<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. 1)
Filed by the Registrant /x/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/x/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
AEP INDUSTRIES INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
N/A
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/ / $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11.
1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
5) Total fee paid:
------------------------------------------------------------------------
/x/ Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
------------------------------------------------------------------------
2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
3) Filing Party:
------------------------------------------------------------------------
4) Date Filed:
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<PAGE>
[LOGO]
September 11, 1996
Dear Shareholder:
You are cordially invited to attend a Special Meeting of Shareholders of AEP
Industries Inc. ("AEP"), which will be held at the Crowne Plaza Hotel, 650
Terrace Avenue, Hasbrouck Heights, New Jersey, on October 9, 1996, at 10:00 a.m.
local time.
AEP has entered into a Purchase Agreement with Borden Inc. ("Borden")
pursuant to which AEP has agreed to acquire the Global Packaging Business of
Borden ("Borden Packaging") for a combination of cash and AEP Common Stock. The
cash portion of the purchase price is $280,000,000, subject to adjustment under
certain circumstances, and the stock portion of the purchase price is 2,412,818
shares, subject to increase up to a maximum of 4,000,000 shares of AEP Common
Stock if the average stock price in the 50 trading day period before the Special
Meeting falls below $33.15625, as described in the accompanying Proxy Statement.
At the Special Meeting, you will be asked to approve the issuance of the shares
of Common Stock in connection with the purchase (the "Stock Issuance").
The effect of your approval of the Stock Issuance will be to enable AEP to
complete the acquisition of Borden Packaging. The acquisition is described in
the accompanying Proxy Statement, which includes a summary of the terms of the
Purchase Agreement. The Proxy Statement also describes a Governance Agreement
with respect to various rights of Borden with respect to the governance of AEP
following the completion of the purchase.
The Board of Directors of AEP believes that the purchase is in the best
interest of AEP and its stockholders and has received a fairness opinion from an
independent investment banker to the effect that the consideration proposed to
be paid by the Company in connection with the acquisition is fair to the Company
from a financial point of view. Accordingly, the Board has unanimously approved
the Purchase Agreement and the transactions contemplated thereby, including the
Stock Issuance, and recommends that you vote for the Stock Issuance. A Notice of
Special Meeting of Stockholders and a Proxy Statement containing detailed
information concerning the acquisition and related matters accompany this
letter. I urge you to read this material carefully.
Your vote is very important. Please sign, date and mail the enclosed Proxy
promptly.
I look forward to seeing you at the meeting.
Sincerely yours,
J. Brendan Barba,
CHAIRMAN, PRESIDENT AND CHIEF
EXECUTIVE OFFICER
Corporate Headquarters
125 Phillips Avenue
South Hackensack, New Jersey 07606
(201) 641-6600 - (800) 999-AEPI (2374) - FAX (201) 807-2489
<PAGE>
AEP INDUSTRIES INC.
125 Phillips Avenue
South Hackensack, NJ 07606
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD OCTOBER 9, 1996
To the Stockholders of
AEP Industries Inc.
Notice is hereby given that a Special Meeting of the Stockholders (the
"Meeting") of AEP Industries Inc. (the "Company") will be held on Wednesday,
October 9, 1996, at 10:00 a.m. local time, at the Crowne Plaza Hotel, 650
Terrace Avenue, Hasbrouck Heights, New Jersey, for the following purposes:
(1) to consider and vote upon a proposal (the "Acquisition Proposal") to
approve the issuance of that number of shares of common stock, par value $.01
("Common Stock"), of the Company as may be issuable pursuant to the purchase
agreement (the "Purchase Agreement"), dated as of June 20, 1996, between the
Company and Borden, Inc., a New Jersey corporation ("Borden"), providing for the
acquisition by the Company of certain assets, including the capital stock of
certain subsidiaries, of Borden, which together comprise the packaging division
of Borden ("Borden Packaging"), for $280,000,000 in cash and the issuance of a
minimum of 2,412,818 shares of Common Stock subject to increase to a maximum of
4,000,000 shares; and
(2) to consider and act upon any other matters which may properly come
before the Meeting or any adjournment thereof.
The accompanying Proxy Statement provides a description of the Acquisition
Proposal and extensive information concerning the Company and the Borden
Packaging business. Please give this information your careful attention.
THE REASONS FOR THE BOARD'S RECOMMENDATION AND A DESCRIPTION OF CERTAIN
FACTORS THAT STOCKHOLDERS SHOULD CONSIDER IN DECIDING HOW TO VOTE AT THE MEETING
ARE SET FORTH IN THE ACCOMPANYING PROXY STATEMENT UNDER THE CAPTIONS
"SUMMARY--CERTAIN EFFECTS OF THE ACQUISITION ON STOCKHOLDERS" AND "THE
ACQUISITION AND RELATED MATTERS."
Only holders of shares of Common Stock (the "Shares"), of record as at the
close of business on August 30, 1996, (the "Record Date") are entitled to vote
at the meeting. On the Record Date there were 4,689,709 Shares issued and
outstanding.
You are requested to complete and sign the accompanying Proxy Card, which is
solicited by the Company's Board of Directors, and mail it promptly in the
enclosed envelope. No proxy will be used if you attend and vote at the Special
Meeting (or any adjournment thereof) in person. EXECUTED BUT UNMARKED PROXIES
WILL BE VOTED FOR APPROVAL OF THE ISSUANCE OF COMMON STOCK OF THE COMPANY
PURSUANT TO THE PURCHASE AGREEMENT. The presence of a stockholder at the Special
Meeting will not automatically revoke such stockholder's proxy. A stockholder
may, however, revoke a proxy at any time prior to its exercise by filing a
written notice of revocation with, or by delivering a duly executed proxy
bearing a later date to, Mr. Lawrence R. Noll, Secretary, AEP Industries Inc.,
125 Phillips Avenue, South Hackensack, NJ 07606, or by attending the Special
Meeting and voting in person. A return envelope which requires no postage if
mailed in the United States is enclosed for your convenience.
By Order of the Board of Directors
Lawrence R. Noll
VICE-PRESIDENT-FINANCE AND SECRETARY
Dated: September 11, 1996
<PAGE>
AEP INDUSTRIES INC.
125 PHILLIPS AVENUE
SOUTH HACKENSACK, NJ 07606
PROXY STATEMENT
SPECIAL MEETING OF STOCKHOLDERS
------------------------
AEP Industries Inc. (the "Company") has entered into a Purchase Agreement
with Borden, Inc. ("Borden") pursuant to which the Company has agreed to acquire
the Global Packaging Business of Borden ("Borden Packaging") for a combination
of cash and shares of Company Common Stock, $.01 par value ("Shares"). The cash
portion of the purchase price is $280,000,000, subject to adjustment under
certain circumstances, and the stock portion of the purchase price consists of
2,412,818 Shares, subject to increase, as described herein, to a maximum of
4,000,000 Shares. The issuance of these Shares is referred to as the
"Acquisition Proposal."
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Management of the Company for a Special Meeting of Stockholders
to be held on October 9, 1996, at 10:00 a.m. local time, at the Crowne Plaza
Hotel, 650 Terrace Avenue, Hasbrouck Heights, New Jersey, and for any
adjournment or adjournments thereof, for the following purposes:
(1) to consider and vote upon the Acquisition Proposal to approve the
issuance of that number of Shares of Common Stock of the Company, as may be
issuable pursuant to the Purchase Agreement, dated as of June 20, 1996, between
the Company and Borden providing for the acquisition by the Company of certain
assets, including the capital stock of certain subsidiaries, of Borden, which
together comprise Borden Packaging (the "Acquisition"), the number of shares of
Common Stock to be issued to be a minimum of 2,412,818 shares, subject to
increase to a maximum of 4,000,000 shares; and
(2) to consider and act upon any other matters which may properly come
before the Meeting or any adjournment thereof.
The Board of Directors of the Company has unanimously approved the
Acquisition Proposal and believes that it is fair to and in the best interests
of the Company and its stockholders. The Board recommends a vote FOR the
Acquisition Proposal. J.P. Morgan Securities Inc. ("JPM"), financial advisor to
the Board of Directors of the Company in connection with the Acquisition, has
delivered its opinion to the Board of Directors of the Company that, based on
the various considerations set forth in its opinion, the consideration to be
paid by the Company in the Acquisition is fair to the Company from a financial
point of view.
Any stockholder giving a proxy has the power to revoke it at any time before
it is voted. Written notice of such revocation should be forwarded directly to
the Secretary of the Company at the above stated address. Attendance at the
Meeting will not have the effect of revoking the proxy unless such written
notice is given.
If the enclosed proxy is properly executed and returned, the Shares
represented thereby will be voted in accordance with the directions thereon and
otherwise in accordance with the judgment of the persons designated as proxies.
Any proxy on which no direction is specified will be voted in favor of the
actions described in this Proxy Statement.
The approximate date on which this Proxy Statement and the accompanying form
of proxy will first be mailed or given to the Company's stockholders is
September 11, 1996.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
SUMMARY.................................................................................................... 1
VOTING AND PROXIES......................................................................................... 5
THE ACQUISITION AND RELATED MATTERS........................................................................ 6
FINANCIAL STATEMENTS OF BORDEN PACKAGING AND THE COMPANY................................................... 15
SELECTED FINANCIAL DATA.................................................................................... 16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF BORDEN
PACKAGING................................................................................................ 17
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS.......................................................... 20
BUSINESS OF BORDEN PACKAGING............................................................................... 26
PRINCIPAL STOCKHOLDERS..................................................................................... 27
MARKET AND DIVIDEND INFORMATION............................................................................ 30
DESCRIPTION OF THE PURCHASE AGREEMENT...................................................................... 31
DESCRIPTION OF THE GOVERNANCE AGREEMENT.................................................................... 36
DESCRIPTION OF THE STOCKHOLDERS AGREEMENT.................................................................. 38
DESCRIPTION OF THE VOTING AGREEMENT........................................................................ 39
AVAILABLE INFORMATION...................................................................................... 40
INDEPENDENT PUBLIC ACCOUNTANTS............................................................................. 40
OTHER BUSINESS............................................................................................. 40
STOCKHOLDERS PROPOSALS..................................................................................... 40
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE.......................................................... 40
Annex A--Purchase Agreement
Annex B--Governance Agreement
Annex C--Stockholders Agreement
Annex D--Voting Agreement
Annex E--Opinion of J.P. Morgan Securities, Inc.
Annex F--Financial Statements of Borden Packaging as at December 31, 1995
Annex G--Financial Statements of Borden Packaging as at April 30, 1996
</TABLE>
(ii)
<PAGE>
SUMMARY
THE FOLLOWING IS A SUMMARY OF CERTAIN INFORMATION CONTAINED ELSEWHERE IN
THIS PROXY STATEMENT AND THE ANNEXES HERETO. THIS SUMMARY DOES NOT CONTAIN A
COMPLETE STATEMENT OF ALL MATERIAL FEATURES OF THE PROPOSAL TO BE VOTED ON AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF THIS PROXY
STATEMENT AND THE ANNEXES HERETO. STOCKHOLDERS ARE URGED TO READ THIS PROXY
STATEMENT AND THE ANNEXES IN THEIR ENTIRETY.
THE COMPANY AND BORDEN PACKAGING
The Company, founded in 1970, is a leading producer of polyethylene film
utilizing both cast and blown film technologies. The Company manufactures a wide
selection of specialty and standard plastic film for industrial, commercial and
agricultural applications. The Company's film products are used in the
packaging, transportation, beverage, food, automotive, pharmaceuticals,
chemical, electronics, construction, agricultural and textile industries. The
Company's principal executive offices are located at 125 Phillips Avenue, South
Hackensack, New Jersey 07606, and its telephone number at that address is (201)
641-6600.
Borden Packaging is a division of Borden which consists of certain assets of
Borden located within the United States relating to Borden's business of
manufacturing and selling packaging materials (the "Packaging Business") and the
stock or assets of certain subsidiaries of Borden outside the United States
engaged in the Packaging Business. Borden Packaging is an international producer
of a diverse range of flexible and rigid plastic packaging materials,
predominantly for the food and industrial markets. Its major product lines
include: polyvinyl chloride ("PVC") stretch films for packaging of meats,
poultry and cheese for use in supermarkets; PVC-based food wrap films in cutter
boxes and perforated rolls for institutions, including restaurants, schools,
hospitals and penitentiaries; polyethylene-based pallet wrap films for unitizing
pallet loads; and oriented polypropylene films for flexible packaging of salted
snacks, confectionery and baked goods. The principal executive offices of Borden
Packaging are located at One Tech Drive, Andover, Massachusetts 01810, and its
telephone number at that address is (508) 557-5300.
THE ACQUISITION AND THE PURCHASE PRICE
Pursuant to the Purchase Agreement, the Company will acquire substantially
all of the assets of Borden Packaging and certain foreign subsidiaries (except
cash and cash equivalents and marketable securities and certain intangible
assets, and other specified assets) and assume all of the liabilities, other
than certain excluded liabilities, and the current portion of long term debt
relating to the Packaging Business and the stock of certain foreign subsidiaries
of Borden engaged in the Packaging Business. Based on Borden Packaging's
financial statements at December 31, 1995, the Company will acquire all of the
assets of Borden Packaging with a book value of $428,042,000 (excluding cash and
cash equivalents of $34,417,000 and good will of $43,682,000) and will assume
liabilities of Borden Packaging of $113,535,000 (excluding the current portion
of long term debt of $8,323,000). The purchase price ("Purchase Price") will be
paid by the delivery of (a) 2,412,818 Shares (the "Fixed Shares") subject to
increase if the Buyer Stock Price is less than $33.15625 to a number of Shares
equal to the quotient obtained by dividing $80,000,000 by the Buyer Stock Price,
but in no event in excess of 4,000,000 Shares (the "Maximum Shares"), and (b)
$280,000,000 of cash in immediately available funds (the "Cash Consideration").
The "Buyer Stock Price" shall be equal to the average of the closing prices of
the Shares on the Nasdaq National Market ("Nasdaq NMS"), as reported in THE WALL
STREET JOURNAL, for the 50 trading days immediately preceding the second trading
day prior to the Meeting or such shorter number of trading days between June 20,
1996, and the second trading day prior to the Meeting. The Company intends to
account for the Acquisition as a purchase. The cash portion of the Purchase
Price of $280,000,000 is subject to increase or decrease (to be paid by Borden
in cash or Common Stock of the Company, at Borden's option, if there is a
decrease or in cash by the Company if there is an increase) equal to the
increase or decrease in the net working capital (excluding cash and cash
equivalents) of Borden Packaging and the decrease or increase in the long term
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liabilities of Borden Packaging between December 31, 1995, and the closing date
of the Purchase Agreement (the "Closing Date"). See "Description of the Purchase
Agreement."
As of the Record Date, there were 4,689,709 Shares outstanding. After giving
effect to the Acquisition, assuming 2,412,818 Shares are issued, Borden will own
approximately 34% of the outstanding Shares (46% if the Maximum Shares are
issued) of the Company.
The estimated fees and expenses of the Company, including fees and expenses
in connection with the borrowing to finance the Acquisition, related to the
Acquisition are approximately $3,700,000 (including professional fees of
approximately $550,000).
It is contemplated that the closing of the Acquisition will occur shortly
after the Meeting, if stockholders approve the Acquisition Proposal, assuming
that certain regulatory approvals have been obtained.
GOVERNANCE AGREEMENT
In connection with the Acquisition, Borden and the Company have entered into
a Governance Agreement, dated as of June 20, 1996 (the "Governance Agreement"),
with respect to certain matters relating to the corporate governance of the
Company. The Governance Agreement provides that, assuming the Company has a ten
member Board of Directors, Borden is entitled to designate four persons to serve
on the Board of Directors of the Company, subject to reduction in the event that
Borden's stockholdings are reduced below 25% of the outstanding Shares, and to
participate in the selection of one independent director so long as Borden's
stockholdings remain above 10%. If the Acquisition Proposal is approved and the
Acquisition is consummated, the size of the Board of Directors will be expanded
by four members and four persons designated by Borden will be appointed to fill
the vacancies created by such expansion. In addition, one of the current members
of the Board will resign and an independent director approved by the Company and
Borden will be appointed. The Governance Agreement also provides that Borden
will have certain rights to designate directors to serve on specified
committees, that the approval of a number of directors that represent at least
66 2/3% of the total number of directors will be required on certain specific
Board actions, and that, as long as Borden owns in excess of 25% of the Shares,
a Borden-designated director must be part of the 66-2/3% majority. The Shares to
be issued to Borden pursuant to the Purchase Agreement will be subject to
certain restrictions on disposition for a period of three years from the Closing
Date. The Governance Agreement also provides that Borden will have preemptive
rights to purchase additional Shares in order to maintain its percentage
ownership of the Shares and that Borden may not acquire Shares such that for the
three-year period after the Closing Date its percentage ownership of Shares
would increase beyond the number of Shares it acquires pursuant to the
Acquisition and that Borden is subject to certain additional standstill
provisions for the three-year period. See "Description of the Governance
Agreement--Preemptive Rights" and "Description of the Governance Agreement--
Business Combinations."
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors of the Company has unanimously approved the
Acquisition and believes that it is fair to, and in the best interests of, the
Company's stockholders. The Board of Directors unanimously recommends that
stockholders approve the Acquisition Proposal. See "The Acquisition and Related
Matters--Recommendation of the Board of Directors."
OPINION OF FINANCIAL ADVISOR
JPM, the financial advisor to the Board of Directors of the Company in
connection with the Acquisition, has delivered its opinion to the Board of
Directors of the Company that, based on the various considerations set forth in
its opinion, the consideration to be paid by the Company in the Acquisition is
fair to the Company from a financial point of view.
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The full text of JPM's opinion is set forth as Annex E to this Proxy
Statement. For a description of such opinion, as well as the qualifications and
limitations thereto, see "The Acquisition and Related Matters--Opinion of
Financial Advisor."
GOVERNMENTAL AND REGULATORY APPROVALS
The Company and Borden are not aware of any material governmental or
regulatory requirements relating to consummation of the Acquisition other than
compliance with applicable Federal and state securities laws, the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules
and regulations thereunder (the "HSR Act"), certain foreign anti-trust
requirements, and the approval of the transfer of certain governmental licenses
and permits. The Company and Borden each filed a notification and report form
pursuant to the HSR Act. The waiting period under the HSR Act has expired.
CERTAIN EFFECTS OF THE ACQUISITION ON STOCKHOLDERS
As part of the Purchase Price to be paid by the Company to Borden under the
Purchase Agreement, Borden will receive a minimum of 2,412,818 Shares and a
maximum of 4,000,000 Shares. The Fixed Shares represent approximately 34.0% of
the outstanding Shares, and the Maximum Shares represent approximately 46.0% of
the outstanding Shares. Accordingly, after giving effect to the Acquisition and
depending upon the Buyer Stock Price, Borden will own between 34.0% and 46.0% of
the outstanding Shares and current stockholders will own between 66.0% and 54.0%
of the outstanding Shares.
Pursuant to the Governance Agreement, Borden will have certain registration
rights with respect to its Shares. See "Description of Governance
Agreement--Registration Rights." Any sale of a significant amount of Shares by
Borden or the possibility of such sales, could have an adverse effect on the
market price of the Shares. Additionally, for as long as Borden holds a large
block of Shares, such holding may discourage unsolicited takeover bids from
third parties and, therefore, could have the effect of depriving stockholders of
an opportunity to sell their Shares at a premium over prevailing market prices.
Under the Governance Agreement, Borden will be entitled to representation on
the Board of Directors and the vote of a director selected by Borden will be
required for the approval of certain significant actions to be taken by the
Company, including issuance of capital stock by the Company and matters
involving fundamental corporate transactions, such as mergers or sales of all or
substantially all of the assets of the Company. These provisions could prevent
the Company from entering into transactions which stockholders other than Borden
may believe are beneficial.
Furthermore, Borden will acquire a sufficient number of Shares to permit it
to exercise substantial influence over the affairs of the Company. Borden has
agreed to certain standstill agreements for a three-year period after the
Closing of the Acquisition. However, after such period, Borden will not be
subject to any restrictions and could take further steps to influence the
affairs of the Company if its Share ownership would permit it to do so at such
time.
The Acquisition will result in a substantial increase in the Company's
assets and the scope of its operations. Among the factors considered by the
Board of Directors in connection with their approval of the Acquisition were the
opportunities for operating efficiencies that they expect will ultimately result
from the Acquisition. No assurance can be given that there will not be
difficulties encountered in integrating the operations of Borden Packaging and
the Company, that any such difficulties will be overcome or that the benefits
expected from such integration will be realized. The difficulties of combining
the operations of Borden Packaging with the Company include the necessity of
coordinating geographically separated organizations.
In order to finance the Acquisition, the Company will incur a substantial
amount of debt. See "The Acquisition and Related Matters--Financing." If future
cash flows are less than anticipated, the Company could have difficulty meeting
interest and principal payments due on its debt and other obligations.
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Holders of Shares will not be entitled to dissenters' rights of appraisal in
connection with the Acquisition. See "The Acquisition and Related Matters--No
Dissenters' Rights of Appraisal."
The purchase of Borden Packaging by the Company will have no Federal income
tax effect on the holders of Shares.
On a pro forma basis, assuming the 2,412,818 Fixed Shares are issued to
Borden, the consummation of the Acquisition would result in an increase of
approximately 177% in the Company's net tangible book value per Share as of
October 31, 1995, (152% as of April 30, 1996) and assuming an Acquisition date
of November 1, 1994, a decrease of 19% in the Company's net income per Share for
the year ended October 31, 1995 (55% for the six months ended April 30, 1996).
If the 4,000,000 Maximum Shares are issued to Borden, the consummation of the
Acquisition would result in an increase of approximately 127% in the Company's
net tangible book value per Share as of October 31, 1995 (106% as of April 30,
1996), and a decrease of 29% in the Company's net income per Share for the year
ended October 31, 1995 (62% for the six months ended April 30, 1996). See "The
Acquisition and Related Matters--Dilution."
VOTES REQUIRED
Approval of the Acquisition Proposal requires the affirmative vote of a
majority of the Shares voting at the Meeting. Holders of Shares representing
48.9% of the Shares outstanding on the Record Date, including the executive
officers and directors of the Company and members of their families, have agreed
to vote in favor of the Acquisition Proposal. (55.6%, including certain Shares
held of record for the benefit of certain managed accounts the vote of which is
subject to instructions from such plans). See "Voting and Proxies--Votes
Required," "Description of the Stockholders Agreement" and "Description of the
Voting Agreement."
4
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VOTING AND PROXIES
RECORD DATE AND MEETING
The Meeting is scheduled to be held at the Crowne Plaza Hotel, 650 Terrace
Avenue, Hasbrouck Heights, New Jersey, on Wednesday, October 9, 1996, at 10:00
a.m. August 30, 1996, has been fixed as the Record Date for determining
stockholders entitled to vote at the Meeting. At the close of business on the
Record Date, there were 4,689,709 Shares outstanding, each entitled to one vote.
Only holders of the Shares as of the Record Date are entitled to vote at the
Meeting. Under the Company's by-laws a majority of the Shares constitutes a
quorum for purposes of taking any action at the Meeting.
PROXIES AND VOTING INSTRUCTIONS
All proxies that are properly executed and returned, unless revoked at or
prior to the Meeting, will be voted at the Meeting and any postponements or
adjournments thereof in accordance with the instructions indicated thereon or,
if no direction is indicated, in accordance with the recommendations of the
Board of Directors. Management knows of no matters to be submitted at the
Meeting other than as specified in the Notice of Meeting included with this
Proxy Statement. However, if any other business properly comes before the
Meeting, it is the intention of the persons named in the proxy to vote in
respect thereof in accordance with their best judgment. The execution of a proxy
will not affect a stockholder's right to attend the Meeting and vote in person.
A stockholder who has given a proxy may revoke it at any time before it is
exercised at the Meeting by filing with the Secretary of the Company a written
notice of revocation or a proxy bearing a later date or by attendance at the
Meeting and voting in person. Attendance at the Meeting will not, by itself,
revoke a proxy.
The proxy form accompanying this Proxy Statement provides boxes by means of
which stockholders executing the proxy forms may vote for or against the
Acquisition Proposal or abstain from voting. Proxies will be voted in accordance
with such designation or, if no such designation is indicated, will be voted in
favor of the Acquisition Proposal. Abstentions and broker non-votes will be
counted for the purpose of determining the presence or absence of a quorum. If a
stockholder in person or by proxy abstains on any matter, the stockholder's
shares will not be voted on such matter. Thus, an abstention from voting on any
matter has the same legal effect as a vote "against" the matter, even though the
stockholder may interpret such action differently. Except for establishing a
quorum, broker non-votes are not counted for any purpose in determining whether
a matter has been approved.
VOTES REQUIRED
Although the Delaware General Corporation Law (the "DGCL") does not require
that the stockholders of the Company approve the Acquisition, the Shares are
quoted on the Nasdaq NMS, and under the rules of the Nasdaq NMS, each Nasdaq NMS
issuer must obtain stockholder approval prior to the issuance of designated
securities in connection with the acquisition of the stock or assets of another
company involving (i) the issuance of common stock, or securities convertible
into or exercisable for common stock, other than a public offering for cash, and
the common stock has or will have upon issuance voting power equal to or in
excess of 20% of the voting power outstanding before the issuance of such stock
or securities or (ii) the issuance of a number of shares of common stock in
excess of 20% of the number of shares of common stock outstanding before the
issuance of such stock. Therefore, under the rules of the Nasdaq NMS, the
Company's stockholders are required to approve the issuance of the Shares in
connection with the Acquisition by a majority of votes cast. The presence in
person or by proxy of a majority of the Shares constitutes a quorum for the
transaction of business. Although passage of the Acquisition Proposal may be
virtually assured, the Board of Directors is nevertheless soliciting votes for
approval by the Company's stockholders of the Acquisition Proposal. Under
Delaware law, stockholder approval of a transaction is one of the factors the
courts consider in determining whether the directors have breached their
fiduciary duty. Accordingly, a stockholder's vote in favor of the Acquisition
could adversely affect the ability of the
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stockholder to contest the Acquisition and to obtain damages against the
directors or officers of the Company in connection with the Acquisition.
Each of the directors and executive officers of the Company and certain
members of their families, and certain other stockholders known to the Company's
Management to own beneficially more than 5% of the outstanding Shares as of the
Record Date, have entered into the Stockholders Agreement or the Voting
Agreement (each as defined herein) with Borden under which such persons agreed
to vote all of the Shares beneficially owned by them in favor of the Acquisition
Proposal. In the aggregate, such persons beneficially own 2,294,695 Shares, or
approximately 48.9% of the Shares outstanding on the Record Date. In addition to
such Shares, pursuant to the Voting Agreement, EGS Partners, L.L.C. ("EGS") has
agreed to vote 314,302 shares of Common Stock, representing shares held by
certain managed accounts (the "Managed Accounts Shares") which are subject to
the provisions of the Employee Retirement Income Security Act of 1974, as
amended, in favor of the Acquisition Proposal, subject to whatever instructions
are given by such managed accounts. The Managed Accounts Shares have not been
included in determining the percentage above. See "Principal Stockholders,"
"Description of the Purchase Agreement--Stockholders Meeting," "Description of
the Stockholders Agreement" and "Description of the Voting Agreement." J.
Brendan Barba and members of his immediate family and Paul M. Feeney have also
agreed that for a period of three years they will not generally sell their
Shares except to the extent of the percentage that Borden sells its Shares. See
"Description of the Stockholders Agreement."
SOLICITATION OF PROXIES
The Company will bear the entire cost of solicitation of proxies from its
stockholders as well as the cost of preparing, assembling, printing and mailing
this Proxy Statement, the proxy and any additional information furnished to
stockholders. Copies of solicitation material will be furnished to brokerage
houses, fiduciaries and custodians holding in their names Shares beneficially
owned by others to forward to such beneficial owners. The Company may reimburse
persons representing beneficial owners of Shares for their expenses in
forwarding solicitation material to such beneficial owners. Solicitation of
proxies by mail may be supplemented by telephone, telegram or personal
solicitation by directors, officers or other regular employees of the Company,
who will not receive additional compensation for such services.
THE ACQUISITION AND RELATED MATTERS
GENERAL
The Purchase Agreement provides that, subject to the approval of the
Acquisition Proposal by the stockholders of the Company and subject to the
satisfaction of certain other conditions, the Company will acquire the Packaging
Business of Borden in exchange for the Purchase Price.
BACKGROUND OF THE ACQUISITION
In recent years the Company has considered expansion through acquisition of
existing businesses in its industry and had previously contacted Borden in 1991
and 1993 concerning a potential transaction. Prior to entering into the Purchase
Agreement there were no relationships between the Company and Borden.
On January 22, 1996, Borden announced that it would sell its world-wide
plastic packaging unit and that Morgan Stanley & Co. Incorporated ("Morgan
Stanley") would assist it with the sale. The Company contacted Morgan Stanley,
Borden's financial advisor, and requested financial and other information
concerning Borden Packaging from Morgan Stanley and requested that it be
included in the bidding process. On February 2, 1996, the Company and Borden
executed a confidentiality agreement providing for the review by the Company of
financial and other information concerning Borden Packaging, and the Company
subsequently obtained and reviewed information made available to it by Borden
and Morgan Stanley.
6
<PAGE>
On April 9, 1996, the Company's Board of Directors was apprised of the
potential purchase of Borden Packaging, and it authorized the Company's
management to pursue the possible acquisition and the retention of JPM.
Pursuant to an engagement letter, dated April 19, 1996, the Company retained
JPM as its financial advisor in connection with the submission of a proposal for
the purchase of Borden Packaging in accordance with the procedures established
by Borden.
On May 6, 1996, the Company's Board of Directors held a Special Meeting to
consider the submission of a proposal to acquire Borden Packaging and to review
the proposed structure and terms of a possible offer. Representatives of JPM
attended the Board meeting and reviewed the Acquisition and a proposed structure
and the terms of an offer to be made to Borden. JPM presented its preliminary
analysis of the financial terms of the Acquisition and the potential advantages
of the Acquisition and its impact on the Company.
On May 7, 1996, the Company submitted a proposal to purchase Borden
Packaging for a combination of cash and Company Shares (the "Original
Proposal"). The Original Proposal did not contemplate the purchase of the Asia
Pacific operations of Borden Packaging. On May 16, 1996, members of the senior
management of the Company, at the request of Borden, made a presentation to the
senior management of Borden, certain representatives of Kohlberg Kravis Roberts
& Co. ("KKR") and Morgan Stanley, outlining the terms of the Original Proposal.
Borden is owned by partnerships affiliated with KKR.
On May 23, 1996, the Company was advised by Morgan Stanley that Borden
wished to commence due diligence with respect to the Company, and, following the
execution of a confidentiality agreement by Borden, financial and other
information concerning the Company was made available to Borden and its
advisors. On May 30, 1996, the Company and JPM met with certain members of
senior management of Borden and representatives of KKR and Morgan Stanley to
discuss a revised proposal that would contemplate, among other things, the
inclusion of the Asia Pacific operations of Borden Packaging in the proposed
purchase price.
On June 11, 1996, the Board of Directors of the Company met to discuss the
revised proposal to be made to Borden. Management updated the Board of Directors
on the status of the negotiations and reviewed the terms of the agreements being
negotiated with Borden, including the Purchase Agreement and the Governance
Agreement. Representatives of JPM attended the meeting and made a presentation
to the Board which, among things, addressed their analysis of the financial
terms of the revised proposal and its impact on the Company.
On June 19, 1996, Borden and the Company discussed a final proposal
providing for, among other things, issuance of a minimum of 2,412,818 Shares,
valued at $80,000,000 ($33.15625 per Share) and $280,000,000 in cash, provided,
however, that the number of Shares to be issued would be subject to increase up
to a maximum of 4,000,000 Shares if the average closing price of the Shares on
Nasdaq NMS was less than $33.15625 per Share, to be calculated as described
elsewhere in this Proxy Statement. Management of the Company agreed to submit
the Acquisition to its Board of Directors.
On June 20, 1996, at a telephonic meeting of the Board of Directors of the
Company in which representatives of JPM participated, the Board discussed the
terms of the Purchase Agreement and the Governance Agreement, which had
previously been provided to them, and the final structure of the transaction as
described in these Agreements and in this Proxy Statement. JPM reviewed the
terms of the final proposal, advised the Board of Directors orally that in its
opinion the consideration proposed to be paid by the Company in connection with
the Acquisition Proposal was fair to the Company from a financial point of view
and that it would deliver such opinion in writing as of such date. The Board of
Directors meeting was adjourned, because an executed financing commitment had
not yet been received. The telephonic meeting was reconvened after receipt of
the financing commitment. After consideration of JPM's presentation and other
factors it deemed relevant and reviewing the terms of the final proposal, the
Board of Directors unanimously approved the acquisition proposal, including the
Purchase Agreement and
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<PAGE>
the Governance Agreement, reviewed the terms of the final proposal, and
authorized the Company's execution of a commitment letter for the financing.
On June 20, 1996, the Purchase Agreement and the Governance Agreement were
signed and delivered.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors of the Company has unanimously approved the
Acquisition Proposal and determined that the Purchase Agreement and the
Governance Agreement are fair to, and in the best interests of, the Company and
its stockholders, approved the Purchase Agreement and the Governance Agreement
and the transactions contemplated thereby and approved the issuance of Shares,
subject to stockholder approval. The Board of Directors unanimously recommends
that stockholders approve the Acquisition Proposal.
Prior to reaching these conclusions, the Board of Directors received
presentations from, and reviewed the Acquisition Proposal with, management of
the Company and JPM, the Company's financial advisor. The Board was advised of
the ranges of values for the Borden Packaging business by both Company
management and JPM and the bases used by each for arriving at these values. The
Board found the ranges reasonable, and the Purchase Price authorized by the
Board to be offered for the Borden Packaging business was within such ranges. In
evaluating the Acquisition Proposal, the Board of Directors considered a variety
of factors, including the following:
(i) The Board of Directors reviewed the business, operations,
properties, assets, financial condition and operating results of the
Company, its stock market valuation and its valuation compared to other
companies in the industry, and the conditions in the packaging industry in
general, as well as judgments as to the future prospects for the Company and
the packaging industry. The Board of Directors considered the Company's
recently increased manufacturing capacity and its ability to utilize its
capacity to meet increased sales levels that would result from an
acquisition and management's capability to increase the operating
efficiencies of an acquired business. The Board of Directors also considered
that an acquisition and the increase in the float of outstanding shares of
Common Stock that would result from an issuance of Common Stock in
connection with an acquisition and the subsequent sale of such shares in a
public offering could result in increases in the market valuation of the
Company Common Stock.
(ii) The Board of Directors considered the compatibility of the
businesses of the Company and Borden Packaging. In this connection, Board of
Directors considered the opportunities for increased efficiencies and other
benefits and cost savings which could be achieved as a result of the
combination of these businesses, including the ability to consolidate the
administration of the two companies and the United States and Canada sales
and marketing activities and to consolidate manufacturing operations and
shift production to the Company's recently completed manufacturing plants
which had available capacity to achieve cost savings and the greater
efficiencies of the combined Company's plants which could present
opportunities to increase profitability.
(iii) The Board of Directors considered the opportunity for the Company
to grow by expanding into new markets, such as Europe and the Pacific Rim,
and the addition of new products to the Company product line which would
enable sales persons to sell additional products to some of the Company's
existing customers and a wide range of products to all customers.
(iv) The Board of Directors considered the opinion of JPM as to the
fairness to the Company from a financial point of view of the consideration
to be paid by the Company pursuant to the Acquisition Proposal.
(v) The Board of Directors considered the information concerning the
financial performance and condition, business operations, assets,
liabilities and prospects of Borden Packaging. The Board of Directors
considered Borden Packaging's sales which were substantially greater than
the Company's
8
<PAGE>
sales and that, while net income as a percentage of sales was significantly
lower than the Company's and there were recent declines in Borden
Packaging's operating results, there were opportunities to improve Borden
Packaging's operating results after the Acquisition, including potential
administrative cost savings, capital expense savings, savings effected by
joint sales and marketing and increased manufacturing efficiencies because
of the Company's operating expertise.
(vi) The Board of Directors reviewed the terms of the Purchase
Agreement, the Governance Agreement and the other related agreements, which
were the product of extensive arms' length negotiations, including the
extent of the Company's liabilities for pre-closing obligations of Borden
Packaging and the rights granted to Borden to participate in the management
of the Company pursuant to the Governance Agreement.
(vii) The Board was advised of the proposed employment contracts with Mr.
Barba and Mr. Feeney, which provided for increases in salary and bonuses
following the closing. The Board considered the increases in salaries and
bonuses and other terms of the employment agreements to be appropriate, and
they were not a factor in the Board's evaluation of the fairness of the
transaction.
In view of the wide variety of factors that the Board considered in
connection with its evaluation of the Acquisition Proposal, the Board did not
find it practicable to, and did not, quantify or otherwise attempt to assign
relative weights to the specific factors it considered in reaching its
conclusions, although the Board did place a special emphasis on management's
analysis of the potential increased efficiencies that could result from the
Acquisition Proposal. The Board also considered the range of values of the
Company and Borden Packaging as presented by the Company and by JPM, and the
Board found these values reasonable. On balance, the Board considered each of
the factors set forth in (i) through (vi) above as supporting its conclusions
and placed greatest weight on factors (ii), (iv) and (v).
The statements contained in this Proxy Statement regarding matters that are
not statements of historical fact, including statements as to future operating
results, benefits from the Acquisition or cost savings, are forwarding-looking
statements within the meaning of Section 21E of the Securities Exchange Act of
1934, as amended. Actual results may differ materially from the statements made,
as a result of various factors, including those stated under the caption
"Certain Effects of the Acquisition on Stockholders" and elsewhere in this Proxy
Statement and other factors which are listed from time to time in the Company's
Annual Report on Form 10-K and in other documents filed by the Company with the
Securities and Exchange Commission.
OPINION OF FINANCIAL ADVISOR
At a meeting of the Board of Directors of the Company on June 20, 1996, JPM
rendered its oral opinion, subsequently confirmed in writing, to the Board of
Directors of the Company that as of such date, the consideration to be paid by
the Company pursuant to the Acquisition Proposal was fair to the Company from a
financial point of view. No limitations were imposed by the Company's Board of
Directors upon JPM with respect to the investigations made or procedures
followed by it in rendering its opinion, except that JPM was not authorized to,
and did not, solicit expressions of interest from any third parties with respect
to any alternative transaction relating to the Company.
The full text of the written opinion of JPM, dated June 20, 1996, which sets
forth the assumptions made, matters considered and limits on the review
undertaken, is attached as Annex E to this Proxy Statement and is incorporated
herein by reference. The Company's stockholders are urged to read the opinion in
its entirety. JPM's written opinion is addressed to the Board of Directors of
the Company, is directed only to the consideration to be paid by the Company
pursuant to the Acquisition Proposal, and does not constitute a recommendation
to any stockholder of the Company as to how such stockholder should vote at the
Meeting. JPM has advised the Board of Directors that it does not believe that
any person other than the Board has the right under applicable state law to rely
on its opinion and that, in the absence of any governing precedent, it would
resist any assertion otherwise by any such person. JPM's belief is based on the
terms of its engagement letter with the Company and its views concerning
applicable
9
<PAGE>
state law. The availability to JPM of such a defense would be resolved by a
court of competent jurisdiction. The resolution under applicable state law of
this issue will have no effect on the rights and responsibilities of the Board
of Directors under applicable state law. In addition, the availability of any
state law defense to JPM as aforesaid would have no effect on the rights and
responsibilities of either JPM or the Board of Directors as a matter of federal
securities laws. The summary of the opinion of JPM set forth in this Proxy
Statement is qualified in its entirety by reference to the full text of such
opinion.
In arriving at its opinion, JPM reviewed, among other things: the Purchase
Agreement; the audited financial statements of the Company for the fiscal year
ended October 31, 1995, and of Borden Packaging for the fiscal year ended
December 31, 1995, and the unaudited financial statements of the Company for the
period ended April 30, 1996, and unaudited financial information for Borden
Packaging for the period ended April 30, 1996; certain publicly available
information concerning the business of Borden Packaging and of certain other
companies engaged in businesses comparable to those of Borden Packaging, and the
reported market prices for certain other companies' securities deemed
comparable; publicly available terms of certain transactions involving companies
comparable to Borden Packaging and the consideration paid for such companies;
the terms of other business combinations deemed relevant by JPM; certain
internal financial analyses and forecasts prepared by the Company and by Borden
Packaging and their respective managements; and certain agreements with respect
to outstanding indebtedness or obligations of the Company and of Borden
Packaging. JPM also held discussions with certain members of the management of
the Company and Borden Packaging with respect to certain aspects of the
Acquisition Proposal, the past and current business operations of the Company
and Borden Packaging, the financial condition and future prospects and
operations of the Company and Borden Packaging, and certain other matters
believed necessary or appropriate to JPM's inquiry. In addition, JPM visited
certain representative facilities of Borden Packaging, and reviewed such other
financial studies and analyses and considered such other information as it
deemed appropriate for the purposes of its opinion.
JPM relied upon and assumed, without independent verification, the accuracy
and completeness of all information that was publicly available or that was
furnished to it by the Company and by Borden Packaging or otherwise reviewed by
JPM, and JPM did not assume any responsibility or liability therefor. JPM did
not conduct any valuation or appraisal of any assets or liabilities, nor were
any valuations or appraisals provided to JPM. In relying on financial analyses
and forecasts provided to JPM, including the views of the Company, Borden and
Borden Packaging concerning the business, operational and strategic benefits of
the Acquisition Proposal, and including, without limitation, the financial
forecasts provided to JPM by the Company relating to the synergistic values and
operating cost savings expected to be achieved by the Acquisition Proposal, JPM
assumed that they were reasonably prepared based on assumptions reflecting the
best currently available estimates and judgments by management as to the
expected future results of operations and financial condition of the Company and
Borden Packaging to which such analyses or forecasts related. The JPM opinion
notes that inability to achieve such business, operational or strategic benefits
or to realize such synergistic values and operating cost savings could affect
its opinion, and that JPM expressed no view as to any such achievability or
realizability. JPM also assumed that the Acquisition Proposal would have the tax
consequences described to it, and that the other transactions contemplated by
the Purchase Agreement would be consummated as described in the Purchase
Agreement.
The projections furnished to JPM for the Company and Borden Packaging were
prepared by the respective managements of each company. Neither the Company nor
Borden Packaging publicly discloses internal management projections of the type
provided to JPM in connection with JPM's analysis of the Acquisition Proposal,
and such projections were not prepared with a view toward public disclosure.
These projections were based on numerous variables and assumptions that are
inherently uncertain and may be beyond the control of management, including,
without limitation, factors related to general economic and competitive
conditions and prevailing interest rates. Accordingly, actual results could vary
significantly from those set forth in such projections.
10
<PAGE>
JPM's opinion is based on economic, market and other conditions as in effect
on, and the information made available to JPM as of, the date of such opinion.
Subsequent developments may affect the written opinion, dated June 20, 1996, and
JPM does not have any obligation to update, revise, or reaffirm such opinion.
JPM expressed no opinion as to the price at which the Company's shares will
trade at any future time.
In accordance with customary investment banking practice, JPM employed
generally accepted valuation methods in reaching its opinion. The following is a
summary of the material financial analyses utilized by JPM in connection with
providing its opinion.
PUBLIC TRADING MULTIPLES. Using publicly available information, JPM
compared selected financial data of Borden Packaging with similar data for
selected publicly traded companies engaged in businesses which JPM judged to be
comparable to Borden Packaging. The companies selected by JPM included Sonoco
Products Co., Bemis Co. Inc., Sealed Air Corporation, Liqui-Box Corporation,
Sealright Co. Inc., Applied Extrusion Technologies, Inc., Envirodyne Industries,
Inc. and Atlantis Plastics Inc. These companies were selected, among other
reasons, because of the similarity of their businesses to that of the Company
(specifically, the manufacture of plastic packaging products) and comparability
to the Company in terms of size, margins, and earnings growth rates. For each
comparable company, publicly available financial performance through the twelve
months ended March 31, 1996, and estimated calendar 1996, financial performance
were measured. JPM calculated multiples of (1) sales, (2) earnings before
interest, taxes, depreciation and amortization ("EBITDA"), (3) earnings before
interest and taxes ("EBIT"), and (4) net income. Such multiples ranged between
0.6x - 2.2x, 5.8x - 10.8x and 8.0x - 26.2x for each of sales, EBITDA and EBIT,
respectively for the twelve months ended March 31, 1996, and 8.8x - 44.6x for
calendar year 1996 estimated net income. Application of these multiples to the
twelve months ended April 30, 1996, and estimated 1996 results for Borden
Packaging yielded an implied unlevered value for Borden Packaging of
approximately $320--$400 million before consideration of any potential synergies
or cost savings as a result of the Acquisition Proposal.
SELECTED TRANSACTION ANALYSIS. Using publicly available information, JPM
examined selected transactions in the plastic film packaging industry,
including, among others, the following transactions: Tyco International's
acquisition of Carlisle Plastics Inc., a producer of consumer and industrial
plastics, including plastic garment hangers, trash bags, industrial films,
plastic sheeting and containers, and Tenneco Inc.'s acquisition of Mobil
Corporation's Plastics Division, a manufacturer of plastic products, including
Hefty brand waste bags, tableware and food storage bags, as well as specialty
packaging for food service, supermarket and industrial applications. Based on
this analysis JPM calculated multiples of sales and EBIT. Such multiples ranged
between 0.4x - 1.3x and 13.1x - 18.0x for sales and EBIT, respectively.
Application of these multiples to the twelve months ended April 30, 1996,
results for Borden Packaging yielded an implied unlevered value for Borden
Packaging of approximately $330-$410 million before consideration of any
potential synergies or cost savings as a result of the Acquisition Proposal.
DISCOUNTED CASH FLOW ANALYSIS. JPM performed a discounted cash flow
analysis for the purpose of determining the unlevered firm value of Borden
Packaging. JPM calculated the unlevered free cash flows that Borden Packaging
was expected to generate during fiscal years 1996 through 2000 based upon (1)
financial projections prepared by the management of Borden Packaging through the
year ended 2000 (the "Management Case"), modified to reflect certain changed
assumptions with respect to the Asia Pacific business and (2) financial
projections developed by the Company working with JPM as an alternative (the
"Alternative Case"), as described under "Certain Financial Projections". As part
of its discounted cash flow analysis, JPM also calculated a range of terminal
values of Borden Packaging at the end of the projection period by applying
multiple ranges of 5.0 to 6.0 times and 4.0 to 5.0 times to the forecasted
EBITDA of Borden Packaging in the final year of the 5-year period of Borden
Packaging (excluding the Asia Pacific business) and Borden Packaging's Asia
Pacific business, respectively. The unlevered free cash flows and the range of
terminal values were then discounted to present values using a range of discount
11
<PAGE>
rates from 10% to 12%, which were chosen by JPM based upon an analysis of the
weighted average cost of capital of Borden Packaging. The discounted cash flow
analysis resulted in an implied unlevered value for Borden Packaging of
approximately $380 to $480 million and $320 to $400 million for the Management
Case, modified as aforesaid and Alternative Case, respectively, before
consideration of any potential synergies or cost savings as a result of the
Acquisition Proposal.
OTHER ANALYSIS: JPM reviewed the trading history of the Company's shares
and considered the impact of the relative lack of liquidity and lack of research
coverage on the share price relative to the intrinsic value of such shares. JPM
also considered the relative contributions of sales, EBIT, and net income of
Borden Packaging to the Company after giving effect to the Acquisition Proposal
in relation to Borden's ownership interest in the Company.
The summary set forth above does not purport to be a complete description of
the analyses or data presented by JPM. The preparation of a fairness opinion is
a complex process and is not necessarily susceptible to partial analysis or
summary description. JPM has informed the Company that it believes that the
summary set forth above and its analyses must be considered as a whole and that
selecting portions thereof, without considering all of its analyses, could
create an incomplete view of the processes underlying its analyses and opinion.
JPM based its analyses on assumptions that it deemed reasonable, including
assumptions concerning general business and economic conditions and
industry-specific factors. The other principal assumptions upon which JPM based
its analyses are set forth above under the description of each such analysis.
JPM's analyses are not necessarily indicative of actual values or actual future
results that might be achieved, which values may be higher or lower than those
indicated. Moreover, JPM's analyses are not and do not purport to be appraisals
or otherwise reflective of the prices at which businesses actually could be
bought or sold. The JPM opinion notes that JPM was not authorized to and did not
solicit expressions of interest from any third parties with respect to any
alternative transaction; it is stated that, accordingly, no opinion is expressed
whether such an alternative transaction might produce higher values for the
Company or its stockholders.
On the basis of and subject to the foregoing the JPM opinion indicates, as
of June 20, 1996, that, in JPM's opinion, the consideration to be paid by the
Company in the Acquisition Proposal is fair, from a financial point of view, to
the Company.
As a part of its investment banking business, JPM and its affiliates are
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, investments for passive and control
purposes, negotiated underwritings, secondary distributions of listed and
unlisted securities, private placements, and valuations for estate, corporate
and other purposes. JPM was selected to advise the Company with respect to the
Acquisition Proposal on the basis of such experience.
For services rendered in connection with the Acquisition Proposal and JPM's
fairness opinion, the Company has paid JPM a fee of $100,000. The Company is not
obligated to pay additional fees if the Acquisition Proposal is not consummated.
If the Acquisition Proposal is consummated, the Company has agreed to pay a fee
of $1,000,000 against which the $100,000 previously paid is creditable. The fee
was established through arms-length negotiations between the Company and JPM. In
addition, the Company has agreed to reimburse JPM for its expenses incurred in
connection with its services, including the fees and disbursements of counsel,
whether or not the Acquisition Proposal is consummated. The total amount of such
expenses is not expected to exceed $150,000. The Company will also indemnify JPM
against certain liabilities, including liabilities arising under the Federal
securities laws.
In addition, JPM's affiliate Morgan Guaranty Trust Company of New York
("Morgan Guaranty") will receive fees not expected to exceed $2,000,000 from the
Company for its services as arranger and will be reimbursed for its expenses
incurred in connection with the financing, including the fees and disbursements
of counsel. The fee was established through arms-length negotiations between the
Company and JPM and Morgan Guaranty.
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<PAGE>
JPM and its affiliates maintain banking and other business relationships
with the Company and its affiliates, for which they receive customary fees. In
the ordinary course of their businesses, JPM and its affiliates may actively
trade the debt and equity securities of the Company or Borden for their own
accounts or for the accounts of customers and, accordingly, they may at any time
hold long or short positions in such securities. As of June 20, 1996, the date
of the JPM opinion, no such positions were held by either JPM or its affiliates.
CERTAIN FINANCIAL PROJECTIONS
Neither the Company nor Borden, as a matter of course, publicly discloses
projections as to future revenues, earnings or other financial information.
Certain projections (the "Projections") were prepared by management of Borden
and furnished to the Company (the "Management Case") and to JPM and were used by
JPM, among other things, in the course of its evaluation of the Acquisition
Proposal. The Management Case Projections were not provided by Borden for use in
this Proxy Statement. The Projections, which are set forth below, are not
included in this Proxy Statement to induce any stockholder to vote for the
Acquisition Proposal. None of the Company, Borden or JPM or any of their
respective directors or officers assumes any responsibility as a result of their
inclusion in this Proxy Statement for the accuracy or adequacy of the
Projections. The Projections were based upon a variety of assumptions, including
those set forth below. Such assumptions involve judgments with respect to, among
other things, future economic, competitive and regulatory conditions, financial
market conditions and future business decisions, all of which are difficult or
impossible to predict accurately and many of which are beyond the control of the
Company. Any projections must accordingly be deemed inherently unreliable.
Accordingly, it is expected that there will be differences between actual and
projected results, and actual results may be materially higher or lower than
projected results.
The Projections below were not prepared with a view to public disclosure,
use in this Proxy Statement or compliance with published guidelines of the SEC,
nor were they prepared in accordance with the guidelines established by the
American Institute of Certified Public Accountants for preparation and
presentation of financial projections. In addition, the Projections do not
purport to present operations in accordance with generally accepted accounting
principles and have have not been audited, compiled or otherwise examined by the
Company's or Borden's independent accountants, or by any other independent
accountants. Accordingly, no accountants assume responsibility for the
Projections presented below.
AS A GENERAL MATTER, THE PROJECTIONS ARE FORWARD LOOKING STATEMENTS AND
ACTUAL RESULTS COULD DIFFER MATERIALLY AS A RESULT OF ANY OR ALL OF THE FACTORS
AFFECTING THE COMPANY'S OR BORDEN PACKAGING'S BUSINESS THAT HAVE BEEN IDENTIFIED
ELSEWHERE IN THIS PROXY STATEMENT OR IN THE DOCUMENTS INCORPORATED BY REFERENCE
HEREIN. THE PROJECTIONS SET FORTH BELOW ARE INCLUDED SOLELY BECAUSE SUCH
PROJECTIONS WERE CONSIDERED BY THE COMPANY AND BY JPM IN THE COURSE OF THEIR
EVALUATION OF THE ACQUISITION PROPOSAL. READERS ARE STRONGLY CAUTIONED THAT THE
PROJECTIONS SHOULD NOT BE RELIED UPON AS A CURRENT ESTIMATE BY MANAGEMENT OF
PROJECTED OPERATING RESULTS.
Set forth below are the Projections provided to the Company in the course of
its evaluation of the Acquisition Proposal by Borden Packaging's management and
an alternative set of Projections developed by the Company working with JPM.
<TABLE>
<CAPTION>
MANAGEMENT CASE ($ MILLIONS) ALTERNATIVE CASE ($ MILLIONS)
----------------------------------------------------- -------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1996 1997 1998 1999 2000 1996 1997 1998
--------- --------- --------- --------- --------- --------- --------- ---------
Sales.................................... $ 646.1 $ 624.6 $ 688.9 $ 739.7 $ 788.8 $ 650.6 $ 618.5 $ 666.5
EBITDA................................... 56.5 67.2 84.4 100.2 111.5 54.8 60.7 80.7
Depreciation............................. 21.9 19.6 22.4 23.4 23.9 22.0 19.6 21.1
EBIT..................................... 34.6 47.6 62.0 76.8 87.9 32.8 41.1 47.5
<CAPTION>
<S> <C> <C>
1999 2000
--------- ---------
Sales.................................... $ 715.7 $ 763.8
EBITDA................................... 80.3 84.8
Depreciation............................. 22.1 22.2
EBIT..................................... 58.2 62.7
</TABLE>
13
<PAGE>
MAJOR ASSUMPTIONS FOR FINANCIAL PROJECTIONS
The following assumptions were made in connection with the financial
projections of Borden Packaging furnished to the Company.
Raw material cost increases were assumed to be passed through to customers.
Sales were assumed to increase at a 5.1% compounded annual growth rate from
1996 to 2000. This sales growth assumed moderate price increases and higher
volume increases in the North American group, particularly in areas as Mexico,
Central America and the Caribbean. Penetration of the pallet wrap market in
North America was assumed to contribute to annual volume growth.
The projections excluded European Rigids beginning in 1997. Prices in Europe
were assumed to rise at a 2.5% compounded annual growth rate and volume in
Europe at a 6.0% compounded annual growth rate. Resinite sales in Europe were
assumed to increase based on the anticipated growth of mature and developing
markets, including Southern Europe and Eastern Europe, and through new product
introductions. Flexibles were assumed to exhibit substantial growth in the
pallet wrap area as it expands in both Western and Eastern Europe. Market share
was assumed to increase over time. FIAP was assumed to experience steady sales
growth through increased twist wrap sales and its entrance into France and
Germany. The sales growth of Asia Pacific includes only growth of existing
businesses and does not include any acquisitions.
EBIT margins were assumed to grow from 5.4% in 1996 to 11.1% in 2000. This
assumed significant improvements from a change in product mix and major capital
projects in North America, significant capital expenditures designed to reduce
costs and enhanced productivity in Europe.
The principal difference between the Management Case and the Alternative
Case derives from differences in the assumptions made by management of Borden
Packaging and the Company's management with respect to growth in the Asia
Pacific business and potential margin improvements over the course of the
Projection period. The average EBIT margin over the Projection period in the
Management Case was 8.7% as compared to an average EBIT margin of 7.0% in the
Alternative Case.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The acquisition of Borden Packaging by the Company is not expected to have
any Federal income tax effect on the current holders of the Shares.
DILUTION
On a pro forma basis, assuming the 2,412,818 Fixed Shares are issued and
that the Acquisition had occurred on October 31, 1995, the Company's net
tangible book value per Share would have been $9.69, compared to the historical
net tangible book value of $3.50 per Share on October 31, 1995, or an increase
of 177% in net tangible book value per Share ($10.16, $4.04 and 152%,
respectively, at April 30, 1996). Also, on a pro forma basis, assuming an
Acquisition date of November 1, 1994, and the issuance of the Fixed Shares, the
Company would have had net income of $1.56 per Share for the year ended October
31, 1995, compared to the historical net income of $1.99 per Share, or a
decrease of 19% in net income per Share ($.52 and 55%, respectively, for the six
months ended April 30, 1996). If the 4,000,000 Maximum Shares were issued, the
net tangible book value per Share would have been $7.94 or an increase of 127%
at October 31, 1995 ($8.30, $4.04 and 106%, respectively, at April 30, 1996),
and the net income would have been $1.41 per Share or a decrease of 29% in net
income per Share for the year ended October 31, 1995 ($.43 and 62%,
respectively, for the six months ended April 30, 1996).
14
<PAGE>
NO DISSENTERS' RIGHTS OF APPRAISAL
Under the DGCL, the Company's stockholders will not be entitled to
dissenters' rights of appraisal in connection with the Acquisition.
HSR ACT
Under the HSR Act, certain acquisition transactions, including the
Acquisition, may not be consummated unless certain information has been
furnished to the Federal Trade Commission (the "FTC") and the Antitrust Division
of the United States Department of Justice (the "Antitrust Division") and
certain waiting period requirements have been satisfied.
Pursuant to the HSR Act, on July 16, 1996, the Company and Borden each filed
a notification relating to the Acquisition and the issuance of Shares to Borden
pursuant to the Acquisition Proposal, as required by the HSR Act. The filings
were reviewed by the Antitrust Division and the FTC, and the waiting period
under the HSR Act has expired.
FINANCING
In order to pay the $280,000,000 cash portion of the Purchase Price, the
expenses of the Acquisition, and certain other related costs and to refinance
approximately $98,700,000 of principal and interest of its current bank
facility, the Company has obtained a commitment from JPM and its affiliate,
Morgan Guaranty Trust Company of New York, to provide financing of up to
$450,000,000. The Company is currently negotiating the terms of the financing
agreements (the "Acquisition Financing Agreements"). The Acquisition Financing
Agreements are expected to contain customary covenants, including limitations on
the ability of the Company to declare and pay dividends, incur indebtedness or
make restricted payments.
ACCOUNTING TREATMENT
The Company intends to account for the Acquisition as a "purchase" for
accounting and financial purposes.
INTERESTS OF CERTAIN PERSONS
As a condition to Borden's obligation to consummate the Acquisition, the
Company is required to enter into employment agreements with J. Brendan Barba
and Paul M. Feeney, its Chairman of the Board and Chief Executive Officer and
its Executive Vice President-Finance and Chief Financial Officer, respectively.
The terms of these employment agreements are described at "Description of the
Purchase Agreement--Conditions."
FINANCIAL STATEMENTS OF BORDEN PACKAGING AND THE COMPANY
There is attached hereto as Annex F the audited combined balance sheets of
Borden Packaging as of December 31, 1995 and 1994, and the related combined
statements of operations, owner's investment and cash flows for the three years
ended December 31, 1995, 1994 and 1993. There is attached hereto as Annex G
unaudited interim combined balance sheets of Borden Packaging as of April 30,
1996 and 1995, and the related interim combined statements of operations and
cash flows for the four month periods ended April 30, 1996 and 1995.
Financial Statements of the Company (sometimes referred to herein as "AEP")
and Management's Discussion and Analysis of Financial Condition and Results of
Operations of the Company are included in the documents incorporated herein by
reference. See "Incorporation of Certain Information by Reference."
15
<PAGE>
SELECTED FINANCIAL DATA
BORDEN PACKAGING
The following table sets forth, for the periods and at the dates indicated,
summary historical financial data for Borden Packaging. The summary historical
data is derived from and should be read in conjunction with the historical
financial statements and notes thereto included in Annex F and Annex G to this
Proxy Statement. Financial Data for prior periods is not readily available for
Borden Packaging on a stand-alone basis. It is not practicable to provide 1991
and 1992 data, as Borden Packaging operations were not managed, and its
financial statements were not reported, as a separate business unit in those
years. See also "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
<TABLE>
<CAPTION>
FOUR MONTHS ENDED
APRIL 30, YEAR ENDED DECEMBER 31,
---------------------- ----------------------------------
(IN THOUSANDS) (IN THOUSANDS)
1996 1995 1995 1994 1993
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Net sales.......................................... $ 184,940 $ 200,795 $ 629,011 $ 553,896 $ 503,992
Gross margin....................................... $ 31,732 $ 36,947 $ 113,030 $ 104,850 $ 94,379
Operating income................................... $ 2,994 $ 8,198 $ 29,025 $ 21,989 $ 22,144
Net income......................................... $ 1,243 $ 4,609 $ 16,277 $ 11,341 $ 11,458
Balance Sheet Data:
Current assets..................................... $ 219,733 $ 234,774 $ 232,572 $ 201,998
Property and equipment--net........................ $ 205,377 $ 209,183 $ 209,828 $ 204,481
Total assets....................................... $ 488,226 $ 511,118 $ 506,141 $ 471,342
Current liabilities................................ $ 110,331 $ 110,188 $ 102,162 $ 107,115
Long-term debt..................................... $ 470 $ 740 $ 538 $ 863
Owner's investment................................. $ 359,532 $ 381,113 $ 384,283 $ 343,896
---------- ---------- ---------- ----------
</TABLE>
THE COMPANY
The selected financial data for the Company is included in the documents
incorporated herein by reference. See "Incorporation of Certain Information by
Reference."
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF BORDEN PACKAGING
This discussion and analysis should be read in conjunction with the
historical financial statements of Borden Packaging included in Annexes F and G
to this Proxy Statement.
RESULTS OF OPERATIONS
Borden Packaging presents its results of operations on the basis of these
geographic segments: (i) the United States, (ii) Europe (which includes South
Africa), and (iii) Asia Pacific--Other (where "Other" principally includes
Canada); Canada is managed, however, together with the United States.
FOUR MONTHS ENDED APRIL 30, 1996, COMPARED TO FOUR MONTHS ENDED APRIL 30, 1995
Net sales decreased to $184.9 million for the four months ended April 30,
1996, from $200.8 million for the four months ended April 30, 1995, or 7.9%. Net
sales in the United States decreased to $58.2 million for the 1996 period from
$67.5 million for the 1995 period, or 14%, primarily due to reduced selling
prices for pallet-wrap films as current market conditions have forced recent raw
material cost decreases to be passed on in decreased selling prices and, in
Proponite films, planned temporary reductions of sales volumes required to make
production capacity available to accommodate increased R&D efforts. The
Proponite R&D program is expected to last through 1996 with a budgeted sales
reduction of approximately $4.0 million for the year. Net sales in Europe
decreased to $95.8 million for the 1996 period from $102.8 million for the 1995
period, or 7%, primarily due to reduced sales of polyvinyl chloride ("PVC")
films, and reduced sales from the Italian operations. Net sales for Asia
Pacific--Other increased slightly to $30.9 million for the 1996 period from
$30.5 million for the 1995 period.
Cost of goods sold decreased to $153.2 million for the four months ended
April 30, 1996, from $163.8 million for the four months ended April 30, 1995, or
6.5%, primarily due to raw material cost decreases. Gross margin as a percent of
sales decreased to 17.2% for the 1996 period from 18.4% for the 1995 period, as
the reductions in selling prices exceeded the reductions in raw material costs,
primarily in the United States pallet-wrap films.
The raw material cost decreases relate primarily to PVC resins and linear
low density polyethylene ("LLDPE") resins. Both PVC and LLDPE resins are
commodity products, as are the raw materals to produce the resins, and are
subject to cyclical fluctuations and pricing based primarily on the supply and
demand balance. Resin costs in 1996 have declined from extremely high 1995
levels and will most likely remain volatile in the future. The future effect on
Borden Packaging of this volatility will depend on its abilty to raise prices to
offset future resin increases and to maintain sales prices during periods of
resin price decreases.
Other operating costs and expenses totaled $28.7 million for both periods
with no significant fluctuation within the components.
As a result of the foregoing, net income decreased to $1.2 million for the
four months ended April 30, 1996, compared to $4.6 million for the four months
ended April 30, 1995, or 73.9%.
TWELVE MONTHS ENDED DECEMBER 31, 1995, COMPARED TO TWELVE MONTHS ENDED DECEMBER
31, 1994
Net sales increased to $629.0 million from $553.9 million, or 13.6%, from
1994 to 1995. Net sales in the United States increased to $209.6 million from
$197.6 million, or 6%, from 1994 to 1995, primarily due to strong selling price
increases, offset to some extent by decreased volumes. The increased selling
prices were a result of the ability of Borden Packaging and the industry to
partially recover the cost of raw material increases discussed above. Net sales
in Europe increased to $310.8 million from $258.6 million, or 20%, from 1994 to
1995, primarily as a result of significant selling price increases in the first
half of 1995 and to a lesser extent as a result of an increase in sales reported
in U.S. dollars due to the strengthening of
17
<PAGE>
European currencies against the U.S. dollar. Net sales for Asia Pacific--Other
increased to $108.7 million from $97.7 million, or 11%, from 1994 to 1995,
largely due to improvements in sales volumes and selling prices.
Cost of goods sold increased to $516.0 million in 1995 from $449.0 million
in 1994, or 14.9%, primarily due to increased PVC and LLDPE resin costs caused
by cyclical price increases for these commodity resins and the increased sales
volumes discussed above. Gross margin as a percent of sales decreased slightly
to 18.0% in 1995 from 18.9% in 1994, primarily due to raw material cost
increases which could not be fully recovered through increased selling prices.
Gross margin as a percent of sales also benefitted from improved manufacturing
efficiencies in the European Rigid operations.
Other operating costs and expenses totaled $84.0 million in 1995 compared to
$82.9 million in 1994; the increases were primarily caused by increased
marketing expenses related to the increased sales discussed above.
Net interest expense decreased to $1.2 million in 1995 from $4.2 million in
1993, as foreign bank loans were replaced with contributions from Borden (in the
form of borrowings or equity). The intercompany interest on these contributions
is not reflected in the financial statements.
As a result of the foregoing, net income increased to $16.3 million in 1995
compared to $11.3 million in 1994, or 44.2%.
TWELVE MONTHS ENDED DECEMBER 31, 1994, COMPARED TO TWELVE MONTHS ENDED DECEMBER
31, 1993
Net sales increased to $553.9 million from $504.0 million, or 9.9%, from
1993 to 1994. Net sales in the United States increased to $197.6 million from
$172.9 million, or 14%, from 1993 to 1994, primarily due to higher selling
prices as well as increased sales volumes. Net sales in Europe increased to
$258.6 million from $244.0 million, or 6%, from 1993 to 1994, primarily as a
result of increased sales volumes from output productivity programs and selling
price increases. Net sales for Asia Pacific--Other increased to $97.7 million
from $87.1 million, or 12%, from 1993 to 1994, primarily as a result of
increased sales volume, including export sales and the effect on sales reported
in U.S. dollars of a strong New Zealand dollar.
Cost of goods sold increased to $449.0 million in 1994 from $409.6 million
in 1993, or 9.6%, primarily due to PVC and LLDPE resin cost increases caused by
cyclical price increases for these commodity resins and the increased sales
volumes discussed above. Gross margin as a percent of sales remained constant at
18.9% in 1994 versus 18.7% in 1993.
General and administrative expenses increased to $27.8 million from $20.7
million, or 34%, from 1993 to 1994, due primarily to increased general insurance
charges of approximately $2.0 million based on Borden's claims experience, an
increase in foreign exchange losses of $1.2 million, primarily in Italy, Holland
and Canada, a gain of $1.0 million on the sale of miscellaneous equipment in
Australia in 1993 that did not recur in 1994 and other general cost increases,
primarily in foreign operations. Net interest expense decreased to $4.2 million
in 1994 from $5.0 million in 1993, as foreign bank loans were replaced with
contributions from Borden (in the form of borrowings or equity). The
intercompany interest on these contributions is not reflected in the financial
statements.
As a result of the foregoing, net income remained essentially unchanged at
$11.3 million in 1994 compared to $12.0 million in 1993, before the cumulative
effect in 1993 of a change in accounting for post-employment benefits.
INFLATION
Both inflation and deflation can cause fluctuations in the Borden
Packaging's annual earnings. Inflation and deflation can cause variations in the
costs of raw materials and in the demand for, and prices
18
<PAGE>
of, all product lines globally. Margins can fluctuate because costs of raw
materials and selling prices may not increase or decrease at the same rates or
in the same direction during the same periods.
LIQUIDITY AND CAPITAL RESOURCES
Borden Packaging's primary capital requirements have consisted of capital
expenditures, which were $16.7 million, $9.3 million, and $21.6 million in 1995,
1994, and 1993, respectively. Historically, these amounts have been funded by
cash flows from operations, which were $16.5 million in 1995, $9.4 million in
1994, and $32.8 million in 1993, by intercompany contributions from Borden or by
bank borrowings for the foreign locations.
Borden Packaging's cash management in the United States and financing
arrangements in the foreign locations have historically been part of Borden's
global financing strategy and are not necessarily indicative of a stand-alone
operation. Net reductions in short-term and long-term debt were $5.7 million,
$17.3 million, and $14.3 million in 1995, 1994, and 1993, respectively. Net
increases in intercompany loans were $28.9 million, $28.7 million, and $20.2
million in 1995, 1994, and 1993, respectively.
A significant portion of Borden Packaging'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. Borden Packaging participates in Borden's cash management and
treasury system. Borden uses forward exchange contracts and currency swaps to
reduce the effect of the fluctuations in foreign currency rates and hedges
certain net foreign investments, firm commitments and transactions denominated
in foreign currencies.
19
<PAGE>
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma combined financial statements give effect
to the Acquisition and are based on estimates and assumptions set forth below
and in the notes to such pro forma financial statements. The unaudited pro forma
combined financial statements have been prepared utilizing the historical
financial statements of the Company as of and for the year ended October 31,
1995, and as of and for the six months ended April 30, 1996, and Borden
Packaging as of and for the year ended December 31, 1995, and as of and for the
six months ended April 30, 1996, and should be read in conjunction with such
historical financial statements and accompanying notes. The unaudited pro forma
combined financial statements do not reflect any sales attrition which may
result from the Acquisition or the cost savings and efficiencies that the
Company expects to achieve from the Acquisition. The unaudited pro forma
combined financial statements do not purport to be indicative of the results
which actually would have been obtained if the Acquisition had been effected on
the date or dates indicated or of the results which may be obtained in the
future.
The pro forma combined financial statements are based on the purchase method
of accounting for the Acquisition. The pro forma combined balance sheet assumes
the Acquisition occurred on April 30, 1996. The pro forma combined statements of
operations assume that the Acquisition had occurred on November 1, 1994, for the
year ended October 31, 1995, and for the six months ended April 30, 1996.
For the purpose of calculating the pro forma financial statements, it has
been assumed that 2,412,818 Shares were issued in the Acquisition (the minimum
number of Shares that could be issued in the Acquisition at $33.16 per share).
See "Description of the Purchase Agreement." See footnote (9) to the pro forma
combined financial statements below for a description of the effect the failure
to issue the minimum number of Shares would have on the pro forma combined
financial statements.
Although neither the Company nor Borden has complete current information as
to the fair market values of the assets and liabilities of Borden Packaging, a
preliminary estimate of the allocation of the Purchase Price has been made on
the basis of available information. The Purchase Agreement provides for the
parties to mutually agree on such allocation. Accordingly, the actual allocation
of the Purchase Price when the transaction is completed may be different from
that reflected in the pro forma combined financial statements. Such differences
would result from adjustments to the Purchase Price and refinements in the fair
market values of the net assets acquired resulting from appraisals, etc.
20
<PAGE>
AEP INDUSTRIES INC.
PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE 12 MONTHS ENDED OCTOBER 31, 1995
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL
---------------------- PRO FORMA PRO FORMA PRO FORMA
AEP BP SUBTOTAL ADJUSTMENTS COMBINED
---------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net Sales....................................... $ 242,886 $ 629,011 $ 871,897 $ -- $ 871,897
Cost of Sales................................... 182,513 515,981 698,494 1,820(6) 700,314
---------- ---------- ----------- ----------- -----------
Gross Profit................................ 60,373 113,030 173,403 (1,820) 171,583
Other Operating Costs:
Delivery & Warehousing........................ 16,666 24,078 40,744 -- 40,744
Selling....................................... 12,940 33,732 46,672 -- 46,672
General & Administrative...................... 5,543 26,195 31,738 (321)(5) 31,417
---------- ---------- ----------- ----------- -----------
Subtotal.................................... 35,149 84,005 119,154 (321) 118,833
Income from Operations.......................... 25,224 29,025 54,249 (1,499) 52,750
Other Income (Expense):
Interest Expense.............................. (3,209) (1,232) (4,441) (20,786) ,7) (25,227)
Other, net.................................... 384 937 1,321 -- 1,321
---------- ---------- ----------- ----------- -----------
Total Other Income (Expense)................ (2,825) (295) (3,120) (20,786) (23,906)
Income before extraordinary item and provision
for income taxes.............................. 22,399 28,730 51,129 (22,285) 28,844
Provision for income taxes...................... 8,723 12,453 21,176 (7,800)(8) 13,376
---------- ---------- ----------- ----------- -----------
Net Income.................................. $ 13,676 $ 16,277 $ 29,953 $ (14,485) $ 15,468
---------- ---------- ----------- ----------- -----------
---------- ---------- ----------- ----------- -----------
Primary Earnings Per Share:..................... $ 1.99 n/a (9) $ 1.62
---------- ---------- -----------
---------- ---------- -----------
Average Shares Outstanding...................... 6,883 n/a 6,883 2,687(9) 9,570
---------- ---------- ----------- ----------- -----------
---------- ---------- ----------- ----------- -----------
</TABLE>
See accompanying notes to pro forma combined financial statements
21
<PAGE>
AEP INDUSTRIES INC.
PRO FORMA COMBINED BALANCE SHEET
AS OF APRIL 30, 1996
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL PRO
--------------------- FORMA PRO FORMA PRO FORMA
AEP BP SUBTOTAL ADJUSTMENTS COMBINED
--------- ---------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Assets
Current Assets:
Cash and equivalents................................ $ 703 $ 26,381 $ 27,084 $ (26,381) (1) $ 703
Marketable securities............................... 1,771 -- 1,771 -- 1,771
Accounts receivable, net............................ 24,095 87,806 111,901 -- 111,901
Other receivables................................... 13,240 13,240 -- 13,240
Inventories......................................... 20,995 90,341 111,336 -- 111,336
Deferred federal tax benefit........................ 750 -- 750 -- 750
Other current assets................................ 965 1,965 2,930 525 (2) 3,455
--------- ---------- --------- ----------- -----------
Total current assets.............................. 49,279 219,733 269,012 (25,856) 243,156
Property, Plant and Equipment, at cost................ 150,157 375,262 525,419 (126,853) (1) 398,566
Less accumulated depreciation......................... (57,912) (169,885) (227,797) 169,885 (1) (57,912)
--------- ---------- --------- ----------- -----------
Net property, plant and equipment................. 92,245 205,377 297,622 43,032 340,654
Investment in Affiliated Companies.................... -- 2,867 2,867 -- 2,867
Goodwill and intangibles.............................. -- 44,213 44,213 (17,655) 26,558
Other assets.......................................... 2,773 16,056 18,809 2,625 (1,2) 21,434
--------- ---------- --------- ----------- -----------
Total assets...................................... $ 144,297 $ 488,226 $ 632,523 $ 2,146 $ 634,669
--------- ---------- --------- ----------- -----------
--------- ---------- --------- ----------- -----------
Liabilities and Stockholder's Equity:
Current Liabilities:
Current portion long term debt...................... $ 5,216 $ 6,601 $ 11,817 51,059 (3) $ 62,876
Accounts payable trade.............................. 14,927 69,015 83,942 -- 83,942
Accrued expenses.................................... 4,160 34,715 38,875 8,600 (1,2) 47,475
--------- ---------- --------- ----------- -----------
Total current liabilities......................... 24,303 110,331 134,634 59,659 194,293
Long term debt........................................ 92,045 -- 92,045 222,340 (1,3) 314,385
Deferred income taxes................................. 9,107 11,274 20,381 -- 20,381
Non-pension postemployment benefit obligation......... -- 2,716 2,716 -- 2,716
Other long-term pension liabilities................... -- 4,373 4,373 -- 4,373
--------- ---------- --------- ----------- -----------
Total liabilities................................. 125,455 128,694 254,149 281,699 536,148
Stockholders Equity:
Owner's Investment.................................. -- 359,532 359,532 (359,532) (1) --
Capital stock....................................... 75 -- 75 24 (1) 99
Additional paid in capital.......................... 7,685 -- 7,685 79,655 (1) 87,340
Treasury Stock...................................... (62,142) -- (62,142) -- (62,142)
Retained earnings................................... 73,224 -- 73,224 -- 73,224
--------- ---------- --------- ----------- -----------
Total stockholders equity......................... 18,842 359,532 378,374 (279,853) 98,521
--------- ---------- --------- ----------- -----------
Total liabilities and equity...................... $ 144,297 $ 488,226 $ 632,523 $ 2,146 $ 634,669
--------- ---------- --------- ----------- -----------
--------- ---------- --------- ----------- -----------
</TABLE>
See accompanying notes to pro forma combined financial statements
22
<PAGE>
AEP INDUSTRIES INC.
PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE 6 MONTHS ENDED APRIL 30, 1996
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL
---------------------- PRO FORMA PRO FORMA PRO FORMA
AEP BP SUBTOTAL ADJUSTMENTS COMBINED
---------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net Sales............................................. $ 110,591 $ 291,346 $ 401,937 -- $ 401,937
Cost of Sales......................................... 79,259 238,220 317,479 766(6) 318,964
---------- ---------- ----------- ----------- -----------
Gross Profit...................................... 31,332 53,126 84,458 (766) 83,692
Other Operating Costs:
Delivery & Warehousing.............................. 8,901 11,774 20,675 -- 20,675
Selling............................................. 6,783 17,062 23,845 -- 23,845
General & Administrative............................ 2,733 14,798 17,531 (160)(5) 17,371
---------- ---------- ----------- ----------- -----------
Subtotal.......................................... 18,417 43,634 62,051 (160) 61,891
Income from Operations................................ 12,915 9,492 22,407 (606) 21,801
Other Income (Expense):
Interest Expense.................................... (3,837) (367) (4,204) (10,499) ,7) (14,703)
Other, net.......................................... 139 351 490 -- 490
---------- ---------- ----------- ----------- -----------
Total Other Income (Expense)...................... (3,698) (16) (3,714) (10,499) (14,213)
Income before provision for income taxes.............. 9,217 9,476 18,693 (11,105) 7,588
Provision for income taxes............................ 3,548 4,073 7,621 (3,887)(8) 3,724
---------- ---------- ----------- ----------- -----------
Net Income........................................ $ 5,669 $ 5,403 $ 11,072 $ (7,218) $ 3,854
---------- ---------- ----------- ----------- -----------
---------- ---------- ----------- ----------- -----------
Primary Earnings Per Share............................ $ 1.15 n/a (9) $ 0.52
---------- ---------- -----------
---------- ---------- -----------
Average Shares Outstanding............................ 4,931 n/a 2,531(9) 7,462
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
</TABLE>
See accompanying notes to pro forma combined financial statements
23
<PAGE>
AEP INDUSTRIES INC.
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
(1) Reflects the acquisition of Borden Packaging by the Company for a total
purchase price of $360,000,000 consisting of $280,000,000 in cash and
2,412,818 Shares of Company Common Stock at an assumed price of $33.15625
per Share or a total of $80,000,000. This acquisition will be recorded using
the purchase method of accounting. Under the acquisition agreement, the
Company will acquire all of the net assets and assumed liabilities of Borden
Packaging except for cash of $26,381,000, goodwill of $44,213,000 and
current portion of long term debt of $6,601,000. The Company has included
additional costs of the acquisition of $5,450,000 in accrued expenses. These
costs represent consultant, legal and accounting fees of $1,450,000 and
additional purchase costs of $4,000,000 that relate to the acquisition. The
excess of purchase price over net assets acquired has been preliminarily
allocated to property, plant and equipment ($43,032,000) and intangibles
($26,558,000) pending the completion of appraisals and due diligence. See
"The Acquisition and Related Matters--Accounting Treatment".
(2) Reflects the bank underwriting fees incurred by the Company in connection
with obtaining financing for the Acquisition. The total fees are expected to
be approximately $3,150,000, of which $525,000 is included in other current
assets. These bank fees have been accrued by the Company and will be
amortized over the term of the credit facilities, which has been assumed to
be six years.
(3) Reflects the retirement of the existing combined bank long term debt of
$97,261,000 and replacement thereof with the Company's new credit
facilities, which at April 30, 1996, would have equalled approximately
$377,261,000.
(4) Reflects the amortization of the bank underwriting fees for the new credit
facilities obtained in the financing of the Acquisition. The total fees are
expected to be approximately $3,150,000 and have been assumed to be
amortized over six years, the assumed term of the credit facilities. The
total fees amortized for the year ended October 31, 1995, and the six months
ended April 30, 1996, amounted to $525,000 and $262,000, respectively. These
fees were charged to interest expense.
(5) Reflects the net change in amortization expense of purchased intangibles of
$26,558,000, which are being amortized over a period of between 17 to 20
years. These intangibles have preliminarily been allocated as follows:
$10,000,000 to licenses, patents and copyrights, $11,429,000 to goodwill
related to the Hitachi-Borden joint venture and $5,129,000 to additional
costs related to the acquisition.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE SIX MONTHS ENDED
DECEMBER 31, 1995 APRIL 30, 1996
------------------ ------------------------
<S> <C> <C>
Amortization expense of purchased intangibles,............. $ 1,415,000 $ 708,000
Historical amortization expense............................ 1,736,000 868,000
------------------ ----------
Adjustment needed to decrease amortization expense......... $ (321,000) $ (160,000)
------------------ ----------
------------------ ----------
</TABLE>
(6) Reflects the additional depreciation of property, plant and equipment
assuming that the acquisition occurred on November 1, 1994.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE SIX MONTHS ENDED
OCTOBER 31, 1995 APRIL 30, 1996
------------------ ------------------------
<S> <C> <C>
Depreciation expense of acquired property, plant and
equipment (9 to 20 years life)........................... $ 22,191,000 $ 11,095,000
Historical depreciation expense............................ 20,371,000 10,329,000
------------------ ------------
Adjustment needed to increase depreciation expense......... $ 1,820,000 $ 766,000
------------------ ------------
------------------ ------------
</TABLE>
24
<PAGE>
AEP INDUSTRIES INC.
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(7) Reflects adjustments for the acquisition financing, as of November 1, 1994,
plus the average incremental debt incurred during the year ended October 31,
1995, and the six months ended April 30, 1996. No assumptions were made that
the Company made any scheduled debt payments under the Credit Facility.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE SIX MONTHS ENDED
OCTOBER 31, 1995 APRIL 30, 1996
------------------ ------------------------
<S> <C> <C>
Average debt under Credit Facility......................... $ 318,795,000 $ 370,400,000
------------------ -------------
Average interest rate...................................... 7.63% 7.69%
------------------ -------------
Interest expense (excluding amortization of loan fees)..... $ 24,702,000 $ 14,241,100
Historical combined interest expense, (excluding $200,000
of amortization of loan fees for the six months ended
April 30, 1996).......................................... 4,441,000 4,004,000
------------------ -------------
Adjustment needed to increase interest expense............. $ 20,261,000 $ 10,237,000
------------------ -------------
------------------ -------------
</TABLE>
Because interest rates in connection with the Term Credit Facility have not
been determined as of the date of this Proxy Statement, this presentation is
indicative of the Company's best current estimate of interest expense.
Each 1% increase or decrease in the assumed average interest rate under the
Term Credit Facility would change the pro forma interest expense for the
year ended October 31, 1995, and the six months ended April 30, 1996, by
$3,188,000 and $1,852,000, respectively. The pro forma net income (loss)
would change by $1,092,000 and the pro forma primary earnings (loss) per
share would change by $.22 for the year ended October 31, 1995. The pro
forma net income (loss) would change by $1,204,000 and pro forma primary
earnings (loss) per share would change by $.16 for the six months ended
April 30, 1996.
(8) Reflects an adjustment to the combined tax provision to provide for taxes at
the Federal statutory tax rate of 35%.
(9) Reflects the issuance of 2,412,818 Shares of the Company's Common Stock as
per the Purchase Agreement assuming a price of $33.15625 per Share and
274,000 of the additional incremental Shares of Common Stock equivalents
(stock options) that would be used to calculate the weighted average number
of Shares outstanding at October 31, 1995. If the Buyer Stock Price is less
than $33.15625, the number of Shares to be issued in connection with the
Acquisition will be increased to equal $80,000,000 divided by the Buyer
Stock Price, but in no event more than 4,000,000 Shares. In the event that
4,000,000 Shares of Company Common Stock are issued in the Acquisition, the
average Shares outstanding would increase by 1,433,000 and the pro forma
primary earnings per Share would decrease by $.21.
Reflects the issuance of 2,412,818 Shares of Company's Common Stock as per
the Purchase Agreement assuming a price of $33.15625 per Share and 118,000
of the additional incremental Shares of Common Stock equivalents (stock
options) that would be used to calculate the weighted average number of
Shares outstanding at April 30, 1996. If the Buyer Stock Price is less than
$33.15625, the number of Shares to be issued in connection with the
Acquisition will be increased to equal $80,000,000 divided by the Buyer
Stock Price, but in no event more than 4,000,000 Shares. In the event that
4,000,000 Shares of Company Common Stock are issued in the Acquisition, the
average Shares
25
<PAGE>
AEP INDUSTRIES INC.
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
outstanding would increase by 1,433,000 and the pro forma primary earnings
per Share would decrease by $.08.
26
<PAGE>
BUSINESS OF BORDEN PACKAGING
GENERAL
Borden Packaging is an international producer of a range of flexible and
rigid packaging materials predominantly for the food and industrial markets. It
manufactures and distributes its products worldwide, including North America,
Western Europe, South Africa and the Asia Pacific regions. The Borden Packaging
business is organizationally divided into three groups: North America, Europe
and South Africa, and Asia Pacific. Not included as part of the Acquisition is
Borden's packaging business in South America, which will be retained by Borden.
Accordingly, the results of the South American packaging operations are not
included in the historical financial information of Borden Packing or in the pro
forma financial information.
BORDEN PACKAGING
Borden Packaging's major product lines include polyvinyl chloride ("PVC")
stretch films for packaging of meats, poultry and produce for supermarkets;
PVC-based food wrap films in cutter boxes and perforated rolls for institutions,
including restaurants, schools, hospitals and penitentiaries; polyethylene
("PE") based stretch wrap films for unitizing pallet loads; oriented
polypropylene ("OPP") films for flexible packaging of salted snacks,
confectionery and baked goods; and polypropylene ("PP") films for processed
cheese products. Borden Packaging is also a leading converter of flexible food
packaging materials in Europe and Asia.
Headquartered in Andover, Massachusetts, Borden Packaging employs
approximately 3,500 people and operates 27 manufacturing facilities and 27
regional sales offices in 12 countries.
NORTH AMERICA
The North American group is organized into two divisions: North American
Resinite and Proponite. North American Resinite is a producer of PVC and PE
packaging films for the supermarket, institutional and industrial markets in the
United States and Canada. The division has over 30 years of operating history
and believes that it is the largest producer of PVC supermarket and
institutional films in North America. The division sells its products primarily
through large distributors. Proponite is a manufacturer of OPP films, serving
the flexible packaging market. The division has over 15 years of operating
history and sells its products primarily to packaging converters who further
process the film for end-users. North American Resinite operates three
manufacturing plants in the United States and two in Canada. The Proponite
division operates one plant in North Andover, Massachusetts.
EUROPE AND SOUTH AFRICA
The European and South African group is organized in five divisions:
European Resinite, European Flexibles, FIAP, Rigids and Resinite South Africa.
The European business was founded in 1965 when Borden started its Resinite
operation in the United Kingdom after successfully introducing PVC and PE
packaging films for the supermarket, institutional and industrial markets,
printed and unprinted films for the flexible packaging market, and rigid
containers and trays in Europe and South Africa. European Resinite is believed
to be one of the largest suppliers of PVC films for the supermarket segment in
Europe and PVC films for the institutional segment in Europe. The European and
South African Group has 12 plants in the European Union and two in South Africa.
ASIA PACIFIC
The Asia Pacific group produces and markets PVC and PE packaging films and
converted flexible packaging in New Zealand, Australia and Japan. The Japanese
business operates through a 50/50 joint venture with Hitachi Chemical Company
Ltd. ("Hitachi Chemical") and primarily produces supermarket films and pallet
wrap products. This Japanese business was subject to Hitachi Chemical's right of
first refusal to purchase Borden's interest in the joint venture, which right
was waived by Hitachi Chemical with respect to the Acquisition.
26
<PAGE>
PRINCIPAL STOCKHOLDERS
Set forth below is information concerning stock ownership of all persons
known by the Company to own beneficially 5% or more of the Shares, each
executive officer, each director and all directors and executive officers of the
Company as a group based upon the number of outstanding Shares as of August 30,
1996. For the purposes of this Proxy Statement, beneficial ownership is defined
in accordance with the rules of the Securities and Exchange Commission and
generally means the power to vote or to dispose of the securities regardless of
any economic interest therein.
<TABLE>
<CAPTION>
PERCENT OF OUTSTANDING
NAME AND ADDRESS SHARES OF COMMON STOCK SHARES
OF BENEFICIAL OWNER BENEFICIALLY OWNED(A) BENEFICIALLY OWNED
- ----------------------------------------- ----------------------- -----------------------
<S> <C> <C>
Kenneth Avia
17 Oak Trail Road
Englewood, NJ 07632 80,200(b) 1.7%
J. Brendan Barba
125 Phillips Avenue
South Hackensack, NJ 07606 1,234,205(c)(d)(e) 26.2%
Robert W. Cron
125 Phillips Avenue
South Hackensack, NJ 07606 33,427(f)(g)(h) (i)
Paul M. Feeney
125 Phillips Avenue
South Hackensack, NJ 07606 39,645(j) (i)
Paul E. Gelbard
380 Madison Avenue
New York, NY 10017 2,450(k) (i)
Lawrence R. Noll
125 Phillips Avenue
South Hackensack, NJ 07606 3,237(l) (i)
John Powers
125 Phillips Avenue
South Hackensack, NJ 07606 57,393(m)(n) (p) 1.2%
All Directors and Executive Officers
as a Group (seven persons) 1,450,557(q) 30.4%
David J. McFarland
29 Knoll Street
Tenafly, NJ 07670 308,827(r) 6.6%
EGS Partners
100 East 42nd Street
New York, NY 10017 767,020(s) 16.4%
Fidelity Management Corp.
82 Devonshire Street
Boston, MA 02109 326,989(t) 7.0%
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
PERCENT OF OUTSTANDING
NAME AND ADDRESS SHARES OF COMMON STOCK SHARES
OF BENEFICIAL OWNER BENEFICIALLY OWNED(A) BENEFICIALLY OWNED
- ----------------------------------------- ----------------------- -----------------------
<S> <C> <C>
Melanie K. Barba
343 Algonquin Road
Franklin Lakes, NJ 07417 237,500(u) 5.1%
Borden, Inc.
180 East Broad Street
Columbus, OH 43215 (v) (v)
</TABLE>
- ------------------------
(a) Except as indicated in the following footnotes, each of the persons listed
above has sole voting and investment power with respect to all Shares shown
in the table as beneficially owned by him.
(b) Includes 200 Shares issuable upon the exercise of stock options exercisable
within 60 days held by Mr. Avia.
(c) Includes 18,000 Shares issuable upon the exercise of stock options
exercisable within 60 days held by Mr. Barba.
(d) Does not include 29,592 Shares owned or issuable upon the exercise of stock
options exercisable within 60 days held by a daughter of Mr. Barba and her
family, as to which Mr. Barba disclaims beneficial ownership.
(e) Does not include 237,500 Shares owned by Mr. Barba's wife, Melanie K. Barba,
as to which Mr. Barba disclaims beneficial ownership.
(f) Does not include 2,250 Shares held by Mr. Cron's wife as trustee for their
minor children, as to which Mr. Cron disclaims beneficial ownership.
(g) Includes 28,500 Shares issuable upon the exercise of stock options
exercisable within 60 days held by Mr. Cron.
(h) Includes 3,927 Shares owned by Mr. Cron and his wife in joint ownership.
(i) Less than 1%
(j) Includes 23,000 Shares issuable upon the exercise of stock options
exercisable within 60 days held by Mr. Feeney.
(k) Includes 2,000 Shares issuable upon the exercise of stock options
exercisable within 60 days held by Mr. Gelbard.
(l) Includes 2,200 Shares issuable upon the exercise of stock options
exercisable within 60 days held by Mr. Noll.
(m) Includes 12,531 Shares owned jointly by Mr. Powers and his wife.
(n) Includes 17,462 Shares owned by Mr. Powers' wife.
(o) Includes 23,000 Shares held by Mr. Powers' wife as trustee for their minor
children.
(p) Includes 4,400 Shares issuable upon exercise of Stock Options exercisable
within 60 days held by Mr. Powers.
(q) Includes 81,300 Shares issuable upon the exercise of options exercisable
within 60 days.
(r) Information as to the holdings of David J. McFarland is based upon a report
on Schedule 13G filed on February 12, 1996, with the Securities and Exchange
Commission and additional information supplied
28
<PAGE>
by Mr. McFarland. Such report indicates that all Shares of Common Stock were
owned with sole voting and dispositive power.
(s) Information as to the holdings of EGS Partners is based upon reports on
Schedule 13D filed on June 20, 1996, with the Securities and Exchange
Commission. Such reports indicate that 92,684 Shares of Common Stock were
owned with sole voting and dispositive power and 674,336 Shares were owned
with shared voting and dispositive power.
(t) These securities are held in various investment advisory funds by Fidelity
Management Corp. Information as to such holdings is based upon a report on
Schedule 13G filed on February 14, 1996, with the Securities and Exchange
Commission. Such report indicates that 10,700 of such Shares were owned with
sole dispositive power and 326,989 of such Shares were owned with sole
voting power.
(u) Information as to holdings of Melanie K. Barba, Mr. Barba's wife, is based
upon information supplied by her.
(v) Does not include 2,294,695 shares of Common Stock subject to the
Stockholders Agreement and the Voting Agreement (collectively, the
"Stockholder Shares"), constituting approximately 49.2% of the outstanding
shares of Common Stock which may be deemed to be beneficially owned by
Borden as result of the agreement to vote such shares in the Stockholders
Agreement and Voting Agreement (see "Description of the Stockholders
Agreement" and "Description of the Voting Agreement"). In addition to such
Shares, pursuant to the Voting Agreement, EGS has agreed to vote 314,302
shares of Managed Accounts Shares which are subject to the provisions of
Employee Retirement Income Security Act of 1974, as amended, in favor of the
Acquisition Proposal, subject to whatever instructions are given by such
managed accounts. The Managed Accounts Shares have not been included as
shares of Common Stock that may be deemed to be beneficially owned by
Borden. After completion of the Acquisition, Borden will own between 34.1%
of the outstanding Shares, assuming the Fixed Shares are issued, and 46.0%
if the Maximum Shares are issued.
29
<PAGE>
MARKET AND DIVIDEND INFORMATION
The Company's Shares are quoted on Nasdaq NMS under the symbol "AEPI." The
high and low closing prices for the Company's Shares, as reported by Nasdaq NMS,
are as follows:
<TABLE>
<CAPTION>
PRICE RANGE
-------------------- PER SHARE
FISCAL YEAR AND PERIOD HIGH LOW DIVIDEND
- ----------------------------------------------------------------------------------- --------- --------- -----------
<S> <C> <C> <C>
1996
First quarter...................................................................... $ 23.75 $ 21.50 --
Second quarter..................................................................... 26.50 22.00 --
Third quarter (through September 9, 1996).......................................... 43.50 24.50 --
1995
First quarter...................................................................... $ 18.50 $ 15.75 $ .020
Second quarter..................................................................... 25.25 17.25 .025
Third quarter...................................................................... 27.25 18.25 .025
Fourth quarter..................................................................... 24.75 20.75 .025
1994
First quarter...................................................................... $ 15.50* $ 11.33* $ .017*
Second quarter..................................................................... 21.00 14.75 .020
Third quarter...................................................................... 19.25 15.00 .020
Fourth quarter..................................................................... 18.75 16.00 .020
</TABLE>
- ------------------------
* The Company's Board of Directors declared a 3-for-2 stock split effected in
the form of a stock dividend to stockholders of record as of December 30,
1993, effective January 11, 1994. Closing prices and per Share dividend
amounts prior to January 11, 1994, have been retroactively restated to give
effect to the stock split.
On June 19, 1996, the date preceding public announcement of the Acquisition
Proposal, the high and low sales prices for the Company's shares were $34.50 and
$31.00, respectively, and the closing price was $33.50.
On September 9, 1996, the closing price for the Company's Shares was $40.50.
As of such date the Company's Shares were held by approximately 600 stockholders
of record through nominee or street name accounts with brokers.
The Company paid cash dividends to its stockholders in each fiscal quarter
commencing with the quarter ended July 31, 1993, through the quarter ended
October 31, 1995. The Company is subject to a number of covenants under its term
loan and revolving credit agreements, including restrictions on the amount of
dividends that may be paid. The existing term loan and revolving credit
agreements of the Company will be refinanced with the Acquisition Financing
Agreements, which are expected to contain similar restrictions on the amount of
dividends that may be paid. The Board of Directors announced in December 1995
the suspension of future dividends and that available funds would be reinvested
into the Company. The restoration of future dividends is within the discretion
of the Board of Directors and will depend upon business conditions, earnings,
the financial condition of the Company and other relevant factors.
In August 1995, the Company and J. Brendan Barba, the Chairman of the Board,
President and Chief Executive Officer of the Company, entered into a Stock
Purchase Agreement (the "Barba Purchase Agreement"), pursuant to which the
Company purchased from Mr. Barba on such date an aggregate of 1,550,000 shares
of Common Stock for a cash purchase price of $21.04 per Share (the "Barba
Purchase").
In September 1995, the Company completed a Self-Tender Offer (the "Offer")
and purchased 1,083,000 shares of Common Stock for a cash purchase price of
$22.75 per Share.
30
<PAGE>
Pursuant to the Barba Purchase Agreement, none of the Shares beneficially
owned by him or any of his affiliates or over which he otherwise exercised
dispositive power were tendered and sold to the Company pursuant to the Offer.
The Company's other directors and executive officers did not tender Shares owned
by them pursuant to the Offer.
On March 18, 1996, the Company acquired 168,000 shares from EGS Partners, a
principal stockholder of the Company (the "EGS Purchase"), for a cash purchase
price of $22.75 per share.
Shares acquired by the Company pursuant to the Offer, the Barba Purchase and
the EGS Purchase are being held in the Company's treasury and will be available
for the Company to issue without further stockholder action (except as required
by applicable law or the rules of the Nasdaq NMS on which the Shares are
traded). Such Shares will not be used to pay the Share portion of the Purchase
Price. Such Shares could be issued for such purposes as, among others, the
acquisition of businesses, the raising of additional capital for use in the
Company's business, the distribution of stock dividends and the implementation
of employee benefit plans. Specifically, the Board of Directors of the Company
implemented an employee stock ownership plan (the "ESOP") effective January 1,
1996. Shares acquired by the Company pursuant to the Barba Purchase, the Offer
and the EGS Purchase may over time, subject to the determination of the Board as
to the appropriate level of considerations, be contributed by the Company to the
ESOP. The purpose of the ESOP is to attract and retain key employees of the
Company, to encourage an ownership commitment by those employees and to motivate
such persons by providing incentives for the successful implementation of the
Company's strategic plans.
DESCRIPTION OF THE PURCHASE AGREEMENT
THE FOLLOWING SUMMARY OF THE TERMS OF THE PURCHASE AGREEMENT IS NOT COMPLETE
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE PURCHASE
AGREEMENT ATTACHED TO THIS PROXY STATEMENT AS ANNEX A.
SALE OF ASSETS; PURCHASE PRICE
At the Closing, upon the terms and subject to the conditions of the Purchase
Agreement, Borden will sell to the Company the assets, subject to the assumption
of all related liabilities, of Borden Packaging comprised of (i) all of the
assets rights, properties, claims, contracts and business principally used in
the Packaging Business conducted by Borden in the United States, Canada and
Australia (other than cash, cash equivalents and other excluded assets), and
(ii) all of the outstanding shares of stock (the "Subsidiary Stock") of certain
foreign subsidiaries of Borden (the "Transferred Subsidiaries"). The assumed
liabilities relating to the Packaging Business include all debts, liabilities
and obligations, other than certain excluded liabilities, arising out of or
pertaining to the Packaging Business, including product liability claims,
liabilities and obligations related to the presence, disposal, escape, seepage,
leakage, discharge, emission, release or threatened release of any substances or
materials, and liabilities with respect to actions, suits, proceedings,
disputes, claims or investigations arising out of or related to the Packaging
Business.
The Purchase Price to be paid by the Company consists of (i) a number of
Shares equal to the greater of (x) the 2,412,818 Fixed Shares and (y) if the
Buyer Stock Price is less than $33.15625, a number of Shares (rounded up to the
nearest whole Share) equal to the quotient obtained by dividing (A) $80,000,000
by (B) the Buyer Stock Price, provided that in no event will the Company be
required to deliver in excess of the 4,000,000 Maximum Shares, and (ii)
$280,000,000 in cash. The Fixed Shares represent approximately 34.1% of the
outstanding Shares, and the Maximum Shares represent approximately 46.0% of the
outstanding Shares. The Purchase Price is subject to a post-closing adjustment
equal to the change in the net working capital (excluding cash and cash
equivalents) and long-term liabilities of Borden Packaging between December 31,
1995, and the Closing Date. The adjustment will be paid by Borden in cash or
Common Stock of the Company, at Borden's option, or by the Company in cash, as
the case may be.
The Purchase Agreement provides that if consents to the transfer of assets
or stock of certain foreign subsidiaries are required and cannot be obtained or
there is an injunction or similar order which would
31
<PAGE>
prevent such transfer, then, under certain circumstances, Borden will retain
such assets or stock for the Company's benefit and the Company and Borden will
enter into mutually reasonably acceptable agreements with respect to the
management by the Company of such assets or company until such time as such
assets or stock may be transferred to the Company or otherwise disposed of.
The Company will finance the cash portion of the Purchase Price with bank
borrowings to be obtained pursuant to the Acquisition Financing Agreements. The
Company has received a commitment from JPM and Morgan Guaranty Trust Company of
New York with respect to such financing, but has not yet entered into definitive
agreements with respect thereto. See "The Acquisition and Related
Matters--Financing."
CLOSING
Pursuant to the Purchase Agreement, the Closing will take place on a
mutually agreed upon date following the satisfaction or waiver of the conditions
set forth under "Description of the Purchase Agreement-- Conditions," but not
later than January 31, 1997 (the "Closing Date"). The Closing and the
consummation of the transactions contemplated by the Purchase Agreement will be
deemed effective as of 12:01 A.M. on the Closing Date.
REPRESENTATIONS AND WARRANTIES
In the Purchase Agreement, Borden and the Company made customary
representations and warranties to each other, including representations and
warranties regarding the following: organization, authority relative to the
Purchase Agreement, licenses, permits and approvals and absence of violations of
certain laws and agreements, title to properties, financial information and
absence of certain changes, accuracy of the information provided for use in this
Proxy Statement, legal proceedings, labor controversies, patents and other
intellectual property, compliance with applicable law, taxes, employee benefits
and certain matters arising under the Employee Retirement Income Security Act of
1974, as amended, ("ERISA"), material contracts (involving payment of more than
$250,000 and not terminable within 120 days) and absence of defaults thereunder,
environmental compliance, transactions with affiliates, and fees payable to
brokers or finders. Borden also made certain customary representations to the
Company regarding absence of defects with respect to its assets, and the assets
being acquired constituting all of the assets used by Borden in connection with
the Packaging Business, accuracy of the information provided for use in this
Proxy Statement, and the acquisition of the Company's Common Stock for
investment purposes. In addition, the Company made customary representations to
Borden concerning accuracy and completeness of the Company's filings with the
Securities and Exchange Commission, vote required and obtained for approval of
the Acquisition Proposal, Delaware General Corporation Law and charter
provisions, and its financial capacity to consummate the transaction.
CONDUCT PENDING THE CLOSING
The Purchase Agreement provides that, except as expressly contemplated
thereby, during the period from the date of the Purchase Agreement and
continuing until the Closing Date, Borden will operate Borden Packaging in the
ordinary course, consistent with past practice, and use its reasonable best
efforts to preserve intact its present business organizations, to keep available
the services of its present officers and key employees and to preserve the good
will of others having business dealings with Borden Packaging and to maintain in
full force and effect all licenses from governmental authorities. The Purchase
Agreement provides that, except as provided therein, without the prior consent
of the Company, Borden will not, nor will it cause or permit the subsidiaries
comprising Borden Packaging, other than in the ordinary course of business, to
amend the charter or by-laws of a Transferred Subsidiary, or issue or agree to
issue any additional shares of a Transferred Subsidiary's capital stock, or
securities convertible, exchangeable or exercisable for such capital stock,
dispose of or encumber any of the assets or properties pertaining to Borden
Packaging, cancel any debts or waive any claims or rights pertaining to Borden
Packaging, increase the compensation payable to officers or employees other than
pursuant to existing
32
<PAGE>
agreements or as a result of collective bargaining, make any new material
capital expenditures commitment, incur, assume or guarantee any material
borrowings, or agree to take any of the foregoing actions.
The Purchase Agreement further provides that, except as expressly
contemplated thereby, pending the Closing the Company will operate its business
in the ordinary course, consistent with past practice, and use its reasonable
best efforts to preserve intact its present business organization, to keep
available the services of its present officers and key employees, to preserve
the good will of others having business dealings with the Company and to
maintain in full force and effect all licenses from governmental authorities.
Without limiting the generality of the foregoing, the Purchase Agreement
provides that, except as provided therein, without the prior consent of Borden,
the Company will not, other than in the ordinary course of business, amend its
charter or by-laws or change the composition of its Board of Directors, issue or
agree to issue, any additional shares of capital stock, or securities
convertible, exchangeable or exercisable for capital stock, effect a stock
split, combination, reclassification, dividend distribution, stock redemption,
merger or consolidation, stock or asset acquisition of another entity or any
loans, advances, capital contributions or investments to or in any person,
dispose of or encumber any of the assets or properties material to the Company's
business, cancel any debts or waive any claims or rights, increase the
compensation payable to officers or employees other than pursuant to existing
agreements or as a result of collective bargaining, make any new material
capital expenditures commitment, incur, assume or guarantee any material
borrowings, or agree to take any of the foregoing actions.
STOCKHOLDERS MEETING
The Company has agreed in the Purchase Agreement to duly call, give notice
of, convene and hold a meeting of its stockholders as soon as practicable for
the purpose of obtaining stockholder approval of the Acquisition Proposal and to
include in the Proxy Statement the recommendation of its Board of Directors to
approve such proposal.
CONDITIONS
The respective obligations of each party to effect the transactions
contemplated by the Purchase Agreement will be subject to the satisfaction at or
prior to the Closing Date of certain conditions including the following: (a) no
injunction, restraining order or decree is in effect restraining or prohibiting
the consummation of the sale of the Subsidiary Stock or the assets to be
transferred, (b) the receipt of all necessary governmental and regulatory
consents, approvals, authorizations and orders, except that the closing can take
place under specified conditions without consents and approvals deemed not
material, and (c) the receipt of stockholder approval of the Acquisition
Proposal. For purposes of (a) and (b) above, it will not be deemed material, and
therefore not grounds for terminating the Purchase Agreement, if Borden is
prevented from transferring to the Company assets or stock of certain foreign
subsidiaries accounting for 10% or less of Borden Packaging's total net trade
sales during the year ended December 31, 1995.
The obligations of the Company to effect the Acquisition are further subject
to certain other conditions, including the following: (a) the representations
and warranties of Borden set forth in the Purchase Agreement will be true and
correct as of the Closing Date except for inaccuracies which would not in the
aggregate have a material adverse effect on Borden Packaging, (b) there has been
no material adverse change in Borden Packaging (other than as contemplated in
the Agreement or Disclosure Schedule thereto or as a result of a change in
Borden Packaging's results of operations), (c) Borden has performed or complied
with, in all material respects, all obligations and covenants required under the
Purchase Agreement to be performed or complied with, at or prior to the Closing
Date (Borden is required to deliver to the Company an officer's certificate as
to the foregoing), (d) the Governance Agreement must continue to be in full
force and effect, and (e) the Company must have received an opinion from counsel
to Borden and its Subsidiaries. In addition, Borden must execute and deliver
certain transitional licenses, services and facilities agreements.
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The obligations of Borden to effect the transactions contemplated by the
Purchase Agreement are subject to certain conditions, including the following:
(a) the representations and warranties of the Company set forth in the Purchase
Agreement will be true and correct as of the Closing Date except for
inaccuracies which would not in the aggregate have a material adverse effect on
the Company, (b) there has been no material adverse change in the Company (other
than as contemplated in the Agreement or Disclosure Schedule thereto), (c) the
Company has performed or complied with, in all material respects, all
obligations and covenants required under the Purchase Agreement to be performed
or complied with, at or prior to the Closing Date (the Company is required to
deliver to the Company an officer's certificate as to the foregoing), (d) the
Governance Agreement must continue to be in full force and effect), (e) the
Stockholders Agreement must continue to be in full force and effect, and (f)
Borden must have received an opinion from counsel to the Company. The Company
must also execute and deliver certain transitional licenses, services and
facilities agreements.
It is an additional condition of Borden's obligation to close the
transaction that each of J. Brendan Barba, the Chairman of the Board, President
and Chief Executive Officer of the Company, and Paul M. Feeney, Executive Vice
President-Finance of the Company, enter into employment agreements effective on
the Closing Date. Mr. Barba's employment agreement will have a term of five
years with a base salary of $500,000 per year (adjusted for any increase in the
Consumer Price Index) and a bonus for the fiscal year ending October 31, 1996,
of $187,500. Mr. Feeney's employment agreement will have a term of five years
with a base salary of $240,000 per year (adjusted for any increase in the
Consumer Price Index) and a bonus for the fiscal year ending October 31, 1996,
of $85,000. Bonuses for Messrs. Barba and Feeney in the fiscal year ending
October 31, 1997, and thereafter will be based upon performance criteria
determined by the Compensation Committee of the Board of Directors of the
Company in its reasonable discretion. The employment agreements provide that Mr.
Barba's and Mr. Feeney's respective employment agreements may be terminated
without cause prior to the expiration of the term thereof, and in such case Mr.
Barba and Mr. Feeney will be entitled to severance payments equal to two times
the sum of the annual base salary then in effect plus the bonus earned for the
immediate preceding year, payable over a two-year period. Messrs. Barba and
Feeney will also continue to be eligible to participate in any compensation plan
or program maintained by the Company in which other senior executives of the
Company participate on terms comparable to those applicable to such other senior
executives.
OTHER COVENANTS AND AGREEMENTS
The Purchase Agreement provides for the delivery and execution of a
transitional license agreement which will grant the Company the right to use the
Borden name and related trademarks on certain products, labels, packaging and
promotional materials for the six month period following the Closing Date
without other trademarks and for the 18 month period thereafter together with
Company trademarks, after which time the Company will have no right to use such
name or trademarks.
The Purchase Agreement provides for the Company to offer employment to
substantially all of the persons employed in the business of Borden Packaging on
the same terms as those provided to such employees by Borden immediately prior
to the Closing Date. The Company will assume certain liabilities and obligations
arising out of Borden employee benefit plans and has agreed to permit the United
States Borden employees to participate in the Company Plans, and to continue
benefits for foreign employees under their respective, or equivalent,
(incentive, bonus, deferred compensation, pension, retirement, savings, medical
and severance plans in effect for such employees.
The Purchase Agreement provides that Borden and the Company agree to use
their reasonable best efforts to take, or cause to be taken, all action and to
do, or cause to be done, all things necessary, proper or advisable to consummate
and make effective the transactions contemplated by the Purchase Agreement. In
connection therewith, Borden and the Company agreed to timely and promptly make
all filing required of each of them under the Hart-Scott Rodino Antitrust
Improvements Act of 1976 and any similar foreign legislation.
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<PAGE>
The Purchase Agreement provides that Borden will notify the Company and keep
it advised as to any litigation or administrative proceeding pending and known
to Borden or, to its knowledge, threatened against Borden or any Subsidiary
which challenges the transactions contemplated hereby, any material damage or
destruction of any of the Assets, and any event or occurrence that would cause
any representation or warranty contained in the Purchase Agreement to be false.
The Company has agreed to obtain financing necessary for consummation of the
transaction and to deliver to Borden as soon as reasonably practicable after the
date of the Purchase Agreement copies of definitive financing agreements with
reputable financial institutions to provide at the Closing, subject only to
customary conditions, all of such financing to be in form and substance
reasonably satisfactory to Borden.
The Company and Borden have also agreed to enter into certain shared
services agreements and transitional services agreements pursuant to which
Borden will provide to the Company, and the Company will provide to Borden,
certain services or facilities which are currently used by Borden Packaging and
other divisions or subsidiaries of Borden.
TERMINATION AND ABANDONMENT
The Purchase Agreement may be terminated at any time prior to Closing Date
(a) by mutual consent of Borden and the Company; (b) by Borden or the Company,
if the transactions contemplated by the Purchase Agreement have not been
consummated before January 31, 1997 (unless the failure to consummate the
transactions contemplated by the Purchase Agreement by such date is due to a
breach by the party seeking to terminate the Purchase Agreement); (c) by Borden,
if the Company fails to deliver definitive copies of the Acquisition Financing
Agreements to Borden within 16 weeks of the date of the Purchase Agreement or if
at any time thereafter any such definitive financing agreements cease to be in
full force and effect and the Company has not replaced such financing agreements
prior to the earlier of three weeks thereafter and January 31, 1997; or (d) by
Borden, if the Acquisition Proposal is not duly approved by the stockholders of
the Company at a meeting of stockholders (or any adjournment thereof) duly
called and held for such purpose.
If the Purchase Agreement is terminated as provided therein, each party will
bear its own expenses incurred in connection with the Purchase Agreement and the
transactions contemplated thereby, and neither party thereto will have other
liability or further obligation to the other party pursuant to the Purchase
Agreement except that termination will not preclude either party from suing the
other for breach of the Purchase Agreement.
The Company has agreed to pay Borden $8,000,000 if (i) the Board of
Directors changes or modifies its recommendation with respect to the Acquisition
Proposal and stockholder approval is not obtained and Borden is able prior to
January 31, 1997, to satisfy the closing conditions, that Borden's
representations and warranties be true and correct and that there be no material
adverse change in Borden Packaging or (ii) the stockholders meeting does not
occur prior to January 31, 1997.
INDEMNIFICATION
Subject to certain terms and conditions and limitations set forth in the
Purchase Agreement, Borden has agreed to indemnify the Company against all
Damages (as defined in the Purchase Agreement) resulting from any obligations of
Borden not assumed by the Company and any breach of Borden's covenants and
representations and warranties in the Purchase Agreement, and the Company has
agreed to indemnify Borden and the asset selling subsidiaries against all
Damages resulting from any obligations of Borden assumed by the Company and any
breach of the Company's covenants and representations and warranties in the
Purchase Agreement. Any claim for breach of a representation or warranty must be
asserted within two years of the Closing Date and the indemnifying party is only
liable for such breaches to the extent individual items exceed $40,000 and the
aggregate damages exceed $5,750,000, up to an aggregate of $75,000,000.
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DESCRIPTION OF THE GOVERNANCE AGREEMENT
THE FOLLOWING SUMMARY OF THE TERMS OF THE GOVERNANCE AGREEMENT IS NOT
COMPLETE AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE
GOVERNANCE AGREEMENT ATTACHED TO THIS PROXY STATEMENT AS ANNEX B.
BOARD OF DIRECTORS
Pursuant to the Governance Agreement, if the Acquisition is consummated, the
size of the Company's Board of Directors will be expanded by four members. Four
persons designated by Borden will be appointed on the Closing Date to fill such
vacancies. In addition, one of the six present directors, will resign and an
independent director jointly designated by the management directors and Borden
will be appointed. Thereafter five members of the Board, two of whom shall be
independent, shall be designated by the management directors, four members shall
be designated by Borden, and an independent director shall be designated jointly
by the management directors and Borden. Borden's right to designate directors to
the Board is subject to reduction in the event that Borden's shareholdings in
the Company are reduced below 25%. In the event that Borden's shareholdings in
the Company fall below 10%, Borden's right to designate directors terminates, as
well as its right to jointly designate an independent director with Management
Directors.
The Governance Agreement also provides that a super-majority of directors
will be required for certain significant actions, including merger,
consolidation, sale of all or a substantial part of the business or assets; the
sale, lease, pledge, grant of security interest in, license, transfer or other
disposal by the Company of all or a substantial part of the business or assets
of the Company; issuances of any debt or stock of the Company; a
reclassification, combination, split, subdivision or redemption, purchase or
other acquisition, of any of the debt or equity securities or other capital
stock of the Company; amendment to the Certificate of Incorporation or By-Laws
of the Company, or any change in the size or composition of the Board of
Directors of the Company or committee thereof except in accordance with the
Governance Agreement; the establishment of any committee of the Board of
Directors other than as provided in the Governance Agreement; any significant
change in accounting policies or procedures of the Company unless required under
generally accepted accounting principles; the satisfaction or discharge of any
obligation outside of the ordinary course of business in excess of $5,000,000,
or the outcome of which could be material to the business or assets of the
Company; the commencement or termination of any litigation involving in excess
of $5,000,000; any incurrence of indebtedness or capital expenditures above
certain amounts; the institution by the Company of any shareholder rights plan
or similar plan or device; the employment of certain executive officers of the
Company, the adoption or amendment of any employee benefit plan of the Company,
and certain other matters. The super-majority voting provision requires the
approval of two-thirds of the directors, provided that so long as Borden's
shareholdings of the Company are equal to at least 25%, at least one of the
directors shall be a director designated by it.
The Governance Agreement also provides that an Audit Committee, Nominating
Committee, Compensation Committee and Stock Option Committee will be established
and maintained by the Company's Board of Directors at all times that Borden's
shareholdings in the Company equal or exceed 15%. So long as Borden's
shareholdings in the Company equals or exceeds 15%, one-half of the Nominating
Committee will consist of Borden's designees, and the Compensation Committee
will consist of an equal number of directors designated by the management
directors, directors designated by Borden and independent directors. The Stock
Option Committee will consist of an equal number of independent directors and
directors designated by Borden at all times that Borden's shareholdings in the
Company equal or exceed 25%, and in the event that Borden's shareholdings in the
Company are less than 25% but equal or exceed 15%, the Stock Option Committee
will consist of two independent directors and one director designated by Borden.
Because Borden will own a significant percentage of the Common Stock of the
Company following the Closing Date, which will represent a substantial
investment by Borden in the Company, as part of the
36
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negotiations, Borden and the Company agreed to enter into the Governance
Agreement. The Governance Agreement gives Borden rights to participate in
Company management, registration rights with respect to its Common Stock to
provide for the orderly distribution of shares Borden may wish to sell, and
other rights. In addition, Borden agreed to certain limitations on its actions,
including the prohibition of Borden taking certain actions to acquire control of
the Company, for a period of time which the Board of Directors believed was
appropriate to protect the interests of the stockholders. Borden's stock
ownership and the control provisions contained in the Governance Agreement may
discourage unsolicited takeover bids from third parties and may delay, deter or
prevent a tender offer or takeover attempt that a stockholder might believe to
be in his or her best interest, including those attempts that might result in a
premium over the market price for shares of the Common Stock.
AMENDMENT OF CERTIFICATE OF INCORPORATION AND BY-LAWS
The Governance Agreement provides that the Company will submit amendments to
its Certificate of Incorporation and By-Laws relating to voting requirements to
the stockholders of the Company at the first annual meeting of stockholders of
the Company after the Closing Date. If the amendments are not passed, the
Company will still be required to comply with the provisions of the Governance
Agreement.
PREEMPTIVE RIGHTS
The Governance Agreement provides that as long as Borden's shareholdings in
the Company are equal to at least 20%, Borden will have the right to subscribe
for its PRO RATA share (based on its percentage of outstanding Common Stock of
the Company) of any new issuances of securities authorized by the Board except
issuances under employee benefit plans. Borden will have the right to purchase
such securities on the same terms as they are offered and sold to third parties.
BUSINESS COMBINATIONS
Pursuant to the Governance Agreement, Borden has agreed that during the
three-year period commencing on the Closing Date (the "Standstill Period"), it
will not, subject to certain exceptions, (i) directly or indirectly, purchase or
otherwise acquire, or propose or offer to purchase or otherwise acquire, any
Shares whether by tender offer, market purchase, privately negotiated purchase,
business combination or otherwise, if, immediately after such purchase or
acquisition, Borden's interest in the Company would equal or exceed the
percentage of outstanding Common Stock that Borden acquired from the Company on
the Closing Date or make any public announcement with respect thereto, (ii)
directly or indirectly propose or offer to enter into a business combination or
make any public announcement with respect thereto, (iii) other than in
connection with an election contest to which Rule 14a-11 under the Exchange Act
applies initiated by a third party or as otherwise approved by a majority of the
Board of Directors (other than the Borden designees), participate in a proxy
solicitation with respect to any stockholder proposals, or (iv) deposit any
Shares into a voting trust or subject any Shares to any arrangement or agreement
with respect to the voting of such Shares or form or participate in a group with
respect to any Shares.
The Governance Agreement also provides that the aforementioned prohibitions
on business combinations do not apply (i) during any period in which Borden's
shareholdings in the Company fall below 10%, (ii) to certain permitted
acquisition transactions following (X) the commencement by any third party of
(1) a bona fide tender or exchange offer to purchase in excess of 20% of the
outstanding Shares of the Company's Common Stock that the Board of Directors
either recommends acceptance of, expresses no opinion and remains neutral
toward, or is unable to take a position with respect to, (2) a bona fide
proposal to acquire all or substantially all of the assets of the Company that
the Board of Directors is actively entertaining and the consummation of which
would require approval by the stockholders of the Company pursuant to Section
271 of the Delaware General Corporation Law, or (3) a bona fide proposal to
enter into any acquisition or other business combination transaction with the
Company that the Board
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of Directors is actively entertaining, in the case of each of clauses (1)
through (3), which shall not have been approved in advance by the Company or the
Board of Directors, or (Y) the Company entering into (or announcing its
intention to do so) a definitive agreement, or an agreement contemplating a
definitive agreement, for any of the transactions described in clauses (1)
through (3) above, or (iii) to any issuance of securities pursuant to Borden's
preemptive rights.
RESTRICTIONS ON TRANSFER
The Governance Agreement provides that during the Standstill Period, Borden
will not, directly or indirectly, sell, transfer or otherwise dispose of any
Shares except (i) pursuant to a registered underwritten public offering, (ii) in
accordance with the volume and manner of sale limitations of Rule 144
promulgated under the Securities Act, (iii) pursuant to an exemption from the
registration requirements of the Securities Act, or (iv) to a Borden affiliate
or a partner of a Borden affiliate, provided, however, that Borden may not sell,
pursuant to clause (iii), to any one person or group, in one or more
transactions or series of transactions, Shares representing in excess of 5% of
the Company's then outstanding Common Stock and may not sell, pursuant to clause
(iii), in excess of 1% of the then outstanding Shares, except to certain
institutional buyers or persons or entities who, prior to an acquisition
pursuant to clause (iii), do not have a Schedule 13D on file with the SEC with
respect to the Company Common Stock.
REGISTRATION RIGHTS
Pursuant to the Governance Agreement, Borden will have the right at any time
and from time to time on and after the Closing Date to require the Company to
file a registration statement under the Securities Act covering the registration
of any or all of the shares acquired by Borden in the Acquisition (the
"Registrable Securities") held by Borden and certain of its transferees,
provided that the Company shall not be required to have any such registration
statement be declared effective by the Commission prior to the six month
anniversary of the Closing Date. The first four such demand registrations will
be at the Company's expense, except that the Company will not be responsible for
underwriting discounts and commissions and the fees and disbursements of counsel
selected by the holders, and all additional demand registrations will be at
Borden's expense. Borden also has the right, under certain circumstances, to
"piggyback" registrations in the event that the Company registers securities for
its own account or for the account of third parties. Borden's demand and
piggyback registration rights are subject to customary restrictions and
limitations. In connection with any registration statement filed pursuant to
these registration rights, Borden and the Company agreed to indemnify each other
against certain liabilities, including certain liabilities under the Securities
Act. The registration rights with respect to the Registrable Securities may be
transferred to any transferee of such Registrable Securities who acquires any
Registrable Securities of Borden, PROVIDED that such registration rights may not
be transferred to a holder of less than 1% of the outstanding Common Stock
unless such transferee is a Borden affiliate.
DESCRIPTION OF THE STOCKHOLDERS AGREEMENT
The following summary of the terms of the Stockholders Agreement is not
complete and is qualified in its entirety by reference to the full text of the
Stockholders Agreement attached to this Proxy Statement as Annex C.
AGREEMENT TO VOTE
Pursuant to the Stockholders Agreement, certain of the management directors
(and in the case of Mr. Barba, members of his immediate family as well) who are
also stockholders of the Company and who own in the aggregate 1,935,676 shares
(the "Management Stockholders") have agreed to vote their Shares (i) in favor of
the Acquisition Proposal, (ii) against any action or agreement that would result
in a breach by the Company of any of its representations or covenants under the
Purchase Agreement or the Stockholders Agreement, (iii) in favor of any
amendments to the Certificate of Incorporation and By-Laws
38
<PAGE>
of the Company necessary to conform such documents to the requirements of the
Governance Agreement, and (iv) except as requested by Borden and except as
otherwise specified in clauses (i), (ii) and (iii) above, against the following
actions: (1) any extraordinary corporate transaction; (2) a sale, lease or
transfer of a material amount of assets of the Company or a reorganization,
recapitalization, dissolution or liquidation of the Company; (3) any material
change in the Company's corporate or governance structure or business; or (d)
any other action which would or could reasonably be expected to materially
adversely affect the Acquisition Proposal. Such agreement to vote will terminate
on the first to occur of (a) the third anniversary of the Closing Date, (b) the
date, if any, prior to the Closing Date the Purchase Agreement is terminated in
accordance with its terms, and (c) such time following the Closing Date as
Borden's shareholdings in the Company are reduced below 10% (the "Termination
Date"); provided, that clauses (i) and (iv) above will terminate on the earlier
of the Closing Date or the Termination Date.
The Stockholders Agreement also provides that each Management Stockholder
will grant to certain officers of Borden such Management Stockholder's
irrevocable proxy to vote such Management Stockholder's Shares in the manner
provided for above.
RESTRICTION ON TRANSFER
The Stockholders Agreement provides that the Management Stockholders may
not, directly or indirectly, (i) offer for sale, sell, pledge, encumber or
otherwise dispose of, any or all of such Management Stockholder's Shares, or
(ii) except as contemplated by the Stockholders Agreement, grant any proxies or
powers of attorney, deposit any Shares into a voting trust or enter into a
voting agreement with respect to any Shares subject to certain exceptions,
including the right to dispose of the same percentage of shares as shall have
been disposed of by Borden subsequent to the Closing Date. Such restrictions on
transfer remain in effect, for Mr. Barba and his family and Mr. Feeney until the
Termination Date and, with respect to all other Management Stockholders, until
the Closing Date.
OTHER PROVISIONS
Pursuant to the Stockholders Agreement, J. Brendan Barba and Paul M. Feeney
each agreed, if so nominated and elected, to serve as a member of the Board of
Directors of the Company, and, in the case of Mr. Barba, if so elected by the
Board, as Chairman thereof, for five years following the Closing Date. In
addition, J. Brendan Barba and Paul M. Feeney each agreed to enter into their
respective employment agreements on the Closing Date in the respective forms
attached as Schedules to the Purchase Agreement.
DESCRIPTION OF THE VOTING AGREEMENT
The following summary of the terms of the Voting Agreement is not complete
and is qualified in its entirety by reference to the full text of the Voting
Agreement attached to this Proxy Statement as Annex D.
AGREEMENT TO VOTE
Pursuant to the Voting Agreement, certain stockholders of the Company who
own in the aggregate 359,019 Shares (the "Voting Agreement Stockholders") have
agreed, during the time the Voting Agreement is in effect, to vote the Shares
held of record or beneficially by such Voting Agreement Stockholders in favor of
the Acquisition Proposal. In addition to such Shares, pursuant to the Voting
Agreement, EGS, a Voting Agreement Stockholder, has agreed to vote 314,302
Managed Account Shares in favor of the Acquisition Proposal, subject to the
power of the clients of EGS to direct the voting of such Managed Account Shares.
The Voting Agreement will remain in effect until the earlier of (i) the Closing
Date, (ii) the date the Purchase Agreement is terminated, and (iii) January 31,
1997.
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<PAGE>
PRIVATE SALE
The Voting Agreement provides that, during the time the Voting Agreement is
in effect, if a Voting Agreement Stockholder sells, transfers or otherwise
disposes of any Shares in a privately negotiated transaction, the purchaser or
transferee will be bound by the terms and provisions of the Voting Agreement.
AVAILABLE INFORMATION
Single copies of the Company's 1995 Annual Report on Form 10-K and the other
documents described below as incorporated by reference (without exhibits) will
be provided without charge to any stockholder upon written or oral request
directed to the Secretary of the Company, 125 Phillips Avenue, South Hackensack,
New Jersey 07606, by ordinary mail or other equally prompt means within one
business day of receipt of such request.
INDEPENDENT PUBLIC ACCOUNTANTS
Representatives of Arthur Andersen LLP, the Company's independent auditors,
are expected to be present at the Meeting. They will be afforded the opportunity
to make a statement if they desire to do so and are expected to be available to
respond to appropriate questions.
OTHER BUSINESS
The management of the Company knows of no other matters which may come
before the Meeting. As to any other business which may properly come before the
Meeting, proxies will be voted in accordance with the best judgment of the
persons voting such proxies.
STOCKHOLDER PROPOSALS
In order to be considered for inclusion in the proxy statement for the next
annual meeting of stockholders of the Company, to be held in 1997, any
stockholder proposal intended to be presented at such meeting must have been
received by the Company on or before October 23, 1996.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The Company hereby incorporates by reference the following documents filed
with the Securities and Exchange Commission:
1. the Company's Annual Report on Form 10-K for the year ended October
31, 1995, as amended by the Amendment on Form 10-K/A;
2. the Company's Quarterly Report on Form 10-Q for the quarter ended
January 31, 1996, as amended by the Amendment on Form 10Q/A;
3. the Company's Quarterly Report on Form 10-Q for the quarter ended
April 30, 1996, as amended by the Amendment on Form 10Q/A;
4. the Company's Proxy Statement relating to its Annual Meeting of
Stockholders held on April 9, 1996; and
5. the Company's Report on Form 8-K for June 20, 1996.
All documents filed by the Company with the Commission pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date hereof and
prior to the date of the Meeting shall be deemed to be incorporated by reference
into this Proxy Statement. Any statement contained in a document incorporated by
reference herein shall be deemed to be modified or superseded for purposes of
this Proxy Statement to the extent that a statement contained herein or in any
other subsequently filed
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document which also is incorporated by reference herein modifies or supersedes
such statement. Any such statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this Proxy
Statement.
By Order of the Board of Directors,
Lawrence R. Noll,
VICE PRESIDENT--FINANCE
AND SECRETARY
Dated: September 11, 1996
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ANNEX A
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PURCHASE AGREEMENT
BETWEEN
BORDEN, INC.
AND
AEP INDUSTRIES INC.
---------------
DATED AS OF JUNE 20, 1996
------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
EXHIBITS
<TABLE>
<S> <C> <C>
EXHIBIT A -- Subsidiaries
EXHIBIT B-1 -- Transferred Subsidiaries
EXHIBIT B-2 -- Subsidiary Asset Sellers
EXHIBIT C-1 -- Management Stockholders Agreement
EXHIBIT C-2 -- Voting Agreement
EXHIBIT D -- Governance Agreement
EXHIBIT E -- Form of Assumption Agreement
EXHIBIT F -- Form of Transition License Agreement
EXHIBIT G -- Form of Shared Facilities Agreement
EXHIBIT H -- Form of Transition Services Agreement
</TABLE>
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TABLE OF CONTENTS
<TABLE>
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<C> <S> <C> <C>
1. Sale and Transfer of Subsidiary Stock; Purchase and Sale of Assets; Assumption of Certain
Liabilities............................................................................................ A-1
1.1. Sale and Transfer of Subsidiary Stock....................................................... A-1
1.2. Transfer of Assets.......................................................................... A-2
1.3. Excluded Assets............................................................................. A-3
1.4. Instruments of Conveyance and Transfer...................................................... A-4
1.5. Further Assurances.......................................................................... A-4
1.6. Assumed Liabilities......................................................................... A-4
1.7. Excluded Liabilities........................................................................ A-5
2. Closing; Payment of Purchase Price at Closing.......................................................... A-6
2.1. Closing Date................................................................................ A-6
2.2. Purchase Price and Payment.................................................................. A-6
2.3. Deferred Transfers.......................................................................... A-7
2.4. Post-Closing Adjustment..................................................................... A-9
3. Representations and Warranties......................................................................... A-11
3.1. Representations and Warranties of the Seller................................................ A-11
3.2. Representations and Warranties of the Buyer................................................. A-20
3.3. Expiration of Representations and Warranties................................................ A-28
4. Transactions Prior to Closing.......................................................................... A-28
4.1. Access to Information Concerning Properties and Records; Confidentiality.................... A-28
4.2. Conduct of the Packaging Business Pending the Closing Date.................................. A-29
4.3. Conduct of Business By the Buyer Pending the Closing Date................................... A-31
4.4. Intercompany Transactions................................................................... A-32
4.5. Guarantees.................................................................................. A-32
4.6. Further Actions............................................................................. A-32
4.7. Notification................................................................................ A-33
4.8. No Inconsistent Action...................................................................... A-33
4.9. Financing................................................................................... A-33
4.10. Borden-Hitachi Joint Venture................................................................ A-34
4.11. Use of Corporate Name and Symbol; Transition License........................................ A-34
4.12. Facilities Agreement........................................................................ A-34
4.13. Transition Services Agreement............................................................... A-34
4.14. Preparation of Proxy Statement; Stockholders' Meeting....................................... A-34
4.15. No Solicitation............................................................................. A-35
4.16. Insurance................................................................................... A-35
5. Conditions Precedent................................................................................... A-36
5.1. Conditions Precedent to Obligations of the Buyer and the Seller............................. A-36
5.2. Conditions Precedent to Obligations of the Buyer............................................ A-36
5.3. Conditions Precedent to the Obligations of the Seller....................................... A-38
6. Employee Relations and Benefits........................................................................ A-39
6.1. Conduct Prior to the Effective Time......................................................... A-39
6.2. Continuity of Employment.................................................................... A-39
6.3. Collective Bargaining Agreements............................................................ A-39
6.4. International Plans......................................................................... A-39
6.5. U.S. Business Plan Participation............................................................ A-39
6.6. U.S. Business Plan Liabilities.............................................................. A-40
6.7. U.S. Defined Benefit Plan................................................................... A-40
6.8. U.S. Defined Contribution Plans............................................................. A-40
</TABLE>
i
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---------
<C> <S> <C> <C>
6.9. U.S. Post-Retirement Benefits............................................................... A-41
6.10. U.S. Welfare Plans.......................................................................... A-41
6.11. U.S. Accrued Vacation....................................................................... A-41
6.12. Severance................................................................................... A-42
6.13. U.S. Service Credit......................................................................... A-42
6.14. U.S. WARN Act............................................................................... A-42
6.15. U.S. COBRA.................................................................................. A-42
6.16. No Rights Conferred on Employees............................................................ A-42
7. Termination............................................................................................ A-42
7.1. General..................................................................................... A-42
7.2. Effect of Termination....................................................................... A-42
8. Transactions Subsequent to Closing..................................................................... A-42
8.1. Access to Books and Records................................................................. A-42
8.2. Further Agreements.......................................................................... A-43
8.3. Asset Returns; Further Assurances........................................................... A-44
9. Miscellaneous.......................................................................................... A-44
9.1. Public Announcements........................................................................ A-44
9.2. Expenses.................................................................................... A-44
9.3. Transfer Taxes and Recording Expenses....................................................... A-44
9.4. Indemnification............................................................................. A-45
9.5. Notices..................................................................................... A-47
9.6. Entire Agreement............................................................................ A-48
9.7. Binding Effect; No Third Party Beneficiaries................................................ A-48
9.8. Bulk Sales Law.............................................................................. A-48
9.9. Assignability............................................................................... A-48
9.10. Amendment; Waiver........................................................................... A-48
9.11. Schedules and Exhibits...................................................................... A-48
9.12. Other Covenants............................................................................. A-49
9.13. Section Headings; Table of Contents......................................................... A-49
9.14. Severability................................................................................ A-49
9.15. Counterparts................................................................................ A-49
9.16. Applicable Law.............................................................................. A-49
9.17. Certain Definitions......................................................................... A-49
</TABLE>
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PURCHASE AGREEMENT
PURCHASE AGREEMENT, dated as of June 20, 1996, between BORDEN, INC., a New
Jersey corporation (the "SELLER") and AEP INDUSTRIES INC., a Delaware
corporation (the "BUYER").
WITNESSETH:
WHEREAS, the Seller, and the Seller's subsidiaries listed on Exhibit A
hereto (the "SUBSIDIARIES", and collectively with the Seller, the "COMPANY") are
engaged, in part, in the business of the development, production, marketing,
distribution and sale of flexible and rigid plastic packaging materials in North
America, Europe, South Africa, Australia and Asia (the "PACKAGING BUSINESS" or
"BORDEN GLOBAL PACKAGING");
WHEREAS, in consideration for a combination of cash and newly-issued or
treasury shares of common stock of the Buyer (a) the Buyer desires to purchase
from the Seller and the Seller desires to sell to the Buyer the assets (other
than assets excluded pursuant hereto), subject to the assumption of all related
liabilities, of the Packaging Business held by Borden, Inc. (the "BORDEN INC.
ASSETS") upon the terms and subject to the conditions set forth herein (the
"BORDEN INC. ASSET PURCHASE") and (b) the Buyer desires to purchase from the
Seller and its Subsidiaries, and the Seller desires to sell, or to cause its
respective Subsidiaries to sell, to the Buyer (i) all of the outstanding shares
of stock owned by the Company (collectively, the "Subsidiary Stock") of the
Subsidiaries listed on Exhibit B-1 hereto (the "TRANSFERRED SUBSIDIARIES") (the
sale and purchase of the Stock being referred to herein as the "STOCK PURCHASE")
and (ii) the packaging assets of the Packaging Business (other than the assets
excluded pursuant hereto), subject to the assumption of all related liabilities,
held by the Subsidiaries listed on Exhibit B-2 hereto (such Subsidiaries, the
"SUBSIDIARY ASSET SELLERS" and together with the Seller, the "ASSET SELLERS";
such assets, the "Subsidiary Assets", and together with the Borden, Inc. Assets,
the "ASSETS"; such purchase the "SUBSIDIARIES ASSET PURCHASE", and together with
the Borden, Inc. Asset Purchase, the "ASSET PURCHASE"; the Stock Purchase and
the Asset Purchase are collectively referred to herein as the "STOCK AND ASSET
PURCHASE"), each purchase and sale described in clauses (a) and (b) to be upon
the terms and subject to the conditions set forth herein;
WHEREAS, concurrently with the execution and delivery of this Agreement and
as a condition and inducement to the Seller's willingness to enter into this
Agreement, the Seller and certain stockholders of the Buyer have entered into a
stockholders agreement (the "MANAGEMENT STOCKHOLDERS AGREEMENT") dated as of the
date hereof attached as Exhibit C-1 hereto and the Seller and certain other
stockholders of the Buyer have entered into a voting agreement (together with
the Management Stockholders Agreement, the "STOCKHOLDERS AGREEMENT") dated as of
the date hereof attached as Exhibit C-2 hereto; and
WHEREAS, concurrently with the execution and delivery of this Agreement and
as a condition and inducement to the Seller's willingness to enter into this
Agreement, and as a condition to the Buyer's willingness to enter into this
Agreement, the Buyer and the Seller have entered into a governance agreement
(the "Governance Agreement") dated as of the date hereof attached as Exhibit D
hereto and relating to the establishment of certain terms and conditions
concerning the corporate governance of the Buyer after the Closing Date (as
defined herein) and certain terms and conditions concerning the acquisition and
disposition of securities of the Buyer by the Seller and its affiliates.
NOW, THEREFORE, in consideration of the premises and of the mutual covenants
of the parties hereto, it is hereby agreed as follows:
1. SALE AND TRANSFER OF SUBSIDIARY STOCK; PURCHASE AND SALE OF ASSETS;
ASSUMPTION OF CERTAIN LIABILITIES
1.1. SALE AND TRANSFER OF SUBSIDIARY STOCK. On the basis of the
representations, warranties, covenants and agreements and subject to the
satisfaction or waiver of the conditions set forth in this Agreement and subject
to Section 2.2, on the Closing Date (as defined in Section 2.1), the Seller
shall cause to be
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delivered to the Buyer certificates representing the Subsidiary Stock, duly
endorsed, or accompanied by stock powers duly executed, with all necessary stock
transfer stamps attached thereto and cancelled, or such other assignments,
deeds, share transfer forms, endorsements, notarial deeds of transfer or other
instruments or documents, duly stamped where necessary, as required by the
jurisdiction of organization of each Transferred Subsidiary as set forth on
Schedule 1.1 of the disclosure schedule delivered by the Seller to the Buyer on
the date hereof (the "SELLER DISCLOSURE SCHEDULE").
1.2. TRANSFER OF ASSETS. On the basis of the representations, warranties,
covenants and agreements and subject to the satisfaction or waiver of the
conditions set forth in this Agreement, on the Closing Date, and subject to the
provisions of Section 1.3, the Seller shall sell, convey, assign, transfer and
deliver to the Buyer, or shall cause the Subsidiary Asset Sellers to sell,
convey, assign, transfer and deliver to the Buyer, and the Buyer shall purchase
and acquire from the Asset Sellers, all of the assets, rights, properties,
claims, contracts and business of the Asset Sellers at the Closing Date which
are principally utilized in the Packaging Business, of every kind, nature,
character and description, tangible and intangible, real, personal or mixed,
wherever located, including, without limitation, the following:
(a) Each Asset Seller's right, title and interest in and to the patents,
patent registrations, patent applications, trademarks, trademark
registrations, trademark applications, tradenames, copyrights, copyright
applications, copyright registrations, franchises, permits, licenses (both
as licensor and licensee), processes, formulae, inventions and royalties
described on Section 1.2(a) of the Seller Disclosure Schedule, including all
rights to sue for past infringement, together with the goodwill associated
therewith;
(b) The real property and leasehold interests in real property described
on Section 1.2(b) of the Seller Disclosure Schedule owned by the Asset
Sellers, including all buildings, structures and other improvements situated
thereon (individually, a "PLANT" and collectively, the "PLANTS"), and all
easements, privileges, rights-of-way, riparian and other water rights, lands
underlying any adjacent streets or roads and appurtenances pertaining to or
accruing to the benefit of such property to which the Asset Sellers have
title, in each case subject to the exceptions described on Section 1.2(b) of
the Seller Disclosure Schedule;
(c) Each Asset Seller's right, title and interest in and to the
equipment, furniture, furnishings, fixtures, machinery, vehicles, tools and
other tangible personal property described on Section 1.2(c) of the Seller
Disclosure Schedule pertaining to the operation of the Packaging Business
(collectively, the "EQUIPMENT") and all warranties and guarantees, if any,
express or implied, existing for the benefit of the Asset Sellers in
connection with the Equipment to the extent transferable;
(d) The inventory of Borden Global Packaging finished products on hand
at the Plants, in transit or in the distribution system of the Asset Sellers
on the Closing Date (the "FINISHED GOODS") and the raw materials, packaging
materials and work in process for Borden Global Packaging products on hand
at the Plants, in transit or in the distribution system of the Asset Sellers
on the Closing Date, together with each Asset Seller's right, title and
interest in and to the spare parts, supplies and promotional materials that
are used in connection with the manufacture or sale of Borden Global
Packaging products (the "MATERIALS", and together with the Finished Goods,
the "Inventory");
(e) All management information systems and software, to the extent that
such systems and software are transferable by the Asset Sellers and relate
principally to the operations of the Plants, the ownership of the Assets or
the manufacture and sale of Borden Global Packaging products, customer
lists, vendor lists, catalogs, research material, technical information,
trade secrets, technology, know-how, specifications, designs, drawings,
processes, and quality control data, if any;
(f) Except for those contracts, agreements and commitments set forth on
Section 1.3(g) of the Seller Disclosure Schedule, each Asset Seller's right,
title and interest in and to contracts, maintenance and service agreements,
purchase commitments for materials and other services, advertising
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and promotional agreements, leases and other agreements (including but not
limited to, any agreements of the Asset Sellers with suppliers, sales
representatives, distributors, agents, personal property lessors, personal
property lessees, licensors, licensees, consignors and consignees specified
therein) that relate to the Packaging Business, whether or not entered into
in the ordinary course of the Packaging Business, that are listed on Section
1.2(f) of the Seller Disclosure Schedule and those contracts pertaining to
the Packaging Business that are not Material Contracts (as defined in
Section 3.1(q) hereof);
(g) Each Asset Seller's licenses, permits or franchises issued by any
federal, state, municipal or foreign authority relating to the development,
use, maintenance or occupation of the Plants or the manufacture or sale of
Borden Global Packaging products which are listed on Section 1.2(g) of the
Seller Disclosure Schedule, to the extent that such licenses, permits or
franchises are transferable and relate to the operations of the Plants, the
ownership of the Assets or the manufacture and sale of Borden Global
Packaging products;
(h) Accounts receivable and other receivables of the Asset Sellers in
existence prior to the Closing Date (whether or not billed) to the extent
attributable to Borden Global Packaging Products sold prior to 12:01 A.M. on
the Closing Date (the "EFFECTIVE TIME");
(i) Each Asset Seller's rights to goods and services and all other
economic benefits to be received subsequent to the Closing Date arising out
of prepayments and payments in advance by the Asset Sellers prior to the
Closing Date to the extent related to the Plants or the manufacturing,
marketing or sale of Borden Global Packaging products or the Packaging
Business (collectively, the "PREPAID ASSETS") and reflected on the Closing
Balance Sheet;
(j) Each Asset Seller's right, title and interest in deposits on
contracts relating principally to the Packaging Business that require
shipments on dates subsequent to the Closing Date; and
(k) All Borden Global Packaging customer lists, vendor lists, catalogs,
research material, technical information, trade secrets, technology,
know-how, specifications, designs, drawings, processes, and quality control
data, if any, and other materials and documents relating to the Packaging
Business (or copies thereof to the extent not principally related to the
Packaging Business).
1.3. EXCLUDED ASSETS. It is expressly understood and agreed that the
Assets shall not include the following (each, an "EXCLUDED ASSET"):
(a) The assets (including, without limitation, all rights, properties,
claims, contracts and business) of all businesses other than the Packaging
Business conducted by the Asset Sellers to the extent not principally used
in the Packaging Business;
(b) The capital stock of all Subsidiaries of the Seller other than the
Transferred Subsidiaries;
(c) Cash and cash equivalents or similar type investments, bank
accounts, certificates of deposit, Treasury bills and other marketable
securities (excluding deposits and prepayments to be transferred pursuant to
Section 1.2(j) hereof);
(d) All real property, leasehold interests in real property, equipment,
machinery, vehicles, tools and other tangible personal property (other than
the Plants and the Equipment) of the Asset Sellers used for the
transportation, storage, distribution or sale of Inventory outside the
Plants; PROVIDED, HOWEVER, any contracts related to such transportation,
storage, distribution or sale of Inventory shall, to the extent permitted
thereby, be assigned to the Buyer pursuant to Section 1.2(f);
(e) Any Equipment as is used, transferred or otherwise disposed of by
the Asset Sellers in the ordinary course of business consistent with past
business practice of Borden Global Packaging through the Closing Date;
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(f) Any refunds or credits with respect to any taxes paid or incurred by
the Asset Sellers (plus any related interest received from the relevant
taxing authority), except to the extent reflected on the Closing Balance
Sheet;
(g) Each Asset Seller's right, title and interest in and to the
contracts listed on Section 1.3(g) of the Seller Disclosure Schedule;
(h) The trademarks, names and corporate logos of the Asset Sellers
listed on Section 4.11 of the Seller Disclosure Schedule, which trademarks,
names and corporate logos may appear on certain products and other materials
only to the extent permitted pursuant to Section 4.11;
(i) The real property, including all buildings, structures and other
improvements situated thereon, and other assets listed on Section 1.3(i) of
the Seller Disclosure Schedule;
(j) All of the Asset Sellers' right, title and interest to the assets
pertaining to the production, marketing, distribution and sale of flexible
and rigid plastic packaging materials in South America;
(k) Except as otherwise provided in Section 4.16 hereof, all right,
title and interest of the Seller in any insurance policies relating to the
Packaging Business and all rights of the Seller to insurance claims and
proceeds arising from or related to (i) the operation of the Packaging
Business prior to the Closing and (ii) the Excluded Assets and Excluded
Liabilities;
(l) All assets relating to the Business Plans (as defined in Section
3.1(n) (i) hereof), except as expressly provided in Sections 6.4 and 6.8
hereof and in Section 6.4 of the Seller Disclosure Schedule; and
(m) The office lease for the office used by the Packaging Business in
Singapore.
1.4. INSTRUMENTS OF CONVEYANCE AND TRANSFER. On the Closing Date, the
Asset Sellers shall (a) deliver or cause to be delivered to the Buyer such
general or special warranty deeds, bills of sale, endorsements, consents,
assignments, licenses, and other good and sufficient instruments of transfer,
conveyance and assignment as the parties and their respective counsel shall deem
necessary or appropriate or as may be required by the jurisdiction of
organization of each Subsidiary Asset Seller to vest in the Buyer good and
marketable title to, or a binding leasehold interest in, the Assets, free and
clear of all liens, claims and encumbrances other than Permitted Liens (as
defined in Section 3.1(e) hereof) and (b) transfer to the Buyer all the
contracts, agreements, commitments, books, records, files and other data (or
copies thereof) relating to the Assets as, and to the extent, set forth in
Section 1.2(k).
1.5. FURTHER ASSURANCES. From time to time after the Closing Date, the
Seller will execute and deliver, or cause to be executed and delivered, such
other instruments of conveyance, assignment, transfer and delivery and will take
such other actions as the Buyer may reasonably request in order more effectively
to transfer, convey, assign, and deliver to the Buyer any of the Assets, or to
enable the Buyer to exercise and enjoy all rights and benefits of the Asset
Sellers with respect thereto.
1.6. ASSUMED LIABILITIES. On the Closing Date, the Buyer shall deliver to
the Seller an undertaking (the "ASSUMPTION AGREEMENT") in the form attached
hereto as Exhibit E whereby the Buyer, on and as of the Closing Date, assumes
and agrees to pay, perform and discharge when due, upon the terms and subject to
the conditions of this Agreement, the following debts, liabilities and
obligations, other than Excluded Liabilities, arising out of or pertaining to
the Packaging Business or the Assets whether arising before or after the
Closing:
(a) all liabilities of the Packaging Business reflected on the Closing
Balance Sheet,
(b) debts, obligations and liabilities in respect of the Packaging
Business or the Assets arising or incurred by the Buyer on and after the
Closing Date (other than as a result of any breach by the Asset Sellers of
any of their obligations to the Buyer),
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(c) all debts, obligations and liabilities of the Asset Sellers which
arise on account of the Buyer's operation of the Packaging Business, the use
of the Assets, and/or sale of any products manufactured and/or sold by the
Buyer on and after the Closing Date,
(d) all obligations relating to the Packaging Business or the Assets
under the contracts, commitments and agreements transferred pursuant to
Section 1.2(f);
(e) all liabilities and obligations for post-Closing returns of Borden
Global Packaging products sold prior to, on or after the Closing Date;
(f) all liabilities and obligations for trade promotion programs
(including, without limitation, trade allowance programs) and marketing
programs and commitments applicable to Borden Global Packaging products
incurred in the ordinary course of business, consistent with past practice;
(g) all liabilities and obligations under the licenses, permits or
franchises disclosed on Section 1.2(g) of the Seller Disclosure Schedule;
(h) all liabilities and obligations arising out of the operations of the
Plants prior to the Closing Date (including, without limitation, (i) all
products liability claims with respect to products manufactured by the Asset
Sellers prior to the Closing Date where such claims were not made prior to
the Closing Date and (ii) all liabilities and obligations related to the
presence, disposal, escape, seepage, leakage, discharge, emission, release
or threatened release of any substances or materials);
(i) all liabilities and obligations in respect of employee relations and
benefits pursuant to and to the extent set forth in Section 6 hereof;
(j) all liabilities and obligations for any taxes and expenses described
in Section 9.3 hereof to the extent set forth therein;
(k) all liabilities with respect to all actions, suits, proceedings,
disputes, claims or investigations arising out of or related to the
Packaging Business or that otherwise arise out of or are related to the
Assets;
(l) all liabilities for claims relating to the Packaging Business under
the Seller's self-insurance arrangements; and
(m) all other liabilities and obligations arising out of or related to
the Packaging Business or the Assets.
The debts, liabilities and obligations assumed by the Buyer in accordance
with this Section 1.6 are sometimes hereinafter referred to as the "ASSUMED
LIABILITIES".
1.7. EXCLUDED LIABILITIES. It is expressly understood and agreed that,
notwithstanding anything to the contrary in this Agreement, Assumed Liabilities
shall not include the following (collectively, the "EXCLUDED LIABILITIES"):
(a) all liabilities arising out of or relating to the Excluded Assets;
(b) all liabilities and obligations for which the Seller has expressly
assumed responsibility pursuant to this Agreement;
(c) all debts, liabilities or obligations of the Asset Sellers that
principally do not arise out of or are not related to the Packaging Business
or that principally do not otherwise arise out of or are not otherwise
related to the Assets;
(d) any liability for federal, state or local taxes, charges, fees,
levies, or other similar assessments, including without limitation income,
gross receipts, ad valorem, premium, excise, real property, personal
property, windfall profit, sales, use, transfer, licensing, withholding,
employment, payroll,
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estimated and franchise taxes or any claim by any federal, state or local
taxing authority, in each case, relating to any taxable period ending on or
prior to the Closing Date;
(e) liabilities required under generally accepted accounting principles,
applied as of the Closing Date consistent with Section 2.4, to be reflected
on the Closing Balance Sheet and are not so reflected, but only if and to
the extent such liabilities both (i) exceed the applicable reserves
reflected on the Closing Balance Sheet and (ii) with respect to liabilities
which had they been reflected on the Closing Balance Sheet would have been
reflected as Closing Other Non-Current Liabilities (as defined in Section
2.4(a) hereof), exceed, together with the Closing Other Non-Current
Liabilities reflected on the Closing Balance Sheet, $9,450,000;
(f) liabilities relating to the participation of U.S. Transferred
Employees in the U.S. Business Plans on or prior to the Effective Time,
except as otherwise set forth, and to the extent set forth, in Section 6
hereof (including, but not limited to, Sections 6.6 or 6.8(b) hereof);
(g) to the extent that the Seller, in its sole discretion, decides to
retain liabilities subject to insurance coverage for which claims have been
made to insurance carriers prior to the Closing ("RETAINED INSURANCE
CLAIMS"), all liabilities principally arising out of or related to such
Retained Insurance Claims, provided that nothing in this Agreement requires
Seller to retain any such Retained Insurance Claims;
(h) liabilities which the Seller has agreed to retain under and to the
extent set forth in Section 4.16; and
(i) liabilities represented by the "Debt payable in one year" line item
under the heading Current Liabilities contained on the Closing Balance
Sheet.
2. CLOSING; PAYMENT OF PURCHASE PRICE AT CLOSING
2.1. CLOSING DATE. Unless this Agreement shall have been terminated and
the transactions herein contemplated shall have been abandoned pursuant to
Section 7.1 hereof, the closing with respect to the transactions provided for in
this Agreement (the "CLOSING") shall take place at the offices of Simpson
Thacher & Bartlett located at 425 Lexington Avenue, New York, New York
10017-3954, at 10:00 a.m., New York City time, on a mutually agreed upon date
not later than January 31, 1997. The actual time and date of the Closing are
herein called the "Closing Date".
2.2. PURCHASE PRICE AND PAYMENT. (a) Subject to Section 2.4 hereof,
regardless of whether the transfer of any Assets or Subsidiary Stock have been
deferred pursuant to the provisions of Section 2.3 of this Agreement, in
consideration for the sale and transfer of the Assets and the Subsidiary Stock,
and subject to the terms and conditions of this Agreement, the Buyer shall on
the Closing Date assume the Assumed Liabilities as provided in Section 1.6
hereof and shall transfer to or, in whole or in part, as directed by the Seller:
(i) certificates representing the greater of (A) 2,412,818 shares (the "FIXED
SHARES") of common stock, par value $0.01 per share (the "BUYER COMMON STOCK"),
of the Buyer and (B) a number of shares of Buyer Common Stock (rounded up to the
nearest whole share) equal to the quotient obtained by dividing (x) $80.0
million by (y) the Buyer Stock Price; PROVIDED, HOWEVER, that in the case of
clause (B), in no event will the Buyer be required to deliver in excess of 4.0
million shares of Buyer Common Stock (the "EQUITY CONSIDERATION"), all of which
shares shall have been duly authorized, validly issued, fully paid and
nonassessable, and (ii) $280.0 million of cash in immediately available funds
(the "CASH CONSIDERATION"; and together with the Equity Consideration,
collectively referred to as the "PURCHASE PRICE"). The "Buyer Stock Price" shall
be equal to the average of the closing prices of Buyer Common Stock on The
Nasdaq National Market, as reported in THE WALL STREET JOURNAL, for the 50
trading days immediately preceding the second trading day prior to the
Stockholders' Meeting (as defined in Section 3.2(q)) or such shorter number of
trading days between the date hereof and the second trading day prior to the
Stockholders' Meeting.
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(b) The Buyer and the Seller agree that if Hitachi Chemical Company Ltd.
("HITACHI") exercises its right to purchase the shares of Hitachi-Borden
Chemical Products, Inc. ("HITACHI-BORDEN") owned by the Seller (the "HITACHI
SHARES") pursuant to the Joint Venture Basic Agreement dated as of June 23, 1972
(the "JOINT VENTURE AGREEMENT") between the Seller and Hitachi (the "HITACHI
RIGHT OF FIRST REFUSAL"), then (i) the Purchase Price shall be equal to the
amount set forth above less $30.0 million (the "HITACHI AMOUNT") and (ii) at the
Seller's option, the deduction of the Hitachi Amount from the Purchase Price may
be effected by means of a reduction of the Cash Consideration in an amount equal
to the Hitachi Amount (the "HITACHI CASH REDUCTION") or a reduction in the
number of shares of Buyer Common Stock constituting the Equity Consideration
equal to the quotient obtained by dividing (a) the Hitachi Amount by (b) the
Average Buyer Common Stock Price (the "HITACHI EQUITY REDUCTION"). The "Average
Buyer Common Stock Price" shall be equal to the average of the closing prices of
Buyer Common Stock on The Nasdaq National Market, as reported in THE WALL STREET
JOURNAL, for the 20 trading days immediately preceding the second trading day
prior to the Closing Date. In the event that the Closing takes place prior to
the date that Hitachi has either exercised the Hitachi Right of First Refusal or
waived the Hitachi Right of First Refusal and the Hitachi Right of First Refusal
has not theretofore expired pursuant to its terms, the Buyer may withhold the
Hitachi Amount from the Purchase Price at the Closing, at the Seller's option,
in the form of the Hitachi Cash Reduction or the Hitachi Equity Reduction, and
the Closing will occur without any transfer by the Seller of the Hitachi Shares;
PROVIDED that within one business day following notice from the Seller to the
Buyer of any waiver by Hitachi of the Hitachi Right of First Refusal or of the
expiration of such right pursuant to its terms, the Buyer shall transfer to the
Seller in immediately available funds the Hitachi Cash Reduction (in the event
of a Hitachi Cash Reduction) or that number of shares of Buyer Common Stock
equal to the Hitachi Equity Reduction (in the event of a Hitachi Equity
Reduction) in the form so withheld and, subject to Section 2.3, the Seller shall
transfer to the Buyer the Hitachi Shares; and PROVIDED, FURTHER, that at the
Closing, in the event that the payment of the Hitachi Amount is deferred in the
form of the Hitachi Cash Reduction, the Buyer shall deliver to the Seller credit
support or other evidence of its ability to pay the Hitachi Amount in cash.
(c) The parties to this Agreement agree to allocate the Purchase Price (the
"1060 ALLOCATION") in accordance with the rules under Section 1060 of the
Internal Revenue Code of 1986, as amended (the "CODE"), and the Treasury
Regulations promulgated thereunder. To the extent possible, the parties agree to
provide the 1060 Allocation at the Closing. The parties recognize that the
Purchase Price does not include the Buyer's acquisition expenses and that the
Buyer will allocate such expenses appropriately. The Seller and the Buyer agree
to act in accordance with the computations and allocations in the 1060
Allocation (including any modifications thereto reflecting any post-Closing
adjustments) in any relevant tax returns or filings (including any forms or
reports required to be filed pursuant to Section 1060 of the Code, the Treasury
Regulations promulgated thereunder or any provisions of local, state and foreign
law ("1060 FORMS")), and to cooperate in the preparation of any 1060 Forms and
to file such 1060 Forms in the manner required by applicable law.
2.3. DEFERRED TRANSFERS. (a) If, on the Closing Date, (i) the Seller or
the Buyer has not obtained any authorization, approval, order, license, permit,
franchise or consent from any foreign government or governmental authority (an
"APPROVAL") with respect to a transfer of Assets or Subsidiary Stock of a
Subsidiary organized outside the United States or Canada in the absence of which
Approval the conditions precedent to the Closing set forth in Section 5 would
nevertheless be satisfied and which Approval is either necessary in order to
transfer the relevant Assets or Subsidiary Stock or the failure to obtain which
would subject the Buyer, the Seller or any subsidiary, or any officer, director
or agent of any such person to civil or criminal liability or could render such
transfer void or voidable or (ii) there is in effect any injunction, restraining
order or decree of any nature of any court or governmental agency or body of
competent jurisdiction that would not prevent the conditions precedent to the
Closing set forth in Section 5 from being satisfied and that restrains or
prohibits the transfer to the Buyer of any Assets or Subsidiary Stock of a
Subsidiary organized outside the United States and that is not permanent and
non-appealable (a "NON-FINAL INJUNCTION"), such Assets or Subsidiary Stock (the
"DEFERRED ITEMS") shall be withheld from sale
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without any reduction in the Purchase Price and, if necessary, be transferred by
dividend or otherwise, to the extent such transfer would not subject the Seller
to any taxes, from a Subsidiary to the Seller immediately prior to the Closing.
From and after the Closing, the Seller and/or the Buyer shall continue to use
reasonable efforts to obtain all Approvals, relating to the Deferred Items or
the transfer thereof, and/ or to cause all Non-Final Injunctions relating to the
Deferred Items or the transfer thereof to be lifted. To the extent consistent
with applicable law and this Agreement, the Buyer and the Seller will enter into
a mutually reasonably acceptable agreement or agreements governing the
management by Buyer of the Assets or Subsidiaries comprising the Deferred Items.
(b) Until such time as any Deferred Items have been transferred to the Buyer
pursuant to Section 2.3(c) or otherwise disposed of in accordance with Section
2.3(d) (each, a "DEFERRED TRANSFER"), the Deferred Items shall be held for the
Buyer's benefit and the Assets or Subsidiaries comprising Deferred Items shall
be managed and operated by the Seller for the Buyer's benefit and account in the
manner hereinafter provided from the Closing to the time of the respective
Deferred Transfers, with all gains, income, losses, taxes or other items
generated thereby to be for the Buyer's account. Neither the Seller nor any
Subsidiary shall have any liability to the Buyer arising out of the management
or operation by the Seller of any Assets or Subsidiaries comprising Deferred
Items other than for gross negligence, wilful misconduct or failure to follow
the Buyer's instructions if such instructions are permitted under applicable law
and do not require the Seller to violate any applicable law.
The Buyer shall reimburse the Seller and shall hold the Seller harmless from
and against all liabilities incurred or asserted as a result of the Seller's
post-Closing direct or indirect ownership, management, operation or sale (other
than to the Buyer) of the Deferred Items, including, without limitation, the
amount of any additional taxes payable by the Seller (whether currently or in
the future), after application of the terms of this Agreement, as a result
thereof in excess of the amount of taxes which would have been payable by the
Seller, after application of the terms of this Agreement, if the Deferred Items
had been transferred to the Buyer or any of its affiliates on the Closing Date.
Such reimbursement shall be made by the Buyer and received by the Seller within
ten business days of the Buyer receiving any bill, claim, invoice or other
request for payment from the Seller, together with appropriate documentation
showing the calculation of the amount claimed due.
From the Closing to the date of the Deferred Transfer, the Seller shall hold
the Deferred Items and hold or operate the Assets or Subsidiaries comprising the
Deferred Items only in the ordinary course substantially consistent with past
practice, except as otherwise specified in the Buyer's instructions in
accordance with Section 2.3(d) hereof; PROVIDED, HOWEVER, that the Seller shall
not be required to finance the operations of any such Subsidiary directly or
indirectly. Subject to applicable law and regulations (including, without
limitation, all laws and regulations requiring investment approvals or consents
or antimonopoly clearances, exemptions or waivers in connection with any
disposition of the Deferred Items, and all exchange controls and laws concerning
foreign corrupt practices, expatriation of funds or otherwise), the Seller
shall, in respect of any Deferred Items, use all reasonable efforts to follow
and implement the reasonable written instructions and policies of the Buyer
relating to the holding of the Deferred Items and the management and operation
of any Subsidiaries to which any such Deferred Items relate. The Seller shall
give the Buyer reasonable notice of all material proposed financings with
respect to the operations of the Assets or Subsidiaries comprising the Deferred
Items.
(c) Unless otherwise disposed of upon the Buyer's instructions in accordance
with Section 2.3(d) hereof, the certificates for the relevant Subsidiary Stock
comprising any Deferred Items, duly endorsed in blank and with all necessary
transfer stamps affixed thereto or such other assignments, deeds, share transfer
forms, endorsements, notarial deeds of transfer or other instruments or
documents, duly stamped where necessary, as are necessary under the laws of the
jurisdiction of organization of each Transferred Subsidiary as set forth on
Section 1.1 of the Seller Disclosure Schedule in order to effectively transfer
such Deferred Items, will be delivered to the Buyer free and clear of all liens
(except for liens
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which had existed on the Closing Date and had been disclosed and liens which
were created for the Buyer's benefit during the period the Deferred Items were
being held for the Buyer's benefit), on the date which is fifteen (15) business
days after all Approvals relating to any such Deferred Item or the transfer
thereof shall have been obtained and/or after any Non-Final Injunction relating
to any such Deferred Items or the transfer thereof has been lifted or on such
other date as the parties hereto may mutually agree.
(d) At any time prior to the Deferred Transfer relating to any of the
Deferred Items, the Seller shall, (i) on the Buyer's written instructions
(subject to applicable law and regulations), or may at any time after 10 years
from the Closing Date, with the Buyer's consent (which shall not be unreasonably
withheld), for the Buyer's benefit, dispose of the Deferred Items or, in the
case of Subsidiary Stock, the assets of the Subsidiaries to which such Deferred
Items relate, and remit the proceeds of such sale (less withholding or similar
taxes, if any, payable with respect to such disposition or remittance) to the
Buyer and (ii) for a period of 10 years following the Closing Date, operate that
portion of the Packaging Business related to the Deferred Items in accordance
with instructions from the Buyer if such instructions are permitted under
applicable law and do not require the Seller to violate any applicable law;
PROVIDED that in the event of either clause (i) or (ii) above (x) the Seller
shall have no liability to any such third party arising out of such transactions
or operations other than for gross negligence, willful misconduct or failure to
follow the Buyer's instructions if such instructions are permitted under
applicable law and do not require the Seller to violate any applicable law; and
(y) any amount so remitted to the Buyer pursuant to this Section 2.3(d) shall be
reduced by the sum of (I) the amount by which the taxes payable by the Seller
(whether currently or in the future), after application of the terms of this
Agreement, with respect to the initial transfer, if any, to the Seller pursuant
to Section 2.3(a) and the subsequent disposition exceed the amount of taxes
which would have been payable by the Seller, after application of the terms of
this Agreement, with respect to the Deferred Items had they been transferred on
the Closing Date by the owner thereof (prior to their transfer, if any, to the
Seller) without regard to this Section 2.3, and (II) to the extent not
previously paid by or on behalf of the Buyer pursuant to Section 2.3(b) hereof,
the amount of any liabilities imposed upon or incurred by the Seller as a result
of the Seller's post-Closing direct or indirect ownership, management, operation
or sale of the Deferred Items, including, without limitation, the amount of any
taxes (other than taxes previously paid by the Buyer pursuant to Section 2.3(b))
payable by the Seller as a result thereof.
2.4. POST-CLOSING ADJUSTMENT. (a) Within 60 days following the Closing,
the Seller shall, at its expense, prepare, or cause to be prepared, and deliver
to the Buyer a balance sheet (the "CLOSING BALANCE SHEET") which shall set forth
those assets and liabilities of the Packaging Business relevant to the
adjustments contemplated by this Section 2.4 on the basis set forth on Section
2.4(a) of the Seller Disclosure Schedule as of the Effective Time. Subject to
Section 2.4(a) of the Seller Disclosure Schedule, the Closing Balance Sheet
shall be prepared in accordance with generally accepted accounting principles
using the same accounting principles, methods, practices and estimation
methodologies as were utilized in the preparation of the consolidated balance
sheet of the Packaging Business as at December 31, 1995 (the "PRE-CLOSING
BALANCE SHEET") included as part of the Financial Information previously
delivered to the Buyer. The Seller shall also deliver within 60 days from the
Closing a calculation of (i) working capital derived from the Closing Balance
Sheet on the basis set forth on Section 2.4(a) of the Seller Disclosure Schedule
(the "CLOSING WORKING CAPITAL") and (ii) Closing Other Non-Current Liabilities.
The term "CLOSING OTHER NON-CURRENT LIABILITIES" shall mean "Long-Term
Liabilities", other than "Deferred income taxes", as set forth on the Closing
Balance Sheet, consistent with this Section 2.4(a) and Section 2.4(a) of the
Seller Disclosure Schedule. The term "CLOSING FIGURES" shall mean, collectively,
the Closing Working Capital and the Closing Other Non-Current Liabilities.
(b) The Buyer and the Buyer's accountants shall, within 30 days after the
delivery by the Seller of the Closing Balance Sheet and calculation of the
Closing Figures, complete their review of the Closing Figures, PROVIDED that the
Seller has furnished to the Buyer all information reasonably requested by the
Buyer necessary for its review of the Closing Figures. In the event that the
Buyer determines that either of the
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components of the Closing Figures has not been stated or determined in
accordance with this Section 2.4 and Section 2.4(a) of the Seller Disclosure
Schedule, the Buyer shall inform the Seller in writing (the "BUYER'S
OBJECTION"), setting forth the basis of the Buyer's Objection in reasonable
detail and to the extent practicable the adjustments to the Closing Figures
which the Buyer believes should be made, on or before the last day of such
30-day period. The Seller shall then have 30 days to review and respond to the
Buyer's Objection. If the Seller and the Buyer are unable to resolve all of
their disagreements with respect to the determination of the foregoing items
within 30 days following the completion of the Seller's review of the Buyer's
Objection, they shall refer their remaining differences to Ernst & Young LLP or
another internationally recognized firm of independent public accountants as to
which the Seller and the Buyer mutually agree (the "CPA FIRM"), which shall,
acting as experts in accounting and not as arbitrators, determine on the basis
of the standards set forth on Section 2.4(a) of the Seller Disclosure Schedule,
and only with respect to the specific remaining accounting related differences
so submitted, whether and to what extent, if any, either of the components of
the Closing Figures requires adjustment. The Seller and the Buyer shall direct
the CPA Firm to use its best efforts to render its determination within 45 days.
The CPA Firm's determination shall be conclusive and binding upon the Buyer and
the Seller. The fees and disbursements of the CPA Firm shall be shared equally
by the Buyer, on the one hand, and the Seller, on the other hand. The Buyer and
the Seller shall make readily available to the CPA Firm all relevant books and
records and any work papers (including those of the parties' respective
accountants) relating to the Pre-Closing Balance Sheet, the Closing Balance
Sheet, the Closing Working Capital, the Closing Other Non-Current Liabilities
and all other items reasonably requested by the CPA Firm. The "Adjusted Closing
Working Capital" shall be (i) the Closing Working Capital in the event that (x)
no the Buyer's Objection is delivered to the Seller during the 30-day period
specified above, or (y) the Seller and the Buyer so agree, (ii) the Closing
Working Capital, adjusted in accordance with the Buyer's Objection in the event
that the Seller does not respond to the Buyer's Objection within the 30-day
period following receipt by the Seller of the Buyer's Objection, or (iii) the
Closing Working Capital, as adjusted by either (x) the agreement of the Seller
and the Buyer or (y) the CPA Firm. The "Adjusted Closing Other Non-Current
Liabilities" shall be (i) the Closing Other Non-Current Liabilities in the event
that (x) no the Buyer's Objection is delivered to the Seller during the 30-day
period specified above, or (y) the Seller and the Buyer so agree, (ii) the
Closing Other Non-Current Liabilities, adjusted in accordance with the Buyer's
Objection in the event that the Seller does not respond to the Buyer's Objection
within the 30-day period following receipt by the Seller of the Buyer's
Objection, or (iii) the Closing Other Non-Current Liabilities, as adjusted by
either (x) the agreement of the Seller and the Buyer or (y) the CPA Firm.
"Adjusted Closing Figures" shall include the Adjusted Closing Working Capital
and the Adjusted Closing Other Non-Current Liabilities.
(c) The Buyer shall provide the Seller and its accountants full access to
the books and records of the Packaging Business, to any other information,
including work papers of their accountants, and to any employees to the extent
necessary for the Seller to prepare the Closing Balance Sheet and determine the
Closing Figures. The Buyer and its accountants shall have the opportunity to
observe the taking of the Inventory (which may begin prior to the Closing Date
on a date mutually agreed to by the Buyer and the Seller and which shall be
taken on a year-end basis consistent with past practice) in connection with the
preparation of the Closing Balance Sheet and the Closing Figures and shall have
full access to all information used by the Seller in preparing the 1995 Balance
Sheet (as defined below), Closing Balance Sheet and Closing Figures, including
the procedures, books, records and work papers of its accountants.
(d) Within 10 business days following determination of the Adjusted Closing
Figures, the Buyer or the Seller, as the case may be, shall make an adjustment
payment (the "ADJUSTMENT AMOUNT") equal to the difference between the Buyer
Adjustment Amount and the Seller Adjustment Amount. The "Buyer Adjustment
Amount" shall equal the sum of (i) the amount, if any, by which (A) the Adjusted
Closing Working Capital exceeds (B) the Pre-Closing Working Capital and (ii) the
amount, if any, by which the Adjusted Closing Other Non-Current Liabilities is
less than $7,450,000. The "Pre-Closing Working Capital" shall be equal to the
working capital of the Packaging Business at December 31, 1995 as set forth on
Section 2.4(d) of the Seller Disclosure Schedule. The "Seller Adjustment Amount"
shall equal the sum
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of (i) the amount, if any, by which (A) the Adjusted Closing Working Capital is
less than (B) the Pre-Closing Working Capital and (ii) the amount, if any, by
which the Adjusted Closing Other Non-Current Liabilities exceeds $9,450,000.
(e) The Adjustment Amount will be payable (x) by the Seller to the Buyer to
the extent that the Seller Adjustment Amount exceeds the Buyer Adjustment Amount
at the Seller's option (i) in U.S. dollars in the amount of the Adjustment
Amount or (ii) in such number of shares of the Buyer Common Stock equal to the
quotient obtained by dividing (a) the Adjustment Amount by (b) the Average Buyer
Common Stock Price (the "ADJUSTMENT SHARES"), and (y) by the Buyer to the Seller
to the extent that the Buyer Adjustment Amount exceeds the Seller Adjustment
Amount in the form of U.S. dollars, plus, in either case, interest, payable in
cash, on the Adjustment Amount from the Closing Date through the date of payment
at the "base rate" of Citibank, N.A. or any successor thereto in New York, New
York on the Closing Date. The Adjustment Amount payable pursuant to this Section
2.4(e) shall be paid, in the case of clauses (x)(i) and (y) above, by wire
transfer of immediately available funds to an account designated by the Buyer,
on the one hand, or the Seller, on the other hand, as the case may be and, in
the case of clause (x)(ii) above, by delivery to the Buyer of stock certificates
representing the Adjustment Shares, duly endorsed for transfer to the Buyer or
accompanied by stock powers duly executed in favor of the Buyer, together with
evidence of payment of any applicable transfer and documentary stamp taxes and
other fees.
3. REPRESENTATIONS AND WARRANTIES
3.1. REPRESENTATIONS AND WARRANTIES OF THE SELLER. The Seller represents
and warrants to the Buyer as follows:
(a) DUE ORGANIZATION; GOOD STANDING AND POWER. The Seller and each of
the Subsidiaries is a corporation duly organized, validly existing and has
the requisite power and authority to own, lease and operate its property to
be sold hereunder and to conduct the Packaging Business as now conducted by
it and, with respect to each U.S. corporation, is in good standing under the
laws of the jurisdiction of its incorporation. The Seller has all requisite
power and authority to enter into this Agreement and the Governance
Agreement and the Seller and each Subsidiary Asset Seller has all requisite
power and authority to enter into the other agreements contemplated hereby
and to perform its obligations hereunder and thereunder, and the Seller and
each Subsidiary Asset Seller has all requisite power and authority to convey
good and marketable title to the Buyer with respect to the Assets owned by
it. Each of the Seller and the Subsidiaries is duly authorized, qualified or
licensed to do business as a foreign corporation, and with respect to each
U.S. corporation is in good standing, in each of the jurisdictions in which
its right, title or interest in or to any of the Assets held by it, or the
conduct of the Packaging Business by it, requires such authorization,
qualification or licensing, except where the failure to so qualify or to be
in good standing would not, individually or in the aggregate, have or
reasonably be expected to have a material adverse effect on the results of
operations, financial condition or business of Borden Global Packaging taken
as a whole. Other than the Subsidiaries, (i) the Seller has no direct or
indirect subsidiaries that engage directly or indirectly in the Packaging
Business and (ii) the Seller and the Subsidiaries do not own in excess of 5%
of the outstanding capital stock or equity interests of any entity that
engages directly or indirectly in the Packaging Business. Except for
Hitachi-Borden, neither the Seller nor any of the Subsidiaries is a party to
any joint venture or partnership agreement relating to the Packaging
Business, and none of the Transferred Subsidiaries is a party to any joint
venture or partnership agreement.
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(b) AUTHORIZATION AND VALIDITY OF AGREEMENT. The execution, delivery
and performance by the Seller of this Agreement and the Governance Agreement
and the other agreements contemplated hereby and the consummation by it of
the transactions contemplated hereby and thereby have been duly authorized
by the Board of Directors of the Seller. No other corporate or stockholder
action is necessary for the authorization, execution, delivery and
performance by the Seller of this Agreement and the Governance Agreement and
the other agreements contemplated hereby and the consummation by the Seller
and the Subsidiaries of the transactions contemplated hereby or thereby,
other than certain corporate approvals of the foreign Subsidiaries set forth
on Section 3.1(b) of the Seller Disclosure Schedule, which corporate
approvals shall have been obtained by the Closing Date. This Agreement has
been duly executed and delivered by the Seller and constitutes a valid and
legally binding obligation of the Seller, enforceable against it in
accordance with its terms, except as enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium and other similar laws
relating to or affecting the enforcement of creditors' rights generally, by
general equitable principles (regardless of whether such enforceability is
considered in a proceeding in equity or at law) or by an implied covenant of
good faith and fair dealing.
(c) NO GOVERNMENTAL APPROVALS OR NOTICES REQUIRED; NO CONFLICT WITH
INSTRUMENTS TO WHICH THE SELLER IS A PARTY. Except as required by the terms
of the Hitachi Right of First Refusal and except as described on Section
3.1(c) of the Seller Disclosure Schedule, the execution, delivery and
performance of this Agreement and the other agreements contemplated hereby
by the Seller and the consummation by it and the Subsidiaries of the
transactions contemplated hereby and thereby (i) will not violate (with or
without the giving of notice or the lapse of time or both) or require any
consent, approval, filing or notice to be made by any Asset Seller or
Transferred Subsidiary under, any provision of any law, rule or regulation,
court order, judgment or decree applicable to the Seller or any such
Subsidiary, except for (x) the applicable requirements of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), and (y) such violations the occurrence of which, and such consents,
approvals, filings or notices the failure of which to obtain or make, would
not, individually or in the aggregate, have or reasonably be expected to
have a material adverse effect on the results of operations, financial
condition or business of Borden Global Packaging taken as a whole, and (ii)
will not conflict with, or result in the breach or termination of any
provision of, or constitute a default under, or result in the acceleration
of the performance of the obligations of the Seller or any such Subsidiary
under, or require the consent or approval of any person under, or result in
the creation of a lien, charge or encumbrance upon a portion of the
properties, assets or business of Borden Global Packaging pursuant to, the
charter or by-laws (or analogous organizational documents) of the Seller or
any such Subsidiary, or any indenture, mortgage, deed of trust, lease,
licensing agreement, contract, instrument or other agreement to which the
Seller or any such Subsidiary is a party or by which the Seller or any such
Subsidiary or any of the Assets held by the Seller or any such Subsidiary is
bound, except for such conflicts, breaches, terminations, defaults,
accelerations, liens, charges or encumbrances which would not, individually
or in the aggregate, have or reasonably be expected to have a material
adverse effect on the results of operations, financial condition or business
of Borden Global Packaging taken as a whole.
(d) ENTIRE BUSINESS. Except as set forth on Section 3.1(d) of the
Seller Disclosure Schedule, the Assets and the Subsidiary Stock, together
with the services and arrangements described in Sections 4.10, 4.11 and 4.12
(subject to the limitations therein and in the related Exhibits) constitute
all the assets, properties and rights used in or necessary to conduct the
Packaging Business in all material respects as currently conducted.
(e) TITLE TO PROPERTIES. The Seller and the Subsidiaries have (x) good
title to the Subsidiary Stock and (y) good, valid and marketable title to
property owned, and a valid and binding leasehold interest in property
leased, included in the Assets or otherwise pertaining to the Packaging
Business, in the case of each of clauses (x) and (y), free and clear of all
liens, charges and other encumbrances, except (i) as set forth on Section
3.1(e) of the Seller Disclosure Schedule or any Exhibit hereto; (ii) as
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disclosed in the Financial Information; (iii) liens for taxes, assessments
and other governmental charges not yet due and payable or, if due, (A) not
delinquent or (B) being contested in good faith by appropriate proceedings
during which collection or enforcement against the property is stayed; (iv)
mechanics', workmen's, repairmen's, warehousemen's, carriers' or other like
liens arising or incurred in the ordinary course of business if the
underlying obligations are not past due, original purchase price conditional
sales contracts and equipment leases with third parties entered into in the
ordinary course of business; (v) with respect to real property, (A)
easements, licenses, covenants, rights-of-way and other similar
restrictions, including, without limitation, any other agreements,
conditions or restrictions which would be shown by a current title report or
other similar report or listing, (B) any conditions that may be shown by a
current survey, title report or physical inspection and (C) zoning, building
and other similar restrictions, so long as none of (A), (B) or (C) render
the title of such real property unmarketable or prevent the use of such real
property substantially as currently used; and (vi) liens, charges or other
encumbrances which, individually or in the aggregate, would not have or
reasonably be expected to have a material adverse effect on the results of
operations, financial condition or business of Borden Global Packaging taken
as a whole (such liens, charges and encumbrances described in clauses
(i)-(vi) hereof are referred to herein as "PERMITTED LIENS"). The buildings,
plants, structures and equipment of the Seller included in the Assets are in
good operating condition and repair, ordinary wear and tear expected, and
are adequate for the present and contemplated uses to which they are being,
or are contemplated to be, put except for such conditions or inadequacy
that, individually or in the aggregate, would not have or reasonably be
expected to have a material adverse effect on the results of operations
financial condition or business of Borden Global Packaging taken as a whole.
(f) FINANCIAL INFORMATION; ABSENCE OF CERTAIN CHANGES. (i) The Seller
has delivered to the Buyer audited balance sheets of Borden Global Packaging
as at December 31 for each of the years 1993, 1994 and 1995 (for 1995, the
"1995 BALANCE SHEET"), and the related audited statements of income and
retained earnings and cash flows for each of the fiscal years then ended,
together with the report thereon of independent certified public
accountants, including notes thereto attached as Section 3.1(f)(i) of the
Seller Disclosure Schedule (the "FINANCIAL INFORMATION"). Such financial
statements and notes fairly present the financial condition and results of
operations of Borden Global Packaging as at the respective dates thereof and
for the periods therein referred to, all in accordance with generally
accepted accounting principles consistently applied by the Seller throughout
the periods involved. Except (x) as and to the extent set forth on the 1995
Balance Sheet, including the notes thereto, or in the Interim Financial
Information (as defined in Section 3.1(f)(ii)) or (y) as disclosed in this
Agreement or the Seller Disclosure Schedule, neither the Seller nor any of
its Subsidiaries has any liabilities or obligations of any nature (whether
accrued, absolute, contingent or otherwise) which would be required to be
reflected on a balance sheet or in the notes thereto prepared in accordance
with generally accepted accounting principles other than liabilities or
obligations incurred in the ordinary course of business since December 31,
1995 which would not, individually or in the aggregate, have or reasonably
be expected to have a material adverse effect on the results of operations,
financial condition or business of Borden Global Packaging taken as a whole;
provided that no breach of the foregoing representation shall be deemed to
have occurred with respect to liabilities or obligations (or that portion
thereof to the extent that such breach has an effect not fully reflected on
the Closing Balance Sheet) ultimately reflected on the Closing Balance
Sheet. All of the liabilities reflected on the 1995 Balance Sheet are
related to the Packaging Business and arose out of or were incurred in the
conduct of the Packaging Business.
(ii) The Seller has delivered to the Buyer an unaudited balance sheet of
Borden Global Packaging as at May 31, 1996, and the related unaudited
statements of income and retained earnings and cash flows for the period
then ended including notes thereto attached as Section 3.1(f)(ii) of the
Seller Disclosure Schedule (the "Interim Financial Information"). The
Interim Financial Information was prepared on a basis consistent with prior
practice for the preparation of interim monthly financial
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statements for Borden Global Packaging and fairly presents, consistent with
such method of preparation, the financial condition and results of
operations of Borden Global Packaging at May 31, 1996, and for the period
then ended.
(iii) Except as reflected in Sections 3.1(f)(i) or 3.1(f)(ii) of the
Seller Disclosure Schedule or otherwise contemplated by or disclosed in this
Agreement, the Seller Disclosure Schedule (including, without limitation,
Section 3.1(f)(iii) thereof) or the Exhibits hereto, since the date of the
1995 Balance Sheet, the Seller has conducted the Packaging Business in the
ordinary course consistent with past practice, and other than in the
ordinary course, there has not occurred or arisen, with respect to the
Packaging Business: (i) any material adverse changes in or any condition,
event or occurrence which, individually or in the aggregate, would cause, or
would reasonably be expected to cause, a material adverse change in the
results of operations, financial condition or business of the Packaging
Business taken as a whole, (ii) any notice of non-renewal, cancellation or
termination from any existing customers with respect to any material
contracts of the Packaging Business, (iii) any sale, assignment, pledge,
hypothecation or other transfer of any of the Assets, other than such sales,
assignments, pledges, hypothecations or other transfers which would not have
or reasonably be expected to have a material adverse effect on the results
of operations, financial condition or business of Borden Global Packaging
taken as a whole and other than transfers between Borden, Inc. or a
Subsidiary, on the one hand, and Borden, Inc. or a Subsidiary, on the other
hand, (iv) any termination or material amendment of, or any notice of
termination of, any contract or other agreement that is material to the
Packaging Business taken as a whole, (v) any damage, destruction or other
casualty loss (not covered by insurance) which would have or reasonably be
expected to have a material adverse effect on the results of operations,
financial condition or business of Borden Global Packaging taken as a whole,
(vi) except for salary administration, bonuses and incentive compensation in
the ordinary course of business, any increase in the compensation payable or
to become payable by Borden Global Packaging to any employees or any
increase in any employee benefit plan, payment or arrangement for any such
employee, (vii) any incurrence or assumption of any indebtedness for
borrowed money or the guaranty by the Seller or any of the Subsidiaries of
any indebtedness or other obligation of another person relating to the
Packaging Business, other than borrowings or guarantees between Borden, Inc.
or a Subsidiary, on the one hand, and Borden, Inc. or a Subsidiary, on the
other hand, (viii) the cancellation of any debts to or waiver of any claims
or rights of value to the Seller relating to the Packaging Business, (ix)
any capital expenditures or additions to property, plant or equipment or the
acquisition of any other property or assets (other than raw materials,
supplies and inventory) at a cost in excess of $1,000,000 in the aggregate,
by the Seller and the Subsidiaries relating to the Packaging Business, (x)
any lease to the Seller or any of the Subsidiaries of any of the properties
or assets relating to the Packaging Business, (xi) the entering into of any
Material Contract (as defined in Section 3.1(q) hereof) or (xii) the
entering into of an agreement to do any of the foregoing; provided that no
breach of the foregoing representation shall be deemed to have occurred to
the extent that such occurrence or event (or that portion thereof to the
extent that such breach has an effect not fully reflected on the Closing
Balance Sheet) is reflected as a liability on the Closing Balance Sheet.
(g) CAPITALIZATION. All of the outstanding shares of capital stock or
other equity interests of each of the Subsidiaries, including, without
limitation, the Transferred Subsidiaries, have been validly issued and are
fully paid and nonassessable and, except as set forth on Section 3.1(g) of
the Seller Disclosure Schedule and except for directors' qualifying shares
and other nominal share interests issued to third parties to comply with
requirements of law, are owned by the Seller and/or one or more of its
subsidiaries free and clear of all liens, claims, charges, security
interests, options or other legal or equitable encumbrances. Section
3.1(g)(i) of the Seller Disclosure Schedule sets forth for each of the
Transferred Subsidiaries the authorized capital stock, the number of shares
of outstanding capital stock, the number of shares of such outstanding
capital stock owned by each owner thereof and the name of each such owner.
The Seller has the right to cause all such director's qualifying shares and
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other nominal share interests to be transferred to the Buyer or its designee
in accordance with the terms hereof. Except as indicated on Section
3.1(g)(ii) of the Seller Disclosure Schedule, there are no outstanding
options, warrants or other rights of any kind relating to the sale, issuance
or voting of any shares of capital stock of any class of, or other ownership
interests in, the Subsidiaries which have been issued, granted or entered
into by the Seller or any of the Subsidiaries or any securities convertible
into or evidencing the right to purchase any shares of capital stock of any
class of, or other ownership interests in, any of the Subsidiaries.
(h) DEFECTS. Except as described on Section 3.1(h) of the Seller
Disclosure Schedule or as reflected in the Financial Information or the
Interim Financial Information, (i) there are no defects in the normal
operating condition and repair of the Plants or Equipment currently used in
connection with the Borden Global Packaging business, which defects
individually or in the aggregate would materially interfere with the current
use thereof in the normal operation of any single Plant or of such Plants or
Equipment in the Packaging Business taken as a whole as presently conducted;
(ii) the Finished Goods of the Seller relating to the Packaging Business
are, in all material respects, good and merchantable in the ordinary course
of business; and (iii) the Materials of the Seller relating to the Packaging
Business are, in all material respects, in good condition and usable in the
ordinary course of business.
(i) LEGAL PROCEEDINGS. Except as described on Section 3.1(i) of the
Seller Disclosure Schedule, there is no litigation, proceeding, tax audit or
governmental investigation or inquiry relating to Borden Global Packaging to
which the Seller or any of the Subsidiaries is a party, or to which any of
the Assets is subject, pending or, to the knowledge of the Seller,
threatened against it or any of the Subsidiaries or relating to the Assets
or the Packaging Business or the transactions contemplated by this Agreement
which, if determined or resolved adversely or in accordance with the
plaintiff's demands, would, individually or in the aggregate, result, or
would reasonably be expected to result, in any material adverse effect on
the results of operations, financial condition or business of Borden Global
Packaging taken as a whole. Neither the Seller nor any Subsidiary has
received any notice of any event or occurrence which could result, or could
reasonably be expected to result, in any such litigation, inquiry,
proceeding or investigation, nor to the knowledge of the Seller or any of
the Subsidiaries has there been any event or occurrence which could result,
or could reasonably be expected to result, in any such litigation, inquiry,
proceeding or investigation.
(j) LABOR CONTROVERSIES. Except as described on Section 3.1(j) of the
Seller Disclosure Schedule, (a) the Seller and the Subsidiaries with respect
to the Packaging Business are in compliance in all material respects with
all applicable laws respecting employment and employment practices, terms
and conditions of employment and wages and hours, and neither the Seller nor
any Subsidiary with respect to the Packaging Business has been engaged in
any unfair labor practice, (b) there is no unfair labor practice complaint
against the Seller or the Subsidiaries with respect to the Packaging
Business pending before the National Labor Relations Board, (c) there is no
labor strike, dispute, slowdown or stoppage actually pending or threatened
against or affecting the Seller or the Subsidiaries with respect to the
Packaging Business, (d) neither the Seller nor any Subsidiary with respect
to the Packaging Business has experienced any strike, work stoppage or other
labor difficulty, (e) neither the Seller nor any Subsidiary with respect to
the Packaging Business is a party to, or subject to, a collective bargaining
agreement, and no collective bargaining agreement relating to employees of
the Seller or any Subsidiary with respect to the Packaging Business is
currently being negotiated, which in the case of any of the foregoing would,
individually or in the aggregate, have or reasonably be expected to have a
material adverse effect on the results of operations, financial condition or
business of Borden Global Packaging taken as a whole.
(k) PATENTS, TRADEMARKS AND SIMILAR RIGHTS. Except as described on
Section 3.1(k) of the Seller Disclosure Schedule, the Seller or the
Subsidiaries own, or are licensed to use subject to Section 4.11, all
material patents, trade names, trademarks, copyrights, technology, know-how
and processes used
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in the business of Borden Global Packaging as presently conducted, and the
consummation of the transactions contemplated hereby will not alter or
impair any such rights in any material respect. Neither the Seller and the
Subsidiaries nor to the best of the Seller and the Subsidiaries' knowledge
any other person is in default under any license or other agreement relating
to such Intellectual Property, except for such default which would
individually or in the aggregate, not have or reasonably be expected to have
a material adverse effect on the results of operations, financial condition
or business of Borden Packaging taken as a whole, and all such material
licenses and agreements are valid, enforceable and in full force and effect.
To the best knowledge of the Seller and the Subsidiaries, the use of such
Intellectual Property does not violate or infringe the rights of any person
in any material respect and no person is infringing any Intellectual
Property of the Seller and its Subsidiaries in any material respect. The
Seller has received no notice of any such alleged infringement. The patents,
trade names, trademarks, copyrights, technology, know-how and processes (the
"INTELLECTUAL PROPERTY") described on Section 1.2(a) of the Seller
Disclosure Schedule and the Intellectual Property owned by the Transferred
Subsidiaries constitute, in all material respects, the Intellectual Property
used in or necessary to conduct the Borden Global Packaging business as
currently conducted. The Seller has made all filings required under the laws
of the jurisdictions listed on Section 1.2(a) of the Seller Disclosure
Schedule necessary to preserve its rights in such Intellectual Property.
(l) GOVERNMENT LICENSES, PERMITS AND RELATED APPROVALS. Except as
described on Section 3.1(l) of the Seller Disclosure Schedule, the Seller or
the Subsidiaries have all licenses, permits, consents, approvals,
authorizations, qualifications and orders of governmental authorities
required for the conduct of the business of Borden Global Packaging as
presently conducted, and such licenses, permits, consents, approvals,
authorizations, qualifications or orders are in full force and effect, and
the Seller has received no notices of any violation thereof except where the
failure to have, or to keep in full force and effect such licenses, permits,
consents, approvals, authorizations, qualifications and orders would not,
individually or in the aggregate, have or reasonably be expected to have a
material adverse effect on the results of operations, financial condition or
business of Borden Global Packaging taken as a whole.
(m) CONDUCT OF BUSINESS IN COMPLIANCE WITH REGULATORY AND CONTRACTUAL
REQUIREMENTS. Except as described on Section 3.1(m) of the Seller
Disclosure Schedule, the Seller has conducted the Packaging Business so as
to comply in all material respects with all applicable laws, ordinances,
regulations or orders or other requirements of any governmental, regulatory
or administrative agency or authority or court, rights of concession,
licenses, know-how or other proprietary rights of others and received no
notice of any failure to comply with such laws, ordinances, regulations,
orders or rights, except where the failure to comply with such laws,
ordinances, regulations, orders or rights would not, individually or in the
aggregate, have or reasonably be expected to have a material adverse effect
on the results of operations, financial condition or business of Borden
Global Packaging taken as a whole.
(n) EMPLOYEE BENEFIT PLANS. (i) For purposes of this Agreement,
"BUSINESS PLANS" shall mean all "employee benefit plans" (within the meaning
of Section 3(3) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), including, without limitation, "multiemployer plans"
(within the meaning of Sections 3(37) and 4001(a)(3) of ERISA)), retirement,
savings, stock purchase, stock option, severance, employment,
change-in-control, fringe benefit, collective bargaining, bonus, incentive,
deferred compensation and all other employee benefit plans, agreements,
programs, policies or other arrangements (A) under which any employee or
former employee of Borden Global Packaging (collectively, the "BUSINESS
EMPLOYEES") has any present or future right to benefits and (B) under which
the Seller has any present or future liability. For purposes of this
Agreement, "U.S. Business Plans" shall mean all Business Plans under which
any Business Employee who is or was primarily employed in the United States
(collectively, the "U.S. BUSINESS EMPLOYEES") has any present or future
right to benefits. Section 3.1(n)(i) of the Seller Disclosure Schedule sets
forth a list of each material Business Plan.
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(ii) With respect to each material Business Plan, the Seller has made
available to the Buyer a written description thereof.
(iii) Except as described on Section 3.1(n)(iii) of the Seller
Disclosure Schedule, each material Business Plan sponsored by the Seller or
its Subsidiaries has been established and administered in accordance with
its terms and in compliance with the applicable provisions of ERISA, the
Code and other applicable laws, rules and regulations, except where a
failure to do so would not, individually or in the aggregate, have or
reasonably be expected to have a material adverse effect on the results of
operations, financial condition or business of Borden Global Packaging taken
as a whole.
(iv) Except as reflected in the Financial Information or the Interim
Financial Information and except as set forth in Section 3.1(n)(iv) of the
Seller Disclosure Schedule, to the best of the Seller's and the
Subsidiaries' knowledge, there were no unfunded liabilities of the
Transferred Subsidiaries in respect of any of the Business Plans that are
required by law, rule or regulation to be funded.
(o) ENVIRONMENTAL MATTERS. Except as described on Section 3.1(o) of
the Seller Disclosure Schedule, to the best knowledge of the Seller: (i) the
Packaging Business complies in all respects with applicable federal, state,
local or foreign laws, rules and regulations relating to environmental
matters, pollution, waste disposal or industrial hygiene as in effect on the
date hereof (including, without limitation, the Federal Resource
Conservation and Recovery Act and the Federal Water Pollution Control Act)
(collectively, "ENVIRONMENTAL LAWS"), except where the failure to comply
with such laws, rules and regulations would not, individually or in the
aggregate, have or reasonably be expected to have a material adverse effect
on the results of operations, financial condition or business of Borden
Global Packaging taken as a whole; (ii) the Seller has obtained and is in
compliance with all permits required under Environmental Laws for the
conduct of the Packaging Business, except as would not reasonably be
expected to result, individually or in the aggregate, in a material adverse
effect on the results of operations, financial condition or business of
Borden Global Packaging taken as a whole; (iii) none of the Borden Global
Packaging operations is subject to any judicial or administrative proceeding
alleging the violation of or liability under any Environmental Laws which if
adversely determined would, individually or in the aggregate, have or
reasonably be expected to have a material adverse effect on the results of
operations, financial condition or business of Borden Global Packaging taken
as a whole; (iv) neither the Seller nor any other person has not released or
disposed of any material that is defined as hazardous or toxic under any
Environmental Law at any of the Plants, except as would not reasonably be
expected to result, individually or in the aggregate, in a material adverse
effect on the results of operations, financial condition or business of
Borden Global Packaging taken as a whole; (v) none of the Plants has been
listed on the National Priorities List or the Comprehensive Environment
Response Cleanup Liability Information System list prepared pursuant to the
federal Comprehensive Environmental Response, Compensation, and Liability
Act ("CERCLA"); (vi) in connection with Borden Global Packaging operations,
the Seller has not been identified in writing as a potentially responsible
party under CERCLA or any equivalent State statute and (vii) neither the
Seller nor any Subsidiary has received notification from any governmental
bodies or other third parties or is subject to any order or decree relating
to any potential liability under Environmental Laws or disposal of hazardous
or toxic material on or affecting any property owned or leased by the
Packaging Business. The Seller has made available to the Buyer true and
complete copies of any material reports, studies, analyses, tests, or
monitoring possessed or initiated by the Seller or the Subsidiaries
pertaining to hazardous or toxic materials in, on or under the Plants, or
concerning compliance by the Seller, the Subsidiaries or any other person
for whose conduct they are or may be responsible, with Environmental Laws.
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(p) TAX MATTERS. (i) There has been filed by or on behalf of the
Subsidiaries, or a filing extension from the appropriate federal, state,
local or foreign governments or governmental agencies has been obtained with
respect to, all returns relating to any United States federal, state,
provincial, local, territorial and foreign income, profits, franchise, gross
receipts, payroll, sales, employment, use, property, real estate, excise,
value added, estimated, stamp, alternative or add-on minimum, environmental,
withholding and any other taxes, duties or assessments, together with all
interest, penalties and additions imposed with respect to such amounts
required to be filed on or prior to the date of this Agreement (the "TAX
RETURNS"), and all taxes shown as due on such Tax Returns have been paid or
adequate provision in accordance with generally accepted accounting
principles for the payment of all taxes shown to be due on such Tax Returns
has been made. The Tax Returns are complete and accurate in all material
respects.
(ii) No audit or other proceeding by any court, governmental or
regulatory authority, or similar person is pending with respect to any taxes
due from or with respect to any Subsidiary, except to the extent that such
audit or proceeding would not have or reasonably be expected to have a
material adverse effect on the results of operations, financial condition or
business of Borden Global Packaging taken as a whole. No written assessment
of tax is proposed against any Subsidiary, except to the extent that such
audit or proceeding would not have or reasonably be expected to have a
material adverse effect on the results of operations, financial condition or
business of Borden Global Packaging taken as a whole or to the extent that
any such written assessment is being contested in good faith by appropriate
proceedings.
(q) CONTRACTS. Section 1.2(f) of the Seller Disclosure Schedule lists
all contracts, agreements or commitments of the Asset Sellers (other than
ordinary course purchase and sale orders for Inventory) that relate
principally to the Packaging Business that involve payment of more than
$250,000 in the aggregate and are expiring, are to be performed in or are
terminable in (in each case without significant continuing obligations) 120
days or longer ("MATERIAL CONTRACTS"). To the best knowledge of the Seller
after due inquiry, all contracts, agreements or commitments of Borden Global
Packaging were entered into on an arm's length basis and in good faith or
are disclosed on Section 3.1(q) of the Seller Disclosure Schedule. To the
best of the Seller's knowledge, except as specified on the Seller Disclosure
Schedule, all contracts, maintenance and service agreements, purchase
commitments for materials and other services, advertising and promotional
agreements, leases and other agreements pertaining to Borden Global
Packaging that are being transferred pursuant to the terms of Section 1.2(f)
are in full force and effect and are valid and enforceable in accordance
with their respective terms, except (i) as enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or similar
laws relating to or affecting the enforcement of creditors' rights
generally, by general equitable principles (regardless of whether
enforceability is considered in a proceeding in equity or at law) or by an
implied covenant of good faith and fair dealing or (ii) where the failure to
be in full force and effect and valid and enforceable would not,
individually or in the aggregate, have or reasonably be expected to have a
material adverse effect on the results of operations, financial condition or
business of Borden Global Packaging taken as a whole. Except as specified on
the Seller Disclosure Schedule, the Seller and its Subsidiaries are not in
breach or default in the performance of, and to the best of the Seller's
knowledge, no other person is in breach or default of, any obligation
thereunder and no event has occurred or has failed to occur whereby any of
the other parties thereto have been or will be released therefrom or will be
entitled to refuse to perform thereunder, except for such breaches, defaults
and events which, individually or in the aggregate, would not have or
reasonably be expected to have a material adverse effect on the results of
operations, financial condition or business of Borden Global Packaging taken
as a whole.
Except as set forth on Section 3.1(q) of the Seller Disclosure Schedule,
there is no material lease, agreement or commitment or transactions between
the Seller and the Subsidiaries, on the one hand, and any affiliate of the
Seller, on the other hand, and no affiliate of the Seller has any material
interest
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in any property, real or personal, tangible or intangible, including,
without limitation, any Intellectual Property, used in or pertaining to the
Packaging Business.
(r) INSURANCE. Section 3.1(r) of the Seller Disclosure Schedule
contains an accurate and complete description of all material policies of
liability insurance covering the Seller or the Subsidiaries that relate to
the Packaging Business. All such policies are in full force and effect, all
premiums with respect thereto (or with respect to new policies that, in the
ordinary course of business, have replaced such policies listed on Section
3.1(r) of the Seller Disclosure Schedule) covering all periods up to and
including the Closing Date have been paid, to the extent due prior to the
Closing Date, or accrued on the Seller's financial statements and books and
records and no notice of cancellation or termination has been received with
respect to any such policy (other than any policy that expires, is cancelled
or is terminated in accordance with its terms and has been continued,
extended or reinstated on substantially similar terms or is replaced with
another policy with substantially similar terms). Such policies are
sufficient for compliance with all requirements of law and all agreements to
which the Seller is a party and are valid, outstanding and enforceable
policies. No insurance has been refused with respect to any of the
operations, properties or assets of the Seller, nor has the Seller received
notice that the coverage of any insurance has been limited by any insurance
carrier which has carried, or received any application for, any such
insurance during the last three years.
(s) RETURNS. Since December 31, 1995, the dollar amount of products
returned to the Seller and its Subsidiaries with respect to the Packaging
Business has not been materially greater than the dollar amount of returns
experienced by the Seller and its Subsidiaries during equivalent periods in
previous years.
(t) CERTAIN FEES. With the exception of fees and expenses payable to
Morgan Stanley & Co. Incorporated ("MORGAN STANLEY"), which shall be paid by
the Seller, neither the Seller nor any of the Subsidiaries nor any of their
respective officers, directors or employees, on behalf of the Seller or such
Subsidiaries, has employed any broker or finder or incurred any other
liability for any brokerage fees, commissions or finders' fees in connection
with the transactions contemplated hereby.
(u) BUYER COMMON STOCK HELD FOR INVESTMENT. The Seller is aware that
no shares of the Buyer Common Stock to be received by the Seller in partial
consideration for the Stock and Asset Purchase are registered under the
Securities Act or under any state securities laws. The Seller is not an
underwriter, as such term is defined under the Securities Act, and is
acquiring such shares solely for investment, with no present intention to
distribute any such shares to any person, and the Seller will not sell or
otherwise dispose of shares except in compliance with the registration
requirements or exemption provisions under the Securities Act and the rules
and regulations promulgated thereunder, or any other applicable securities
laws.
(v) INFORMATION SUPPLIED. None of the information supplied or to be
supplied by the Seller to the Buyer in writing specifically for inclusion in
the Proxy Statement (as defined in Section 3.2(q)) will to the extent
included in the Proxy Statement, at the date the Proxy Statement is first
mailed to the Buyer's stockholders or at the time of the Stockholders'
Meeting, contains any untrue statement of a material fact or omits to state
any material fact required to be stated therein or necessary in order to
make the statements therein, in the light of the circumstances under which
they are made, not misleading.
(w) NO OTHER REPRESENTATIONS OR WARRANTIES. Except for the
representations and warranties contained in this Section 3.1, neither the
Seller nor any other person makes any other express or implied
representation or warranty on behalf of the Seller or the Subsidiaries.
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3.2. REPRESENTATIONS AND WARRANTIES OF THE BUYER. The Buyer represents and
warrants to the Seller as follows:
(a) DUE ORGANIZATION; GOOD STANDING AND POWER. The Buyer is a
corporation duly organized, validly existing and in good standing under the
laws of its jurisdiction of incorporation and has the requisite corporate
power and authority and any necessary governmental approvals to own, lease
and operate its properties and to carry on its business as it is now being
conducted, except where the failure to have such power, authority and
governmental approvals would not, individually or in the aggregate, have or
reasonably be expected to have a material adverse effect on the results of
operations, financial condition or business of the Buyer. The Buyer is duly
qualified or licensed as a foreign corporation to do business, and is in
good standing, in each jurisdiction where the character of its properties
owned, leased or operated by it or the nature of its activities makes such
qualification or licensing necessary, except for such failures to be so duly
qualified or licensed or in good standing which would not, individually or
in the aggregate, have or reasonably be expected to have a material adverse
effect on the results of operations, financial condition or business of the
Buyer.
(b) AUTHORIZATION AND VALIDITY OF AGREEMENT. The Buyer has all
necessary corporate power and authority to execute and deliver this
Agreement and the Governance Agreement, to perform its obligations hereunder
and thereunder and to consummate the transactions contemplated hereby and
thereby. The execution, delivery and performance by the Buyer of this
Agreement and the Governance Agreement and the other agreements contemplated
hereby and the consummation by the Buyer of the transactions contemplated
hereby and thereby have been duly and validly authorized by all necessary
corporate action and no other corporate proceedings on the part of the Buyer
are necessary to authorize this Agreement and the Governance Agreement or to
consummate the transactions so contemplated (other than the approval of the
issuance of the Buyer Common Stock in connection with the Stock and Asset
Purchase by the affirmative vote of the holders of a majority of the shares
of the Buyer Common Stock present in person or represented by proxy, and
entitled to vote thereon at the meeting of holders of the Buyer Common Stock
to be called therefor (provided that the shares so present or represented
constitute a majority of the outstanding shares of the Buyer Common Stock)
(the "BUYER STOCKHOLDER APPROVAL")). No other corporate or stockholder
action is necessary for the authorization, execution, delivery and
performance by the Buyer of this Agreement and the other agreements
contemplated hereby and the consummation by the Buyer of the transactions
contemplated hereby or thereby. This Agreement has been duly executed and
delivered by the Buyer and constitutes a valid and legally binding
obligation of the Buyer, enforceable against the Buyer in accordance with
its terms, except as enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium and other similar laws relating to or
affecting creditors' rights generally, by general equitable principles
(regardless of whether such enforceability is considered in a proceeding in
equity or at law) or by an implied covenant of good faith and fair dealing.
The Board of Directors of the Buyer (at a meeting duly called and held) has
(i) determined that the Stock and Asset Purchase and the Governance
Agreement are fair to and in the best interests of the Buyer and its
stockholders, (ii) approved this Agreement and the Governance Agreement and
the transactions contemplated hereby and thereby (including but not limited
to the Stock and Asset Purchase and the issuance of the Buyer Common Stock
in connection therewith), (iii) resolved to recommend approval of the
issuance of the Buyer Common Stock in connection with the Stock and Asset
Purchase by the Buyer's stockholders, and (iv) directed that approval of the
issuance of the Buyer Common Stock to the Seller in connection with the
Stock and Asset Purchase be submitted to the Buyer's stockholders. The Buyer
hereby agrees to the inclusion in the Proxy Statement (as defined in Section
3.2(q)) of the recommendations of the Board of Directors of the Buyer
described in this Section 3.2(b).
(c) NO GOVERNMENTAL APPROVALS OR NOTICES REQUIRED; NO CONFLICT WITH
INSTRUMENTS TO WHICH THE BUYER IS A PARTY. Except as described on Section
3.2(c) of the disclosure schedule delivered by Buyer to Seller on the date
hereof (the "BUYER DISCLOSURE SCHEDULE" and, together with the Seller
Disclosure
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Schedule, the "DISCLOSURE SCHEDULES"), the execution, delivery and
performance of this Agreement, the Governance Agreement and the other
agreements contemplated hereby by the Buyer and the consummation by the
Buyer of the transactions contemplated hereby and thereby (i) will not
violate (with or without the giving of notice or the lapse of time or both)
or require any consent, approval, filing or notice under, any provision of
any law, rule or regulation, court order, judgment or decree applicable to
the Buyer, except for (x) the applicable requirements of the HSR Act and the
Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"), and the
rules and regulations promulgated thereunder and (y) such violations the
occurrence of which, and such consents, approvals, filings or notices the
failure of which to obtain or make, would not, individually or in the
aggregate, have or reasonably be expected to have a material adverse effect
on the results of operations, financial condition or business of the Buyer,
and (ii) will not conflict with, or result in the breach or termination of
any provision of, or constitute a default under, or result in the
acceleration of the performance of the obligations of the Buyer under, or
require the consent or approval of any person under, or result in the
creation of a lien, charge or encumbrance upon a portion of the properties,
assets or business of the Buyer pursuant to, the charter or by-laws of the
Buyer or any indenture, mortgage, deed of trust, lease, licensing agreement,
contract, instrument or other agreement to which the Buyer is a party or by
which the Buyer or any of its assets or properties is bound, except for such
conflicts, breaches, terminations, defaults, accelerations or liens which
would not, individually or in the aggregate, have or reasonably be expected
to have a material adverse effect on the results of operations, financial
condition or business of the Buyer.
(d) TITLE TO PROPERTIES. Except as set forth on Section 3.2(d) of the
Buyer Disclosure Schedule, the Buyer has good, valid and marketable title to
property owned and a valid leasehold interest in property leased, all of its
material properties and assets (real, personal and mixed, tangible and
intangible), including, without limitation, all the properties and assets
reflected in the balance sheet of the Buyer as at April 30, 1996 included in
the Buyer's Quarterly Report on Form 10-Q for the period ended on such date
(except for properties and assets disposed of in the ordinary course of
business and consistent with past practices since April 30, 1996). None of
such properties or assets are subject to any liens, charges and other
encumbrances, except (i) as set forth on Section 3.2(d) of the Buyer
Disclosure Schedule; (ii) as specifically disclosed in the Buyer SEC Reports
(as defined in Section 3.2(e)); (iii) liens for taxes, assessments and other
governmental charges not yet due and payable or, if due, (A) not delinquent
or (B) being contested in good faith by appropriate proceedings during which
collection or enforcement against the property is stayed; (iv) mechanics',
workmen's, repairmen's, warehousemen's, carriers' or other like liens
arising or incurred in the ordinary course of business if the underlying
obligations are not past due, original purchase price conditional sales
contracts and equipment leases with third parties entered into in the
ordinary course of business; (v) with respect to real property, (A)
easements, licenses, covenants, rights-of-way and other similar
restrictions, including, without limitation, any other agreements,
conditions or restrictions which would be shown by a current title report or
other similar report or listing, (B) any conditions that may be shown by a
current survey, title report or physical inspection and (C) zoning, building
and other similar restrictions, so long as none of (A), (B) or (C) render
the title of such real property unmarketable or prevent the use of such real
property substantially as currently used; and (vi) liens, charges or other
encumbrances which, individually or in the aggregate, would not have or
reasonably be expected to have a material adverse effect on the results of
operations, financial condition or business of the Buyer. The buildings,
plants, structures and equipment of the Buyer are in good operating
condition and repair, ordinary wear and tear excepted, and are adequate for
the present and contemplated uses to which they are being, or are
contemplated to be, put except for such conditions or inadequacy that,
individually or in the aggregate, would not have or reasonably be expected
to have a material adverse effect on the results of operations financial
condition or business of the Buyer.
(e) SEC FILINGS; ABSENCE OF CERTAIN CHANGES. (i) The Buyer and, to the
extent applicable, each of its then subsidiaries, has filed all forms,
reports, statements and documents required to be filed with
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the Securities and Exchange Commission (the "SEC") since October 31, 1992
(collectively, the "BUYER SEC REPORTS"), each of which has complied in all
material respects with the applicable requirements of the Securities Act of
1933, as amended (the "SECURITIES ACT"), and the rules and regulations
promulgated thereunder, or the Exchange Act and the rules and regulations
promulgated thereunder, each as in effect on the date so filed. The Buyer
has heretofore delivered or (in the case of any such document not yet filed
with the SEC) promptly will deliver to the Seller, in the form filed with
the SEC (including any amendments thereto), true and complete copies of the
Buyer SEC Reports. None of such Buyer SEC Reports (including but not limited
to any financial statements or schedules included or incorporated by
reference therein) contained, when filed, any untrue statement of a material
fact or omitted to state a material fact required to be stated or
incorporated by reference therein or necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, which misstatement or omission continues to expose the
Buyer to liability under the United States federal securities laws or the
securities laws of any state of the United States. Except to the extent
revised or superseded by a subsequent filing with the SEC (a copy of which
has been provided to the Seller prior to the date hereof), none of the Buyer
SEC Reports filed by the Buyer since October 31, 1992 and prior to the date
hereof, contains any untrue statement of a material fact or omits to state a
material fact required to be stated or incorporated by reference therein or
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(ii) Each of the audited and unaudited financial statements of the Buyer
(including any related notes thereto) included in the Buyer SEC Reports,
complies or, if not yet filed, will comply as to form in all material
respects with all applicable accounting requirements and with the published
rules and regulations of the SEC with respect thereto; has been or, if not
yet filed, will have been prepared in accordance with generally accepted
accounting principles (except, in the case of unaudited quarterly
statements, as permitted by Form 10-Q of the SEC) applied on a consistent
basis throughout the periods involved (except as may be indicated in the
notes thereto) and fairly presents or, if not yet filed, will fairly present
the financial position of the Buyer at the respective date thereof and the
results of its and their operations and changes in cash flows for the
periods indicated (subject, in the case of unaudited quarterly statements,
to normal year-end audit adjustments).
(iii) Except as and to the extent set forth on the balance sheet of the
Buyer at October 31, 1995, including the notes thereto, included in the
Buyer's Annual Report on Form 10-K for the fiscal year ended October 31,
1996, or on the balance sheet of the Buyer at April 30, 1996, including the
notes thereto, included in the Buyer's Quarterly Report on Form 10-Q for the
fiscal quarter ended April 30, 1996, the Buyer has no liabilities or
obligations of any nature (whether accrued, absolute, contingent or
otherwise) which would be required to be reflected on a balance sheet or in
the notes thereto prepared in accordance with generally accepted accounting
principles, except for liabilities or obligations incurred in the ordinary
course of business since October 31, 1995, which would not, individually or
in the aggregate, have or reasonably be expected to have a material adverse
effect on the results of operations, financial condition or business of the
Buyer.
(iv) The Buyer has heretofore furnished to the Seller a complete and
correct copy of any amendments or modifications which have not yet been
filed with the SEC to agreements, documents or other instruments which
previously had been filed by the Buyer with the SEC pursuant to the
Securities Act and the rules and regulations promulgated thereunder or the
Exchange Act and the rules and regulations promulgated thereunder.
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(f) CONDUCT OF BUSINESS. Except as reflected in Section 3.2(f) of the
Buyer Disclosure Schedule or otherwise contemplated by or disclosed in this
Agreement, the Buyer Disclosure Schedule or the Exhibits hereto or otherwise
disclosed in the Buyer SEC Reports filed and publicly available prior to the
date of this Agreement, since October 31, 1995, the Buyer has conducted its
business in the ordinary course consistent with past practice, and other
than in the ordinary course, there has not occurred or arisen, with respect
to its business: (i) any material adverse changes in or any condition, event
or occurrence which, individually or in the aggregate, would cause, or would
reasonably be expected to cause, a material adverse change in the results of
operations, financial condition or business of the Buyer; (ii) any notice of
non-renewal, cancellation or termination from any existing customers with
respect to any material contracts of the business of the Buyer; (iii) any
sale, assignment, pledge, hypothecation or other transfer of any assets,
businesses or operations, other than such sales, assignments, pledges,
hypothecations or other transfers which would not, individually or in the
aggregate have or reasonably be expected to have a material adverse effect
on the results of operations, financial condition or business of the Buyer,
(iv) any termination or material amendment of, or any notice of termination
of, any contract or other agreement that is material to the business of the
Buyer, (v) any damage, destruction or other casualty loss (not covered by
insurance) which would have or reasonably be expected to have a material
adverse effect on the results of operations, financial condition or business
of the Buyer, (vi) except for salary administration, bonuses and incentive
compensation in the ordinary course of business, any increase in the
compensation payable or to become payable by the Buyer to any employees or
any increase in any employee benefit plan, payment or arrangement for any
such employee, (vii) any incurrence or assumption of any indebtedness for
borrowed money or the guaranty by the Buyer of any indebtedness or other
obligation of another person; (viii) the cancellation of any debts to or
waiver of any claims or rights of value to the Buyer; (ix) any capital
expenditures or additions to property, plant or equipment or the acquisition
of any other property or assets (other than raw materials, supplies and
inventory) at a cost in excess of $1,000,000 in the aggregate, by the Buyer;
(x) any lease to the Buyer of any of its properties or assets; (xi) the
entering into of any Buyer Material Contract (as defined in Section 3.2(p))
or (xii) the entering into of an agreement to do any of the foregoing.
(g) CAPITALIZATION; SUBSIDIARIES. (i) The authorized capital stock of
the Buyer consists of 21,000,000 shares, consisting of (a) 1,000,000 shares
of a class designated as preferred stock, par value $1.00 per share
("PREFERRED STOCK") and (b) 20,000,000 shares of the Buyer Common Stock. As
of the date hereof, (i) 4,667,901 shares of the Buyer Common Stock were
issued and outstanding, all of which shares were duly authorized, validly
issued, fully paid and nonassessable and were issued free of preemptive (or
similar) rights, (ii) 2,801,000 shares of the Buyer Common Stock were held
in the treasury of the Buyer, (iii) an aggregate of 411,000 shares of the
Buyer Common Stock were reserved for issuance and issuable upon or otherwise
deliverable in connection with the exercise of authorized but unissued stock
options of the Buyer (the "BUYER STOCK OPTIONS") issued pursuant to any
stock option, performance unit or similar plan of the Buyer (the "BUYER
STOCK PLANS"), (iv) 582,875 shares of the Buyer Common Stock issuable upon
exercise of outstanding the Buyer Stock Options (with an average exercise
price of $17.56), (v) up to 300,000 shares of the Buyer Common Stock were
reserved for issuance pursuant to the 1995 Employee Stock Purchase Plan of
Buyer and (vi) an indeterminate number of shares of Buyer Common Stock were
reserved for issuance pursuant to the 401(K) Savings and Employee Stock
Ownership Plan of the Buyer. All of the shares of the Buyer Common Stock
which may be issued pursuant to the Buyer Stock Plans will be, when issued,
duly authorized, validly issued, fully paid and nonassessable and not
subject to preemptive (or similar) rights. Except (i) as set forth above or
(ii) as a result of the exercise of stock options pursuant to the Buyer
Stock Plans outstanding as of the date hereof, there are outstanding (a) no
shares of capital stock or other voting securities of the Buyer, (b) no
securities of the Buyer convertible into or exchangeable for shares of
capital stock or voting securities of the Buyer, (c) no options, warrants or
other rights to acquire from the Buyer, and no obligation of the Buyer to
issue, any capital stock, voting securities or securities
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convertible into or exchangeable for capital stock or voting securities of
the Buyer and (d) no equity equivalents, interests in the ownership or
earnings of the Buyer or other similar rights (collectively, the "BUYER
SECURITIES"). Except as set forth in Section 3.2(g) of the Buyer Disclosure
Schedule, (i) there are no outstanding obligations of the Buyer to
repurchase, redeem or otherwise acquire any the Buyer Securities and (ii)
there is no voting trust or other agreement or understanding to which the
Buyer is a party or is bound with respect to the voting of the capital stock
of the Buyer. There are no other options, calls, warrants or other rights,
agreements, arrangements or commitments of any character relating to the
issued or unissued capital stock of the Buyer to which the Buyer is a party.
As of the date hereof, the Fixed Shares represent approximately 34.08% of
the issued and outstanding shares of the Buyer Common Stock (after giving
effect to the issuance of the Fixed Shares) and approximately 31.5% of the
fully diluted shares of the Buyer Common Stock (after giving effect to the
issuance of the Fixed Shares).
(ii) The Buyer has no subsidiaries and does not own, directly or
indirectly, any capital stock or other equity interests in any entity in
excess of 5% of the outstanding capital stock or equity interests of such
entity.
(h) LEGAL PROCEEDINGS. Except as described on Section 3.2(h) of the
Buyer Disclosure Schedule or as disclosed on the Buyer SEC Reports filed and
publicly available prior to the date of this Agreement, there is no
litigation, proceeding, tax audit or governmental investigation or inquiry
to which the Buyer is a party, or to which any of its assets is subject,
pending or, to the knowledge of the Buyer, threatened against or affecting
it or relating to the transactions contemplated by this Agreement which, if
determined or resolved adversely or in accordance with the plaintiff's
demands, would, individually or in the aggregate, result, or would
reasonably be expected to result, in any material adverse effect on the
results of operations, financial condition or business of the Buyer. The
Buyer has not received any notice of any event or occurrence which could
result, or could reasonably be expected to result, in any such litigation,
inquiry, proceeding or investigation, nor to the knowledge of the Buyer has
there been any event or occurrence which could result, or could reasonably
be expected to result, in any such litigation, inquiry, proceeding or
investigation.
(i) LABOR CONTROVERSIES. Except as described on Section 3.2(i) of the
Buyer Disclosure Schedule, (a) the Buyer is in compliance in all material
respects with all applicable laws respecting employment and employment
practices, terms and conditions of employment and wages and hours, and the
Buyer has not been engaged in any unfair labor practice, (b) there is no
unfair labor practice complaint against the Buyer pending before the
National Labor Relations Board, (c) there is no labor strike, dispute,
slowdown or stoppage actually pending or threatened against or affecting the
Buyer, (d) the Buyer has not experienced any strike, work stoppage or other
labor difficulty, (e) the Buyer is not a party to, or subject to, a
collective bargaining agreement, and no collective bargaining agreement
relating to employees of the Buyer is currently being negotiated, which in
the case of any of the foregoing would, individually or in the aggregate,
have or reasonably be expected to have a material adverse effect on the
results of operations, financial condition or business of the Buyer.
(j) PATENTS, TRADEMARKS AND SIMILAR RIGHTS. Except as described on
Section 3.2(j) of the Buyer Disclosure Schedule, the Buyer owns, or is
licensed to use, all material patents, trade names, trademarks, copyrights,
technology, know-how and processes used in the business of the Buyer as
presently conducted, and the consummation of the transactions contemplated
hereby will not alter or impair any such rights in any material respect.
Neither the Buyer nor, to the best of the Buyer's knowledge, any other
person is in default under any license or other agreement relating to such
Intellectual Property, except for such default which would individually or
in the aggregate, not have or reasonably be expected to have a material
adverse effect on the results of operations, financial condition or business
of the Buyer, and all such material licenses and agreements are valid,
enforceable and in full force and effect. To the best knowledge of the
Buyer, the use of such Intellectual
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Property does not violate or infringe the rights of any person in any
material respect and no person is infringing any Intellectual Property of
the Buyer in any material respect. The Buyer has received no notice of any
such alleged infringement. The patents, trade names, trademarks, copyrights,
technology, know-how and processes owned by the Buyer constitute, in all
material respects, the intellectual property used in or necessary to conduct
the business of the Buyer as currently conducted. The Buyer has made all
filings required necessary to preserve its rights in such intellectual
property.
(k) GOVERNMENT LICENSES, PERMITS AND RELATED APPROVALS. Except as
described on Section 3.2(k) of the Buyer Disclosure Schedule, the Buyer has
all licenses, permits, consents, approvals, authorizations, qualifications
and orders of governmental authorities required for the conduct of the
business of the Buyer as presently conducted, and such licenses, permits,
consents, approvals, authorizations, qualifications or orders are in full
force and effect, and the Buyer has received no notices of any violation
thereof except where the failure to have, or to keep in full force and
effect, such licenses, permits, consents, approvals, authorizations,
qualifications and orders in full force and effect would not, individually
or in the aggregate, have or reasonably be expected to have a material
adverse effect on the results of operations, financial condition or business
of the Buyer.
(l) CONDUCT OF BUSINESS IN COMPLIANCE WITH REGULATORY AND CONTRACTUAL
REQUIREMENTS. Except as described on Section 3.2(l) of the Buyer Disclosure
Schedule, the Buyer has conducted its business so as to comply in all
material respects with all applicable laws, ordinances, regulations or
orders or other requirements of any governmental, regulatory or
administrative agency or authority or court, rights of concession, licenses,
know-how or other proprietary rights of others and received no notice of any
failure to comply with such laws, ordinances, regulations, orders or rights,
except where the failure to comply with such laws, ordinances, regulations,
orders or rights would not, individually or in the aggregate, have or
reasonably be expected to have a material adverse effect on the results of
operations, financial condition or business of the Buyer.
(m) EMPLOYEE BENEFIT PLANS. (i) For purposes of this Agreement, "BUYER
BUSINESS PLANS" shall mean all "employee benefit plans" (within the meaning
of Section 3(3) of ERISA, including, without limitation, "multiemployer
plans" (within the meaning of Sections 3(37) and 4001(a)(3) of ERISA)),
retirement, savings, stock purchase, stock option, severance, employment,
change-in-control, fringe benefit, collective bargaining, bonus, incentive,
deferred compensation and all other employee benefit plans, agreements,
programs, policies or other arrangements (A) under which any employee or
former employee of the Buyer (collectively, the "BUYER BUSINESS EMPLOYEES")
has any present or future right to benefits and (B) under which the Buyer
has any present or future liability. Section 3.2(m)(i) of the Buyer
Disclosure Schedule is a list of each material Buyer Business Plan.
(ii) With respect to each material Buyer Business Plan, the Buyer has
made available to the Seller a written description thereof.
(iii) Except as described on Section 3.2(m)(iii) of the Buyer Disclosure
Schedule, each material Buyer Business Plan sponsored by the Buyer has been
established and administered in accordance with its terms and in compliance
with the applicable provisions of ERISA, the Code and other applicable laws,
rules and regulations, except where a failure to do so would not,
individually or in the aggregate, have or reasonably be expected to have a
material adverse effect on the results of operations, financial condition or
business of the Buyer.
(iv) The Buyer has performed all of its obligations under the Buyer
Business Plans and, except as reflected in the Buyer SEC Reports, there were
no unfunded liabilities of any of the Buyer Business Plans.
(n) ENVIRONMENTAL MATTERS. Except as described on Section 3.2(n) of
the Buyer Disclosure Schedule, to the best knowledge of the Buyer: (i) the
Buyer is in compliance in all respects with
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applicable Environmental Laws, except where the failure to comply with such
laws, rules and regulations would not, individually or in the aggregate,
have or reasonably be expected to have a material adverse effect on the
results of operations, financial condition or business of the Buyer; (ii)
the Buyer has obtained and is in compliance with all permits required under
Environmental Laws for the conduct of their respective businesses, except as
would not reasonably be expected to result, individually or in the
aggregate, in a material adverse effect on the results of operations,
financial condition or business of the Buyer; (iii) none of the operations
of the Buyer is subject to any judicial or administrative proceeding
alleging the violation of or liability under any Environmental Laws which if
adversely determined would, individually or in the aggregate, have or
reasonably be expected to have a material adverse effect on the results of
operations, financial condition or business of the Buyer; (iv) neither the
Buyer nor any other person has released or disposed of any material that is
defined as hazardous or toxic under any Environmental Law at any of their
respective real property and leasehold interests in real property, including
all buildings, structures and other improvements situated thereon
(collectively, the "BUYER PLANTS"), except as would not reasonably be
expected to result, individually or in the aggregate, in a material adverse
effect on the results of operations, financial condition or business of the
Buyer; (v) none of the Buyer Plants has been listed on the National
Priorities List or the Comprehensive Environment Response Cleanup Liability
Information System list prepared pursuant to CERCLA; (vi) the Buyer has not
been identified in writing as a potentially responsible party under CERCLA
or any equivalent State statute; and (vii) the Buyer has not received
notification from any governmental bodies or other third parties or is
subject to any order or decree relating to any potential liability under
Environmental Laws or disposal of hazardous or toxic material on or
affecting any property owned or leased by the Buyer. The Buyer has delivered
to the Seller true and complete copies and results of any reports, studies,
analyses, tests, or monitoring possessed or initiated by the Buyer
pertaining to hazardous or toxic materials in, on or under the plants of the
Buyer, or concerning compliance by the Buyer or any other person for whose
conduct they are or may be held responsible, with Environmental Laws.
(o) TAX MATTERS. (i) The Buyer has filed, or a filing extension from
the appropriate federal, state, local or foreign governments or governmental
agencies has been obtained with respect to, all returns relating to any
United States federal, state, provincial, local, territorial and foreign
income, profits, franchise, gross receipts, payroll, sales, employment, use,
property, real estate, excise, value added, estimated, stamp, alternative or
add-on minimum, environmental, withholding and any other taxes, duties or
assessments, together with all interest, penalties and additions imposed
with respect to such amounts required to be filed on or prior to the date of
this Agreement (the "BUYER TAX RETURNS"), and all taxes shown as due on such
the Buyer Tax Returns have been paid or adequate provision in accordance
with generally accepted accounting principles for the payment of all taxes
shown to be due on such the Buyer Tax Returns has been made. The Buyer Tax
Returns are complete and accurate in all material respects.
(ii) No audit or other proceeding by any court, governmental or
regulatory authority, or similar person is pending with respect to any taxes
due from or with respect to the Buyer, except to the extent that such audit
or proceeding would not have or reasonably be expected to have a material
adverse effect on the results of operations, financial condition or business
of the Buyer. No written assessment of tax is proposed against the Buyer,
except to the extent that such audit or proceeding would not have or
reasonably be expected to have a material adverse effect on the results of
operations, financial condition or business of the Buyer or to the extent
that any such written assessment is being contested in good faith by
appropriate proceedings.
(p) CONTRACTS. The Buyer is not, and has not received any notice or
has any knowledge that any other party is, in default in any respect under
any material contract, agreement, commitment, arrangement, lease, policy or
other instrument to which it is a party or by which it is bound that
involves payment of more than $250,000 in the aggregate and is expiring, is
to be performed in or is
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terminable in (in each case without significant continuing obligations) 120
days or longer (collectively, "BUYER MATERIAL CONTRACTS"), except for those
defaults which would not, either individually or in the aggregate, have or
reasonably be expected to have a material adverse effect on the results of
operations, financial condition or business of the Buyer; and there has not
occurred any event that with the lapse of time or the giving of notice or
both would constitute such a material default. Except as set forth on
Section 3.2(p) of the Buyer Disclosure Schedule, the transactions
contemplated by this Agreement, the Governance Agreement and the
Stockholders' Agreement will not constitute a change of control under or
require the consent from or the giving of notice to a third party pursuant
to the terms, conditions or provisions of any Buyer Material Contract.
To the best of the Buyer's knowledge, except as specified on the Buyer
Disclosure Schedule, all contracts, maintenance and service agreements,
purchase commitments for materials and other services, advertising and
promotional agreements, leases and other agreements to which the Buyer is a
party are in full force and effect and are valid and enforceable in
accordance with their respective terms, except (i) as enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws relating to or affecting the enforcement of creditors' rights
generally, by general equitable principles (regardless of whether
enforceability is considered in a proceeding in equity or at law) or by an
implied covenant of good faith and fair dealing or (ii) where the failure to
be in full force and effect and valid and enforceable would not,
individually or in the aggregate, have or reasonably be expected to have a
material adverse effect on the results of operations, financial condition or
business of the Buyer.
(q) PROXY STATEMENT. None of the information to be supplied by or
through the Buyer for inclusion or incorporation by reference in (i) the
proxy statement on Schedule 14A, including any amendments or supplements
thereto (the "PROXY STATEMENT"), to be delivered to the Buyer's stockholders
in connection with the Buyer Stockholder Approval, or (ii) any other filings
required to be made by the Buyer under the Exchange Act, the Securities Act
or any other state or federal securities laws in connection with the Stock
and Asset Purchase or the transactions contemplated by this Agreement
("OTHER FILINGS") will, at the respective times that the Proxy Statement or
any Other Filings and any amendments or supplements thereto are filed with
the SEC, at the time any amendment or supplement thereto is mailed to the
Buyer's stockholders, and at the time of the stockholders' meeting of the
Buyer to approve the issuance of the Buyer Common Stock in connection with
the Stock and Asset Purchase (the "STOCKHOLDERS' MEETING"), contain any
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
made therein, in the light of the circumstances under which they are made,
not misleading. The Proxy Statement will comply as to form in all material
respects with the requirements of the Exchange Act and the rules and
regulations thereunder.
(r) AFFILIATE TRANSACTIONS. Except as set forth in Section 3.2(r) of
the Buyer Disclosure Schedule or as disclosed in the Buyer SEC Reports,
there are no material contracts, commitments, agreements, arrangements or
other transactions between the Buyer, on the one hand, and any (i) officer
or director of the Buyer, (ii) record or beneficial owner of five percent or
more of the voting securities of the Buyer or (iii) affiliate (as such term
is defined in Regulation 12b-2 promulgated under the Exchange Act) of any
such officer, director or beneficial owner, on the other hand.
(s) VOTE REQUIRED. The affirmative vote of the holders of a majority
of the shares of the Buyer Common Stock present in person or represented by
proxy at the Stockholders' Meeting (provided that the shares so present or
represented constitute a majority of the outstanding shares of the Buyer
Common Stock), is the only vote of the holders of any class or series of the
Buyer's capital stock necessary to approve the Stock and Asset Purchase and
the issuance of shares of the Buyer Common Stock pursuant thereto and the
transactions contemplated thereby. The shares of the Buyer Common Stock
subject to the Stockholders Agreement constitute 49.2% of the number of
outstanding shares of
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the Buyer Common Stock and 43.8% of the fully diluted number of shares of
the Buyer Common Stock.
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(t) DGCL SECTION 203 AND ARTICLE ELEVENTH OF THE CERTIFICATE OF
INCORPORATION. Prior to the date hereof, the Board of Directors of the
Buyer has approved this Agreement, the Governance Agreement and the
Stockholders Agreement and the Stock and Asset Purchase and the issuance of
shares of the Buyer Common Stock pursuant thereto and the transactions
contemplated thereby and the other transactions contemplated hereby and
thereby, and such approval is sufficient to render inapplicable to the Stock
and Asset Purchase and any of such other transactions, including, as a
result thereof, the acquisition by the Seller of more than 20% of the
outstanding shares of the Buyer Common Stock, the provisions of Section 203
of the Delaware General Corporation Law and the provisions of Article
Eleventh of the Amended Certificate of Incorporation of the Buyer. Prior to
the date hereof, the Board of Directors of the Buyer and the Stock Option
Committee of the Board of Directors of the Buyer (the "BUYER STOCK OPTION
COMMITTEE") has taken such actions so that (i) the transactions contemplated
by this Agreement do not and shall not constitute a "change in control"
within the meaning of the AEP Industries Inc. 1995 Stock Option Plan (the
"BUYER STOCK OPTION PLAN") and (ii) the transactions contemplated by this
Agreement do not and shall not result in any payment (i.e., change in
control or otherwise) to any Buyer Business Employee under any Buyer
Business Plan.
(u) CERTAIN FEES. With the exception of fees and expenses payable to
J.P. Morgan & Co., which shall be paid by the Buyer, neither the Buyer nor
any of its officers, directors or employees, on behalf of the Buyer, has
employed any broker or finder or incurred any other liability for any
brokerage fees, commissions or finders' fees in connection with the
transactions contemplated hereby.
(v) PURCHASE FOR INVESTMENT. The Buyer is aware that no shares of
Subsidiary Stock are registered under the Securities Act or under any state
securities laws. The Buyer is not an underwriter, as such term is defined
under the Securities Act, and is purchasing such shares solely for
investment, with no present intention to distribute any such shares to any
person, and the Buyer will not sell or otherwise dispose of shares except in
compliance with the registration requirements or exemption provisions under
the Securities Act and the rules and regulations promulgated thereunder, or
any other applicable securities laws.
(w) FINANCIAL CAPACITY. The Buyer has in hand binding commitment
letters (the "COMMITMENT LETTERS"), which are currently in effect and true
and correct copies of which are attached hereto as Section 3.2(w) of the
Buyer Disclosure Schedule, with a reputable financial institution or
institutions to obtain, all funds necessary to enable the Buyer to perform
this Agreement and the other agreements contemplated hereby (the
"FINANCING"), subject to the conditions set forth therein.
(x) No Other Representations or Warranties.Except for the
representations and warranties contained in this Section 3.2, neither the
Buyer nor any other person makes any other express or implied representation
or warranty on behalf of the Buyer.
3.3. EXPIRATION OF REPRESENTATIONS AND WARRANTIES. The respective
representations and warranties of the Seller and the Buyer contained herein or
in any certificate or other document delivered prior to or on the Closing Date
shall expire and be terminated and extinguished on the day two years following
the Closing Date and thereafter the Seller and the Buyer shall have no liability
whatsoever with respect to any such representation or warranty. Neither the
officers, directors or affiliates of either the Seller or the Buyer nor any
controlling person, legal representative, heir, successor or assign of any such
officer, director or affiliate shall have any liability for any breach of any
representation, warranty, covenant or agreement of the Seller or the Buyer under
this Agreement contained herein.
4. TRANSACTIONS PRIOR TO CLOSING
4.1. ACCESS TO INFORMATION CONCERNING PROPERTIES AND RECORDS;
CONFIDENTIALITY.
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(a) the Seller agrees that, during the period commencing on the date
hereof and ending on the Closing Date, (i) it will give or cause to be given
to the Buyer and its counsel, financial advisors, auditors and other
authorized representatives (collectively, "Representatives") such access,
during normal business hours and upon reasonable advance notice, to the
Plants, properties, books and records of the Seller and the Subsidiaries
relating to the Assets or the Packaging Business, as the Buyer may from time
to time reasonably request and (ii) it will furnish or cause to be furnished
to the Buyer such financial and operating data and other information with
respect to the business and properties of Borden Global Packaging, as the
Buyer may from time to time reasonably request. The Buyer and its
Representatives shall be entitled, in consultation with the Seller, to such
access to the representatives, officers and employees of the Seller and the
Subsidiaries to the extent they are involved in the business of Borden
Global Packaging as the Buyer may reasonably request.
(b) the Buyer agrees that, during the period commencing on the date
hereof and ending on the Closing Date, (i) it will give or cause to be given
to the Seller and its Representatives such access, during normal business
hours and upon reasonable advance notice, to the Buyer Plants, properties,
books and records of the Buyer, as the Seller may from time to time
reasonably request and (ii) it will furnish or cause to be furnished to the
Seller such financial and operating data and other information with respect
to the Buyer, as the Seller may from time to time reasonably request. The
Seller and its Representatives shall be entitled, in consultation with the
Buyer, to such access to the representatives, officers and employees of the
Buyer as the Seller may reasonably request.
(c) Except as required by law, the Buyer will hold, and will cause its
respective directors, officers, partners, employees, accountants, counsel,
financial advisors and other representatives and affiliates to hold, any
nonpublic information obtained from the Seller in confidence to the extent
required by, and in accordance with, the provisions of the letter dated
February 2, 1996, between the Buyer and the Seller. Except as required by
law, the Seller will hold, and will cause its directors, officers, partners,
employees, accountants, counsel, financial advisors and other
representatives and affiliates to hold, any nonpublic information obtained
from the Buyer in confidence to the extent required by, and in accordance
with, the provisions of the letter dated May 30, 1996, between the Buyer and
the Seller.
4.2. CONDUCT OF THE PACKAGING BUSINESS PENDING THE CLOSING DATE. The
Seller agrees that, except as permitted, required or contemplated by this
Agreement or any of the Exhibits attached hereto, including, without limitation,
those actions contemplated on Section 4.2 of the Seller Disclosure Schedule, or
any actions accounted for in the post-Closing adjustment provisions of Section
2.4, or as otherwise consented to or approved in writing by the Buyer, during
the period commencing on the date hereof and ending at the Closing Date:
(a) it will, and will cause its Subsidiaries to, operate the Packaging
Business only in the usual, regular and ordinary manner, on a basis
consistent with past practice, including the making of necessary capital
expenditures; provided, that the Seller and its Subsidiaries may refrain
from making planned or necessary capital expenditures to the extent agreed
upon by the Buyer (including, without limitation, expenditures planned by
the Seller with respect to management information systems, which need not be
made);
(b) no Transferred Subsidiary will amend its charter or by-laws (or
analogous organizational documents) and no Transferred Subsidiary shall
commence a voluntary case or other proceeding seeking liquidation,
reorganization or other relief with respect to itself or its debts under any
bankruptcy, insolvency or other similar law now or hereafter in effect or
seeking the appointment of a trustee, receiver, liquidator, custodian or
other similar official of it or any substantial part of its property;
(c) no Transferred Subsidiary will issue or agree to issue any
additional shares of capital stock of any class or series, or any securities
convertible into or exchangeable for shares of capital stock or issue any
options, warrants or other rights to acquire any shares of capital stock;
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(d) no Transferred Subsidiary will (i) split, combine or reclassify any
shares of its outstanding capital stock, (ii) declare, set aside or pay any
dividend or other distribution payable in cash, stock or property, (iii)
directly or indirectly redeem or otherwise acquire any shares of its capital
stock or shares of the capital stock of any of its subsidiaries, (iv) merge
or consolidate with another entity, (v) acquire or purchase an equity
interest in or a substantial portion of the assets of another corporation,
partnership or other business organization or otherwise acquire any assets
outside the ordinary and usual course of business and consistent with past
practice or otherwise enter into any material contract, commitment or
transaction outside the ordinary and usual course of business consistent
with past practice, or (vi) make any loans, advances or capital
contributions to, or investments in, any other person, other than to its
subsidiaries;
(e) the Seller will use its, and will cause the Subsidiaries to use
their, reasonable efforts to preserve intact the business organization of
Borden Global Packaging, to keep available the services of their present
officers and key employees and others having business relations with the
Seller or the Subsidiaries, and to preserve the goodwill of those having
business relationships with Borden Global Packaging;
(f) none of the Seller nor the Subsidiaries will (i) dispose of or
encumber any of their properties or assets pertaining to the Packaging
Business, other than (A) in the ordinary course of business, (B) any
property or asset which has been determined by the Seller to be obsolete,
worn out or no longer useful in the operation of the Packaging Business and
(C) transfers by a Subsidiary to the Seller or another Subsidiary of the
Seller or by the Seller to a Subsidiary; (ii) cancel any debts or waive any
claims or rights pertaining to the Packaging Business, except in the
ordinary course of business; (iii) enter into or modify any employment
agreement or grant any increase in the compensation of officers or employees
primarily engaged in the Packaging Business, except for agreements and
increases in the ordinary course of business and consistent with past
practice or as a result of collective bargaining, any industrial award or as
required by any Business Plan or any employee benefit plan, agreement,
program, policy or other arrangement that would have been a Business Plan
had it been in effect as of the date hereof; (iv) make any capital
expenditure or commitment pertaining to the Packaging Business, other than
(A) in the ordinary course of business, (B) pursuant to existing commitments
or (C) maintenance capital expenditures or capital expenditures reasonably
required to abate conditions endangering persons or property; (v) except
with respect to endorsement of negotiable instruments in the ordinary course
of its Packaging Business, incur, assume or guarantee any indebtedness for
borrowed money other than (A) purchase money borrowings, (B) indebtedness
for borrowed money incurred in the ordinary course of business, (C)
refundings of existing indebtedness, (D) indebtedness of a Subsidiary to the
Seller or a subsidiary of the Seller and (E) other indebtedness for borrowed
money which is not material to the results of operations, financial
condition, or business of Borden Global Packaging taken as a whole; (vi)
enter into or modify, or engage in any negotiations with respect to, any
collective bargaining or union agreement or commitment; or (vii) enter into
or modify any agreement or commitment or engage in any activity or
transaction other than agreements, commitments, and transactions in the
ordinary course of business and consistent with past practice;
(g) it will, and will cause its Subsidiaries to, maintain in full force
and effect all licenses from governmental authorities applicable to the
Seller and the Subsidiaries and comply, in all material respects, with all
laws, statutes, ordinances, rules, regulations, orders, writs, injunctions,
decrees, awards or other requirements of any court or other governmental
authority applicable to it or the conduct of its business;
(h) it will, and will cause its Subsidiaries to, perform all of its
material obligations under all material contracts, agreements, licenses,
permits, instruments, or undertakings; and
(i) none of the Seller nor the Subsidiaries will agree, whether in
writing or otherwise, to do any of the foregoing actions described in
paragraphs (b), (c), (d) or (f) of this Section 4.2.
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4.3. CONDUCT OF BUSINESS BY THE BUYER PENDING THE CLOSING DATE. The Buyer
agrees that, except as permitted, required or contemplated by this Agreement or
any of the Exhibits attached hereto, including, without limitation, those
actions contemplated on Section 4.3 of the Buyer Disclosure Schedule, or as
otherwise consented to or approved in writing by the Seller, during the period
commencing on the date hereof and ending at the Closing Date:
(a) it will operate its business only in the usual, regular and ordinary
manner, on a basis consistent with past practice;
(b) it will not amend its charter or by-laws (or analogous
organizational documents) or change the size or composition of its Board of
Directors;
(c) it will not issue or agree to issue any additional shares of capital
stock of any class or series, or any securities convertible into or
exchangeable for shares of capital stock or issue any options, warrants or
other rights to acquire any shares of capital stock;
(d) it will not (i) split, combine or reclassify any shares of its
outstanding capital stock, (ii) declare, set aside or pay any dividend or
other distribution payable in cash, stock or property, (iii) directly or
indirectly redeem or otherwise acquire any shares of its capital stock, (iv)
merge or consolidate with another entity, (v) acquire or purchase an equity
interest in or a substantial portion of the assets of another corporation,
partnership or other business organization or otherwise acquire any assets
outside the ordinary and usual course of business and consistent with past
practice or otherwise enter into any material contract, commitment or
transaction outside the ordinary and usual course of business consistent
with past practice, or (vi) make any loans, advances or capital
contributions to, or investments in, any other person;
(e) the Buyer will use its reasonable efforts to preserve intact the
present business organization, to keep available the services of their
present officers and key employees and others having business relations with
the Buyer, and to preserve the goodwill of those having business
relationships with it;
(f) the Buyer will not dispose of or encumber any of its properties or
assets, other than (A) in the ordinary course of business and (B) any
property or asset which is not material to the results of operations,
financial condition or business of the Buyer; (ii) cancel any debts or waive
any claims or rights pertaining to or affecting its business, except in the
ordinary course of business; (iii) grant any increase in the compensation of
its officers or employees, except for increases in the ordinary course of
business and consistent with past practice or as a result of collective
bargaining, any industrial award or as required by any Buyer Business Plan
or any employee benefit plan, agreement, program, policy or other
arrangement that would have been a Buyer Business Plan had it been in effect
as of the date hereof; (iv) make any capital expenditure or commitment,
other than (A) in the ordinary course of business, (B) pursuant to existing
commitments or (C) which is not material to the results of operations,
financial condition or business of the Buyer; or (v) except with respect to
endorsement of negotiable instruments in the ordinary course of its
business, incur, assume or guarantee any indebtedness for borrowed money
other than (A) purchase money borrowings, (B) indebtedness for borrowed
money incurred in the ordinary course of business, (C) refundings of
existing indebtedness and (D) other indebtedness for borrowed money which is
not material to the results of operations, financial condition, or business
of the Buyer;
(g) the Board of Directors of the Buyer and the Buyer Stock Option
Committee (i) shall not, solely as a result of the transactions contemplated
by this Agreement, take any action to accelerate, release or otherwise deem
satisfied any restrictions or conditions on any awards (including, without
limitation, stock options and restricted stock) granted under the Buyer
Stock Option Plan and (ii) shall not, solely as a result of the transactions
contemplated by this Agreement, (A) take any action to give effect to any
change-in-control provisions under any Buyer Business Plan or (B) make any
payments to any Buyer Business Employee under any Buyer Business Plan; and
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(h) agree, whether in writing or otherwise, to do any of the foregoing
actions described in paragraphs (b), (c), (d), (f) or (g) of this Section
4.3.
4.4. INTERCOMPANY TRANSACTIONS. On or prior to the Closing, all
intercompany receivables or payables and loans then existing between the Seller,
any Subsidiary (other than a Transferred Subsidiary) or any other subsidiary or
affiliate of the Seller which is not a Subsidiary (the "NON-PACKAGING
AFFILIATES") on the one hand, and the Transferred Subsidiaries, on the other
hand, shall be settled by way of capital contribution (with respect to
intercompany payables or loans due to the Seller, any Subsidiary (other than a
Transferred Subsidiary) or any Non-Packaging Affiliate) or by way of dividend in
kind (with respect to receivables of the Transferred Subsidiaries owed by the
Seller, any Subsidiary or any Non-Packaging Affiliate). Such settlement shall be
accomplished without any violation of any law or regulation or any incurrence of
any tax, penalties, interest or other charges (other than taxes with respect to
which the Seller has agreed to indemnify the Buyer).
4.5. GUARANTEES. The Buyer shall use its best efforts (which shall not
include agreeing to any modifications of the terms of the underlying
obligations) to cause itself or one or more of its affiliates to be substituted
in all respects for the Seller or the Subsidiaries (other than the Transferred
Subsidiaries), effective as of the Closing, in respect of all obligations of the
Seller and any of the Subsidiaries (other than the Transferred Subsidiaries)
under each of the guarantees, indemnities, surety bonds, letters of credit and
letters of comfort set forth on Section 4.5 of the Seller Disclosure Schedule
obtained by the Seller or the Subsidiaries (other than the Transferred
Subsidiaries) for the benefit of the Packaging Business (the "GUARANTEES").
Subsequent to the Closing, with respect to any uncancelled Guaranty for which no
substitution is effected, the Buyer shall, pursuant to Section 9.4, indemnify
the Seller or any of its affiliates against any liability under any such
Guarantee.
4.6. FURTHER ACTIONS. (a) Subject to the terms and conditions hereof, the
Seller and the Buyer agree to use their reasonable best efforts to take, or
cause to be taken, all action and to do, or cause to be done, all things
necessary, proper or advisable to consummate and make effective the transactions
contemplated by this Agreement, including using all reasonable best efforts: (i)
to obtain prior to the Closing Date all licenses, certificates, permits,
consents, approvals, authorizations, qualifications and orders of governmental
authorities and parties to contracts with the Seller or the Subsidiaries as are
necessary for the consummation of the transactions contemplated hereby,
including but not limited to such consents and approvals as may be required
under the HSR Act as set forth below and any similar foreign legislation; (ii)
to effect all necessary registrations and filings; and (iii) to furnish to each
other such information and assistance as reasonably may be requested in
connection with the foregoing. The Seller or such Subsidiary and the Buyer shall
cooperate fully with each other to the extent reasonably required to obtain such
consents.
(b) the Buyer and the Seller shall timely and promptly make all filings
which may be required by each of them in connection with the consummation of the
transactions contemplated hereby under the HSR Act and any similar foreign
legislation. Each party shall furnish to each other such necessary information
and assistance as such party may reasonably request in connection with the
preparation of any necessary filings or submissions by it to any U.S. or foreign
governmental agency, including, without limitation, any filings necessary under
the provisions of the HSR Act and the Exchange Act. Each party shall provide the
other party the opportunity to make copies of all correspondence, filings or
communications (or memoranda setting forth the substance thereof) between such
party or its representatives, on the one hand, and the Federal Trade Commission
(the "FTC"), the Antitrust Division of the United States Department of Justice
(the "ANTITRUST DIVISION") or any similar foreign governmental agency or members
of their respective staffs, on the other hand, with respect to this Agreement or
the transactions contemplated hereby.
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(c) For purposes of this Section 4.6, the "reasonable best efforts" of the
Buyer shall not include acceptance by the Buyer of any divestitures of any
assets of the Buyer, but shall include acceptance of an agreement to hold any
assets of the Packaging Business separate, or divest any such assets of the
Packaging Business, in any lawsuit or other legal proceeding, whether judicial
or administrative and whether required by the FTC, the Antitrust Division or any
other applicable U.S. or foreign governmental entity in connection with the
transactions contemplated by this Agreement or the other agreements contemplated
hereby. Other than to the extent applicable law expressly requires the Seller to
obtain any license, permit, consent, approval, authorization or order of any
foreign governmental authority or to make any registration or filing with any
foreign governmental authority, the Buyer shall be responsible for making all
filings and giving all notices relating to, and otherwise pursuing all licenses,
permits, consents, approvals, authorizations and orders of foreign governmental
authorities and making all registrations and filings with foreign governmental
authorities (collectively, the "FOREIGN GOVERNMENTAL CONSENTS"), which, to the
best knowledge of the Buyer, are required in connection with the transactions
contemplated hereby and shall provide a copy of any such filings or notices to
the Seller. The Buyer shall be responsible for making or giving all Foreign
Governmental Consents required to be made or given subsequent to the Closing
Date. In connection with and as a condition to the Buyer's obligations under the
preceding sentence, the Sellers shall fully cooperate with and assist the Buyer
in identifying and obtaining all such licenses, permits, consents, approvals,
authorizations or orders and in making all such registrations and filings.
(d) the Buyer agrees to comply with the provisions of Section 6 of the
Stockholders Agreement and not to register the transfer of any shares in
violation of the Stockholder Agreement.
(e) The Seller agrees to cause each of the Subsidiaries to take all
corporate and stockholder action necessary for the authorization, performance
and consummation of the transactions contemplated by this Agreement and the
agreements contemplated hereby.
(f) The Seller agrees that it will provide Hitachi with notice of the
transactions contemplated by this Agreement pursuant to the Hitachi Right of
First Refusal within five (5) business days of the date of this Agreement.
4.7. NOTIFICATION. The Seller shall notify the Buyer and keep it advised
as to (i) any litigation or administrative proceeding pending and known to the
Seller or, to its knowledge, threatened against the Seller, any Subsidiary or
any Subsidiary Asset Seller which challenges the transactions contemplated
hereby, (ii) any material damage or destruction of any of the Assets and (iii)
any event or occurrence that would cause any representation or warranty
contained in Section 3.1 hereof to be false; PROVIDED that the failure of the
Seller to comply with clause (iii) shall not subject the Seller to any liability
hereunder except as and to the extent the Seller would be responsible for a
breach of such representations and warranties pursuant to Section 9.4(a)(iii)
(including, without limitation, the limitations on recovery and the time periods
for bringing claims thereunder). The Buyer shall notify the Seller and keep it
advised as to (A) any notice or other communication from any person or entity
alleging that the consent of such person or entity is or may be required in
connection with the transactions contemplated by this Agreement or (B) any
litigation or administrative proceedings pending or known to the Buyer or, to
its knowledge, threatened against the Buyer which challenge the transactions
contemplated hereby.
4.8. NO INCONSISTENT ACTION. Subject to the provisions of Sections 7.1 and
7.2, the Seller and the Buyer shall not take any action inconsistent with their
obligations under this Agreement or which could materially hinder or delay the
consummation of the transactions contemplated by this Agreement.
4.9. FINANCING. (a) The Buyer will deliver to the Seller as soon as
reasonably practicable after the date of this Agreement true and correct copies
of definitive written agreements (the "DEFINITIVE FINANCING AGREEMENTS") with
reputable financial institutions to provide at the Closing, subject only to
customary conditions, all of the Financing, in form and substance reasonably
satisfactory to the Seller. The Buyer will deliver to the Seller drafts of the
Definitive Financing Agreements sufficiently prior to the execution thereof to
permit the Seller and its advisors the reasonable opportunity to review and
comment thereon. The Buyer intends that the terms and conditions of such
Financing shall be substantially the same as those
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previously set forth in the Commitment Letters. In any event, the Definitive
Financing Agreements (and any other financing arrangements) will not contain any
limitations (including events of default) on sales or other transactions by the
Seller or its affiliates with respect to the Buyer Common Stock or any other
limitation or restriction applicable to the Seller or its affiliates. The Buyer
shall use its best efforts to satisfy at or before the Closing all requirements
which are conditions to its closing all transactions constituting the Financing
and to its drawing down the cash proceeds thereunder. Subject only to the Seller
being able to satisfy the conditions set forth in Section 5.2(a) hereof, the
Buyer will obtain the proceeds of the Financing no later than January 31, 1997.
In the event that any portion of the Financing provided for in the Definitive
Financing Agreements becomes unavailable, regardless of fault, the Buyer will,
subject only to the Seller being able to satisfy the conditions set forth in
Section 5.2(a) hereof, obtain from others as soon as practicable, but in no
event later than January 31, 1997, the financing necessary for the consummation
of the transactions contemplated hereby, on and subject to substantially the
same terms and conditions as the portion of the Financing that has become
unavailable.
(b) Effective at the opening of business on the Closing Date, the Buyer
shall be responsible for funding all disbursements of the Packaging Business.
Any cash, cash equivalents, similar investments, certificates of deposit,
Treasury bills and other marketable securities held by the Packaging Business at
the Closing shall be treated by the parties consistent with Section 2.4(a) of
the Seller Disclosure Schedule.
4.10. BORDEN-HITACHI JOINT VENTURE. To the extent permitted under the
Joint Venture Agreement, the Seller will use reasonable efforts to cause
Hitachi-Borden to continue to include "Borden" as part of its name for a period
of up to the earlier of (a) six months following the Closing Date and (b) the
effective date of the exercise of the Hitachi Right of First Refusal.
4.11. USE OF CORPORATE NAME AND SYMBOL; TRANSITION LICENSE. (a) Except as
set forth in subsection (b) of this Section 4.11, after the Closing, the Buyer
shall not use the Borden trademarks and other Intellectual Property set forth on
Section 4.11 of the Seller Disclosure Schedule.
(b) On the Closing Date, the Buyer and the Seller shall execute and deliver
a transition license agreement (the "TRANSITION LICENSE AGREEMENT"),
substantially in the form of Exhibit F hereto, pursuant to which the Seller
shall grant to the Buyer a non-exclusive, non-assignable (except to a subsidiary
of the Buyer), royalty-free license (i) to use, for a period of six months
following the Closing Date, the Borden-related trademarks on products, labels,
packaging, promotional materials, signage, invoices and stationary and (ii) to
use, from the six-month anniversary of the Closing Date until the date two years
after the Closing Date, the Borden-related trademarks only in connection with
the Buyer's trademarks, provided that the Borden-related trademarks are not
modified in any way, including the combining of the Borden-related trademarks in
a single design with the Buyer's trademarks. Following the two-year period
described in clause (ii) above, the Buyer shall cease all use of any
Borden-related trademarks.
4.12. FACILITIES AGREEMENT. On the Closing Date, the Buyer and the Seller
shall execute and deliver an agreement (the "SHARED FACILITIES AGREEMENT"),
substantially in the form of Exhibit G hereto, with respect to facilities shared
by the Packaging Business and the Seller's chemicals business at North
Baddesley, United Kingdom, Edmonton, Alberta, Laval, Quebec and West Hill,
Ontario in order to coordinate the on-going operations at such facilities,
coordinate the "de-linking" of the operations of the Packaging Business from the
operations relating to the Seller's chemicals business at such facilities and
provide certain transitional services on the terms and subject to the conditions
set forth therein.
4.13. TRANSITION SERVICES AGREEMENT. On the Closing Date, the Buyer and
the Seller shall execute and deliver an agreement (the "TRANSITION SERVICES
AGREEMENT"), substantially in the form attached hereto as Exhibit H pursuant to
which the Seller agrees to provide certain transitional services on the terms
and subject to the conditions set forth therein.
4.14. PREPARATION OF PROXY STATEMENT; STOCKHOLDERS' MEETING. (a) Promptly
following the date of this Agreement, the Buyer shall prepare and file with the
SEC a preliminary copy of the Proxy Statement and thereafter a definitive copy
of the Proxy Statement and all related solicitation materials. The Seller and
its representatives will be given an opportunity to review and comment on drafts
of the Proxy Statement and
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will provide to the Buyer all information relating to the Packaging Business and
the Seller necessary for the preparation of the Proxy Statement and will
participate in responding to comments or requests from the SEC with respect to
the Proxy Statement. The Buyer shall use its reasonable best efforts as promptly
as practicable to have the Proxy Statement cleared by the SEC and thereafter to
cause the Proxy Statement to be mailed to the Buyer's stockholders as promptly
as practicable. The information provided and to be provided by the Buyer and the
Seller, respectively, for use in the Proxy Statement shall, at the time the
Proxy Statement is mailed to the Buyer's stockholders and on the date of the
Stockholders' Meeting, be true and correct in all material respects and shall
not omit to state any material fact required to be stated therein or necessary
in order to make such information not misleading, and the Buyer and the Seller
each agree to correct any information provided by it for use in the Proxy
Statement which shall have become false or misleading.
(b) The Buyer, acting through its Board of Directors, shall promptly and
duly call, give notice of, convene and hold as soon as practicable following the
date upon which the Proxy Statement is cleared by the SEC the Stockholders'
Meeting for the purpose of obtaining the Buyer Stockholder Approval and (i)
recommend approval and adoption of this Agreement and the transactions
contemplated hereby, by the stockholders of the Buyer and include in the Proxy
Statement such recommendation and (ii) take all reasonable and lawful action to
solicit and obtain such approval, unless in the case only of clause (i) above,
the Board of Directors of the Buyer determines, based upon advice of independent
outside legal counsel to the Buyer, that making such recommendation would
constitute a breach of the fiduciary duty of the Board of Directors of Buyer
under applicable law.
4.15. NO SOLICITATION. From the date hereof, until the earlier of the
Closing or the termination of this Agreement, the Seller agrees that neither it,
nor any of its Subsidiaries, affiliates or agents (i) will solicit bids from any
person or entity, other than the Buyer, for the purchase of, or offer to sell,
the Packaging Business or any significant part thereof, (ii) will offer to sell
to any person or entity, other than the Buyer, the Packaging Business or any
significant part thereof or (iii) will negotiate with, respond to any
indications of interest from or provide any information to, any person or
entity, other than the Buyer.
4.16. INSURANCE. Prior to the Closing Date the Seller shall have entered
into an agreement with a financially sound and reputable insurer to provide
insurance covering such losses, liabilities, damages, expenses and other risks
relating to the assets, businesses, operations, conduct, products and employees
of the Packaging Business and having the terms set forth on Section 4.16 to the
Seller Disclosure Schedule and relating to or arising out of occurrences prior
to the Closing (the "Sunrise Policy"). The Seller shall use its reasonable best
efforts to have the Buyer named as an insured under the Sunrise Policy. Prior to
the Closing Date, and to the extent permitted by the Seller's existing
occurrence-based insurance policies, the Seller will use its reasonable best
efforts to have the Buyer named as an insured under such occurrence-based
policies. If the Seller is unable to have the Buyer named as an insured under
such occurrence-based policies or the Sunrise Policy or would be required to
accept conditions to the Buyer being so named or pay additional premiums in
connection therewith which the Seller deems unreasonable, then the Seller shall
to the extent permitted under such policies process any claims arising
thereunder and shall remit any proceeds actually received (in excess of any
loss, liability, damage or expense of the Seller related to such claim) to the
Buyer. If such policies do not permit the Seller to process such claims which
would otherwise have been covered by such policies because the liability
therefor had been transferred to the Buyer hereunder, then such liabilities
shall be deemed not to have been transferred to the Buyer hereunder and the
Buyer shall indemnify the Seller for the full amount by which such liability
exceeds any payments received by the Seller under such policies with respect to
such claims other than any amount of such liability that is not covered by such
policies which is directly attributable to the failure of the Seller to adhere
to the notice or procedural requirements of such policies. The Seller shall not
be deemed to have failed to adhere to the notice or procedural requirements of
any such policies to the extent such failure is a result of the Buyer's failure
to notify the Seller with respect to any occurrence, event or action covered by
such policies.
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5. CONDITIONS PRECEDENT
5.1. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE BUYER AND THE SELLER. The
respective obligations of the Buyer and the Seller to consummate the
transactions contemplated by this Agreement shall be subject to the satisfaction
at or prior to the Closing Date of the following conditions:
(a) No Injunction, etc.At the Closing Date, there shall be no
injunction, restraining order or decree of any nature of any court or
governmental agency or body of competent jurisdiction that is in effect that
restrains or prohibits the consummation of the Stock Purchase or the
transfer to the Buyer by the Seller or the Subsidiaries of any Assets,
except for the transfer of any Assets or Subsidiary Stock the failure to
transfer which would not, individually or in the aggregate with all
Subsidiary Stock which is not being transferred on or prior to the Closing
and all Assets for which Asset Purchases are not being consummated on or
prior to the Closing, be material, after giving effect to the interim
management provisions of Section 2.3, to the operations of Borden Global
Packaging taken as a whole; provided that for purposes of this paragraph
(a), any failure to consummate the Asset Purchases or Stock Purchases set
forth on Section 5.1 of the Seller Disclosure Schedule shall not be regarded
as material to the operations of Borden Global Packaging taken as a whole so
long as the aggregate net trade sales of all the businesses not transferred
do not exceed 10% of the total net trade sales for the Packaging Business
for the year ended December 31, 1995, and provided, further, that such Asset
Purchases or Stock Purchases shall be subject to the provisions of Section
2.3 hereof.
(b) Regulatory Authorizations.All (i) consents, approvals,
authorizations and orders of federal, state and foreign governmental and
regulatory authorities as are necessary in connection with the transfer of
the Assets or the Subsidiary Stock to the Buyer or which if not obtained
would be reasonably likely to subject the Buyer, the Seller or any
Subsidiary Asset Seller, or any officer, director or agent of any such
person to civil or criminal liability or could render such transfer void or
voidable (the "REQUIRED CONSENTS") shall have been obtained, except for
Required Consents the failure to obtain which, individually or in the
aggregate, are not material to the operations of Borden Global Packaging
taken as a whole and are not otherwise likely to subject any such officer,
director or agent to civil or criminal liability; provided that for purposes
of this clause (b)(i), any failure to consummate the Asset Purchase or Stock
Purchases set forth on Section 5.1 of the Seller Disclosure Schedule shall
not be regarded as material to the operations of Borden Global Packaging
taken as a whole so long as the aggregate net trade sales of all the
businesses not transferred do not exceed 10% of the total net trade sales
for the Packaging Business for the year ended December 31, 1995, and (ii)
applicable waiting periods specified under the HSR Act with respect to the
transactions contemplated by this Agreement shall have lapsed or been
terminated, and provided, further, that such Asset Purchases or Stock
Purchases shall be subject to the provisions of Section 2.3 hereof.
(c) Buyer Stockholder Approval.The Buyer Stockholder Approval shall have
been obtained.
(d) Consents.All third-party consents with respect to the transactions
contemplated hereby shall have been obtained, except those consents which,
individually or in the aggregate, would not have or reasonably be expected
to have a material adverse effect on the results of operations, financial
condition or business of (i) Borden Global Packaging taken as a whole or
(ii) the Buyer. The Buyer shall be entitled to waive this condition with
respect to all third-party consents related to, or required to be obtained
by, the Seller, and the Seller shall be entitled to waive this condition
with respect to all third-party consents related to, or required to be
obtained by, the Buyer.
5.2. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE BUYER. The obligations of
the Buyer under this Agreement are subject to the satisfaction (or waiver by the
Buyer) at or prior to the Closing Date of each of the following conditions:
(a) ACCURACY OF REPRESENTATIONS AND WARRANTIES. (i) All
representations and warranties of the Seller contained herein or in any
certificate or document delivered to the Buyer pursuant hereto, without
regard to any exceptions for materiality contained in such representations
and warranties,
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shall be true and correct in all respects on and as of the Closing Date,
with the same force and effect as though such representations and warranties
had been made on and as of the Closing Date, except (i) as contemplated or
permitted by this Agreement or as disclosed in the Exhibits hereto or in the
Seller Disclosure Schedule, (ii) to the extent that any such representation
or warranty is made as of a specified date, in which case such
representation or warranty shall have been true and correct in all respects
as of such date, (iii) to the extent that any such representation or
warranty, including, without limitation, the representations and warranties
contained in Section 3.1(f) hereof, is untrue or incorrect as a result of an
adverse change in the results of operations of the Packaging Business, (iv)
for changes to the Packaging Business occurring in the ordinary course of
business consistent in scope and kind with the prior experience of the
Packaging Business and (v) after giving effect to clauses (i), (ii), (iii)
and (iv) for all such inaccuracies which, individually or in the aggregate,
would not have or reasonably be expected to have a material adverse effect
on the results of operations, financial condition or business of Borden
Global Packaging taken as a whole.
(ii) NO MATERIAL ADVERSE CHANGE. Except as contemplated by or set
forth in this Agreement or in the Exhibits hereto or the Seller Disclosure
Schedule, including without limitation Sections 3.1(f)(i) and 3.1(f)(ii)
thereof, subsequent to the date of this Agreement, there has not occurred or
arisen, with respect to the Packaging Business any condition, event or
occurrence which, individually or in the aggregate, would have or would
reasonably be expected to have a material adverse effect on the financial
condition or business of the Packaging Business taken as a whole, other than
such effects that are a result of an adverse change in the results of
operations of the Packaging Business.
(b) PERFORMANCE OF AGREEMENTS. The Seller shall in all material
respects have performed all obligations and agreements, and complied in all
material respects with all covenants and conditions, contained in this
Agreement to be performed or complied with by it prior to or at the Closing
Date.
(c) OFFICER'S CERTIFICATE. The Buyer shall have received a
certificate, dated the Closing Date, of the President or a Vice President of
the Seller to the effect that, to the best of the knowledge, information and
belief of such officer after due inquiry, the conditions specified in
paragraphs (a) and (b) above have been fulfilled.
(d) TRANSITION LICENSE AGREEMENT. The Seller shall have executed and
delivered to the Buyer a Transition License Agreement substantially in the
form of Exhibit F hereto.
(e) SHARED FACILITIES AGREEMENT. The Seller shall have executed and
delivered to the Buyer the Shared Facilities Agreement substantially in the
form of Exhibit G hereto.
(f) TRANSITION SERVICES AGREEMENT. The Seller shall have executed and
delivered to the Buyer a Transition Services Agreement substantially in the
form of Exhibit H hereto.
(g) GOVERNANCE AGREEMENT. The Governance Agreement shall continue to
be in full force and effect and the Seller shall not have breached any of
its representations, warranties or covenants thereunder.
(h) OPINION OF COUNSEL. The Buyer shall have received an opinion from
counsel to the Seller and its Subsidiaries, which may be the General Counsel
or the Corporate Counsel and Secretary of the Seller, or as applicable such
of its Subsidiaries, as to (i) the due authorization, execution and delivery
of this Agreement and the other agreements and instruments contemplated
hereby, (ii) the enforceability of this Agreement and the other agreements
and instruments contemplated hereby, and (iii) the absence of any conflict
with, or contravention of, any law, rule or regulation of the United States,
New York, Ohio or Delaware (but only with respect to the General Corporation
Law thereof), order of any court or administrative body, charter or by-laws
of the Seller or any of the Subsidiaries, or agreement known to such counsel
to which the Seller or any of its Subsidiaries is subject or any of their
respective property is bound.
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(i) SUBSIDIARY APPROVALS. This Agreement and the transactions
contemplated hereby shall have been approved by the boards of directors and,
where required by applicable law, the shareholders of each of the Subsidiary
Asset Sellers.
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5.3. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE SELLER. The
obligations of the Seller under this Agreement are subject to the satisfaction
(or waiver by the Seller) at or prior to the Closing Date of each of the
following conditions:
(a) (i) ACCURACY OF REPRESENTATIONS AND WARRANTIES. All
representations and warranties of the Buyer contained herein or in any
certificate or document delivered to the Seller pursuant hereto, without
regard to any exceptions for materiality contained in such representations
and warranties, shall be true and correct in all respects on and as of the
Closing Date, with the same force and effect as though such representations
and warranties had been made on and as of the Closing Date, except (i) as
contemplated or permitted by this Agreement or as disclosed in the Exhibits
hereto or in the Buyer Disclosure Schedule, (ii) to the extent that any such
representation or warranty is made as of a specified date, in which case
such representation or warranty shall have been true and correct in all
respects as of such date, (iii) for changes to the Buyer occurring in the
ordinary course of business consistent in scope and kind with the prior
experience of the Buyer and (iv) after giving effect to clauses (i), (ii)
and (iii) for all such inaccuracies which, individually or in the aggregate,
would not have or reasonably be expected to have a material adverse effect
on the results of operations, financial condition or business of the Buyer.
(ii) NO MATERIAL ADVERSE CHANGE. Except as reflected on Section 3.2(f)
of the Buyer Disclosure Schedule or as otherwise contemplated by or
disclosed in this Agreement or the Exhibits hereto or the Buyer Disclosure
Schedule, subsequent to the date of this Agreement, there has not occurred
or arisen with respect to the Buyer any condition, event or occurrence
which, individually or in the aggregate, would have or would reasonably be
expected to have a material adverse effect on the results of operations,
financial condition or business of the Buyer.
(b) PERFORMANCE OF AGREEMENTS. The Buyer shall in all material
respects have performed all obligations and agreements, and complied in all
material respects with all covenants and conditions, contained in this
Agreement to be performed or complied with by it prior to or at the Closing
Date.
(c) OFFICER'S CERTIFICATE. The Seller shall have received a
certificate, dated the Closing Date, of the President or a Vice President of
the Buyer to the effect that, to the best of the knowledge, information and
belief of such officer after due inquiry, the conditions specified in
paragraphs (a) and (b) above have been fulfilled.
(d) HITACHI RIGHT OF FIRST REFUSAL. The provisions of Section 2.2
shall have been applied with respect to Hitachi-Borden, to the extent
applicable.
(e) ASSUMPTION AGREEMENT. The Buyer shall have executed and delivered
to the Seller the Assumption Agreement in the form of Exhibit E hereto.
(f) EXEMPTION CERTIFICATES. The Buyer shall have executed and
delivered to the Seller all certificates required by all relevant taxing
authorities that are necessary to support any exemption from the imposition
of any sales or similar tax on the transfer of the Assets.
(g) SHARED FACILITIES AGREEMENT. The Buyer shall have executed and
delivered to the Seller the Shared Facilities Agreement substantially in the
form of Exhibit G hereto.
(h) TRANSITION SERVICES AGREEMENT. The Buyer shall have executed and
delivered to the Seller a Transition Services Agreement substantially in the
form of Exhibit H hereto.
(i) EMPLOYMENT AGREEMENTS. The Buyer shall have entered into
employment agreements with the individuals set forth on Section 5.3(i)(1) of
the Seller Disclosure Schedule in the form set forth on Section 5.3(i)(2) of
the Seller Disclosure Schedule.
(j) GOVERNANCE AGREEMENT. The Governance Agreement shall continue to
be in full force and effect and the Buyer shall not have breached any of its
representations, warranties or covenants thereunder.
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(k) STOCKHOLDERS AGREEMENT. The Stockholders Agreement shall continue
to be in full force and effect and the Buyer shall not have breached any of
its representations, warranties or covenants thereunder.
(l) OPINION OF COUNSEL. The Seller shall have received an opinion from
counsel to the Buyer as to (i) the due authorization, execution and delivery
of this Agreement and the other agreements and instruments contemplated
hereby, (ii) the enforceability of this Agreement and the other agreements
and instruments contemplated hereby, and (iii) the absence of any conflict
with, or contravention of, any law, rule or regulation of the United States,
New York or Delaware (but only with respect to the General Corporation Law
thereof), order of any court or administrative body, charter or by-laws of
the Buyer, or agreement known to such counsel to which the Buyer is subject
or any of its property is bound.
6. EMPLOYEE RELATIONS AND BENEFITS
6.1. CONDUCT PRIOR TO THE EFFECTIVE TIME. Prior to the Effective Time,
Buyer shall take no action to cause Seller or Borden Global Packaging to
terminate the employment of any Business Employee, and neither Seller nor Borden
Global Packaging shall be under any obligation to terminate any Business
Employee prior to or on the Effective Time.
6.2. CONTINUITY OF EMPLOYMENT. The parties hereto intend that there shall
be continuity of employment with respect to all Business Employees, provided
that nothing contained herein to the contrary shall prohibit the Buyer from
subsequently terminating any employee. Except as set forth in Section 6.2 of the
Seller Disclosure Schedule, Buyer shall offer employment no later than the
Effective Time to all non-union employees, including those on vacation, leave of
absence or disability (or not more than six months), who are employed by Borden
Global Packaging as of the Effective Time, on substantially the same terms with
respect to base salary, job responsibility and location to the extent possible.
Those persons who accept Buyer's offer of employment and who commence working
with Buyer within six months (including any period of leave of absence or
disability beginning prior to the Closing Date and continuing through the
Closing Date) of the Effective Time shall hereafter be referred to as
"TRANSFERRED EMPLOYEES". Business Employees in receipt of disability benefits as
of the Effective Time will continue to receive benefits from the Business Plans
in accordance with the terms of those plans during such disability.
6.3. COLLECTIVE BARGAINING AGREEMENTS. Buyer shall offer employment to all
Business Employees covered by any of the Collective Bargaining Agreements listed
on Section 6.3 of the Seller Disclosure Schedule (the "Collective Bargaining
Agreements") as of the Effective Time and shall assume and be bound by the terms
of such Collective Bargaining Agreements. The Buyer may, with the agreement of
the appropriate union or otherwise as provided by law, substitute as of the
Effective Time the Buyer Business Plans for the Business Plans specified in the
Collective Bargaining Agreements.
6.4. INTERNATIONAL PLANS. Buyer shall, to the maximum extent permitted by
applicable law, assume and be liable for all liabilities and obligations arising
out of all Business Plans (including, without limitation, plans providing for
incentive, bonus, deferred compensation, pension, retirement, savings,
supplemental, welfare, retiree medical and retiree life benefits) with respect
to all Transferred Employees in Australia, Belgium, Canada, France, Germany,
Greece, Italy, Japan, Luxembourg, the Netherlands, New Zealand, Norway, South
Africa, Spain, and the United Kingdom (collectively, the "INTERNATIONAL BUSINESS
PLANS"). Section 6.4 of the Seller Disclosure Schedule sets forth specific
obligations of Buyer and Seller with respect to the International Business
Plans. To the extent that Section 6.4 of the Seller Disclosure Schedule and this
Section 6.4 are silent with respect to a given issue, such issue shall be
resolved in accordance with the other provisions of this Section 6 (including,
but not limited to, the provisions relating to the U.S. Business Plans) and by
reference to local laws.
6.5. U.S. BUSINESS PLAN PARTICIPATION. Except as expressly provided in
this Section 6.5 or except as otherwise required by applicable law, Transferred
Employees who are U.S. Business Employees (the "U.S.
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Transferred Employees") shall (a) cease active participation in (and accrual of
additional benefits under) the U.S. Business Plans as of the Effective Time and
(b) commence participation in the Buyer Business Plans as of the Effective Time.
6.6. U.S. BUSINESS PLAN LIABILITIES. Except as expressly provided in this
Section 6.6, Section 6.8(b) or Section 6.6 of the Seller Disclosure Schedule,
Seller shall retain all liabilities and obligations relating to the
participation of U.S. Transferred Employees in the U.S. Business Plans on or
prior to the Effective Time. Buyer shall be responsible and liable for all
liabilities and obligations relating to the participation of U.S. Transferred
Employees (including, but not limited to, such liabilities and obligations that
may exist or arise in connection with (a) the employment of any U.S. Transferred
Employee on or after the Effective Time and (b) the termination of employment of
any U.S. Transferred Employee on or after the Effective Time) under the Buyer
Business Plans and in connection with the offer and the employment of the U.S.
Transferred Employees on or after the Effective Time.
6.7. U.S. DEFINED BENEFIT PLAN. As of the Effective Time, Seller shall
cause the active participation by the U.S. Transferred Employees in the Borden,
Inc. Employees Retirement Income Plan (the "PENSION PLAN") to cease. U.S.
Transferred Employees shall continue to receive service credit for their
employment with the Buyer under the Pension Plan, but only for purposes of
vesting. Pursuant to Section A7.9 of the Pension Plan, a Transferred Employee
shall be considered terminated from employment with his or her "Employer" within
the meaning of the Pension Plan only when such Transferred Employee is no longer
employed by the Buyer.
6.8. U.S. DEFINED CONTRIBUTION PLANS. (a) As of the Effective Time, Seller
shall cause the active participation by the U.S. Transferred Employees in the
Borden, Inc. Retirement Savings Plan and the Borden, Inc. Associate Savings Plan
(collectively, the "Savings Plans") to cease. Seller shall (i) as of the
Effective Time cause the trustees of the Savings Plans to identify, in
accordance with the applicable spinoff provisions set forth under Section 414(l)
of the Code, the assets of the Savings Plans representing the full account
balances of U.S. Transferred Employees for all periods of participation through
the Effective Time (including, as applicable, all employee contributions,
employer contributions and all earnings attributable thereto); and (ii) as soon
as practicable (but in no event later than 120 days) after the Effective Time,
make all required filings and submissions to appropriate governmental agencies
and all required amendments to the Savings Plans and related trust agreements
necessary to provide for the transfer of assets described in this Section 6.8.
The Savings Plans shall be amended to provide that (i) there shall be no
contributions thereto with respect to U.S. Transferred Employees for periods
after the Closing Date and (ii) all transferred employer contributions shall be
fully vested.
(b) Buyer shall (i) give Seller written notice of the name of the trustee of
the defined contribution plan designated by Buyer to which the assets and
liabilities for benefits of the Savings Plans are to be transferred (the "BUYER
SAVINGS PLAN"), accompanied by a copy of the most recent favorable determination
letter for such plan received by Buyer, as promptly as possible after the
Effective Time, but in any event prior to the date on which such transfer is to
occur; and (ii) as soon as practicable (but in no event later than 120 days)
after the Effective Time, make all required filings and submissions to
appropriate governmental agencies. As soon as practicable after the Effective
Time, and pursuant to the procedures set forth below, Seller shall cause the
trustees of the Savings Plans to transfer to the trustee of the Buyer Savings
Plan the following amount (the "TOTAL TRANSFER AMOUNT"): (A) the full account
balances (in kind and notes for any loans to U.S. Transferred Employees) of all
U.S. Transferred Employees, whose account balances shall have been credited with
appropriate earnings and contributions, if any, attributable to the period
ending on the close of business on the day preceding the Effective Time, plus
(B) earnings on such account balances attributable to the period from the
Effective Time to the Transfer Date, reduced by (C) any benefit or withdrawal
payments in respect of U.S. Transferred Employees prior to the Transfer Dates.
The "TRANSFER DATE" shall be the first day of the month following a 15th day of
a month by which Buyer has requested the transfer and Seller has received copies
of the applicable favorable determination letters from the Service. On the
Transfer Date, the Seller shall transfer 90% of its good faith estimate of
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the Total Transfer Amount. Upon the completion of a calculation of the Total
Transfer Amount by the Seller's actuary (such calculation to occur no later than
120 days after the Transfer Date and such calculation to be binding on the
Buyer), the Savings Plans shall transfer to the Buyer Savings Plan an amount
equal to the difference between the Total Transfer Amount and any amounts
previously transferred to the Buyer Savings Plan or, if applicable, the Buyer
Savings Plan shall transfer to the Savings Plans an amount equal to the
difference between any amounts previously transferred to the Buyer Savings Plan
and the Total Transfer Amount. In consideration of the transfer of assets
hereunder, Buyer shall, as of the Transfer Date, cause the Buyer Savings Plan to
assume the liabilities associated with the transferred assets (including notes)
of the U.S. Transferred Employees.
(c) Periods of employment by U.S. Transferred Employees with Seller for
which credit was given under the Savings Plans shall be taken into account for
all purposes under the Buyer Savings Plan to the same extent they were taken
into account under the Savings Plans. Buyer shall indemnify Seller, each
officer, employee and director of Seller and its affiliates and each fiduciary
of the Savings Plans against, and hold them harmless from, any and all damages
incurred or suffered by them arising out of, in respect of or in connection with
the qualified status of the Buyer Savings Plan on the dates of transfer
described above (including, without limitation, any liability, excise taxes,
penalties and damages arising with respect to the U.S. Transferred Employees).
The Seller shall indemnify the Buyer for any failure to transfer assets pursuant
to clause (b) of this Section 6.8, but only to the extent of the liabilities
assumed by the Buyer thereunder.
(d) The Buyer shall (i) permit repayment to the Buyer Savings Plan of the
outstanding loans of the U.S. Transferred Employees (under the Savings Plans) by
way of regular paycheck deductions and (ii) take all steps required to
effectuate such repayment (including amending its plans).
6.9. U.S. POST-RETIREMENT BENEFITS. As of the Effective Time, no U.S.
Transferred Employee shall be eligible to receive post-retirement welfare
benefits from Seller unless such U.S. Transferred Employee (a) is eligible to
receive such benefits as of the Effective Time pursuant to the terms of the
Borden, Inc. Total Family Protection Plan and (b) terminates employment with the
Buyer on or prior to the first anniversary of the Effective Time.
6.10. U.S. WELFARE PLANS. With respect to any Buyer Business Plan that is
a "welfare benefit plan" (as defined in Section 3(1) of ERISA) maintained for
the benefit of U.S Transferred Employees on and after the Effective Time, Buyer
shall (a) cause there to be waived any pre-existing condition limitations and
(b) give effect, in determining any deductible and maximum out-of-pocket
limitations, to claims incurred and amounts paid by, and amounts reimbursed to,
such employees with respect to similar plans maintained by Seller immediately
prior to the Closing Date.
6.11. U.S. ACCRUED VACATION. With respect to any accrued but unused
vacation time to which any U.S. Transferred Employee is entitled pursuant to the
vacation policy applicable to such employee immediately prior to the Effective
Time (the "VACATION POLICY"), Buyer shall allow such U.S. Transferred Employee
to use such accrued vacation; PROVIDED, HOWEVER, that if Buyer deems it
necessary to disallow such employee from taking such accrued vacation, Buyer
shall be liable for and pay in cash to such employee an amount equal to such
vacation time in accordance with terms of the Vacation Policy; PROVIDED,
FURTHER, that Buyer shall be liable for and pay in cash an amount equal to such
accrued vacation time to any U.S. Transferred Employee whose employment
terminates for any reason subsequent to the Effective Time; PROVIDED, FURTHER,
that Buyer shall be under no obligation to recognize any unused vacation time
accrued prior to the year in which the Closing occurs.
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6.12. SEVERANCE. The Buyer shall provide severance benefits to U.S.
Transferred Employees (who are either salaried or non-union hourly employees)
terminated within 12 months of the Effective time for reasons other than serious
misconduct in the amount of one week of base pay for each full year of service.
6.13. U.S. SERVICE CREDIT. With respect to U.S. Transferred Employees,
Buyer shall recognize all service with Seller for purposes of eligibility and
vesting under the Buyer Business Plans.
6.14. U.S. WARN ACT. Buyer agrees to provide any required notice under the
Worker Adjustment and Retraining Notification Act ("WARN") and any other
applicable law and to otherwise comply with any such statute with respect to any
"plant closing" or "mass layoff" (as defined in WARN) or similar event affecting
employees and occurring on or after the Effective Time or arising as a result of
the transactions contemplated hereby. Buyer shall indemnify and hold harmless
Seller and its affiliates with respect to any liability under WARN or other
applicable law arising from the actions (or inactions) of Buyer or its
affiliates on or after the Effective Time or arising as a result of the
transactions contemplated hereby.
6.15. U.S. COBRA. Buyer agrees to provide any required notice under the
Consolidated Omnibus Budget Reconciliation Act of 1986 ("COBRA") and any other
applicable law on or after the Effective Time. Buyer shall indemnify and hold
harmless Seller and its affiliates with respect to any liability under COBRA or
other applicable law arising from the actions (or inactions) of Buyer or its
affiliates on or after the Effective Time or arising as a result of the
transactions contemplated hereby.
6.16. NO RIGHTS CONFERRED ON EMPLOYEES. Nothing herein, expressed or
implied, shall confer upon any employee or former employee of Seller, Buyer, or
any of their affiliates (including, without limitation, the Transferred
Employees, the Business Employees or the Buyer Business Employees), any rights
or remedies (including, without limitation, any right to employment or continued
employment for any specified period) of any nature or kind whatsoever, under or
by reason of this Agreement.
7. TERMINATION
7.1. GENERAL. This Agreement may be terminated and the transactions
contemplated herein may be abandoned, (a) by mutual consent of the Buyer and the
Seller; (b) by the Buyer or the Seller by notice to the other party in the event
that the Closing Date shall not have occurred on or before January 31, 1997;
provided, however, that if the Closing Date shall not have occurred on or before
such date due to the act or omission of the Buyer or the Seller, then that party
may not terminate the Agreement; (c) by the Seller, in its sole discretion,
after the date which is five weeks after the date of this Agreement, if Seller
shall not have received copies of the Definitive Financing Agreements or if at
any time thereafter any such Definitive Financing Agreements shall cease to be
in full force and effect and Seller shall not have replaced such Definitive
Financing Agreements prior to the earlier of five weeks thereafter and January
31, 1997, or (d) the Seller, if any required approval by the stockholders of the
Buyer shall not have been obtained by reason of the failure to obtain the
required vote upon a vote held at a duly held meeting of stockholders or at any
adjournment thereof except as a result of a material breach of this Agreement by
the Seller or an inability to satisfy Section 5.2(a).
7.2. EFFECT OF TERMINATION. In the event of any termination of the
Agreement as provided in Section 7.1 above, this Agreement shall forthwith
become wholly void and of no further force and effect and there shall be no
liability on the part of the Buyer or the Seller, except that (i) the
obligations of the Buyer and the Seller under Sections 4.1(c) and 9.2 of this
Agreement shall remain in full force and effect and (ii) termination shall not
preclude either party from suing the other party for breach of this Agreement.
8. TRANSACTIONS SUBSEQUENT TO CLOSING
8.1. ACCESS TO BOOKS AND RECORDS. (a) For a period of ten years following
the Closing Date, the Buyer shall retain and afford, and will cause its
affiliates to retain and afford, to the Seller and the Subsidiary Asset Sellers,
their counsel and their accountants, during normal business hours and upon
reasonable advance notice, reasonable access to the books, records and other
data of Borden Global Packaging with respect to the period prior to the Closing
Date to the extent that such access may be
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reasonably required by the Seller or Subsidiary Asset Seller to facilitate (i)
the preparation by any Seller or such Subsidiary Asset Seller of such tax
returns as it may be required to file with respect to the operations of Borden
Global Packaging, the making of any election related to taxes or in connection
with any audit, amended return, claim for refund or any suit or proceeding with
respect thereto, (ii) the investigation, litigation and final disposition of any
claims, suits or proceedings which may have been or may be made against the
Seller or such Subsidiary Asset Seller in connection with Borden Global
Packaging, and (iii) the payment of any amount pursuant to Section 9.4 or in
connection with any liabilities or obligations which have not been assumed by
the Buyer under this Agreement. The Buyer will not, and will cause its
affiliates not to, dispose of, alter or destroy any such books, records and
other data without giving thirty (30) days' prior notice to the Seller to permit
them, at their expense, to examine, duplicate or repossess such records, files,
documents and correspondence.
(b) the Buyer shall further cooperate with the Seller in the preparation for
and prosecution of the defense of any audit, claim, action or cause of action
arising out of or relating to any Excluded Liabilities which have not been
assumed by the Buyer under this Agreement including, without limitation, by
making available evidence within the control of the Buyer and persons needed as
witnesses employed by the Buyer, in each case as reasonably needed for such
defense. The Seller shall reimburse the Buyer for its reasonable out-of-pocket
costs relating to its cooperation under this subparagraph.
(c) For a period of ten years following the Closing Date, the Seller shall
retain and afford, and will cause the Subsidiary Asset Sellers to retain and
afford, to the Buyer, its counsel and its accountants, during normal business
hours and upon reasonable advance notice, reasonable access to the books,
records and other data of such the Seller and the Subsidiary Asset Sellers with
respect to the period prior to the Closing Date to the extent that such access
may be reasonably required by the Buyer or any affiliate of the Buyer (i) in
connection with the ongoing operations of the Packaging Business (ii) to
facilitate the preparation by the Buyer or such affiliate of such tax returns as
it may be required to file with respect to the operations of Borden Global
Packaging, the making of any election relating to taxes or in connection with
any audit, amended return, claim for refund or any suit or proceeding with
respect thereto, (iii) the investigation, litigation and final disposition of
any claims, suits or proceedings which may have been or may be made against the
Buyer or such affiliate in connection with Borden Global Packaging, and (iv) the
payment of any amount pursuant to Section 9.4 or in connection with any
liabilities or obligations which have not been assumed by the Buyer under this
Agreement. The Seller will not, and will cause its affiliates not to, dispose
of, alter or destroy any such books, records and other data without giving
thirty (30) days' prior notice to the Buyer to permit it, at its expense, to
examine, duplicate or repossess such records, files, documents and
correspondence.
(d) the Seller further agrees to cooperate with the Buyer in the preparation
for and prosecution of the defense of any audit, claim, action or cause of
action arising out of or relating to any liability relating to the Packaging
Business which acts arose by reason of acts or omissions occurring prior to the
Closing and which has been assumed by the Buyer, including, without limitation,
by making available evidence within the control of the Seller and persons needed
as witnesses employed by the Seller, in each case as reasonably needed for such
defense. The Buyer shall reimburse the Seller for its reasonable out-of-pocket
costs relating to its cooperation under this subparagraph.
8.2. FURTHER AGREEMENTS. The Seller authorizes and empowers the Buyer on
and after the Closing Date to receive and open all mail received by the Buyer
relating to the business of Borden Global Packaging or the Assets and to deal
with the contents of such communications in any proper manner. The Seller shall,
and shall cause the Subsidiary Asset Sellers to, promptly deliver to the Buyer
any mail or other communication received by them after the Closing Date
pertaining to the business of Borden Global Packaging or the Assets and any
cash, checks or other instruments of payment to which the Buyer is entitled. The
Buyer shall promptly deliver to the Seller any mail or other communication
received by it after the Closing Date pertaining to the assets and liabilities
described in Sections 1.3 and 1.7 hereof, and any cash, checks or other
instruments of payment in respect thereof.
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<PAGE>
8.3. ASSET RETURNS; FURTHER ASSURANCES. In the event that the Buyer
receives any assets of the Seller that are not intended to be transferred
pursuant to the terms of this Agreement, whether or not related to the Packaging
Business, the Buyer agrees to promptly return such assets to the Seller at the
Seller's expense. If, at any time after the Closing Date, the Buyer determines
that any deeds, bills of sale, assignments, assurances or any other actions or
things are necessary or desirable to transfer, vest, perfect or confirm of
record or otherwise in its right, title or interest in, to or under any of the
Subsidiary Stock or Assets acquired or to be acquired by the Buyer as a result
of, or in connection with, the Stock and Asset Purchase or otherwise to carry
out this Agreement, the officers of the Seller shall be authorized to execute
and deliver, all such deeds, bills of sale, assignments and assurances and to
take and do, in such names and on such behalves or otherwise, all such other
actions and things as may be necessary or desirable to transfer, vest, perfect
or confirm any and all right, title and interest in, to and under such
Subsidiary Stock or Assets or otherwise to carry out the purposes of this
Agreement. In the event that after the Closing Date the Seller receives with
respect to the Packaging Business any amount of cash paid on an account
receivable or as a result of a sale of Inventory included in the Closing Balance
Sheet, the Seller shall promptly forward such amount to the Buyer.
9. MISCELLANEOUS
9.1. PUBLIC ANNOUNCEMENTS. Prior to the Closing Date, no news release or
other public announcement pertaining in any way to the transactions contemplated
by this Agreement will be made by either party without the prior consent of the
other party, unless based on the advice of counsel to such party such party
determines that such release or announcement is required by law or any listing
agreement with a securities exchange, in which case a copy of such release will
be provided to the other party.
9.2. EXPENSES. (a) Subject to the provisions of Section 9.2(b) and Section
9.3, whether or not the transactions contemplated by this Agreement are
completed, each of the parties hereto shall pay the fees and expenses incurred
by it in connection with the negotiation, preparation, execution and performance
of this Agreement, including, without limitation, attorneys' fees and
accountants' fees.
(b) If (i) (x) the Board of Directors of the Buyer changes or modifies (in a
manner adverse to the Seller) its recommendation set forth in Section 4.14(b)
hereof, (y) the Buyer Stockholder Approval is not obtained prior to, or fails to
remain effective through, January 31, 1997 (or, if earlier, the termination of
this Agreement) and (z) the Seller is able prior to January 31, 1997, to satisfy
the condition contained in Sections 5.2(a) hereof or (ii) the Stockholders
Meeting shall not have occurred prior to January 31, 1997, then the Buyer shall
pay to the Seller within three business days after the earlier of the
termination of this Agreement and January 31, 1997, an amount, in cash, of
$8,000,000.
9.3. TRANSFER TAXES AND RECORDING EXPENSES. The Buyer, on the one hand,
and the Seller and the Subsidiary Asset Sellers, on the other hand, agree to
divide equally any payments required with respect to any and all U.S. or foreign
transfer, documentary, sales, excise, stamp duties, motor vehicle, registration,
value added or similar taxes and filing or recording expenses or fees, if any,
required to be paid in connection with the transfer of the Assets (including any
interest charge, penalty or addition to tax with respect thereto). The Buyer, on
the one hand, and the Seller and the Subsidiary Asset Sellers, on the other
hand, agree to pay to the other party to the extent that the other party pays in
excess of one half of such taxes, expenses or fees.
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9.4. INDEMNIFICATION. (a) The Seller shall indemnify and hold the Buyer
harmless against and in respect of (i) all obligations and liabilities of the
Seller, whether accrued, absolute, fixed, contingent or otherwise, not expressly
assumed by the Buyer pursuant to this Agreement or the Assumption Agreement;
(ii) any actual loss, liability, damage, cost, expense or amount paid in
settlement (including reasonable attorneys' fees and other reasonable costs of
defense) (but excluding any liability for taxes of any kind or interest or
penalties thereon) (collectively, "DAMAGES") incurred or sustained by the Buyer
as a result of any breach by the Seller of its covenants contained herein, other
than that contained in Section 4.7(iii), which survive the Closing; and (iii)
any actual Damages incurred or sustained by the Buyer as a result of any breach
by the Seller of Section 4.7(iii) or of its representations and warranties
contained in Section 3.1 hereof and made on the date hereof but not on the
Closing Date, without regard to any exceptions for materiality contained in such
representations and warranties; PROVIDED that (W) the Seller shall be required
to indemnify the Buyer pursuant to this clause (iii) for such breaches only to
the extent that the aggregate actual Damages (as adjusted pursuant to Section
9.4(e) of this Agreement) resulting from such breaches to the Buyer exceeds
$5,750,000, (X) the Seller shall not be required to indemnify the Buyer pursuant
to this clause (iii) in an aggregate amount in excess of $75,000,000, (Y) the
Seller shall not be required to indemnify the Buyer pursuant to this clause
(iii) for any breach the Damages (as adjusted pursuant to Section 9.4(e) of this
Agreement) arising from which, in any individual case, amount to $40,000 or
less, and such Damages shall not be included in calculating the $5,750,000
threshold established in the preceding subclause (W), and (Z) any claim for
indemnification under this clause (iii) must be made in writing with specificity
to the Seller by the Buyer within two years of the Closing Date.
(b) the Buyer shall indemnify and hold the Seller and the Subsidiary Asset
Sellers harmless against and in respect of (i) all obligations and liabilities
of the Seller and the Subsidiary Asset Sellers expressly assumed by the Buyer
pursuant to this Agreement or the Assumption Agreement; (ii) any actual Damages
incurred or sustained by the Seller or the Subsidiary Asset Sellers as a result
of any breach by the Buyer of its covenants contained herein which survive the
Closing; (iii) any actual Damages incurred or sustained by the Seller or any of
the Subsidiary Asset Sellers as a result of any operations of the Borden Global
Packaging business on or after the Closing Date; (iv) any actual Damages
incurred or sustained by the Seller or any of the Subsidiary Asset Sellers as a
result of any breach by the Buyer of its representations and warranties
contained in Section 3.2 hereof and made on the date hereof but not on the
Closing Date, without regard for any exceptions to materiality contained in such
representations and warranties; PROVIDED that (W) the Buyer shall be required to
indemnify the Seller pursuant to this clause (iv) for such breaches only to the
extent that the aggregate actual Damages (as adjusted pursuant to Section 9.4(e)
of this Agreement) resulting from such breaches to the Seller exceeds
$5,750,000, (X) the Buyer shall not be required to indemnify the Seller pursuant
to this clause (iv) in an aggregate amount in excess of $75,000,000, (Y) the
Buyer shall not be required to indemnify the Seller pursuant to this clause (iv)
for any breach the Damages (as adjusted pursuant to Section 9.4(e) of this
Agreement) arising from which, in any individual case, amount to $40,000 or
less, and such Damages shall not be included in calculating the $5,750,000
threshold established in the preceding subclause (W), and (Z) any claim for
indemnification under this clause (iv) must be made in writing with specificity
to the Buyer by the Seller within two years of the Closing Date; and (v) any and
all taxes and expenses described in Section 9.3 of this Agreement.
(c) With respect to third-party claims, all claims for indemnification by
the Buyer or the Seller, as the case may be (an "INDEMNIFIED PARTY") hereunder
shall be asserted and resolved as set forth in this Section 9.4(c). In the event
that any written claim or demand for which the Buyer or the Seller, as the case
may be (an "INDEMNIFYING PARTY"), would be liable to any Indemnified Party
hereunder is asserted against or sought to be collected from any Indemnified
Party by a third party, such Indemnified Party shall promptly notify the
Indemnifying Party of such claim or demand and the amount or the estimated
amount thereof to the extent then feasible (which estimate shall not be
conclusive of the final amount of such claim or demand) ( the "CLAIM NOTICE").
Failure to give prompt notice shall not affect the indemnification obligations
hereunder in the absence of actual prejudice. The Indemnifying Party shall have
20 days from the personal delivery or mailing of the Claim Notice (the "Notice
Period") to notify the Indemnified Party (a) whether
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or not the Indemnifying Party disputes the liability of the Indemnifying Party
to the Indemnified Party hereunder with respect to such claim or demand and (b)
whether or not it desires to defend the Indemnified Party against such claim or
demand. All costs and expenses incurred by the Indemnifying Party in defending
such claim or demand shall be a liability of, and shall be paid by, the
Indemnifying Party; provided, however, that the amount of such costs and
expenses that shall be a liability of the Indemnifying Party hereunder shall be
subject to the limitations set forth in Sections 9.4(a) and 9.4(b) hereof.
Except as hereinafter provided, in the event that the Indemnifying Party
notifies the Indemnified Party within the Notice Period that it desires to
defend the Indemnified Party against such claim or demand, the Indemnifying
Party shall have the right to defend the Indemnified Party with counsel
reasonably satisfactory to the Indemnified Party by appropriate proceedings and
shall have the sole power to direct and control such defense and the
Indemnifying Party shall not be liable to such Indemnified Party under this
Section 9.4 for any fees of other counsel or any other expenses, in each case
subsequently incurred by such Indemnified Party in connection with the defense
thereof, other than reasonable costs of investigation and costs and expenses of
legal counsel, if the Indemnified Party and the Indemnifying Party are both
parties to the action and the indemnified party has been advised by counsel that
there may be one or more defenses available to it and not available to the
Indemnifying Party. If any Indemnified Party desires to participate in any such
defense, it may do so at its sole cost and expense. The Indemnified Party shall
not settle a claim or demand without the consent of the Indemnifying Party
unless prior thereto or in connection therewith the Indemnified Party
unconditionally releases the Indemnifying Party for any liability arising out of
such claim or demand. The Indemnifying Party shall not, without the prior
written consent of the Indemnified Party, settle, compromise or offer to settle
or compromise any such claim or demand on a basis which would result in the
imposition of a consent order, injunction or decree which would restrict the
future activity or conduct of the Indemnified Party or any subsidiary or
affiliate thereof or if such settlement or compromise does not include an
unconditional release of the Indemnified Party for any liability arising out of
such claim or demand. If the Indemnifying Party elects not to defend the
Indemnified Party against such claim or demand, whether by not giving the
Indemnified Party timely notice as provided above or otherwise, then the amount
of any such claim or demand or, if the same be contested by the Indemnified
Party, that portion thereof as to which such defense is unsuccessful (and the
reasonable costs and expenses pertaining to such defense), shall be the
liability of the Indemnifying Party hereunder, subject to the limitations set
forth in Sections 9.4(a) and 9.4(b). The Buyer and the Seller shall each render
to each other such assistance as may reasonably be requested in order to insure
the proper and adequate defense of any such claim or proceeding.
(d) The indemnities provided in this Section 9.4 shall survive the Closing.
The indemnity provided in this Section 9.4 shall be the sole and exclusive
remedy of the Indemnified Party against the Indemnifying Party at law or equity
for any matter covered by paragraphs (a) and (b).
(e) The amount of any Damages for which indemnification is provided under
this Section 9.4 shall be computed net of any insurance proceeds received by the
Indemnified Party in connection with such Damages. If the amount with respect to
which any claim is made under this Section 9.4 (an "INDEMNITY CLAIM") gives rise
to a currently realizable Tax Benefit (as defined below) to the party making the
claim, the indemnity payment shall be reduced by the amount of the Tax Benefit
available to the party making the claim. To the extent such Indemnity Claim does
not give rise to a currently realizable Tax Benefit, if the amount with respect
to which any Indemnity Claim is made gives rise to a subsequently realized Tax
Benefit to the party that made the claim, such party shall refund to the
Indemnifying Party the amount of such Tax Benefit when, as and if realized. For
the purposes of this Agreement, any subsequently realized Tax Benefit shall be
treated as though it were a reduction in the amount of the initial Indemnity
Claim, and the liabilities of the parties shall be redetermined as though both
occurred at or prior to the time of the indemnity payment. For purposes of this
Section 9.4(e), a "Tax Benefit" means an amount by which the tax liability of
the party (or group of corporations including the party) is reduced (including,
without limitation, by deduction, reduction of income by virtue of increased tax
basis or otherwise, entitlement to refund, credit or otherwise) plus any related
interest received from the relevant taxing authority. Where a
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<PAGE>
party has other losses, deductions, credits or items available to it, the Tax
Benefit from any losses, deductions, credits or items relating to the Indemnity
Claim shall be deemed to be realized proportionately with any other losses,
deductions, credits or items. For the purposes of this Section 9.4(e), a Tax
Benefit is "currently realizable" to the extent it can be reasonably anticipated
that such Tax Benefit will be realized in the current taxable period or year or
in any tax return with respect thereto (including through a carryback to a prior
taxable period) or in any taxable period or year prior to the date of the
Indemnity Claim. In the event that there should be a determination disallowing
the Tax Benefit, the Indemnifying Party shall be liable to refund to the
Indemnified Party the amount of any related reduction previously allowed or
payments previously made to the Indemnifying Party pursuant to this Section
9.4(e). The amount of the refunded reduction or payment shall be deemed a
payment under this Section 9.4 and thus shall be paid subject to any applicable
reductions under this Section 9.4(e).
(f) The parties agree that any indemnification payments that may be due from
the Seller to the Buyer pursuant to Section 9.4(a) hereof may be paid at the
option of Seller (i) in U.S. dollars in the amount of the Damages or (ii) in
such number of shares of Buyer Common Stock held by Seller or its affiliates
equal to the quotient obtained by dividing (a) the amount of Damages by (b) the
average of the closing prices of the Buyer Common Stock on The Nasdaq National
Market, as reported in THE WALL STREET JOURNAL, for the 20 trading days
immediately preceding the second trading day prior to the date of payment
thereof.
(g) The parties agree that any indemnification payments made pursuant to
this Agreement shall be treated for tax purposes as an adjustment to the
Purchase Price, unless otherwise required by applicable law. The Buyer agrees
not to make any election under Section 338 of the Code unless the Seller
consents to such election in writing.
(h) Notwithstanding any of the foregoing, no Damages shall be due pursuant
to this Section 9.4 for any matters covered by the post-Closing adjustment
provisions of Section 2.4.
(i) Notwithstanding anything to the contrary contained herein, neither party
hereto nor any affiliate of either of them shall be liable for any
consequential, punitive or special damages pursuant to this Agreement or any of
the agreements contemplated hereby.
9.5. NOTICES. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly received if so given) by hand delivery, by mail
(registered or certified mail, postage prepaid, return receipt requested) or by
any courier service, such as Federal Express, providing proof of delivery. All
communications hereunder shall be delivered to the respective parties at the
following addresses:
(a) If to the Seller:
Borden, Inc.
180 East Broad Street
Columbus, Ohio 43215
Attention: Richard L. de Ney
with copies to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
Attention: David J. Sorkin, Esq.
and
Kohlberg Kravis Roberts & Co.
9 West 57th Street
New York, New York 10019
Attention: Scott M. Stuart
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<PAGE>
(b) If to the Buyer:
AEP Industries Inc.
125 Phillips Avenue
South Hackensack, New Jersey 07606
Attention: Paul M. Feeney, Executive Vice President
with a copy to:
Bachner, Tally, Polevoy & Misher LLP
380 Madison Avenue
New York, New York 10017
Attention: Paul E. Gelbard, Esq.
or to such other address as either party shall have specified by notice in
writing to the other party. All such notices, requests, demands and
communications shall be deemed to have been received on the date of personal
delivery or telecopy or on the third Business Day after the mailing thereof.
9.6. ENTIRE AGREEMENT. This Agreement (including the Exhibits hereto and
the Disclosure Schedules) together with the Stockholders Agreement and the
Governance Agreement constitutes the entire agreement between the parties hereto
and supersedes all prior agreements and understandings, oral and written,
between the parties hereto with respect to the subject matter hereof.
9.7. BINDING EFFECT; NO THIRD PARTY BENEFICIARIES. This Agreement shall
inure to the benefit of and be binding upon the parties hereto and their
respective successors and assigns. Nothing in this Agreement, expressed or
implied, is intended to confer on any person other than the parties hereto or
their respective successors and assigns, any rights, remedies, obligations or
liabilities under or by reason of this Agreement.
9.8. BULK SALES LAW. The Buyer and the Seller each agree to waive
compliance by the other with the provisions of the bulk sales law of any
jurisdiction.
9.9. ASSIGNABILITY. This Agreement shall not be assignable by the Seller
without the prior written consent of the Buyer or by the Buyer without the prior
written consent of the Seller.
9.10. AMENDMENT; WAIVER. This Agreement may be amended, supplemented or
otherwise modified only by a written instrument executed by the parties hereto.
No waiver by either party of any of the provisions hereof shall be effective
unless explicitly set forth in writing and executed by the party so waiving.
Except as provided in the preceding sentence, no action taken pursuant to this
Agreement, including without limitation, any investigation by or on behalf of
any party, shall be deemed to constitute a waiver by the party taking such
action of compliance with any representations, warranties, covenants, or
agreements contained herein, and in any documents delivered or to be delivered
pursuant to this Agreement and in connection with the Closing hereunder. The
waiver by any party hereto of a breach of any provision of this Agreement shall
not operate or be construed as a waiver of any subsequent breach.
9.11. SCHEDULES AND EXHIBITS. Any fact or item which is clearly disclosed
on any Exhibit to this Agreement or in either Disclosure Schedule or in the
Financial Information or Interim Financial Information in such a way as to make
its relevance to a representation or representations made elsewhere in this
Agreement or to the information called for by an Exhibit or Exhibits to this
Agreement of either Disclosure Schedule readily apparent shall be deemed to be
an exception to such representation or representations or to be disclosed on
such Exhibit or Exhibits or Disclosure Schedule, as the case may be,
notwithstanding the omission of a reference or cross-reference thereto. Any fact
or item disclosed on any Exhibit hereto or either Disclosure Schedule shall not
by reason only of such inclusion be deemed to be material and shall not be
employed as a point of reference in determining any standard of materiality
under this Agreement.
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9.12. OTHER COVENANTS. To the extent that any consents needed to assign to
the Buyer any of the Assets have not been obtained on or prior to the Closing
Date this Agreement shall not constitute an assignment or attempted assignment
thereof if such assignment or attempted assignment would constitute a breach
thereof. If any such consent shall not be obtained on or prior to the Closing
Date, then (i) the Seller and the Buyer, if required under applicable law, shall
use their reasonable efforts in good faith to obtain such consent as promptly as
practicable thereafter and (ii) if in the reasonable judgment of the Buyer such
consent may not be obtained, the parties shall use reasonable efforts in good
faith to cooperate, and to cause each of their respective affiliates to
cooperate, in any lawful arrangement designed to provide for the Buyer the
benefits under any such Assets.
9.13. SECTION HEADINGS; TABLE OF CONTENTS. The section headings contained
in this Agreement and the Table of Contents to this Agreement are for reference
purposes only and shall not affect the meaning or interpretation of this
Agreement.
9.14. SEVERABILITY. If any provision of this Agreement shall be declared
by any court of competent jurisdiction to be illegal, void or unenforceable, all
other provisions of this Agreement shall not be affected and shall remain in
full force and effect.
9.15. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original and all of which
together shall be deemed to be one and the same instrument.
9.16. APPLICABLE LAW. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of New York without regard to
conflicts of laws principles thereof.
9.17. CERTAIN DEFINITIONS. For purposes of this Agreement, the term:
(a) "affiliate" of a person means a person that directly or indirectly,
through one or more intermediaries, controls, is controlled by, or is under
common control with, the first mentioned person;
(b) "person" means an individual, corporation, partnership, association,
trust, incorporated organization, other entity or group (as defined in
Section 13(d)(3) of the Exchange Act); and
(c) "subsidiary" or "subsidiaries" of the Buyer, the Seller or any other
person means any corporation, partnership, joint venture or other legal
entity of which the Buyer, the Seller or such other person, as the case may
be (either alone or through or together with any other subsidiary), owns,
directly or indirectly, 50% or more of the stock or other equity interests
the holder of which is generally entitled to vote for the election of the
board of directors or other governing body of such corporation or other
legal entity.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first above written.
BORDEN, INC.
By: /s/ RICHARD L. DE NEY
--------------------------------------
Name: Richard L. de Ney
Title: EXECUTIVE VICE PRESIDENT
AEP INDUSTRIES INC.
By: /s/ PAUL M. FEENEY
--------------------------------------
Name: Paul M. Feeney
Title: EXECUTIVE VICE PRESIDENT
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<PAGE>
ANNEX B
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
GOVERNANCE AGREEMENT
BETWEEN
BORDEN, INC.
AND
AEP INDUSTRIES INC.
---------------
DATED AS OF JUNE 20, 1996
------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C> <C>
ARTICLE I
DEFINITIONS............................................................................................... B-1
SECTION 1.1. Definitions......................................................................... B-1
ARTICLE II
SUBSCRIPTION RIGHTS....................................................................................... B-4
SECTION 2.1. Subscription Rights................................................................. B-4
ARTICLE III
BUSINESS COMBINATIONS BETWEEN THE COMPANY AND BORDEN...................................................... B-4
SECTION 3.1. Purchases of Equity Securities...................................................... B-4
SECTION 3.2. Additional Limitations.............................................................. B-4
ARTICLE IV
CORPORATE GOVERNANCE...................................................................................... B-5
SECTION 4.1. Composition of the Board of Directors............................................... B-5
SECTION 4.2. Solicitation and Voting of Shares................................................... B-7
SECTION 4.3. Committees.......................................................................... B-7
SECTION 4.4. Super-Majority Directors' Approval Required for Certain Actions..................... B-8
SECTION 4.5. Enforcement of this Agreement....................................................... B-9
SECTION 4.6. Certificate of Incorporation and By-Laws............................................ B-9
SECTION 4.7. Board of Directors Meetings/Financial Information................................... B-9
SECTION 4.8. Failure to Comply with this Article IV.............................................. B-10
ARTICLE V
TRANSFER OF COMMON STOCK.................................................................................. B-10
SECTION 5.1. Transfer of Common Stock............................................................ B-10
ARTICLE VI
REGISTRATION RIGHTS....................................................................................... B-11
SECTION 6.1. Restrictive Legend.................................................................. B-11
SECTION 6.2. Notice of Proposed Transfer......................................................... B-11
SECTION 6.3. Request for Registration............................................................ B-11
SECTION 6.4. Incidental Registration............................................................. B-13
SECTION 6.5. Registration on Form S-3............................................................ B-14
SECTION 6.6. Obligations of the Company.......................................................... B-14
SECTION 6.7. Furnish Information................................................................. B-17
SECTION 6.8. Expenses of Registration............................................................ B-17
SECTION 6.9. Underwriting Requirements........................................................... B-17
SECTION 6.10. Rule 144 and Rule 144A Information.................................................. B-18
SECTION 6.11. Indemnification..................................................................... B-18
SECTION 6.12. Lockup.............................................................................. B-20
SECTION 6.13. Transfer of Registration Rights..................................................... B-20
SECTION 6.14. Selection of Counsel................................................................ B-21
ARTICLE VII
REPRESENTATIONS AND WARRANTIES............................................................................ B-21
SECTION 7.1. Representations of the Company...................................................... B-21
SECTION 7.2. Representations of Borden........................................................... B-21
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
---------
<S> <C> <C>
ARTICLE VIII
MISCELLANEOUS............................................................................................. B-22
SECTION 8.1. Notices............................................................................. B-22
SECTION 8.2. Amendments; No Waivers.............................................................. B-23
SECTION 8.3. Severability........................................................................ B-23
SECTION 8.4. Entire Agreement; Assignment........................................................ B-23
SECTION 8.5. Parties in Interest................................................................. B-24
SECTION 8.6. Specific Performance................................................................ B-24
SECTION 8.7. Governing Law....................................................................... B-24
SECTION 8.8. Headings............................................................................ B-24
SECTION 8.9. Counterparts........................................................................ B-24
SECTION 8.10. Effectiveness; Termination.......................................................... B-24
SECTION 8.11. Waiver of Jury Trial................................................................ B-24
</TABLE>
Exhibits
Exhibit A--Table of Composition of the Board of Directors
Exhibit B--Form of Amended and Restated Certificate of Incorporation
Exhibit C--Form of Amended By-Laws
ii
<PAGE>
GOVERNANCE AGREEMENT, dated as of June 20, 1996, between Borden, Inc., a New
Jersey corporation ("BORDEN"), and AEP Industries Inc., a Delaware corporation
(the "COMPANY").
WHEREAS, concurrently herewith, Borden and the Company are entering into a
Purchase Agreement of even date herewith (as amended from time to time, the
"PURCHASE AGREEMENT"); and
WHEREAS, the Boards of Directors of Borden and the Company have each
determined to engage in the transactions contemplated by the Purchase Agreement,
pursuant to which the Company will purchase from Borden and certain subsidiaries
of Borden the stock and assets of Borden and certain subsidiaries of Borden
relating to the business of the development, production, marketing, distribution
and sale of flexible and rigid plastic packaging materials in North America,
Europe, South Africa, Australia and Asia in consideration for a combination of
cash and shares of Common Stock (as defined herein); and
WHEREAS, Borden and the Company desire to establish in this Agreement
certain terms and conditions concerning the corporate governance of the Company
after the Closing Date (as defined in the Purchase Agreement) and certain terms
and conditions concerning the acquisition and disposition of securities of the
Company by Borden and its affiliates.
NOW, THEREFORE, in consideration of the foregoing and the mutual promises
and agreements contained herein, Borden and the Company hereby agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1. DEFINITIONS. As used in this Agreement, the following terms
have the following meanings:
(a) "AFFILIATE" has the same meaning as in Rule 12b-2 promulgated under
the Exchange Act.
(b) "ASSOCIATE" has the same meaning as in Rule 12b-2 promulgated under
the Exchange Act.
(c) "BENEFICIAL OWNER" and to "BENEFICIALLY OWN" has the same meaning as
in Rule 13d-3 promulgated under the Exchange Act.
(d) "BOARD OF DIRECTORS" means the Board of Directors of the Company.
(e) "BORDEN AFFILIATE" means all persons controlled by Borden, any
person controlling Borden and any person acting in concert with Borden or
any person controlling Borden.
(f) "BORDEN'S INTEREST" means the percentage of outstanding Common Stock
that is controlled directly or indirectly by Borden and the Borden
Affiliates.
(g) "BUSINESS COMBINATION" means any one of the following transactions:
(i) Any merger or consolidation of the Company or any Subsidiary of
the Company with (A) Borden or (B) any corporation (other than the
Company) which is, or after such merger or consolidation would be, an
Affiliate or Associate of Borden;
(ii) Any sale, lease, exchange, mortgage, pledge, transfer or other
disposition by the Company (in one transaction or a series of
transactions) to or with Borden or any Affiliate or Associate of Borden
(other than the Company) of all or a Substantial Part of the assets of
the Company or any Subsidiary thereof; or
(iii) The adoption of any plan or proposal for the liquidation or
dissolution of the Company proposed by or on behalf of Borden or any
Affiliate or Associate of Borden (other than the Company); or
(iv) Any reclassification of securities (including any reverse stock
split), recapitalization of the Company, or any merger or consolidation
of the Company with any Subsidiary thereof or any other transaction to
which the Company is a party (whether or not with or into or otherwise
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involving Borden or any Affiliate or Associate of Borden) which has the
effect, directly or indirectly, of increasing the proportionate share of
the outstanding shares of any class of equity or convertible securities
of the Company or any Subsidiary thereof which is directly or indirectly
owned by Borden or any Affiliate or Associate of Borden (other than the
Company).
(h) "COMMON STOCK" means the common stock, par value $.01 per share, of
the Company.
(i) "DIRECTOR" means a member of the Board of Directors.
(j) "EQUITY SECURITY" means any (i) Common Stock, (ii) securities of the
Company convertible into or exchangeable for Common Stock, and (iii)
options, rights, warrants and similar securities issued by the Company to
acquire Common Stock.
(k) "EXCHANGE ACT" means the Securities Exchange Act of 1934, and the
rules and regulations promulgated thereunder, as amended.
(l) "FAIR MARKET VALUE" means: (i) in the case of a security, the
average of the closing sale prices during the thirty day period immediately
preceding the date in question of such security on the Composite Tape for
New York Stock Exchange ("NYSE") listed stocks or, if such security is not
quoted on the Composite Tape, on the NYSE or, if such security is not listed
on the NYSE, on the principal United States securities exchange registered
under the Exchange Act on which such security is listed or, if such Security
is not listed on any such exchange, the average of the closing sale prices
or the closing bid quotations of such security during the thirty day period
preceding the date of determination on the Nasdaq National Market or any
system then in use or, if no such quotations are available, the fair market
value on the date in question of such security as determined by a majority
of Independent Directors in good faith; and (ii) in the case of property
other than cash or a security, the fair market value of such property on the
date in question as determined by a majority of Independent Directors in
good faith.
(m) "HOLDER" shall mean any holder of Registrable Securities.
(n) "INDEPENDENT DIRECTOR" means a director of the Company (i) who is
not and has never been an officer or employee of the Company, any Affiliate
or Associate of the Company or an entity that derived 10% or more of its
revenues or earnings in its most recent fiscal year from transactions
involving the Company or any Affiliate or Associate of the Company, (ii) who
is not and has never been an officer, employee or director of Borden any
Affiliate or Associate of Borden or an entity that derived more than 10% of
its revenues or earnings in its most recent fiscal year from transactions
involving Borden or any Affiliate or Associate of Borden, and (iii) who was
on the Closing Date deemed to be, or on or after the Closing Date was
designated as, an Independent Director in accordance with Section 4.1.
(o) "INITIAL PERCENTAGE" means the percentage of outstanding Common
Stock that Borden and the Borden Affiliates acquire from the Buyer on the
Closing Date pursuant to the Purchase Agreement.
(p) "INVESTOR DIRECTORS" means Directors who are designated for such
position by Borden in accordance with Section 4.1.
(q) "MANAGEMENT DIRECTORS" means, at the Closing Date, Directors who
were deemed to be Management Directors in accordance with Section 4.1(b)
and, after the Closing Date, Directors who are designated for such position
by the then existing Management Directors in accordance with Section 4.1.
(r) "NEW SECURITY" means any Equity Security issued by the Company for
cash or cash equivalents; PROVIDED that "New Security" shall not include (i)
securities issuable upon conversion of any convertible Equity Security, (ii)
securities issuable upon exercise of any option, warrant or other
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similar Equity Security, (iii) securities issuable at any time to employees,
directors or consultants of the Company, or any Subsidiary of the Company,
pursuant to any employee stock offering, plan, or arrangement approved by
the Board of Directors (or an appropriate committee thereof), including,
without limitation, the 401(k) Savings and Employee Stock Ownership Plan
(the "ESOP") and 1995 Employee Stock Purchase Plan (the "STOCK PURCHASE
PLAN") of the Company, and (iv) securities issuable in connection with any
stock split, stock dividend or recapitalization of the Company.
(s) A "PERMITTED ACQUISITION TRANSACTION" means either (i) a tender or
exchange offer for outstanding shares of Common Stock or (ii) a Business
Combination that is conditioned upon approval by at least a majority of the
Unaffiliated Stockholders, and which transaction, in the case of either
clause (i) or (ii) above, satisfies each of the following conditions:
(A) the Board of Directors receives an opinion from a nationally
recognized independent investment banking firm selected by the Board of
Directors other than Investor Directors that the price and other
financial terms of the transaction are fair from a financial point of
view to the Unaffiliated Stockholders; and
(B) a majority of the Board of Directors (other than the Investor
Directors) concludes that the price and other terms of the transaction
are fair to and in the best interests of the Unaffiliated Stockholders
and recommends that Unaffiliated Stockholders approve the transaction; or
(iii) a merger following the consummation of a tender or exchange offer
described in clause (i) above that offers the same consideration as such
tender or exchange offer, whether or not such merger complies with paragraph
(A) or (B) above.
(t) "PRO RATA SHARE" means a fraction of an entire issuance of New
Securities, the numerator of which shall be the number of shares of Common
Stock owned by Borden immediately prior to such issuance of such New
Securities and the denominator of which shall be the aggregate number of
shares of Common Stock outstanding immediately prior to the issuance of such
New Securities.
(u) "REGISTER," "REGISTERED" and "REGISTRATION" shall refer to a
registration effected by preparing and filing a registration statement or
similar document in compliance with the Securities Act and the declaration
or ordering of effectiveness of such registration statement or document.
(v) "REGISTRABLE SECURITIES" shall mean (i) any Equity Security held by
Borden that was issued to Borden by the Company pursuant to, or otherwise
acquired by Borden in accordance with, the terms of this Agreement or the
Purchase Agreement, (ii) any common stock issued as (or issuable upon the
conversion or exercise of any warrant, right, option or other convertible
security which is issued as) a dividend or other distribution with respect
to, or in exchange for, or in replacement of, such Equity Security, and
(iii) any common stock issued by way of a stock split of the Equity Security
referred to in clauses (i) or (ii) above. For purposes of this Agreement,
any Registrable Securities shall cease to be Registrable Securities when (w)
a registration statement covering such Registrable Securities has been
declared effective and such Registrable Securities have been disposed of
pursuant to such effective registration statement, (x) such Registrable
Securities shall have been distributed pursuant to Rule 144 (or any similar
provision then in effect) under the Securities Act, (y) such Registrable
Securities are sold by a person in a transaction in which the rights under
the provisions of this Agreement are not assigned, or (z) such Registrable
Securities shall cease to be outstanding.
(w) "SEC" means the Securities and Exchange Commission.
(x) "SECURITIES ACT" means the Securities Act of 1933, and the rules and
regulations promulgated thereunder, as amended.
(y) "STANDSTILL PERIOD" means a period of time commencing at the Closing
Date and terminating on the three year anniversary of the Closing Date.
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(z) "SUBSIDIARY" has the same meaning as in Rule 12b-2 promulgated under
the Exchange Act.
(aa) A "SUBSTANTIAL PART" of the Company means more than 10% of the
Fair Market Value of the total assets of the Company and its Subsidiaries as
of the end of its most recent fiscal quarter ending prior to the time the
determination is made.
(bb) "UNAFFILIATED STOCKHOLDERS" means stockholders of the Company
other than Borden or Borden Affiliates.
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ARTICLE II
SUBSCRIPTION RIGHTS
SECTION 2.1. SUBSCRIPTION RIGHTS. So long as Borden has the right to
designate at least two Investor Directors pursuant to Section 4.1(c), if the
Board of Directors shall authorize the issuance of New Securities, then, prior
to each such authorization of New Securities, the Company shall offer to Borden
a Pro Rata Share of such New Securities. Any offer of New Securities made to
Borden under this Section 2.1 shall be made by notice in writing (the
"SUBSCRIPTION NOTICE") at least 20 days prior to the date on which the Company
authorizes the issuance of such New Securities. The Subscription Notice shall
set forth (i) the number of New Securities proposed to be issued to persons
other than Borden and the terms of such New Securities, (ii) the consideration,
if any, for which such New Securities are proposed to be issued and the terms of
payment, (iii) the number of New Securities offered to Borden in compliance with
the provisions of this Article II, and (iv) the proposed date of issuance of
such New Securities. Not later than 20 days after receipt of the Subscription
Notice, Borden shall notify the Company in writing whether it elects to purchase
all or any portion of the New Securities offered to Borden pursuant to the
Subscription Notice. If Borden shall elect to purchase any such New Securities,
the New Securities which it shall have elected to purchase shall be issued and
sold to Borden by the Company at the same time and on the same terms and
conditions as the New Securities are issued and sold to third parties. If, for
any reason, the issuance of New Securities to third parties is not consummated,
Borden's right to its Pro Rata Share of such issuance shall lapse, subject to
Borden's ongoing subscription right with respect to issuances of New Securities
at later dates or times.
ARTICLE III
BUSINESS COMBINATIONS BETWEEN THE COMPANY AND BORDEN
SECTION 3.1. PURCHASES OF EQUITY SECURITIES. (a) During the Standstill
Period, Borden and the Borden Affiliates shall not, (i) directly or indirectly,
purchase or otherwise acquire, or propose or offer to purchase or otherwise
acquire, any Equity Securities whether by tender offer, market purchase,
privately negotiated purchase, Business Combination or otherwise, if,
immediately after such purchase or acquisition, Borden's Interest would equal or
exceed the Initial Percentage or (ii) directly or indirectly propose or offer to
enter into a Business Combination.
(b) The prohibitions contained in Section 3.1(a) shall not apply (i) during
any period in which Borden's Interest is less than 10%, (ii) to any Permitted
Acquisition Transaction following (X) the commencement by any third party of (1)
a bona fide tender or exchange offer to purchase in excess of 20% of the
outstanding shares of Common Stock that the Board of Directors either recommends
acceptance of, expresses no opinion and remains neutral toward or is unable to
take a position with respect to, (2) a bona fide proposal to acquire all or
substantially all of the assets of the Company that the Board of Directors is
actively entertaining and the consummation of which would require approval by
the Stockholders of the Company pursuant to Section 271 of the Delaware General
Corporation Law or (3) a bona fide proposal to enter into any acquisition or
other business combination transaction with the Company that the Board of
Directors is actively entertaining, in the case of each of clauses (1)-(3),
which shall not have been approved in advance by the Company or the Board of
Directors, or (Y) the Company entering into (or announcing its intention to do
so) a definitive agreement, or an agreement contemplating a definitive
agreement, for any of the transactions described in clauses (1)--(3) above or
(iii) to any issuance of securities pursuant to Article II of this Agreement.
SECTION 3.2. ADDITIONAL LIMITATIONS. During the Standstill Period, Borden
and the Borden Affiliates shall not:
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(a) other than in connection with an election contest to which Rule
14a-11 under the Exchange Act applies initiated by a third party or as
otherwise approved by a majority of the Board of Directors (other than the
Investor Directors), make, or in any way participate, directly or
indirectly, in any "solicitation" of "proxies" to vote (as such terms are
used in the proxy rules of the SEC) or seek to advise, encourage or
influence any person or entity with respect to the voting of any shares of
capital stock of the Company, initiate, propose or otherwise solicit
stockholders of the Company for the approval of one or more stockholder
proposals or induce or attempt to induce any other individual, firm,
corporation, partnership or other entity to initiate any stockholder
proposal;
(b) deposit any shares of Common Stock into a voting trust or subject
any shares of Common Stock to any arrangement or agreement with respect to
the voting of such securities or form, join or in any way participate in a
"group" (within the meaning of Section 13(d)(3) of the Exchange Act) with
respect to any shares of Common Stock; or
(c) except in connection with a transaction permitted by Section 3.1(b)
hereof, make any public announcement with respect to the transactions
referred to in Section 3.1(a) hereof.
ARTICLE IV
CORPORATE GOVERNANCE
SECTION 4.1. COMPOSITION OF THE BOARD OF DIRECTORS. (a) Except as
otherwise provided herein, the Board of Directors shall consist of ten
Directors.
(b) Prior to the Closing Date, the Company shall cause one of the six
current Directors to resign his directorship. At the Closing Date, the Board of
Directors shall consist of (i) the five Directors on the Board of Directors
immediately prior to the Closing Date (of whom two shall be independent
directors as required by the rules of the Nasdaq National Market System and who
shall be deemed to be Independent Directors hereunder; the remaining three
current Directors shall be deemed to be Management Directors), (ii) four
Investor Directors designated by Borden, and (iii) one additional Independent
Director to be chosen by mutual agreement between the Management Directors and
Borden. In the event that Borden and the Management Directors cannot agree on
the Independent Director specified in clause (iii) of the preceding sentence,
then the Management Directors shall select an Independent Director to serve on
the Board of Directors for the period from the Closing Date until the later of
(x) the date that is eighteen months thereafter or (y), if consented to by the
Management Directors, the expiration of the term of such Independent Director
(such eighteen month or longer period, the "Independent Director Term") from a
list prepared by Borden of three potential candidates none of whom shall be or
have been an employee, consultant or agent of Borden or any of the Borden
Affiliates. Following the expiration of the Independent Director Term, in the
event that Borden and the Management Directors cannot agree on the continuation
of such individual as an Independent Director or a replacement for such
Independent Director, then Borden shall select an Independent Director to serve
on the Board of Directors for the following Independent Director Term from a
list prepared by the Management Directors of three potential candidates none of
whom shall be or have been an employee, consultant or agent of the Company or
its Affiliates. The procedures set forth in the preceding two sentences with
respect to the selection of an Independent Director by Borden and the Management
Directors shall be followed, alternating between the procedures set forth in the
two preceding sentences for each subsequent Independent Director Term, at all
times during the term of this Agreement that Borden's Interest is 10% or
greater. The Investor Directors and the Independent Director chosen pursuant to
clause (iii) above shall be apportioned, to the extent possible, equally among
the three classes of Directors.
(c) At all times during the term of this Agreement that Borden's Interest
is:
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(i) below 10% Borden shall have no right to designate any Directors, and
the Management Directors shall have the right to designate eight Management
Directors and two Independent Directors;
(ii) 10% or above but less than 20%, Borden shall have the right to
designate one Investor Director, and the Management Directors shall have the
right to designate six Management Directors and two Independent Directors;
(iii) 20% or above but less than 25%, Borden shall have the right to
designate two Investor Directors and the Management Directors shall have the
right to designate five Management Directors and two Independent Directors;
(iv) 25% or above but less than 50%, Borden shall have the right to
designate four Investor Directors and the Management Directors shall have
the right to designate three Management Directors and two Independent
Directors;
(v) in the event that a Permitted Acquisition Transaction or other
transaction permitted by this Agreement results in Borden's Interest being
equal to or exceeding 50%, Borden shall have the right to designate five
Investor Directors and one Independent Director and the Management Directors
shall have the right to designate two Management Directors and one
Independent Director; and
(vi) 10% or above, Borden and the Management Directors shall select, by
mutual agreement, one Independent Director pursuant to the procedure set
forth in Section 4.1(b) hereof.
(d) Notwithstanding the foregoing, Borden and the Company hereby agree that
the number of directorships on the Board of Directors may be increased or
decreased from time to time as the parties may mutually agree; provided,
however, that (i) there shall at all times be an even number of Directors, (ii)
the number of Directors shall not be fewer than eight or greater than twelve,
and (iii) at all times that Borden's Interest is 10% or above, one Director
shall be chosen pursuant to clause (vi) of subsection 4.1(c). In the event that
Borden and the Company agree to increase or decrease the number of directorships
on the Board of Directors in accordance with the foregoing, the composition of
the Board will be as set forth on Exhibit A hereto, based upon Borden's Interest
at all times during the term of this Agreement.
(e) In the event that Borden's Interest is such that there are more Investor
Directors, Independent Directors or Management Directors on the Board of
Directors than Borden or the Management Directors, as the case may be, has the
right to designate pursuant to Section 4.1(c) or 4.1(d), as the case may be,
Borden or the Management Directors, as the case may be, shall promptly cause to
resign, and take all other action reasonably necessary to cause the prompt
removal of, that number of Investor Directors, Independent Directors or
Management Directors, as the case may be, as required to make the remaining
number of Investor Directors, Independent Directors and Management Directors in
conformity with the provisions of Section 4.1(c) or 4.1(d), as the case may be.
Each of Borden and the Management Directors shall have the right to designate,
in accordance with Section 4.1(c) or 4.1(d), as the case may be, replacement
Directors for the Investor Directors, Independent Directors or Management
Directors, as the case may be, removed or whose resignation shall have been
obtained by the other party pursuant to this paragraph.
(f) Subject to Section 4.1(e), Borden and the Management Directors,
respectively, shall have the right to designate any replacement for a director
designated in accordance with Section 4.1 by Borden or the Management Directors,
respectively, at the termination of such director's term or upon death,
resignation, retirement, disqualification, removal from office or other cause.
The Board of Directors shall elect each person so designated upon nomination by
the Nominating Committee.
(g) No individual who is an officer, director, partner or principal
stockholder of any competitor of the Company or any of its Subsidiaries (other
than Borden and its Affiliates) shall serve as a Director.
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(h) Each person designated as a nominee for Director pursuant to this
Section 4.1 shall be nominated for such position by the Nominating Committee
unless the Nominating Committee, in the execution of its fiduciary duties, shall
reasonably determine such designee is not qualified to serve on the Board of
Directors. If the Nominating Committee shall reasonably determine that such
designee is not so qualified, the designating person shall have the opportunity
to specify one or more additional designees who shall become nominees subject to
the qualification set forth in the immediately preceding sentence.
SECTION 4.2. SOLICITATION AND VOTING OF SHARES. (a) The Company shall use
its best efforts to solicit from the stockholders of the Company eligible to
vote for the election of Directors proxies in favor of the nominees designated
in accordance with Section 4.1.
(b) In any election of Directors or any meeting of the stockholders of the
Company called expressly for the removal of Directors, Borden and its Affiliates
will vote their shares of Common Stock for all nominees in proportion to the
votes cast by the other holders of shares of Common Stock; provided that Borden
and its Affiliates may cast any or all of their votes, in their sole discretion,
(i) in favor of any nominee designated by Borden pursuant to Section 4.1 and
(ii) in connection with any election contest to which Rule 14a-11 under the
Exchange Act applies. Subject to Section 4.8, in all other matters submitted to
a vote of the Company stockholders, Borden may vote any or all of its shares in
its sole discretion.
SECTION 4.3. COMMITTEES. (a) Subject to the general oversight and
authority of the full Board of Directors, the Board of Directors shall
establish, empower and maintain the committees of the Board of Directors
contemplated by this Section 4.3.
(b) The following committees shall be established, empowered and maintained
by the Board of Directors at all times during the term of this Agreement that
Borden's Interest is 15% or greater:
(i) an Audit Committee, consisting solely of Independent Directors;
(ii) a Nominating Committee, responsible, among other things, for the
nomination, subject to Section 4.1(h), of Directors and the solicitation of
stockholder proxies, and consisting solely of an equal number of Investor
Directors and Management Directors;
(iii) a Compensation Committee, responsible, among other things, for
recommending to the Board of Directors, for approval by a majority of the
Board of Directors or such other percentage of the Directors as provided in
Section 4.4, the adoption and amendment of all employee benefit plans and
arrangements and the engagement of, terms of any employment agreements and
arrangements with, and termination of, all corporate officers of the
Company, and consisting of an equal number of Investor Directors, Management
Directors and Independent Directors;
(iv) a Stock Option Committee, responsible, among other things, for (A)
recommending to the Board of Directors, for approval by a majority of the
Board of Directors or such other percentage of Directors as provided in
Section 4.4, the adoption and amendment of all stock option plans of the
Company and (B) for the administration of such plans including grants of
options thereunder, and, at all times during the term of this Agreement that
Borden's Interest is (x) 25% or greater, consisting solely of an equal
number of Independent Directors and Investor Directors who constitute
disinterested persons (as such term is defined in Rule 16b-3(d) under the
Exchange Act) and (y) 15% or greater but less than 25%, consisting solely of
two (2) Independent Directors and one (1) Investor Director who constitutes
a disinterested person; and
(v) such other committees as the Board of Directors deems necessary or
desirable; PROVIDED that such committees are established in accordance with
the terms of this Agreement.
(c) No action by any committee of the Board shall be valid unless taken at a
meeting for which adequate notice has been duly given or waived by the members
of such committee. Such notice shall include a description of the general nature
of the business to be transacted at the meeting and no other business may be
transacted at each meeting. Any committee member unable to participate in person
at any
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meeting shall be given the opportunity to participate by telephone. Any Investor
Director serving on any committee may designate as his alternate another
Investor Director, provided that such alternate, in the case of the Stock Option
Committee, is deemed to be a disinterested person (as such term is defined in
Rule 16b-3(d) under the Exchange Act). Each of the committees established by the
Board of Directors pursuant to this Section 4.3 shall establish such other rules
and procedures for its operation and governance as it shall see fit and may seek
such consultation and advice as to matters within its purview as it shall
require.
(d) Prior to the Closing Date, the Board of Directors shall abolish the
Executive Committee of the Board of Directors and no Executive Committee shall
be maintained at any time that Borden's Interest is 15% or greater.
SECTION 4.4. SUPER-MAJORITY DIRECTORS' APPROVAL REQUIRED FOR CERTAIN
ACTIONS. The approval of that number of Directors that represents 66 2/3% of
the total number of Directors, rounded up to the nearest whole number shall be
required for the Board of Directors to approve and authorize any of the
following; PROVIDED that so long as Borden's Interest is 25% or greater, the
approval of at least one of the Investor Directors shall be required to take any
action pursuant to this Section 4.4:
(a) the entry by the Company or any of its Subsidiaries into any merger
or consolidation or the acquisition by the Company or any of its
Subsidiaries of any business or assets that would constitute a Substantial
Part of the business or assets of the Company, whether such acquisition be
by merger or consolidation or the purchase or sale of stock or assets or
otherwise;
(b) the sale, lease, pledge, grant of security interest in, license,
transfer or other disposal by the Company or any of its Subsidiaries of all
or a Substantial Part of the business or assets of the Company;
(c) the issuance of any debt or Equity Securities or other capital stock
of the Company or any debt or equity securities or other capital stock of
any of its Subsidiaries, except (i) to a wholly owned Subsidiary of the
Company or to the Company, as the case may be, and (ii) the issuance of
shares of capital stock of the Company or options to purchase such shares
pursuant to any employee compensation plan in existence at the Closing Date,
including, without limitation, the ESOP, the Stock Purchase Plan and the
Company's stock option plans, or approved by the Stock Option Committee, the
Compensation Committee and the Board of Directors pursuant to this Section
4.4;
(d) a reclassification, combination, split, subdivision or redemption,
purchase or other acquisition, directly or indirectly, of any of the debt or
equity securities or other capital stock of the Company or any of its
Subsidiaries;
(e) any amendment to the Certificate of Incorporation or By-Laws of the
Company or any change in the size or composition of the Board of Directors
of the Company or committee thereof except in accordance with this
Agreement;
(f) the establishment of any committee of the Board of Directors other
than as provided in Section 4.3(b)(i) through (iv);
(g) any significant change in accounting policies or procedures of the
Company or any of its Subsidiaries unless required under generally accepted
accounting principles;
(h) the payment, discharge or satisfaction of any claim, liability or
obligation (absolute, accrued, asserted or unasserted, contingent or
otherwise) other than (i) in the ordinary course of business and consistent
with past practice or (ii) incurred other than in the ordinary course of
business where such claim, liability or obligation does not exceed
$5,000,000;
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(i) the commencement or termination of any suit, litigation or
proceeding that involves a claim, liability or obligation in excess of
$5,000,000 or the outcome of which could be material to the business or
assets of the Company and its Subsidiaries, taken as a whole;
(j) any (i) incurrence of indebtedness for borrowed money (excluding
borrowings under existing revolving credit facilities for purposes approved
pursuant to this Section 4.4 to the extent herein required) or (ii) capital
expenditure by the Company or any of its Subsidiaries that (x) in the case
of (i) or (ii), if specifically contemplated by the Annual Operating Plans
(as defined below), is greater than $2,500,000 and (y) in the case of (i) or
(ii), if not specifically contemplated by the Annual Operating Plans, is
greater than $1,000,000;
(k) the institution by the Company or any of its Subsidiaries of any
shareholder rights plan or similar plan or device;
(l) the dissolution of the Company; the adoption of a plan of
liquidation of the Company; any action by the Company or any Significant
Subsidiary (as such term is defined in Rule 12b-2 promulgated under the
Exchange Act) thereof to commence any suit, case, proceeding or other action
(A) under any existing or future law of any jurisdiction relating to
bankruptcy, insolvency, reorganization or relief of debtors seeking to have
an order for relief entered with respect to the Company or any Significant
Subsidiary thereof, or seeking to adjudicate the Company or any Significant
Subsidiary thereof a bankrupt or insolvent, or seeking reorganization,
arrangement, adjustment, winding-up, liquidation, dissolution, composition
or other relief with respect to the Company or any Significant Subsidiary
thereof, or (B) seeking appointment of a receiver, trustee, custodian or
other similar official for the Company or any Significant Subsidiary
thereof, or for all or any Substantial Part of the assets of the Company or
any Significant Subsidiary thereof, or making a general assignment for the
benefit of the creditors of the Company or any Significant Subsidiary
thereof;
(m) the employment of the chief executive officer, chief operating
officer or chief financial officer of the Company (each a "SENIOR OFFICER");
(n) annual operating plans for the Company and its Subsidiaries, which
shall include all material capital expenditures and borrowing plans
applicable to the year in question (the "ANNUAL OPERATING PLANS"); and
(o) the adoption or amendment of any employee benefit or compensation
plan or arrangements or the engagement of, terms of any employment
agreements or arrangements with, or termination of, all executive officers
of the Company.
SECTION 4.5. ENFORCEMENT OF THIS AGREEMENT. The approval of a majority of
the Board of Directors or a majority of the Independent Directors shall be all
that is required for the Company to seek to enforce the terms of this Agreement.
SECTION 4.6. CERTIFICATE OF INCORPORATION AND BY-LAWS. The Company and
Borden shall take or cause to be taken all lawful action necessary to ensure at
all times that the Company's Certificate of Incorporation and By-Laws are not,
at any time, inconsistent with the provisions of this Agreement. In furtherance
of the foregoing, at its first annual stockholders meeting following the Closing
Date, the Company agrees to submit to its stockholders, at a duly held meeting
of stockholders or pursuant to a written consent of stockholders, certain
amendments to the Company's Certificate of Incorporation and By-Laws
substantially in the Form of Exhibits B and C hereto.
SECTION 4.7. BOARD OF DIRECTORS MEETINGS/FINANCIAL INFORMATION. The Board
of Directors shall meet at least quarterly at all times during the term of this
Agreement that Borden's Interest is 10% or greater. In addition to the
foregoing, from the Closing Date to the one year anniversary thereof, the Board
of Directors shall meet a minimum of nine (9) times and following the one year
anniversary of the Closing Date the Board of Directors shall meet as frequently
as mutually agreed upon by the Management
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Directors and Borden. At all times during the term of this Agreement that
Borden's Interest is 10% or greater the Company shall provide the Directors as
soon as available after the end of each calendar month, copies of the unaudited
interim financial statements of the Company and its consolidated Subsidiaries as
at the end of such month or fiscal quarter, as the case may be, in each case in
a form customarily distributed to executives of the Company.
SECTION 4.8. FAILURE TO COMPLY WITH THIS ARTICLE IV. In addition to any
other remedy at law or in equity Borden may have, in the event that any action
is taken or omitted to be taken in violation of this Article IV which results in
the failure to nominate or solicit proxies for the election of the Investor
Directors or the failure to elect Investor Directors, in each case as set forth
herein, the taking of any action specified in Section 4.4(a), (b) or (e) (to the
extent, with respect to Section 4.4(e), that such action amends Exhibit A or B
hereto) without the required approvals specified therein, the establishment or
maintenance of any committee of the Board of Directors in violation of Section
4.3 hereof or the failure to comply with Sections 4.1(d) and 4.1(e) hereof, the
provisions of Articles III and V hereof shall as of the date of such occurrence
or omission be of no further force or effect.
ARTICLE V
TRANSFER OF COMMON STOCK
SECTION 5.1. TRANSFER OF COMMON STOCK. (a) During the Standstill Period,
Borden will not, and will not permit any Borden Affiliate to, directly or
indirectly sell, transfer or otherwise dispose of any shares of Common Stock,
except (i) pursuant to a registered underwritten public offering in accordance
with Article VI, (ii) to the extent applicable, in accordance with the volume
and manner of sale limitations of Rule 144 promulgated under the Securities Act,
(iii) pursuant to an applicable exemption from the registration requirements of
the Securities Act or (iv) to a Borden Affiliate (or any partner of a Borden
Affiliate). Notwithstanding the foregoing, with respect to any transfer or
disposition of shares of Common Stock pursuant to clause (iii) above, (x) Borden
will not, and will not permit any Borden Affiliate to, directly or indirectly,
in one or more transactions or series of transactions, sell, transfer or
otherwise dispose of an aggregate number of shares of Common Stock in excess of
5% of the then outstanding shares of Common Stock to any one person or group (as
defined in Section 13(d)(3) of the Exchange Act) and (y) Borden will not, and
will not permit any Borden Affiliate to, directly or indirectly, in one or more
transactions or series of transactions, sell, transfer or otherwise dispose of
in excess of 1% of the then outstanding shares of Common Stock pursuant to
clause (iii) above, to any person or entity (A) who is not an "insurance
company", an "investment company", a "small business investment company", a
"plan", an "employee benefit plan" or a "bank" (as such terms are used in Rule
144A(a)(1)(i)(A) through (E) and (vi) promulgated under the Securities Act) and
(B) who, prior to an acquisition pursuant to clause (iii) above, has a Schedule
13D (and not a Schedule 13G) on file with the SEC with respect to the Common
Stock.
(b) During the Standstill Period, Borden shall not sell, transfer or
otherwise dispose of any of the capital stock of any Subsidiary of Borden that
owns shares of Common Stock, except to an Affiliate of Borden or as otherwise
permitted pursuant to clause (a) of this Section 5.1.
(c) Proposed transfers of shares of Common Stock that are not in compliance
with this Article V shall be of no force or effect and the Company shall not be
required to register any such transfer.
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ARTICLE VI
REGISTRATION RIGHTS
SECTION 6.1. RESTRICTIVE LEGEND. Each certificate representing Registrable
Securities shall, except as otherwise provided in this Section 6.1 or in Section
6.2, be stamped or otherwise imprinted with a legend substantially in the
following form:
"THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
AND MAY NOT BE TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS IT HAS BEEN
REGISTERED UNDER THAT ACT OR AN EXEMPTION FROM REGISTRATION IS AVAILABLE."
A certificate shall not bear such legend if in the opinion of counsel
satisfactory to the Company (it being agreed that Simpson Thacher & Bartlett
shall be satisfactory) the securities being sold thereby may be publicly sold
without registration under the Securities Act.
SECTION 6.2. NOTICE OF PROPOSED TRANSFER. Prior to any proposed transfer
of any Registrable Securities (other than under the circumstances described in
Section 6.3, 6.4 or 6.5), the Holder thereof shall give written notice to the
Company of its intention to effect such transfer. Each such notice shall
describe the manner of the proposed transfer and, if requested by the Company,
shall be accompanied by an opinion of counsel satisfactory to the Company (it
being agreed that Simpson Thacher & Bartlett shall be satisfactory) to the
effect that the proposed transfer does not violate the terms of this Agreement
and that the proposed transfer may be effected without registration under the
Securities Act, whereupon the Holder of such security shall be entitled to
transfer such security in accordance with the terms of its notice; PROVIDED,
HOWEVER, that no such opinion of counsel shall be required for a transfer to a
Borden Affiliate. Each certificate for Registrable Securities transferred as
above provided shall bear the legend set forth in Section 6.1, except that such
certificate shall not bear such legend if (i) such transfer is in accordance
with the provisions of Rule 144 or Rule 144A (or any other rule permitting
public sale without registration under the Securities Act) or (ii) the opinion
of counsel referred to above is to the further effect that the transferee and
any subsequent transferee (other than an Affiliate of the Company) would be
entitled to transfer such securities in a public sale without registration under
the Securities Act. The restrictions provided for in this Section 6.2 shall not
apply to securities that are not required to bear the legend prescribed by
Section 6.1 in accordance with the provisions of that Section.
SECTION 6.3. REQUEST FOR REGISTRATION. (a) At any time, and from time to
time, on and after the Closing Date, the Holders of at least 25% of the then
Registrable Securities (the "INITIATING HOLDERS") may request in a written
notice that the Company file a registration statement under the Securities Act
(or a similar document pursuant to any other statute then in effect
corresponding to the Securities Act) covering the registration of any or all
Registrable Securities held by such Initiating Holders in the manner specified
in such notice. Following receipt of any notice under this Section 6.3 the
Company shall (x) within ten days notify all other Holders of such request in
writing and (y) thereupon will, as expeditiously as possible, use its best
efforts to cause to be registered under the Securities Act all Registrable
Securities that the Initiating Holders and such other Holders have, within ten
days after the Company has given such notice, requested be registered in
accordance with the manner of disposition specified in such notice by the
Initiating Holders; PROVIDED, HOWEVER, that, notwithstanding anything to the
contrary contained herein, the Company shall not be required to have any such
registration statement be declared effective by the SEC prior to the six month
anniversary of the Closing Date.
(b) If the Initiating Holders intend to have the Registrable Securities
distributed by means of an underwritten offering, the Company shall include such
information in the written notice referred to in clause (x) of Section 6.3(a)
above. In such event, the right of any Holder to include its Registrable
Securities in such registration shall be conditioned upon such Holder's
participation in such underwritten offering and the inclusion of such Holder's
Registrable Securities in the underwritten offering (unless
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otherwise mutually agreed by a majority in interest of the Initiating Holders
and such Holder) to the extent provided below. All Holders proposing to
distribute Registrable Securities through such underwritten offering shall enter
into an underwriting agreement in customary form with the underwriter or
underwriters. Such underwriter or underwriters shall be selected by a majority
in interest of the Initiating Holders and shall be approved by the Company,
which approval shall not be unreasonably withheld. No Holder shall be required
to make any representations or warranties to or agreements with the Company or
the underwriters other than representations, warranties or agreements regarding
such Holder, the Registrable Securities of such Holder and such Holder's
intended method of distribution and any other representations required by law or
reasonably required by the underwriter. If any Holder of Registrable Securities
disapproves of the terms of the underwriting, such Holder may elect to withdraw
all its Registrable Securities by written notice to the Company, the managing
underwriter and the Initiating Holders. The securities so withdrawn also shall
be withdrawn from registration.
(c) Notwithstanding any provision of this Agreement to the contrary, the
Company shall not be required to effect a registration pursuant to this Section
6.3 during the period starting with the date of filing by the Company of, and
ending on a date 180 days following the effective date of, (i) any registration
statement requested under this Section 6.3(a) or Section 6.5 or (ii) a
registration statement pertaining to a public offering of securities for the
account of the Company or on behalf of the selling stockholders under any other
registration rights agreement, in each case which the Holders have been entitled
to join pursuant to Section 6.4; PROVIDED that (x) the Company shall actively
employ in good faith all reasonable efforts to cause any such registration
statement referred to in clause (i) or (ii) above to become effective as soon as
possible and (y) with respect to any such registration statement involving an
underwritten offering, the 180 day period referred to above may be reduced or
waived in the discretion of the managing underwriter for such offering.
(d) A registration requested pursuant to this section 6.3 shall not be
deemed to have been effected pursuant this Section 6.3 for purposes of Section
6.8 unless (i) it has been declared effective by the Commission, (ii) it has
remained effective for the period set forth in Section 6.6(a), and (iii) the
offering of Registrable Securities pursuant to such registration is not subject
to any stop order, injunction or other order or requirement of the Commission
(other than any such stop order, injunction, or other requirement of the
Commission prompted by any act or omission of Holders of Registrable
Securities).
(e) Subject to the following sentence, if a requested registration pursuant
to this Section 6.3 involves an underwritten offering and the managing
underwriter advises the Company in writing that, in its opinion, the number of
securities requested to be included in such registration (including securities
of the Company which are not Registrable Securities) exceeds the number that can
be sold in such offering at a price reasonably related to the then current
market value of such securities, the Company will include in such registration
only the Registrable Securities requested to be included in such registration.
In the event that the number of Registrable Securities requested to be included
in such registration exceeds the number which, in the opinion of such managing
underwriter, may be sold at a price reasonably related to the then current
market value of such securities, the number of such Registrable Securities to be
included in such registration shall be allocated pro rata among all requesting
Holders on the basis of the relative number of shares of Registrable Securities
then held by each such Holder (provided that any shares hereby allocated to any
such Holder that exceed such Holder's request shall be reallocated among the
remaining requesting Holders in like manner). In the event that the number of
Registrable Securities requested to be included in such registration is less
than the number which, in the opinion of the managing underwriter, may be sold
at a price reasonably related to the then current market value of such
securities, the Company may include in such registration the securities the
Company proposes to sell up to the number of securities that, in the opinion of
the managing underwriter, may be sold at a price reasonably related to the then
current market value of such securities. The Company will not include in any
requested registration pursuant to this Section 6.3 any securities which are not
Registrable Securities (other than securities of the Company)
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without the prior written consent of the holders of at least a majority of the
Registrable Securities included in such registration.
(f) If the Board of Directors of the Company, in its good faith judgment,
determines that any registration of Registrable Securities should not be made or
continued due to a valid need not to disclose confidential information or
because it would materially interfere with any material financing, acquisition,
corporate reorganization or merger or other transaction involving the Company
(collectively, a "VALID BUSINESS REASON"), the Company may postpone filing a
registration statement relating to a request for registration under this Section
6.3 until such Valid Business Reason no longer exists, but in no event for more
than three months from the date of the notice referred to below, and, in case
any such registration statement has been filed the Company may, with respect to
a registration effected pursuant to this Section 6.3, cause such registration
statement to be withdrawn and its effectiveness terminated or may, with respect
to a registration effected pursuant to this Section 6.3 or Section 6.5, postpone
amending or supplementing such registration statement; and the Company shall
give written notice (a "DELAY NOTICE") of its determination to postpone or
withdraw a registration statement and of the fact that the Valid Business Reason
for such postponement or withdrawal no longer exists, in each case, promptly
after the occurrence thereof. Upon the request of any holder of Registrable
Securities included or to be included in any such registration statement, the
Company will disclose to such holder the nature of such Valid Business Reason in
reasonable detail; PROVIDED, that such holder executes a confidentiality
agreement reasonably satisfactory to the Company; PROVIDED, FURTHER, that any
such confidentiality agreement shall terminate upon the public disclosure of
such Valid Business Reason. Notwithstanding the foregoing provisions of this
subparagraph (f), no registration statement filed and subsequently withdrawn by
reason of any existing or anticipated Valid Business Reason as hereinabove
provided shall count as one of the four registration statements effected
pursuant to this Section 6.3 or Section 6.5 for purposes of Section 6.8 and the
Company shall be entitled to serve only one Delay Notice (i) within any period
of 270 consecutive days, if such Delay Notice relates to a request under Section
6.3(a) (or 180 consecutive days, if such Delay Notice relates to a request under
Section 6.5) or (ii) with respect to any two consecutive registrations requested
pursuant to this Section 6.3 or Section 6.5.
SECTION 6.4. INCIDENTAL REGISTRATION. Subject to Section 6.9, if at any
time the Company determines that it shall file a registration statement under
the Securities Act (other than a registration statement on a Form S-4 or S-8 or
any successor or similar forms) on any form that also would permit the
registration of the Registrable Securities and such filing is to be on its
behalf and/or on behalf of selling holders of its securities for the general
registration of its Common Stock to be sold for cash, the Company shall each
such time promptly give each Holder written notice of such determination setting
forth the date on which the Company proposes to file such registration
statement, which date shall be no earlier than thirty days from the date of such
notice, and advising each Holder of its right to have Registrable Securities
included in such registration. Upon the written request of any Holder received
by the Company no later than fifteen days after the date of the Company's
notice, the Company shall use its best efforts to cause to be registered under
the Securities Act all of the Registrable Securities that each such Holder has
so requested to be registered; PROVIDED that if, at any time after giving
written notice of its intention to register any securities and prior to the
effective date of the registration statement filed in connection with such
registration, the Company shall determine for any reason not to proceed with the
proposed registration of the securities to be sold by it, the Company may, at
its election, give written notice of such determination to each Holder of
Registrable Securities and, thereupon, shall be relieved of its obligation to
register any Registrable Securities in connection with such registration (but
not from its obligation to pay the Registration Expenses in connection
therewith), without prejudice, however, to the rights of any Holder to request
such registration to be effected as a registration under Section 6.3. If, in the
written opinion of the managing underwriter (or, in the case of a
non-underwritten offering, in the written opinion of the Company), the total
amount of such securities to be so registered, including such Registrable
Securities, will exceed the maximum amount of the Company's securities that can
be marketed at a price reasonably related to the then current market value of
such securities, then the Company shall include in such registration (i) first,
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all the securities the Company proposes to sell for its own account or is
required to register on behalf of any third party exercising rights similar to
those granted in Section 6.3(a) and without having the adverse effect referred
to above, and (ii) second, to the extent that the number of securities which the
Company proposes to sell for its own account pursuant to this Section 6.4 or is
required to register on behalf of any third party exercising rights similar to
those granted in Section 6.3(a) is less than the number of equity securities
which the Company has been advised can be sold in such offering without having
the adverse effect referred to above, all Registrable Securities requested to be
included in such registration by the Holders pursuant to this Section 6.4 and
all shares of Common Stock requested to be included by third parties exercising
the rights similar to those granted in this Section 6.4; PROVIDED that if the
number of Registrable Securities and other shares of Common Stock requested to
be included in such registration by the Holders pursuant to this Section 6.4 and
third parties exercising rights similar to those granted in this Section 6.4,
together with the number of securities to be included in such registration
pursuant to clause (i) of this Section 6.4, exceeds the number which the Company
has been advised can be sold in such offering without having the adverse effect
referred to above, the number of such Registerable Securities requested to be
included in such registration by the Holders pursuant to this Section 6.4 shall
be limited to such extent and shall be allocated PRO RATA among all such
requesting Holders and third parties exercising rights similar to those granted
in this Section 6.4 on the basis of the relative number of Registrable
Securities each such Holder has requested to be included in such registration
and the number of shares of Common Stock requested to be included in such
registration by such third parties.
SECTION 6.5. REGISTRATION ON FORM S-3. If at any time (a) any Holder
requests in writing that the Company file a registration statement on Form S-3
or any successor thereto for a public offering of all or any portion of the
Registrable Securities held by such requesting Holder and (b) the Company is a
registrant entitled to use Form S-3 or any successor thereto, then the Company
shall use its best efforts to register under the Securities Act on Form S-3 or
any successor thereto, for public sale in accordance with the method of
disposition specified in such request, including, without limitation, pursuant
to Rule 415 under the Securities Act, the Registrable Securities specified in
such request. Whenever the Company is required by this Section 6.5 to use its
best efforts to effect the registration of Registrable Securities, each of the
limitations, procedures and requirements of Section 6.3(b), (c), (e) and (f)
(including but not limited to the requirement that the Company notify all
Holders from whom a request has not been received and provide them with the
opportunity to participate in the offering) shall apply to such registration.
SECTION 6.6. OBLIGATIONS OF THE COMPANY. Whenever required under Section
6.3 or Section 6.5 to use its best efforts to effect the registration of any
Registrable Securities, the Company shall, as expeditiously as possible:
(a) prepare and file with the Commission a registration statement with
respect to such Registrable Securities and use its best efforts to cause
such registration statement to become and remain effective for the period of
the distribution contemplated thereby determined as provided hereafter;
(b) prepare and file with the Commission such amendments and supplements
to such registration statement and the prospectus used in connection
therewith as may be necessary to comply with the provisions of the
Securities Act with respect to the disposition of all Registrable Securities
covered by such registration statement, and furnish to the Holders of the
Registrable Securities copies of any such amendments and supplements prior
to their being used or filed with the Commission;
(c) furnish to the Holders such numbers of copies of the registration
statement and the prospectus included therein (including each preliminary
prospectus and any amendments or supplements thereto in conformity with the
requirements of the Securities Act) and such other documents and information
as they may reasonably request and make available for inspection by the
parties referred to in Section 6.6(d) below such financial and other
information and books and records of the Company, and cause the officers,
directors, employees, counsel and independent certified public accountants
of the Company to respond to such inquiries, as shall be reasonably
necessary, in the
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judgment of the respective counsel referred to in such Section, to conduct a
reasonable investigation within the meaning of Section 11 of the Securities
Act;
(d) provide (i) the Holders of the Registrable Securities to be included
in such registration statement, (ii) the underwriters (which term, for
purposes of this Agreement, shall include a person deemed to be an
underwriter within the meaning of Section 2(11) of the Securities Act), if
any, thereof, (iii) the sales or placement agent, if any, therefor, (iv)
counsel for such underwriters or agent, and (v) not more than one counsel
for all the Holders of such Registrable Securities the opportunity to
participate in the preparation of such registration statement, each
prospectus included therein or filed with the Commission, and each amendment
or supplement thereto;
(e) use its best efforts to register or qualify the Registrable
Securities covered by such registration statement under such other
securities or blue sky laws of such jurisdictions within the United States
and Puerto Rico as shall be reasonably appropriate for the distribution of
the Registrable Securities covered by the registration statement; PROVIDED,
HOWEVER, that the Company shall not be required in connection therewith or
as a condition thereto to qualify to do business in or to file a general
consent to service of process in any jurisdiction wherein it would not but
for the requirements of this paragraph (e) be obligated to do so; and
PROVIDED FURTHER that the Company shall not be required to qualify such
Registrable Securities in any jurisdiction in which the securities
regulatory authority requires that any Holder submit its Registrable
Securities to the terms, provisions and restrictions of any escrow, lockup
or similar agreement(s) for consent to sell Registrable Securities in such
jurisdiction unless such Holder agrees to do so;
(f) promptly notify the selling Holders of Registrable Securities, the
sales or placement agent, if any, therefor and the managing underwriter or
underwriters, if any, thereof and confirm such advice in writing, (i) when
such registration statement or the prospectus included therein or any
prospectus amendment or supplement or post-effective amendment has been
filed, and, with respect to such registration statement or any
post-effective amendment, when the same has become effective, (ii) of any
comments by the Commission or by any Blue Sky or securities commissioner or
regulator of any state with respect thereto or any request by the Commission
for amendments or supplements to such registration statement or prospectus
or for additional information, (iii) of the issuance by the Commission of
any stop order suspending the effectiveness of such registration statement
or the initiation or threatening of any proceedings for that purpose, (iv)
if at any time the representations and warranties of the Company contained
in any underwriting agreement or other customary agreement cease to be true
and correct in all material respects or (v) of the receipt by the Company of
any notification with respect to the suspension of the qualification of the
Registrable Securities for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose;
(g) use its best efforts to obtain the withdrawal of any order
suspending the effectiveness of such registration statement or any
post-effective amendment thereto at the earliest practicable date;
(h) promptly notify each Holder for whom such Registrable Securities are
covered by such registration statement, at any time when a prospectus
relating thereto is required to be delivered under the Securities Act, of
the happening of any event as a result of which the prospectus included in
such registration statement, as then in effect, includes an untrue statement
of a material fact or omits to state any material fact required to be stated
therein or necessary to make, in light of the circumstances under which they
were made, the statements therein not misleading, and at the request of any
such Holder promptly prepare and furnish to such Holder a reasonable number
of copies of a supplement to or an amendment of such prospectus as may be
necessary so that, as thereafter delivered to the purchasers of such
securities, such prospectus shall not include an untrue statement of a
material fact or omit to state a material fact required to be stated therein
or necessary to make, in light of the circumstances under which they were
made, the statements therein not misleading;
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(i) furnish, at the request of any Holder requesting registration of
Registrable Securities pursuant to Section 6.3 or Section 6.5, if the method
of distribution is by means of an underwriting, on the date that the
Registrable Securities are delivered to the underwriters for sale pursuant
to such registration, or if such Registrable Securities are not being sold
through underwriters, on the date that the registration statement with
respect to such Registrable Securities becomes effective, (1) a signed
opinion, dated such date, of the independent legal counsel representing the
Company for the purpose of such registration, addressed to the underwriters,
if any, and if such Registrable Securities are not being sold through
underwriters, then to the Holders making such request, as to such matters as
such underwriters or the Holders holding a majority of the Registrable
Securities included in such registration, as the case may be, may reasonably
request and as would be customary in such a transaction; and (2) letters
dated such date and the date the offering is priced from the independent
certified public accountants of the Company, addressed to the underwriters,
if any, and if such Registrable Securities are not being sold through
underwriters, then to the Holders making such request and, if such
accountants refuse to deliver such letters to such Holders, then to the
Company (i) stating that they are independent certified public accountants
within the meaning of the Securities Act and that, in the opinion of such
accountants, the financial statements and other financial data of the
Company included in the registration statement or the prospectus, or any
amendment or supplement thereto, comply as to form in all material respects
with the applicable accounting requirements of the Securities Act and (ii)
covering such other financial matters (including information as to the
period ending not more than five (5) business days prior to the date of such
letters) with respect to the registration in respect of which such letter is
being given as such underwriters or the Holders holding a majority of the
Registrable Securities included in such registration, as the case may be,
may reasonably request and as would be customary in such a transaction;
(j) enter into customary agreements (including if the method of
distribution is by means of an underwriting, an underwriting agreement in
customary form, including, without limitation, customary indemnification
provisions consistent with Section 6.11) and take such other actions as are
reasonably required in order to expedite or facilitate the disposition of
the Registrable Securities to be so included in the registration statement;
(k) use its best efforts to obtain the consent or approval of each
governmental agency or authority, whether federal, state or local, which may
be required to effect registration or the offering or sale in connection
therewith or to enable the selling Holder or Holders to offer, or to
consummate the disposition of, their Registrable Securities;
(l) cooperate with the Holders of the Registrable Securities and the
managing underwriters, if any, to facilitate the timely preparation and
delivery of certificates representing Registrable Securities to be sold,
which certificates shall be printed, lithographed or engraved, or produced
by any combination of such methods, on steel engraved borders and which
shall not bear any restrictive legends; and, in the case of an underwritten
offering, enable such Registrable Securities to be in such denominations and
registered in such names as the managing underwriters may request at least
two business days prior to any sale of the Registrable Securities;
(m) otherwise comply with all applicable rules and regulations of the
Commission, and make available to its security holders, as soon as
reasonably practicable, but not later than eighteen months after the
effective date of the registration statement, an earnings statement covering
the period of at least twelve months beginning with the first full month
after the effective date of such registration statement, which earnings
statement shall satisfy the provisions of Section 11(a) of the Securities
Act;
(n) use its best efforts to list the Registrable Securities covered by
such registration statement with any securities exchange or quotation system
on which the Common Stock of the Company is then listed or quoted; and
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(o) use its best efforts to make available the executive officers of the
Company to participate with the Holders of Registrable Securities and any
underwriters in any "road shows" or other selling efforts that may be
reasonably requested by the Holders in connection with the methods of
distribution for the Registrable Securities.
For purposes of Sections 6.6(a) and 6.6(b), and with respect to (i) registration
required pursuant to Section 6.3, (A) the period of distribution of Registrable
Securities in a firm commitment underwritten public offering shall be deemed to
extend until each underwriter has completed the distribution of all securities
purchased by it and (B) the period of distribution of Registrable Securities in
any other registration shall be deemed to extend until the earlier of the sale
of all Registrable Securities covered thereby and nine months after the
effective date thereof and (ii) registrations required pursuant to Section 6.5,
the period of distribution of Registrable Securities in any registration (firm
commitment underwritten or otherwise) shall be deemed to extend until the
earlier of the sale of all Registrable Securities covered thereby and two years
after the effective date thereof.
Each Holder of Registrable Securities agrees that, upon receipt of any
notice from the Company of the happening of any event of the kind described in
clause (h) of this Section 6.6, such Holder will forthwith discontinue
disposition of Registrable Securities pursuant to the registration statement
covering such Registrable Securities until such Holder's receipt of the copies
of the supplemented or amended prospectus contemplated by clause (h) of this
Section 6.6, and, if so directed by the Company, such Holder will deliver to the
Company (at the Company's expense) all copies, other than permanent file copies
then in such Holder's possession, of the prospectus covering such Registrable
Securities current at the time of receipt of such notice; PROVIDED, HOWEVER,
that any period of time during which a Holder must discontinue disposition of
Registrable Securities shall not be included in the determination of a period of
distribution for purposes of Section 6.6(a) and 6.6(b).
SECTION 6.7. FURNISH INFORMATION. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to this Agreement that
the Holders shall furnish to the Company such information regarding themselves,
the Registrable Securities held by them, and the intended method of disposition
of such securities as the Company shall reasonably request and as shall be
required in connection with the action to be taken by the Company.
SECTION 6.8. EXPENSES OF REGISTRATION. All expenses incurred in connection
with (i) each registration or attempted registration pursuant to Section 6.4,
(ii) the first four registrations effected pursuant to Section 6.3 or 6.5 and
(iii) any attempted registration (or partial registration deemed not to have
been effected pursuant to Section 6.3 or 6.5 by operation of Sections 6.3(d) or
(e)) occurring prior to the fourth registration effected pursuant to Section 6.3
or 6.5 of this Agreement, excluding underwriters' discounts and commissions and
excluding the fees and disbursements of counsel selected pursuant to Section
6.14 hereof by the Holders of the Registrable Securities being registered to
represent such Holders in connection with each such registration, but including
without limitation all registration, filing and qualification fees, word
processing, duplicating, printers' and accounting fees (including the expenses
of any special audits or "cold comfort" letters required by or incident to such
performance and compliance), fees of the National Association of Securities
Dealers, Inc. (the "NASD") or listing fees, all fees and expenses of complying
with state securities or blue sky laws, fees and disbursements of counsel for
the Company, any fees and disbursements of underwriters customarily paid by the
issuers or sellers of securities, including liability insurance if the Company
so desires or if the underwriters so require, and the reasonable fees and
expenses of any special experts retained in connection with the requested
registration and other reasonable out-of-pocket expenses of Holders, shall be
paid by the Company. The foregoing provisions with respect to expenses shall in
no way limit the rights of the Holders to request registration pursuant to
Sections 6.3 and 6.5 or the number of registrations which may be requested
thereunder.
SECTION 6.9. UNDERWRITING REQUIREMENTS. In connection with any
underwritten offering, the Company shall not be required under Section 6.4 to
include Registrable Securities in such underwritten offering
B-17
<PAGE>
unless the Holders of such Registrable Securities accept the terms of the
underwriting of such offering that have been reasonably agreed upon between the
Company and the underwriters selected by the Company.
SECTION 6.10. RULE 144 AND RULE 144A INFORMATION. With a view to making
available the benefits of certain rules and regulations of the Commission which
may at any time permit the sale of the Registrable Securities to the public
without registration, at all times, the Company agrees to:
(i) make and keep public information available, as those terms are
understood and defined in Rule 144 under the Securities Act;
(ii) use its best efforts to file with the Commission in a timely manner
all reports and other documents required of the Company under the Securities
Act and the Exchange Act; and
(iii) furnish to each Holder of Registrable Securities forthwith upon
request a written statement by the Company as to its compliance with the
reporting requirements of such Rule 144 and of the Securities Act and the
Exchange Act, a copy of the most recent annual or quarterly report of the
Company, and such other reports and documents so filed by the Company as
such Holder may reasonably request in availing itself of any rule or
regulation of the Commission allowing such Holder to sell any Registrable
Securities without registration.
SECTION 6.11. INDEMNIFICATION. In the event any Registrable Securities are
included in a registration statement under this Agreement:
(a) The Company shall indemnify and hold harmless each Holder, such
Holder's directors and officers, and each person, if any, who controls such
Holder or participating person 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 (including, without
limitation, any legal or other expenses reasonably incurred in connection
with defending or investigating any such action or claim) to which they may
become subject under the Securities Act or otherwise, insofar as such
losses, claims, damages or liabilities (or proceedings in respect thereof)
arise out of or are based on any untrue or alleged untrue statement of a
material fact contained in such registration statement, preliminary
prospectus, final prospectus or amendments or supplements thereto or arise
out of or are based upon 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; PROVIDED, HOWEVER, that the indemnity
agreement contained in this Section 6.11(a) shall not apply to amounts paid
in settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Company (which consent
shall not be unreasonably withheld); PROVIDED FURTHER that the Company shall
not be liable to any Holder, such Holder's directors and officers or
controlling person in any such case for any such loss, claim, damage,
liability or action to the extent that it arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission
made in connection with such registration statement, preliminary prospectus,
final prospectus or amendments or supplements thereto, in reliance upon and
in conformity with written information furnished expressly for use in
connection with such registration by any such Holder, such Holder's
directors and officers or controlling person; PROVIDED, FURTHER, that as to
any preliminary prospectus or any final prospectus this indemnity agreement
shall not inure to the benefit of any Holder, such Holder's directors and
officers or controlling persons on account of any losses, claims, damages or
liability arising from the sale of Common Stock to any person by such Holder
if such Holder or its representatives failed to send or give a copy of the
final prospectus or a prospectus supplement, as the case may be (excluding
documents incorporated by reference therein), as the same may be amended or
supplemented, to that person within the time required by the Securities Act,
and the untrue statement or alleged untrue statement of a material fact or
omission or alleged omission to state a material fact in such preliminary
prospectus or final prospectus was corrected in the final prospectus or such
prospectus supplement, as the case may be (excluding documents incorporated
by reference therein), unless such failure resulted from non-compliance by
the Company with Section 6.6(c). Such indemnity shall
B-18
<PAGE>
remain in full force and effect regardless of any investigation made by or
on behalf of any such Holder, such Holder's directors and officers,
participating person or controlling person, and shall survive the transfer
of such securities by such Holder.
(b) Each Holder requesting or joining in a registration severally and
not jointly shall indemnify and hold harmless the Company, each of its
directors and officers and each person, if any, who controls 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 Holders but only with reference to written information
relating to such Holder furnished to the Company expressly for use in
connection with such registration; PROVIDED, HOWEVER, that the indemnity
agreement contained in this Section 6.11(b) shall not apply to amounts paid
in settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of such Holder (which consent
shall not be unreasonably withheld); and PROVIDED FURTHER that the liability
of each Holder hereunder shall be limited to the proportion of any such
loss, claim, damage, liability or expense that is equal to the proportion
that the net proceeds from the sale of the shares sold by such Holder under
such registration statement bears to the total net proceeds from the sale of
all securities sold thereunder, but not in any event to exceed the net
proceeds received by such Holder from the sale of Registrable Securities
covered by such registration statement.
(c) 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 two 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 shall
be designated in writing by the Holders, in the case of parties indemnified
pursuant to the second preceding paragraph, and by the Company, in the case
of parties indemnified pursuant to the first preceding paragraph. 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. Notwithstanding the foregoing
sentence, if at any time an indemnified party shall have requested an
indemnifying party to reimburse the indemnified party for fees and expenses
of counsel as contemplated by the second and third sentences of this
paragraph, the indemnifying party agrees that it shall be liable for any
settlement of any proceeding effected without its written consent if (i)
such settlement is entered into more than 30 days after receipt by such
indemnifying party of the aforesaid request and (ii) such indemnifying party
shall not have reimbursed the indemnified party in accordance with such
request prior to the date of such settlement. No indemnifying party shall,
without the prior written consent of the indemnified party, effect any
settlement of any pending or threatened proceeding in respect of which any
indemnified party is or could have been a party and indemnity could have
been sought hereunder by
B-19
<PAGE>
such indemnified party, unless such settlement includes an unconditional
release of such indemnified party from all liability on claims that are the
subject matter of such proceeding.
(d) If the indemnification provided for in the first or second paragraph
of this Section 6.11 is unavailable to an indemnified party or insufficient
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 fault of the indemnifying party and indemnified party
in connection with the statements or omissions that resulted in such losses,
claims, damages or liabilities, as well as any other relevant equitable
considerations. The relative fault of such indemnifying party and
indemnified party shall be determined by reference to, among other things,
whether any action in question, including any untrue or alleged untrue
statement of material fact or omission or alleged omission to state a
material fact, has been made by, or relates to information supplied by, such
indemnifying party or indemnified party, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
action. The amount paid or payable by a party as a result of the losses,
claims, damages or liabilities referred to above shall be deemed to include
any legal or other fees or expenses reasonably incurred by such party in
connection with any investigation or proceeding.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 6.11(d) were determined by pro rata
allocation or by any other method of allocation which does not take account
of the equitable considerations referred to in the immediately preceding
paragraph. Notwithstanding the provisions of this Section 6.11, no Holder
shall be required to contribute any amount in excess of the amount of net
proceeds received by such Holder from the sale of Registrable Securities
covered by such registration statement. 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
6.11 are not exclusive and shall not limit any right or remedies that may
otherwise be available to any indemnified party at law or in equity.
SECTION 6.12. LOCKUP. Each Holder shall, in connection with any
registration of the Company's securities, upon the request of the Company or the
underwriters managing any underwritten offering of such securities, agree in
writing not to effect any sale, disposition or distribution of any Registrable
Securities (other than that included in the registration) without the prior
written consent of the managing underwriter for such period of time (not to
exceed 180 days) from the effective date of such registration as the Company or
the underwriters may specify; PROVIDED, HOWEVER, that all executive officers and
directors of the Company (other than executive officers and directors owning an
aggregate of less than 1% of the outstanding Common Stock as of the effective
date of such registration statement) shall also have agreed not to effect any
sale, disposition or distribution of any Registrable Securities under the
circumstances and pursuant to the terms set forth in this Section 6.12.
SECTION 6.13. TRANSFER OF REGISTRATION RIGHTS. The registration rights of
any Holder under this Agreement with respect to the Registrable Securities may
be transferred to any transferee of such Registrable Securities who acquires any
Registrable Securities of any Holder; PROVIDED that such registration rights may
not be transferred to a holder of less than 1% of the outstanding Common Stock
unless such transferee is a Borden Affiliate (or a partner of a Borden
Affiliate); PROVIDED, FURTHER, that (i) the transferring Holder shall give the
Company written notice at or prior to the time of such transfer stating the name
and address of the transferee and identifying the securities with respect to
which the rights under this Agreement are being transferred, (ii) such
transferee shall agree in writing, in form and substance reasonably satisfactory
to the Company, to be bound as a Holder by the provisions of this Section, and
(iii) immediately following such transfer the further disposition of such
securities by such transferee is restricted under the Securities Act.
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<PAGE>
SECTION 6.14. SELECTION OF COUNSEL. In connection with any registration of
Registrable Securities pursuant to Sections 6.3, 6.4 and 6.5 hereof, the Holders
of a majority of the Registrable Securities covered by any such registration may
select one counsel to represent all Holders of Registrable Securities covered by
such registration; PROVIDED, HOWEVER, that in the event that the counsel
selected as provided above is also acting as counsel to the Company in
connection with such registration, the remaining Holders shall be entitled to
select one additional counsel to represent all such remaining Holders.
ARTICLE VII
REPRESENTATIONS AND WARRANTIES
SECTION 7.1. REPRESENTATIONS OF THE COMPANY. As of the date hereof and as
of the Closing Date the Company represents and warrants as follows:
(a) AUTHORITY RELATIVE TO THIS AGREEMENT. The Company has all necessary
power and authority to execute and deliver this Agreement, to perform its
obligations hereunder and to consummate the transactions contemplated hereby
(the "Transactions"). The execution and delivery of this Agreement by the
Company and the consummation by the Company of the Transactions have been
duly and validly authorized by all necessary corporate action and no other
corporate proceedings on the part of the Company are necessary to authorize
this Agreement or to consummate the Transactions. This Agreement has been
duly and validly executed and delivered by the Company and, assuming the due
authorization, execution and delivery by Borden, constitutes legal, valid
and binding obligations of the Company.
(b) NO CONFLICT. The execution and delivery by the Company of this
Agreement do not, and the performance of this Agreement by the Company will
not, (i) conflict with or violate the Certificate of Incorporation or
By-Laws of the Company or any of its Subsidiaries, (ii) conflict with or
violate any law, rule, regulation, order, judgment or decree applicable to
the Company or any of its Subsidiaries or by which any property or asset of
the Company or any of its Subsidiaries is bound or affected, or (iii) result
in any breach of or constitute a default (or an event which with notice or
lapse of time or both would become a default) under, or give to others any
right of termination, amendment, acceleration or cancellation of, or result
in the creation of a lien or other encumbrance on any property or asset of
the Company or any of its Subsidiaries pursuant to, any note, bond,
mortgage, indenture, contract, agreement, lease, license, permit, franchise
or other instrument or obligation to which the Company or any of its
Subsidiaries is a party or by which the Company or any of its Subsidiaries
or any property or asset of the Company or any of its Subsidiaries is bound
or affected, except for any such breaches, defaults or other occurrences
which would not, individually or in the aggregate, have a material adverse
effect on the results of operations, financial condition or business of the
Company and its Subsidiaries, taken as a whole.
(c) REQUIRED FILINGS AND CONSENTS. The execution and delivery by the
Company of this Agreement do not, and the performance of this Agreement by
the Company will not, require any consent, approval, authorization or permit
of, or filing by the Company with or notification to, any governmental or
regulatory authority, domestic or foreign, except (i) for applicable
requirements, if any, of the Securities Act, the Exchange Act, state blue
sky and takeover laws, and (ii) where failure to obtain such consents,
approvals, authorizations or permits, or to make such filings or
notifications, would not prevent or delay the Company from performing its
obligations under this Agreement and would not, individually or in the
aggregate, have a material adverse effect on the results of operations,
financial condition or business of the Company and its Subsidiaries, taken
as a whole.
SECTION 7.2. REPRESENTATIONS OF BORDEN. As of the date hereof and as of
the Closing Date Borden represents and warrants as follows:
(a) AUTHORITY RELATIVE TO THIS AGREEMENT. Borden has all necessary power
and authority to execute and deliver this Agreement, to perform its
obligations hereunder and to consummate the Transactions. The execution and
delivery of this Agreement by Borden and the consummation by Borden of
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<PAGE>
the Transactions have been duly and validly authorized by all necessary
corporate action and no other corporate proceedings on the part of Borden
are necessary to authorize this Agreement or to consummate the Transactions.
This Agreement has been duly and validly executed and delivered by Borden
and, assuming the due authorization, execution and delivery by the Company
constitutes legal, valid and binding obligations of Borden.
(b) NO CONFLICT. The execution and delivery by Borden of this Agreement
do not, and the performance of this Agreement by Borden will not, (i)
conflict with or violate the Certificate of Incorporation or By-Laws of
Borden or any of its Subsidiaries, (ii) conflict with or violate any law,
rule, regulation, order, judgment or decree applicable to Borden or any of
its Subsidiaries or by which any property or asset of Borden or any of its
Subsidiaries is bound or affected, or (iii) result in any breach of or
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any right of termination,
amendment, acceleration or cancellation of, or result in the creation of a
lien or other encumbrance on any property or asset of Borden or any of its
Subsidiaries pursuant to, any note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument or
obligation to which Borden or any of its Subsidiaries is a party or by which
Borden or any of its Subsidiaries or any property or asset of Borden or any
of its Subsidiaries is bound or affected, except for any such breaches,
defaults or other occurrences which would not, individually or in the
aggregate, have a material adverse effect on the results of operations,
financial condition or business of Borden Global Packaging (as such term is
defined in the Purchase Agreement), taken as a whole.
(c) REQUIRED FILINGS AND CONSENTS. The execution and delivery by Borden
of this Agreement do not, and the performance of this Agreement by Borden
will not, require any consent, approval, authorization or permit of, or
filing by Borden with or notification to, any governmental or regulatory
authority, domestic or foreign, except for (i) applicable requirements, if
any, of the Securities Act, the Exchange Act, state blue sky and takeover
laws, and (ii) where failure to obtain such consents, approvals,
authorizations or permits, or to make such filings or notifications, would
not prevent or delay Borden from performing its obligations under this
Agreement and would not, individually or in the aggregate, have a material
adverse effect on the results of operations, financial condition or business
of Borden Global Packaging, taken as a whole.
ARTICLE VIII
MISCELLANEOUS
SECTION 8.1. NOTICES. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly received if so given) by hand delivery, by mail
(registered or certified mail, postage prepaid, return receipt requested) or by
any courier service, such as Federal Express, providing proof of delivery. All
communications hereunder shall be delivered to the respective parties at the
following addresses:
if to Borden, to:
Borden, Inc.
180 East Broad Street
Columbus, Ohio 43215
Attention: Richard L. de Ney
with a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
Attention: David J. Sorkin, Esq.
B-22
<PAGE>
if to the Company, to:
AEP Industries Inc.
125 Phillips Avenue
South Hackensack, NJ 07606
Attention: Paul M. Feeney, Executive Vice President
with a copy to:
Bachner, Tally, Polevoy & Misher LLP
380 Madison Avenue
New York, New York 10017
Attention: Paul E. Gelbard, Esq.
If to a Transferee of Registrable Securities:
At the address set forth in the notice
required to be delivered pursuant to
Section 6.13 hereof.
SECTION 8.2. AMENDMENTS; NO WAIVERS. (a) Any provision of this Agreement
may be amended or waived if, and only if, such amendment or waiver is in writing
and signed, in the case of an amendment, by Borden and the Company, or in the
case of a waiver, by the party against whom the waiver is to be effective;
PROVIDED that no such amendment or waiver by the Company shall be effective
without the approval of a majority of the Independent Directors.
(b) No failure or delay by any party in exercising any right, power or
privilege hereunder shall operate as waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies herein
provided shall be cumulative and not exclusive of any rights or remedies
provided by law.
SECTION 8.3. SEVERABILITY. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law,
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the Transactions is not affected in any manner adverse to any
party. Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the parties hereto shall negotiate in
good faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible in a mutually acceptable manner in order that the
Transactions be consummated as originally contemplated to the fullest extent
possible.
SECTION 8.4. ENTIRE AGREEMENT; ASSIGNMENT. This Agreement, the Purchase
Agreement and the Stockholders Agreement (as defined in the Purchase Agreement)
and the agreements contemplated hereby and thereby constitute the entire
agreement among the parties with respect to the subject matter hereof and
thereof and supersede, except as set forth in the Purchase Agreement, all prior
agreements and undertakings, both written and oral, among the parties, or any of
them, with respect to the subject matter hereof. This Agreement shall not be
assigned by operation of law or otherwise, except that Borden may assign all or
any of its rights and obligations hereunder to any of its Affiliates in
connection with a transfer of Common Stock; provided that (a) no such assignment
shall relieve Borden of its obligations hereunder and (b) Borden may assign its
rights to the extent and as provided in Section 6.13.
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<PAGE>
SECTION 8.5. PARTIES IN INTEREST. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto, and nothing in this Agreement,
express or implied, is intended to or shall confer upon any other person any
right, benefit or remedy of any nature whatsoever under or by reason of this
Agreement.
SECTION 8.6. SPECIFIC PERFORMANCE. The parties hereto agree that
irreparable damage would occur in the event any provision of this Agreement was
not performed in accordance with the terms hereof and that the parties shall be
entitled to specific performance of the terms hereof, in addition to any other
remedy at law or equity.
SECTION 8.7. GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of New York applicable to
contracts executed in and to be performed in the State of New York. All actions
and proceedings arising out of or relating to this Agreement shall be heard and
determined in any New York state or federal court thereof.
SECTION 8.8. HEADINGS. The descriptive headings contained in this
Agreement are included for convenience of reference only and shall not affect in
any way the meaning or interpretation of this Agreement.
SECTION 8.9. COUNTERPARTS. This Agreement may be executed and delivered
(including by facsimile transmission) in one or more counterparts, and by the
different parties hereto in separate counterparts, each of which when executed
and delivered shall be deemed to be an original but all of which taken together
shall constitute one and the same agreement.
SECTION 8.10. EFFECTIVENESS; TERMINATION. This Agreement shall be
effective as of the Closing Date and shall terminate at such time as Borden and
its Affiliates no longer own any such shares.
SECTION 8.11. WAIVER OF JURY TRIAL. Borden and the Company each hereby
irrevocably waive all right to trial by jury in any action, proceeding or
counterclaim (whether based on contract, tort or otherwise) arising out of or
relating to this Agreement or the actions of Borden or the Company in the
negotiation, administration, performance and enforcement thereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed by their respective authorized officers as of the day and year first
above written.
AEP INDUSTRIES INC.
By: /s/ PAUL M. FEENEY
--------------------------------------
Name: Paul M. Feeney
Title: EXECUTIVE VICE PRESIDENT
BORDEN, INC.
By: /s/ RICHARD L. DE NEY
--------------------------------------
Name: Richard L. de Ney
Title: EXECUTIVE VICE PRESIDENT
B-24
<PAGE>
EXHIBIT A
8 PERSON BOARD OF DIRECTORS
<TABLE>
<CAPTION>
BORDEN'S OWNERSHIP INTEREST
------------------------------------------------------------------------------
10%+ BUT LESS 20%+ BUT LESS 25%+ BUT LESS
< 10% THAN 20% THAN 25% THAN 50% 50%+
---------- --------------- --------------- --------------- ------
<S> <C> <C> <C> <C> <C>
# of Management Directors.......... 6 5 4 3 2
# of Management Independent
Directors........................ 2 1 1 1 0
# of Investor Directors............ 0 1 2 3 4
# of Investor Independent
Directors........................ 0 0 0 0 1
# of Management/Investor
Independent Directors............ 0 1 1 1 1
</TABLE>
10 PERSON BOARD OF DIRECTORS
<TABLE>
<CAPTION>
BORDEN'S OWNERSHIP INTEREST
------------------------------------------------------------------------------
10%+ BUT LESS 20%+ BUT LESS 25%+ BUT LESS
< 10% THAN 20% THAN 25% THAN 50% 50%+
---------- --------------- --------------- --------------- ------
<S> <C> <C> <C> <C> <C>
# of Management Directors.......... 8 6 5 3 2
# of Management Independent
Directors........................ 2 2 2 2 1
# of Investor Directors............ 0 1 2 4 5
# of Investor Independent
Directors........................ 0 0 0 0 1
# of Management/Investor
Independent Directors............ 0 1 1 1 1
</TABLE>
12 PERSON BOARD OF DIRECTORS
<TABLE>
<CAPTION>
BORDEN'S OWNERSHIP INTEREST
------------------------------------------------------------------------------
10%+ BUT LESS 20%+ BUT LESS 25%+ BUT LESS
< 10% THAN 20% THAN 25% THAN 50% 50%+
---------- --------------- --------------- --------------- ------
<S> <C> <C> <C> <C> <C>
# of Management Directors.......... 9 7 5 4 3
# of Management Independent
Directors........................ 3 2 2 2 1
# of Investor Directors............ 0 2 4 5 6
# of Investor Independent
Directors........................ 0 0 0 0 1
# of Management/Investor
Independent Directors............ 0 1 1 1 1
</TABLE>
<PAGE>
ANNEX C
STOCKHOLDERS AGREEMENT
AGREEMENT dated as of June 20, 1996 by and among Borden, Inc. a New Jersey
corporation ("Seller"), and the other parties signatory hereto (each a
"Stockholder").
RECITALS
Concurrently herewith, Seller and AEP Industries Inc., a Delaware
corporation ("Buyer"), are entering into a Purchase Agreement of even date
herewith (as such agreement may be amended from time to time, the "Purchase
Agreement"; capitalized terms used but not defined herein shall have the
meanings set forth in the Purchase Agreement) pursuant to which Buyer will
purchase from Seller and the Subsidiary Asset Sellers the Subsidiary Stock and
the Assets (the "Stock and Asset Purchase") in consideration for a combination
of cash and shares of common stock, par value $0.01 per share, of Buyer (the
"Buyer Common Stock").
As a condition to Seller's willingness to enter into the Purchase Agreement,
Seller requires that each Stockholder enter into, and each such Stockholder has
agreed to enter into, this Agreement.
AGREEMENT
To implement the foregoing and in consideration of the mutual agreements
contained herein, the parties agree as follows:
1. REPRESENTATIONS AND WARRANTIES. Each Stockholder hereby severally
represents and warrants to Seller as follows:
(a) OWNERSHIP OF SHARES. (1) Such Stockholder is either (i) the record
holder and beneficial owner of, (ii) trustee of a trust that is the record
holder or beneficial owner of, and whose beneficiaries are the beneficial
owners (such trustee, a "Trustee") of, (iii) executor of an estate that is
the record holder or beneficial owner of, and whose beneficiaries are the
beneficial owners (such executor, an "Executor") of, (iv) director of a
foundation that is the record holder (such director, a "Foundation
Director") of, or (v) the beneficial owner but not the record holder of, the
number of shares of Buyer Common Stock as set forth opposite such
Stockholder's name on Section 1 of the disclosure schedule (the
"Stockholders Agreement Disclosure Schedule") (the "Existing Shares", and
together with any shares of Buyer Common Stock acquired by such Stockholder
in any such capacities after the date hereof and prior to the termination
hereof, whether upon exercise of options, conversion of convertible
securities, purchase, exchange or otherwise, the "Shares").
(2) On the date hereof, the Existing Shares set forth opposite such
Stockholder's name on Section 1 of the Stockholders Agreement Disclosure
Schedule constitute all of the shares of Buyer Common Stock owned of record
or beneficially by such Stockholder.
(3) Such Stockholder has sole power of disposition with respect to all
of the Existing Shares set forth opposite such Stockholder's name on Section
1 of the Stockholders Agreement Disclosure Schedule and sole voting power
with respect to the matters set forth in Section 2 hereof, in each case with
respect to all of the Existing Shares set forth opposite such Stockholder's
name on Section 2 of the Stockholders Agreement Disclosure Schedule, with no
restrictions on such rights, subject to applicable federal securities laws
and the terms of this Agreement.
(b) POWER; BINDING AGREEMENT. Such Stockholder has the legal capacity,
power and authority to enter into and perform all of such Stockholder's
obligations under this Agreement. The execution, delivery and performance of
this Agreement by such Stockholder will not violate any other agreement to
which such Stockholder is a party or by which such Stockholder is bound
including, without
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limitation, any trust agreement, will, testamentary document, voting
agreement, stockholders agreement, voting trust or other agreement. This
Agreement has been duly and validly executed and delivered by such
Stockholder and constitutes a valid and binding agreement of such
Stockholder, enforceable against such Stockholder in accordance with its
terms. There is no beneficiary of or holder of a voting trust certificate or
other interest of any trust of which a Stockholder is Trustee, any estate in
respect of which a Stockholder is an Executor or any Foundation of which a
Stockholder is a Foundation Director whose consent is required for the
execution and delivery of this Agreement or the consummation of the
transactions contemplated hereby. If such Stockholder is married and such
Stockholder's Shares constitute community property, this Agreement has been
duly authorized, executed and delivered by, and constitutes a valid and
binding agreement of, such Stockholder's spouse, enforceable against such
person in accordance with its terms.
(c) NO CONFLICTS. (A) No filing with, and no permit, authorization,
consent or approval of, any state or federal public body or authority is
necessary for the execution of this Agreement by such Stockholder and the
consummation by such Stockholder of the transactions contemplated hereby and
(B) neither the execution and delivery of this Agreement by such Stockholder
nor the consummation by such Stockholder of the transactions contemplated
hereby nor compliance by such Stockholder with any of the provisions hereof
shall (x) conflict with or result in any breach of any applicable trust,
estate, foundation or other organizational documents applicable to such
Stockholder, (y) result in a violation or breach of, or constitute (with or
without notice or lapse of time or both) a default (or give rise to any
third party right of termination, cancellation, material modification or
acceleration) under any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, license, contract, commitment, arrangement,
understanding, agreement or other instrument or obligation of any kind to
which such Stockholder is a party or by which such Stockholder or any of
such Stockholder's properties or assets may be bound or (z) violate any
order, writ, injunction, decree, judgment, order, statute, rule or
regulation applicable to such Stockholder or any of such Stockholder's
properties or assets.
(d) Such Stockholder's Shares and the certificates representing such
Shares are now and at all times during the term hereof will be held by such
Stockholder, or by a nominee or custodian for the benefit of such
Stockholder, free and clear of all liens, claims, security interests,
proxies, voting trusts or agreements, understandings or arrangements or any
other encumbrances whatsoever, except for any such encumbrances or proxies
arising hereunder.
(e) No broker, investment banker, financial adviser or other person is
entitled to any broker's, finder's, financial adviser's or other similar fee
or commission in connection with the transactions contemplated hereby based
upon arrangements made by or on behalf of such Stockholder.
(f) Such Stockholder understands and acknowledges that Seller is
entering into the Purchase Agreement in reliance upon such Stockholder's
execution and delivery of this Agreement.
2. AGREEMENT TO VOTE; PROXY.
2.1 VOTING. Each Stockholder hereby severally agrees that, during the time
this Agreement is in effect (except, with respect to clauses (i) and (iv) of
this Section 2.1, until the Closing Date), at any meeting of the stockholders of
Buyer, however called, or in connection with any written consent of the
stockholders of Buyer, such Stockholder shall vote (or cause to be voted) the
Shares held of record or beneficially by such Stockholder (i) in favor of the
Stock and Asset Purchase and the authorization and issuance of shares of Buyer
Common Stock to Seller in connection therewith (the "Buyer Stock Issuance"), the
execution and delivery by Buyer of the Purchase Agreement and the approval of
the terms thereof and each of the other actions contemplated by the Purchase
Agreement and this Agreement and any actions required in furtherance hereof and
thereof; (ii) against any action or agreement that would result in a breach of
any covenant, representation or warranty or any other obligation or agreement of
Buyer under the Purchase Agreement or this Agreement; (iii) (A) in favor of any
amendments to the Certificate of Incorporation and
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By-Laws of the Buyer in order to conform such documents to the requirements of
the Governance Agreement and (B) otherwise in a manner consistent with the
provisions of the Governance Agreement; and (iv) except as specifically
requested in writing by Seller in advance and except as otherwise specified in
clauses (i), (ii) and (iii) above, against the following actions (other than the
Stock and Asset Purchase, the Buyer Stock Issuance and the transactions
contemplated by the Purchase Agreement and the Governance Agreement): (1) any
extraordinary corporate transaction, such as a merger, consolidation or other
business combination involving Buyer or its subsidiaries; (2) a sale, lease or
transfer of a material amount of assets of Buyer or its subsidiaries or a
reorganization, recapitalization, dissolution or liquidation of Buyer or its
subsidiaries; (3) (a) any change in the majority of the board of directors of
Buyer; (b) any material change in the present capitalization of Buyer or any
amendment of Buyer's Certificate of Incorporation; (c) any other material change
in Buyer's corporate structure or business; or (d) any other action which, is
intended, or could reasonably be expected, to impede, interfere with, delay,
postpone, discourage or materially adversely affect the Stock and Asset
Purchase, the Buyer Stock Issuance or the transactions contemplated by the
Purchase Agreement, this Agreement or the Governance Agreement or the
contemplated economic benefits of any of the foregoing. Such Stockholder shall
not enter into any agreement or understanding with any person or entity prior to
the Termination Date (as defined in Section 7) to vote or give instructions
after the Termination Date in any manner inconsistent with clauses (i), (ii) or
(iii) of the preceding sentence.
2.2 PROXY. EACH STOCKHOLDER HEREBY GRANTS TO, AND APPOINTS, SELLER AND
WILLIAM CARTER OF SELLER AND RICHARD L. DE NEY OF SELLER, IN THEIR RESPECTIVE
CAPACITIES AS OFFICERS OF SELLER, AND ANY INDIVIDUAL WHO SHALL HEREAFTER SUCCEED
TO ANY SUCH OFFICE OF SELLER, AND ANY OTHER DESIGNEE OF SELLER, EACH OF THEM
INDIVIDUALLY, SUCH STOCKHOLDER'S IRREVOCABLE (UNTIL THE TERMINATION DATE) PROXY
AND ATTORNEY-IN-FACT (WITH FULL POWER OF SUBSTITUTION) TO VOTE THE SHARES AS
INDICATED IN SECTION 2.1 ABOVE. EACH STOCKHOLDER INTENDS THIS PROXY TO BE
IRREVOCABLE (UNTIL THE TERMINATION DATE) AND COUPLED WITH AN INTEREST AND WILL
TAKE SUCH FURTHER ACTION AND EXECUTE SUCH OTHER INSTRUMENTS AS MAY BE NECESSARY
TO EFFECTUATE THE INTENT OF THIS PROXY AND HEREBY REVOKES ANY PROXY PREVIOUSLY
GRANTED BY SUCH STOCKHOLDER WITH RESPECT TO SUCH STOCKHOLDER'S SHARES.
3. CERTAIN COVENANTS OF STOCKHOLDERS. Except in accordance with the terms
of this Agreement, each Stockholder hereby severally covenants and agrees as
follows:
3.1 RESTRICTION ON TRANSFER, PROXIES AND NON-INTERFERENCE; RESTRICTION ON
WITHDRAWAL. From the date hereof until the Transfer Restriction Ending Date
with respect to such Stockholder, such Stockholder shall not, directly or
indirectly: (i) except (w) subsequent to the Closing Date, in a Permitted
Disposition, (x) for gifts to family members who either are signatories to this
Agreement or who, upon such gift, become signatories to this Agreement, (y) for
gifts by J. Brendan Barba in an aggregate amount not exceeding 10,000 shares of
Buyer Common Stock and (z) with the prior written consent of Seller, offer for
sale, sell, transfer, tender, pledge, encumber, assign or otherwise dispose of,
enforce or permit the execution of the provisions of any redemption agreement
with Buyer or enter into any contract, option or other arrangement or
understanding with respect to or consent to the offer for sale, sale, transfer,
tender, pledge, encumbrance, assignment or other disposition of, any or all of
such Stockholder's Shares or any interest therein; (ii) except as contemplated
hereby, grant any proxies or powers of attorney, deposit any Shares into a
voting trust or enter into a voting agreement with respect to any Shares; or
(iii) take any action that would make any representation or warranty of such
Stockholder contained herein untrue or incorrect or have the effect of
preventing or disabling such Stockholder from performing such Stockholder's
obligations under this Agreement. "Permitted Disposition" means a sale, transfer
or other disposition (i) pursuant to a statutory merger, consolidation or
similar mandatory transaction; (ii) pursuant to a tender offer if, subsequent to
the Closing Date, the board of directors of Buyer recommends acceptance of such
tender offer or declines to take a position regarding such tender offer; (iii)
as a result of any pledge or
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hypothecation to a bona fide financial institution to secure a bona fide loan or
the foreclosure of any lien or encumbrance which may be placed on any Buyer
Common Stock provided that, with respect to pledges or hypothecations by any
Stockholder, in one or a series of transactions of 1% or more of the outstanding
shares of Buyer Common Stock, such institution or institutions agrees to be
bound by the terms hereof; (iv) pursuant to the cashless exercise of stock
options issued under the Company's Stock Option Plans; or (v) from time to time
after the Closing Date equal to an amount of Shares (expressed as a percentage)
such that (A) the number of Shares owned by such Stockholder and not so sold,
transferred or otherwise disposed divided by the number of Shares owned by such
Stockholder immediately after the Closing Date is no less than (B) the number of
shares of Buyer Common Stock owned at such time by the Seller divided by the
number of shares of Buyer Common Stock owned by the Seller immediately after the
Closing Date. "Transfer Restriction Ending Date" shall mean (i) with respect to
J. Brendan Barba, Paul M. Feeney, Melanie K. Barba, John Powers, Lauren Powers
and Carolyn Vegliante and all of their respective transferees and assigns, the
Termination Date or (ii) with respect to all other Stockholders and all of their
respective transferees and assigns, the Closing Date.
3.2 NO TERMINATION OR CLOSURE OF TRUSTS, FOUNDATIONS AND ESTATES. Unless,
in connection therewith, the Shares held by any trust, foundation or estate
which are presently subject to the terms of this Agreement are transferred upon
termination to one or more Stockholders and remain subject in all respects to
the terms of this Agreement, or other persons or entities who upon receipt of
such Shares become signatories to this Agreement, the Stockholders who are
Trustees, Executors or Foundation Directors shall not take any action to
terminate, close or liquidate any such trust, estate or foundation and shall
take all steps necessary to maintain the existence thereof at least until the
Termination Date.
3.3 CONTINUED SERVICE AS DIRECTOR. J. Brendan Barba and Paul M. Feeney
each agrees, if so nominated and elected, to serve as a member of the Board of
Directors of Buyer, and, in the case of Mr. Barba, if so elected by the Board,
as Chairman thereof, for five years following the Closing Date.
3.4 EMPLOYMENT AGREEMENTS. J. Brendan Barba and Paul M. Feeney each agree
to enter into their respective employment agreements in the respective forms
attached as Schedule 5.3(i)(2) to the Purchase Agreement on the Closing Date.
4. FURTHER ASSURANCES. From time to time, at the other party's request and
without further consideration, each party hereto shall execute and deliver such
additional documents and take all such further action as may be necessary or
desirable to consummate and make effective, in the most expeditious manner
practicable, the transactions contemplated by this Agreement.
5. CERTAIN EVENTS. Each Stockholder agrees that this Agreement and the
obligations hereunder shall attach to such Stockholder's Shares and shall be
binding upon any person or entity to which legal or beneficial ownership of such
Shares shall pass, whether by operation of law or otherwise, including without
limitation such Stockholder's heirs, guardians, administrators or successors or
as a result of any divorce.
6. STOP TRANSFER. Until the Transfer Restriction Ending Date (a) each
Stockholder agrees with, and covenants to, Seller that such Stockholder shall
not request that Buyer register the transfer (book-entry or otherwise) of any
certificated or uncertificated interest representing any of such Stockholder's
Shares, unless such transfer is made in compliance with this Agreement; (b) each
Stockholder agrees, with respect to any Shares in certificated form, that such
Stockholder will tender to Buyer, within ten business days after the date
hereof, the certificates representing such Shares and Buyer will inscribe upon
such certificates the following legend: "The shares of Common Stock, par value
$.01 per share, of AEP Industries Inc. (the "Company") represented by this
certificate are subject to a Stockholders Agreement dated as of June 20, 1996,
and may not be sold or otherwise transferred, except in accordance therewith.
Copies of such Agreement may be obtained at the principal executive offices of
the Company"; (c) each Stockholder (other than Lawrence Noll) agrees that within
ten business days after the date hereof, such Stockholder will have all
uncertificated securities representing Shares issued in certificated form in the
name of such Stockholder with the legend above inscribed on such certificates
and to do such other things
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as may be required by the transfer agent; and (d) each Stockholder (other than
Lawrence Noll) agrees that within ten business days after the date hereof, such
Stockholder will no longer hold any Shares in "street name" or in the name of
any nominee.
7. TERMINATION. The covenants and agreements contained herein shall
terminate on the first to occur of (a) the third anniversary of the Closing
Date, (b) the date, if any, prior to the Closing Date the Purchase Agreement is
terminated in accordance with its terms and (c) such time following the Closing
Date as Seller owns less than 10% of the outstanding shares of Buyer Common
Stock (the "Termination Date"); provided, that clauses (i) and (iv) of Section
2.1 shall terminate on the earlier of the Closing Date or the Termination Date.
8. MISCELLANEOUS.
8.1 ENTIRE AGREEMENT; ASSIGNMENT. This Agreement (i) constitutes the
entire agreement between the parties with respect to the subject matter hereof
and supersedes all other prior agreements and understandings, both written and
oral, between the parties with respect to the subject matter hereof and (ii)
shall not be assigned by operation of law or otherwise without the prior written
consent of the other party.
8.2 AMENDMENTS. This Agreement may not be modified, amended, altered or
supplemented, except upon the execution and delivery of a written agreement
executed by the parties hereto; provided that Section 1 of the Stockholders
Agreement Disclosure Schedule may be supplemented by Seller by adding the name
and other relevant information concerning any stockholder of Buyer who agrees to
be bound by the terms of this Agreement without the agreement of any other party
hereto, and thereafter such added stockholder shall be treated as a
"Stockholder" for all purposes of this Agreement.
8.3 NOTICES. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly received if so given) by hand delivery, telegram, telex
or telecopy, or by mail (registered or certified mail, postage prepaid, return
receipt requested) or by any courier service, such as Federal Express, providing
proof of delivery. All communications hereunder shall be delivered to the
respective parties at the following addresses:
<TABLE>
<CAPTION>
If to c/o AEP Industries Inc.
Stockholder: 125 Phillips Avenue
South Hackensack, New Jersey
Attn: Paul M. Feeney, Executive Vice
President
Fax: (201-807-2447)
<C> <S>
copy to: Bachner, Tally, Polevoy & Misher LLP
380 Madison Avenue
New York, New York 10017
Attn: Paul E. Gelbard, Esq.
Fax: (212-297-0261)
If to Borden, 180 East Broad Street
Inc.: Columbus, Ohio 43215
Attn: Richard L. de Ney
Fax: (614-225-4108)
copy to: Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
Attn: David J. Sorkin, Esq.
Fax: (212-455-2502)
</TABLE>
or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above.
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8.4 GOVERNING LAW. 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 principles of conflicts of laws thereof.
8.5 ENFORCEMENT. The parties agree that irreparable damage would occur in
the event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement.
8.6 COUNTERPARTS. This 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 Agreement.
8.7 DESCRIPTIVE HEADINGS. The descriptive headings used herein are
inserted for convenience of reference only and are not intended to be part of or
to affect the meaning or interpretation of this Agreement.
8.8 SEVERABILITY. Whenever possible, each provision or portion of any
provision of this Agreement will be interpreted in such manner as to be
effective and valid under applicable law but if any provision or portion of any
provision of this Agreement is held to be invalid, illegal or unenforceable in
any respect under any applicable law or rule in any jurisdiction, such
invalidity, illegality or unenforceability will not affect any other provision
or portion of any provision in such jurisdiction, and this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision or portion of any provision had never been
contained herein.
8.9 DEFINITIONS; CONSTRUCTION. For purposes of this Agreement:
(a) "Beneficially Own" or "Beneficial Ownership" with respect to any
securities shall mean having "beneficial ownership" of such securities (as
determined pursuant to Rule 13d-3 under the Securities Exchange Act of 1934,
as amended (the "Exchange Act)), including pursuant to any agreement,
arrangement or understanding, whether or not in writing. Without duplicative
counting of the same securities by the same holder, securities Beneficially
Owned by a Person shall include securities Beneficially Owned by all other
Persons with whom such Person would constitute a "group" as described in
Section 13(d)(3) of the Exchange Act.
(b) "Person" shall mean an individual, corporation, partnership, joint
venture, association, trust, unincorporated organization or other entity.
(c) In the event of a stock dividend or distribution, or any change in
the Buyer Common Stock by reason of any stock dividend, split-up,
recapitalization, combination, exchange of shares or the like, the term
"Shares" shall be deemed to refer to and include the Shares as well as all
such stock dividends and distributions and any shares into which or for
which any or all of the Shares may be changed or exchanged.
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IN WITNESS WHEREOF, Seller and each Stockholder have caused this Agreement
to be duly executed as of the day and year first above written.
BORDEN, INC.
By: /s/ RICHARD L. DE NEY
-----------------------------------
Name: Richard L. de Ney
Title: EXECUTIVE VICE PRESIDENT
STOCKHOLDERS
/s/ J. BRENDAN BARBA
--------------------------------------
Name: J. Brendan Barba
/s/ PAUL M. FEENEY
--------------------------------------
Name: Paul M. Feeney
/s/ DAVID MACFARLAND
--------------------------------------
Name: David MacFarland
/s/ ROBERT CRON
--------------------------------------
Name: Robert Cron
/s/ KENNETH J. AVIA
--------------------------------------
Name: Kenneth J. Avia
/s/ MELANIE K. BARBA
--------------------------------------
Name: Melanie K. Barba
/s/ JOHN POWERS
--------------------------------------
Name: John Powers
/s/ LAUREN POWERS
--------------------------------------
Name: Lauren Powers
/s/ CAROLYN VEGLIANTE
--------------------------------------
Name: Carolyn Vegliante
/s/ LAWRENCE NOLL
--------------------------------------
Name: Lawrence Noll
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ANNEX D
VOTING AGREEMENT
AGREEMENT dated as of June 20, 1996 by and among Borden, Inc. a New Jersey
corporation ("Seller"), and the stockholders of AEP Industries Inc., as Delaware
corporation ("Buyer"), named on the signature pages to this voting agreement,
severally but not jointly (the "Stockholders").
RECITALS
Concurrently herewith, Seller and Buyer are entering into a Purchase
Agreement of even date herewith (the "Purchase Agreement"; capitalized terms
used but not defined herein shall have the meanings set forth in the Purchase
Agreement) pursuant to which Buyer will purchase from Seller and the Subsidiary
Asset Sellers the Subsidiary Stock and the Assets (the "Stock and Asset
Purchase") in consideration for $280 million of cash and 2,412,818 shares of
common stock, par value $0.01 per share, of Buyer (the "Buyer Common Stock"),
subject to adjustment pursuant to the terms and provisions of the Purchase
Agreement.
As a condition to Seller's willingness to enter into the Purchase Agreement,
Seller requires that each Stockholder enter into, severally but not jointly, and
such Stockholder has agreed to enter into, this Agreement.
AGREEMENT
To implement the foregoing and in consideration of the mutual agreements
contained herein, the parties agree as follows:
1. REPRESENTATIONS AND WARRANTIES. Each Stockholder hereby severally but
not jointly represents and warrants to Seller as follows:
(a) OWNERSHIP OF SHARES. (1) Such Stockholder is either (i) the record
holder and beneficial owner of, (ii) trustee of a trust that is the record
holder or beneficial owner of, and whose beneficiaries are the beneficial
owners (such trustee, a "Trustee") of, (iii) executor of an estate that is
the record holder or beneficial owner of, and whose beneficiaries are the
beneficial owners (such executor, an "Executor") of, or (iv) the beneficial
owner but not the record holder of, the number of shares of Buyer Common
Stock as set forth opposite such Stockholder's name on Section 1 of the
disclosure schedule attached hereto (the "Voting Agreement Disclosure
Schedule") (the "Shares").
(2) On the date hereof, the Shares set forth opposite such Stockholder's
name on Section 1 of the Voting Agreement Disclosure Schedule constitute
shares of Buyer Common Stock owned of record or beneficially by such
Stockholder.
(3) Such Stockholder has power of disposition with respect to all of the
Shares set forth opposite such Stockholder's name on Section 1 of the Voting
Agreement Disclosure Schedule and voting power with respect to the matters
set forth in Section 2 hereof, in each case with respect to all of the
Shares set forth opposite such Stockholder's name on Section 2 of the Voting
Agreement Disclosure Schedule, with no restrictions on such rights, subject
to applicable federal securities laws, margin regulations and standard
margin arrangements, the limitations noted on the Voting Agreement
Disclosure Schedule and the terms of this Agreement.
(b) POWER; BINDING AGREEMENT. Such Stockholder has the legal capacity,
power and authority to enter into and perform all of such Stockholder's
obligations under this Agreement. The execution, delivery and performance of
this Agreement by such Stockholder will not violate any other agreement to
which such Stockholder is a party or by which such Stockholder is bound
including, without
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<PAGE>
limitation, any trust agreement, will, testamentary document, voting
agreement, stockholders agreement, voting trust or other agreement. This
Agreement has been duly and validly executed and delivered by such
Stockholder.
(c) NO CONFLICTS. (A) Except for the filing of an amendment to the
Schedule 13D of the Stockholders on file with the Securities and Exchange
Commission with respect to the Buyer Common Stock, no filing with, and no
permit, authorization, consent or approval of, any state or federal public
body or authority is necessary for the execution of this Agreement by such
Stockholder and the consummation by such Stockholder of the transactions
contemplated hereby and (B) neither the execution and delivery of this
Agreement by such Stockholder nor the consummation by such Stockholder of
the transactions contemplated hereby nor compliance by such Stockholder with
any of the provisions hereof shall (x) conflict with or result in any breach
of any applicable trust, estate or other organizational documents applicable
to such Stockholder, (y) result in a violation or breach of, or constitute
(with or without notice or lapse of time or both) a default (or give rise to
any third party right of termination, cancellation, material modification or
acceleration) under any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, license, contract, commitment, arrangement,
understanding, agreement or other instrument or obligation of any kind to
which such Stockholder is a party or by which such Stockholder or any of
such Stockholder's properties or assets may be bound or (z) violate any
order, writ, injunction, decree, judgment, order, statute, rule or
regulation applicable to such Stockholder or any of such Stockholder's
properties or assets.
(d) Such Stockholder's Shares are free and clear of all proxies, voting
trusts or agreements, understandings or similar arrangements, except for
this Agreement and as reflected on the Voting Agreement Disclosure Schedule.
2. AGREEMENT TO VOTE.
2.1 VOTING. (a) Subject to the limitations described on the Voting
Agreement Disclosure Schedule, each Stockholder hereby agrees that, during the
time this Agreement is in effect, at any meeting of the stockholders of Buyer,
however called, or in connection with any written consent of the stockholders of
Buyer, such Stockholder shall vote (or cause to be voted) the Shares then held
of record or beneficially by such Stockholder in favor of the Stock and Asset
Purchase and the authorization and issuance of shares of Buyer Common Stock to
Seller in connection therewith (the "Buyer Stock Issuance"), the execution and
delivery by Buyer of the Purchase Agreement and the approval of the terms
thereof and each of the other actions contemplated by the Purchase Agreement.
(b) Subject to the limitations described on the Voting Agreement Disclosure
Schedule, each Stockholder hereby agrees that, during the time this Agreement is
in effect, in the event such Stockholder sells, transfers or otherwise disposes
of any Shares following the record date for any meeting of the stockholders of
Buyer or for any written consent of the stockholders of Buyer in connection with
the Buyer Stock Issuance, such Stockholder will retain the right to vote such
Shares in connection with the Buyer Stock Issuance and will vote such Shares
held of record in accordance with the provisions of Section 2.1(a) hereof, in
each case subject to the limitations described on the Voting Agreement
Disclosure Schedule.
2.2 PRIVATE SALES. Each Stockholder hereby agrees that, during the time
this Agreement is in effect, in the event such Stockholder sells, transfers or
otherwise disposes of any Shares in a privately negotiated transaction (a
"Private Sale"), the purchaser or transferee in such Private Sale will be
required to agree in writing to be bound by the terms and provisions of this
Voting Agreement, in each case subject to the limitations described on the
Voting Agreement Disclosure Schedule.
3. CERTAIN COVENANTS OF THE STOCKHOLDER. Except in accordance with the
terms of this Agreement, the Stockholder hereby severally covenants and agrees
as follows:
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3.1 RESTRICTION ON STOCKHOLDER ACTIONS. From the date hereof until the
Termination Date, the Stockholder shall not, directly or indirectly, take any
action that would make any representation or warranty of such Stockholder
contained herein untrue or incorrect or otherwise transfer or sell any Shares
prior to the Termination Date for the purpose of circumventing such
Stockholder's obligations under this Agreement.
4. FURTHER ASSURANCES. From time to time, at the other party's request and
without further consideration, each party hereto shall execute and deliver such
additional documents and take all such further action as may be necessary or
desirable to consummate and make effective, in the most expeditious manner
practicable, the transactions contemplated by this Agreement. Seller agrees to
reimburse the Stockholders for any reasonable expenses incurred by such
Stockholders in connection with any such further actions.
5. PUBLIC ANNOUNCEMENT. Seller agrees to issue a news release or other
public announcement pertaining to the transactions contemplated by the Purchase
Agreement within one (1) business day after the signing of this Agreement and
the Purchase Agreement.
6. TERMINATION. The covenants and agreements contained herein shall
terminate on the first to occur of (a) the Closing Date, (b) the date the
Purchase Agreement is terminated and (c) January 31, 1997 (the "Termination
Date").
7. MISCELLANEOUS.
7.1 ENTIRE AGREEMENT; ASSIGNMENT; NO THIRD PARTY BENEFICIARIES. This
Agreement (i) constitutes the entire agreement between the parties with respect
to the subject matter hereof and supersedes all other prior agreements and
understandings, both written and oral, between the parties with respect to the
subject matter hereof and (ii) shall not be assigned by operation of law or
otherwise without the prior written consent of the other parties. This Agreement
is not intended to confer upon any Person other than the parties hereto any
rights or remedies.
7.2 AMENDMENTS. This Agreement may not be modified, amended, altered or
supplemented, except upon the execution and delivery of a written agreement
executed by the parties hereto.
7.3 NOTICES. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly received if so given) by hand delivery, telegram, telex
or telecopy, or by mail (registered or certified mail, postage prepaid, return
receipt
D-3
<PAGE>
requested) or by any courier service, such as Federal Express, providing proof
of delivery. All communications hereunder shall be delivered to the respective
parties at the following addresses:
<TABLE>
<S> <C>
If to any c/o EGS Partners, L.L.C.
Stockholder: 300 Park Avenue, 21st Floor
New York, New York 10022
Attn: Arthur Goetchius
Facsimile: 212-755-9188
copy to: Schulte Roth & Zabel
900 Third Avenue
New York, New York 10022
Attn: Peter A. Nussbaum, Esq.
Facsimile: 212-593-5955
If to 180 East Broad Street
Borden, Columbus, Ohio 43215
Inc.: Attn: Richard L. de Ney
copy to: Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
Attn: David J. Sorkin, Esq.
</TABLE>
or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above.
7.4 GOVERNING LAW. 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 principles of conflicts of laws thereof.
7.5 ENFORCEMENT. The parties agree that irreparable damage would occur in
the event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement.
7.6 COUNTERPARTS. This 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 Agreement.
7.7 DESCRIPTIVE HEADINGS. The descriptive headings used herein are
inserted for convenience of reference only and are not intended to be part of or
to affect the meaning or interpretation of this Agreement.
7.8 SEVERABILITY. Whenever possible, each provision or portion of any
provision of this Agreement will be interpreted in such manner as to be
effective and valid under applicable law but if any provision or portion of any
provision of this Agreement is held to be invalid, illegal or unenforceable in
any respect under any applicable law or rule in any jurisdiction, such
invalidity, illegality or unenforceability will not affect any other provision
or portion of any provision in such jurisdiction, and this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision or portion of any provision had never been
contained herein.
D-4
<PAGE>
7.9 DEFINITIONS; CONSTRUCTION. For purposes of this Agreement:
(a) "Beneficially Own" or "Beneficial Ownership" with respect to any
securities shall mean having "beneficial ownership" of such securities (as
determined pursuant to Rule 13d-3 under the Securities Exchange Act of 1934,
as amended (the "Exchange Act)), including pursuant to any agreement,
arrangement or understanding, whether or not in writing. Without duplicative
counting of the same securities by the same holder, securities Beneficially
Owned by a Person shall include securities Beneficially Owned by all other
Persons with whom such Person would constitute a "group" as described in
Section 13(d)(3) of the Exchange Act.
(b) "Person" shall mean an individual, corporation, partnership, joint
venture, association, trust, unincorporated organization or other entity.
(c) In the event of a stock dividend or distribution, or any change in
the Buyer Common Stock by reason of any stock dividend, split-up,
recapitalization, combination, exchange of shares or the like, the term
"Shares" shall be deemed to refer to and include the Shares as well as all
such stock dividends and distributions and any shares into which or for
which any or all of the Shares may be changed or exchanged.
IN WITNESS WHEREOF, Seller and the Stockholder have caused this Agreement to
be duly executed as of the day and year first above written.
BORDEN, INC.
By: /s/ RICHARD L. DE NEY
--------------------------------------
Name: Richard L. de Ney
Title: EXECUTIVE VICE PRESIDENT
EGS PARTNERS L.L.C.
By: /s/ WILLIAM EHRMAN
--------------------------------------
Name: William Ehrman
Title: GENERAL PARTNER
EGS ASSOCIATES, L.P.
By: /s/ WILLIAM EHRMAN
--------------------------------------
Name: William Ehrman
Title: GENERAL PARTNER
BEV PARTNERS, L.P.
By: /s/ WILLIAM EHRMAN
--------------------------------------
Name: William Ehrman
Title: GENERAL PARTNER
D-5
<PAGE>
JONAS PARTNERS, L.P.
By: /s/ WILLIAM EHRMAN
--------------------------------------
Name: William Ehrman
Title: GENERAL PARTNER
/S/ WILLIAM EHRMAN
------------------------------------
William Ehrman
/s/ FREDERIC GREENBERG
------------------------------------
Frederic Greenberg
/s/ FREDERICK KETCHER
------------------------------------
Frederick Ketcher
/s/ JONAS GERSTL
------------------------------------
Jonas Gerstl
/s/ JAMES MCLAREN
------------------------------------
James McLaren
/s/ BEVERLY EHRMAN
------------------------------------
Beverly Ehrman
/s/ BEVERLY EHRMAN
------------------------------------
Beverly Ehrman as Custodian
for Stephanie Ehrman
/s/ LINDA GREENBERG
------------------------------------
Linda Greenberg
D-6
<PAGE>
VOTING AGREEMENT DISCLOSURE SCHEDULE
<TABLE>
<CAPTION>
Section 1
<S> <C>
BENEFICIAL OWNER SHARES
- ----------------------------------------------------------------------------------- ---------
EGS Partners, L.L.C. (certain managed accounts).................................... 314,302(1)
EGS Associates, L.P................................................................ 138,418
BEV Partners, L.P.................................................................. 120,033
Jonas Partners, L.P................................................................ 7,883
William Ehrman..................................................................... 45,011
Frederic Greenberg................................................................. 6,003
Fredrick Ketcher................................................................... 4,802
Jonas Gerstl....................................................................... --
James McLaren...................................................................... --
Beverly Ehrman..................................................................... 20,506
Beverly Ehrman as Custodian for Stephanie Ehrman................................... 15,562
Linda Greenberg.................................................................... 801
</TABLE>
<TABLE>
<CAPTION>
Section 2
<S> <C>
BENEFICIAL OWNER SHARES
- ----------------------------------------------------------------------------------- ---------
EGS Partners, L.L.C................................................................ 314,302(2)
EGS Associates, L.P................................................................ 138,418
BEV Partners, L.P.................................................................. 120,033
Jonas Partners, L.P................................................................ 7,883
William Ehrman..................................................................... 45,011
Frederic Greenberg................................................................. 6,003
Fredrick Ketcher................................................................... 4,802
Jonas Gerstl....................................................................... --
James McLaren...................................................................... --
Beverly Ehrman..................................................................... 20,506
Beverly Ehrman as Custodian for Stephanie Ehrman................................... 15,562
Linda Greenberg.................................................................... 801
</TABLE>
- ------------------------
(1) The Beneficial Owner's exercise of its power to dispose of certain of such
Shares is subject to the provisions of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA") and all such Shares are subject
to whatever instructions may be given by the client.
(2) The Beneficial Owner's voting power with respect to certain of such Shares
is subject to the provisions of ERISA and all such Shares are subject to
whatever instructions may be given by the client.
D-7
<PAGE>
ANNEX E
JP MORGAN
<TABLE>
<S> <C>
J.P. Morgan Securities June 20, 1996
Inc.
60 Wall Street
New York, NY
10260-0060
</TABLE>
The Board of Directors
AEP Industries Inc.
125 Phillips Avenue
South Hackensack, NJ 07607
Attention: J. Brendan Barba
Chairman, President and Chief Executive Officer
Gentlemen:
You have requested our opinion as to the fairness, from a
financial point of view, to AEP Industries Inc, (the
"Company") of the consideration proposed to be paid by the
Company in connection with the proposed acquisition (the
"Transaction") by the Company of certain assets, including the
capital stock of certain subsidiaries, of Borden, Inc. (the
"Seller"), which together comprise the packaging division of
Borden (collectively, "Borden Packaging"). Pursuant to the
Purchase Agreement, dated as of June 20, 1996 (the
"Agreement"), between the Company and the Seller, the Seller
will receive consideration equal to a minimum of 2,412,818
shares of the Company valued at $80,000,000 ($33.15625 per
share) and $280,000,000 in cash; provided, however, that the
number of shares to be issued is subject to increase up to a
maximum of 4,000,000 shares if the average of the closing
prices of the shares of the Company on The Nasdaq National
Market System for the 50 trading days immediately preceding
the second trading day prior to the special meeting of
shareholders of the Company (the "Meeting") or such shorter
number of trading days between June 20, 1996 and the second
trading day prior to the Meeting is less than $33.15625 per
share.
In arriving at our opinion, we have reviewed (i) the
Agreement; (ii) certain information concerning the business of
Borden Packaging and certain publicly available information
concerning certain other companies engaged in businesses
comparable to those of Borden Packaging; (iii) publicly
available terms of certain transactions involving companies
comparable to Borden Packaging and the consideration received
in connection with such transactions; (iv) the terms of other
business combinations that we deemed relevant; (v) the audited
financial statements of the Company for the fiscal year ended
October 31, 1995 and Borden Packaging for the fiscal year
ended December 31, 1995 and the unaudited financial statements
for the Company for the period ended April 30, 1996 and
unaudited financial information for Borden Packaging through
May 1996; (vi) certain agreements with respect to outstanding
indebtedness or obligations of the Company and Borden
Packaging; and (vii) certain internal financial analyses and
forecasts concerning the Company and Borden Packaging prepared
by the management of each of the Company and of the Seller,
respectively.
E-1
<PAGE>
In addition, we have held discussions with certain members of
the management of the Company, the Seller and Borden Packaging
with respect to certain aspects of the Transaction, and the
past and current business operations of the Company and Borden
Packaging, the financial condition and future prospects and
operations of the Company and Borden Packaging, the effects of
the Transaction on the financial condition and future
prospects of the Company, and certain other matters we
believed necessary or appropriate to our inquiry. We have
visited certain representative facilities of the Company and
Borden Packaging, and reviewed such other financial studies
and analyses and considered such other information as we
deemed appropriate for the purposes of this opinion.
In giving our opinion, we have relied upon and assumed,
without independent verification, the accuracy and
completeness of all information that was publicly available or
was furnished to us by the Company, the Seller and Borden
Packaging or otherwise reviewed by us, and we have not assumed
any responsibility or liability therefor. We have not
conducted any valuation or appraisal of any assets or
liabilities, nor have any such valuations or appraisals been
provided to us. In relying on financial analyses and forecasts
provided to us, including the views of the Company, the Seller
and Borden Packaging concerning the business, operational and
strategic benefits and implications of the Transaction, and
including without limitation, the financial forecasts provided
to us by the Company relating to the synergistic values and
operating cost savings expected to be achieved by the
Transaction, we have assumed that they have been reasonably
prepared based on assumptions reflecting the best currently
available estimates and judgements by management as to the
expected future results of operations and financial condition
of the Company and Borden Packaging to which such analyses or
forecasts relate. Inability to achieve such business,
operations or strategic benefits or to realize such
synergistic values and operating cost savings could affect the
opinion contained herein, and we express no view as to any
such achievability or realizability. We have also assumed that
the Transaction will have the tax consequences described to us
in discussions with, and materials furnished to us by,
representatives of the Company, and that the other
transactions contemplated by the Agreement will be consummated
as described in the Agreement. We have relied as to all legal
matters relevant to rendering our opinion upon the advice of
counsel.
Our opinion is necessarily based on economic, market and other
conditions as in effect on, and the information made available
to us as of, the date hereof. It should be understood that
subsequent developments may affect this opinion and that we do
not have any obligation to update, revise, or reaffirm this
opinion. We are expressing no opinion herein as to the price
at which the Company's stock will trade at any future time.
We have acted as financial advisor and lender to the Company
with respect to the proposed Transaction and will receive a
fee from the Company for our services. We will also receive an
additional fee if the proposed Transaction is consummated. We
were not authorized to and did not solicit any expressions of
interest from any other parties with respect to the sale of
all or any part of the Company or any alternative transaction;
accordingly, no opinion is expressed whether an alternative
transaction might produce higher values for the Company or its
stockholders. In the ordinary course of their businesses, our
affiliates may actively trade the debt and equity securities
of the Company or the Seller for their own account or for the
accounts of customers and, accordingly, they may at any time
hold long or short positions in such securities.
E-2
<PAGE>
On the basis of and subject to the foregoing, it is our
opinion as of the date hereof that the consideration to be
paid by the Company in the proposed Transaction is fair, from
a financial point of view, to the Company.
This letter is provided to the Board of Directors of the
Company in connection with and for the purposes of its
evaluation of the Transaction. This opinion does not
constitute a recommendation to any stockholder of the Company
as to how such stockholder should vote with respect to the
Transaction. This opinion may not be disclosed, referred to,
or communicated (in whole or in part) to any third party for
any purpose whatsoever except with our prior written consent
in each instance. This opinion may be reproduced in full in
any proxy or information statement mailed to stockholders of
the Company but may not otherwise be disclosed publicly in any
manner without our prior written approval and must be treated
as confidential.
Very truly yours,
<TABLE>
<S> <C>
J.P. MORGAN SECURITIES INC.
By: /s/ PURNA R. SAGGURTI
-------------------------------------------
Name: Purna R. Saggurti
Title: Managing Director
</TABLE>
E-3
<PAGE>
ANNEX F
BORDEN GLOBAL PACKAGING OPERATIONS
COMBINED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1995 AND 1994
AND FOR EACH OF THE THREE YEARS
IN THE PERIOD ENDED DECEMBER 31, 1995
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Shareholder of
Borden, Inc.
We have audited the accompanying combined balance sheets of Borden Global
Packaging Operations ("BGP") as of December 31, 1995 and 1994, and the related
combined statements of operations, owner's investment and cash flows for each of
the three years in the period ended December 31, 1995. These financial
statements are the responsibility of Borden's management. Our responsibility is
to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such combined financial statements present fairly, in all
material respects, the financial position of BGP at December 31, 1995 and 1994,
and the results of its operations and its cash flows for each of the three years
in the period ended December 31, 1995 in conformity with generally accepted
accounting principles.
DELOITTE & TOUCHE LLP
Columbus, Ohio
June 10, 1996
F-1
<PAGE>
BORDEN GLOBAL PACKAGING OPERATIONS
COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
<S> <C> <C> <C>
1995 1994 1993
---------- ---------- ----------
Net sales.................................................................... $ 629,011 $ 553,896 $ 503,992
Cost of goods sold........................................................... 515,981 449,046 409,613
---------- ---------- ----------
Gross margin................................................................. 113,030 104,850 94,379
Operating costs and expenses
Distribution expense....................................................... 24,078 24,406 21,259
Marketing expense.......................................................... 33,732 30,614 30,263
General and administrative expense......................................... 26,195 27,841 20,713
---------- ---------- ----------
Operating income............................................................. 29,025 21,989 22,144
Other non-operating (income) expense
Net interest expense....................................................... 1,232 4,178 5,002
Other expense (income)--Net................................................ (937) (1,052) (983)
---------- ---------- ----------
Income before income taxes and cumulative effect of change in accounting..... 28,730 18,863 18,125
Income tax expense........................................................... 12,453 7,522 6,115
---------- ---------- ----------
Income before cumulative effect of change in accounting...................... 16,277 11,341 12,010
Cumulative effect of change in accounting for postemployment benefits (net of
a $353 deferred tax benefit)............................................... (552)
---------- ---------- ----------
Net income................................................................... $ 16,277 $ 11,341 $ 11,458
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
See notes to combined financial statements.
F-2
<PAGE>
BORDEN GLOBAL PACKAGING OPERATIONS
COMBINED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
<S> <C> <C>
1995 1994
----------- -----------
ASSETS
Current Assets
Cash and equivalents.................................................................. $ 34,417 $ 14,687
Accounts receivable (net of allowance for doubtful accounts of $4,689 and $4,035,
respectively)....................................................................... 92,149 85,126
Other receivables..................................................................... 14,064 14,739
Inventories
Finished and in-process goods....................................................... 57,925 51,059
Raw materials and supplies.......................................................... 31,336 33,763
Prepaids and other current assets..................................................... 2,681 2,624
----------- -----------
232,572 201,998
----------- -----------
Investment in Affiliated Companies...................................................... 3,003 2,886
----------- -----------
Property and Equipment
Land.................................................................................. 8,868 8,503
Buildings............................................................................. 72,343 69,574
Machinery and equipment............................................................... 298,721 277,666
----------- -----------
379,932 355,743
Less accumulated depreciation......................................................... (170,104) (151,262)
----------- -----------
209,828 204,481
----------- -----------
Other Non-Current Assets
Goodwill.............................................................................. 43,682 43,831
Other assets.......................................................................... 17,056 18,146
----------- -----------
60,738 61,977
----------- -----------
Total Assets............................................................................ $ 506,141 $ 471,342
----------- -----------
----------- -----------
</TABLE>
See notes to combined financial statements.
F-3
<PAGE>
BORDEN GLOBAL PACKAGING OPERATIONS
COMBINED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
<S> <C> <C>
1995 1994
---------- ----------
LIABILITIES & OWNER'S INVESTMENT
Current Liabilities
Accounts payable........................................................................ $ 57,976 $ 63,344
Debt payable in one year................................................................ 8,323 13,651
Accrued payroll and incentive compensation.............................................. 12,297 9,898
Accrued taxes, other than income........................................................ 7,180 5,568
Other current liabilities............................................................... 16,386 14,654
---------- ----------
102,162 107,115
---------- ----------
Long-Term Liabilities
Long-term debt.......................................................................... 538 863
Deferred income taxes................................................................... 11,660 10,597
Non-pension postemployment and postretirement benefit obligations....................... 2,716 2,450
Other long-term pension liabilities..................................................... 4,782 6,421
---------- ----------
19,696 20,331
---------- ----------
Commitments and Contingencies
Owner's Investment........................................................................ 384,283 343,896
---------- ----------
Total Liabilities and Owner's Investment.................................................. $ 506,141 $ 471,342
---------- ----------
---------- ----------
</TABLE>
See notes to combined financial statements.
F-4
<PAGE>
BORDEN GLOBAL PACKAGING OPERATIONS
COMBINED STATEMENTS OF OWNER'S INVESTMENT
(IN THOUSANDS)
<TABLE>
<CAPTION>
ACCUMULATED OTHER
CAPITAL OF RETAINED TRANSLATION INTER-COMPANY INTER-COMPANY
SUBSIDIARIES EARNINGS ADJUSTMENT LOANS TRANSACTIONS TOTAL
----------- ---------- ------------ -------------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance December 31, 1992............ $ 77,215 $ 80,155 $ (7,972) $ 80,036 $ 74,369 $ 303,803
Net Income........................... 11,458 11,458
Translation Adjustment............... (16,801) (16,801)
Capital Contribution................. 282 (282)
Other Increases (Decreases) in
Owner's Investment................. 20,167 1,588 21,755
----------- ---------- ------------ -------------- ------- ----------
Balance December 31, 1993............ 77,497 91,613 (24,773) 99,921 75,957 320,215
Net Income........................... 11,341 11,341
Translation Adjustment............... 7,116 7,116
Capital Contribution................. 584 (584)
Other Increases (Decreases) in
Owner's Investment................. 28,681 (23,457) 5,224
----------- ---------- ------------ -------------- ------- ----------
Balance December 31, 1994............ 78,081 102,954 (17,657) 128,018 52,500 343,896
Net Income........................... 16,277 16,277
Translation Adjustment............... 1,895 1,895
Capital Contribution................. 37,863 (37,863)
Other Increases (Decreases) in
Owner's Investment................. 28,929 (6,714) 22,215
----------- ---------- ------------ -------------- ------- ----------
Balance December 31, 1995............ $ 115,944 $ 119,231 $ (15,762) $ 119,084 $ 45,786 $ 384,283
----------- ---------- ------------ -------------- ------- ----------
----------- ---------- ------------ -------------- ------- ----------
</TABLE>
See notes to combined financial statements
F-5
<PAGE>
BORDEN GLOBAL PACKAGING OPERATIONS
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1995 1994 1993
--------- --------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income..................................................................... $ 16,277 $ 11,341 $ 11,458
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization................................................ 20,371 18,927 17,120
Net change in assets and liabilities:
Accounts receivables....................................................... (6,348) (9,174) 569
Inventories................................................................ (4,439) (8,556) 315
Accounts payable........................................................... (5,368) 8,357 9,084
Deferred income taxes...................................................... 1,063 857 1,797
Other assets............................................................... (9,419) (17,948) 4,875
Other liabilities.......................................................... 4,370 5,578 (12,390)
--------- --------- ---------
16,507 9,382 32,828
--------- --------- ---------
CASH FLOW USED IN INVESTING ACTIVITIES
Capital expenditures......................................................... (16,742) (9,310) (21,641)
Proceeds from sale of assets................................................. 1,625 1,468 4,308
Decrease (increase) in investment in affiliated entities..................... (117) (474) 443
--------- --------- ---------
(15,234) (8,316) (16,890)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in short-term debt....................................... (5,328) 3,075 (8,465)
Reduction in long-term debt.................................................. (325) (20,380) (5,799)
Increase in intercompany loans............................................... 28,929 28,681 20,167
Other increases (decreases) in owner's investment............................ (4,819) (16,341) (15,213)
--------- --------- ---------
18,457 (4,965) (9,310)
--------- --------- ---------
Increase (decrease) in cash and equivalents...................................... 19,730 (3,899) 6,628
Cash and equivalents at beginning of year........................................ 14,687 18,586 11,958
--------- --------- ---------
Cash and equivalents at end of year.............................................. $ 34,417 $ 14,687 $ 18,586
--------- --------- ---------
--------- --------- ---------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid:
Interest..................................................................... $ 1,910 $ 4,612 $ 5,013
Taxes (refund)............................................................... 141 (464) 3,410
Non-cash activity:
Intercompany loan converted to equity........................................ 37,863 584 282
</TABLE>
F-6
<PAGE>
NOTES TO COMBINED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
1. NATURE OF OPERATIONS, ESTIMATES AND SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS--Borden Global Packaging Operations ("BGP") of Borden,
Inc. ("Borden") is an international producer of a diverse range of films and
rigid packaging materials predominately for the food and industrial markets. BGP
manufactures and distributes its products worldwide, including North America,
Western Europe and the Asia/Pacific regions.
BASIS OF PRESENTATION--BGP operates as a profit center unit of Borden and is
included in Borden's consolidated financial statements. These financial
statements include Borden Packaging operations in the United States and certain
foreign subsidiaries, excluding Borden's South American packaging operations,.
Under this structure, Borden incurs various costs in connection with the
operation of the BGP business which include corporate controlled expenses, such
as general and group insurance and employee benefits, and administrative
overhead, such as accounting, legal, tax, credit and information services
departments and executive management. These costs were allocated to BGP through
intercompany charges and accumulated in the owner's investment account. These
amounts in the accompanying financial statements have been allocated in a
reasonable and consistent manner in order to depict the balance sheets,
statements of operations and cash flows of BGP on a stand-alone basis and
represent management's best estimate of a cost that would have been incurred had
BGP operated on a stand-alone basis.
USE OF ESTIMATES--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. The most significant estimates in BGP's financial statements
are the allowance for doubtful accounts, accrual for general and group insurance
and the corporate allocations. Actual results could differ from those estimates.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--Significant accounting policies
followed by BGP, as summarized below, are in conformity with generally accepted
accounting principles.
PRINCIPLES OF COMBINATION--The combined financial statements include the
accounts of BGP after elimination of material intracompany accounts and
transactions. BGP's interests in 20% to 50% owned affiliated companies is
accounted for using the equity method. The carrying value of these affiliated
companies approximates BGP's interest in their underlying net assets.
REVENUE RECOGNITION--Revenues are recognized when products are shipped.
Product transfers between BGP and BGP affiliates are stated at cost and are
included in revenues on this basis.
RESEARCH AND DEVELOPMENT--Research and development costs are charged to
general and administrative expense when incurred. Research and development costs
amounted to $4,954, $4,659, and $4,987 during 1995, 1994, and 1993,
respectively.
ENVIRONMENTAL REMEDIATION--Environmental costs representing ongoing
maintenance, monitoring and similar costs are expensed as incurred.
Environmental remediation costs are accrued when environmental assessments
and/or remedial efforts are probable and the cost or a reasonable range can be
estimated. Environmental expenditures which improve the condition of a property
are capitalized and amortized over their estimated useful life.
CASH AND EQUIVALENTS--BGP considers all highly liquid investments purchased
with an original maturity of three months or less to be cash equivalents.
F-7
<PAGE>
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
1. NATURE OF OPERATIONS, ESTIMATES AND SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
OTHER RECEIVABLES--Consist primarily of value added tax (VAT) receivables
for foreign locations. VAT and other receivables are recorded at their net
realizable value at the time the transaction creating the receivable occurs.
INVENTORIES--Inventories are stated at the lower of cost or market with cost
principally being determined using the average cost and first-in, first-out
methods.
PROPERTY AND EQUIPMENT--Property and equipment are stated at cost, less a
reserve for accumulated depreciation. Depreciation is recorded on the
straight-line basis over useful lives ranging from 30 to 40 years for buildings
and 3 to 20 years for equipment.
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 and any related gain or loss is recorded in the statement of
operations.
GOODWILL--Goodwill represents the excess of the purchase price over fair
value of identifiable assets of businesses acquired and is amortized on a
straight-line basis over forty years. The accumulated amortization of goodwill
was $10,789 and $9,053 at December 31, 1995 and 1994, respectively.
IMPAIRMENT--The carrying value of property, equipment and intangibles is
evaluated periodically by product line in relation to the expected future
undiscounted cash flows of the underlying businesses.
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 owner's investment. Amounts reflected
in the statements of operations and cash flows are translated at the average
rates during the year. Realized and unrealized net foreign exchange gains
(losses) aggregating $363, $(620) and $496 were charged against income in 1995,
1994 and 1993, respectively.
INCOME TAXES--The results of domestic and Canadian operations of BGP are
included in Borden's consolidated tax returns. Borden uses the liability method
of accounting for deferred income taxes. Deferred foreign income taxes are
recorded to recognize the future effects of temporary differences which arise
between financial statement assets and liabilities and their basis for income
tax reporting purposes.
For purposes of these stand-alone financial statements, income taxes are
determined as though BGP filed separate U.S. federal and state corporate income
tax returns. Income tax liabilities determined on a separate return basis are
included in owner's investment in the accompanying financial statements. Taxes
on income and losses from foreign locations are generally provided in accordance
with FAS 109.
FINANCIAL INSTRUMENTS--Borden uses forward exchange contracts and currency
swaps to reduce the effect of the fluctuations in foreign currency rates. Borden
hedges certain net foreign investments, firm commitments and transactions
denominated in foreign currencies. Borden does not engage in speculation. 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 fair values of
financial instruments are estimated based on quotes from brokers or current
rates offered for instruments with similar characteristics. BGP enters into a
limited number of contracts at the operating unit level. The notional amounts
outstanding for contracts at the BGP operating unit level as of
F-8
<PAGE>
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
1. NATURE OF OPERATIONS, ESTIMATES AND SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
December 31, 1995 and 1994 were $2,090 and $938, respectively. All contracts
mature within five months and are principally with banks. Fair value of the
contracts approximated the carrying value.
CONCENTRATIONS OF CREDIT RISK--Financial instruments which potentially
subject BGP to concentrations of credit risk consist principally of temporary
cash investments and accounts receivable. BGP places its temporary cash
investments ($34,417 at December 31, 1995 and $14,687 at December 31, 1994) with
high quality institutions and, by policy, limits the amount of credit exposure
to any one institution. Concentrations of credit risk with respect to accounts
receivable are limited, due to the large number of customers comprising BGP's
customer base and their dispersion across many different industries and
geographies. BGP generally does not require collateral or other security to
support customer receivables.
PENSION AND RETIREMENT SAVINGS PLANS--Most of BGP's employees are covered
under one of Borden's pension plans or one of the union-sponsored plans to which
Borden contributes. BGP's cumulative liability associated with these plans is
recorded on BGP's balance sheets. BGP's share of the allocated cost to fund and
administer these plans is recorded in the statements of operations in the year
the cost is incurred.
Substantially all domestic employees of BGP participate in Borden's
retirement savings plans. BGP's cost of providing the retirement savings plans
is the amount by which it matches eligible contributions made by participating
employees and is recognized as a charge to income in the year the cost is
incurred.
NON-PENSION POSTEMPLOYMENT AND POSTRETIREMENT BENEFITS--Borden provides
certain health and life insurance benefits for eligible retirees and their
dependents. The cost of postretirement benefits is accrued during the employees'
working careers. BGP's cumulative liability associated with these plans is
recorded on BGP's balance sheet. BGP's share of the allocated cost to fund and
administer these plans is recorded in the statements of operations in the year
the cost is incurred.
Borden provides certain other postemployment benefits to qualified former or
inactive employees. In 1993, Borden 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. BGP's cumulative
liability associated with these plans is recorded on BGP's balance sheets. BGP's
share of the cost to fund and administer these plans is recorded in the
statements of operations in the year the cost is incurred.
FAIR VALUE OF FINANCIAL INSTRUMENTS--The carrying values of cash, accounts
receivable and payable, other receivables, and accrued and other current
liabilities as stated on the balance sheets are considered to approximate their
fair market value.
GENERAL INSURANCE RESERVE--Borden is generally self-insured for losses and
liabilities relating to workers' compensation, health and welfare claims,
physical damage to property, business interruption and comprehensive general,
product and vehicle liability. Borden maintains insurance policies for certain
items exceeding deductible limits. Losses are accrued for the estimated
aggregate liability for claims using certain actuarial assumptions followed in
the insurance industry and Borden's experience.
SUPPLEMENTAL CASH FLOW INFORMATION--For the periods presented, the
information provided reflects actual income tax and interest payments made by
the foreign operations of BGP. For the U.S. operations, all cash payments were
made by Borden.
F-9
<PAGE>
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
2. RELATED PARTIES
BGP is engaged in various transactions with Borden and its affiliated
companies in the ordinary course of business. Such transactions include, among
other things, participation in Borden's cash management system for the U.S.
operations, the sharing of certain general and administrative costs which are
allocated to BGP, and sales of products to and purchases of raw materials from
other Borden operations or affiliates. In conjunction with BGP's participation
in Borden's cash management system, certain of BGP's accounts receivable were
sold by Borden to a finance company in 1994. These financial statements do not
reflect the sale of BGP's accounts receivable by Borden in 1994 and no
receivables were sold in 1995.
Receipts, disbursements and the net cash position of BGP's U.S. operations
are currently managed by Borden. Accordingly, both cash generated by and cash
requirements of BGP's U.S. operations flow through the owner's investment
account.
Employee pension benefits are provided under the Borden domestic and foreign
pension plans to which Borden contributes. The U.S. employees participate in the
Borden retirement savings plans. Borden also provides certain health and life
insurance benefits for eligible employees. BGP has recognized expenses
associated with these benefits as described in Notes 5 and 6.
The various expenses allocated by Borden to BGP included the following for
the periods indicated:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1995 1994 1993
--------- --------- ---------
Pension and other employee benefits.................................................. $ 1,197 $ 980 $ 2,060
Group and general insurance.......................................................... 4,626 5,653 4,800
Corporate information services....................................................... 928 1,265 1,203
Executive compensation, corporate staff department services and division overhead.... 3,530 3,656 3,704
</TABLE>
The above expenses are reflected in the statements of operations in general
and administrative expense.
Borden charges BGP for domestic pension, retirement savings plan and
postretirement and postemployment benefits based on allocations provided by its
actuary. The allocations are determined by the actuary from actual employee
census data which is collected annually. Charges for non-qualified pension plan
benefits are allocated based on actual amounts incurred. BGP is charged for
general and group insurance expense, which includes workers' compensation
liability and property damage insurance, based on actual claims costs and a pro
rata share of Borden's catastrophic insurance coverage premiums. For purposes of
these stand-alone financial statements certain corporate services, corporate
staff department services and certain administrative expenses are allocated to
BGP based on usage of resources such as personnel and data processing equipment.
Management believes the allocation methods described are reasonable.
F-10
<PAGE>
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
2. RELATED PARTIES (CONTINUED)
The benefit related liabilities allocated by Borden to BGP include the
following for the periods indicated:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
<S> <C> <C>
1995 1994
--------- ---------
Net domestic pension liability............................................. $ 182 $ 971
Postretirement benefit obligation.......................................... 2,152 1,886
Postemployment benefit obligation.......................................... 564 564
Non-qualified plan obligation.............................................. 1,679 1,679
Group and general insurance................................................ 3,183 3,281
</TABLE>
BGP purchases polyvinyl chloride ("PVC") resins from Borden Chemical and
Plastics L.P. ("BCP") under Purchase and Processing Agreements between Borden
and BCP which expire in November 2002. The Purchase Agreements require BCP to
supply to Borden, at least 85% of the quantities of PVC resins required by
Borden for use in its plants in the continental United States. The price for PVC
resins will generally be the average price that BCP charges its lowest-priced
major customer (other than Borden). The Purchase Agreements also provide that
BCP is required to meet competitive third-party offers or allow Borden to
purchase the lower-priced product from third parties in lieu of purchases under
the Purchase Agreements. During 1995, 1994 and 1993 BGP purchased $28,703,
$18,702 and $21,290 of PVC from BCP, respectively. BGP sales to Borden
affiliates were $7,687, $6,881 and $12,035 in 1995, 1994 and 1993, respectively.
BGP lends and borrows funds with Borden affiliates in foreign locations.
Maturities are up to 60 days with interest rates at the prevailing market rates
in foreign locations involved. Affiliate interest income and expense (net of
tax) were eliminated from the statement of operations and the respective net
loan balance is reflected in the Owner's Investment statement. Excluded amounts
related to loans to (from) Borden affiliates are interest income of $6,238,
$3,940 and $1,255 and interest expense of $15,987, $9,476 and $8,420 in 1995,
1994 and 1993, respectively.
3. DEBT AND LEASE OBLIGATIONS
Debt and capital lease obligations relate to the foreign operations of BGP
and consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, 1995 DECEMBER 31, 1994
---------------------- ----------------------
<S> <C> <C> <C> <C>
LONG DUE WITHIN LONG DUE WITHIN
TERM ONE YEAR TERM ONE YEAR
--------- ----------- --------- -----------
Bank borrowings (at an average rate of 8.7% and 8.6%, respectively)...... $ 507 $ 278 $ 773 $ 454
Capitalized lease obligations (at an average rate of 12.3% and 12.9%,
respectively).......................................................... 31 62 90 142
--------- ----------- --------- -----------
Total current maturities of long-term debt............................... 340 596
Short-term debt (foreign bank loans at an average rate of 13.7% and
10.1%, respectively)................................................... 7,983 13,055
--------- ----------- --------- -----------
Total obligations........................................................ $ 538 $ 8,323 $ 863 $ 13,651
--------- ----------- --------- -----------
--------- ----------- --------- -----------
</TABLE>
F-11
<PAGE>
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
3. DEBT AND LEASE OBLIGATIONS (CONTINUED)
Foreign debt and capital leases are collateralized by property and equipment
of approximately the same value. Bank borrowings and short term debt do not have
additional guaranteed borrowings available. Foreign debt is primarily held in
Italy, Belgium and South Africa.
BGP currently leases warehouse space, production facilities and vehicles
under long-term or month-to-month arrangements in the domestic and foreign
locations. Rental expense amounted to $3,463, $2,928 and $2,430 during 1995,
1994 and 1993, respectively. Aggregate maturities of debt and minimum annual
rentals under operating leases at December 31, 1995 are as follows:
<TABLE>
<CAPTION>
MINIMUM RENTALS ON
DEBT OPERATING LEASES
--------- -------------------
<S> <C> <C>
1996............................................................... $ 8,323 $ 3,406
1997............................................................... 147 2,483
1998............................................................... 148 1,914
1999............................................................... 90 1,546
2000............................................................... 23 7,800
2001 and thereafter................................................ 130 4,338
</TABLE>
4. INCOME TAXES
Income tax expense for domestic and foreign operations that file a combined
tax return with other entities were calculated utilizing statutory rates
multiplied by pretax income as adjusted for known book tax differences.
Income tax expense (benefit) before the cumulative effect of accounting
change is comprised of the following:
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Current:
Federal........................................................................... $ 4,058 $ 2,808 $ 1,197
State and local................................................................... 121 430 646
Foreign........................................................................... 6,831 2,759 (681)
--------- --------- ---------
11,010 5,997 1,162
Deferred:
Federal........................................................................... (210) 843 2,988
State and local................................................................... 601 95 418
Foreign........................................................................... 1,052 587 1,547
--------- --------- ---------
1,443 1,525 4,953
--------- --------- ---------
$ 12,453 $ 7,522 $ 6,115
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-12
<PAGE>
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
4. INCOME TAXES (CONTINUED)
The following table reconciles the maximum statutory U.S. Federal income tax
rate multiplied by BGP's income before taxes to the recorded income tax expense
(benefit):
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
U.S. Federal income tax at 35% (1993-34%)........................................... $ 10,056 $ 6,602 $ 6,162
State income tax expense, net of Federal benefit.................................... 469 348 427
Foreign rate differentials.......................................................... 1,854 397 (603)
Goodwill amortization and other nondeductible expenses.............................. 74 175 129
--------- --------- ---------
Provision for income taxes.......................................................... $ 12,453 $ 7,522 $ 6,115
--------- --------- ---------
--------- --------- ---------
</TABLE>
Domestic and foreign components of income before taxes are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Domestic......................................................................... $ 11,505 $ 10,439 $ 13,805
Foreign.......................................................................... 17,225 8,424 4,320
--------- --------- ---------
$ 28,730 $ 18,863 $ 18,125
--------- --------- ---------
--------- --------- ---------
</TABLE>
Deferred income tax assets and liabilities for domestic operations only have
been included in owner's investment. The domestic net deferred income tax
liability was $16,824 and $16,444 at December 31, 1995 and 1994 and was
comprised of $3,385 and $3,588 of deferred tax assets for accrued expenses and
pension obligations and $20,209 and $20,032 of deferred tax liabilities for
property and equipment. The foreign net deferred income tax liability was
$11,660 and $10,597 at December 31, 1995 and 1994 and was comprised of $11,899
and $12,033 of net operating loss and credit carryforwards that were fully
reserved with a valuation allowance and $11,660 and $10,597 of deferred tax
liabilities primarily for property and equipment.
The net change in valuation allowances of $134 in 1995 and $4,950 in 1994
primarily relates to foreign net operating losses which are not expected to be
realized. Included in the loss and credit carryforward deferred tax asset at
December 31, 1995 are foreign net operating loss carryforwards of $10,027 and
foreign credit carryforwards of $1,872, which begin expiring in 1996.
BGP has not recorded income taxes applicable to undistributed earnings of
foreign subsidiaries that are indefinitely reinvested in foreign operations. The
determination of the tax effect to such earnings is not practicable.
5. PENSION AND RETIREMENT SAVINGS PLANS
Most employees of BGP participate in foreign and domestic pension plans
sponsored by Borden. For most salaried employees, benefits under these plans
generally are based on compensation and credited service. For most hourly
employees, benefits under these plans are based on specified amounts per year of
credited service.
A net pension asset or liability, which approximates the portion of the
total pension assets or liabilities of Borden which relates to the employees of
BGP, has been reflected in BGP's stand-alone balance sheets. For domestic plans
in which the employees of BGP as well as employees of other Borden affiliated
businesses participate, the gross pension obligation was allocated to BGP based
upon the actuarially-
F-13
<PAGE>
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
5. PENSION AND RETIREMENT SAVINGS PLANS (CONTINUED)
determined obligation relating to BGP's employees. The pension expense allocated
to BGP for its participation in foreign plans in which it shares with affiliates
amounted to $1,564, $983, and $699 during 1995, 1994 and 1993, respectively.
The status as of December 31, 1995 and 1994 of BGP's foreign pension plans
in which only employees of BGP participate is as follows:
<TABLE>
<CAPTION>
1995 1994
-------------------------- --------------------------
<S> <C> <C> <C> <C>
ACCUMULATED
PLAN ASSETS ACCUMULATED PLAN ASSETS BENEFITS
EXCEED BENEFITS EXCEED EXCEED
ACCUMULATED EXCEED ACCUMULATED PLAN
BENEFITS PLAN ASSETS BENEFITS ASSETS
------------ ------------ ------------ ------------
Plan assets at fair value................................. $ 16,024 $ 1,464 $ 12,590 $ 1,083
Actuarial present value of:
Vested benefit obligation............................... 2,026 (3,336) (4,690) (2,645)
Accumulated benefit obligation.......................... (8,318) (3,981) (6,665) (3,152)
Projected benefit obligation............................ (13,234) (5,477) (10,583) (4,603)
Plan assets greater (less) than projected benefit
obligation.............................................. 2,790 (4,013) 2,007 (3,520)
Unrecognized loss......................................... 1,646 391 1,336 169
Unrecognized net transition obligation.................... 272 274 218 273
Minimum liability adjustment.............................. 0 (116) 0 (133)
------------ ------------ ------------ ------------
Net pension asset (liability)............................. $ 4,708 $ (3,464) $ 3,561 $ (3,211)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
Plan assets consist primarily of equity securities and corporate
obligations.
The following are the components of BGP's foreign annual net pension expense
in which only employees of BGP participate:
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Service cost-benefits earned during the period........................................ $ 727 $ 726 $ 345
Interest cost on the projected benefit obligation..................................... 1,145 901 740
Actual return on plan assets.......................................................... (1,169) (841) (681)
Net amortization and deferral......................................................... 50 84 84
--------- --------- ---------
$ 753 $ 870 $ 488
--------- --------- ---------
--------- --------- ---------
</TABLE>
The weighted average rates used to determine foreign net periodic pension
expense were as follows:
<TABLE>
<CAPTION>
1995 1994 1993
----- ----- -----
<S> <C> <C> <C>
Discount rate.......................................................................... 7.8% 7.0% 7.8%
Rate of increase in future compensation levels......................................... 4.7% 4.0% 4.5%
Expected long-term rate of return on plan assets....................................... 8.3% 7.9% 6.8%
</TABLE>
Most employees not covered by Borden sponsored plans are covered by
collectively bargained agreements which are generally effective for five years.
Under federal pension law, there would be
F-14
<PAGE>
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
5. PENSION AND RETIREMENT SAVINGS PLANS (CONTINUED)
continuing liability to these pension trusts if Borden ceased all or most
participation in any such trust, and under certain other specified conditions.
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 Borden through the third quarter of 1993. Borden's matching was
temporarily suspended in the fourth quarter of 1993. Borden's matching was
reinstated at 50% in the first quarter of 1994 and has remained at such level
through December 1995.
6. NON-PENSION POSTEMPLOYMENT AND POSTRETIREMENT BENEFITS
BGP participates in Borden-sponsored non-pension postemployment and
postretirement benefit plans. The postretirement plans provide certain health
and life insurance benefits for eligible domestic retirees and their dependents.
The costs of these benefits are accrued as a form of deferred compensation
earned during the period that employees render service.
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, Borden amended the postretirement benefit
plan for most employees primarily to reduce, and over several years eliminate,
Borden's subsidy of retiree medical benefits.
A liability which approximates the portion of Borden's total postemployment
and postretirement obligation which relates to the domestic employees of BGP has
been reflected in BGP's historical balance sheets. Such allocation was based
upon the actuarially-determined obligation for these benefits relating to BGP's
domestic employees.
A portion of Borden's expense for postemployment and postretirement benefits
was allocated annually to BGP (see Note 2). Management does not believe that
these allocations are materially different from amounts that would be calculated
historically for BGP on a stand-alone basis.
Borden provides certain postemployment benefits, primarily medical and life
insurance benefits for long-term disabled employees, to qualified former or
inactive employees. In 1993, Borden 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 cumulative effect of the change allocated to BGP as of
January 1, 1993 was to decrease net income in 1993 by $552, net of income taxes
of $353.
7. COMMITMENTS AND CONTINGENCIES
ENVIRONMENTAL MATTERS--BGP, like others in similar businesses, is subject to
extensive Federal, state and local environmental laws and regulations. Although
BGP environmental policies and practices are designed to ensure compliance with
these laws and regulations, future developments and increasingly stringent
regulation could require BGP to make additional unforeseen environmental
expenditures. Environmental accruals are reviewed periodically as events and
developments warrant.
F-15
<PAGE>
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
8. SEGMENT INFORMATION
BGP operations includes a diverse range of film and rigid plastic packaging
materials predominantly for the food and industrial markets.
BGP's film product line includes polyvinyl chloride ("PVC") stretch films
for packaging food products for supermarkets; PVC-based food wrap films in
cutter boxes and perforated rolls for institutions; polyethylene ("PE")-based
stretch wrap films for utilizing pallet loads; oriented polypropylene ("OPP")
films for flexible packaging of salted snacks, confectionary and baked goods;
and polypropylene ("PP") films for processed cheese products. The films business
includes worldwide operations in North America, Europe and the Asia Pacific.
BGP's rigid product line includes a variety of plastic containers, including
printed pressure-formed containers, vacuum-formed undecorated trays, and
injection-molded disposable products. The rigids business is primarily conducted
in Europe.
Intersegment sales and export sales are not significant.
The following represents segment data about BGP's operations.
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Geographic Information
Net Sales
United States............................................................ $ 209,563 $ 197,580 $ 172,937
Europe................................................................... 310,780 258,619 243,981
Asia Pacific--Other...................................................... 108,668 97,697 87,074
---------- ---------- ----------
$ 629,011 $ 553,896 $ 503,992
---------- ---------- ----------
---------- ---------- ----------
Operating Income
United States............................................................ $ 6,476 $ 7,649 $ 3,321
Europe................................................................... 9,714 4,676 12,062
Asia Pacific--Other...................................................... 12,835 9,664 6,761
---------- ---------- ----------
$ 29,025 $ 21,989 $ 22,144
---------- ---------- ----------
---------- ---------- ----------
Capital Expenditures
United States............................................................ $ 3,675 $ 1,986 $ 4,812
Europe................................................................... 9,843 4,467 14,442
Asia Pacific--Other...................................................... 3,224 2,857 2,387
---------- ---------- ----------
$ 16,742 $ 9,310 $ 21,641
---------- ---------- ----------
---------- ---------- ----------
Identifiable Assets
United States............................................................ $ 123,101 $ 125,904 $ 127,680
Europe................................................................... 295,300 262,948 245,037
Asia Pacific--Other...................................................... 87,740 82,490 77,457
---------- ---------- ----------
$ 506,141 $ 471,342 $ 450,174
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
F-16
<PAGE>
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
8. SEGMENT INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Product Line Information
Net Sales
Films.................................................................... $ 561,603 $ 493,989 $ 447,164
Rigid.................................................................... 67,408 59,907 56,828
---------- ---------- ----------
$ 629,011 $ 553,896 $ 503,992
---------- ---------- ----------
---------- ---------- ----------
Operating Income (Loss)
Films.................................................................... $ 32,057 $ 28,016 $ 26,443
Rigid.................................................................... (3,032) (6,027) (4,299)
---------- ---------- ----------
$ 29,025 $ 21,989 $ 22,144
---------- ---------- ----------
---------- ---------- ----------
Capital Expenditures
Films.................................................................... $ 15,350 $ 8,652 $ 17,430
Rigid.................................................................... 1,392 658 4,211
---------- ---------- ----------
$ 16,742 $ 9,310 $ 21,641
---------- ---------- ----------
---------- ---------- ----------
Identifiable Assets
Films.................................................................... $ 436,341 $ 404,850 $ 380,769
Rigid.................................................................... 69,800 66,492 69,405
---------- ---------- ----------
$ 506,141 $ 471,342 $ 450,174
---------- ---------- ----------
---------- ---------- ----------
Depreciation and Amortization Expense
Films.................................................................... $ 16,899 $ 15,662 $ 14,124
Rigid.................................................................... 3,472 3,265 2,996
---------- ---------- ----------
$ 20,371 $ 18,927 $ 17,120
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
F-17
<PAGE>
ANNEX G
BORDEN GLOBAL PACKAGING OPERATIONS
COMBINED FINANCIAL STATEMENTS
AS OF APRIL 30, 1996 AND 1995
AND FOR THE FOUR MONTHS
ENDED APRIL 30, 1996 AND 1995
<PAGE>
BORDEN GLOBAL PACKAGING OPERATIONS
COMBINED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
APRIL 30,
------------------------
<S> <C> <C>
1996 1995
----------- -----------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current Assets
Cash and equivalents.................................................................. $ 26,381 $ 15,232
Accounts receivable (net allowance for doubtful accounts of $3,759 and $4,023,
respectively)....................................................................... 87,806 96,376
Other receivables..................................................................... 13,240 13,969
Inventories
Finished and in-process goods....................................................... 60,155 70,235
Raw materials and supplies.......................................................... 30,186 36,203
Prepaids and other current assets..................................................... 1,965 2,759
----------- -----------
219,733 234,774
----------- -----------
Investment in Affiliated Companies...................................................... 2,867 5,444
----------- -----------
Property and Equipment
Land.................................................................................. 8,623 8,705
Buildings............................................................................. 69,453 72,503
Machinery and equipment............................................................... 297,186 288,759
----------- -----------
375,262 369,967
Less accumulated depreciation......................................................... (169,885) (160,784)
----------- -----------
205,377 209,183
----------- -----------
Other Non-Current Assets
Goodwill.............................................................................. 44,213 43,263
Other assets.......................................................................... 16,036 18,454
----------- -----------
60,249 61,717
----------- -----------
Total Assets............................................................................ $ 488,226 $ 511,118
----------- -----------
----------- -----------
LIABILITIES & OWNER'S INVESTMENT
Current Liabilities
Accounts payable...................................................................... $ 69,015 $ 76,192
Debt payable in one year.............................................................. 6,601 5,461
Accrued payroll and incentive compensation............................................ 11,567 10,849
Accrued taxes, other than income...................................................... 7,756 6,314
Other current liabilities............................................................. 15,392 11,372
----------- -----------
110,331 110,188
----------- -----------
Long-Term Liabilities
Long-term debt........................................................................ 470 740
Deferred income taxes................................................................. 11,274 11,775
Non-pension postemployment and postretirement benefit obligations..................... 2,716 3,520
Other long-term pension liabilities................................................... 3,903 3,782
----------- -----------
18,363 19,817
----------- -----------
Commitments and Contingencies
Owner's Investment...................................................................... 359,532 381,113
----------- -----------
Total Liabilities and Owner's Investment................................................ $ 488,226 $ 511,118
----------- -----------
----------- -----------
</TABLE>
See notes to combined financial statements
G-1
<PAGE>
BORDEN GLOBAL PACKAGING OPERATIONS
COMBINED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOUR MONTHS ENDED
APRIL 30,
----------------------
<S> <C> <C>
1996 1995
---------- ----------
Net sales........................................................................... $ 184,940 $ 200,795
Cost of goods sold.................................................................. 153,208 163,848
---------- ----------
Gross margin........................................................................ 31,732 36,947
Operating costs and expenses
Distribution expense.............................................................. 7,819 8,114
Marketing expense................................................................. 10,992 11,174
General and administrative expense................................................ 9,927 9,461
---------- ----------
Operating income.................................................................... 2,994 8,198
Other non-operating (income) expense
Net interest expense.............................................................. 421 703
Other expense (income)--Net....................................................... 177 (358)
---------- ----------
Income before income taxes.......................................................... 2,396 7,853
Income tax expense.................................................................. 1,153 3,244
---------- ----------
Net income.......................................................................... $ 1,243 $ 4,609
---------- ----------
---------- ----------
</TABLE>
See notes to combined financial statements.
G-2
<PAGE>
BORDEN GLOBAL PACKAGING OPERATIONS
COMBINED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
APRIL 30,
-----------------
<S> <C>
1996
-----------------
Net sales...................................................................................... $ 291,346
Cost of goods sold............................................................................. 238,220
--------
Gross margin................................................................................... 53,126
Operating costs and expenses
Distribution expense......................................................................... 11,774
Marketing expense............................................................................ 17,062
General and administrative expense........................................................... 14,798
--------
Operating income............................................................................... 9,492
Other non-operating (income) expense
Net interest expense......................................................................... 367
Other expense (income)--Net.................................................................. (351)
--------
Income before income taxes..................................................................... 9,476
Income tax expense............................................................................. 4,073
--------
Net income..................................................................................... $ 5,403
--------
--------
</TABLE>
See notes to combined financial statements.
G-3
<PAGE>
BORDEN GLOBAL PACKAGING OPERATIONS
COMBINED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE FOUR MONTHS
ENDED APRIL 30,
----------------------
<S> <C> <C>
1996 1995
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.............................................................................. $ 1,243 $ 4,609
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization......................................................... 6,934 6,707
Net change in assets and liabilities:
Accounts receivables................................................................ 5,167 (10,480)
Inventories......................................................................... (1,080) (21,616)
Accounts payable.................................................................... 11,039 12,848
Deferred income taxes............................................................... (386) 1,178
Other assets........................................................................ 3,433 (9,672)
Other liabilities................................................................... (2,027) (3,154)
---------- ----------
24,323 (19,580)
---------- ----------
CASH FLOW USED IN INVESTING ACTIVITIES
Capital expenditures.................................................................. (6,740) (1,706)
Proceeds from sale of assets.......................................................... 2,029 94
Decrease (increase) in investment in affiliated entities.............................. 136 (2,558)
---------- ----------
(4,575) (4,170)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in short-term debt................................................ (1,722) (8,190)
Reduction in long-term debt........................................................... (68) (123)
Increase (decrease) in owner's investment............................................. (25,994) 32,608
---------- ----------
(27,784) 24,295
---------- ----------
Increase (decrease) in cash and equivalents........................................... (8,036) 545
Cash and equivalents at beginning of period........................................... 34,417 14,687
---------- ----------
Cash and equivalents at end of period................................................. $ 26,381 $ 15,232
---------- ----------
---------- ----------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid......................................................................... $ 475 $ 581
Taxes paid............................................................................ 1,728 352
</TABLE>
G-4
<PAGE>
NOTES TO COMBINED INTERIM FINANCIAL INFORMATION
SIGNIFICANT ACCOUNTING POLICIES
The accounting policies followed by BGP in the interim financial information
are generally consistent with those used in the December 31, 1995 combined
financial statements and include all normal, recurring adjustments which, in the
opinion of management, are necessary for a fair presentation of the financial
position and results of operations for such periods.
OWNER'S INVESTMENT INFORMATION
Owner's Investment information is not prepared on an interim basis for BGP.
G-5
<PAGE>
PROXY SPECIAL MEETING OF STOCKHOLDERS--OCTOBER 9, 1996
AEP INDUSTRIES INC.
COMMON STOCK
The undersigned, a stockholder of AEP INDUSTRIES INC., does hereby appoint
Paul M. Feeney and Lawrence R. Noll, or either of them, with full power of
substitution, the undersigned's proxies, to appear and vote all shares of Common
Stock of the Company which the undersigned is entitled to vote and the Special
Meeting of Stockholders to be held on Wednesday, October 9, 1996, at 10:00 A.M.,
local time, or at any adjournments thereof, upon such matters as may properly
come before the Meeting.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
<TABLE>
<S> <C> <C> <C>
1. To approve the issuance of that number of shares of Common Stock, par value $.01, of the Company as may be
issuable pursuant to the Purchase Agreement, dated as of June 20, 1996, between the Company and Borden,
Inc., providing for the acquisition by the Company of certain assets, including the capital stock of certain
subsidiaries of Borden, Inc., which together comprise the packaging division of Borden, Inc.,the number of
shares of Common Stock to be issued to be a minimum of 2,412,818 shares, subject to increase to a maximum of
4,000,000 shares.
</TABLE>
/ / FOR / / AGAINST / / ABSTAIN
<TABLE>
<S> <C> <C> <C>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL 1.
2. In their discretion, upon such other matters as may properly come before the meeting.
</TABLE>
(CONTINUED ON REVERSE SIDE)
<PAGE>
The shares represented by this Proxy will be voted as directed by the
stockholder. If no direction is given, such shares will be voted for Proposal 1
and in accordance with the discretion of the proxies on any other matter that
may properly come before the meeting.
IMPORTANT: BEFORE RETURNING THIS PROXY, PLEASE SIGN YOUR NAME OR NAMES ON
THE LINE(S) BELOW EXACTLY AS SHOWN THEREON. EXECUTORS, ADMINISTRATORS, TRUSTEES,
GUARDIANS OR CORPORATE OFFICERS SHOULD INDICATE THEIR FULL TITLES WHEN SIGNING.
WHERE SHARES ARE REGISTERED IN THE NAME OF JOINT TENANTS OR TRUSTEES, EACH JOINT
TENANT OR TRUSTEE SHOULD SIGN.
PLEASE MARK, DATE, AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
DATED _______________________, 1996
_____________________________(L.S.)
_____________________________(L.S.)
Stockholder(s) Sign Here
