for certain longer service salaried
employees), which was matched 100% by the Company through the third quarter of
1993. The 1993 expense was reduced as a result of the temporary suspension of
the Company match in the fourth quarter; the match was reinstated at 50% in the
first quarter of 1994.
8. NON-PENSION POSTEMPLOYMENT BENEFITS
The Company provides certain health and life insurance benefits for eligible
domestic retirees and their dependents. In 1992 the Company adopted SFAS No.
106 whereby the cost of postretirement benefits is accrued during employees'
working careers. The Company elected to immediately recognize this obligation
rather than amortize it over future periods. The cost of providing these
benefits was previously recognized as a charge to income in the period the
benefits were paid.
32
<PAGE> 33
The cumulative effect of the change as of January 1, 1992 was to decrease net
income by $189.0, or $1.32 per share, after a deferred tax benefit of $111.0.
The effect of the accounting change in 1992 was to reduce net income by $11.2,
or $.08 per share.
Participants who are not eligible for Medicare are provided with the same
medical benefits as active employees, while those who are eligible for Medicare
are provided with supplemental benefits. The postretirement medical benefits
are contributory for retirements after 1983; the postretirement life insurance
benefit is noncontributory.
In 1993 the Company amended the postretirement benefit plan for most employees
primarily to reduce, and over several years eliminate, the Company subsidy of
retiree medical benefits. This plan amendment reduced the accumulated
postretirement benefit obligation by $74.8 million and is being amortized over
future years.
<TABLE>
The components of net postretirement benefit expense for the year ended
December 31, 1994 and 1993 follow:
<CAPTION>
1994 1993
- - ---------------------------------------------------------------------------
<S> <C> <C>
Service cost $ 3.4 $ 4.9
Interest cost 17.9 22.6
Net amortization and deferral (9.6) (5.6)
- - ---------------------------------------------------------------------------
Net postretirement benefit expense $ 11.7 $ 21.9
====== ======
- - ---------------------------------------------------------------------------
</TABLE>
<TABLE>
The status of the Company's unfunded postretirement benefit obligation at
December 31, 1994 and 1993 follows:
<CAPTION>
1994 1993
- - ---------------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of accumulated
postretirement benefit obligation:
Retirees $(132.5) $(186.9)
Fully eligible active plan
participants (3.5) (33.9)
Other active plan participants (25.8) (33.5)
- - ---------------------------------------------------------------------------
(161.8) (254.3)
- - ---------------------------------------------------------------------------
Unrecognized prior service benefit (79.6) (73.0)
Unrecognized (gain) loss (84.0) 1.6
- - ---------------------------------------------------------------------------
Accrued postretirement benefit
liability $(325.4) $(325.7)
======= =======
- - ---------------------------------------------------------------------------
</TABLE>
The discount rate used in determining the accumulated postretirement benefit
obligation at December 31, 1994 and 1993 was 8.8% and 7.5%, respectively.
The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligation at December 31, 1994 was 11.5% for 1995,
gradually declining to 6.8% in 2009 and thereafter. The comparable assumptions
for the prior year were 14.4% and 5.5%. A one-percentage point increase in the
health care cost trend rate would increase the accumulated postretirement
benefit obligation as of December 31, 1994 by $16.2 and the sum of the service
and interest costs in 1994 by $3.0.
The Company provides certain other postemployment benefits, primarily medical
and life insurance benefits for long-term disabled employees, to qualified
former or inactive employees. In 1993 the Company adopted, SFAS No. 112
effective January 1, 1993. The standard requires that the cost of benefits
provided to former or inactive employees after employment, but before
retirement, be accrued when it is probable that a benefit will be provided.
The cost of providing these benefits was previously recognized as a charge to
income in the period the benefits were paid. The amounts of such charges were
not significant in the prior years.
33
<PAGE> 34
The cumulative effect of the change as of January 1, 1993 was to decrease net
income by $18.0, or $.13 per share, after deferred tax benefit of $11.0.
9. SHAREHOLDERS' EQUITY
During 1994 the Company had authorized 10,000,000 shares of no-par preferred
series B stock. At December 31, 1994 and 1993, 6,532 and 6,989 shares,
respectively, were issued and outstanding. Each share of the preferred
series B stock had an involuntary liquidating value of $28.88, and an annual
cumulative dividend of $1.32, was convertible into 6.6 common shares, and was
redeemable at the Company's option at $39. At December 31, 1994 43,118 common
shares were reserved for conversion of preferred series B stock. On
January 25, 1995 all outstanding shares of preferred series B stock were
redeemed by the Company at $39.2748 per share.
Under a Preferred Share Purchase Rights Plan, each outstanding share of common
stock had one preferred stock purchase right (Right) which entitled
shareholders to purchase, under certain circumstances, one-hundredth of a share
of Series C Junior Participating Preferred Stock at an exercise price of $175,
subject to adjustment. On December 20, 1994, all of these rights were redeemed
by the Company at $0.01 2/3 per right. The payments for the rights redemption
were recorded as dividends.
<TABLE>
Following is an analysis of common shares reserved for stock options under the
Company's 1974, 1984 and 1994 Stock Option Plans as Amended:
<CAPTION>
Shares Price Range
- - ------------------------------------------------------------------------------------------------
<S> <C> <C>
AT DECEMBER 31, 1991 4,296,464 $ 4.78-36.06
Grants 603,325 27.31-33.38
Exercises (133,636) 4.78-31.56
Expirations and cancellations (257,050) 26.81-36.06
- - ------------------------------------------------------------------------------------------------
AT DECEMBER 31, 1992 4,509,103 $ 8.22-36.06
Grants 263,350 27.56
Exercises (30,970) 9.62-27.85
Expirations and cancellations (545,375) 17.75-36.06
- - ------------------------------------------------------------------------------------------------
AT DECEMBER 31, 1993 4,196,108 $ 9.62-36.06
Grants 2,050,400 12.25-18.50
Exercises (87,050) 9.62-10.64
Expirations and cancellations (733,151) 9.62-36.06
- - ------------------------------------------------------------------------------------------------
AT DECEMBER 31, 1994 5,426,307 $10.64-36.06
========= ============
- - ------------------------------------------------------------------------------------------------
</TABLE>
As a result of the change in control of the Company, on December 21, 1994 all
options outstanding became exercisable. The Company's 1994 Stock Option Plan
provides for the grant of options to purchase up to 6,000,000 shares of the
Company's common stock. No options may be granted under this plan after April
30, 1999. At December 31, 1994 there were 3,990,650 shares available for
future grants. Additionally, there were outstanding options of 1,406,600,
1,508,900 and 118,250 at December 31, 1994, 1993, and 1992, respectively,
relating to various other stock option plans, at prices ranging from $17.12 to
$34.81.
During 1992 7,000,000 of the Company's common shares were purchased on the open
market and retired.
10. FOREIGN AFFILIATES
Realized and unrealized net foreign exchange losses aggregating $20.1, $38.1
and $22.8 were charged against net income in 1994, 1993 and 1992, respectively.
These losses were principally attributable to foreign exchange losses in Brazil
in each of the three years.
34
<PAGE> 35
11. INVESTMENTS
At December 31, 1994, the Company owned 51,106,768 common shares of RJR Nabisco
Holdings Corp. with an aggregate cost of $309.5. These securities are
classified as available for sale; no sales of such securities occurred during
1994. The net unrealized loss deducted from shareholders' equity at December
31, 1994 was $38.1.
12. DERIVATIVE FINANCIAL INSTRUMENTS
The Company enters into interest rate swaps to lower funding costs or to alter
interest rate exposures between fixed and floating rates on long term debt.
Under interest rate swaps, the Company agrees with other parties to exchange,
at specified intervals, the difference between fixed rate and floating rate
interest amounts calculated by reference to an agreed notional principal
amount. The notional amount of interest rate swaps was $904.3 at both December
31, 1994 and 1993. These swaps have maturities ranging from 1995 to 2002. The
net impact of interest rate swaps was an increase in the Company's interest
expense of $11.2 in 1994, $11.9 in 1993 and $4.4 in 1992. The Company's total
floating rate debt at December 31, 1994 was $1,026.8.
The following table indicates the types of swaps used by the Company and their
weighted average interest rates. Variable rates change with market conditions
and may vary significantly in the future.
<TABLE>
<CAPTION>
1994 1993 1992
------ ------ ------
<S> <C> <C> <C>
Receive fixed swaps
Average rate received 7.9% 7.5% 7.6%
Average rate paid 5.3% 3.9% 4.6%
Pay fixed swaps
Average rate paid 10.1% 10.1% 10.1%
Average rate received 4.6% 3.2% 3.8%
</TABLE>
The Company enters into foreign exchange contracts to hedge certain firm
purchase and sale commitments denominated in foreign currencies and to hedge
net investments in foreign subsidiaries. The purpose of the Company's foreign
currency hedging activities is to protect the Company from the risk that the
eventual dollar net cash inflows that result from operating in foreign
countries will be adversely affected by changes in exchange rates. The impact
of exchange rate fluctuations in 1992 to 1994 is reviewed on pages 15 and 16.
The notional amount of foreign exchange contracts was $420.4 at December 31,
1994 and $285.4 at December 31, 1993. All of the contracts mature in less than
one year.
The Company is exposed to credit loss in the event of nonperformance by the
other parties to interest rate swaps and foreign exchange contracts. However,
the Company does not anticipate nonperformance by the counterparties.
35
<PAGE> 36
13. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table presents the carrying amounts and fair values of the
Company's financial instruments at December 31, 1994 and 1993. The fair value
of a financial instrument is the amount at which the instrument could be
exchanged in a current transaction between willing parties, other than in a
forced or liquidation sale.
<TABLE>
<CAPTION>
1994 1993
------------------------- ------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
<S> <C> <C> <C> <C>
NONDERIVATIVES
Assets
Cash and cash equivalents $ 125.3 $ 125.3 $ 100.3 $ 100.3
Receivables 411.8 411.8 334.7 334.7
Investment securities 281.1 281.1
Liabilities
Debt 1,710.9 1,587.0 1,651.4 1,828.8
DERIVATIVES RELATING TO:
Foreign currency contracts (0.9) 45.5
Interest rate swaps (34.8) (73.1)
</TABLE>
14. OPERATIONS BY INDUSTRY SEGMENT
Information about the Company's industry and geographic segments is provided on
pages 2 to 5 and is an integral part of the consolidated financial statements.
15. SUPPLEMENTAL INFORMATION
<TABLE>
<CAPTION>
1994 1993 1992
- - ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Maintenance and repairs $110.9 $133.6 $134.4
Depreciation and amortization
(including amortization of $25.9,
$39.2 and $47.1, respectively) 169.4 224.0 227.6
Advertising and promotions
(including promotions of $418.0,
$531.9 and $519.6, respectively) 552.6 735.5 698.0
Research and development 26.3 31.9 30.8
Rent 79.3 81.3 82.3
- - ------------------------------------------------------------------------------------------------------------
</TABLE>
The impact of adopting SOP 93-7 was not material as the Company expenses
advertising during the year it is incurred.
Other expense and income for 1994 includes fees paid to KKR, a related party,
of $50.0, $55.2 for other merger related expenses and expenses of $64.0 related
to renegotiation of the $1.4 billion credit line and for payments to terminate
other debt agreements.
Other current assets include a deferred tax asset of $130.5.
Other current liabilities at December 31, 1994 include insurance accruals of
$120.5.
36
<PAGE> 37
16. COMMITMENTS
A wholly owned subsidiary as general partner of Borden Chemicals and Plastics
Limited Partnership (BCP) has certain fiduciary responsibilities to BCP's
unitholders. The Company believes that such responsibilities will not have a
material adverse effect on its financial condition.
17. SUBSEQUENT EVENTS
On February 15, 1995 affiliates of KKR contributed an additional 68,893,232
shares of RJR Holdings common stock to the Company in exchange for $380.3
million of Borden, Inc. capital stock to be issued later in 1995.
These shares and the 51,106,768 shares discussed above were sold by the Company
on February 16, 1995. Net proceeds of $662.4 million were realized from the
sale which were used by the Company to reduce debt and minority interest. The
sale resulted in an after tax loss of $51.7 million which will be reflected in
the Company's first quarter 1995 financial statements.
On March 7, 1995 Standard & Poor's lowered its ratings on the Company's senior
debt to BBB minus from BBB, and for its commercial paper to A-3 from A-2.
The acquisition of the Company by affiliates of KKR was completed on March 14,
1995 following approval of the merger of the Company with and into an affiliate
of KKR by shareholders of the Company at a special meeting held on that date.
As a result of the merger, as of March 14, 1995, all $0.625 par value common
stock was cancelled and retired. Following the merger, the Company's authorized
common stock consists of 300,000,000 shares, with a par value of $0.01 per
share, of which 100% of the outstanding shares are owned by affiliates of KKR.
On March 15, 1995 affiliates of KKR contributed an additional 11,047,230
shares of RJR Holdings common stock to the Company in exchange for equity
securities of Borden, Inc. to be issued later in 1995.
37
<PAGE> 38
18. QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1994 Quarters First Second Third Fourth*
- - ------------------------------------------------------------------------------------------------------------------
Net Sales $1,272.7 $1,369.3 $1,440.1 $1,544.0
- - ------------------------------------------------------------------------------------------------------------------
Gross profit 318.0 326.0 362.7 376.0
- - ------------------------------------------------------------------------------------------------------------------
Income (loss) from continuing operations 5.8 11.1 (71.8) (484.0)
- - ------------------------------------------------------------------------------------------------------------------
Discontinued operations:
Loss on disposal (58.7)
- - ------------------------------------------------------------------------------------------------------------------
Net income (loss) 5.8 11.1 (130.5) (484.0)
- - ------------------------------------------------------------------------------------------------------------------
Per share of common stock:
Income (loss) from continuing operations .04 .08 (.51) (3.25)
Discontinued operations:
Loss on disposal (.41)
Net income(loss) .04 .08 (.92) (3.25)
Dividends 0.075 0.075 0.075 0.027
Market price range:
Low 13 1/8 11 7/8 11 12 1/8
High 18 3/8 13 7/8 14 1/4 14
- - ------------------------------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------------------------
1993 Quarters First Second Third Fourth**
- - ------------------------------------------------------------------------------------------------------------------
Net sales $1,297.6 $1,352.5 $1,386.4 $1,469.8
- - ------------------------------------------------------------------------------------------------------------------
Gross profit 351.1 355.1 363.5 358.0
- - ------------------------------------------------------------------------------------------------------------------
Income (loss) from continuing operations 43.7 30.5 8.5 (139.6)
- - ------------------------------------------------------------------------------------------------------------------
Discontinued operations:
Loss from operations (16.5) (12.0) (17.9) (19.4)
Loss on disposal (490.0)
- - ------------------------------------------------------------------------------------------------------------------
Net income(loss) 9.2 18.5 (9.4) (649.0)
- - ------------------------------------------------------------------------------------------------------------------
Per share of common stock:
Income (loss) from continuing
operations .31 .22 .06 (.99)
Discontinued operations:
Loss from operations (.11) (.09) (.13) (.13)
Loss on disposal (3.47)
Net income(loss) .07 .13 (.07) (4.59)
Dividends 0.300 0.300 0.150 0.150
Market price range:
Low 24 1/8 17 5/8 14 3/4 14 3/8
High 29 1/8 27 19 5/8 19 5/8
- - ------------------------------------------------------------------------------------------------------------------
<FN>
* Fourth quarter 1994 results include pretax operating charges of $263.8 for
impairment write-downs, $99.5 for plant closings and other non-recurring
items, and charges of $111.8 for expenses related to the merger with
affiliates of KKR and debt retirements, partially offset by a $63.0 pretax
gain on the sale of a business, and $55.6 income tax expense for changes
in prior years' estimated liabilities.
** Fourth quarter 1993 results include pretax operating charges of $194.2 for
restructuring and other non-recurring items, partially offset by a $14.8
pretax gain on the sale of a business.
</TABLE>
The 1994 and 1993 quarterly earnings per share amounts do not add to the annual
amounts as a result of differences in average shares outstanding between the
quarterly and annual calculations.
38
<PAGE> 39
REPORT OF INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
The Huntington Center
41 South High Street
Columbus, Ohio 43215
Board of Directors and
Shareholders of Borden, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, shareholders' equity and of cash flows
present fairly, in all material respects, the financial position of Borden,
Inc. and its subsidiaries at December 31, 1994 and 1993, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1994, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
In 1993, the Company changed its method of accounting for postemployment
benefits to conform with Statement of Financial Accounting Standards No. 112 as
discussed in Note 8 of the Consolidated Financial Statements. In 1992, the
Company changed its method of accounting for postretirement benefits and income
taxes to conform with Statements of Financial Accounting Standards No. 106 and
No. 109 as discussed in Note 8 and Note 5 of the Consolidated Financial
Statements, respectively.
PRICE WATERHOUSE LLP
February 16, 1995, except as to paragraphs 4 amd 5 of Note 17, which are as of
March 15, 1995.
39
<PAGE> 40
Item 9. Changes in and Disagreements with Accountants on Accounting and
- - ------- ---------------------------------------------------------------
Financial Disclosure
--------------------
No Form 8-K was issued by the Company during the two most recent fiscal years
ended December 31, 1994 reporting a change in or disagreement with accountants.
A Form 8-K was filed on February 21, 1995 reporting a change in accountants.
PART III
Item 10. Directors and Executive Officers of the Registrant
- - -------- --------------------------------------------------
Set forth below are the names and ages of the Directors and Executive
Officers of the Company as of March 15, 1995 and the positions and offices
with the Company presently held by each of them. Their terms of office extend
to the next Annual Meeting of the Board of Directors or until their successors
are elected.
<TABLE>
<CAPTION>
Served
Age on In Present
Dec. 31, Position
Name Position & Office 1994 Since
- - -------------- ------------------------------------ -------- ---------
<S> <C> <C> <C>
C. R. Kidder Chairman of the Board, Director,
Chief Executive Officer and President
Consumer Packaged Products 50 1995
H. R. Kravis Director 50 1994
A. Navab Director 29 1994
C. S. Robbins Director 36 1994
G. R. Roberts Director 51 1994
S. M. Stuart Director 35 1994
R. W. Allen Executive Vice President, President
Dairy Products 51 1995
R. L. de Ney Executive Vice President-Corporate
Strategy and Development 45 1995
J. M. Saggese Executive Vice President, President
Worldwide Packaging and Industrial
Products 63 1990
J. C. Van Meter* Executive Vice President and
Chief Financial Officer 56 1994
R. D. Kautto Senior Vice President-Human Resources
and Corporate Affairs 49 1995
A. L. Miller Senior Vice President, General Counsel,
and Secretary 62 1994
N. R. Iammartino Vice President-Public Affairs 47 1995
D. A. Kelly Vice President and Treasurer 56 1980
P. M. Morton Vice President and General Controller 49 1994
--------------
</TABLE>
* James C. Van Meter resigned as Executive Vice President and Chief Financial
Officer effective March 16, 1995. William H. Carter, formerly the Price
Waterhouse LLP engagement partner responsible for Borden, will assume the
position of Executive Vice President and Chief Financial Officer effective
April 3, 1995. Price Waterhouse LLP has advised the Company that it has taken
appropriate steps to ensure that it continues to be independent with respect to
the Company.
--------------
40
<PAGE> 41
C. Robert Kidder was elected a Director, Chairman of the Board and Chief
Executive Officer of the Company on January 10, 1995. He also serves as
President of Consumer Packaged Products. He was Chairman of the Board of
Duracell International Inc. and Duracell, Inc. from August 1991 through
January 10, 1995 and served as Chairman of the Board and Chief Executive
Officer of both companies from April 1992 through September 30, 1994, Chairman
of the Board, President and Chief Executive Officer of both companies from
August 1991 until April 1992, and President and Chief Executive Officer of
both companies from June 1988 until August 1991. He is also a director of
Duracell International Inc., General Signal Corp., and Dean Witter, Discover &
Co. He is a member of the Executive Committee of the Borden Board.
Henry R. Kravis acted as Chairman of the Board of the Company from December 21,
1994 to January 10, 1995. He has been a General Partner of Kohlberg Kravis
Roberts & Co. and KKR Associates, L.P. since its establishment. He is a
Director of American Re Corporation, AutoZone, Inc., Duracell International
Inc., Flagstar Companies, Inc., Flagstar Corporation, IDEX Corporation, K-III
Communications Corp., Nabisco Holdings Corp., Owens-Illinois, Inc., Owens-
Illinois Group, Inc., RJR Nabisco Holdings Corp., RJR Nabisco, Inc., Safeway
Inc., The Stop & Shop Companies, Inc., Union Texas Petroleum Holdings, Inc. and
World Color Press, Inc. He is a member of the Executive Committee of the
Borden Board. Messrs. Kravis and Roberts are first cousins.
Alexander Navab has been an Executive of Kohlberg Kravis Roberts & Co. since
June 1993. He was employed by James D. Wolfensohn Incorporated, an investment
banking firm, from September 1991 to June 1993. He is a member of the Audit
Committee of the Borden Board.
Clifton S. Robbins has been a General Partner of Kohlberg Kravis Roberts & Co.
and KKR Associates, L.P. since January 1995 and an Executive with Kohlberg
Kravis Roberts & Co. since 1987. He is a Director of Flagstar Companies, Inc.,
Flagstar Corporation, IDEX Corporation, RJR Nabisco Holdings Corp., RJR
Nabisco, Inc. and The Stop & Shop Companies, Inc. He is Chairman of the
Compensation Committee and a member of the Executive Committee of the Borden
Board.
George R. Roberts has been General Partner of Kohlberg Kravis Roberts & Co. and
KKR Associates, L.P. since its establishment. He is a Director of American
Re Corporation, AutoZone, Inc., Duracell International Inc., Flagstar
Companies, Inc., Flagstar Corporation, IDEX Corporation, K-III Communications
Corp., Nabisco Holdings Corp., Owens-Illinois, Inc., Owens-Illinois
Group, Inc., Red Lion Properties, Inc., RJR Nabisco Holdings Corp., RJR
Nabisco, Inc., Safeway Inc., The Stop & Shop Companies, Inc., Union Texas
Petroleum Holdings, Inc., and World Color Press, Inc. Messrs. Kravis and
Roberts are first cousins.
Scott M. Stuart has been a General Partner of Kohlberg Kravis Roberts & Co. and
KKR Associates, L.P. since January 1995 and an Executive with Kohlberg Kravis
Roberts & Co. since 1986. He is a Director of Duracell International Inc., RJR
Nabisco Holdings Corp., RJR Nabisco, Inc. and World Color Press, Inc.
He is a member of the Executive and Compensation Committees of the Borden
Board.
Robert W. Allen was elected Executive Vice President of the Company effective
February 16, 1995. He has served as President of Dairy Products since
September 1993. From 1990 to 1993 he served as a Director and Corporate Vice
President of Royal Wessanen N.U. From 1988 to 1990 he served as President and
Chief Executive Officer of Crawley Foods, Inc.
41
<PAGE> 42
Richard L. de Ney was elected Executive Vice President-Corporate Strategy and
Development effective February 16, 1995. He joined the Company on January 10,
1995 as Executive Vice President-Administration. Prior to that he was Managing
Director at Bear Stearns and Company, Inc. from 1987 to 1995.
Joseph M. Saggese has been Executive Vice President of the Company and
President of Worldwide Packaging and Industrial Products since July 1, 1990.
Prior to that he served as a Senior Group Vice President of the Packaging and
Industrial Products Division Domestic and International since January 1, 1989.
He has also served since July 1990 as Chairman, President and Chief Executive
Officer of BCP Management, Inc., a wholly owned subsidiary of the Company and
General Partner of Borden Chemicals and Plastics Limited Partnership.
James C. Van Meter was elected Executive Vice President and Chief Financial
Officer of the Company effective June 16, 1994. From 1983 to 1993 he served as
Executive Vice President and Chief Financial Officer of Georgia-Pacific
Corporation, where he also served as a Director beginning in 1990 and as Vice
Chairman and Chief Financial Officer beginning in 1993.
Randy D. Kautto was elected Senior Vice President-Human Resources and Corporate
Affairs effective February 16, 1995. He joined the Company as Vice
President-Human Resources on February 1, 1994. Prior to that he was Vice
President-Employee Relations at Phillip Morris Companies, Inc. since 1992.
Prior to that he was Vice President-Human Resources at General Foods U.S.A.
Allan L. Miller assumed the positions of General Counsel and Secretary of the
Company in 1994, in addition to the position of Senior Vice President of the
Company to which he was elected in 1985. He also served as Chief
Administrative Officer of the Company from 1985 through 1994.
Nicholas R. Iammartino was elected Vice President-Public Affairs, effective
February 16, 1995. He served as Director, Public Affairs since June 1994 and
prior to that time as Director, External Communications from 1989.
David A. Kelly was elected Vice President and Treasurer of the Company in 1980.
He has also served as a Director (since 1994) and as Treasurer and Principal
Financial Officer since 1987, of BCP Management, Inc., a wholly owned
subsidiary of the Company and General Partner of Borden Chemicals and Plastics
Limited Partnership.
P. Michael Morton was elected Vice President and General Controller of the
Company effective June 9, 1994. He served as Controller of the Specialty
Products Group of International Paper Company from 1990 to 1993 and as
Controller of the Printing Papers Sector from June 1993 to 1994. From 1987 to
1989, he served as Vice President, Finance of the Worldwide Coffee and
International Unit of General Foods Corporation.
42
<PAGE> 43
<TABLE>
Item 11. Executive Compensation
- - -------- ----------------------
The following table provides certain summary information concerning
compensation of the Company's Chief Executive Officer, the four other most
highly compensated Executive Officers as of December 31, 1994 and one
additional former Executive Officer of the Company (the "Named Executive
Officers") for the periods indicated.
<CAPTION>
====================================================================================================================================
SUMMARY COMPENSATION TABLE
- - ------------------------------------------------------------------------------------------------------------------------------------
ANNUAL COMPENSATION LONG TERM COMPENSATION
------------------- ---------------------------------
AWARDS PAYOUTS
---------------------------------
NAME AND (5)OTHER (7)ALL
PRINCIPAL ANNUAL RESTRICTED SECURITIES LONG TERM OTHER
POSITION YEAR SALARY($) BONUS($) COMPENSATION STOCK UNDERLYING INCENTIVE COMPENSATION
($) AWARD(S) OPTIONS/LSARs PLAN (LTIP) ($)
($) (#) PAYOUTS($)
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
E R Shames 1994 800,000 NONE 49,454 NONE 400,000 NONE (8) 99,481
President & Chief 1993 (1)318,485 200,000 9,065 (6)555,000 200,000 NONE (9) 86,486
Executive Officer
- - ------------------------------------------------------------------------------------------------------------------------------------
J M Saggese 1994 364,000 270,000 8,064 NONE 21,000 NONE 47,434
Executive Vice President 1993 364,000 NONE 2,991 NONE 14,000 NONE 35,761
& President Packaging & 1992 325,000 40,000 2,274 NONE 14,000 NONE 40,281
Industrial Products
- - ------------------------------------------------------------------------------------------------------------------------------------
A L Miller 1994 345,000 NONE 5,806 NONE 15,750 NONE 43,696
Senior Vice President 1993 345,000 NONE 2,869 NONE 10,500 NONE 42,559
Chief Administrative 1992 322,000 NONE 3,337 NONE 10,500 NONE 56,269
Officer & General
Counsel
- - ------------------------------------------------------------------------------------------------------------------------------------
R D Kautto(2) 1994 229,167 9,000 13,111 NONE 30,000 NONE (10)111,432
Vice President
Human Resources
- - ------------------------------------------------------------------------------------------------------------------------------------
G P Morris(3) 1994 224,375 10,000 2,137 NONE 30,000 NONE (11) 96,649
Vice President & Chief
Strategic Officer
===================================================================================================================================
L O Doza 1994 (4)351,000 NONE 6,799 NONE NONE NONE (12)269,449
Former Senior Vice 1993 351,000 NONE 442 NONE 10,500 NONE 40,482
President & Chief 1992 328,000 NONE 2,648 NONE 10,500 NONE 58,718
Financial Officer
===================================================================================================================================
<FN>
(1) INCLUDES $11,667 OF SALARY EARNED IN 1993 BUT PAID IN 1994.
(2) R D KAUTTO BECAME VP HUMAN RESOURCES EFFECTIVE 2/1/94.
(3) G P MORRIS BECAME PRESIDENT NORTH AMERICAN PASTA EFFECTIVE 10/10/94.
(4) L O DOZA RETIRED EFFECTIVE 3/1/94. OF THE $351,000 SHOWN AS SALARY,
$292,500 REPRESENTS POST-TERMINATION SALARY PAID IN 1994.
43
<PAGE> 44
(5) OTHER ANNUAL COMPENSATION CONSISTS OF TAX GROSS-UPS DURING 1994.
(6) REPRESENTS 30,000 SHARES OF RESTRICTED STOCK GRANTED 7/1/93, 25% OF
WHICH VESTED ON 7/1/94 AND THE REMAINDER OF WHICH VESTED ON 12/20/94
UPON THE CHANGE OF CONTROL OF THE COMPANY. DIVIDENDS WERE PAYABLE ON
SUCH STOCK.
(7) ALL OTHER COMPENSATION CONSISTS OF THE FOLLOWING:
</TABLE>
<TABLE>
<CAPTION>
EXECUTIVE FAMILY MATCHING CAPITAL
SURVIVOR CONTRIBUTIONS ACCUMULATION
YEAR PROTECTION PLAN (a) (RSP AND ESP) (b) ACCOUNT (c) TOTAL
---- ------------------- ---------------- ------------- -----
<S> <C> <C> <C> <C> <C>
E R Shames 1994 37,605 38,103 4,200 79,908
1993 13,219 11,167 2,100 26,486
J M Saggese 1994 15,905 11,014 4,200 31,119
1993 16,122 15,439 4,200 35,761
1992 13,299 22,782 4,200 40,281
A L Miller 1994 16,758 13,752 4,200 34,710
1993 19,863 18,496 4,200 42,559
1992 20,211 31,858 4,200 56,269
R D Kautto 1994 9,818 8,021 3,850 21,689
G P Morris 1994 0 6,662 0 6,662
L O Doza 1994 3,718 1,560 700 5,978
1993 17,464 18,818 4,200 40,482
1992 22,024 32,494 4,200 58,718
</TABLE>
[FN]
(a) The Executive Family Survivor Protection Plan provides for a
benefit of 2% of annual earnings each year (base pay and short-term
incentive bonus) payable at termination, company provided death
benefit of one times earnings and the cost of providing a
preretirement annuity to a surviving spouse or dependent children upon
death of the executive as an employee.
(b) RSP and ESP refer to the Company's Retirement Savings Plan and the
executive supplemental benefit plans, respectively.
(c) The Capital Accumulation Account provides a benefit of $350 per
month payable at termination in lieu of certain previously provided
medical benefits.
(8) INCLUDES $79,908 AS NOTED IN FOOTNOTE 7; AND $19,573 FOR MOVING
EXPENSES.
(9) INCLUDES $26,486 AS NOTED IN FOOTNOTE 7; AND $60,000 FOR LEGAL FEES
INCIDENT TO NEGOTIATION OF MR. SHAMES' 1993 EMPLOYMENT AGREEMENT.
(10) INCLUDES $21,689 AS NOTED IN FOOTNOTE 7; $69,886 COMPENSATION FOR
UNVESTED STOCK OPTIONS GRANTED BY MR. KAUTTO'S PREVIOUS EMPLOYERS
WHICH WERE FOREGONE UPON HIS ACCEPTANCE OF EMPLOYMENT WITH THE
COMPANY; AND $19,857 FOR MOVING EXPENSES.
(11) INCLUDES $6,662 AS NOTED IN FOOTNOTES 7; $60,000 COMPENSATION FOR A
BONUS FOREGONE FROM MR. MORRIS' PREVIOUS EMPLOYER UPON HIS ACCEPTANCE
OF EMPLOYMENT WITH THE COMPANY; AND $29,987 FOR MOVING EXPENSES.
(12) INCLUDES $5,978 AS NOTED IN FOOTNOTE 7; $234,000 OF POST-TERMINATION
SALARY PAYABLE IN 1995, CONTINGENT UPON HIS CONTINUED COMPLIANCE WITH
THE TERMS OF HIS EMPLOYMENT AGREEMENT; AND $29,471 FOR
OUTPLACEMENT-RELATED EXPENSES AND BENEFITS.
44
<PAGE> 45
<TABLE>
The following table provides information on option/LSAR grants during 1994 to
the Named Executive Officers.
<CAPTION>
===================================================================================================================================
OPTION/LSAR GRANTS IN LAST FISCAL YEAR
===================================================================================================================================
(2)POTENTIAL REALIZABLE VALUE
AT ASSUMED ANNUAL RATES OF STOCK
INDIVIDUAL GRANTS PRICE APPRECIATION
FOR OPTION TERM
===================================================================================================================================
# OF SECURITIES % OF TOTAL
UNDERLYING OPTIONS/LSARS EXERCISE OR
OPTIONS/LSAR'S GRANTED TO BASE PRICE EXPIRATION DATE
GRANTED EMPLOYEES IN ($/SHARE) @ 5% ($) @ 10% ($)
NAME (#)(1) FISCAL YEAR
===================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
E R Shames 250,000 23.0% 12.38 6/30/2004 1,947,500 4,932,500
150,000 14.50 1/24/2004 1,368,000 3,466,500
- - -----------------------------------------------------------------------------------------------------------------------------------
J M Saggese 7,000 1.2% 12.38 6/30/2004 54,530 138,110
14,000 15.18 2/21/2004 133,700 338,660
- - -----------------------------------------------------------------------------------------------------------------------------------
A L Miller 5,250 .9% 12.38 6/30/2004 40,898 103,583
10,500 15.18 2/21/2004 100,275 253,995
- - -----------------------------------------------------------------------------------------------------------------------------------
R D Kautto 30,000 1.7% 15.18 2/21/2004 286,500 725,700
- - -----------------------------------------------------------------------------------------------------------------------------------
G P Morris 20,000 1.7% 12.38 6/30/2004 155,800 394,600
10,000 15.18 2/21/2004 95,500 241,900
===================================================================================================================================
L O Doza 0
===================================================================================================================================
<FN>
(1) Under the Company's stock option plan, options have been granted at an
exercise price of 100 percent of fair market value. The options are
exercisable one year from date of grant and over a period of not more
than ten years from the date of grant. Limited stock appreciation
rights or LSAR's (rights exercisable only in the event of a change of
control) attach to the stock options granted to executive officers.
Executive officers were also granted cash-only units, in corresponding
numbers and exercise price, exercisable within six months from date of
grant after a change in control with provisions to prevent duplication
of benefits.
(2) These amounts represent assumed rates of appreciation only. Actual
gains, if any, on stock option exercises and common stock holdings
will be dependent on overall market conditions and on the future
performance of the Company and its common stock. There can be no
assurance that the amounts reflected in this table will be achieved.
</TABLE>
45
<PAGE> 46
<TABLE>
The following table provides information on option/LSAR exercises during 1994
by the Named Executive Officers and the value of their unexercised
options/LSARS at December 31, 1994.
<CAPTION>
===============================================================================================================================
AGGREGATED OPTION/LSAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION/LSAR VALUES
- - -------------------------------------------------------------------------------------------------------------------------------
# OF SECURITIES UNDERLYING VALUE OF UNEXERCISED IN-THE-
SHARES UNEXERCISED OPTIONS/LSARS AT MONEY OPTIONS/LSARS AT FISCAL
ACQUIRED ON VALUE FISCAL YEAR END (1) YEAR END ($)(2)
EXERCISE REALIZED ----------------------------------------------------------------------
NAME (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- - -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
E R Shames 0 N/A 600,000 0 15,000 0
- - -------------------------------------------------------------------------------------------------------------------------------
J M Saggese 9,600 58,301 138,200 0 420 0
- - -------------------------------------------------------------------------------------------------------------------------------
A L Miller 9,600 47,894 155,850 0 315 0
- - -------------------------------------------------------------------------------------------------------------------------------
R D Kautto 0 N/A 30,000 0 0 0
- - -------------------------------------------------------------------------------------------------------------------------------
G P Morris 0 N/A 60,000 0 1,200 0
===============================================================================================================================
L O Doza 0 N/A 125,700 0 0 0
===============================================================================================================================
<FN>
(1) REPRESENTS THE NUMBER OF OPTIONS HELD AT YEAR END WHICH CAN AND CANNOT
BE EXERCISED.
(2) REPRESENTS THE TOTAL GAIN WHICH WOULD BE REALIZED IF ALL OPTIONS FOR
WHICH THE YEAR END STOCK PRICE WAS GREATER THAN THE EXERCISE PRICE
WERE EXERCISED. BASED ON MARKET VALUE OF 12.44 ON 12/31/94.
</TABLE>
46
<PAGE> 47
<TABLE>
The following table provides information on long-term incentive plan
awards made in 1994 to the Named Executive Officers.
- - ---------------------------------------------------------------------------------------------------------------------------
LONG-TERM INCENTIVE PLANS-AWARDS IN LAST FISCAL YEAR
- - ---------------------------------------------------------------------------------------------------------------------------
Performance or
other Estimated Future Payouts Under
Number of Shares, Period Until Non-Stock Price-Based Plans (2)
Units, or other Maturation or -------------------------------------------
Name Rights(#)(1) Payout Threshold Target Maximum
- - ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
E. R. Shames 6,000 1994-1996 $300,000 $600,000 $900,000
J. M. Saggese 1,800 1994-1996 90,000 180,000 270,000
A. L. Miller 1,400 1994-1996 70,000 140,000 210,000
R. D. Kautto 1,000 1994-1996 50,000 100,000 150,000
G. P. Morris 850 1994-1996 42,500 85,000 127,500
L. O. Doza (3) -- 1994-1996 -0- -0- -0-
- - ---------------------------------------------------------------------------------------------------------------------------
<FN>
(1) 1 Unit = $100
(2) 1994-1996 long-term award payouts are based on earnings-per-share (EPS)
improvement over the base year (1993). The target amount will be earned
if 100% of target EPS improvement is achieved; the threshold amount if
75% is achieved; and the maximum amount, if 125% is achieved. 1/4 of
award is allocated for each year (1994, 1995, and 1996), in which EPS
improvement is achieved over base year (1993), and 1/4 of award is
allocated for three year average improvement over base year (1993).
(3) Mr. Doza was not eligible for any compensation under the Long-Term
Incentive Plan.
</TABLE>
47
<PAGE> 48
RETIREMENT BENEFITS
The Borden Employees Retirement Income Plan ("ERIP") for salaried employees was
amended as of January 1, 1987 to provide benefit credits of 3% of earnings
which are less than the Social Security wage base for the year plus 6% of
earnings in excess of the wage base and an additional 1.5% and 3% respectively
for certain older employees. Earnings include annual incentive awards paid
currently but exclude any long-term incentive awards. Benefits for service
through December 31, 1986 are based on the plan formula then in effect and have
been converted to opening balances under the plan. Both opening balances and
benefit credits receive interest credits at one-year Treasury bill rates until
the participant commences receiving benefit payments. For the year 1994, the
interest rate was 3.58%.
The Company's supplemental pension plan provides for a grandfathering of
benefits for certain key employees as of January 1, 1983, including certain
Executive Officers, that, generally speaking, provide for the payment of any
shortfall if the sum of (a) the pension actually payable on retirement under
the ERIP (and any excess or supplemental plans), together with (b) the amount
(converted to a pension equivalent) attributable to Company contributions that
would be standing to the employee's credit at retirement under the Company's
Retirement Savings Plan if the employee had contributed at the maximum
permitted rate eligible for Company matching from December 31, 1983 until
retirement, does not equal or exceed the sum of (c) the retirement income
calculated on the basis of the December 31, 1992 ERIP pension formula (with
certain adjustments), and (d) the amount (converted to a pension equivalent)
attributable to company contributions (equal to 3.3% of compensation) that
would be standing to the employee's credit at retirement had the Company's
Retirement Savings Plan as in effect on January 1, 1983 been in effect
continuously to retirement. The projected pension figures for A.L. Miller and
J.M. Saggese appearing at the end of this section include the effect of the
foregoing grandfathering.
The ERIP contains additional transitional provisions for employees who met
certain age and service requirements on January 1, 1987. The transitional
minimum benefit is a final average pay benefit for service prior to 1988 plus a
career average pay benefit based on each year's earning for years 1988 through
1996 (1% of each year's earnings up to the Social Security wage base plus
1-1/2% of excess).
Benefits vest on a graded five-year schedule for employees hired prior to July
1, 1990. Benefits vest after completion of five years of employment for
employees hired on or after July 1, 1990.
The Company has supplemental plans which will provide those benefits which are
otherwise produced by application of the ERIP formula, but which, under Section
415 or Section 401 (a)(17) of the Internal Revenue Code, are not permitted to
be paid through a qualified plan and its related trust. Such an arrangement is
specifically provided for under the law.
Since no payments will be made from the ERIP on account of deferred incentive
compensation awards or certain other deferred compensation, the Company will
pay a supplemental pension to employees who defer such annual amounts in the
same amounts realizable as if the deferred amounts had been paid currently.
The total projected annual benefits payable under the formulas of the ERIP at
age 65 without regard to the Section 415 or 401(a)(17) limits and recognizing
supplemental pensions as described above, are as follows for the Named
Executive Officers of the Company in 1994: L.O. Doza - $82,099 (reflecting
accrual of benefits through 2/28/94 and immediate commencement), R.D. Kautto-
$31,419, A.L. Miller - $172,403, G.W. Morris - $31,381 and J.M. Saggese -
$211,688. E.R. Shames will receive no benefit under the
48
<PAGE> 49
ERIP but will have a supplemental pension benefit payable under his employment
agreement of $100,000 per year at ages 65 through 68.
COMPENSATION OF DIRECTORS
During 1994, each Director who was not currently an employee of the Company was
paid a retainer of $28,000 per annum. Every non-employee Director was paid a
meeting fee of $1,000 for attendance at each meeting of the Board of Directors.
Directors could defer their compensation, in the form of deferred share
equivalents, or cash with interest, until retirement from the Board. The
Company assumed the payment of premiums for group life insurance in the amount
of $100,000 for each non-employee Director, the cost of which in 1994 was
$3,376 in the aggregate.
From December 9, 1993 until December 31, 1994, the Company compensated Mr.
Tasco, in addition to the foregoing compensation as a Director, at the rate of
$100,000 per quarter for his services as Chairman of the Board.
The Company had an agreement with Mr. R.J. Ventres, a former Chairman and Chief
Executive Officer, retaining him as a consultant and as Chairman of the
Executive Committee from March 1992 until April 1995, with fixed compensation
at the rate of $250,000 per annum and limited benefits. Upon his resignation
as a Director as of December 31, 1993, such agreement was amended to terminate
such compensation at the end of April 1994.
Any Officer of the Company who was also a Director did not receive any
compensation for service on the Board of Directors.
The Board functions in part through its committees. The non-employee members
of each of these committees were paid a meeting fee of $1,000 for each
committee meeting attended. In addition, a committee chairman who was also a
non-employee was paid an annual retainer of $1,000.
Directors who were not employees of the Company were also provided upon
retirement and attaining age 70 annual benefits through a funded grantor trust
equal to their final annual retainer if they served in at least three plan
years. Such benefits would continue for up to fifteen years.
EMPLOYMENT, TERMINATION AND
CHANGE IN CONTROL ARRANGEMENTS
The Company had an employment agreement, which was amended several times, with
Mr. Shames, its former Chief Executive Officer, from June 1993 until his
resignation of employment with the Company in January 1995, when his employment
agreement was replaced by a termination agreement. Under his former employment
agreement, he was paid an annual salary in 1994 of $800,000 and received a 1993
bonus payment of $200,000. Under his agreement upon termination, in accordance
with the Company's obligations under prior agreements, (a) he is provided a
severance and benefit payment of $170,196 in February of 1995, monthly amounts
of $160,400 commencing March 1, 1995 through December 1, 1997 and a final
payment of $108,658 on January 1, 1998 (b) he will continue under Company
medical, executive benefits and perquisite programs through December 20, 1997,
(c) he will be reimbursed for loss on his home, relocation and moving expenses
and (d) if any excise tax (under Section 4999 of the Internal Revenue Code) is
imposed in respect of any payments due Mr. Shames under his prior Core
Arrangement, the Company will pay him an amount that will net him the same sum
as he would have received if the excise tax did not apply. As a result of the
Company's change in control, Mr. Shames became vested in 22,500 restricted
shares of the Company's common stock which otherwise
49
<PAGE> 50
would have vested one third each year beginning July 1, 1995. The change in
control also accelerated the vesting of Mr. Shames' options as set forth above
in the Option Grant Table. As provided in prior agreements, Mr. Shames will be
paid a pension of $100,000 a year for four years beginning at age 65. Finally,
Mr. Shames also received reimbursement of counsel fees, certain office and
secretarial expenses and an amount in lieu of outplacement expenses.
Upon Mr. Morris' employment by the Company as of September 21, 1993, the
Company agreed to pay Mr. Morris an initial base salary of $215,000 per year;
to guarantee up to $60,000 for any foregone 1993 bonus as a result of his
termination of employment at his prior employer, the full amount of which was
paid in February, 1994; to grant to Mr. Morris stock options on 40,000 shares
of the Company's common stock in 1993, (granted at market, $17.75, on
September 27, 1993) and on 10,000 shares in 1994 (granted at market, $15.18, on
February 21, 1994); to match Mr. Morris' contributions to the Company's
Retirement Savings Plan from his employment date forward; to provide assistance
under the Company's employee relocation policy as applicable to current
employees for Mr. Morris' relocation to Columbus, Ohio; to provide
participation in the Company's annual and long term incentive programs; and (as
amended in 1994) to pay upon termination of his employment under certain
conditions after a change in control, which has occurred, two times his annual
compensation.
Upon Mr. Kautto's employment by the Company on February 1, 1994, the Company
agreed to pay Mr. Kautto an initial base salary of $250,000; to provide for
participation in the Company's annual and long-term incentive programs with a
guarantee of at least $75,000 to be paid in 1997; to grant options to purchase
the Company's common stock for 30,000 shares in 1994 (granted at market,
$15.18) and 10,000 shares in 1995; to match Mr. Kautto's savings plan
contributions as it would a long-serivce employee from his employment date
forward; to provide assistance under the Company's employee relocation policy
as applicable to current employees for Mr. Kautto's relocation to Columbus,
Ohio; to reimburse him for lost option and bonus opportunities at his former
employer up to $95,000 and to reimburse him for the expense for one year of
maintaining medical coverage with his former employer.
The Company has a salary continuance arrangement (the "CORE Arrangement") with
a number of key employees and Executive Officers including Messrs, Saggese,
Miller and Kautto ("CORE members"), which provides after a change in control,
which has occurred, for payments for two to three years from the date of the
change in control, but not less than for one year, if employment is terminated
without cause during that period. The payments include salary, bonus and other
compensation and benefits. Payments could be reduced or eliminated by
compensation earned from other specified employment. Arrangements have also
been made for payment by the Company, upon certain conditions, of the legal
expenses of these employees if they are required to enforce the provisions of
their CORE Arrangements. If any excise tax (under Sec. 4999 of the Internal
Revenue Code) is imposed in respect of payments under the CORE Arrangement, the
Company will pay to such Officers an amount that will net the Officers the same
sum as they would have retained if the excise tax did not apply. As of
December 31, 1994, there were 19 CORE members.
Mr. Doza, a CORE member and Executive Officer since 1977, retired effective
March 1, 1994. Pursuant to a separation agreement which superseded his CORE
Arrangement, he will receive termination pay at his base salary rate through
August 31, 1995. The agreement also contains provisions relating to extension
of certain perquisites, reimbursement of certain outplacement-related expenses
and termination dates for various employee benefits, all subject to Mr. Doza's
compliance with an agreement not to compete.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Messrs. Robbins and Stuart became members of the Compensation Committee
on December 21, 1994. Both gentlemen are general partners of KKR Associates,
L.P. See "Certain Relationships and Related Transactions."
50
<PAGE> 51
Item 12. Security Ownership of Certain Beneficial Owners and Management
- - ------- --------------------------------------------------------------
The following table sets forth certain information regarding the beneficial
ownership of Borden Common Stock as of March 14, 1995 by (a) persons known to
Borden to be the beneficial owners of more than five percent of the outstanding
Borden Common Stock, (b) each director of Borden, (c) each of the Named
Executive Officers of Borden during the 1994 fiscal year of Borden and (d) all
directors and executive officers of Borden as a group. Except as otherwise
noted, the persons named in the table below have sole voting and investment
power with respect to all shares shown as beneficially owned by them.
<TABLE>
<CAPTION>
Name of Beneficial Ownership
Beneficial Owner of Borden Common Stock
---------------- ------------------------------
Shares Percent
------ -------
<S> <C> <C>
KKR Associates (1) 170,273,814 100.0
9 West 57th Street
New York, New York 10019
C. Robert Kidder (2) -- *
Henry R. Kravis (1) -- *
George R. Roberts (1) -- *
Clifton R. Robbins (1) -- *
Scott M. Stuart (1) -- *
Alexander Navab -- *
Ervin R. Shames (3) 350,000 *
Lawrence O. Doza (3) 125,700 *
Randy D. Kautto (3) 30,000 *
Allan L. Miller (3) 150,600 *
George P. Morris (3) 50,000 *
Joseph M. Saggese (3) 121,600 *
All Directors and Executive Officers
as a group (3)(4) 1,173,600 *
</TABLE>
__________
* Less than 1.0%
(1) Shares of Borden Common Stock shown as beneficially owned by KKR
Associates include shares owned of record by the limited partnerships
of which KKR Associates is the sole general partner and as to which it
possesses sole voting and investment power, including the Partnership.
KKR Associates is a limited partnership of which Messrs. Saul A. Fox,
Edward A. Gilhuly, Perry Golkin, James H. Greene, Henry R. Kravis,
Robert I. MacDonnell, Michael N. Michelson, Paul E. Raether, Clifton
S. Robbins, George R. Roberts, Scott M. Stuart and Michael T. Tokarz
are the general partners. Such persons may be deemed to share
beneficial ownership of the shares shown as owned by KKR Associates.
The foregoing persons disclaim beneficial ownership of any such
shares.
(2) On January 10, 1995, C. Robert Kidder, age 50, was elected as a
Director and Chief Executive Officer of Borden. Mr. Kidder also
succeeded Mr. Kravis as Chairman of the Board of Directors. Mr.
Kravis remains a Director of Borden. Mr. Kidder formerly was Chairman
of the Board and Chief Executive Officer of Duracell International,
Inc. and Duracell Inc. since April 1992; Chairman of the Board,
President and Chief Executive Officer of Duracell International, Inc.
and Duracell Inc. from August 1991 until April 1992; and President and
Chief Executive Officer of Duracell International, Inc. and Duracell
Inc. from June 1988 until August 1991. Mr. Kidder has also been a
Director of Duracell International, Inc. since June 1988.
(3) Represents shares of Borden Common Stock that can be acquired within
60 days, pursuant to outstanding employee Stock Options.
(4) The percentage owned has been indicated where the percentage exceeds
1.0%. Pursuant to Rule 13d-3, Stock Options that are presently
exercisable or exercisable within 60 days after March 14, 1995 which
are owned by each individual are deemed to be outstanding for purposes
of computing the percentage of shares of Borden Common Stock owned by
that individual. Therefore, each percentage is
51
<PAGE> 52
computed based on the sum of (i) the shares actually outstanding as of
March 14, 1995 and (ii) the number of Stock Options exercisable within
60 days of March 14, 1995 owned by that individual or entity whose
percentage of share ownership is being computed, but not taking
account of the exercise of Stock Options by any other person or
entity.
Item 13. Certain Relationships and Related Transactions
- - ------- ----------------------------------------------
The Company made a loan of $400,000 in 1995 to Mr. Kautto, Vice President-Human
Resources, in the form of a note bearing interest at prime. Accrued interest
is waived each year on the anniversary of the note if Mr. Kautto remains
employed. Principal payments targeted at $133,333 each are due annually after
three years. The amount of each annual payment due is increased or decreased
on formula based on the amount that his annual bonus earned in the prior year
differs from his targeted bonus. The entire principal and unwaived interest
are due upon termination of employment. The loan is secured by any contractual
payments due to Mr. Kautto from the Company.
Whitehall Associates, L.P. and KKR Partners II, L.P. together hold 100% of the
Company's common stock. The general partner of both of these limited
partnership is KKR Associates, a New York limited partnership of which Messrs.
Saul A. Fox, Edward A. Gilhuly, Perry Golkin, James H. Greene, Henry R. Kravis,
Robert I. MacDonnell, Michael N. Michelson, Paul E. Raether, Clifton S.
Robbins, George R. Roberts, Scott M. Stuart and Michael T. Tokarz are the
general partners. KKR Associates has sole voting and investment power with
respect to such shares. Messrs. Kravis, Robbins, Roberts and Stuart are
directors of the Company.
The Company expects that in 1995, KKR will render management, consulting and
financial services to the Company and its subsidiaries for an annual fee which
is yet to be determined. Messrs. Kravis, Roberts, Robbins and Stuart are
general partners of KKR and Mr. Navab is an executive of KKR.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
- - ------- ----------------------------------------------------------------
(a) List of documents filed as part of this report
----------------------------------------------
1. Financial Statements
--------------------
All financial statements of the registrant are set forth under
Item 8 of this Report on Form 10-K.
2. Financial Statement Schedules
-----------------------------
Financial statement schedules are omitted because they are not
applicable or the required information is included in the
consolidated financial statements or notes thereto.
3. Exhibits
--------
Executive Compensation Plans and Arrangements are listed
herein at Exhibits (10)(viii) through (10)(xix)(m).
(3)(i) Restated Certificate of Incorporation.
52
<PAGE> 53
(ii) By-Laws.
(4)(i) Form of Indenture dated as of January 15,
1983, as supplemented by the First
Supplemental Indenture dated as of March 31,
1986 relating to the $200,000,000 8-3/8%
Sinking Fund Debentures due 2016,
incorporated herein by reference from
Exhibit 4(a) and (b) to Amendment No. 1 to
Registration Statement on Form S-3, File No.
33-4381.
(ii) Form of Indenture dated as of December 15,
1986, as supplemented by the First
Supplemental Debenture dated as of December
15, 1986 relating to the $315,000,000 Medium
Term Notes, Series A, incorporated herein by
reference from Exhibit 4(a) through (d) to
Amendment No. 1 to Registration Statement on
Form S-3, File No. 33-8775.
(iii) Form of Indenture dated as of December 15,
1987, as supplemented by the First
Supplemental Indenture dated as of December
15, 1987 and the Second Supplemental
Indenture dated as of February 1, 1993,
incorporated herein by reference from
Exhibit 4(a) through (d) to Registration
Statement on Form S-3, File No. 33-45770,
relating to the following Debentures and
Notes:
(a) The $125,000,000 9-7/8% Notes due
November 1, 1997.
(b) The $150,000,000 9-1/4% Sinking Fund
Debentures due 2019.
(c) The $200,000,000 9-1/5% Debentures
due 2021.
(d) The $250,000,000 7-7/8% Debentures
due 2023.
(iv) Form of Indenture relating to Zero Coupon
Notes due 2002, dated as of May 21, 1992,
incorporated herein by reference from
Exhibit 4(iv) to the 1992 Form 10-K Annual
Report.
(v) Form of Lynx Equity Unit Agreement relating
to Zero Coupon Notes due 2002, dated as of
May 21, 1992, incorporated herein by
reference from Exhibit 4(v) to the 1992 Form
10-K Annual Report.
(vi) Form of Indenture relating to Senior
Securities, incorporated herein by reference
from Exhibit 4.1 to the Company's
Registration Statement on Form S-3, File No.
33-57577.
(vii) Form of Indenture relating to Subordinated
Securities incorporated herein by reference
from Exhibit 4.2 to the Company's
Registration Statement on Form S-3, File No.
33-57577.
(viii) Agreement dated February 15, 1995 among Whitehall
Associates, L.P., KKR Partners II, L.P., and the
Company.
(ix) Agreement dated March 15, 1995 among Whitehall
Associates, L.P., KKR Partners II, L.P., and the
Company.
53
<PAGE> 54
(10)(i) Agreement and Plan of Merger, dated as of
September 23, 1994, among Whitehall
Associates, L.P., Borden Acquisition Corp.
and the Company (the "Merger Agreement"),
incorporated by reference to Exhibit 3 to
the Company's Report on Form 8-K, dated
September 23, 1994.
(ii) Amendment to the Merger Agreement, dated as
of November 15, 1994, incorporated herein by
reference to Exhibit 99.3 to the Company's
Solicitation/Recommendation Statement on
Schedule 14D-9, dated November 22, 1994.
(iii) Conditional Purchase/Stock Option Agreement,
dated as of September 23, 1994, among
Whitehall Associates, L.P., Borden
Acquisition Corp. and the Company
incorporated by reference to Exhibit 4 to
the Company's Report on Form 8-K dated
September 23, 1994.
(iv) Second Amendment to the Merger Agreement,
dated as of December 6, 1994 incorporated
herein by reference from Exhibit 99.87 to
Amendment No. 5 to the Company's
Solicitation/Recommendation Statement on
Schedule 14D-9, dated December 7, 1994.
(v) Third Amendment to the Merger Agreement, dated
as of January 4, 1995.
(vi) Credit Agreement dated as of December 15,
1994 among Borden, Inc., as Borrower, and
the banks named therein, as Banks, Citibank,
N.A., as Administrative Agent, Bankers Trust
Company, Chemical Bank, Citibank, N.A. and
Credit Suisse, as Lead Managing Agents, and
BT Securities Corporation, Chemical
Securities, Inc., Citicorp Securities, Inc.
and Credit Suisse, as Arrangers incorporated
herein by reference from Exhibit 99.93 to
Amendment No. 9 to the Company's
Solicitation/Recommendation Statement on
Schedule 14D-9, dated December 20, 1994.
(vii) Second Amended and Restated Credit Agreement
dated as of December 15, 1994 among T.M.
Investors Limited Partnership, as Borrower,
and the banks named therein, as Banks,
Citibank, N.A., as Administrative Agent,
Bankers Trust Company, Chemical Bank,
Citibank, N.A. and Credit Suisse, as Lead
Managing Agents, and BT Securities
Corporation, Chemical Securities Inc.,
Citicorp Securities, Inc. and Credit Suisse,
as Arrangers (Borden does not control T.M.
Investors Limited Partnership and this
exhibit has been furnished to Borden
voluntarily at Borden's request)
incorporated herein by reference from
Exhibit 99.94 to Amendment No. 9 to the
Company's Solicitation/Recommendation
Statement on Schedule 14D-9, dated December
20, 1994.
(viii) 1994 Management Incentive Plan incorporated
by reference to Exhibit 10(iv) to the
Company's Annual Report on Form
54
<PAGE> 55
10-K for the year ended December 31, 1993
(the "1993 10-K").
(ix) 1994 Stock Option Plan incorporated by
reference to Exhibit 10(v) to the 1993 10-K.
(x) Executive Family Survivor Protection Plan as
amended through December 9, 1993
incorporated by reference to Exhibit 10(vi)
to the 1993 10-K.
(xi) Executives Excess Benefits Plan as amended
through December 9, 1993 incorporated by
reference to Exhibit 10(vii) to the 1993
10-K.
(xii) Executives Supplemental Pension Plan as
amended through December 9, 1993
incorporated by reference to Exhibit
10(viii) to the 1993 10-K.
(xiii) Advisory Directors Plan, incorporated herein
by reference from Exhibit 10(viii) to the
1989 Form 10-K Annual Report.
(xiv) Advisory Directors Plan Trust Agreement,
incorporated herein by reference from
Exhibit 10(ix) to the 1988 Form 10-K Annual
Report.
(xv) Supplemental Benefit Trust Agreement as
amended through December 9, 1993
incorporated by reference to Exhibit 10(xi)
to the 1993 10-K.
(xvi) Amendment to Supplemental Benefit Trust
Agreement dated November 15, 1994.
(xvii) Form of Indemnification Letter Agreements
entered into with all Directors of the
Company, incorporated herein by reference
from Exhibit 10(xii) to the 1988 Form 10-K
Annual Report.
(xviii) Form of Letter Agreement entered into with
all holders of stock appreciation rights,
incorporated herein by reference from
Exhibit 10(xiii) to the 1989 Form 10-K
Annual Report.
(xix) (a) Agreement with Mr. A. S. D'Amato,
Chairman and Chief Executive
Officer, incorporated herein by
reference from Exhibit 10(i) to the
June 30, 1993 Form 10-Q.
(b) Amendment to Agreement with Mr. A.
S. D'Amato, incorporated herein by
reference from Exhibit 10(i) to the
September 30, 1993 Form 10-Q.
(c) Supplement to Agreement with Mr. A.
S. D'Amato incorporated by reference
to Exhibit 10(xiv) (a) to the 1993
10-K.
55
<PAGE> 56
(d) Agreement with Mr. E. R. Shames,
President and Chief Operating
Officer, incorporated herein by
reference from Exhibit 10(ii) to the
June 30, 1993 Form 10-Q.
(e) Description of Amendment to
Agreement with Mr. E. R. Shames
incorporated by reference to Exhibit
10(xiv)(e) to the 1993 10-K.
(f) Description of Amendment to
Agreement with Mr. E. R. Shames
incorporated by reference to Exhibit
10(i) to the Company's Quarterly
Report on Form 10-Q for the quarter
ended June 30, 1994 (the "June 30,
1994 10-Q").
(g) Form of salary continuance
arrangement with Executive Officers,
incorporated herein by reference
from Exhibit 10(ix)(c) to the 1987
Form 10-K Annual Report.
(h) Agreement with Mr. L. O. Doza dated
June 2, 1994 incorporated by
reference to Exhibit 10(ii) to the
June 30, 1994 10-Q.
(i) Description of arrangement with C.
Robert Kidder, Chairman of the Board
and Chief Executive Officer.
(j) Agreement with Mr. J. C. Van Meter,
Executive Vice President and Chief
Financial Officer, dated July 7,
1994.
(k) Termination Agreement with Mr. E. R.
Shames dated as of January 10, 1995.
(l) Summary of terms of employment for Mr. Morris
and letter dated November 4, 1994 to Mr. Morris
regarding special severance arrangements.
(m) Letter agreement with Mr. Kautto dated January
19, 1994.
(xx) Second Amended and Restated Deposit
Agreement, dated February 16, 1993 among
Borden Chemicals and Plastics Limited
Partnership, Society National Bank, Borden,
Inc. and BCP Management, Inc., incorporated
herein by reference from Exhibit 10(xviii)
to the 1992 Form 10-K Annual Report.
(xxi) Notes Prepayment Agreement dated as of
December 15, 1994 between Borden Chemicals
and Plastics Operating Limited Partnership
and the Company.
(xxii) Prepayment Terms Agreement dated as of
December 15, 1994 among Borden Chemicals and
Plastics Operating Limited Partnership, The
Prudential Insurance Company of America,
Metropolitan Life Insurance Company,
Metropolitan Insurance and Annuity Company
and the Company.
(xxiii) Purchase Agreement dated February 16, 1995
among RJR Nabisco Holdings Corp., Goldman,
Sachs & Co., and the Company.
(12) Calculation of Ratio of Earnings to Fixed
Charges.
56
<PAGE> 57
(22) Subsidiaries of Registrant.
Copies of the foregoing Exhibits are available to Shareholders of record upon
written request to Investor Relations at the Executive Offices of the Company,
and the payment of $.50 per page to help defray the cost of handling, copying,
and postage.
(b) Reports on Form 8-K
-------------------
On January 5, 1994 Borden, Inc. filed a Form 8-K which announced that the
Company was taking a fourth quarter 1993 pretax charge of $752.3 million to
provide for a restructuring and business divestment program. The Company also
recorded a pretax charge of $94.1 million for asset write-downs and changes in
accounting estimates. The Company also announced that it had adopted Statement
of Financial Accounting Standard No. 112.
On March 21, 1994 Borden, Inc. filed a Form 8-K which announced the restatement
and reclassification of the 1992 and 1993 financial statements as a result of
reversing and reclassifying certain items that had been included in its 1992
restructuring charge.
On September 11, 1994 Borden, Inc. filed a Form 8-K which announced an
amendment to the Rights Agreement between Borden, Inc. and The Bank of New
York, as Rights Agent.
On September 12, 1994 Borden, Inc. filed a Form 8-K which announced that
Borden, Inc. entered into a Letter of Intent to merge with an affiliate of
Kohlberg Kravis Roberts & Co.
On October 5, 1994 Borden, Inc. filed a Form 8-K which announced pretax charges
of $150 to $200 million to be recorded in the third quarter.
On October 5, 1994 Borden, Inc. filed a Form 8-K for the purpose of disclosing
the background and reasons for the Company's decision to enter into the Merger
Agreement and the Option Agreement.
On December 21, 1994 Borden, Inc. filed a Form 8-K announcing the completion of
the exchange offer, the resulting acquisition by KKR affiliates of
approximately 69.58% of the Company's stock and the election of five new
directors to the Company's Board.
57
<PAGE> 58
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
BORDEN, INC.
By /s/ James C. Van Meter
---------------------------------------------
James C. Van Meter, Executive Vice President
and Chief Financial Officer
(Principal Financial Officer)
By /s/ P. Michael Morton
---------------------------------------------
P. Michael Morton, Vice President and
General Controller
(Principal Accounting Officer)
Date: March 15, 1995
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the Company
and in the capacities indicated, on the date set forth above.
Signature Title
--------- -----
/s/ C. Robert Kidder Chairman of the Board and
- - ------------------------------------------ Chief Executive Officer
(C. Robert Kidder)
/s/ Henry R. Kravis Director
- - ------------------------------------------
(Henry R. Kravis)
/s/ George R. Roberts Director
- - ------------------------------------------
(George R. Roberts)
/s/ Clifton S. Robbins Director
- - ------------------------------------------
(Clifton S. Robbins)
/s/ Scott M. Stuart Director
- - ------------------------------------------
(Scott M. Stuart)
/s/ Alexander Navab Director
- - ------------------------------------------
(Alexander Navab)
58
<PAGE> 1
Exhibit (3)(i)
RESTATED CERTIFICATE OF INCORPORATION
OF
BORDEN, INC.
Pursuant to N.J.S. 14A:9-5(4)
Dated: March 14, 1995
THE UNDERSIGNED corporation certifies that it has adopted the
following restated certificate of incorporation:
ARTICLE I
CORPORATE NAME
The name of the corporation is Borden, Inc.
ARTICLE II
PURPOSE
The purpose for which this corporation is organized is to
engage in any activity within the purposes for which corporations may be
organized under the New Jersey Business Corporation Act.
ARTICLE III
CAPITAL STOCK
1. AUTHORIZED SHARES
The corporation is authorized to issue 400,000,000 shares,
divided into:
(a) 300,000,000 shares of common stock, par value $0.01 per
share; and
(b) 100,000,000 shares of preferred stock.
The board is authorized to amend the certificate of
incorporation to divide the preferred shares into one or more series and to
determine the designation, the number, and the
1
<PAGE> 2
relative rights, preferences and limitations of the shares of each series so
created.
For purposes of illustration only, the foregoing power of the
board includes but is not limited to the determination of:
(i) The number of shares constituting each series;
(ii) The rate and times at which, and the terms and
conditions on which, dividends on shares of a series will be paid, and
whether the dividends are cumulative or non-cumulative or are
participating or non-participating;
(iii) The voting rights of the holders of shares of the
series, including whether the shares shall have no voting rights, or
multiple, full, limited or special voting rights;
(iv) The right, if any, of the holders of shares of the
series to convert their shares into, or exchange them for, shares of
other classes or series of stock of the corporation, and the terms and
conditions of the conversion or exchange, including provisions for
adjustment of the conversion price or rate in such events as the board
shall determine;
(v) The right, if any, of the corporation or the holders
of the shares to cause the shares of the series to be redeemed, the
redemption price or prices and the time or times at which, and the
terms and conditions on which, shares of the series may be redeemed,
and whether the shares shall be redeemed in exchange for cash or other
property, or a combination thereof;
2
<PAGE> 3
(vi) The rights of the holders of shares of the series
upon the voluntary or involuntary dissolution, liquidation or
winding-up of the corporation and whether those rights are limited or
participating; and
(vii) The obligation, if any, of the corporation to
establish a sinking fund for the purchase or redemption of the shares
of the series, the amounts and time of payments to that fund, and the
other terms and conditions of that fund.
2. PRE-EMPTIVE RIGHTS
The shareholders of the corporation shall not have pre-emptive
rights.
3. SHAREHOLDER VOTE REQUIRED
The affirmative vote of a majority of votes cast by the
shareholders shall be required to authorize or approve any action or matter to
be voted upon by the shareholders, except that directors shall be elected as
provided by law.
ARTICLE IV
REGISTERED OFFICE AND AGENT
The address of the corporation's current registered office is
65 Livingston Avenue, Roseland, New Jersey 07068; the name of the corporation's
current registered agent at that address is John R. MacKay 2nd.
-3-
<PAGE> 4
ARTICLE V
CURRENT BOARD OF DIRECTORS
The current board of directors consists of eight persons whose
names and addresses are as follows:
C. Robert Kidder
Henry R. Kravis
George R. Roberts
Clifton S. Robbins
Scott M. Stuart
Alexander Navab
Frank J. Tasco
Wilbert J. LeMelle
c/o Borden, Inc.
180 East Broad Street
Columbus, Ohio
ARTICLE VI
INDEMNIFICATION
Every person who is or was a director or an officer of the
corporation shall be indemnified by the corporation to the fullest extent
allowed by law, including the indemnification permitted by N.J.S. 14A:3-5(8),
against all liabilities and expenses imposed upon or incurred by that person in
connection with any proceeding in which that person may be made, or threatened
to be made, a party, or in which that person may become involved by reason of
that person being or having been a director or an officer of or of serving or
having served in any capacity with any other enterprise at the request of the
corporation, whether or not that person is a director or an officer or
continues to serve the other enterprise at the time the liabilities or expenses
are imposed or incurred. During the pendency of any such proceeding, the
corporation shall, to the
-4-
<PAGE> 5
fullest extent permitted by law, promptly advance expenses that are incurred,
from time to time, by a director or an officer in connection with the
proceeding, subject to the receipt by the corporation of an undertaking as
required by law.
ARTICLE VII
PERSONAL LIABILITY OF DIRECTORS OR OFFICERS
A director or officer of the corporation shall not be
personally liable to the corporation or its shareholders for the breach of any
duty owed to the corporation or its shareholders except to the extent that an
exemption from personal liability is not permitted by the New Jersey Business
Corporation Act.
IN WITNESS WHEREOF, the undersigned corporation has caused
this certificate to be executed on its behalf by its duly authorized officer as
of the date first above written.
BORDEN, INC.
By: /s/ Allan L. Miller
--------------------------
Name: Allan L. Miller
Title: Sr. Vice President,
General Counsel &
Secretary
-5-
<PAGE> 1
EXHIBIT (3)(ii)
As of March 14, 1995
BY-LAWS
OF
BORDEN, INC.
ARTICLE I
OFFICES
SECTION 1. The registered office of the Corporation in the State of
New Jersey is at 65 Livingston Avenue, Roseland, New Jersey 07068. The
registered agent of the Corporation at that office is John R. MacKay 2nd.
SECTION 2. Places of business or offices may be established at any
time by the board of directors (the Board) at any place or places where the
Corporation is qualified to do business or where qualification is not required.
ARTICLE II
MEETINGS OF SHAREHOLDERS
SECTION 1. An annual meeting of the shareholders for the election of
directors and for the transaction of such other business as may properly come
before the meeting shall be held upon not less than the ten nor more than sixty
days written notice of the time, place and purposes of the meeting. The
meeting shall be held at such time and place as shall be designated by the
Board and specified in the notice of the meeting.
SECTION 2. Special meetings of shareholders shall be held at such
place and at such time as shall be fixed by resolution of the Board with
respect to each such meeting and may be called at any time by the Chairman of
the Board, Chief Executive Officer or President or a majority of the directors.
Any special meeting of shareholders shall be held upon not less than ten nor
more than sixty days written notice of the time, place, and purpose of the
meeting.
SECTION 3. Except as otherwise provided by law or the Restated
Certificate of Incorporation of the Company, at all meetings of the
shareholders, in order to constitute a quorum, there shall be present, either
in person or by proxy, shareholders entitled to cast a majority of the votes at
such meeting.
SECTION 4. At all meetings of the shareholders, each share-
holder shall be entitled to one vote for each share of the capital
<PAGE> 2
stock standing in his name on the books of the Company, except as otherwise
provided by the Restated Certificate of Incorporation of the Company.
SECTION 5. At all meetings of the shareholders any shareholder shall
be entitled to vote by proxy. Every proxy shall be executed in writing by the
shareholder or his agent except that a proxy may be given by a shareholder or
his agent by telegram or cable or by any means of electronic communication
which results in a writing.
SECTION 6. For the purpose of determining the shareholders entitled to
(a) notice of or to vote at any meeting of shareholders or any adjournment
thereof, (b) give a written consent to any action without a meeting, or (c)
receive payment of any dividend or allotment of any right, or for the purpose
of any other corporate action or event, the Board may fix, in advance, a date
as the record date for any such determination of shareholders. Such dates
shall not be more than sixty nor less than ten days before the date of such
meeting, nor more than sixty days prior to any other action. The record date
to determine shareholders entitled to give a written consent may not be more
than 60 days before the date fixed for tabulation of the consents or, if no
date has been fixed for tabulation, more than 60 days before the last day on
which consents received may be counted.
If no record date is so fixed by the Board, (a) the record date for a
meeting of shareholders shall be the close of business on the day next
preceding the day on which notice is given, or, if no notice is given, the day
next preceding the day on which the meeting is held, and (b) the record date
for determining shareholders for any other purpose shall be at the close of
business on the day on which the resolution of the Board relating thereto is
adopted.
When a determination of shareholders of record entitled to notice of
or to vote at any meeting of shareholders has been made as provided in this
Section, such determination shall apply to any adjournment thereof, unless the
Board fixes a new record date under this Section for the adjourned meeting.
SECTION 7. The affirmative vote of a majority of votes cast by the
shareholders shall be required to authorize or approve any action or matter to
be voted upon by the shareholders, except that directors shall be elected as
provided by law.
SECTION 8. Unless otherwise determined by resolution of the Board,
(a) the Chairman of the Board shall, or shall designate an
appropriate officer of the Company to, call any annual or
special meeting of shareholders to order, act as Chairman
2
<PAGE> 3
of any such meeting of the shareholders, determine the order of
business of any such meeting, and determine the rules of
order and procedure to be followed in the conduct of any
such meeting; and
(b) the Secretary or an Assistant Secretary of the Company shall
act as Secretary of the meeting.
Nothing in this section shall prohibit the Chairman of the meeting
from changing the order in which business shall be presented to the meeting.
SECTION 9. The shareholders may act without a meeting by written
consent or consents pursuant to N.J.S. 14A:5-6. The written consent or
consents shall be filed in the minute book.
ARTICLE III
DIRECTORS
SECTION 1. The business and affairs of the Company shall be managed by
or under the direction of a Board of Directors consisting of not less than one
nor more than fifteen directors. Subject to the provisions of the Restated
Certificate of Incorporation of the Company, the members of the Board shall be
elected at each annual meeting of shareholders of the Company to hold office
until the next annual meeting, and the term of each director shall be from the
time of his election and qualification until the annual meeting of shareholders
next succeeding his election and until his successor shall have been elected
and shall have qualified. The Chairman of the Board shall be elected by the
Board from time to time and shall serve as Chairman of the Board until his
successor shall have been elected and shall have qualified. The Chairman of
the Board shall be a director, and may serve as an officer or otherwise be an
employee.
SECTION 2. If the office of any director is not filled at an annual
meeting or becomes vacant, or if new directorships resulting from an increase
in the authorized number of directors are created, the remaining directors
(even though less than a quorum) by a majority vote, or the sole remaining
director, may fill such directorship. A director so elected shall hold office
until the next annual meeting of shareholders and until his successor is
elected and qualified in his stead. Any directorship not filled by the Board
may be filled by the shareholders at an annual meeting or at a special meeting
called for that purpose.
SECTION 3. The Board shall have the power to remove a director for
cause and to suspend a director pending a final determination that cause exists
for removal.
SECTION 4. There shall be an annual meeting of the Board for
3
<PAGE> 4
the election of officers and for such other business as may be brought before
the meeting, immediately after the annual meeting of shareholders.
SECTION 5. Regular meetings of the Board may be held without notice
at such time and place as shall from time to time be determined by the Board.
SECTION 6. Special meetings of the Board may be called by the
Chairman of the Board, Chief Executive Officer, President or by any two
directors at such time and place as specified in a notice delivered personally
or by telephone to each director, or mailed, telegraphed or sent by facsimile
transmission to his address upon the books of the Company, at least two days
prior to the time of holding the meeting. The notice of meeting need not, but
may, specify the purpose of the meeting.
SECTION 7. A majority of directors shall constitute a quorum for the
transaction of business. Any action approved by a majority of the votes of
directors present at a meeting at which a quorum is present, shall be the act
of the Board.
SECTION 8. The Board may act without a meeting if, prior or
subsequent to the action, each member of the Board consents in writing to the
action. The written consent or consents shall be filed in the minute book.
SECTION 9. Any director may participate in a meeting of the Board by
means of conference telephone or any other means of communication by which all
persons participating in the meeting are able to hear each other.
ARTICLE IV
OFFICERS
SECTION 1. The officers of the Company may consist of a Chief
Executive Officer, a President, one or more Vice Presidents, a Secretary, a
Treasurer, and a General Controller and one or more Assistant Secretaries,
Assistant Treasurers and Assistant General Controllers. The said officers
shall be elected at the annual meeting of the Board by a majority vote of the
Board and shall serve at the pleasure of the Board and shall be subject to
removal at any time, with or without cause, provided, however, that the Board
may at its pleasure omit the election of any of the foregoing officers not
required by law. One person may hold more than one office.
SECTION 2. The said officers shall have the powers and shall perform
all the duties incident to their said respective offices and shall perform such
other duties as shall from time to time be assigned to them by the Board.
4
<PAGE> 5
SECTION 3. The Chairman or, in his absence, a director selected by a
majority of the Directors, shall preside at meetings of the Board. Each Vice
President or other officer shall have general charge of such departments or
divisions of the Company's business, or shall perform such duties, as may from
time to time be determined by the Chief Executive Officer and they shall be
responsible for the proper administration of their respective departments or
divisions to the Chief Executive Officer. Departmental managers shall be
responsible for the proper administration of their departments to the officer
in charge thereof.
SECTION 4. During the absence of the Chief Executive Officer, the
Chief Executive Officer shall designate, in writing to the Corporate Secretary,
the officer who shall be vested with all the powers of such office in respect
of the signing and execution of any contracts or other papers requiring the
signature of any such absent officer. In the event of any prolonged absence of
any officer of the Company, the Board may delegate his powers or duties to any
other executive officer, or to any director, during such absence, and the
person so delegated shall, for the time being, be the officer whose powers and
duties he so assumes.
SECTION 5. The Board may create such other offices as they may
determine, elect or provide for the election of officers to fill the same,
define their powers and duties and fix their tenures of office. The Board may
also create or provide for the creation of (1) administrative divisions, and
(2) offices and committees for any such divisions and may elect or provide for
the election of officers and committee members to fill the positions so
created, define or make provision for the duties to be performed by such
officers and committees and the powers to be exercised by them and fix or make
provision for their tenures of office. The Board may delegate to the Chief
Executive Officer or to any other officer or any committee of the Company the
power to exercise some, any or all of the powers granted to the Board by the
foregoing provisions of this Section. The Chief Executive Officer in turn may
delegate to any other officer or any committee of the Company the power to
exercise some, any or all of the powers delegated to him by the Board pursuant
to the foregoing provisions of this Section.
ARTICLE V
COMMITTEES
SECTION 1. There shall be an Executive Committee consisting of three
or more directors. The membership of this Committee shall consist of such
number of directors as the Board may, by a resolution adopted by a majority of
the entire Board, elect from time to time and their terms of office shall be
for such periods as the Board may designate. A majority of all the members of
the
5
<PAGE> 6
Committee shall constitute a quorum for the transaction of business. The Board
or Executive Committee members shall elect the Chairman of the Committee. The
Committee shall determine its own procedure and shall meet on call by the
Chairman of the Committee or by any two members of the Committee. In addition
to any general or special duties that may from time to time be delegated to it
by the Board, the Committee shall, subject to the laws of the State of New
Jersey, have and may exercise the powers of the Board during the intervals
between the meetings of the Board, including the periodic review of management
organization.
SECTION 2. There shall be an Audit Committee comprised of two or more
directors. The members shall be elected by the Board, or the Executive
Committee, either of which shall also elect the Chairman of the Committee. A
majority of the members shall constitute a quorum of the Committee.
The Committee shall assist the Board in fulfilling its fiduciary
responsibilities relating to accounting policies, auditing and reporting
practices for the Company and shall, through regularly scheduled meetings
provide a direct line of communication between the Board and the Company's
independent accountants, as well as the internal auditor. It shall receive
management's recommendation of the independent auditing firm for the next year
and make its recommendation to be approved by the Board.
It shall review with the independent auditing firm the scope of its
examination, the consolidated financial statements prior to the approval of the
annual report by the Board, the competence and adequacy of financial,
accounting and internal audit management and control procedures of the Company,
recommendations of the independent auditors and management's response thereto,
the internal audit function and such other matters relating to financial
reports as it deems appropriate. It will require that serious differences
between the independent auditors and the management be reported to it.
SECTION 3. There shall be a Committee on Officers' Compensation
comprised of three or more directors. The members shall be elected by the Board
or the Executive Committee, either of which shall also elect the Chairman of
the Committee. A majority of the members shall constitute a quorum of the
Committee.
The Committee shall establish salaries for elected officers of the
Company. It shall be responsible for the administration of the Management
Incentive Plan, other incentive compensation plans and related subjects. It
shall also supervise and administer such employee benefits plans as the Chief
Executive Officer or the Board shall, from time to time, direct.
6
<PAGE> 7
SECTION 4. The Committees created by the preceding sections of this
Article shall each keep a record of their actions and proceedings, and all
their actions shall be reported to the Board at its next ensuing meeting;
except that, when the meeting of the Board is held within 2 days after the
committee meeting, such report shall, if not made at the first meeting, be made
to the Board at its second meeting following such committee meeting.
ARTICLE VI
WAIVERS OF NOTICE
Any notice required by these by-laws, by the Restated Certificate of
Incorporation, or by the New Jersey Business Corporation Act may be waived in
writing by any person entitled to notice. The waiver, or waivers, may be
executed either before or after the event with respect to which the notice is
waived. Each director or shareholder attending a meeting without protesting,
prior to its conclusion, the lack of proper notice, shall be deemed conclusion,
the lack of proper notice shall be deemed conclusively to have waived notice of
the meeting.
ARTICLE VII
DEPOSITORIES, CHECKS AND NOTES
SECTION 1. The Chairman of the Board, Chief Executive Officer,
President, Chief Financial Officer, Treasurer or an Assistant Treasurer of the
Company shall each have the authority to designate banks, trust companies or
other depositories in which funds of the Company shall be deposited to the
credit of the Company. All checks, drafts and orders for the payment of money
shall be signed by any one of the aforesaid officers, or by such other person
or persons as the Board or anyone of the aforesaid officers may from time to
time designate. Subject to such limitations, restrictions and safeguards as
any of the aforesaid officers shall prescribe, signatures in the case of all
checks, drafts and orders for the payment of money may be facsimile signatures.
SECTION 2. The signature of any officer upon any bond, debenture,
note or similar instrument executed on behalf of the Company may be a facsimile
whenever authorized by the Board.
7
<PAGE> 8
ARTICLE VIII
DIVIDENDS
Subject to the provisions of law and the Restated Certificate of
Incorporation of the Company, the Board shall have the power in its discretion
to declare and pay dividends upon the shares of stock of the Company of any
class in cash, in its own shares, in its bonds or in other property, including
the shares or bonds of other corporations. Anything in the Restated
Certificate of Incorporation or these by-laws to the contrary notwithstanding,
no holder of any share of stock of the Company of any class shall have any
right to any dividend thereon unless such dividend shall have been declared by
the Board as aforesaid.
ARTICLE IX
SEAL
The seal of the Company shall be circular in form with the words
"Borden, Inc." on the circumference, and the figures "1899" in the center.
ARTICLE X
STOCK
SECTION 1. Certificates of stock shall be issued and signed by the
Chairman of the Board, Chief Executive Officer, President or a Vice President
and may be countersigned by the Treasurer or an Assistant Treasurer or the
Secretary or an Assistant Secretary and may be sealed with the seal of the
Company or a facsimile thereof. Any or all signatures upon a certificate,
including those of a stock transfer agent or a registrar, may be facsimile. In
case any officer or officers or any transfer agent or registrar of the Company
who shall have signed, or whose facsimile signature or signatures shall have
been used on any certificate or certificates shall cease to be such officer or
officers, or such transfer agent or registrar, for whatever cause, before such
certificate or certificates shall have been delivered, such certificate or
certificates may nevertheless be issued and delivered as though the person or
persons who signed such certificate or certificates or whose facsimile
signature or signatures shall have been used thereon had not ceased to be such
officer or officers or such transfer agent or registrar, as the case may be.
SECTION 2. All transfers of stock shall be made upon the books of the
Company upon surrender to the Company of the certificate or certificates for
such stock, duly endorsed or accompanied by proper evidence of succession,
assignment or authority to transfer.
8
<PAGE> 9
SECTION 3. Every person claiming a stock certificate in lieu of one
lost or destroyed shall give notice to the Company of such loss and
destruction, and shall also file in the office of the Company an affidavit as
to his ownership of the stock represented by the certificate, and of the facts
which go to prove its loss or destruction. He shall, if required by the Board
of Directors, give the Company a bond or agreement of indemnity in a form to be
approved by counsel, with or without sureties and in such amount as may be
determined by the Board or by an officer in whom authority therefor shall have
been duly vested by the Board against all loss, cost and damage which may arise
from issuing such new certificate. The officers of the Company, if satisfied
from the proof that the certificate is lost or destroyed, may then issue to him
a new certificate of the same tenor as the one lost or destroyed.
SECTION 4. The Board shall have the power and authority to make all
such rules and regulations as it may deem expedient concerning the issue,
transfer and registration of certificates for shares of the capital stock of
the Company. The Board may appoint transfer agents and registrars of transfer,
and may require any or all stock certificates to bear the signature or
facsimile signature of any such transfer agent and any such registrar of
transfers.
SECTION 5. Unless the Board by specific resolution provides
otherwise, all shares of the Company, which are reacquired pursuant to the New
Jersey Corporation Act, Section 14A:7-16 by purchase, by redemption or by their
conversion into other shares of the Company, shall remain authorized and issued
shares and shall be considered treasury shares.
ARTICLE XI
FISCAL YEAR
SECTION 1. The fiscal year of the Company shall commence on the first
day of January in each year and end on the following thirty-first day of
December.
SECTION 2. It shall be the duty of the principal financial officer to
submit a full report of the financial condition of the Company for the
preceding fiscal year at a meeting of the Board preceding the annual meeting
of shareholders.
ARTICLE XII
AMENDMENTS TO BY-LAWS
SECTION 1. These by-laws are subject to the provisions of the New
Jersey Business Corporation Act and the Corporation's Restated Certificate of
Incorporation, as each may be amended from time to time. If any provision in
these by-laws is inconsistent with a provision in that Act or the Restated
Certificate of Incorporation,
9
<PAGE> 10
the provision of that Act or the Restated Certificate of Incorporation shall
govern.
SECTION 2. These by-laws may be altered, amended, or repealed by the
shareholders or the Board. Any by-law adopted or amended by the shareholders
may be amended or repealed by the Board, unless the resolution of the
shareholders adopting the by-law expressly reserves to the shareholders the
right to amend or repeal it.
10
<PAGE> 1
EXHIBIT 4(viii)
Borden, Inc.
180 East Broad Street
Columbus, Ohio 43215
February 15, 1995
Whitehall Associates, L.P.
and KKR Partners II, L.P.
c/o Kohlberg Kravis Roberts & Co.
9 West 57th Street
New York, New York 10019
Gentlemen:
By your acceptance of this letter, you hereby contribute to
Borden, Inc. ("Borden") effective today shares of common stock, par value $0.01
per share, of RJR Nabisco Holdings Corp. ("RN Common Stock") as follows:
Whitehall Associates, L.P. ("Whitehall") hereby contributes 67,193,843 shares
of RN Common Stock to Borden, and KKR Partners II, L.P. (together with
Whitehall, the "Common Stock Partnerships") hereby contributes 1,699,389 shares
of RN Common Stock to Borden. The shares of RN Common Stock contributed today
by the Common Stock Partnerships are referred to herein as the "Contributed
Stock".
1. In consideration for the contribution of the Contributed
Stock, Borden hereby agrees to issue to the Common Stock Partnerships on the
Issuance Date (as defined below) shares of its capital stock as further
described below. The "Issuance Date" shall be August 14, 1995 unless the
Common Stock Partnerships notify Borden (to the attention of either its Chief
Executive Officer or General Counsel) in their sole discretion that they wish
to acquire such shares at an earlier date. In such event the
<PAGE> 2
Whitehall Associates, L.P.
and KKR Partners II, L.P. -2- February 15, 1995
Common Stock Partnerships shall specify the proposed Issuance Date in the above
mentioned notice, and the Issuance Date shall be the later of the date so
proposed and the earliest date at which the provisions of paragraph 2 below can
be satisfied.
2. In connection with the issuance of capital stock by Borden
referred to in the preceding paragraph, each stockholder of record, if any, of
outstanding Borden stock (other than the Common Stock Partnerships) on the
Issuance Record Date (as defined below) shall be given the right to purchase
that number of shares of the same class or series of capital stock of Borden as
the capital stock to be issued pursuant to paragraph 3 below to the Common
Stock Partnerships as bears the same proportion to the aggregate number of
shares of capital stock to be received by the Common Stock Partnerships
pursuant to this letter agreement as the number of shares of outstanding Borden
stock held of record by any such stockholder on the Issuance Record Date bears
to the aggregate number of shares of outstanding Borden stock held by the
Common Stock Partnerships on the Issuance Record Date. Any Borden stockholder
other than the Common Stock Partnerships desiring to subscribe for shares of
capital stock pursuant to this paragraph shall be required to pay for such
shares of Borden capital stock the same per share consideration paid by the
Common Stock Partnerships either (at each such stockholders sole option) (i) in
shares of RN Common Stock calculated, based on the applicable calculations set
forth in paragraph 3 below, to have been paid by the Common Stock Partnerships
for the Contributed Stock, PROVIDED that with respect to any shares of RN
Common Stock contributed pursuant to this paragraph 2 by Borden stockholders of
<PAGE> 3
Whitehall Associates, L.P.
and KKR Partners II, L.P. -3- February 15, 1995
record other than the Common Stock Partnerships, the Market Value of such
contributed RN Common Stock shall be determined based upon the second sentence
of paragraph 3(a) below without giving effect to the proviso thereto or (ii) in
cash in an amount for each Borden share to be purchased equal to (A) if
paragraph 3(a) below is applicable, the average of the high and low sales
prices of the Borden Common Stock as reported on the New York Stock Exchange
("NYSE") Composite Tape on the last trading day for Borden Common Stock prior
to the date of the Merger or (B) if paragraph 3(b) below is applicable, $100
per share. The "Issuance Record Date" shall be July 14, 1995 unless the Common
Stock Partnerships shall have given notice to Borden that they wish to fix an
Issuance Date prior to July 14, 1995. In the event that the Common Stock
Partnerships have given such notice to Borden, the Issuance Record Date shall
be fixed by Borden 30 calendar days prior to the proposed Issuance Date;
PROVIDED that if such notice is given following the Merger, the Issuance Record
Date shall be the Issuance Date.
3. (a) If on the Issuance Record Date, the Merger shall have
occurred, the Common Stock Partnerships shall receive in consideration for the
Contributed Stock that number (rounded to the nearest whole share) of shares of
Borden common stock, par value $0.01 per share (the "Borden Common Stock"), as
are equal to the quotient of (i) the aggregate Market Value (as defined below)
of the Contributed Stock divided by (ii) the average of the high and low sales
prices of the Borden Common Stock as reported on the NYSE Composite Tape on the
last trading day for Borden Common Stock prior to the date of the Merger. The
"Market Value" of the Contributed Stock shall be the average of
<PAGE> 4
Whitehall Associates, L.P.
and KKR Partners II, L.P. -4- February 15, 1995
the high and low sales prices of the RN Common Stock on the NYSE Composite Tape
on February 15, 1995 multiplied by 68,893,232 shares; PROVIDED that if all the
shares of Contributed Stock shall have been sold by Borden prior to the
Issuance Record Date and the net proceeds of such sale to Borden shall be less
than the "Market Value" as defined above, the "Market Value" of the Contributed
Stock shall be the aggregate net sale proceeds realized by Borden from the sale
of the Contributed Stock.
(b) If on the Issuance Record Date, the Merger shall not have
occurred, the Common Stock Partnerships shall receive in consideration for the
Contributed Stock shares of non-voting preferred stock of Borden with an
aggregate liquidation preference equal to the Market Value of the Contributed
Stock and bearing a dividend rate fixed by an investment banking firm mutually
acceptable to Borden and the Common Stock Partnerships as would be expected to
cause the issue of preferred stock to trade at par (taking into account,
without limiting the factors which may be considered by such investment banking
firm, Borden's credit ratings and financial condition) to institutional
investors. Such preferred stock shall have other customary rights,
designations and preferences; PROVIDED that such preferred stock shall not be
mandatorily redeemable or redeemable at the option of the holder prior to
January 1, 2000. Such issue of preferred stock shall be divided into shares
each having a liquidation preference of $100 per share and may be issued in
fractional shares.
4. The consideration to be received by the Common Stock
Partnerships pursuant to paragraph 3 shall be divided between the Common Stock
Partnerships in
<PAGE> 5
Whitehall Associates, L.P.
and KKR Partners II, L.P. -5- February 15, 1995
proportion to the amount of Contributed Stock contributed to Borden by each
such Common Stock Partnership.
5. Borden agrees to complete the transactions described in this
letter agreement in compliance with all federal and state securities and blue
sky laws and regulations.
6. Borden agrees to extend, pursuant to one or more reasonably
acceptable agreements, registration rights to the Common Stock Partnerships
with respect to all Borden capital stock held by the Common Stock Partnerships.
7. This letter agreement shall be governed by and construed in
accordance with the laws of the State of New York, regardless of the laws that
might otherwise govern under applicable principles of conflicts of laws
thereof.
8. This letter agreement may be executed in two or more
counterparts each of which shall be deemed to be an original, but all of which
shall constitute one and the same instrument.
Very truly yours,
BORDEN, INC.
By: _______________________________
<PAGE> 6
Whitehall Associates, L.P.
and KKR Partners II, L.P. -6- February 15, 1995
Agreed and Accepted:
WHITEHALL ASSOCIATES, L.P.
By: KKR Associates,
a limited partnership,
its general partner
By: _______________________________
KKR PARTNERS II, L.P.
By: KKR Associates,
a limited partnership,
its general partner
By: _______________________________
<PAGE> 1
EXHIBIT (4)(ix)
BORDEN, INC.
180 EAST BROAD STREET
COLUMBUS, OHIO 43215
March 15, 1995
Whitehall Associates, L.P.
and KKR Partners II, L.P.
c/o Kohlberg Kravis Roberts & Co.
9 West 57th Street
New York, New York 10019
Gentlemen:
On March 15, 1995, the Board of Directors of Borden, Inc.
("Borden") declared a dividend of one right (collectively, the "Rights") per
share of Common Stock, par value $.01 per share (the "Borden Common Stock"),
held of record on that date. Each Right permitted its holder, upon exercise,
to acquire from Borden upon written notice to Borden a number (to be determined
as specified in paragraph 2 below) of shares of capital stock of Borden (as
further described in paragraph 1 below) in consideration for contributing
shares of Common Stock, par value $.01 per share (the "RN Common Stock"), of
RJR Nabisco Holdings Corp. Whitehall Associates, L.P. ("Whitehall") and KKR
Partners II, L.P. ("Partners II" and, together with Whitehall, the "Common
Stock Partnerships"), the sole stockholders of record of Borden, hereby
exercise their respective Rights and each of them, effective today, contributes
to Borden shares of RN Common Stock as follows: Whitehall hereby contributes
108,308,275 shares of RN Common Stock to Borden and Partners II hereby
contributes 2,738,955 shares of RN Common Stock to Borden. The shares of RN
<PAGE> 2
Common Stock contributed today by the Common Stock Partnerships are referred to
herein as the "Contributed Stock."
1. In consideration for the contribution of the Contributed
Stock and pursuant to the Rights, Borden hereby agrees to issue to the Common
Stock Partnerships a number (to be determined as specified in paragraph 2
below) of shares of either Borden Common Stock or Series A Cumulative
Convertible Preferred Stock, having substantially the rights, preferences and
other terms set forth in the form of Certificate of Amendment to the Restated
Certificate of Incorporation of Borden attached hereto as Exhibit A ("Series A
Preferred Stock"), of Borden, at the election and sole option of the Common
Stock Partnerships, on such date or dates as may be specified from time to time
by the Common Stock Partnerships by written notice to Borden (each such date,
an "Issuance Date"). Each such notice shall designate the total number (the
"Designated Number") of shares of Contributed Stock with respect to which the
issuance of Borden stock is being requested on such Issuance Date. The Common
Stock Partnerships may deliver such notices hereunder until the aggregate of
the Designated Numbers of all such notices equals 111,047,230.
2. (a) On each Issuance Date that the Common Stock
Partnerships elect to receive shares of Borden Common Stock as consideration
for the Contributed Stock, Borden shall issue for each of the Designated Number
of shares of the Contributed Stock with respect to such Issuance Date such
fraction of a share of Borden Common Stock that is the quotient of (x) the
Market Value of each share of the Contributed Stock divided by (y) $13-1/4,
which is the average of the high and low sales prices of a share
<PAGE> 3
3
of Borden Common Stock on the New York Stock Exchange Composite Tape on March
13, 1995. For purposes hereof, the "Market Value" of each share of the
Contributed Stock shall be $5-13/16, which is the average of the high and low
sales prices of a share of RN Common Stock on the New York Stock Exchange
Composite tape on March 13, 1995; provided that if such share of Contributed
Stock has been sold by Borden prior to the Issuance Date and the net proceeds
to Borden of such sale shall be less than the Market Value as defined above,
then the "Market Value" of such share shall be the amount of the net sale
proceeds realized by Borden from the sale of such share of the Contributed
Stock. If the aggregate number of shares of Borden Common Stock that would be
required to be issued pursuant to the foregoing provisions of this paragraph
2(a) on any Issuance Date is not a whole number, then such aggregate number of
shares shall be rounded to the nearest whole number.
(b) On each Issuance Date that the Common Stock Partnerships
elect to receive shares of Series A Preferred Stock as consideration for the
Contributed Stock, Borden shall issue for all of the Designated Number of
shares of the Contributed Stock with respect to such Issuance Date such amount
of Preferred Stock as has an aggregate stated value or liquidation preference
equal to the Market Values of all such Designated Number of shares of
Contributed Stock with respect to such Issuance Date and bearing such dividend
rate, conversion ratio and other material terms as Borden and the Common Stock
Partnerships may agree. If the Common Stock Partnerships so request, in their
sole discretion, the terms of the Series A Preferred Stock shall
<PAGE> 4
4
be modified so that the Series A Preferred Stock is not convertible into Borden
Common Stock.
3. The consideration to be received by the Common Stock
Partnerships pursuant to paragraph 1 shall be divided between the Common Stock
Partnerships in proportion to the amount of Contributed Stock contributed to
Borden by each such Common Stock Partnership.
4. Borden agrees to complete the transactions described in
this letter agreement in compliance with all federal and state securities and
blue sky laws and regulations.
5. Borden agrees to extend, pursuant to one or more
reasonably acceptable agreements, registration rights to the Common Stock
Partnerships with respect to all Borden capital stock held by the Common Stock
Partnerships.
6. Borden shall deliver to the Common Stock Partnerships,
within 15 days after filing with the Securities and Exchange Commission (the
"SEC"), copies of the reports and other documents which Borden is required to
file with the SEC pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934, as amended (the "Securities Exchange Act"). If Borden is not
subject to the requirements of such Section 13 or 15(d) of the Securities
Exchange Act, Borden shall deliver to the Common Stock Partnerships, within 15
days after it would have been required to file such information with the SEC,
financial statements, including any notes thereto, and with respect to annual
reports, an auditor's report by an accounting firm of established national
reputation and a "Management's Discussion and Analysis of Financial Condition
and Results of Operations," each comparable
<PAGE> 5
5
to that which Borden would have been required to include in such reports or
other documents if Borden were subject to the requirements of such Section 13
or 15(d) of the Securities Exchange Act.
7. Borden agrees that, whether or not the transactions
contemplated by this letter are consummated, Borden will pay or cause to be
paid all costs and expenses arising in connection with the preparation,
execution, administration and enforcement of, and the preservation of rights
under, this letter, and all taxes (other than taxes based on income), fees or
other charges that may be payable in connection with the transactions
contemplated hereby.
8. Whether or not the transactions contemplated hereby are
consummated, Borden agrees to indemnify and hold harmless each Common Stock
Partnership and all limited and general partners of each Common Stock
Partnership from and against any liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, claims, costs, attorneys' fees, expenses
and disbursements of any kind which may be imposed upon, incurred by or
asserted against each Common Stock Partnership (or any partner thereof) in any
manner relating to or arising out of (i) such Common Stock Partnership's
purchase and/or ownership of the Borden securities or (ii) any litigation to
which such Common Stock Partnership (or any of its partners) is made a party in
its capacity as a shareholder or owner of securities (or a partner of a
shareholder or owner of securities) of Borden.
9. Notwithstanding any other provision of this letter,
neither the general partner nor the limited partners nor any
<PAGE> 6
6
future general or limited partner of a Common Stock Partnership shall have any
personal liability for performance of any obligation of a Common Stock
Partnership under this letter in excess of the respective capital contribution
of such general partner and limited partners to such Common Stock Partnership.
10. This letter agreement shall be governed by and construed
in accordance with the laws of the State of New York, regardless of the laws
that might otherwise govern under applicable principles of conflicts of laws
thereof.
11. This letter agreement may be executed in two or more
counterparts each of which shall be deemed to be an original, but all of which
shall constitute one and the same instrument.
Very truly yours,
BORDEN, INC.
By: _____________________
Title:
<PAGE> 7
7
Agreed and Accepted:
WHITEHALL ASSOCIATES, L.P.
By: KKR Associates,
a limited partnership,
its general partner
By: ______________________
General Partner
KKR PARTNERS II, L.P.
By: KKR Associates,
a limited partnership,
its general partner
By: ______________________
General Partner
<PAGE> 1
EXHIBIT 10(v)
THIRD AMENDMENT
---------------
THIRD AMENDMENT, dated as of January 4, 1995 (this "THIRD AMENDMENT"),
among BORDEN ACQUISITION CORP., a New Jersey corporation ("PURCHASER"),
WHITEHALL ASSOCIATES, L.P., a Delaware limited partnership ("PARENT"), and
BORDEN, INC., a New Jersey corporation (the "COMPANY"), to the Agreement and
Plan of Merger, dated as of September 23, 1994, as amended by Amendments
thereto dated as of November 15, 1994 and December 6, 1994 (the "AGREEMENT"),
among Purchaser, Parent and the Company.
1. AMENDMENT TO SECTION 3.1. Subsection 3.1(b) of the Agreement
is hereby amended by inserting "KKR Partners II, L.P.," immediately after the
phrase "owned by Parent," where such phrase appears in such subsection.
2. AMENDMENT TO EXHIBIT A. Exhibit A to the Agreement is hereby
deleted from the Agreement in its entirety and in lieu thereof Annex A hereto
is inserted as a new Exhibit A to the Agreement.
3. AUTHORIZATION; EFFECTIVENESS. (a) This Third Amendment has
been duly executed and delivered by each party hereto and constitutes a valid
and binding obligation of each such party, enforceable against such party in
accordance with its terms subject to the effects of bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and other similar laws
relating to or affecting creditors' rights generally, general equitable
principles (whether considered in a proceeding in equity or at law) and an
implied covenant of good faith and fair dealing.
(b) This Third Amendment shall become effective upon execution and
delivery by the parties hereto. Except as expressly amended hereby, the
provisions of the Agreement are and shall remain in full force and effect.
4. GOVERNING LAW. This Third Amendment shall be governed by and
construed in accordance with the laws of the State of New Jersey, regardless of
the laws that might otherwise govern under applicable principles of conflicts
of laws thereof.
5. COUNTERPARTS. This Third Amendment may be executed in two or
more counterparts, each of which shall be deemed to be an original, but all of
which shall constitute one and the same agreement.
(Continued on subsequent page)
<PAGE> 2
-2-
IN WITNESS WHEREOF, each of the parties has caused this Third
Amendment to be executed on its behalf by its officers thereunto duly
authorized, all as of the day and year first above written.
WHITEHALL ASSOCIATES, L.P.
By: KKR Associates, a limited
partnership, its General
Partner
By: /s/ Henry R. Kravis
----------------------
Title: General Partner
BORDEN ACQUISITION CORP.
By: /s/ Clifton S. Robbins
--------------------------
Name: Clifton S. Robbins
Title: President
BORDEN, INC.
By: /s/ Allan L. Miller
-----------------------------
Name: Allan L. Miller
Title: Senior Vice President,
Chief Administrative
Officer and General
Counsel
<PAGE> 1
EXHIBIT 10(xvi)
AMENDMENT TO THE BORDEN, INC.
SUPPLEMENTAL BENEFIT TRUST AGREEMENT
Under the powers reserved to it under Section 1.4 and pursuant of the
authorization of its Board of Directors, Borden, Inc. hereby amends the Borden,
Inc. Supplemental Benefit Trust Agreement as amended through December 9, 1993
by adding Section 9.11 as follows:
"9.11 NOTWITHSTANDING ANY OTHER PROVISION OF THIS TRUST ANY
"CHANGE-IN-CONTROL" RESULTING FROM, EFFECTED BY, OR ARISING IN
CONNECTION WITH MERGER AGREEMENT AMONG WHITEHALL ASSOCIATES, L.P.,
BORDEN ACQUISITION CORP. AND BORDEN, INC., DATED SEPTEMBER
23, 1994 SHALL NOT BE DEEMED TO BE A CHANGE-IN-CONTROL UNDER THIS
TRUST AGREEMENT AND BY WAY OF ILLUSTRATION AND NOT LIMITATION
NO SUCH CHANGE-IN-CONTROL SHALL RESULT IN THIS TRUST BECOMING
IRREVOCABLE OR RESULT IN ANY FUNDING OBLIGATIONS BY
THE CORPORATION OR IN CREATION OF ANY RIGHTS IN THE BENEFICIARIES
OF THIS TRUST"
This Amendment is made this 15th day of November 1994.
BORDEN, INC.
By: /s/ Randy Kautto
--------------------
Randy Kautto
Vice President
Human Resources
Accepted:
WACHOVIA BANK OF NORTH CAROLINA, N.A.
By: /s/ Joe O. Long
-------------------------
Joe O. Long
Senior Vice President
this day of November 1994.
-----
<PAGE> 1
EXHIBIT 10 (xix)(i)
- - -------------------
DESCRIPTION OF ARRANGEMENT WITH C. ROBERT KIDDER
- - ------------------------------------------------
C. Robert Kidder, Chairman of the Board and Chief Executive Officer, is
employed at a base annual salary of $900,000 with an annual incentive
opportunity of eighty percent of salary guaranteed to be not less than $360,000
for 1995, payable in 1996. A long-term incentive program for Mr. Kidder has
not yet been determined. Mr. Kidder also receives the perquisites usual for
his position and participates in the employee and executive benefit programs of
the Company. His employment arrangement has no definite term.
<PAGE> 1
[BORDEN LOGO] EXHIBIT 10(xix)(j)
IF IT'S BORDEN-IT'S
GOT TO BE GOOD BORDEN, INC
- - -------------------------------------------------------------------------------
ALLAN L. MILLER
July 7, 1994 SENIOR VICE PRESIDENT
CHIEF ADMINISTRATIVE OFFICER
Mr. James Van Meter
10 Cherokee Road
Atlanta, GA 30305
Dear Jim:
This will supplement my letter to you of June 8, 1994 and an attached
corrected summary of terms of employment, copies of which are attached to and
incorporated in this agreement.
o Your annual base salary will be reviewed annually but no
decrease in the rate of annual salary shall be made in the
absence of a general decrease in senior executive salaries
approved by Borden's Board of Directors.
o As Executive Vice President, Chief Financial Officer you will
report to Borden's Chief Executive Officer and you will have
the duties normal to a Chief Financial Officer with such
additional specific duties as determined by the Company's
Chief Executive Officer.
o The fact that the Company is not by contract required to allow
your participation in its long term incentive awards program
shall not preclude you from being considered in the Board of
Directors discretion for long term cash awards on the basis of
management's recommendation in future years.
o "Cause" as a basis for termination shall be as defined in the
Company's agreement with its Core Management Group namely:
An act or acts of dishonesty constituting a felony and
resulting or intending to result directly or indirectly in
gain or personal enrichment at the expense of Borden to which
Executive is not legally entitled such as to (a) cause
intentional material harm to Borden; (b) materially impair the
reputation of Borden; or (c) materially interfere with the
operations of Borden shall constitute "cause."
180 EAST BROAD STREET
COLUMBUS, OHIO 43215
TELEPHONE: 614-225-4884
<PAGE> 2
James Van Meter
July 7, 1994
Page 2
o You will establish your permanent and principal residence in
the Columbus, Ohio area not later than September 5, 1994.
o In the event of your termination following a change in control
of Borden and during the first three (3) years of your
employment, you will be reimbursed for your expenses in
relocating your permanent residence from Columbus, Ohio to
Atlanta, Georgia provided such relocation occurs within one
year of such termination.
o Attached to this agreement is a description of the benefits
which are available for your participation.
o In the event of a dispute concerning the terms of this
agreement either party will notify the other party in writing
of the existence and nature of the dispute and the parties
will meet within ten (10) days in a good faith effort to
resolve the dispute. Failing a mutually satisfactory
resolution within ten (10) days either party may refer the
matter to the American Arbitration Association for resolution
under its rules for commercial arbitration. The decision of
the arbitrator shall be final and binding of the parties and
the prevailing party's cost including counsel fees shall be
paid by the other party.
Jim, I believe this covers all the terms we have discussed. Please
indicate your agreement by signing below.
Sincerely,
/s/ Allan L. Miller
---------------
Allan L. Miller
Agreed:
/s/ James Van Meter
---------------
James Van Meter
enclosure
e:\et\vanmeter.7a4
-2-
<PAGE> 3
Borden, Inc. ("Company")
-----------
Summary of Terms of
Employment for James C. Van Meter ("You")
1. Employment See paragraph 10 below.
2. Position Executive Vice President - Chief Financial
Officer reporting to the Chief Executive
Officer of the Company.
3. Base Salary $300,000 per year.
4. Annual Incentive Target opportunity 55% of base salary.
Maximum: 82.5% of base salary.
5. Long-Term Incentive No Participation.
Award Opportunity
6. Stock Option Award You shall be eligible to participate in the
Company's stock option plan.
Grants shall be as follows, with one year
vesting:
300,000 shares at market (At next grant,
expected in June.)
250,000 shares at market on July 1, 1994,
vesting when the market price is at least $21.50
for 20 consecutive days.
200,000 shares at market on Janurary 2, 1995,
vesting when the market price is at least $25.00
for 20 consecutive days.
Stock options awarded to you will be
exercisable for the following periods after
termination of employment for any reason other
than cause but in no event longer than the
exercise period of the grant.
Completed Years Exercise Period
of Employment After Termination
-------------- -----------------
0 - 2 years 2 years
2 - 3 years 3 years
3+ years 5 years
-3-
<PAGE> 4
7. Pension Benefits You shall be eligible for pension
benefits as provided under the Company's
tax-qualified retirement plan and non-
qualified supplemental excess benefit
plan. Immediate vesting.
The Company will match your
contributions to its Retirement Savings
Plan at 50%, as done with other long-
term CORE members, from your employment
date forward.
We hope to go back to a 100% match on 7%
of salary in 1995, if our economic
performance permits. If that is done for
other senior managers, it will be done
for you.
8. Relocation You will permanently relocate to the
greater Columbus, Ohio, area by June 27,
1994. You will participate in the
Company's employee relocation policy
applicaple to current employees,
including the sale of your principal
residence. (See attached relocation
policy.)
9. Perquisites You shall be entitled to benefits in
accordance with the Company's
Perquisites Policy for CORE management
as the same may from time to time be
amended. (See attachment.)
10. CORE Management You will participate in the full CORE
Program management program as it may be amended
from time to time by the Board of
Directors. The program currently would
provide you one year's base salary if
you are terminated without cause. You
will be paid three years' full pay if
you are terminated without cause
following a change in control. (A
review of the program by the Board of
Directors is expected by year-end.)
-4-
<PAGE> 5
We will commit by contract that you
will have this protection as described
above for at least a three-year period
following your employment, i.e., the
one year if terminated without cause
and the three years if terminated
without cause following a change in
control.
11. Terms of Plans Some of the above are highlights of
various plans or programs, and all are
subject to the terms of the actual
plans and programs.
-5-
<PAGE> 1
EXHIBIT 10(XIX)(k)
TERMINATION AGREEMENT
TERMINATION AGREEMENT, dated as of January 10, 1995, between
BORDEN, INC., a New Jersey corporation (the "Company"), and ERVIN R. SHAMES
(the "Executive").
WHEREAS, the Company and the Executive are party to (i) an
employment agreement dated June 24, 1993 (the "Employment Agreement"), as
amended on each of December 22, 1993, January 25, 1994, February 22, 1994,
April 22, 1994 and August 11, 1994, and (ii) a letter agreement dated June 28,
1993 (the "Core Agreement"), as amended on August 11, 1994, under which the
Executive served as the Chief Executive Officer, President, Chief Operating
Officer and a member of the Board of Directors of the Company;
WHEREAS, the Company has entered into an Agreement and Plan of
Merger among Whitehall Associates, L.P., Borden Acquisition Corp. and the
Company, dated as of September 23, 1994 (the "Merger Agreement");
WHEREAS, consistent with the terms of the Merger Agreement,
Whitehall Associates, L.P. acquired 63.5% of the Company's outstanding shares
(the "Change of Control");
WHEREAS, effective January 10, 1995 (the "Termination Date"),
the Executive has resigned his employment and all positions related to his
employment;
WHEREAS, a letter agreement dated January 10, 1995 between the
Executive and Kohlberg, Kravis & Roberts & Co., the
<PAGE> 2
2
general partner of Whitehall Associates, L.P., provided that the Executive's
resignation would be treated as a termination without "cause" so that the
Executive could receive such compensation and benefits in accordance with
Paragraph 3.01(b) of the Employment Agreement and Paragraph 2(b) of the Core
Agreement and such other benefits as the Executive may be entitled to under the
applicable plans and programs of the Company;
WHEREAS, the parties wish to agree upon their mutual rights
and obligations arising from such resignation;
NOW, THEREFORE, in consideration of the mutual promises and
agreements set forth herein, and other good and valuable consideration, the
receipt of which are hereby acknowledged, the Company and the Executive hereby
agree as follows:
SECTION 1. TERMINATION PAYMENTS.
--------------------
Subject to Section 8(e), the Executive shall be entitiled to
receive the following cash payments (less any applicable withholding):
(a) As soon as practicable after the signing of this
agreement, the Company shall pay the Executive $170,196, representing
severance payments and supplemental matching contributions for the
period from January 10, 1995 to January 31, 1995, and accrued vacation
benefits as of the Termination Date.
(b) Commencing on March 1, 1995 and on the first day of each
month through December 1, 1997, the Company shall pay the Executive
$160,400, representing severance payments and supplemental matching
contributions for such period.
(c) On January 1, 1998, the Company shall pay the Executive
$108,658, representing severance and supplemental matching
contributions for the period December 1, 1997 through December 21,
1997.
SECTION 2. WELFARE BENEFITS. (a) Subject to Section 8(e),
for the period January 1, 1995 through December 21, 1997
<PAGE> 3
3
(the "Severance Period"), the Company shall continue to maintain Executive's
level of coverage in effect as of the Termination Date under the following
welfare benefit plans provided the Executive continues to contribute to the
cost of coverage under these plans in the same manner and at the same level
that he would be required to contribute if his employment as Chief Executive
Officer were not terminated: (i) the Company's Executive Family Survivor
Protection Plan; (ii) the Business, Personal Travel Accident Plan; (iii) the
Life Insurance Plan; (iv) the Disability Income Plan; (v) the Supplemental
Health Care Plan; and (vi) the Total Family Protection Plan (Health Care,
Basic/Supplemental Life Insurance, Dependent Life Insurance, High Limit
Accident Insurance and Business Travel Accident Insurance).
(b) Upon request of the Executive at any time after the
Severance Period, the Company shall permit the Executive to participate in the
Company's retiree medical program, as it exists from time to time, provided the
Executive pays 100% of the cost of his coverage thereunder and provided further
that if at any time subsequent to Executive's participation in such retiree
medical program his coverage thereunder shall cease at his initiative,
Executive shall have no right to reparticipate therein.
SECTION 3. PENSION BENEFITS. The Company shall pay a pension
benefit:
(a) to the Executive, if living, of $100,000 times
each completed "year of service" (payable monthly in
substantially equal payments of $8,333.33 per month for a
period of time equal to the Executive's completed years of
service), commencing on the 15th day of the
<PAGE> 4
4
month following the day the Executive attains age 65 (and on
the 15th day of each month thereafter);
(b) to the Executive's designated beneficiary or his
estate, if the Executive shall have died prior to his 65th
birthday, a lump sum payment equal to the present value of
$100,000 times each partial and completed "year of service"
(as if such payments were made monthly in substantially equal
payments for a period of time equal to the Executive's partial
and completed years of service), payable on the first day of
the month following the Executive's death;
(c) to the Executive's designated beneficiary or his
estate, if the Executive shall have died on or after his 65th
birthday but prior to receiving all of the amounts payable
pursuant to (a) above, a lump sum payment equal to the present
value of the remaining payments to which the Executive was
entitled to under (a) above, payable on the first day of the
month following the Executive's death.
Subject to Section 8(e), the Executive shall continue to
receive credit towards his "years of service" for the Severance Period so that
the total payments due under Section 3(a) equal $400,000. The present value
calculation required by Section 3(b) or 3(c) above shall be performed by the
Company's actuaries using the interest rate assumption used to calculate lump
sum equivalents pursuant to the Borden, Inc. Employees Retirement Income Plan.
SECTION 4. STOCK OPTIONS AND RESTRICTED STOCK. The Company
acknowledges that as a result of the Change of Control, (i) restrictions on the
22,500 shares of restricted stock previously awarded to the Executive
immediately lapsed, and (ii) outstanding stock options previously granted to
the Executive that were not then fully vested and immediately exercisable
became fully vested and immediately exercisable. The
<PAGE> 5
5
Company further agrees that Executive's options shall remain outstanding until
April 10, 1995.
SECTION 5. RELOCATION EXPENSES. (a) As soon as practicable
following the execution of this Agreement, the Company shall pay the Executive
$119,913 in respect of his Columbus house.
(b) The Company shall reimburse the Executive for (i) moving
expenses incurred by the Executive in connection with his relocation to
Connecticut to the extent provided by the Company's relocation policy (subject
to reductions by the amounts that any subsequent employer would pay for such
moving expenses under its normal policy or practice for executives at the
Executive's level of employment), and (ii) prior to March 13, 1995, travel
expenses incurred by the Executive and his spouse to and from Columbus, Ohio
and the New York City metropolitan area, in accordance with the practice
currently in effect (including the limitation on reimbursement for no more than
two trips per month), as set forth in the August 11, 1994 letter between the
Executive and Mr. Frank J. Tasco.
SECTION 6. FRINGE BENEFITS AND PERQUISITES.
-------------------------------
Subject to Section 8(e), during the Severance Period, the
Company shall continue to maintain at its expense the following fringe benefits
and perquisites on the Executive's behalf:
(a) Continued coverage under the personal umbrella policy,
at the level in effect on the Termination Date;
(b) Reimbursement for the cost of financial counselling, tax
preparation and drafting of wills (not to exceed $15,000 per year);
<PAGE> 6
6
(c) Reimbursement of up to $1,000 per month for a lease on an
automobile and reimbursement for automobile insurance coverage for
such automobile at the level of coverage in effect on the Termination
Date;
(d) Reimbursement of the cost of homeowner's insurance at the
level of coverage in effect on the Termination Date;
(e) Reimbursement for the cost of membership in one country
club and in the Harvard Club in New York City (but in the case of the
country club, such costs shall not exceed $5,672 annually);
(f) Continued eligibility for the Company's matching gifts
program (with such matching gifts not to exceed $2,000 per year);
(g) Prior to the time the Executive becomes employed (or
self-employed) on a full-time basis, reimbursement for the costs of
office space and a secretary and the costs associated therewith,
including the costs of equipment and supplies (in an amount not to
exceed $60,000) upon receipt of acceptable documentation.
All claims for reimbursement must be made to the Company in
writing, accompanied by a bill or other appropriate documentation detailing the
nature and the amount of the expense. In addition to the foregoing, as soon as
practicable after the execution of this Agreement, the Company shall pay to
Executive in a single sum $50,000 in lieu of outplacement counselling.
SECTION 7. STATUS OF PRIOR AGREEMENTS. The parties hereto
agree that the Employment Agreement and the Core Agreement (including any
amendment or modification thereto) are hereby terminated and shall be of no
further force or effect.
SECTION 8. RESTRICTIVE COVENANTS AND NONCOMPETITION PROVISIONS.
---------------------------------------------------
(a) CONFIDENTIALITY. The Executive shall not at any time
use for himself or others or divulge or convey to others any secret or
confidential information, knowledge, or data of the
<PAGE> 7
7
Company, including information, knowledge or data of third parties as to which
the Company is under an obligation of confidentiality (as, for example,
information supplied to allow the Company to evaluate a potential acquisition),
obtained by him in the course of his activities as a director, officer or
employee of the Company except when required to do so by a court of law, by a
governmental agency having supervisory authority over the business of the
Company or by any administrative or legislative body (including a committee
thereof) with apparent jurisdiction to order him to divulge, disclose or make
accessible such information. Such information, knowledge or data includes, but
is not limited to, secret or confidential matters (i) of a technical natures
such as, but not limited to, methods, know-how, formulae, compositions,
processes, discoveries, machines, inventions, computer programs and similar
items or research projects; (ii) of a business nature such as, but not limited
to, information about cost, purchasing, profits, market, sales or lists of
customers; and (iii) pertaining to future developments such as, but not limited
to, research and development or future marketing or merchandising. Such
information, knowledge or data does not include information, knowledge or data
that becomes publicly known other than through a breach of this Termination
Agreement by the Executive.
(b) NONCOMPETITION. During the Severance Period, if the
Executive "performs services" for any "competing business" of the Company or
any "substantial entity" (the Company and all substantial entities,
collectively, the "Borden Companies"), the
<PAGE> 8
8
Company shall have the remedy described in Section 8(e) hereof. For purposes
of this Section 8(b), the terms below shall have the following meanings: (i)
to "perform services" for any "competing business" shall mean to perform
services as an employee, consultant, associate, or agent on behalf of any
person, principal, partnership, joint venture, firm or corporation that sells,
manufactures, distributes, researches, develops or solicits orders for pasta,
pasta sauce or dairy products within the United States or Canada; provided,
however, that a "competing business" shall not include a business that does
not manufacture and/or process pasta, pasta sauce or dairy products and
provided further that the Executive shall not be deemed to be performing
services for a competing business solely because (A) he owns less than 5% of
the outstanding capital stock entitled to vote for the election of directors of
a publicly-traded corporation, (B) he is employed by a management consulting
firm (the "MCF") provided his duties therefor do not involve his performing
services for a competing business which has engaged such firm or (C) he is
employed by an entity which is owned (in whole or in part) by a venture capital
company (a "VCC") and which entity is a competing business solely by reason of
such VCC's ownership of a competing business otherwise unrelated to the entity
for which the executive performs services, provided that in the case of (B) and
(C) above Executive does not discuss or otherwise provide the MCF or VCC or any
of their affiliates with any information which could enable any entity to
engage in, or assist any entity in the engagement in, any competing
<PAGE> 9
9
business; and (ii) a "substantial entity" shall mean a subsidiary, joint
venture or other entity in which the Company's equity interest, either direct
or indirect, equals at least twenty (20%) percent. Within ten business days
following a request by the Executive, the Company shall determine in writing
whether specified services to be performed by the Executive constitute the
performance of services for a competing business; provided, however, that such
request shall be in writing and contain such information as, in the Company's
discretion, is necessary to make such a determination. Such determination
shall be inapplicable to any services not specified in such request. Failure
to respond to any such request within ten business days shall be deemed to be a
determination that performance of the services specified in such request will
not constitute the performance of services for a competing business for the
purposes of this Section 8(b).
(c) NONSOLICITATION. During the Severance Period, the
Executive shall not actively and knowingly (i) solicit any person who is a
customer of the Borden Companies to become a customer of a competing business,
or (ii) induce or attempt to persuade any employee of a Borden Company to
terminate his employment relationship with such company; provided, however,
that it shall not be a violation of this Section 8(c) if the Executive solicits
any employee of a Borden Company after the termination of such employee's
employment with the Borden Company.
(d) STATEMENTS TO OTHERS. The Company and the Executive each
agree that they shall not (except as required by
<PAGE> 10
10
law) directly or indirectly make any statement or release any information, or
encourage others to make any statement or release any information that is (i)
designed to embarrass or criticize the other (or any of their respective
affiliates or associates), or (ii) intended to interfere with the merger
contemplated by the Merger Agreement; provided that it shall not be a violation
of this Section 8(d) for the Executive to make truthful statements when
required to do so by a court of law, by any governmental agency having
supervisory authority over the business of the Company or by any administrative
or legislative body (including a committee thereof) with apparent jurisdiction
to order him to divulge, disclose or make accessible such information.
(e) ENFORCEMENT. (i) If the Executive breaches the covenants
contained in Section 8(a), 8(b) or 8(c), the Company shall have no obligation
to make any further payments provided for in Sections 1, 2 and 6 of this
Termination Agreement (other than the $61,538 payment representing accrued
vacation pay). Upon the occurrence of each event constituting a breach by the
Executive of the covenant contained in Section 8(d), the Company shall have no
obligation to make any further payments under any or all of Sections 1, 2 and 6
of the Termination Agreement until the total of the payments which otherwise
would have been made equal $500,000 with respect to each such event, at which
time such payments shall resume. In addition, if the Executive breaches any of
the covenants contained in Section 8, the Company shall have no further
obligation to credit the Executive with service for purposes of calculating the
Executive's pension under
<PAGE> 11
11
Section 3 of this Termination Agreement; PROVIDED, HOWEVER, that this sentence
shall not become effective until all of the following shall have taken place:
(A) the Secretary of the Company, pursuant to a
resolution of the Board of Directors of the Company shall have give
written notice to the Executive that, in the opinion of the Board of
Directors, the Executive has breached a covenant contained in this
Section 8;
(B) the Executive shall have been given a reasonable
opportunity upon reasonable notice to appear before and to be heard by
the Board of Directors prior to the determination of the Board
evidenced by such resolution; and
(C) with respect to a breach of the covenant
contained in Section 8(b), the Executive shall not have, either ceased
to perform services for a competing business within thirty (30) days
of the receipt of the notice described in (B) above, nor have
diligently taken all reasonable steps to cease performing such
services during such thirty (30) day period and thereafter;
PROVIDED, FURTHER, that in the event of a breach of Section 8(d), any loss of
pension benefits under Section 3 which is due to the cessation of the
obligation to credit service shall, when combined with the cessation of
payments under Sections 1, 2 and 6 hereunder which is due to a breach of
Section 8(d), equal no more than $500,000.
(ii) The Company and the Executive recognize that each party
will have no adequate remedy at law for breach by the other of any of the
covenants set forth in Section 8(a), 8(c) or 8(d) and that in the event of any
breach of these covenants, the Company and the Executive hereby agree and
consent that the other shall be entitled to seek a decree of specific
performance, mandamus or other appropriate remedy to enforce the performance of
such covenants.
<PAGE> 12
12
SECTION 9. CONSULTATION AND LITIGATION SUPPORT. During the
Severance Period, subject to his other business and personal commitments, the
Executive shall make himself reasonably available for consultation with the
Chief Executive Officer of the Company on business matters from time to time,
and in connection with any litigation and disputes arising out of actions of
the Company of which he has knowledge or information and the Executive agrees
that he will cooperate with the Company in supplying data, information, and
expertise within his special knowledge or competence and otherwise assist the
Company in a proper and appropriate fashion in the protection of its interests.
The Company shall reimburse the Executive for reasonable out-of-pocket expenses
(such as hotel and travel expenses) incurred by the Executive in providing such
services.
SECTION 10. INDEMNITY. The Company shall, to the fullest
extent permitted by law or its Certificate of Incorporation or By-laws,
indemnify the Executive and hold him harmless for any acts, omissions or
decisions made or alleged to be made by him, but only if such acts, omissions
or decisions were, to the extent actually made, made in good faith during his
employment. The Company shall advance to the Executive all reasonable costs
and expenses incurred by him in connection with a proceeding for which he is
indemnified under this Section 10 within 20 days after receipt by the Company
of a written request for such advance. Such request shall include an
undertaking by the Executive to repay the amount of such advance if it shall
<PAGE> 13
13
ultimately be determined that he is not entitled to be indemnified against such
costs and expenses.
SECTION 11. PARACHUTE TAX GROSS-UP. If the Executive is
required, pursuant to Section 4999 of the Internal Revenue Code of 1986, as
amended (the "Code"), to pay an excise tax on "excess parachute payments" as
defined in Section 280G of the Code with respect to any of the payments or
benefits set forth in Schedule A hereto (the "Excise Tax"), the Company shall
pay to the Executive, prior to the time the Excise Tax is payable an amount
equal to the Excise Tax, plus such additional amounts as shall be required so
that the net amount to the Executive in respect of such scheduled payments and
benefits is as if the Excise Tax had not been imposed.
SECTION 12. NO OBLIGATION TO MITIGATE. The Executive shall
be under no obligation to minimize or mitigate damages by seeking other
employment, and, except as provided in Sections 6 and 8 hereof, the obtaining
of any such other employment shall in no event effect any reduction of the
Company's obligation to make the payments and provide the benefit coverages
required under this Termination Agreement.
SECTION 13. RELEASE. The Executive acknowledges that certain
payments provided for hereunder are in excess of the amounts that the Executive
would otherwise be entitled to receive under his Employment Agreement and Core
Agreement and that the Company had no obligation to enter into this Termination
Agreement. In consideration of the Company assuming these additional
obligations and entering into this Termination
<PAGE> 14
14
Agreement, the Executive agrees to execute a release substantially in the form
attached hereto.
SECTION 14. NOTICE. All notices, requests, demands and other
communications provided for by this Agreement shall be in writing and shall be
sufficiently given if and when mailed in the continental United States by
registered or certified mail or personally delivered to the party entitled
thereto at the address stated below. Such address may be changed by either
party from time to time by a similar notice. Any such notice delivered in
person shall be deemed to have been received on the date of delivery.
Notice to the Company shall be addressed to:
Borden, Inc.
180 East Broad Street
Columbus, Ohio 43215-3799
Attn: Secretary
With a copy to:
Kenneth C. Edgar, Jr., Esq.
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
Notice to the Executive shall be addressed to him at:
Mr. Ervin R. Shames
35 Mollbrook Drive
Wilton, CT 06897
With a copy to:
Joseph E. Bachelder, Esq.
Law Offices of
Joseph E. Bachelder
780 Third Avenue
New York, New York 10017
SECTION 15. ARBITRATION. Any dispute or controversy arising
under or in connection with this Termination Agreement
<PAGE> 15
15
shall be settled exclusively by arbitration, conducted before an arbitrator who
is mutually agreeable to the Executive and the Company in the New York City
metropolitan area in accordance with the rules of the American Arbitration
Association then in effect or, if the Executive and the Company are unable to
agree on an arbitrator, before an arbitrator chosen in accordance with the
rules of the American Arbitration Association. Judgment may be entered on the
arbitrator's award in any court in the State of New York or New Jersey having
jurisdiction.
SECTION 16. LEGAL FEES AND EXPENSES.
(a) The Company shall reimburse the Executive for legal fees
and expenses incurred by him in connection with the negotiation of this
Termination Agreement up to a maximum reimbursement of $60,000.
(b) If a claim or dispute arises out of or relates to any
provision of this Termination Agreement, the Company shall pay all reasonable
legal fees and expenses that the Executive may incur in any such claim or
dispute. For purposes of this Section 16(b), legal expenses shall include
reasonable legal fees, court costs, arbitration costs, and ordinary and
necessary out-of-pocket costs and fees of attorneys, billed to and payable by
the Executive or by anyone claiming under or through the Executive (such person
encompassed in the term "Executive" for purposes of this Section 16(b) only) in
connection with the bringing, prosecuting, defending, litigating, arbitrating,
negotiating or settling of any claim or dispute by or against the Executive, or
any claim or dispute between the Executive and the Company or any
<PAGE> 16
16
third party (excluding any of the Executive's creditors or beneficiaries) that
may arise out of or relate to this Termination Agreement, or the validity,
operation, interpretation, enforceability or breach thereof, provided that, in
the case of any request that the Company pay attorneys' fees or expenses
pursuant to this sentence, the Company shall have received a statement signed
by the attorney or firm of attorneys rendering the bill to the effect that (i)
in the opinion of the attorney or firm a BONA FIDE dispute exists which could
lead to or is in litigation, (ii) the bill for legal fees and expenses was
prepared in accordance with the attorney's or firm's regular schedule of fees
(which schedule shall be set forth), and (iii) the services for which the bill
was rendered have already been performed or represent a reasonable retainer for
services to be performed and, in case of expenses, have already been incurred.
If the Executive does not prevail in his claim or dispute and the adjudicating
body (E.G., the court or arbitrator) determines that the Executive did not act
in good faith in bringing or pursuing the action, the Executive shall refund
the legal fees and expenses paid by the Company with respect to such claim or
dispute.
SECTION 17. GOVERNING LAW. This Termination Agreement shall
be construed and interpreted in accordance with the laws of the State of New
Jersey, and subject to Section 15, the parties hereto submit to the
jurisdiction of the courts of the State of New Jersey and New York for the
purpose of any actions or
<PAGE> 17
17
proceedings that may be required to enforce any provision of this Termination
Agreement.
SECTION 18. NONASSIGNMENT. No right, benefit or interest
hereunder shall be subject to anticipation, alienation, sale, assignment,
encumbrance, charge, pledge, hypothecation or set-off in respect of any claim,
debt or obligation or to execution, attachment, levy or similar process or
assignment by operation of law. The Executive shall not have any right, title
or interest whatsoever in or to any investments which the Company may make to
aid it in meeting its obligations under this Termination Agreement.
SECTION 19. BENEFICIARIES. In the event of the Executive's
death, the Executive's beneficiary shall mean any beneficiary or beneficiaries
designated on a form filed with the Company to receive any amount payable after
his death, and in the event no such beneficiary has been designated shall mean
the Executive's estate.
SECTION 20. COMPANY SUCCESSORS AND ASSIGNS. This Termination
Agreement shall be binding upon and inure to the benefit of the Company and any
successor of the Company acquiring directly or indirectly all or substantially
all of the assets of the Company whether by merger, consolidation, sale or
otherwise (and such successor shall thereafter be deemed embraced within the
term "the Company" for purposes of this Termination Agreement) but shall not
otherwise be assignable by the Company without the Executive's consent.
<PAGE> 18
18
SECTION 21. SEVERABILITY. If any of the provisions of this
Termination Agreement shall otherwise contravene or be invalid under the laws
of any state or other jurisdiction where it is applicable but for such
contravention or invalidity, such contravention or invalidity shall not
invalidate all of the provisions of this Termination Agreement, but rather the
Agreement shall be reformed and construed, insofar as the laws of that state or
jurisdiction are concerned, as not containing the provision or provisions, but
only to the extent that they are contravening or are invalid under the laws of
that state or jurisdiction, and the rights and obligations created hereby shall
be reformed and construed and enforced accordingly.
SECTION 22. AMENDMENT; MODIFICATION; WAIVER. No provision of
this Termination Agreement may be amended or modified unless such amendment or
modification shall be agreed to in writing, signed by the Executive and by an
officer of the Company thereunder duly authorized. No waiver by either party
hereto of any breach by the other party hereto of any condition or provision of
this Termination Agreement to be performed by such other party shall be deemed
a waiver of a subsequent breach of such condition or provision or a waiver of a
similar or dissimilar provision or condition at the same time or at any prior
or subsequent time.
SECTION 23. CAPTIONS AND HEADINGS. Captions and headings are
for convenience only and are not a part of, and shall not be used to construe
any provision of, this Termination Agreement.
<PAGE> 19
19
SECTION 24. ENTIRE AGREEMENT. This Termination Agreement
constitutes the entire agreement between the parties respecting the subject
matter hereof and supersedes any prior agreements respecting the subject matter
hereof.
SECTION 25. COUNTERPARTS. This Termination Agreement may be
executed in counterparts.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first written above.
/s/ Ervin R Shames
___________________________________
ERVIN R. SHAMES
BORDEN, INC.
/s/ Allan L. Miller
___________________________________
By:
<PAGE> 20
20
WAIVER AND GENERAL RELEASE
--------------------------
INTRODUCTION
Various federal, state and local laws and regulations prohibit
employment discrimination based upon, among other things, age, sex, race,
color, national origin, religion, disability and/or veteran status. These
anti-discrimination laws and regulations are enforced through the United States
Equal Employment Opportunity Commission, the United States Department of Labor,
and various state and local fair employment practices agencies. Other laws and
regulations prohibit employers from terminating employees tortiously or
wrongfully, in breach of express or implied covenants of good faith and fair
dealing, in violation of public policy, or in such a manner as to negligently
or intentionally inflict emotional distress. In other situations, employees
may have claims against an employer for fraud, misrepresentation or defamation.
By executing the attached Termination Agreement, you have
agreed to execute and be bound by this Waiver and General Release in exchange
for the Company's assumption of additional payment and benefit obligations.
The terms of the Termination Agreement and the eligibility for the additional
payments and benefits to be paid thereunder are expressly contingent upon your
signature and delivery to the Company of this Waiver and General Release.
Under the terms of this Waiver and General Release, you will waive any rights
to bring claims against Borden, Inc., Whitehall Associates, L.P., any
successors thereto and against various other persons with respect to your
employment or otherwise, except as specifically and expressly allowed by this
Waiver and General Release. This is a legally binding document. DO NOT SIGN
THIS WAIVER AND GENERAL RELEASE UNLESS YOU THOROUGHLY UNDERSTAND IT.
<PAGE> 21
21
WAIVER AND GENERAL RELEASE
In exchange for the agreement of Borden, Inc. (the "Company")
to enter into the attached Termination Agreement and to make certain payments
and benefits that I would not otherwise be entitled to pursuant to such
Termination Agreement, I hereby release the Company and Whitehall Associates,
L.P., all of their past and/or present divisions, affiliates, officers,
directors, stockholders, partners, trustees, employees, agents,
representatives, administrators, attorneys, insurers, fiduciaries, successors
and assigns, in their individual and/or representative capacities (hereinafter
collectively referred to as "the Employer"), from any and all causes of action,
suits, agreements, promises, damages, disputes, controversies, contentions,
differences, judgments, claims and demands of any kind whatsoever ("Claims")
that I or my heirs, executors, administrators, successors and assigns ever had,
now have or may have against the Employer, whether known or unknown to me, by
reason of my employment and/or cessation of employment with the Employer, or
otherwise involving facts that occurred on or prior to the date that I have
signed this Release, other than a Claim that the Company has failed to pay me
the payments or make available the benefits described in the attached
Termination Agreement or has otherwise breached the terms of the Termination
Agreement or a Claim with respect to any vested right I may have under any
employee benefit plan maintained by the Company. Such released Claims include,
without limitation, any and all Claims under Title VII of the Civil Rights Act
of 1964, the Age Discrimination in Employment Act of 1967, the Civil Rights Act
of 1871, the Civil Rights Act of 1991, the Fair Labor Standards Act, the
Employee Retirement Income Security Act, the Americans with Disabilities Act,
the Family and Medical Leave Act of 1993, and any and all other federal, state
or local laws, statutes, rules and regulations pertaining to employment, as
well as any and all Claims under state contract or tort law.
I represent that I have not filed, and will not hereafter
file, any Claim against the Employer relating to my employment and/or cessation
of employment with the Employer, or otherwise involving facts that occurred on
or prior to the date that I have signed this Waiver and General Release, other
than a Claim that the Company has failed to pay me the payments or make
available the benefits described in the attached Termination Agreement or has
otherwise breached the terms of the Termination Agreement or a Claim with
respect to any vested right I may have under any employee benefit plan
maintained by the Company.
I understand and agree that if I commence, continue, join in,
or in any other manner attempt to assert any Claim released herein against the
Employer, or otherwise violate the terms of this Waiver and General Release, I
shall be required to return all payments paid to me by the Company pursuant to
the Termination Agreement plus the cost of providing any benefits under such
agreement (together with interest thereon), and I
<PAGE> 22
22
agree to reimburse the Employer for all attorneys' fees and expenses incurred
by it in defending against such a Claim, provided that the right to receive
such payments is without prejudice to the Employer's other rights hereunder,
including any waiver and release of any and all Claims against the Employer.
I understand and agree that the Company's payments to me and
my signing of this Waiver and General Release do not in any way indicate that I
have any viable Claims against the Employer or that the Employer admits any
liability to me whatsoever.
I have read this Waiver and General Release carefully, have
been given at least 21 days to consider all of its terms, have been advised to
consult with an attorney and any other advisors of my choice, and fully
understand that by signing below I am giving up any right that I may have to
sue or bring any other Claims against the Employer. I have not been forced or
pressured in any manner whatsoever to sign this Waiver and General Release, and
I agree to all of its terms voluntarily.
I understand and agree that this Waiver and General Release
will be governed by New Jersey law, to the extent not preempted by federal law.
I understand that I have 7 days from the date I have signed
this Waiver and General Release below to revoke this Waiver and General
Release, that this Waiver and General Release will not become effective until
the 8th day following the date that I have signed this Waiver and General
Release, and that if I revoke this Waiver and General Release the Termination
Agreement shall be void AB INITIO (I.E. as if the Company had never entered
into the Termination Agreement).
/s/ Ervin R. Shames
__________________ ______________________________________
Date Executive's Signature
<PAGE> 23
23
SCHEDULE A
Payments and benefits pursuant to Sections 1, 2(a) and 6 of
the Termination Agreement.
<PAGE> 1
EXHIBIT (10)(xix)(l)
Borden, Inc. ("Company")
Summary of Terms of
Employment for Mr. Morris ("You")
1. Employment If Change of Control occurs within
the next three years, employee
entitled to receive two times annual
compensation, if terminated without
cause.
If no Change of Control - if terminated
without cause in the first three
years of employment, employee will
be entitled to one year's base pay.
2. Position Vice President - Strategy and
Finance North American Foods and
International Foods.
3. Base Salary $215,000 per year.
4. Annual Incentive For 1993:
Guarantee up to $60,000 for any lost
bonus as a result of termination at
General Foods.
Payable in February, 1994.
For 1994:
Target opportunity 37.5% of base salary
Maximum 52% of base salary
Payable in February, 1995.
5. Long-Term Incentive 1993-1995 cycle (to be paid in 1996)
Award Opportunity Standard award opportunity: $60,000
Maximum: $81,000
6. Stock Option Award You shall be eligible to participate
in the Company's stock option plan,
subject to shareholder approval of
the plan.
First grant shall be as follows:
40,000 shares in September 1993 (or
when the Company's Compensation
Committee meets on stock options in
1993).
1994 - 10,000 shares. Subject to Board
approval: Expect 1994 option meeting
fall of 1994.
1
<PAGE> 2
7. Retirement Savings The Company will match your
Plan contributions to its Retirement
Savings Plan at 5%, from your
employment date forward.
8. Relocation You and your family will permanently
relocate to greater Columbus, Ohio
area by January 1, 1994. You will
participate in the Company's
employee relocation policy
applicable to current employees,
inclusive of tax gross up, including
benefits relative to sale of your
principal residence. We agree to
pay temporary living expenses of up
to 120 days (policy covers up to 30
days).
9. Terms of Plans Some of the above are highlights of
various plans or programs, and all
are subject to the terms of the
actual plans and programs.
2
<PAGE> 3
November 4, 1994
George Morris
Borden, Inc.
180 E. Broad Street
Columbus, Ohio 43215
Dear George:
In addition to the written "loss on home sale" protection (which you previously
received), I want you to be aware of a special provision as reflected in the
merger agreement between Borden, Inc. and Whitehall Associates, L.P. (KKR).
Should you be terminated (without cause) during the two-year period following
the change in control effective date, you will receive two years full pay
(severance). Additionally, during the first two years, this severance
provision will also apply if:
(i) your office is relocated to a different city;
(ii) your base salary is reduced or your bonus opportunity is
materially lower than other company executives of
comparable rank;
(iii) there is a material diminution in the nature or scope of
the authority or responsibilities attached to your
position. A diminution in nature or scope of authority
or responsibilities will not be deemed to occur simply
because the company or business in which you are engaged
has changed in size or structure; or
(iv) the business (either separately or as part of a larger
business unit) in which you are engaged is sold or
otherwise disposed of.
Please let me know if you have any questions about these special change in
control provisions.
Sincerely,
/s/ Randy K. Kautto
- - --------------------
Randy D. Kautto
3
<PAGE> 1
EXHIBIT (10)(xix)(m)
January 19, 1994
Randy Kautto
18 Neustadt Lane
Chappaqua, New York 10514
Dear Randy:
Erv and I are delighted that you will be joining us on or about February 1 in
the position of Vice President Human Resources, reporting directly to Erv.
The essentials of your package are as follows:
1. Salary: Base salary of $20,838.88 on a monthly basis, which
annualizes to $250,000 a year.
2. Bonus: Your annual bonus has a 40% standard award and can go
as high, with stretch, as 65% of base salary. You will be
eligible for the 1994-96 Long-term Plan with a standard award
of $60,000. We guarantee a payment of at least $75,000 in
early 1997 under that program.
3. Your Vested Options: We will buy out your unvested 8,150
stock options at $49.05 a share at the January 14, 1994
closing price of 57-5/8, reported in Monday's Wall Street
Journal. That buy-out comes to a total of $69,886.25. This
will be payable within 30 days of your reporting to work.
4. Options: You will be eligible for 30,000 option shares at the
next annual grant, which we expect to occur within the next 90
days. You will be eligible for 10,000 shares in 1995 and
position-level grants thereafter.
<PAGE> 2
Randy Kautto
January 19, 1994
Page 2
5. Perquisites: You will be eligible for CORE perquisites package,
however, as we discussed, we expect the CORE "perk" package to be
reconstituted sometime during 1994. Obviously you will be involved
in revising the policy as part of your new position.
6. Savings Plan: As a special exception, in 1994, the company will match
50% of your contributions to the savings plans to a maximum of 7% of
salary. If that match changes for other employees, your match will
obviously go up or down in the same regard. Our hope is to have a
100% match in 1995; in any case, your contributions, up to maximum of
7% of salary, will be matched at the same level as other employees are
matched.
7. Relocation: You are to permanently relocate to Columbus within six
months, with a full employee relocation package. During those six
months, we will pay reasonable costs for an apartment and you will
have commutation back to New York every two weeks. After the six
months, you are to demonstrate both personally and professionally your
commitment to Columbus as your home and that of your family.
8. Philip Morris Bonus: As to your 1993 bonus to be paid by Philip
Morris, should Philip Morris reduce that bonus based on your
resignation of this week, Borden will protect you for any loss due to
your resignation, up to $25,000.
9. Termination Protection: In terms of termination protection, if
termination without cause, as a CORE member you will receive one year
base salary. If a change of control occurs and you are terminated
without cause you would have two years of compensation protection
under the CORE Plan. This will be included in your CORE contract
which will be executed within 30 days of your reporting to work.
<PAGE> 3
Randy Kautto
January 19, 1994
Page 3
10. Finally, since your wife has a pre-existing condition that would not be
eligible for reimbursement under the Board plan, for one year we will
reimburse you for the contribution cost of electing the extension of
coverage for her (COBRA) under the Philip Morris plan.
Sincerely,
/s/ Allan L. Miller
Allan L. Miller
mls
cc: E. Shames
OFFER ACCEPTED:
/s/ Randy Kautto
- - -----------------
Signature
1-19-94
- - -----------------
Date
<PAGE> 1
Exhibit 10(xxi)
FINAL
NOTES PREPAYMENT AGREEMENT
--------------------------
NOTES PREPAYMENT AGREEMENT dated as of this 15th day of
December, 1994 (this "Agreement") by and between Borden, Inc. ("Borden") and
Borden Chemicals and Plastics Operating Limited Partnership ("BCOP").
WHEREAS, BCOP has issued and outstanding $60,000,000 in
aggregate principal amount of its promissory notes held by The Prudential
Insurance Company of America ("Prudential"), $70,000,000 in aggregate principal
amount of its promissory notes held by Metropolitan Life Insurance Company
("MLIC") and $20,000,000 in aggregate principal amount of its promissory notes
held by Metropolitan Insurance and Annuity Company ("MIAC" and, together with
Prudential and MLIC, the "Noteholders")(such promissory notes collectively, the
"Notes") pursuant to the Note Agreement dated as of November 20, 1987 (the
"Note Agreement") among BCOP and the Noteholders; and
WHEREAS, Borden entered into an Undertaking dated as of
November 20, 1987 (the "Undertaking") for the benefit of the Noteholders
whereunder, among other things, Borden agreed that in the event of a Change of
Control of Borden (as defined in the Undertaking), Borden would offer to
purchase the Notes from the Noteholders on the terms specified therein; and
WHEREAS, Borden, BCOP and the Noteholders have entered into a
Prepayment Terms Agreement dated as of the date thereof (the "Prepayment Terms
Agreement") pursuant to which, among other things, Borden has agreed to pay a
Make Whole Premium (as defined therein) to the Noteholders; and
WHEREAS, the Prepayment Terms Agreement provides that upon
payment by Borden of such Make Whole Premium, among other things, (i) BCOP
shall have the right, not otherwise provided for in the Note Agreement, to
prepay the Notes, (ii) the obligation of BCOP set forth in the Note Agreement
to offer to purchase the Notes from the Noteholders (with a premium on the
Notes) in the event of certain changes of control of the general or limited
partner in BCOP will be modified to reduce or eliminate the premium on the
Notes that might be payable by BCOP, (iii) the obligation of Borden set forth
in the Undertaking to offer to purchase the Notes from the Noteholders upon a
Change of Control of Borden will be terminated, (iv) BCOP will be subject to a
restriction on incurrence of indebtedness in addition to the restrictions
currently imposed on BCOP under the Note Agreement and (v) Borden shall have
the right to purchase the Notes from the Noteholders; and
WHEREAS, BCOP acknowledges that the Prepayment Terms
Agreement, including the payment by Borden pursuant thereto of
<PAGE> 2
the Make Whole Premium, will result in certain benefits to BCOP (including the
provision to BCOP of a right to prepay the Notes and the reduction or
elimination of the premium on the Notes that might be payable by BCOP in the
event of certain changes of control of the general or limited partner in BCOP);
and
WHEREAS, the parties wish to set forth their understandings
with respect to the terms and conditions under which BCOP would exercise its
right of prepayment of the Notes and certain related matters;
NOW, THEREFORE, for good and valuable consideration, the
receipt, adequacy and sufficiency of which is hereby acknowledged by the
parties hereto, the parties hereto hereby agree as follows:
1. DEFINITIONS. The following capitalized terms shall
have the following meanings:
"BONA FIDE OFFER" means a bona fide offer to purchase the
Notes in cash by an institutional investor which has the financial means to
effect such purchase and is unaffiliated to the parties or the Investment Bank
and is not subject to any obligation to purchase or offer to purchase the Notes
and has not been provided any inducement to purchase or offer to purchase the
Notes. Such offer shall not contain any material conditions or contingencies
not typically contained in offers from institutional investors to purchase
instruments such as the Notes (other than those related to the provisions of
this Agreement or the Prepayment Terms Agreement).
"BORDEN REIMBURSEMENT AMOUNT" means the amount, if any, EQUAL
TO (A) the Purchase Premium LESS (B) 50% of the fees and expenses of the
Investment Bank for determining the Purchase Premium LESS (C) the amount, if
any, of any prepayment premium actually paid by BCOP pursuant to SECTION
3(b)(C) of the Prepayment Terms Agreement (in the event BCOP prepays the Notes
as contemplated in SECTION 2) or the amount, if any, of any prepayment premium
that would have been paid by BCOP pursuant to SECTION 3(b)(C) of the Prepayment
Terms Agreement if BCOP had prepaid the Notes on the proposed date of sale of
the Notes set forth in the notice provided by Borden pursuant to SECTION 3(b)
(in the event BCOP does not prepay the Notes but commits to pay the Borden
Reimbursement Amount pursuant to SECTION 3(c)). In the event that the amount
obtained under the foregoing formula is a negative number, Borden shall not be
required to pay such amount to BCOP.
"BUSINESS DAY" means any day other than a Saturday, Sunday or
other day on which banking institutions are not required to be open in the
State of New York.
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<PAGE> 3
"INVESTMENT BANK" means any one of the following investment
banks selected by BCOP: Morgan Stanley & Co. Incorporated, CS First Boston
Corporation, Salomon Brothers Inc, Bear Stearns & Co. Inc., Goldman Sachs & Co.
and Donaldson, Lufkin & Jenrette Securities Corporation. BCOP shall identify
the investment bank selected by it in the notice provided by it pursuant to
SECTION 2(a) or SECTION 3(c), as the case may be. In the event that BCOP fails
to select an investment bank in the applicable notice, the Investment Bank
shall be Morgan Stanley & Co. Incorporated.
"MARKET VALUE" means (a) the highest and best Bona Fide Offer
to purchase the Notes received by the Investment Bank within the 10 Business
Days preceding the proposed date of prepayment or sale of the Notes set forth
in the notice provided by BCOP pursuant to SECTION 2(a) or Borden pursuant to
SECTION 3(b), as the case may be (provided that if there are fewer than 10
Business Days from the date of execution of the engagement letter referred to
in SECTION 4(a) to such proposed date of prepayment or sale, such 10 Business
Day period shall begin on the day following the date of execution of such
engagement letter), or (b) in the event that the Investment Bank does not
obtain a Bona Fide Offer within the applicable 10 Business Day period under
clause (a) above, the sum of the amounts obtained by discounting (in accordance
with accepted financial practice and at a discount factor (applied on the same
periodic basis as that on which interest on the applicable Note is payable)
equal to the Market Yield for such Note) all remaining scheduled payments of
principal and interest with respect to each Note from their respective
scheduled due dates to the proposed date of prepayment or sale of such Note set
forth in the notice provided by BCOP pursuant to SECTION 2(a) or by Borden
pursuant to SECTION 3(b), as the case may be.
"MARKET YIELD" means, with respect to any Note, the yield on
such Note implicit in the purchase price payable for such Note in a cash
purchase and sale of such Note in an arms length transaction between an
institutional purchaser of such Note (which has the financial means to purchase
such Note in cash and is unaffiliated to the parties or the Investment Bank and
is not subject to any obligation to purchase such Note and has not been offered
any inducement to purchase such Note) and an institutional seller of such Note
(which is unaffiliated to the parties or the Investment Bank and is not subject
to any obligation or compulsion to sell such Note and has not been offered any
inducement to sell such Note). In making such determination, the Investment
Bank shall take into account (i) the maturity of such Note (taking into account
any mandatory prepayment requirements with respect thereto), (ii) the interest
rate on such Note, (iii) prevailing interest rates on actively traded U.S.
Treasury securities having a maturity and remaining
-3-
<PAGE> 4
average life equal to that of such Note (based on the average of such rates
over the 5 Business Days prior to the proposed date of prepayment or sale of
the Notes set forth in the notice provided by BCOP pursuant to SECTION 2(a) or
Borden pursuant to SECTION 3(b), as the case may be), (iv) the creditworthiness
of BCOP, (v) the terms and conditions of the Note Agreement, as amended by the
Prepayment Terms Agreement (after giving effect to SECTION 3(e) hereof) and
(vi) trading levels of comparable credits having securities of similar
maturity.
"PURCHASE PREMIUM" means an amount equal to the EXCESS, IF
ANY, OF (i) the Market Value of the Notes OVER (ii) the outstanding principal
amount of the Notes together with accrued but unpaid interest thereon as of the
applicable date of determination.
2. PREPAYMENT OF NOTES. (a) In the event that BCOP
plans to exercise its right of prepayment of the Notes set forth in SECTION 3
of the Prepayment Terms Agreement, BCOP will provide as much advance notice to
Borden as is practicable and in any event shall provide to Borden at least 10
Business Days prior notice. Such notice shall specify the proposed date of
prepayment by BCOP of the Notes and shall identify the Investment Bank.
(b) Subject to the provisions of SECTION 3(d), in the
event that BCOP exercises its right to prepay the Notes set forth in the
Prepayment Terms Agreement (including, without limitation, at any time that
Borden is the holder of the Notes), BCOP will be obligated to pay Borden the
Borden Reimbursement Amount, if any, in accordance with SECTION 4.
3. SALE OF NOTES. (a) Borden shall not exercise its
right to purchase the Notes set forth in SECTION 4 of the Prepayment Terms
Agreement until after February 28, 1995.
(b) In the event that, after February 28, 1995, Borden
formulates a good faith plan to sell the Notes (which plan shall not involve a
sale of the Notes to any affiliate of Borden), and Borden either has purchased
the Notes or intends to purchase the Notes pursuant to such plan, Borden will
provide as much advance notice of such plan to BCOP as is practicable and in
any event shall provide to BCOP at least 15 Business Days prior notice of such
sale of the Notes. Such notice shall specify the proposed date of sale by
Borden of the Notes.
(c) BCOP may, by provision of notice to Borden no later
than 5 Business Days after receipt by BCOP of the notice provided by Borden
pursuant to paragraph (b) above, elect to commit to pay Borden the Borden
Reimbursement Amount. Such notice shall identify the Investment Bank. In the
event that BCOP fails
-4-
<PAGE> 5
to make such election within such 5 Business Day period, BCOP will be deemed to
have waived its right to make such election with respect to such proposed sale
of the Notes and, in such event (notwithstanding the provisions of SECTION 2
and paragraph (e) below) BCOP shall not exercise its right to prepay the Notes
until the earlier of (i) the expiration of a period of 30 days from the 5th
Business Day after provision by Borden of notice pursuant to paragraph (b)
above with respect to such proposed sale or (ii) the date that Borden abandons
its attempts to effect such proposed sale (and such right of prepayment, if and
when exercised, shall be subject to the provisions of SECTION 2).
(d) In the event that BCOP makes the election
contemplated in paragraph (c) above, (i) BCOP will be obligated to pay Borden
the Borden Reimbursement Amount, if any, in accordance with SECTION 4, (ii)
Borden will not sell or cause the sale of the Notes, (iii) Borden's rights set
forth in SECTION 4 of the Prepayment Terms Agreement shall, without the
requirement of taking any further action or executing or delivering any
additional document, terminate and be of no force and effect and (iv) BCOP may
at any time prepay the Notes in accordance with SECTION 3 of the Prepayment
Terms Agreement and BCOP shall (without limiting its obligation set forth in
clause (i) above but notwithstanding the provisions of SECTION 2), in
connection with such prepayment, not be required to pay Borden any Borden
Reimbursement Amount.
(e) In the event that BCOP waives or is deemed to have
waived the election contemplated in paragraph (c) above and Borden, having
purchased the Notes from the Noteholders, sells the Notes after having complied
with the provisions of this SECTION 3 in connection with such sale of the
Notes, BCOP's right of prepayment of the Notes set forth in SECTION 3 of the
Prepayment Terms Agreement shall, immediately prior to the completion of such
sale and without the requirement of taking any further action or executing or
delivering any additional document, terminate and be of no force and effect.
In the event of any sale by Borden of the Notes, immediately prior to the
completion of such sale and without the requirement of taking any further
action or executing or delivering any additional document, the amendments to
SECTION 10.1(e) and SECTION 13 of the Note Agreement set forth in SECTION 5(vi)
of the Prepayment Terms Agreement shall with immediate effect terminate and be
of no force. The terms of the Prepayment Terms Agreement (after giving effect
to the foregoing termination of the provisions of SECTION 5(vi) thereof) shall
be binding upon any purchasers of the Notes and any subsequent transferees of
the Notes. In the event that any proposed sale by Borden of the Notes is not
consummated for any reason, BCOP's right of prepayment of the Notes set forth
in SECTION 3 of the Prepayment Terms Agreement and the provisions of this
SECTION 3 shall continue in force and effect.
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<PAGE> 6
4. DETERMINATION OF BORDEN REIMBURSEMENT AMOUNT;
INVESTMENT BANK'S FEES AND EXPENSES; RECEIPTS. (a) The parties shall, promptly
upon provision by BCOP of the notice contemplated in SECTION 2(a) hereof or
SECTION 3(c), negotiate an engagement letter with the Investment Bank. Any
such engagement letter shall be subject to approval of both parties. The
parties shall instruct the Investment Bank to determine the Purchase Premium,
as provided in the definition thereof. The Investment Bank shall be required
by the parties to provide its determination of such Purchase Premium (or its
determination that no Purchase Premium would be payable) in writing to BCOP and
Borden. The Investment Bank shall also be required by the parties to provide
to the parties such supporting evidence of the basis of its determination as
either of them may reasonably request. Absent manifest error, the
determination of the Investment Bank of the Purchase Premium shall be binding
on the parties. The parties shall on the basis of such Purchase Price
determination, promptly calculate the Borden Reimbursement Amount. BCOP shall
pay Borden the Borden Reimbursement Amount, if any, no later than 5 Business
Days after calculation of the Borden Reimbursement Amount.
(b) BCOP shall pay the reasonable fees and expenses of
any Investment Bank retained pursuant to this Agreement (subject to the benefit
provided to BCOP in the calculation of the Borden Reimbursement Amount by
deduction of 50% of such fees and expenses from the Purchase Premium).
(c) Borden shall, in connection with the transactions
contemplated by this Agreement, provide to BCOP such receipts and
acknowledgements of payment as BCOP may reasonably request.
5. REPRESENTATIONS AND WARRANTIES. (a) Borden
represents and warrants that it has the authority to enter into this Agreement
and that this Agreement constitutes a legal, valid and binding obligation of
Borden.
(b) BCOP represents and warrants that it has the
authority to enter into this Agreement and that this Agreement constitutes a
legal, valid and binding obligation of BCOP.
6. GOVERNING LAW. This Agreement and the obligations of
the parties under this Agreement shall be governed and construed in accordance
with the laws of the State of New York, construed and applied without giving
effect to principles of conflicts of laws.
7. SUCCESSORS AND ASSIGNS. This Agreement will be
binding upon and inure to the benefit of the parties hereto and their
successors and assigns.
-6-
<PAGE> 7
8. AMENDMENTS; ENTIRE AGREEMENT. (a) This Agreement
cannot be amended or terminated orally, but only by a writing duly executed by
or on behalf of the parties.
(b) This Agreement represents the entire agreement and
understanding among the parties hereto with respect to the subject matter
hereof and supersedes any other agreement or understanding, written or verbal,
that the parties may have. To the extent that the terms of this Agreement are
inconsistent with the terms of the Prepayment Terms Agreement, the terms of
this Agreement shall be deemed to amend and supersede the inconsistent terms of
the Prepayment Terms Agreement.
9. NOTICES. All notices and other communications
hereunder shall be in writing and shall be deemed to have been duly given (i)
five Business Days after mailing if mailed by certified or registered mail,
return receipt requested, (ii) one Business Day after delivery to an overnight
express carrier, if sent for overnight delivery with fee prepaid, (iii) upon
receipt if sent via facsimile with receipt confirmed, or (iv) upon receipt if
delivered personally, addressed as follows or to such other address or
addresses of which the respective party shall have notified the other party:
(a) if to Borden, to:
180 East Broad Street
Columbus, Ohio 43215
Telecopier Number: 614-225-4973
Attention: Mr. David A. Kelly
Vice President and Treasurer
(b) if to BCOP, to:
180 East Broad Street
Columbus, Ohio 43215
Telecopier Number: 614-225-4973
Attention: Mr. David A. Kelly
Principal Financial Officer.
10. COUNTERPARTS. This Agreement may be executed in one
or more counterparts, each of which will be deemed an original instrument, but
all of which together will constitute one and the same agreement, and will
become binding when one or more counterparts have been executed and delivered
by each of the parties hereto.
-7-
<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed and delivered as of the date first above written.
BORDEN, INC.
By: /s/ David A. Kelly
---------------------
Name: David A. Kelly
Title: Vice President
BORDEN CHEMICALS AND PLASTICS
OPERATING LIMITED PARTNERSHIP
By: BCP Management, Inc.,
as General Partner
By: /s/ David A. Kelly
--------------------------
Name: David A. Kelly
Title: Principal Financial
Officer
-8-
<PAGE> 1
FINAL
Exhibit 10(xxii)
PREPAYMENT TERMS AGREEMENT
--------------------------
PREPAYMENT TERMS AGREEMENT dated as of this 15th day of December, 1994 (this
"Agreement") by and among Borden, Inc. ("Borden"), Borden Chemicals and
Plastics Operating Limited Partnership ("BCOP"), The Prudential Insurance
Company of America ("Prudential"), Metropolitan Life Insurance Company ("MLIC")
and Metropolitan Insurance and Annuity Company ("MIAC" and, together with
Prudential and MLIC, the "Noteholders").
WHEREAS, BCOP has issued and outstanding $60,000,000 in aggregate principal
amount of its promissory notes held by Prudential, $70,000,000 in aggregate
principal amount of its promissory notes held by MLIC and $20,000,000 in
aggregate principal amount of its promissory notes held by MIAC (such
promissory notes collectively, the "Notes") pursuant to the Note Agreement
dated as of November 20, 1987, among BCOP and the Noteholders (the "Note
Agreement"); and
WHEREAS, Borden entered into an Undertaking dated as of November 20, 1987
(the "Undertaking") for the benefit of the Noteholders whereunder, among other
things, Borden agreed in SECTION 4.1 thereof that in the event of a Change of
Control of Borden (as defined in the Undertaking), Borden would offer to
purchase the Notes on the terms specified therein, and the parties are desirous
of amending such provisions of the Undertaking; and
WHEREAS, the Note Agreement does not provide for the optional right of
prepayment by BCOP of the Notes or for the purchase by Borden of the Notes and
the parties are desirous of providing such a right of prepayment to BCOP and
such a right of purchase to Borden; and
WHEREAS, BCOP agreed in SECTION 9.3 of the Note Agreement to offer to
purchase the Notes in the event of certain changes of control with respect to
Borden Chemicals and Plastics Limited Partnership ("BCP"), the limited partner
in BCOP, or BCP Management, Inc., the general partner of BCP and BCOP, and the
parties are desirous of amending such provisions of the Note Agreement;
NOW, THEREFORE, for good and valuable consideration, the receipt, adequacy
and sufficiency of which is hereby acknowledged by the parties hereto, the
parties hereto hereby agree as follows:
1. DEFINITIONS. The following capitalized terms shall have the following
meanings:
<PAGE> 2
"BUSINESS DAY" means any day other than a Saturday, Sunday or other day on
which commercial banks in New York City are required or authorized to be
closed.
"EXCESS PREMIUM AMOUNT" means, with respect to each Note, the EXCESS, IF
ANY, OF (A) the Make Whole Premium with respect to such Note calculated in
accordance with the Note Agreement as of (i) the date of voluntary prepayment
by BCOP of such Note (in the event that BCOP prepays such Note pursuant to
SECTION 3), (ii) the date of voluntary purchase by Borden of such Note (in the
event that Borden purchases such Note pursuant to SECTION 4), (iii) the date of
mandatory prepayment by BCOP of such Note (in the event that BCOP is required
to prepay such Note pursuant to SECTION 9.3 of the Note Agreement), or (iv) the
date that, upon the occurrence and continuation of an Event of Default (as
defined in the Note Agreement), such Note becomes due and payable in accordance
with the provisions of SECTION 11 of the Note Agreement (in the event that such
Note becomes due and payable in accordance with the provisions of SECTION 11 of
the Note Agreement), as the case may be, OVER (B) the Make Whole Premium paid
by Borden with respect to such Note pursuant to SECTION 2.
"MAKE WHOLE PAYMENT DATE" means the earlier of (i) the first Business Day
following a Change of Control of Borden (as defined in SECTION 4.1 of the
Undertaking) and (ii) December 28, 1994; PROVIDED, HOWEVER, that if the Make
Whole Payment Date would, but for this proviso, be earlier than December 21,
1994, then the Make Whole Payment Date shall be deemed to be December 21, 1994.
"MAKE WHOLE PREMIUM" means, with respect to each Noteholder, the Make Whole
Premium, as defined in SECTION 13 of the Note Agreement, for the Notes held by
such Noteholder calculated as of the applicable date of payment or
determination of such premium.
"PERMITTED EVENT" means any of the following events: (A) BCOP acquires a
majority of the outstanding voting shares of capital stock of BCP Management,
Inc. or any other corporation or other entity which at the applicable time is
the general partner of BCOP (the "General Partner") and, immediately after
giving effect to such acquisition, BCOP is able to incur at least $1 of
additional Funded Debt (as defined in the Note Agreement) pursuant to the Note
Agreement; (B) the General Partner is merged with and into BCOP, BCOP is merged
with and into the General Partner or BCOP and the General Partner are
consolidated or merged with and into any other entity so long as, in each such
case, the surviving or successor entity is bound by the Note Agreement and,
immediately after giving effect to such acquisition, the surviving or successor
entity is able to incur
-2-
<PAGE> 3
at least $1 of additional Funded Debt (as defined in the Note Agreement)
pursuant to the Note Agreement; or (C) the General Partner is merged with and
into BCP, BCP is merged with and into the General Partner or BCP and the
General Partner are consolidated or merged with and into any other entity
(provided that a Prepayment Event (as defined in SECTION 9.3 of the Note
Agreement) shall be deemed to occur at such time that Borden ceases to be the
beneficial owner, directly or indirectly, of a majority of the equity interests
in the surviving or successor entity that Borden received in connection with
any transaction referred to in this clause (C)).
2. PAYMENT OF MAKE WHOLE PREMIUM. Borden shall, in accordance with the
provisions of SECTION 6, pay to each Noteholder on the Make Whole Payment Date
the Make Whole Premium, calculated as of such date, with respect to the Notes
then held by such Noteholder.
3. RIGHT OF PREPAYMENT. (a) BCOP shall have the right, exercisable in its
discretion at any time after payment by Borden of the Make Whole Premium
pursuant to SECTION 2 (but not in any event prior to January 3, 1995), to
prepay, in accordance with the provisions of SECTION 6, all but not less than
all the Notes. Such election shall be made by BCOP by provision to the
Noteholders of at least three Business Days prior written notice of BCOP's
election to prepay the Notes on a date (which shall be a Business Day) selected
by BCOP in such notice.
(b) The prepayment price payable by BCOP to each Noteholder upon exercise
of BCOP's right to prepay the Notes shall be the sum of (A) the aggregate
outstanding principal amount of the Notes held by such Noteholder as of the
prepayment date PLUS (B) accrued but unpaid interest on the Notes held by such
Noteholder as of and including the prepayment date PLUS (C) the Excess Premium
Amount, if any, with respect to the Notes held by such Noteholder.
4. RIGHT OF PURCHASE. (a) Borden shall have the right, exercisable in its
discretion at any time after payment by Borden of the Make Whole Premium
pursuant to SECTION 2 (but not in any event prior to January 3, 1995), to
purchase, in accordance with the provisions of SECTION 6, all but not less than
all the Notes. Such election shall be made by Borden by provision to the
Noteholders of at least three Business Days prior written notice of Borden's
election to purchase the Notes on a date (which shall be a Business Day)
selected by Borden in such notice.
(b) The purchase price payable by Borden to each Noteholder upon exercise
of Borden's right to purchase the Notes shall be the sum of (A) the aggregate
outstanding principal
-3-
<PAGE> 4
amount of the Notes held by such Noteholder as of the purchase date PLUS (B)
accrued but unpaid interest on the Notes held by such Noteholder as of and
including the purchase date PLUS (C) the Excess Premium Amount, if any, with
respect to the Notes held by such Noteholder.
(c) Borden's right to purchase the Notes set forth in this SECTION 4 shall
terminate and be of no force and effect at such time that Borden ceases to own,
directly or indirectly, a majority of the outstanding capital shares of voting
stock of the general partner of BCOP.
5. AMENDMENT OF AGREEMENTS AND CONTINUATION OF NOTE OBLIGATIONS. Upon
receipt by the Noteholders of the Make Whole Premium pursuant to SECTION 2:
(i) the provisions of SECTION 4.1 and SECTION 4.4 of the Undertaking
shall be deemed terminated and of no force and effect;
(ii) notwithstanding the provisions of SECTION 9.3 of the Note
Agreement or any other provision of the Note Agreement, a Permitted Event
shall not constitute or be deemed to constitute a Prepayment Event
(as defined in SECTION 9.3 of the Note Agreement);
(iii) notwithstanding the provisions of SECTION 9.3 of the Note
Agreement or any other provision of the Note Agreement, no Make Whole
Premium shall be payable by BCOP in connection with any mandatory prepayment
of the Notes that BCOP is required to effect pursuant to SECTION
9.3 of the Note Agreement (after giving effect to clause (ii) above), and in
lieu thereof, the Excess Premium Amount, if any, with respect to
the Notes to be prepaid shall be payable by BCOP in accordance with the
provisions of SECTION 9.3 of the Note Agreement;
(iv) notwithstanding the provisions of SECTION 9.6 of the Note
Agreement or any other provision of the Note Agreement, BCOP may prepay
the Notes in accordance with the provisions of SECTION 3 and Borden may
purchase the Notes in accordance with the provisions of SECTION 4;
(v) notwithstanding the provisions of SECTION 11 of the Note
Agreement or any other provision of the Note Agreement, no Make Whole
Premium shall become due and payable by BCOP in connection with any Event
of Default (as defined in SECTION 11 of the Note Agreement) and, in lieu
thereof, the Excess Premium Amount, if any, with respect to any Notes that
become due and payable pursuant to SECTION 11 of the Note
Agreement shall become due and payable by BCOP
-4-
<PAGE> 5
in accordance with the provisions of SECTION 11 of the Note Agreement;
(vi) SECTION 10.1(e) and SECTION 13 of the Note Agreement shall be
automatically amended, without the necessity of taking any further
action or executing or delivering any additional document, as follows:
(A) the following additional proviso shall be added to the end of
SECTION 10.1(e) of the Note Agreement after the words "Priority Debt
does not exceed 15% of Consolidated Net Tangible Assets":
"and PROVIDED FURTHER that on the date the Company or any Restricted
Subsidiary becomes liable with respect to any such additional Funded
Debt and immediately after giving effect thereto and to the concurrent
retirement of any other Indebtedness, the total outstanding principal
amount of all Funded Debt of the Company and its Restricted Subsidiaries
does not exceed 55% of Total Capitalization"; and
(B) the following additional definition shall be added to SECTION 13
of the Note Agreement after the definition of "10.70% Notes":
"TOTAL CAPITALIZATION: as of the time of any determination thereof, the
aggregate amount of all Funded Debt of the Company and its
Restricted Subsidiaries and partners' capital (or in the event that the
Company is converted or merged into a corporation, shareholders'
equity), including retained earnings, of the Company determined on a
consolidated basis in accordance with generally accepted accounting
principles. For purposes of calculating Total Capitalization there shall be
deducted from the assets of the Company all assets that would
be treated as intangibles under generally accepted accounting principles
(except that there shall not be deducted from the assets of the
Company any assets that are treated as intangibles under generally accepted
accounting principles and that arise in connection with the
transactions contemplated under the Asset Transfer Agreement dated as of
August 12, 1994 between the Company and Occidental Chemical
Corporation, as amended from time to time)."; and
(vii) the Notes shall continue to be outstanding and payable by BCOP in
accordance with their terms and the terms of the Note Agreement
as and to the extent amended and modified hereby.
-5-
<PAGE> 6
6. PAYMENT INSTRUCTIONS; DOCUMENTS. (a) Unless otherwise agreed to by the
parties, any amounts payable by Borden or BCOP to each Noteholder pursuant to
this Agreement shall be payable by wire transfer of such amounts in immediately
available funds no later than 12:00 p.m. New York City time on the applicable
prepayment date or payment date to the account or accounts of such Noteholder
specified in the Note Agreement.
(b) Each Noteholder shall, in connection with the transactions
contemplated by this Agreement, provide to Borden or BCOP, as the case may be,
such receipts and acknowledgements of prepayment or purchase as Borden or BCOP
may reasonably request. Each Noteholder shall also, in the event of a
prepayment by BCOP of the Notes pursuant to SECTION 3 or a purchase by Borden
of the Notes pursuant to SECTION 4, provide to BCOP or Borden, as the case may
be, the original Note held by such Noteholder (or in lieu thereof, an unsecured
indemnity reasonably satisfactory to BCOP or Borden, as the case may be),
together with, in the event of prepayment of the Notes, an instrument of
prepayment reasonably satisfactory to BCOP acknowledging prepayment of such
Note and, in the event of purchase of the Notes, an instrument of assignment
reasonably satisfactory to Borden assigning such Noteholder's right, title and
interest in and to such Note to Borden, free and clear of any lien, claim or
encumbrance created by or arising against such Noteholder and, in each case,
representing and warranting that such Noteholder is the sole beneficial owner
of and has good and valid title to such Note.
7. REPRESENTATIONS AND WARRANTIES. (a) Borden represents and warrants that
it has the authority to enter into this Agreement and that this Agreement
constitutes a legal, valid and binding obligation of Borden.
(b) BCOP represents and warrants that (i) it has the authority to enter
into this Agreement and that this Agreement constitutes a legal, valid and
binding obligation of BCOP and (ii) there is no Event of Default (as defined in
the Note Agreement) in existence as of the date of this Agreement.
(c) Each Noteholder represents and warrants as to itself that it has the
authority to enter into this Agreement and that this Agreement constitutes a
legal, valid and binding obligation of such Noteholder. Each Noteholder
represents and warrants as to itself that it is the sole beneficial owner of
Notes having an aggregate outstanding principal amount specified in the
recitals to be held by such Noteholder, that it has good and valid title to
such Notes and it has not entered into any agreement (other than this
Agreement) to transfer, sell or pledge the Notes owned by it or any interest or
participation therein.
-6-
<PAGE> 7
8. GOVERNING LAW. This Agreement and the obligations of the parties under
this Agreement shall be governed and construed in accordance with the laws of
the State of New York, construed and applied without giving effect to
principles of conflicts of laws.
9. SUCCESSORS AND ASSIGNS. This Agreement will be binding upon and inure
to the benefit of the parties hereto and their successors and assigns. Without
limiting the foregoing, the provisions of this Agreement shall continue to
apply (including with respect to the Notes, the Note Agreement and the
Undertaking) upon and after any sale, transfer, pledge or assignment of the
Notes by any Noteholder or transferee of the Notes.
10. AMENDMENTS; ENTIRE AGREEMENT. (a) This Agreement cannot be amended or
terminated orally, but only by a writing duly executed by or on behalf of the
parties.
(b) This Agreement constitutes an amendment of the provisions of the
Undertaking and the Note Agreement specifically referred to herein and
represents the entire agreement and understanding among the parties hereto with
respect to the subject matter hereof and supersedes any other agreement or
understanding, written or verbal, that the parties may have with respect to the
subject matter hereof. Except as specifically amended hereby, the Undertaking
and the Note Agreement remain in full force and effect.
11. NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed to have been duly given (i) five Business Days
after mailing if mailed by certified or registered mail, return receipt
requested, (ii) one Business Day after delivery to an overnight express
carrier, if sent for overnight delivery with fee prepaid, (iii) upon receipt if
sent via facsimile with receipt confirmed, or (iv) upon receipt if delivered
personally, addressed as follows or to such other address or addresses of which
the respective party shall have notified the other parties:
(a) if to Borden, to:
180 East Broad Street
Columbus, Ohio 43215
Telecopier Number: 614-225-4973
Attention: Mr. David A. Kelly
Vice President and Treasurer
(b) if to BCOP, to:
-7-
<PAGE> 8
180 East Broad Street
Columbus, Ohio 43215
Telecopier Number: 614-225-4973
Attention: Mr. David A. Kelly
Principal Financial Officer
(c) if to Prudential, to:
c/o Prudential Capital Group
2 Prudential Plaza
180 North Stetson Avenue
Suite 5600
Chicago, Illinois 60601
Telecopier Number: 312-540-4222
Confirmation Number: 312-540-0931
Attention: Managing Director
(d) if to MLIC, to:
Metropolitan Life Insurance Company
One Madison Avenue
New York, New York 10010
Telecopier Number: 212-578-4454
Attention: Treasurer
With a copy to:
Metropolitan Life Insurance Company
200 Park Avenue
New York, New York 10166
Telecopier Number: 212-692-5784
Attention: Vice President
Corporate Investments
Northeastern Office
(e) if to MIAC, to:
Metropolitan Life Insurance Company
One Madison Avenue
New York, New York 10010
Telecopier Number: 212-578-4454
Attention: Treasurer
With a copy to:
Metropolitan Insurance and Annuity Company
-8-
<PAGE> 9
200 Park Avenue
New York, New York 10166
Telecopier Number: 212-692-5784
Attention: Vice President
Corporate Investments
Northeastern Office.
12. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which will be deemed an original instrument, but all of
which together will constitute one and the same agreement, and will become
binding when one or more counterparts have been executed and delivered by each
of the parties hereto.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed and delivered as of the date first above written.
BORDEN, INC.
By: /s/ David A. Kelly
------------------
Name: David A. Kelly
Title: Vice President
BORDEN CHEMICALS AND PLASTICS
OPERATING LIMITED PARTNERSHIP
By: BCP Management, Inc.,
as General Partner
By: /s/ David A. Kelly
-----------------------
Name: David A. Kelly
Title: Principal Financial
Officer
-9-
<PAGE> 10
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
By: /s/ Mark Hoffmeister
--------------------------------
Name: Mark Hoffmeister
Title:
METROPOLITAN LIFE INSURANCE COMPANY
By: /s/ John R. Endres
-------------------------------
Name: John R. Endres
Title: Assistant Vice-President
METROPOLITAN INSURANCE AND ANNUITY COMPANY
By: /s/ Andrew T. Aoyama
-------------------------------
Name: Andrew T. Aoyama
Title: Assistant Vice-President
-10-
<PAGE> 11
Instrument of Affirmation and Receipt
-------------------------------------
The Prudential Insurance Company of America (the "Noteholder") hereby:
(i) refers to the Prepayment Terms Agreement dated as of
December 15, 1994 (the "Agreement") among the Noteholder, Metropolitan
Life Insurance Company and Metropolitan Insurance and Annuity Company
(collectively with the Noteholder, the "Noteholders"), Borden, Inc.
("Borden") and Borden Chemicals and Plastics Operating Limited
Partnership ("BCOP");
(ii) acknowledges receipt on Decmeber 21, 1994, by wire
transfer to the accounts of the Noteholder at Morgan Guaranty Trust
Company of New York, Account Numbers 050-54-460 (in the case of
payment with respect to the Note (as defined in the Agreement) held by
the Noteholder having an outstanding principal amount of $56,800,000)
and 050-53-360 (in case of payment with respect to the Note held by
the Noteholder having an outstanding principal amount of $3,200,000),
of immediately available funds in the amount of $7,080,783.61 (Seven
million Eighty Thousand Seven Hundred Eighty-three Dollars and Sixty-
one Cents), respectively, collectively representing payment in full of
the Make Whole Premium (as defined in the Agreement) payable by Borden
pursuant to SECTION 2 of the Agreement as of the Make Whole Payment
Date (as defined in the Agreement) with respect to the Notes held by
the Noteholder;
(iii) represents and warrants to Borden and BCOP that it is
the sole beneficial owner of Notes having an aggregate outstanding
principal amount of $60,000,000 and originally issued in the name of
the Noteholder, that it has good and valid title to such Notes and it
has not entered into any agreement (other than the Agreement) to
transfer, sell or pledge the Notes owned by it or any interest or
participation therein; and
-11-
<PAGE> 12
(iv) affirms and acknowledges to Borden and BCOP that the
amendments to the Note Agreement (as defined in the Agreement)
specified in, and the provisions of, SECTION 5 of the Agreement are in
full force and effect with respect to the Noteholder and the Notes
held by the Noteholder.
IN WITNESS WHEREOF, the Noteholder has caused this Instrument of
Affirmation and Receipt to be executed as of this 21st day of December by a
duly authorized officer of the Noteholder.
THE PRUDENTIAL INSURANCE COMPANY
OF AMERICA
By: /s/ Mark Hoffmeister
-----------------------------------
Name: Mark Hoffmeister
Title:
-12-
<PAGE> 13
Instrument of Affirmation and Receipt
-------------------------------------
Metropolitan Life Insurance Company (the "Noteholder") hereby:
(i) refers to the Prepayment terms Agreement dated as of
December 15, 1994 (the "Agreement") among the Noteholder, The Prudential
Insurance Company of America and Metropolitan Insurance and Annuity
Company (collectively with the Noteholder, the "Noteholders"), Borden,
Inc. ("Borden") and Borden Chemicals and Plastics Operating Limited
Partnership ("BCOP");
(ii) acknowledges receipt on December 21, 1994, by wire
transfer to the account of the Noteholder at The Chase Manhattan Bank,
N.A., Account Number 002-2-410591, of immediately available funds in
the amount of $3,876,325.44 (Three Million Eight Hundred Seventy-six
Thousand Three Hundred Twenty-five Dollars and Forty-four Cents),
representing payment in full of the Make Whole Premium (as defined in
the Agreement) payable by Borden pursuant to SECTION 2 of the Agreement
as of the Make Whole Payment Date (as defined in the Agreement) with
respect to the Notes held by the Noteholder;
(iii) represents and warrants to Borden and BCOP that it is the
sole beneficial owner of Notes having an aggregate outstanding
principal amount of $70,000,000 and originally issued in the name of
the Noteholder, that it has good and valid title to such Notes and it
has not entered into any agreement (other than the Agreement) to
transfer, sell or pledge the Notes owned by it or any interest or
participation therein; and
(iv) affirms and acknowledges to Borden and BCOP that the
amendments to the Note Agreement (as defined in the Agreement) and the
Undertaking (as defined in the Agreement) specified in, and the
provisions of, SECTION 5 of the Agreement are in full force and effect
with respect to the Noteholder and the Notes held by the Noteholder.
-13-
<PAGE> 14
IN WITNESS WHEREOF, the Noteholder has caused this Instrument of
Affirmation and Receipt to be executed as of this 21st day of December by a
duly authorized officer of the Noteholder.
METROPOLITAN LIFE INSURANCE COMPANY
By: /s/ John R. Endres
--------------------------------
Name: John R. Endres
Title: Assistant Vice-President
-14-
<PAGE> 15
Instrument of Affirmation and Receipt
-------------------------------------
Metropolitan Insurance and Annuity Company (the "Noteholder") hereby:
(i) refers to the Prepayment Terms Agreement dated as of
December 15, 1994 (the "Agreement") among the Noteholder, The Prudential
Insurance Company of America and Metropolitan Life Insurance Company
(collectively with the Noteholder, the "Noteholders"), Borden, Inc.
("Borden") and Borden Chemicals and Plastics Operating Limited
Partnership ("BCOP");
(ii) acknowledges recepit on December 21, 1994, by wire
transfer to the account of the Noteholder at The Chase Manhattan Bank,
N.A., Account Number 002-1-072301, of immediately available funds in
the amount of $1,107,521.56 (One Million One Hundred Seven Thousand
Five Hundred Twenty-one Dollars and Fifty-six Cents), representing
payment in full of the Make Whole Premium (as defined in the Agreement)
payable by Borden pursuant to SECTION 2 of the Agreement as of the
Make Whole Payment Date (as defined in the Agreement) with respect to
the Notes held by the Noteholder;
(iii) represents and warrants to Borden and BCOP that it is
the sole beneficial owner of Notes having an aggregate outstanding
principal amount of $20,000,000 and originally issued in the name of
the Noteholder, that it has good and valid title to such Notes and it
has not entered into any agreement (other than the Agreement) to
transfer, sell or pledge the Notes owned by it or any interest or
participation therein; and
(iv) affirms and acknowledges to Borden and BCOP that the
amendments to the Note Agreement (as defined in the Agreement) and the
Undertaking (as defined in the Agreement) specified in, and the
provisions of, SECTION 5 of the Agreement are in full force and effect
with respect to the Noteholder and the Notes held by the Noteholder.
-15-
<PAGE> 16
IN WITNESS WHEREOF, the Noteholder has caused this Instrument of
Affirmation and Receipt to be executed as of this 21st day of December by a
duly authorized officer of the Noteholder.
METROPOLITAN INSURANCE AND
ANNUITY COMPANY
By: /s/ Andrew T. Aoyama
--------------------------------
Name: Andrew T. Aoyama
Title: Vice-President
-16-
<PAGE> 1
EXHIBIT 10 (xxiii)
PURCHASE AGREEMENT
February 16, 1995
RJR NABISCO HOLDINGS CORP.
1301 Avenue of the Americas
New York, New York 10019
BORDEN, INC.
180 East Broad Street
Columbus, Ohio 43215
Dear Ladies and Gentlemen:
We (the "Underwriter") understand that BORDEN, INC., a New
Jersey corporation (the "Selling Stockholder"), proposes to sell 120,000,000
shares of Common Stock (par value $.01 per share) of RJR NABISCO HOLDINGS CORP.
(the "Shares").
Subject to the terms and conditions set forth or incorporated
by reference herein, the Selling Stockholder hereby agrees to sell and the
Underwriter agrees to purchase the Shares at a purchase price of $5.52 per
share.
The Underwriter proposes to offer the Shares for sale upon the
terms and conditions set forth in the Prospectus Supplement.
The Underwriter will pay for the Shares upon delivery thereof
at the offices of Davis Polk & Wardwell at 10:00 a.m. (New York time) on
February 24, 1995, or at such other time, not later than 5:00 p.m. (New York
time) on March 2, 1995, as shall be agreed upon in writing by the Underwriter
and the Selling Stockholder. The time and date of such payment and delivery
are hereinafter referred to as the Closing Date.
The Shares have the terms set forth in the Prospectus dated
February 15, 1995, and the Prospectus Supplement dated February 16, 1995,
including the following:
<PAGE> 2
All provisions contained in the document entitled RJR NABISCO
HOLDINGS CORP./BORDEN, INC. Purchase Agreement Standard Provisions
(Common Stock) dated February 15, 1995, a copy of which is attached
hereto, are herein incorporated by reference in their entirety and
shall be deemed to be a part of this Agreement to the same extent as
if such provisions had been set forth in full herein.
Please confirm your agreement by having an authorized officer
sign a copy of this Agreement in the space set forth below.
Very truly yours,
/s/ Goldman, Sachs & Co.
---------------------------
(Goldman, Sachs & Co.)
Accepted:
BORDEN, INC.
By: /s/ C. Robert Kidder
-----------------------------------------------
Name: C. Robert Kidder
Title: Chairman and Chief
Executive Officer
RJR NABISCO HOLDINGS CORP.
By: /s/ Jo-Ann Ford
-----------------------------------------------
Name: Jo-Ann Ford
Title: Vice President, Assistant General
Counsel and Secretary
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<PAGE> 3
RJR NABISCO HOLDINGS CORP.
BORDEN, INC.
FORM OF
PURCHASE AGREEMENT
STANDARD PROVISIONS
(COMMON STOCK)
February 15, 1995
From time to time, Borden, Inc., a New Jersey corporation (the "Selling
Stockholder"), and RJR Nabisco Holdings Corp., a Delaware corporation (the
"Company"), may enter into one or more purchase agreements that provide for the
sale of up to 120,000,000 shares of Common Stock, par value $.01 per share (the
"Registered Shares"), of the Company by the Selling Stockholder to the several
underwriters or underwriter, as applicable named therein. The Registered
Shares involved in any such offering are hereinafter referred to as the
"Shares". The standard provisions set forth herein may be incorporated by
reference in any such purchase agreement (a "Purchase Agreement"). The
Purchase Agreement, including the provisions incorporated therein by reference,
is herein referred to as this Agreement.
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement, including a prospectus, relating to the
Shares and has filed with, or transmitted for filing to, or shall promptly
hereafter file with or transmit for filing to, the Commission a prospectus
supplement (the "Prospectus Supplement") specifically relating to the Shares
pursuant to Rule 424 under the Securities Act of 1933, as amended (the
"Securities Act"). The term "Registration Statement" means the registration
statement, including the exhibits thereto, as amended to the date of this
Agreement. The term "Basic Prospectus" means the prospectus included in the
Registration Statement. The term "Prospectus" means the Basic Prospectus
together with the Prospectus Supplement. The term "preliminary prospectus"
means a preliminary prospectus supplement specifically relating to the Shares
together with the Basic Prospectus. As used herein, the terms "Basic
Prospectus," "Prospectus" and "preliminary prospectus" shall include in each
case the documents, if any, incorporated by reference therein. The terms
"supplement" and "amendment" or "amend" as used herein shall include all
documents deemed to be incorporated by reference in the Prospectus that are
filed subsequent to the date of the Basic Prospectus by the Company with the
Commission pursuant to the Securities Exchange Act of 1934, as amended (the
"Exchange Act").
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<PAGE> 4
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents
and warrants to each of the Underwriters (as defined in the Purchase Agreement)
that:
(a) The Registration Statement has become effective under the Securities
Act; no stop order suspending the effectiveness of the Registration Statement
is in effect, and no proceedings for such purpose are pending before or, to
the Company's knowledge, threatened by the Commission.
(b) (i) Each document, if any, filed or to be filed pursuant to the Exchange
Act and incorporated by reference in the Prospectus complied or will comply
when so filed in all material respects with the Exchange Act and the
applicable rules and regulations of the Commission thereunder, (ii) each part
of the Registration Statement, when such part became effective, did not
contain, and each such part, as amended or supplemented, if applicable, will
not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading, (iii) the Registration Statement and the
Prospectus comply, and, as amended or supplemented, if applicable, will
comply in all material respects with the Securities Act and the applicable
rules and regulations of the Commission thereunder and (iv) the Prospectus
does not contain and, as amended or supplemented, if applicable, will not
contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, except that the
representations and warranties set forth in this Section 1(b) do not apply to
statements or omissions in the Registration Statement or the Prospectus based
upon information relating to (A) any Underwriter furnished to the Company in
writing by such Underwriter through the Manager (as defined in the Purchase
Agreement) expressly for use therein or (B) the Selling Stockholder relating
to the Selling Stockholder furnished to the Company in writing by the Selling
Stockholder expressly for use therein.
(c) The Company has been duly incorporated, is validly existing as a
corporation in good standing under the laws of the State of Delaware, has the
corporate power and authority to own its property and to conduct its business
as described in the Prospectus and is duly qualified to transact business and
is in good standing in each jurisdiction in which the conduct of its business
or its ownership or leasing of property requires such qualification, except
to the extent that the failure to be so qualified or be in good standing
would not have a material adverse effect on the financial
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<PAGE> 5
condition or the results of operations of the Company and its subsidiaries,
taken as a whole.
(d) Each of RJR Nabisco, Inc. ("RJRN"), R.J. Reynolds Tobacco Company, R.J.
Reynolds Tobacco International, Inc. and Nabisco Holdings Corp. ("Nabisco")
(collectively, the "Principal Operating Subsidiaries") has been duly
incorporated, is validly existing as a corporation in good standing under the
laws of the jurisdiction of its incorporation, has the corporate power and
authority to own its property and to conduct its business as described in the
Prospectus and is duly qualified to transact business and is in good standing
in each jurisdiction in which the conduct of its business or its ownership or
leasing of property requires such qualification, except to the extent that
the failure to be so qualified or be in good standing would not have a
material adverse effect on the financial condition or the results of
operations of the Company and its subsidiaries, taken as a whole.
(e) (i) The authorized capital stock of the Company conforms as to legal
matters to the description thereof contained in the Prospectus; (ii) except
as set forth in the Prospectus and except for 51,750,000 shares of Class A
Common Stock of Nabisco, all of the outstanding capital stock of each of the
Principal Operating Subsidiaries which is owned by the Company is owned
directly or indirectly by the Company free and clear of any security
interest, claim, lien or other encumbrance or preemptive rights; and (iii)
except for (A) options to acquire common stock of Nabisco granted to certain
directors, officers and employees of the Company and Nabisco and (B) the
option granted to RJRN to acquire shares of Class B Common Stock of Nabisco
pursuant to the Corporate Agreement between RJRN and Nabisco dated as of
January 26, 1995, there are no outstanding rights (including, without
limitation, preemptive rights), warrants or options to acquire, or
instruments convertible into or exchangeable for, any shares of capital stock
or other equity interest in any of the Principal Operating Subsidiaries or
any contract, commitment, agreement, understanding or arrangement of any kind
relating to the issuance of any such capital stock, any such convertible or
exchangeable securities or any such rights, warrants or options.
(f) This Agreement has been duly authorized, executed and delivered by the
Company.
(g) The Shares have been duly authorized and are validly issued, fully paid
and nonassessable.
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<PAGE> 6
(h) The execution and delivery by the Company of, and the performance by
the Company of its obligations under, this Agreement will not contravene any
provision of applicable law or the certificate of incorporation or by-laws of
the Company or any agreement or other instrument binding upon the Company or
any of its subsidiaries or any judgment, order or decree of any governmental
body, agency or court having jurisdiction over the Company or any subsidiary,
except for such contraventions that would not have a material adverse effect
on the financial condition or results of operations of the Company and its
subsidiaries taken as a whole, and no consent, approval, authorization or
order of or qualification with any governmental body or agency is required
for the performance by the Company of its obligations under this Agreement,
except such as have been obtained and except such as may be required by the
securities or Blue Sky laws of the various states or other jurisdictions in
connection with the offer and sale of the Shares.
(i) There has not occurred any material adverse change, or any development
involving a prospective material adverse change, in the financial condition
or results of operations of the Company and its subsidiaries, taken as a
whole, from that set forth in the Prospectus (including any amendments or
supplements thereto subsequent to the date of this Agreement which have been
agreed to by the Manager and the Company).
(j) There are no legal or governmental proceedings pending or, to the best
of the Company's knowledge, threatened to which the Company or any of its
subsidiaries is a party or to which any of the properties of the Company or
any of its subsidiaries is subject that are required to be described in the
Registration Statement or the Prospectus and are not so described or any
statutes, regulations, contracts or other documents that are required to be
described in the Registration Statement or the Prospectus or to be filed as
exhibits to the Registration Statement that are not described or filed as
required.
(k) Neither the Company nor RJRN is, or after giving effect to the offering
and sale of the Shares will be, and neither the Company nor RJRN is directly
or indirectly controlled by, or acting on behalf of any person which is, an
investment company within the meaning of the Investment Company Act of 1940,
as amended.
(l) The Company has complied with all provisions of Section 517.075 Florida
Statutes (Chapter 92-198, Laws of Florida).
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<PAGE> 7
2. REPRESENTATIONS AND WARRANTIES OF THE SELLING STOCKHOLDER. The Selling
Stockholder represents and warrants to each of the Underwriters that:
(a) The Selling Stockholder has been duly incorporated, is validly existing
as a corporation in good standing under the laws of the State of New Jersey,
has the corporate power and authority to own its property and to conduct its
business and is duly qualified to transact business and is in good standing
in each jurisdiction in which the conduct of its business or its ownership or
leasing of property requires such qualification, except to the extent that
the failure to be so qualified or be in good standing would not have a
material adverse effect on the financial condition or results of operations
of the Selling Stockholder and its subsidiaries, taken as a whole.
(b) This Agreement has been duly authorized, executed and delivered by the
Selling Stockholder.
(c) The execution and delivery by the Selling Stockholder of, and the
performance by the Selling Stockholder of its obligations under, this
Agreement will not contravene any provision of applicable law or the
certificate of incorporation or by-laws of the Selling Stockholder or any
agreement or other instrument binding upon the Selling Stockholder or any of
its subsidiaries or any judgment, order or decree of any governmental body,
agency or court having jurisdiction over the Selling Stockholder or any
subsidiary, except for contraventions that would not have a material adverse
effect on the financial condition or results of operations of the Selling
Stockholder and its subsidiaries taken as a whole, and no consent, approval,
authorization or order of or qualification with any governmental body or
agency is required for the performance by the Selling Stockholder of its
obligations under this Agreement, except such as have been obtained and
except such as may be required by the securities or Blue Sky laws of the
various states or other jurisdictions in connection with the offer and sale
of the Shares.
(d) On the Closing Date (as defined in the Purchase Agreement), the Selling
Stockholder has good and valid title to the Shares, free and clear of all
liens, encumbrances, equities or claims and the legal right and power to
enter into this Agreement.
(e) Upon delivery of the Shares and payment therefor pursuant to this
Agreement, the Selling Stockholder will pass good and valid title to the
Shares free and clear of all liens, encumbrances, equities or claims.
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<PAGE> 8
(f) (i) Each part of the Registration Statement relating to the Selling
Stockholder furnished to the Company in writing by the Selling Stockholder
expressly for use therein, when such part became effective, did not contain
and each such part, as amended or supplemented, if applicable, will not
contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein not misleading and (ii) each part of the Prospectus relating to the
Selling Stockholder furnished to the Company in writing by the Selling
Stockholder expressly for use therein does not contain and, as amended or
supplemented, if applicable, will not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
3. PUBLIC OFFERING. The Company and the Selling Stockholder are advised by
the Manager that the Underwriters propose to make a public offering of their
respective portions of the Shares as soon after this Agreement has been entered
into as in the Manager's judgment is advisable. The terms of the public
offering of the Shares are set forth in the Prospectus. Each Underwriter
agrees and acknowledges that it will not, directly or indirectly, offer,
transfer, sell, assign, pledge, hypothecate or otherwise dispose of any Shares,
or solicit any offers to purchase or otherwise acquire or take a pledge of any
Shares, unless (a) such offer, transfer, sale, assignment, pledge,
hypothecation or other disposition is pursuant to an effective registration
statement under the Securities Act or (b) it shall have furnished to Holdings
and Borden an opinion of counsel to the effect that no such registration is
required because of the availability of an exemption from registration under
the Securities Act in connection with the offer and sale of the Shares.
4. PURCHASE AND DELIVERY. Except as otherwise provided in this Section 4,
payment for the Shares shall be made by certified or official bank check or
checks payable to the order of the Selling Stockholder in New York Clearing
House funds (or such other funds as are specified in the Purchase Agreement) at
the time and place set forth in the Purchase Agreement, upon delivery to the
Manager for the respective accounts of the several Underwriters of the Shares,
registered in such names and in such denominations as the Manager shall request
in writing not less than two full business days prior to the date of delivery,
with any transfer taxes payable in connection with the transfer of the Shares
to the Underwriters duly paid.
5. CONDITIONS TO CLOSING. The several obligations of the Underwriters
hereunder are subject to the following conditions:
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<PAGE> 9
(a) Subsequent to the execution and delivery of the Purchase Agreement and
prior to the Closing Date, there shall not have occurred any change, or any
development involving a prospective change, in the financial condition or
results of operations of the Company and its subsidiaries, taken as a whole,
from that set forth in the Prospectus, that, in the judgment of the Manager,
is material and adverse and that makes it, in the judgment of the Manager,
impracticable to market the Shares on the terms and in the manner
contemplated in the Prospectus.
(b) The Manager shall have received on the Closing Date a certificate,
dated the Closing Date and signed by an executive officer of the Company, to
the effect set forth in clause (a) above and to the effect that the
representations and warranties of the Company contained in this Agreement are
true and correct in all material respects as of the Closing Date and that the
Company has complied with all of the agreements and satisfied all of the
conditions on its part to be performed or satisfied on or before the Closing
Date. The officer signing and delivering such certificate may rely upon the
best of such officer's knowledge as to proceedings threatened.
(c) The Manager shall have received on the Closing Date a certificate,
dated the Closing Date and signed by an executive officer of the Selling
Stockholder, to the effect that the representations and warranties of the
Selling Stockholder contained in this Agreement are true and correct in all
material respects as of the Closing Date and that the Selling Stockholder has
complied with all of the agreements and satisfied all of the conditions on
its part to be performed or satisfied on or before the Closing Date. The
officer signing and delivering such certificate may rely upon the best of
such officer's knowledge as to proceedings threatened.
(d) The Manager shall have received on the Closing Date an opinion of
counsel for the Company, dated the Closing Date, to the effect set forth in
Exhibit A.
(e) The Manager shall have received on the Closing Date an opinion of
counsel for the Selling Stockholder, dated the Closing Date, to the effect
set forth in Exhibit B.
(f) The Manager shall have received on the Closing Date an opinion of
counsel for the Underwriters, dated the Closing Date, to the effect set forth
in Exhibit C.
(g) The Manager shall have received on the Closing Date a letter, dated the
Closing Date, in form and substance
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<PAGE> 10
satisfactory to the Manager, from the Company's independent public
accountants, containing statements and information of the type ordinarily
included in accountants' "comfort letters" to underwriters with respect to
the financial statements and certain financial information contained in or
incorporated by reference into the Prospectus.
6. COVENANTS OF THE COMPANY. In further consideration of the agreements of
the Underwriters contained herein, the Company covenants as follows:
(a) To furnish the Manager, without charge, a signed copy of the
Registration Statement (including exhibits thereto) and for delivery to each
other Underwriter a conformed copy of the Registration Statement (without
exhibits thereto) and, during the period mentioned in paragraph (c) below, as
many copies of the Prospectus, any documents incorporated by reference
therein and any supplements and amendments thereto or to the Registration
Statement as the Manager may reasonably request.
(b) Prior to the termination of the offering of the Shares pursuant to this
Agreement, before amending or supplementing the Registration Statement or the
Prospectus with respect to the Shares, to furnish to the Manager a copy of
each such proposed amendment or supplement and to file no such proposed
amendment or supplement to which the Manager reasonably objects promptly
after reasonable notice thereof; PROVIDED, HOWEVER, that the foregoing shall
not apply to any of the Company's filings with the Commission required to be
filed pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act,
copies of which filings the Company will cause to be delivered to the Manager
promptly after being transmitted for filing with the Commission.
(c) If, during such period after the first date of the public offering of
the Shares as in the opinion of counsel for the Underwriters the Prospectus
is required by law to be delivered in connection with sales by an Underwriter
or dealer, any event shall occur or condition exist as a result of which it
is necessary to amend or supplement the Prospectus in order to make the
statements therein, in the light of the circumstances when the Prospectus is
delivered to a purchaser, not misleading, or if, in the opinion of counsel
for the Underwriters or in the opinion of the Company, it is necessary to
amend or supplement the Prospectus to comply with law, forthwith to prepare,
file with the Commission and furnish, at its own expense, to the
Underwriters, and to the dealers (whose names and addresses the Manager will
furnish to the Company) to which Shares may have been sold by the Manager on
behalf of the Underwriters and to any other dealer upon request, either
amendments or
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<PAGE> 11
supplements to the Prospectus so that the statements in the Prospectus as so
amended or supplemented will not, in the light of the circumstances when the
Prospectus is delivered to a purchaser, be misleading or so that the
Prospectus, as so amended or supplemented, will comply with law.
(d) To endeavor to qualify the Shares for offer and sale under the
securities or Blue Sky laws of such jurisdictions as the Manager shall
reasonably request and to pay all expenses (including fees and disbursements
of counsel) in connection with such qualification and in connection with any
review of the offering of the Shares by the National Association of
Securities Dealers, Inc., PROVIDED that the Company shall not be obligated to
so qualify the Shares if such qualification requires it to file any general
consent to service of process or to register or qualify as a foreign
corporation in any jurisdiction in which it is not so registered or
qualified.
(e) To make generally available to the Company's security holders and to
the Manager as soon as practicable an earning statement covering a
twelve-month period beginning on the first day of the first full fiscal
quarter after the date of this Agreement, which earning statement shall
satisfy the provisions of Section 11(a) of the Securities Act and the rules
and regulations of the Commission thereunder.
7. INDEMNIFICATION AND CONTRIBUTION. (a) The Company agrees to indemnify
and hold harmless each Underwriter, the Selling Stockholder, the directors of
the Selling Stockholder and each person, if any, who controls such Underwriter
or the Selling Stockholder within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act from and against any and all
losses, claims, damages and liabilities caused by any untrue statement or
alleged untrue statement of a material fact contained in the Registration
Statement or any amendment thereof, any preliminary prospectus or the
Prospectus (as amended or supplemented if the Company shall have furnished any
amendments or supplements thereto), or caused by any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, except insofar as such
losses, claims, damages or liabilities are caused by any such untrue statement
or omission or alleged untrue statement or omission based (i) upon information
relating to any Underwriter furnished to the Company in writing by such
Underwriter through the Manager expressly for use therein or (ii) upon
information relating to the Selling Stockholder furnished to the Company in
writing by the Selling Stockholder expressly for use therein; PROVIDED that the
foregoing indemnity agreement with respect to any preliminary prospectus shall
not inure to the benefit of any Underwriter from
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<PAGE> 12
whom the person asserting any such losses, claims, damages or liabilities
purchased Shares, or any person controlling such Underwriter, if a copy of the
Prospectus (as then amended or supplemented if the Company shall have furnished
any amendments or supplements thereto) was not sent or given by or on behalf of
such Underwriter, to such person, if required by law so to have been delivered,
at or prior to the written confirmation of the sale of the Shares to such
person, and if the Prospectus (as so amended or supplemented) would have cured
the defect giving rise to such losses, claims, damages or liabilities.
(b) The Selling Stockholder agrees to indemnify and hold harmless each
Underwriter, the Company, the directors of the Company, the officers of the
Company who sign the Registration Statement and each person, if any, who
controls such Underwriter or the Company within the meaning of either Section
15 of the Securities Act or Section 20 of the Exchange Act to the same extent
as the foregoing indemnity from the Company to the Selling Stockholder, but in
each case only with reference to such information relating to the Selling
Stockholder furnished to the Company by the Selling Stockholder in writing
expressly for use in the Registration Statement, any preliminary prospectus,
the Prospectus or any amendments or supplements thereto; PROVIDED that the
foregoing indemnity agreement with respect to any preliminary prospectus shall
not inure to the benefit of any Underwriter from whom the person asserting any
such losses, claims, damages or liabilities purchased Shares, or any person
controlling such Underwriter, if a copy of the Prospectus (as then amended or
supplemented if the Company shall have furnished any amendments or supplements
thereto) was not sent or given by or on behalf of such Underwriter, to such
person, if required by law so to have been delivered, at or prior to the
written confirmation of the sale of the Shares to such person, and if the
Prospectus (as so amended or supplemented) would have cured the defect giving
rise to such losses, claims, damages or liabilities.
(c) Each Underwriter agrees, severally and not jointly, to indemnify and
hold harmless the Company and the Selling Stockholder, each of their directors,
each of the officers of the Company who signs the Registration Statement and
each person, if any, who controls the Company or the Selling Stockholder within
the meaning of either Section 15 of the Securities Act or Section 20 of the
Exchange Act to the same extent as the foregoing indemnities from the Company
and the Selling Stockholder to such Underwriter, but only with reference to
information relating to such Underwriter furnished to the Company by such
Underwriter in writing through the Manager expressly for use in the
Registration Statement, any preliminary prospectus, the Prospectus or any
amendments or supplements thereto.
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<PAGE> 13
(d) In case any proceeding (including any governmental investigation) shall
be instituted involving any person in respect of which indemnity may be sought
pursuant to either of the three preceding paragraphs, such person (the
"indemnified party") shall promptly notify the person against whom such
indemnity may be sought (the "indemnifying party") in writing and the
indemnifying party, upon request of the indemnified party, shall retain counsel
reasonably satisfactory to the indemnified party to represent the indemnified
party and any others the indemnifying party may designate in such proceeding
and shall pay the fees and disbursements of such counsel related to such
proceeding. In any such proceeding, any indemnified party shall have the right
to retain its own counsel, but the fees and expenses of such counsel shall be
at the expense of such indemnified party unless (i) the indemnifying party and
the indemnified party shall have mutually agreed to the retention of such
counsel or (ii) the named parties to any such proceeding (including any
impleaded parties) include both the indemnifying party and the indemnified
party and representation of both parties by the same counsel would be
inappropriate due to actual or potential differing interests between them. It
is understood that the indemnifying party shall not, in respect of the legal
expenses of any indemnified party in connection with any proceeding or related
proceedings in the same jurisdiction, be liable for the fees and expenses of
more than one separate firm (in addition to any local counsel) for all such
indemnified parties and that all such fees and expenses shall be reimbursed as
they are incurred. Such firm acting on behalf of the indemnified parties
related to the Company shall be designated in writing by the Company. Such
firm acting on behalf of the indemnified parties related to the Selling
Stockholder shall be designated in writing by the Selling Stockholder. Such
firm acting on behalf of the indemnified parties related to the Manager shall
be designated in writing by the Manager. The indemnifying party shall not be
liable for any settlement of any proceeding effected without its written
consent, but if settled with such consent or if there be a final judgment for
the plaintiff, the indemnifying party agrees to indemnify the indemnified party
from and against any loss or liability by reason of such settlement or
judgment.
(e) If the indemnification provided for in paragraphs (a), (b) or (c) of
this Section 7 is unavailable to an indemnified party in respect of any losses,
claims, damages or liabilities referred to therein, then each indemnifying
party under such paragraph, in lieu of indemnifying such indemnified party
thereunder, shall contribute to the amount paid or payable by such indemnified
party as a result of such losses, claims, damages or liabilities in such
proportion as is appropriate to reflect the relative benefits received by the
indemnifying party or parties on the one hand and the relative fault of the
indemnifying party or parties on the other hand in connection
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<PAGE> 14
with the statements or omissions that resulted in such losses, claims, damages
or liabilities, as well as any other relevant equitable considerations. The
relative benefits received by the Company and the Selling Stockholder on the
one hand and the Underwriters on the other hand in connection with the offering
of the Shares shall be deemed to be in the same respective proportions as the
net proceeds from the offering of such Shares (before deducting expenses)
received by the Selling Stockholder and the total underwriting discounts and
commissions received by the Underwriters, in each case as set forth in the
table on the cover of the Prospectus Supplement, bear to the aggregate public
offering price of the Shares. The relative fault of the Company, the Selling
Stockholder and the Underwriters shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact relates to
information supplied by the Company, by the Selling Stockholder or by the
Underwriters and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission. The
Underwriters' respective obligations to contribute pursuant to this Section 7
are several in proportion to the respective number of shares of Common Stock
they have purchased hereunder, and not joint.
(f) The Company, the Selling Stockholder and the Underwriters agree that it
would not be just or equitable if contribution pursuant to this Section 7 were
determined by pro rata allocation (even if the Underwriters were treated as one
entity for such purpose) or by any other method of allocation that does not
take account of the equitable considerations referred to in the immediately
preceding paragraph. The amount paid or payable by an indemnified party as a
result of the losses, claims, damages and liabilities referred to in the
immediately preceding paragraph shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses reasonably incurred by
such indemnified party in connection with investigating or defending any such
action or claim. Notwithstanding the provisions of this Section 7, no
Underwriter shall be required to contribute any amount in excess of the amount
by which the total price at which the Shares underwritten by it and distributed
to the public were offered to the public exceeds the amount of any damages that
such Underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The remedies provided for in this
Section 7 are not exclusive and shall not limit any rights or remedies which
may otherwise be available to any indemnified party at law or in equity.
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<PAGE> 15
(g) The indemnity and contribution provisions contained in this Section 7
and the representations and warranties of the Company and the Selling
Stockholder contained herein shall remain operative and in full force and
effect regardless of (i) any termination of this Agreement, (ii) any
investigation made by or on behalf of any Underwriter or any person controlling
any Underwriter or by or on behalf of the Company, its directors or officers or
any person controlling the Company or by or on behalf of the Selling
Stockholder, its directors or any person controlling the Selling Stockholder
and (iii) acceptance of and payment for any of the Shares.
8. TERMINATION. This Agreement shall be subject to termination, by notice
given by the Manager to the Company and the Selling Stockholder, if (a) after
the execution and delivery of the Purchase Agreement and prior to the Closing
Date (i) trading in securities generally on the New York Stock Exchange shall
have been suspended or materially limited, (ii) trading of any equity
securities of the Company on the New York Stock Exchange shall have been
suspended, (iii) a general moratorium on commercial banking activities in New
York shall have been declared by either Federal or New York State authorities
or (iv) there shall have occurred any outbreak or escalation of hostilities or
any change in financial markets or any calamity or crisis, which event is
material and adverse and (b) in the case of any of the events specified in
clauses (a)(i) through (iv), such event, singly or together with any other such
event, makes it, in the reasonable judgment of the Manager, impracticable to
market the Shares on the terms and in the manner contemplated in the
Prospectus.
9. DEFAULTING UNDERWRITERS. If, on the Closing Date, any one or more of
the Underwriters shall fail or refuse to purchase Shares that it has or they
have agreed to purchase hereunder on such date, and the aggregate number of
Shares which such defaulting Underwriter or Underwriters agreed but failed or
refused to purchase is not more than one-tenth of the aggregate number of
Shares to be purchased on such date, the other Underwriters shall be obligated
severally in the proportions that the aggregate number of Shares set forth
opposite their respective names in the applicable Purchase Agreement bears to
the aggregate number of Shares set forth opposite the names of all such
non-defaulting Underwriters, or in such other proportions as the Manager may
specify, to purchase the Shares which such defaulting Underwriter or
Underwriters agreed but failed or refused to purchase on such date; PROVIDED
that in no event shall the number of Shares that any Underwriter has agreed to
purchase pursuant to this Agreement be increased pursuant to this Section 9 by
an amount in excess of one-ninth of such number of Shares without the written
consent of such Underwriter. If, on the Closing Date, any Underwriter or
Underwriters shall fail or refuse to purchase Shares and the aggregate number
of Shares
-15-
<PAGE> 16
with respect to which such default occurs is more than one-tenth of the
aggregate number of Shares to be purchased on such date, and arrangements
satisfactory to the Manager and the Company and the Selling Stockholder for the
purchase of such Shares are not made within 36 hours after such default, this
Agreement shall terminate without liability on the part of any non-defaulting
Underwriter or the Company or the Selling Stockholder. In any such case either
the Manager or the Selling Stockholder shall have the right to postpone the
Closing Date but in no event for longer than seven days, in order that the
required changes, if any, in the Registration Statement and in the Prospectus
or in any other documents or arrangements may be effected. Any action taken
under this paragraph shall not relieve any defaulting Underwriter from
liability in respect of any default of such Underwriter under this Agreement.
If this Agreement shall be terminated by the Underwriters, or any of them,
because of any failure or refusal on the part of the Company or the Selling
Stockholder to comply with the terms or to fulfill any of the conditions of
this Agreement, or if for any reason (other than termination due to the
preceding paragraph or Section 8 hereof) the Company or the Selling Stockholder
shall be unable to perform its obligations under this Agreement, the Company
will reimburse the Underwriters or such Underwriters as have so terminated this
Agreement with respect to themselves, severally, for all out-of-pocket expenses
(including the fees and disbursements of their counsel) reasonably incurred by
such Underwriters in connection with this Agreement or the offering of the
Shares, PROVIDED that the Company and the Selling Stockholder shall have no
further liability to any Underwriter except as provided in Section 7 hereof and
with respect to the payment of expenses referred to in paragraph (d) of Section
6 hereof.
10. MISCELLANEOUS. The Purchase Agreement may be signed in any number of
counterparts, each of which shall be an original, with the same effect as if
the signatures thereto and hereto were upon the same instrument.
This Agreement shall be governed by and construed in accordance with the
laws of the State of New York, regardless of the laws that might otherwise
govern under applicable New York principles of conflicts of law and except as
may otherwise be required by mandatory provisions of law.
11. HEADINGS. The headings of the sections of this Agreement have been
inserted for convenience of reference only and shall not be deemed a part of
this Agreement.
-16-
<PAGE> 17
Exhibit A
Opinion of
Counsel for the Company
The opinion of counsel for the Company, to be delivered pursuant to Section
5(d) of the Purchase Agreement, shall be to the effect that:
(i) the Company has been duly incorporated, is validly existing as a
corporation in good standing under the laws of the State of Delaware, has the
corporate power and authority to own its property and to conduct its business
as described in the Prospectus and is duly qualified to transact business and
is in good standing in each jurisdiction in which the conduct of its business
or its ownership or leasing of property requires such qualification, except
to the extent that the failure to be so qualified or be in good standing
would not have a material adverse effect on the financial condition or
results of operations of the Company and its subsidiaries, taken as a whole;
(ii) each Principal Operating Subsidiary has been duly incorporated, is
validly existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, has the corporate power and authority to
own its property and to conduct its business as described in the Prospectus
and is duly qualified to transact business and is in good standing in each
jurisdiction in which the conduct of its business or its ownership or leasing
of property requires such qualification, except to the extent that the
failure to be so qualified or be in good standing would not have a material
adverse effect on the Company and its subsidiaries, taken as a whole;
(iii) (a) The authorized capital stock of the Company conforms as to legal
matters to the description thereof contained in the Prospectus; (b) except
for 51,750,000 shares of Class A Common Stock of Nabisco, all of the
outstanding capital stock of each of the Principal Operating Subsidiaries is
owned directly or indirectly by the Company free and clear of any security
interest, claim, lien or other encumbrance or preemptive rights; and (c)
except for (i) options to acquire common stock of Nabisco granted to certain
directors, officers and employees of the Company and Nabisco and (ii) the
option granted to RJRN to acquire shares of Class B Common Stock of Nabisco
pursuant to the Corporate Agreement between RJRN and Nabisco dated as of
January 26, 1995, there are no outstanding rights
-17-
<PAGE> 18
(including, without limitation, preemptive rights), warrants or options to
acquire, or instruments convertible into or exchangeable for, any shares of
capital stock or other equity interest in any of the Principal Operating
Subsidiaries or any contract, commitment, agreement, understanding or
arrangement of any kind relating to the issuance of any such capital stock,
any such convertible or exchangeable securities or any such rights, warrants
or options.
(iv) the Purchase Agreement has been duly authorized, executed and
delivered by the Company;
(v) the Shares have been duly authorized and are validly issued, fully
paid and nonassessable;
(vi) the execution and delivery by the Company of, and the performance
by the Company of its obligations under, the Purchase Agreement will not
contravene any provision of applicable law or the certificate of
incorporation or by-laws of the Company or, to the best of such counsel's
knowledge, any agreement or other instrument binding upon the Company or any
of its subsidiaries or, to the best of such counsel's knowledge, any
judgment, order or decree of any governmental body, agency or court having
jurisdiction over the Company or any subsidiary, except for such
contraventions that would not have a material adverse effect on the financial
condition or results of operations of the Company and its subsidiaries taken
as a whole, and no consent, approval, authorization or order of or
qualification with any governmental body or agency is required for the
performance by the Company of its obligations under the Purchase Agreement,
except such as have been obtained under the Securities Act and the Exchange
Act and except such as may be required by the securities or Blue Sky laws of
the various states or other jurisdictions in connection with the offer and
sale of the Shares;
(vii) the statements in the Prospectus under the caption "Description
of Holdings Capital Stock", insofar as such statements constitute summaries
of the legal matters or documents referred to therein are accurate in all
material respects;
(viii) after due inquiry, such counsel does not know of any legal or
governmental proceeding pending or threatened to which the Company or any of
its subsidiaries is a party or to which any of the properties of the Company
or any of its subsidiaries is subject that is required to be described in the
Registration Statement or the Prospectus and is not so described or of any
statutes, regulations, contracts or other documents that are required to be
described in the
-18-
<PAGE> 19
Registration Statement or the Prospectus or to be filed as exhibits to the
Registration Statement that are not described or filed as required;
(ix) such counsel (1) is of the opinion that each document, if any, filed
pursuant to the Exchange Act and incorporated by reference in the
Registration Statement and Prospectus (except for financial statements and
schedules and financial and statistical data included therein as to which
such counsel need not express any opinion) complied when so filed as to form
in all material respects with the Exchange Act and the rules and regulations
of the Commission thereunder, (2) has no reason to believe that (except for
financial statements and schedules and financial and statistical data as to
which such counsel need not express any belief) the Registration Statement,
on the date it became effective contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary to make the statements therein not misleading or that the
Prospectus (except as aforesaid), contains any untrue statement of a material
fact or omits to state a material fact necessary in order to make the
statements therein in the light of the circumstances under which they were
made, not misleading, and (3) is of the opinion that the Registration
Statement and Prospectus (except for financial statements and schedules
included therein as to which such counsel need not express any opinion)
comply as to form in all material respects with the Securities Act and the
applicable rules and regulations of the Commission thereunder.
In rendering such opinion, such counsel may rely as to certain matters of
fact on certificates of officers of the Company and of public officials and
with respect to matters of New Jersey law, on a member of the Company's legal
staff admitted to practice in the State of New Jersey and may state that such
counsel expresses no opinion as to the laws of any jurisdiction other than the
State of New York, the federal law of the United States and the Delaware
General Corporation Law.
The opinion of counsel for the Company (other than an opinion of an officer
of the Company) shall be rendered to you at the request of the Company and
shall so state therein.
With respect to paragraph (ix) above, counsel for the Company may state that
such counsel's opinion and belief are based upon such counsel's participation
in the preparation of the Registration Statement and Prospectus and any
amendments or supplements thereto and documents incorporated therein by
reference and review and discussion of the contents thereof, but are without
independent check or verification, except as specified.
-19-
<PAGE> 20
Exhibit B
Opinion of
Counsel for the Selling Stockholder
The opinion of counsel for the Selling Stockholder, to be delivered pursuant
to Section 5(e) of the Purchase Agreement, shall be to the effect that:
(i) the Selling Stockholder has been duly incorporated, is validly
existing as a corporation in good standing under the laws of the State of
New Jersey, has the corporate power and authority to own its property and to
conduct its business and is duly qualified to transact business and is in
good standing in each jurisdiction in which the conduct of its business or
its ownership or leasing of property requires such qualification, except to
the extent that the failure to be so qualified or be in good standing would
not have a material adverse effect on the financial condition or results of
operations of the Selling Stockholder and its subsidiaries, taken as a
whole;
(ii) the Purchase Agreement has been duly authorized, executed and
delivered by the Selling Stockholder;
(iii) the execution and delivery by the Selling Stockholder of, and the
performance by the Selling Stockholder of its obligations under, the
Purchase Agreement will not contravene any provision of applicable law or
the certificate of incorporation or by-laws of the Selling Stockholder or
any agreement or other instrument listed or referred to in Items 4 and 10 of
the exhibits to the Selling Stockholder's Annual Report on Form 10-K for the
fiscal year ended December 31, 1993 or, to the best of such counsel's
knowledge, any judgment, order or decree of any governmental body, agency or
court having jurisdiction over the Selling Stockholder or any subsidiary,
except for contraventions that would not have a material adverse effect on
the financial condition or results of operations of the Selling Stockholder
and its subsidiaries taken as a whole, and no consent, approval,
authorization or order of or qualification with any governmental body or
agency is required for the performance by the Selling Stockholder of its
obligations under the Purchase Agreement, except such as have been obtained
and except such as may be required by the securities or Blue Sky laws of the
-20-
<PAGE> 21
various states or other jurisdictions in connection with the offer and sale
of the Shares.
(iv) Immediately prior to the delivery of the certificates for the Shares
at the Closing Date, the Selling Stockholder was the sole registered owner
of the Shares and the Selling Stockholder had full power, right and
authority to sell the Shares; assuming the Underwriters purchase the Shares
in good faith and without notice of any adverse claim, upon delivery by the
Selling Stockholder to the Underwriters of certificates for the Shares
against payment therefor as provided in the Purchase Agreement, the
Underwriters will acquire all of the rights of the Selling Stockholder in
the Shares free of any adverse claim.
In rendering such opinion, such counsel may rely as to certain matters of
fact on certificates of officers of the Selling Stockholder and of public
officials and with respect to matters of New Jersey law, on a member of the
Selling Stockholder's legal staff or on such counsel as it believes to be
reliable as to such matters and may state that such counsel expresses no
opinion as to the laws of any jurisdiction other than the State of New York and
the federal law of the United States.
The opinion of counsel for the Selling Stockholder (other than an opinion of
an officer of the Selling Stockholder) shall be rendered to you at the request
of the Selling Stockholder and shall so state therein.
-21-
<PAGE> 22
Exhibit C
Opinion of
Counsel for the Underwriters
The opinion of counsel for the Underwriters, to be delivered pursuant to
Section 5(f) of the Purchase Agreement, shall be to the effect that:
(i) the Purchase Agreement has been duly authorized, executed and delivered
by the Company;
(ii) the Shares have been duly authorized and are validly issued, fully paid
and nonassessable;
(iii) the statements in the Prospectus under the caption "Description of
Holdings Capital Stock", insofar as such statements constitute summaries of
the legal matters or documents referred to therein, are accurate in all
material respects; and
(iv) such counsel (1) has no reason to believe that (except for financial
statements and schedules as to which such counsel need not express any
belief) each part of the Registration Statement, when such part became
effective contained, and as of the date such opinion is delivered, contains
any untrue statement of a material fact or, when such part became effective,
omitted or, as of the date such opinion is delivered, omits to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading, (2) is of the opinion that the
Registration Statement and Prospectus (except for financial statements and
schedules and financial and statistical data included therein as to which
such counsel need not express any opinion) comply as to form in all material
respects with the Securities Act and the applicable rules and regulations of
the Commission thereunder and (3) has no reason to believe that (except for
financial statements and schedules and financial and statistical data as to
which such counsel need not express any belief) the Prospectus as of the date
such opinion is delivered contains any untrue statement of a material fact or
omits to state a material fact necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
With respect to clause (iv) above, such counsel may state that their opinion
and belief are based upon their participation in the preparation of the
Registration Statement and the Prospectus and any amendments or supplements
thereto (other than the documents incorporated by reference) and upon review
and discussion of the contents thereof (including
-22-
<PAGE> 23
documents incorporated by reference) but are without independent check or
verification, except as specified.
-23-
<PAGE> 1
EXHIBIT 12
<TABLE>
BORDEN, INC.
RATIO OF EARNINGS TO FIXED CHARGES
----------------------------------
(In Millions)
<CAPTION>
For the Year Ended December 31,
---------------------------------------------------------------
1994 1993 1992 1991 1990
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
(Loss) income from continuing
operations $(539.0) $ (56.9) $ (38.7) $ 279.9 $ 291.5
Interest expense 130.7 125.1 116.6 167.0 155.5
Interest portion of rents 26.5 22.0 21.5 22.2 20.9
Taxes on income 69.6 (27.2) 14.2 151.3 168.8
Minority interest in income
of consolidated subsidiaries 41.1 40.7 39.7 2.8 2.8
Undistributed income of
equity affiliates (1.4) (11.3) (8.7) (17.4) (12.4)
Amortization of capitalized
interest 4.7 4.6 4.4 4.7 4.3
------- ------- ------- ------- -------
$(267.8) $ 97.0 $ 149.0 $ 610.5 $ 631.4
======= ======= ======= ======= =======
Gross interest:
Interest expense $ 130.7 $ 125.1 $ 116.6 $ 167.0 $ 155.5
Capitalized interest 0.6 1.2 3.1 9.8 4.5
Interest portion of rents 26.5 22.0 21.5 22.2 20.9
------- ------- ------- ------- -------
$ 157.8 $ 148.3 $ 141.2 $ 199.0 $ 180.9
------- ------- ------- ------- -------
Ratio of earnings to fixed
charges * ** 1.1:1 3.1:1 3.5:1
======= ======= ======= ======= =======
* For the year ended December 31, 1994, fixed charges exceeded earnings by $425.6 million.
**For the year ended December 31, 1993, fixed charges exceeded earnings by $51.3 million.
</TABLE>
<PAGE> 1
EXHIBIT 22
Page 1 of 4
<TABLE>
BORDEN, INC.
SUBSIDIARIES OF REGISTRANT
--------------------------
<CAPTION>
The percentage of State or other
voting securities jurisdiction of
owned, or other incorporation
Subsidiaries of Registrant: basis of control or organization
- - --------------------------- ----------------- ---------------
<S> <C> <C>
Aldor S.p.A. 100 Italy
Monder Aliment S.p.A. 100 Italy
Alisa, S.A. 95 Colombia
BCP Management, Inc. 100 Delaware
BDS Two, Inc. 100 Delaware
BDS Three, Inc. 100 Delaware
BDH One, Inc. 100 Delaware
Borden Realty UK Limited 100 United Kingdom
Borden, S.A. 100 Panama
Broex, S.A. 50 Panama
Gallina Blanca, S.A. 50 Spain
Borden U.K. Holdings, Ltd. 100 New Jersey
Borden U.K. Limited 100 United Kingdom
Borden (Bray) Ltd. 100 Ireland
Borden Decorative Products Limited 100 United Kingdom
Borden Wallcoverings Pension
Trustees Limited 100 United Kingdom
Crown Wallcoverings-Borden Pension
Trustee Ltd. 100 United Kingdom
Borden Redevelopment Corp 100 Missouri
Borden UK Common Investment Fund
Trustees Limited 100 United Kingdom
Gregg Foods of Garden Grove, Inc. 100 Delaware
Harris Ocean Fresh Company 100 South Carolina
International Gourmet Specialties Company 100 New Jersey
International Packaging Corporation S.A. 100 Luxembourg
C&F Immobilien-Verwaltungs GMBH 100 Germany
Cofin Folien Gmbh 100 Germany
Cofin Hellas, S.A. 100 Greece
Fiap France, S.A. 100 France
Interbusco Ltd. 50 United Kingdom
Pami Immobiliere, S.A. 100 France
JFI, Inc. 100 Illinois
</TABLE>
<PAGE> 2
EXHIBIT 22
Page 2 of 4
BORDEN, INC.
SUBSIDIARIES OF REGISTRANT
--------------------------
<TABLE>
<CAPTION>
The percentage of State or other
voting securities jurisdiction of
owned, or other incorporation
Subsidiaries of Registrant: basis of control or organization
- - --------------------------- ----------------- ---------------
<S> <C> <C>
Meadow Gold Dairies Holding Company 100 Delaware
Meadow Gold Dairies, Inc. 100 Delaware
Merlino's Macaroni, Inc. 100 Washington
Orleans Food Company 100 Delaware
Pastas Alimenticias La Imperial, S.A. 100 Panama
Alimentos Nutritivos S.A. 100 Panama
Naxos S.A. 100 Panama
Re-Mi Foods, Inc. 100 Delaware
Starflake Foods Company, Inc. 100 New York
Suministros Generales y Miel Espanola, S.A. 50 Spain
Preparados Alimenticios, S.A. 50 Spain
Superior Dairies, Inc. 100 Texas
Wholesome Dairy, Inc. 100 Texas
BDH Two, Inc. 100 Delaware
BDS One, Inc. 100 Delaware
BFE Corp. 100 Delaware
BFI Ltd., L.P. 100 Delaware
Borden Australia (Pty.) Ltd. 100 Australia
Borden Australia Superannuation (Pty) Limited 100 Australia
Borden Belgium, N.V. 100 Belgium
Bordex (Belgium) S.A. 100 Belgium
Borden Company A/S, The 100 Denmark
Cocio Chokolademaelk A/S 100 Denmark
Borden Ost A/S 100 Denmark
Borden Company Limited, The 100 Canada
Borden Company Limited The 100 Ireland
Borden Foods Limited 100 Ireland
Borden International Packaging Ltd. 70 Ireland
Borden Exports Limited 100 Ireland
Borden De Costa Rica S.A. 100 Costa Rica
Borden Espana, S.A. 100 Spain
Borden France, S.A. 100 France
Borden Packaging France S.A. 100 France
Macaple S.A. 100 France
</TABLE>
<PAGE> 3
EXHIBIT 22
Page 3 of 4
BORDEN, INC.
SUBSIDIARIES OF REGISTRANT
--------------------------
<TABLE>
<CAPTION>
The percentage of State or other
voting securities jurisdiction of
owned, or other incorporation
Subsidiaries of Registrant: basis of control or organization
- - --------------------------- ------------------ ---------------
<S> <C> <C>
Borden International (Europe) Ltd. 100 Delaware
Borden International, Inc. 100 Delaware
Borden International Philippines, Inc. 98 Philippines
Borden Japan, Inc. 100 Japan
Borden (Nederland), B.V. 100 Netherlands
Bordex, B.V. 100 Netherlands
Borden Thermoforming, B.V. 100 Netherlands
Business Inflight Services B.V. 50 Netherlands
Thompack, B.V. 100 Netherlands
Borden (NZ) Limited 100 New Zealand
Borden (Proprietary) Limited 100 South Africa
Babelegi Processing (Pty.) Ltd. 100 South Africa
Borden Foods (Pty.) Ltd. 100 South Africa
Borden Puerto Rico, Inc. 100 New York
Borden Scandanavia A/S 100 Norway
Borges, GmbH 100 Germany
Compania Casco S.A. Industrial y Comercial 99 Argentina
Compania Colombiana de Alimentos Lacteos, S.A. 100 Colombia
Compania Internacional de Ventas, S.A. 100 Panama
Alba Amazonia S.A. Industrias Quimicas 100 Brazil
Alba Nordeste Industrias Quimica Ltda. 100 Brazil
The Wenham Corp., S.A. 100 Uruguay
Alba Quimica Industria e Comercio Ltda. 100 Brazil
Bexley Finance, S.A. 100 Panama
Bexley Comercio e Participacao Ltda. 100 Brazil
Borden Chemical (M.) Sdn. Bhd. 100 Malaysia
Compania Chiricana de Leche, S.A. 96.8 Panama
Compania Quimica Borden, S.A. 100 Panama
Compania Quimica Borden Ecuatoriana, S.A. 83.3 Ecuador
Fabrica de Productos Borden, S.A. 100 Panama
F.I.A.P. Fabrica Italiana Articoli
Plastici S.p.A 100 Italy
Cistefra S.r.l. 100 Italy
FIAP Deutschland GmbH 100 Germany
FIAP Hellas Ltd. 100 Greece
Maite S.p.A. 100 Italy
Metur S.r.l. 100 Italy
Termofin S.p.a. 100 Italy
</TABLE>
<PAGE> 4
EXHIBIT 22
Page 4 of 4
BORDEN, INC.
SUBSIDIARIES OF REGISTRANT
--------------------------
<TABLE>
<CAPTION>
The percentage of State or other
voting securities jurisdiction of
owned, or other incorporation
Subsidiaries of Registrant: basis of control or organization
- - --------------------------- ------------------- ---------------
<S> <C> <C>
Food and Snack Holdings (Singapore) Pte. Ltd. 50 Singapore
Borden Foods (Malaysia) Sdn. Bhd. 50 Malaysia
Gun Ei Borden International Resin Co. Ltd. 50 Japan
Helados Borden, S.A. 100 Panama
Hitachi Borden Chemical Products, Inc. 50 Japan
Italcolor, S.A. 100 Uruguay
Marshland Energy, Inc. 100 New Jersey
Nedrob Affiliates, Inc. 100 Delaware
One Nedrob, Inc. 100 Delaware
Orchard Corporation of Hong Kong, The 100 Hong Kong
Productos Borden, Inc. 100 New Jersey
Qihe Dairy Corp. Ltd 50 Republic of China
Resinite (South Africa) Pty. Ltd. 100 South Africa
Snacks Distributors, Inc. 100 New Jersey
T.M.I. Associates, L.P. 77.28 Delaware
Wilhelm Weber, GmbH 100 Germany
Grossbackerei Kamps Gmbh 100 Germany
Kamps Backwaren Service Gmbh 100 Germany
Grossbackerei Nuschelberg GmbH 100 Germany
W. Klemme, GmbH and Co. K.G. 50 Germany
Lecker Baecker Gmbh 100 Germany
Nur Hier Grossbackerei GmbH 100 Germany
Stefansback Backwaren GmbH 100 Germany
Weber-FSV Kft 50 Hungary
Zeelandia Investerings Partnership 100 New York
T. K. Partner, Inc. 100 Delaware
Zip Corporation 100 Delaware
Zcan Investments Ltd. 100 Canada
NOTE: The above subsidiaries have been included in Borden's Consolidated Financial
Statements on a consolidated or equity basis as appropriate. The names of
certain subsidiaries, active and inactive, included in the Consolidated
Financial Statements and of certain other subsidiaries not included therein,
are omitted since when considered in the aggregate as a single subsidiary
they do not constitute a significant subsidiary.
</TABLE>
