AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 6, 1995
REGISTRATION NO. 33-55767
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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POST-EFFECTIVE
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
]THE SECURITIES ACT OF 1933
-------------------
RJR NABISCO HOLDINGS CORP.
(Exact name of Registrant as specified in its charter)
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<S> <C> <C>
DELAWARE 6719 13-3490602
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
1301 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019
(212) 258-5600
(Address, including zip code, and telephone number, including area code,
of Registrant's principal executive offices)
LAWRENCE R. RICCIARDI, ESQ.
RJR NABISCO HOLDINGS CORP.
1301 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019
(212) 258-5600
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
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COPIES TO:
SAMUEL F. PRYOR III, ESQ. CHARLES I. COGUT, ESQ. ANDREW R. BROWNSTEIN, ESQ.
DAVIS POLK & WARDWELL SIMPSON THACHER & BARTLETT WACHTELL, LIPTON, ROSEN & KATZ
450 LEXINGTON AVENUE 425 LEXINGTON AVENUE 51 WEST 52ND STREET
NEW YORK, NEW YORK 10017 NEW YORK, NEW YORK 10017 NEW YORK, NEW YORK 10019
(212) 450-4000 (212) 455-2000 (212) 403-1000
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As promptly as practicable after this Registration Statement is declared
effective and upon consummation of the transactions described in the enclosed
Offering Circular/Prospectus.
If the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
-------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE>
CROSS-REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K
SHOWING THE LOCATION IN THE PROXY STATEMENT/PROSPECTUS
OF THE INFORMATION REQUIRED BY PART 1 OF FORM S-4
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FORM S-4 ITEM LOCATION IN PROXY STATEMENT/PROSPECTUS
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A. INFORMATION ABOUT THE TRANSACTION
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1. Forepart of Registration Statement and
Outside Front Cover Page of Prospectus... Outside Front Cover Page; Facing Page
2. Inside Front and Outside Back Cover Pages
of Prospectus............................ Table of Contents; Available Information;
Incorporation of Certain Documents by
Reference
3. Risk Factors, Ratio of Earnings to Fixed
Charges and Other Information............ Significant Considerations; Summary; The
Merger
4. Terms of the Transaction................. Summary; The Merger; Description of
Holdings Capital Stock; Description of
Borden Capital Stock and Rights;
Comparison of Rights of Holders of Borden
Common Stock and Holdings Common Stock
5. Pro Forma Financial Information.......... Not Applicable
6. Material Contacts with Company Being
Acquired................................. Summary; The Merger
7. Additional Information Required for
Reoffering by Persons and Parties
Deemed to be Underwriters................ The Merger; Security Ownership of Certain
Beneficial Owners and Management of
Holdings
8. Interests of Named Experts and Counsel... Legal Matters; Experts
9. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities.............................. Not Applicable
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<PAGE>
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FORM S-4 ITEM LOCATION IN PROXY STATEMENT/PROSPECTUS
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B. INFORMATION ABOUT THE REGISTRANT
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10. Information with Respect to
S-3 Registrants........................ Available Information; Incorporation of
Certain Documents by Reference;
Summary--RJR Nabisco Holdings Corp.;
Summary--Comparative Market Prices and
Dividends; RJR Nabisco Holdings Corp.;
RJR Nabisco Holdings Corp. Selected
Historical Consolidated Financial Data;
RJR Nabisco Holdings Corp. Selected Pro
Forma Consolidated Financial Data;
Security Ownership of Certain Beneficial
Owners and Management of Holdings;
Description of Holdings Capital Stock;
Comparison of Rights of Holders of Borden
Common Stock and Holdings Common Stock
11. Incorporation of Certain Information
by Reference........................... Incorporation of Certain Documents by
Reference
12. Information with Respect to S-2
or S-3 Registrants..................... Not Applicable
13. Incorporation of Certain Information by
Reference................................ Not Applicable
14. Information with Respect to Registrants
Other than S-2 or S-3 Registrants........ Not Applicable
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C. INFORMATION ABOUT THE COMPANY BEING ACQUIRED
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15. Information with Respect to
S-3 Companies.......................... Available Information; Incorporation of
Certain Documents by Reference;
Summary--Borden, Inc.; Summary--
Comparative Market Prices and Dividends;
Borden, Inc.; Borden, Inc. Selected
Historical Consolidated Financial Data;
Security Ownership of Certain Beneficial
Owners and Management of Borden;
Description of Borden Capital Stock and
Rights; Comparison of Rights of Holders
of Borden Common Stock and Holdings
Common Stock
16. Information with Respect to S-2
or S-3 Companies....................... Not Applicable
17. Information with Respect to Companies
Other than S-2 or S-3 Companies.......... Not Applicable
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<PAGE>
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<CAPTION>
FORM S-4 ITEM LOCATION IN PROXY STATEMENT/PROSPECTUS
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D. VOTING AND MANAGEMENT INFORMATION
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18. Information if Proxies, Consents or
Authorizations are to be Solicited....... Outside Front Cover Page; Available
Information; Incorporation of Certain
Documents by Reference; Summary; The
Merger; Security Ownership of Certain
Beneficial Owners and Management of
Holdings; Security Ownership of Certain
Beneficial Owners and Management of
Borden
19. Information if Proxies, Consents or
Authorizations are not to be Solicited,
or in an Exchange Offer................ Not Applicable
</TABLE>
<PAGE>
BORDEN, INC.
, 1995
Dear Borden, Inc. Shareholder:
You are cordially invited to attend a Special Meeting of Shareholders of
Borden, Inc. ("Borden") to be held on , 1995 at 10:00 a.m., Eastern
time, at . At the Special Meeting, you will be asked to consider
and vote upon a proposal to approve the Agreement and Plan of Merger, dated as
of September 23, 1994, as amended as of November 15, 1994, December 6, 1994 and
January 4, 1995 (as so amended, the "Merger Agreement"), among Borden
Acquisition Corp. ("BAC") and Whitehall Associates, L.P. ("Whitehall
Associates"), affiliates of Kohlberg Kravis Roberts & Co., L.P., and Borden.
Upon the terms and subject to the conditions of the Merger Agreement, BAC
will be merged with and into Borden (the "Merger"), and each outstanding share
of common stock, par value $.625 per share ("Borden Common Stock"), of Borden
(other than shares held by Borden, its subsidiaries, Whitehall Associates, KKR
Partners II, L.P. (together with Whitehall Associates, the "Common Stock
Partnerships"), BAC or any other subsidiary of Whitehall Associates) will be
exchanged for 2.29146 shares of common stock, par value $.01 per share
("Holdings Common Stock"), of RJR Nabisco Holdings Corp.
The Merger will require the approval of the holders of not less than 66 2/3%
of the outstanding Borden shares, including the Borden shares held by the Common
Stock Partnerships. As of December 30, 1994, the Common Stock Partnerships owned
an aggregate of 118,269,307 Borden shares (representing approximately 69.58% of
the issued and outstanding shares of Borden Common Stock as of such date).
The Common Stock Partnerships intend to vote their Borden shares in favor of
approval of the Merger Agreement and the Merger. The Common Stock Partnerships
own sufficient shares of Borden Common Stock to approve the Merger and,
accordingly, no action by any other shareholder is required to approve the
Merger.
Holders of Borden Common Stock will not be entitled to dissenters' rights
under New Jersey law in connection with the Merger, and BAC does not intend to
accord dissenters' rights to holders of Borden Common Stock.
At its meeting on September 22, 1994, the Board of Directors of Borden, with
seven members voting in favor and one member (Borden's chief executive officer)
abstaining, among other things, determined that the exchange offer and the
Merger Agreement and the transactions contemplated thereby, including the
Merger, taken together, are fair to the shareholders of Borden, and recommends
that holders of shares of Borden Common Stock vote FOR the Merger Agreement and
the Merger.
In arriving at its decision, the Board of Directors of Borden gave careful
consideration to a number of factors described in the accompanying Proxy
Statement/Prospectus, including the opinions of Lazard Freres & Co. and CS First
Boston Corporation, the financial advisors to Borden. Please read the enclosed
material carefully. Whether or not you are personally able to attend the Special
Meeting, please complete, sign, date and return the enclosed proxy as soon as
possible. This action will not limit your right to vote in person if you wish to
attend the Special Meeting and vote in person.
PLEASE DO NOT SEND US YOUR STOCK CERTIFICATES AT THIS TIME. Once the Merger
becomes effective, you will be advised of the procedure for surrendering your
certificates in exchange for the Merger consideration of 2.29146 shares of
Holdings Common Stock per share of Borden Common Stock.
Sincerely,
[Name]
[Title]
<PAGE>
BORDEN, INC.
180 EAST BROAD STREET
COLUMBUS, OHIO 43215
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON , , 1995
To the Holders of Common Stock of
BORDEN, INC.:
A Special Meeting of Shareholders of Borden, Inc. ("Borden") will be held on
, , 1995, at 10:00 a.m., Eastern time, at
for the following purposes:
(1) To consider and vote upon a proposal to approve the Agreement and
Plan of Merger, dated as of September 23, 1994, as amended as of November
15, 1994, December 6, 1994 and January 4, 1995 (as so amended, the "Merger
Agreement"), among Borden Acquisition Corp. ("BAC") and Whitehall
Associates, L.P. ("Whitehall Associates"), affiliates of Kohlberg Kravis
Roberts & Co., L.P., and Borden, pursuant to which:
(a) BAC will be merged with and into Borden (the "Merger"), with
Borden to continue as the surviving corporation; and
(b) Each share of the common stock, par value $.625 per share
("Borden Common Stock"), of Borden (other than shares held by Borden, its
subsidiaries, Whitehall Associates, KKR Partners II, L.P. (together with
Whitehall Associates, the "Common Stock Partnerships"), BAC or any other
subsidiary of Whitehall Associates) will be exchanged for 2.29146 shares
of common stock, par value $.01 per share, of RJR Nabisco Holdings Corp.;
and
(2) To transact such other business as may properly come before the
Special Meeting, including any and all adjournments and postponements
thereof.
A conformed copy of the Merger Agreement appears as Annex I to, and is
described in, the accompanying Proxy Statement/Prospectus.
Holders of Borden Common Stock will not be entitled to dissenters' rights
under New Jersey law in connection with the Merger, and BAC does not intend to
accord dissenters' rights to holders of Borden Common Stock.
Only holders of Borden Common Stock of record at the close of business on
January 26, 1995 are entitled to notice of and to vote at the Special Meeting or
any adjournment thereof.
By Order of the
Board of Directors,
[Name]
Secretary
Columbus, Ohio
, 1995
<PAGE>
SUBJECT TO COMPLETION, DATED JANUARY 6, 1995
BORDEN, INC.
PROXY STATEMENT
-------------------
RJR NABISCO HOLDINGS CORP.
PROSPECTUS
This Proxy Statement/Prospectus ("Proxy Statement/Prospectus") is being
furnished to shareholders of Borden, Inc., a New Jersey corporation ("Borden"),
in connection with the solicitation of proxies by the Board of Directors of
Borden for use at the Special Meeting of Shareholders of Borden, including any
adjournments or postponements thereof, scheduled to be held on , 1995
at 10:00 a.m., Eastern time, at (the "Special Meeting"). This Proxy
Statement/Prospectus relates to the proposed merger (the "Merger") of Borden
Acquisition Corp., a New Jersey corporation (the "Purchaser"), a subsidiary of
Whitehall Associates, L.P. (the "Partnership"), an affiliate of Kohlberg Kravis
Roberts & Co., L.P. ("KKR"), with and into Borden pursuant to the Agreement and
Plan of Merger dated as of September 23, 1994, as amended as of November 15,
1994, December 6, 1994 and January 4, 1995 (the "Merger Agreement"), among the
Partnership, the Purchaser and Borden.
Pursuant to the Merger, each outstanding share (each, a "Borden Share") of
common stock, par value $.625 per share ("Borden Common Stock"), of Borden
(other than Borden Shares held by Borden, its subsidiaries, the Common Stock
Partnerships (as defined below), the Purchaser or any other subsidiary of the
Partnership, which will be cancelled and retired and will cease to exist) will
be exchanged for 2.29146 shares of common stock, par value $.01 per share (the
"Holdings Common Stock"), of RJR Nabisco Holdings Corp., a Delaware corporation
("Holdings"). This Proxy Statement/Prospectus also constitutes a prospectus of
Holdings with respect to up to 134,838,819 shares of Holdings Common Stock that
will be paid for all outstanding Borden Shares as consideration in the Merger
upon consummation thereof pursuant to the Merger Agreement.
The Merger will require the approval of the holders of not less than 66 2/3%
of the outstanding Borden Shares, including the Borden Shares held by the
Partnership and KKR Partners II, L.P. ("KKR Partners II" and, together with the
Partnership, the "Common Stock Partnerships"), an affiliate of the Partnership.
As of December 30, 1994, the Common Stock Partnerships owned an aggregate of
118,269,307 Borden Shares (representing approximately 69.58% of the issued and
outstanding shares of Borden Common Stock as of such date).
The Common Stock Partnerships intend to vote their Borden Shares in favor of
approval of the Merger Agreement and the Merger. The Common Stock Partnerships
own sufficient shares of Borden Common Stock to approve the Merger and,
accordingly, no action by any other shareholder is required to approve the
Merger.
Holders of Borden Common Stock will not be entitled to dissenters' rights
under New Jersey law in connection with the Merger, and BAC does not intend to
accord dissenters' rights to holders of Borden Common Stock.
At its Board meeting on September 22, 1994, the Board of Directors of
Borden, with seven members voting in favor and one member (Borden's chief
executive officer) abstaining, among other things, determined that the Exchange
Offer (as defined herein) and the Merger Agreement and the transactions
contemplated thereby, including the Merger, taken together, are fair to the
shareholders of Borden, and recommends that holders of shares of Borden Common
Stock approve and adopt the Merger Agreement.
The Holdings Common Stock and the Borden Common Stock are listed for trading
on the New York Stock Exchange, Inc. (the "NYSE") under the symbols "RN" and
"BN," respectively. On January 5, 1995, the reported last sale price of the
Holdings Common Stock on the NYSE Composite Tape was $5 29/32 per share and the
reported last sale price of the Borden Common Stock on the NYSE Composite Tape
was $13 1/8 per share. For a description of the Holdings Common Stock, see
"Description of Holdings Capital Stock" and "Comparison of Rights of Holders of
Borden Common Stock and Holdings Common Stock."
This Proxy Statement/Prospectus, the accompanying forms of proxy and the
other enclosed documents are first being mailed to shareholders of Borden on or
about , 1995.
-------------------
SEE "SIGNIFICANT CONSIDERATIONS" FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD
BE CONSIDERED BY HOLDERS OF BORDEN SHARES IN CONNECTION WITH THEIR CONSIDERATION
OF THE MERGER.
-------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
-------------------
The date of this Proxy Statement/Prospectus is , 1995.
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY STATE.
<PAGE>
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN AS CONTAINED IN THIS
PROXY STATEMENT/PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMMON
STOCK PARTNERSHIPS, THE PURCHASER OR ANY AFFILIATE THEREOF, OR BY HOLDINGS OR
BORDEN. THIS PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR
A SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE SECURITIES OFFERED
HEREBY, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER
TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN
WHICH IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION TO SUCH PERSON.
NEITHER THE DELIVERY OF THIS PROXY STATEMENT/PROSPECTUS AT ANY TIME NOR ANY SALE
MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THE
INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
PERSONS INTO WHOSE POSSESSION THIS PROXY STATEMENT/PROSPECTUS COMES ARE REQUIRED
BY THE COMMON STOCK PARTNERSHIPS, THE PURCHASER AND THEIR AFFILIATES, AND BY
HOLDINGS AND BORDEN TO INFORM THEMSELVES ABOUT AND TO OBSERVE ANY RESTRICTIONS
AS TO THE OFFERING OF THE SECURITIES OFFERED HEREBY AND THE DISTRIBUTION OF THIS
PROXY STATEMENT/PROSPECTUS.
-------------------
TABLE OF CONTENTS
PAGE
----
Available Information................. 3
Incorporation of Certain Documents by
Reference............................. 3
Significant Considerations............ 5
Information Concerning Holdings..... 5
Information Concerning the Merger... 10
Summary............................... 12
The Special Meeting................... 27
The Merger............................ 29
Purchaser Background................ 29
Borden Background and Reasons for
the Proposed Transactions......... 30
Opinions of Borden Financial
Advisors.............................. 50
Other Information Concerning Borden
Financial Advisors.................... 60
The Merger.......................... 60
Exchange of Certificates and
Exchange Procedures in the
Merger................................ 61
Material Tax Consequences........... 63
Accounting Treatment of the
Merger................................ 64
Fees and Expenses of the Merger and
Source of Funds....................... 64
Certain Regulatory Approvals and
Legal Matters..................... 64
Certain Litigation.................. 65
Description of Merger Agreement and
Conditional Purchase/Option
Agreement............................. 67
Merger Agreement.................... 67
Conditional Purchase/Option
Agreement............................. 80
RJR Nabisco Holdings Corp............. 82
Recent Developments................. 83
RJR Nabisco Holdings Corp. Selected
Historical Consolidated Financial
Data.................................. 85
RJR Nabisco Holdings Corp. Selected
Pro Forma Consolidated Financial
Data.................................. 87
Security Ownership of Certain
Beneficial Owners and Management of
Holdings.............................. 93
Borden, Inc........................... 95
Borden, Inc. Selected Historical
Consolidated Financial Data........... 96
Security Ownership of Certain
Beneficial Owners and Management of
Borden................................ 98
The Purchaser and the Common Stock
Partnerships.......................... 100
Description of Holdings Capital
Stock................................. 100
Common Stock........................ 100
Preferred Stock..................... 101
Contractual Restrictions and
Policies on Payment of
Dividends............................. 103
Certain Statutory and By-law
Provisions............................ 105
Description of Borden Capital Stock
and Rights.......................... 107
Comparison of Rights of Holders of
Borden Common Stock and Holdings
Common Stock.......................... 107
Legal Matters......................... 110
Experts............................... 111
Other Matters......................... 111
2
<PAGE>
AVAILABLE INFORMATION
Holdings and Borden are subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith file reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). The reports, proxy
statements and other information filed by Holdings and Borden with the
Commission can be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549, and should be available at the Commission's Regional Offices at 7
World Trade Center, 13th Floor, New York, New York 10048, and 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. Copies of such material also can be
obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. In addition, material
filed by Holdings and Borden can be inspected at the offices of the NYSE, 20
Broad Street, New York, New York 10005.
Holdings has filed with the Commission a Registration Statement on Form S-4
(together with any amendments thereto, the "Registration Statement") under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
Holdings Common Stock to be offered in the Merger. This Proxy
Statement/Prospectus does not contain all the information set forth in the
Registration Statement and the exhibits thereto. Such additional information may
be obtained from the Commission's principal office in Washington, D.C.
Statements contained in this Proxy Statement/Prospectus or in any document
incorporated in this Proxy Statement/Prospectus by reference as to the contents
of any contract or other document referred to herein or therein include the
material terms of such contracts or other documents but are not necessarily
complete, and in each instance reference is made to the copy of such contract or
other document filed as an exhibit to the Registration Statement or such other
document, each such statement being qualified in all respects by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission by Holdings (File No.
1-10215) pursuant to the Exchange Act are incorporated by reference in this
Proxy Statement/Prospectus:
1. Holdings' Annual Report on Form 10-K for the year ended December 31,
1993 (which incorporates by reference certain information from Holdings'
Proxy Statement relating to the 1994 Annual Meeting of Shareholders);
2. Holdings' Quarterly Reports on Form 10-Q for the three months ended
March 31, 1994, the six months ended June 30, 1994 and the nine months ended
September 30, 1994;
3. Holdings' Current Report on Form 8-K/A filed April 27, 1994; and
4. The Consolidated Financial Statements of Holdings as of December 31,
1993 and 1992 and for each of the years in the three year period ended
December 31, 1993 and the related notes thereto, and Management's Discussion
and Analysis of Financial Condition and Results of Operations, included in
the Registration Statement on Form S-3 (Registration No. 33-52381), at the
time such Registration Statement was declared effective by the Commission.
The following documents filed with the Commission by Borden (File No. 1-71)
pursuant to the Exchange Act are incorporated by reference in this Proxy
Statement/Prospectus:
1. Borden's Annual Report on Form 10-K for the year ended December 31,
1993 (which incorporates by reference certain information from Borden's
Proxy Statement relating to the 1994 Annual Meeting of Shareholders and
Borden's 1993 Annual Report to Shareholders);
2. Borden's Quarterly Reports on Form 10-Q for the three months ended
March 31, 1994, the six months ended June 30, 1994 (as amended by the Form
10-Q/A (Amendment No. 1)) and the nine months ended September 30, 1994 (as
amended by the Form 10-Q/A (Amendment No. 1));
3
<PAGE>
3. Borden's Current Reports on Form 8-K dated January 5, 1994, March 21,
1994, September 11, 1994, September 12, 1994, October 5, 1994 (two Current
Reports) and January 5, 1995; and
4. Borden's Solicitation/Recommendation Statement on Schedule 14D-9
filed on November 22, 1994, as amended by Amendment No. 1 filed on December
1, 1994, Amendment No. 2 filed on December 2, 1994, Amendment No. 3 filed on
December 5, 1994, Amendment No. 4 filed on December 6, 1994, Amendment No. 5
filed on December 8, 1994, Amendment No. 6 filed on December 12, 1994,
Amendment No. 7 filed on December 14, 1994, Amendment No. 8 filed on
December 20, 1994 and Amendment No. 9 filed on December 20, 1994 (as so
amended, the "Schedule 14D-9").
All documents and reports filed by Holdings and Borden pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this Proxy
Statement/Prospectus and prior to the date of the Special Meeting shall be
deemed to be incorporated by reference in this Proxy Statement/ Prospectus and
to be a part hereof from the dates of filing of such documents or reports. Any
statement contained in a document incorporated or deemed to be incorporated by
reference herein shall be deemed to be modified or superseded for purposes of
this Proxy Statement/Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is or is deemed to be
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/Prospectus.
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH
ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. SUCH DOCUMENTS (OTHER THAN
EXHIBITS TO SUCH DOCUMENTS UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED
BY REFERENCE) ARE AVAILABLE, WITHOUT CHARGE, TO ANY PERSON, INCLUDING ANY
BENEFICIAL OWNER, TO WHOM THIS PROXY STATEMENT/PROSPECTUS IS DELIVERED, ON
WRITTEN OR ORAL REQUEST, IN THE CASE OF DOCUMENTS RELATING TO HOLDINGS, TO
RJR NABISCO, INC., 1301 AVENUE OF THE AMERICAS, NEW YORK, NEW YORK 10019
(TELEPHONE NUMBER (212) 258-5600), ATTENTION: INVESTOR RELATIONS DEPARTMENT;
OR, IN THE CASE OF DOCUMENTS RELATING TO BORDEN, TO BORDEN, INC., 180 EAST
BROAD STREET, COLUMBUS, OHIO 43215 (TELEPHONE NUMBER (614) 225-3395),
ATTENTION: DOCUMENTS MAILING DEPT. IN ORDER TO ENSURE TIMELY DELIVERY OF
DOCUMENTS PRIOR TO THE SPECIAL MEETING, ANY REQUEST SHOULD BE MADE NO LATER
THAN , 1995.
4
<PAGE>
The Registration Statement is being filed by Holdings at the request of the
Partnership pursuant to the terms of a Registration Rights Agreement between
Holdings and the Partnership dated as of July 15, 1990 and a Registration Rights
Agreement among Holdings, certain affiliates of KKR and others dated as of
February 9, 1989 (collectively, the "Registration Rights Agreements"). All
information contained or incorporated by reference in this Proxy
Statement/Prospectus relating to KKR, the Common Stock Partnerships, the
Purchaser and the Transactions (as defined herein) has been supplied by the
Purchaser, all such information relating to Holdings has been supplied by
Holdings and all such information relating to Borden has been supplied by
Borden. Although Holdings does not have any knowledge that would indicate that
any of the information which has been furnished by others is inaccurate or
untrue in any material respect, no assurance can be given that facts or events
of which it is unaware exist that may affect the significance or accuracy of the
information furnished.
FOR A SUMMARY OF CERTAIN INFORMATION CONTAINED ELSEWHERE OR INCORPORATED BY
REFERENCE IN THIS PROXY STATEMENT/PROSPECTUS, INCLUDING A SUMMARY OF THE MERGER
AND CERTAIN INFORMATION CONCERNING HOLDINGS AND BORDEN, SEE "SUMMARY" BEGINNING
ON PAGE 12 HEREOF. AS USED HEREIN, "HOLDINGS" MEANS RJR NABISCO HOLDINGS CORP.
AND ITS CONSOLIDATED SUBSIDIARIES AND "BORDEN" MEANS BORDEN, INC. AND ITS
CONSOLIDATED SUBSIDIARIES, IN EACH CASE UNLESS THE CONTEXT OTHERWISE REQUIRES.
SIGNIFICANT CONSIDERATIONS
Holders of Borden Common Stock should carefully consider the following
factors in connection with their consideration of the Merger.
INFORMATION CONCERNING HOLDINGS
Tobacco-Related Considerations
General. R.J. Reynolds Tobacco Company ("RJRT"), an operating subsidiary of
Holdings owned through RJR Nabisco, Inc. ("RJRN"), is the second largest
cigarette manufacturer in the United States, and in the year ended December 31,
1993, RJRT's domestic tobacco business comprised approximately 33% of Holdings'
net sales and approximately 42% of Holdings' operating income from continuing
operations before corporate expenses, amortization of trademarks and goodwill
and restructuring expense. Domestic cigarette industry retail unit sales have
declined in the last three calendar years at an average rate of approximately
2.5% per year. Holdings believes that the decline is due to a number of factors,
including manufacturers' price increases in recent years, excise tax increases,
asserted adverse health effects of smoking, diminishing social acceptance of
smoking and governmental and private restrictions on smoking. For many years,
the advertising, sale and use of cigarettes has been under attack by government
and health officials in the United States and in other countries, principally
due to claims that cigarette smoking is harmful to health. This attack has
resulted in a number of substantial restrictions on the marketing, advertising
and use of cigarettes, diminishing social acceptability of smoking and
activities by anti-smoking groups designed to inhibit cigarette sales, the form
and content of cigarette advertising and the testing and introduction of new
cigarette products. Together with substantial increases in state and federal
excise taxes on cigarettes, this attack has had and will likely continue to have
an adverse effect on cigarette sales.
Possible Legislative and Regulatory Activities. The Clinton Administration
and members of Congress introduced bills in the last Congress that would have
significantly increased the federal excise tax on cigarettes, eliminated the
income tax deductibility of a portion of the cost of tobacco advertising, banned
smoking in public buildings and workplaces, added additional health warnings on
cigarette packaging and advertising and further restricted the marketing of
tobacco products.
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In January 1993, the U.S. Environmental Protection Agency released a report
on the respiratory effects of environmental tobacco smoke ("ETS") which
concludes that ETS is a known human lung carcinogen in adults; and in children
causes increased respiratory tract disease and middle ear disorders and
increases the severity and frequency of asthma. In September 1991, the U.S.
Occupational Safety and Health Administration ("OSHA") issued a Request for
Information relating to indoor air quality, including ETS, in occupational
settings. In March 1994, OSHA announced proposed regulations that would restrict
smoking in the workplace to designated smoking rooms that are separately
exhausted to the outside. Although RJRT cannot predict the form of any
regulations that may be finally adopted by OSHA, if the proposed regulations are
adopted, RJRT expects that many employers who have not already done so will
prohibit smoking in the workplace rather than make expenditures necessary to
establish designated smoking areas to accommodate smokers. Because many
employers currently do not permit smoking in the workplace, RJRT cannot predict
the effect of any regulations that may be adopted, but incremental restrictions
on smokers could have an adverse effect on cigarette sales and RJRT.
During February 1994, the Commissioner of the U.S. Food and Drug
Administration (the "FDA"), which historically has refrained from asserting
jurisdiction over most cigarette products, stated that he intended to cause the
FDA to work with the U.S. Congress to resolve the regulatory status of
cigarettes under the Food, Drug and Cosmetic Act. During the second quarter of
1994, hearings were held in this regard, and RJRT, along with other members of
the United States cigarette industry, was asked to provide voluntarily certain
documents and other information to Congress. RJRT is unable to predict the
outcome of any Congressional deliberations or the likelihood that the FDA will
assert jurisdiction over cigarettes in some manner. Were the FDA to assert
jurisdiction in a manner that materially restricts the availability of
cigarettes to consumers, it would likely have a significant adverse effect on
RJRT and Holdings.
In addition, in June 1994, legislation was introduced in the U.S. Senate
which would have authorized the Attorney General of the United States to seek to
recover from tobacco product manufacturers funds paid out in the form of
Medicaid and Medicare payments to treat illnesses allegedly related to the use
of tobacco products. It is not possible to predict whether any such legislation
will be enacted or any resulting effect thereof on RJRT.
It is not possible to determine what additional federal, state or local
legislation or regulations relating to smoking or cigarettes will be enacted or
to predict any resulting effect thereof on RJRT, R.J. Reynolds Tobacco
International, Inc. ("Tobacco International"), another operating subsidiary of
Holdings owned through RJRN, or the cigarette industry generally but such
legislation or regulations could have an adverse effect on RJRT, Tobacco
International or the cigarette industry generally.
Tobacco-Related Litigation. Various legal actions, proceedings and claims
are pending or may be instituted against RJRT or its affiliates or indemnitees,
including those claiming that lung cancer and other diseases have resulted from
the use of or exposure to RJRT's tobacco products. The plaintiffs in these
actions seek recovery on a variety of legal theories, including strict liability
in tort, design defect, negligence, breach of warranty, failure to warn, fraud,
misrepresentation, unfair trade practices, conspiracy, unjust enrichment,
indemnity and common law public nuisance. Seven of these cases purport to be
class actions brought on behalf of thousands of claimants. Purported classes
include individuals claiming to be addicted to cigarettes, flight attendants
alleging personal injury from exposure to ETS in their workplace and parents
claiming that Joe Camel advertising constitutes an unfair trade practice. In two
such cases, Florida state court judges granted plaintiffs' motions to certify a
class. Defendants have appealed both of these rulings to the Florida District
Court of Appeals. In addition, three states, acting through their attorneys
general, have sued RJRT (and in two cases, RJRN) and other industry members on
various theories to recoup expenses incurred by the states in the treatment of
diseases purportedly associated with cigarette smoking and to enjoin certain
marketing practices. A fourth state has enacted legislation which would
facilitate the filing of such an action in that state. Litigation is subject to
many uncertainties, and it is possible that some of the legal actions,
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proceedings or claims could be decided against RJRT or its affiliates or
indemnitees. Determinations of liability or adverse rulings against other
cigarette manufacturers that are defendants in similar actions, even if such
rulings are not final, could adversely affect the litigation against RJRT and
its affiliates or indemnitees and increase the number of such claims. Although
it is impossible to predict the outcome of such events or their effect on RJRT,
a significant increase in litigation activities could have an adverse effect on
RJRT. RJRT believes that it has a number of valid defenses to any such actions,
and intends to defend vigorously all such actions. Holdings believes that the
ultimate outcome of all pending tobacco litigation matters should not have a
material adverse effect on the financial position of Holdings; however, it is
possible that the results of operations or cash flows of Holdings in particular
quarterly or annual periods or the financial condition of Holdings could be
materially affected by the ultimate outcome of certain pending litigation
matters. For an additional discussion of legislation and litigation relating to
the cigarette industry and RJRT, see Holdings' Annual Report on Form 10-K for
the fiscal year ended December 31, 1993 under "Business--Tobacco--Legislation
and other Matters Affecting the Cigarette Industry" and "--Litigation Affecting
the Cigarette Industry" and Holdings' Quarterly Report on Form 10-Q for the
quarterly period ended September 30, 1994 under Note 7 to Holdings' Consolidated
Condensed Financial Statements for the period ended September 30, 1994 and
"Legal Proceedings--Tobacco Related Litigation," both of which are incorporated
herein by reference.
Impact of Competitive Activity
RJRT's largest U.S. competitor announced competitive initiatives in April
1993 that ultimately resulted in significant changes in the U.S. cigarette
market. These competitive actions and responses by RJRT and other competitors
effectively lowered the retail price of full price cigarette brands and raised
the price of the most highly discounted brands in the second half of 1993. This
resulted in a market comprised of a full price tier and a lower price tier of
products (as opposed to the three or more tiers that had previously existed) and
in smaller relative price differences between brands in different tiers.
The costs of responding to these competitive initiatives and the decrease in
list prices for full price cigarette brands of approximately 40 cents per pack
were primarily responsible for a sharp decline in RJRT's 1993 operating company
contribution, since improved net prices of approximately 12 cents per pack
(including the price increase referenced below) in the most highly discounted
brands did not and are not expected to offset the current lower margins on full
price brands. Notwithstanding these lower margins, full price brands remain more
profitable than lower price brands, which consist of certain national brands
designed to have a lower price and of private label brands for retailers and
distributors. The private label brands are generally the least profitable of
RJRT's brands, but are important to facilitate RJRT's service to wholesale and
retail customers.
Although RJRT's full price volume as a percentage of total volume declined
to 56% in 1993 from 65% in 1992, lower retail prices on full price brands since
the third quarter of 1993 have resulted in an increase in full price volume to
59% in the first nine months of 1994. The increased full price volume occurred
despite significantly reduced promotional expenses on full price brands during
this period.
During the fourth quarter of 1993, RJRT increased the list price of its
brands by 4 cents per pack, which was generally matched by other competitors and
reflected increased stability in the marketplace during the latter part of 1993.
This stability has continued into 1994 and, together with operating cost
reductions and favorable product mix shifts, has improved margins, although 1994
profit margins remain below first quarter 1993 levels. However, RJRT is unable
to predict whether pricing stability and profit margin improvements are
sustainable.
The effect of a law requiring U.S. manufacturers to use at least 75%
American-grown tobacco in their cigarettes produced after 1993 has increased
RJRT's raw material costs for all brands, with a larger effect on costs for
lower price brands since these brands historically have contained a higher
percentage of lower cost foreign-grown tobacco than full price brands. The cost
increase is more than offset by higher revenues for lower price brands resulting
from the fourth quarter price increase referenced above. The same result has
occurred for full price brands. For additional information, see
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"Management's Discussion and Analysis of Financial Condition and Results of
Operations-- Tobacco--1993 Competitive Activity" and "Business--Other
Matters--Competition" in Holdings' Annual Report on Form 10-K for the fiscal
year ended December 31, 1993 and "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Tobacco" in Holdings' Quarterly
Report on Form 10-Q for the quarterly period ended September 30, 1994, each of
which is incorporated herein by reference.
Leverage and Debt Service
Holdings, together with its subsidiaries, had, at September 30, 1994, a
ratio of consolidated total debt to total stockholders' equity of 1.0-to-1. On a
pro forma basis, after giving effect to the proposed initial public offering of
shares of Nabisco Holdings Corp. ("Nabisco") and related transactions, which
will result in a reduction of consolidated total debt, Holdings' ratio of
consolidated total debt to total stockholders' equity at September 30, 1994
would be 0.9 to 1. See "RJR Nabisco Holdings Corp. Selected Pro Forma
Consolidated Financial Data."
Although Holdings has significantly reduced its consolidated indebtedness
and improved its consolidated debt-to-equity ratios since the acquisition of
Holdings by the Common Stock Partnerships (the "Acquisition") in 1989, the
indebtedness and debt-to-equity ratio of Holdings and its subsidiaries continue
to have the effect, generally, of restricting the flexibility of Holdings and
its subsidiaries in responding to changing business and economic conditions
insofar as they affect the financial condition and financing requirements of
Holdings and its subsidiaries. Moreover, the Credit Agreement dated as of
December 19, 1991 (as amended from time to time, the "1991 Credit Agreement")
and the Credit Agreement dated as of April 5, 1993 (as amended from time to
time, the "1993 Credit Agreement" and, together with the 1991 Credit Agreement,
the "Credit Agreements") and the terms governing certain other indebtedness
impose significant operating and financial restrictions on Holdings and its
subsidiaries. These restrictions limit the ability of Holdings and its
subsidiaries to incur indebtedness, pay dividends, engage in transactions with
stockholders and affiliates, create liens, sell certain assets and certain
subsidiaries' stock, engage in certain mergers or consolidations and make
investments in unrestricted subsidiaries. See "Description of Capital
Stock--Contractual Restrictions and Policies on Payment of Dividends."
Limitations on Dividends
Although Holdings pays dividends on its outstanding preferred stock, it has
not yet paid a dividend on Holdings Common Stock. In connection with the
initiative recently announced by Holdings (see "RJR Nabisco Holdings
Corp.--Recent Developments"), Holdings has indicated that it anticipates, upon
completion of the proposed initial public offering of common stock of Nabisco,
commencing payment of a quarterly cash dividend on the Holdings Common Stock of
$.075 per share or $.30 per share on an annualized basis. Holdings has also
adopted a policy, which will become effective upon completion of the proposed
Nabisco initial public offering, under which Holdings would limit the aggregate
amount of cash dividends paid on its capital stock prior to December 31, 1998.
The policy would also preclude a dividend or distribution to its shareholders of
the shares of capital stock of a subsidiary until December 31, 1996 and would
set forth certain intentions of Holdings with respect to such a dividend or
distribution prior to December 31, 1998. The timing, amount and form of
dividends on Holdings Common Stock will depend, among other things, upon the
effect of applicable restrictions and policies on the payment of dividends
referred to above, Holdings' results of operations, financial condition, cash
requirements, prospects and other factors deemed relevant by its board of
directors. No assurance can be given that the proposed initial public offering
of Nabisco common stock will be consummated. See "Description of Holdings
Capital Stock--Contractual Restrictions and Policies on Payment of Dividends."
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Holding Company Structure
Holdings' cash flow and consequent ability to meet its obligations under its
indebtedness and to pay future dividends on the Holdings Common Stock, if any,
and preferred stock are substantially dependent upon the earnings and cash flow
available after debt service of RJRN and the availability of such earnings and
cash flows to Holdings by way of dividends, distributions, loans and other
advances. Holdings Common Stock is junior in right of payment to all existing
and future liabilities, obligations (whether or not for borrowed money) and
preferred stock of Holdings, and is structurally subordinate to all existing and
future liabilities and obligations (whether or not for borrowed money) of RJRN
and its subsidiaries. As of September 30, 1994, total current liabilities and
long-term debt of Holdings' subsidiaries were approximately $14.6 billion.
KKR Ownership of Holdings Common Stock
As of November 30, 1994 (after giving effect to the exchange of 206,532,285
shares of Holdings Common Stock for 90,131,307 shares of Borden Common Stock
pursuant to an exchange offer (the "Exchange Offer") by the Purchaser for all
outstanding Borden Shares which expired on December 20, 1994 and the exercise in
full of a right (the "Option") to acquire 28,138,000 shares of Borden Common
Stock pursuant to a Conditional Purchase/Stock Option Agreement, dated as of
September 23, 1994 (the "Conditional Purchase/Option Agreement"), among the
Partnership, the Purchaser and Borden, in exchange for 51,106,768 shares of
Holdings Common Stock), an aggregate of approximately 24.99% (approximately
20.30% on a fully diluted basis), including the 51,106,768 shares of Holdings
Common Stock owned by Borden as a result of the exercise of the Option, of the
total voting power of Holdings was held or controlled by the Common Stock
Partnerships. After completion of the Merger and assuming that, after December
30, 1994, no further options for Borden Common Stock are exercised and no
further shares of Borden's Preferred Stock--Series B are converted into shares
of Borden Common Stock, an aggregate of approximately 16.54% (approximately
13.44% on a fully diluted basis), including the 51,106,768 shares of Holdings
Common Stock owned by Borden as a result of exercise of the Option, of the total
voting power of Holdings will be held or controlled by the Common Stock
Partnerships. Seven of Holdings' sixteen directors are partners or executives of
KKR.
Potential Conflicts of Interest
As a result of the ownership of a significant percentage of the total voting
power of Holdings by the Common Stock Partnerships and having partners or
executives of KKR as board members of Holdings as described under "--KKR
Ownership of Holdings Common Stock" above, it is possible that conflicts or
potential conflicts of interest may arise between the Common Stock Partnerships
and KKR on the one hand and Holdings on the other. Holdings believes that any
such conflicts or potential conflicts which may arise will be resolved in
compliance with Delaware law, which provides, among other things, that each
director has a fiduciary duty to act in the best interests of the corporation.
For information concerning the decision by Holdings not to pursue a
transaction with Borden, see "RJR Nabsico Holdings Corp.--Recent Developments"
and "The Merger--Purchaser Background."
Significant Increase in Shares Available for Trading
Of the 1,359,364,429 shares of Holdings Common Stock outstanding as of
November 30, 1994, approximately 998 million shares are held by persons that are
not affiliates or management of Holdings or Borden and are freely tradeable,
including an aggregate of, as of December 30, 1994, 206,532,285 shares of
Holdings Common Stock that were exchanged for an aggregate of 90,131,307 shares
of Borden Common Stock pursuant to the Exchange Offer. After completion of the
Merger, an aggregate of up to an additional approximately 118 million shares of
Holdings Common Stock will be freely tradeable.
In addition, upon exercise in full of the Option, Borden received 51,106,768
shares of Holdings Common Stock. Furthermore, in connection with certain credit
facilities of Borden, the Common Stock
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Partnerships have agreed to make an additional equity investment in Borden in
the form of additional shares of Holdings Common Stock having an aggregate
value, including the value of shares of Holdings Common Stock acquired by Borden
upon exercise of the Option (approximately $310 million), of approximately $400
million. Such additional equity investment is expected to be made promptly
following the consummation of the Merger.
As a result of these transactions, as well as in the event of any further
increase in the Common Stock Partnerships' equity investment in Borden through a
transfer to Borden of additional shares of Holdings Common Stock, the number of
shares of Holdings Common Stock that are freely tradeable may be increased
significantly over time if Borden exercises its rights to register and to sell
shares so received in a public offering. Holdings is unable to predict the
effect that the increase in freely tradeable shares of Holdings Common Stock
will have on the market value of such shares, although such increase may cause
temporary volatility or decline in the market price of the Holdings Common Stock
unrelated to the operating performance of Holdings. See "--Information
Concerning the Merger--Possible Volatility of Market Price of Holdings Common
Stock Following the Merger."
INFORMATION CONCERNING THE MERGER
Lack of Dissenters' Rights
Holders of Borden Common Stock will not be entitled to dissenters' rights
under New Jersey law in connection with the Merger, and the Purchaser does not
intend to accord dissenters' rights to holders of Borden Common Stock.
KKR Ownership of Borden Common Stock
As of December 30, 1994, the Common Stock Partnerships owned an aggregate of
118,269,307 Borden Shares (representing approximately 69.58% of the issued and
outstanding shares of Borden Common Stock as of such date). The Merger will
require the approval of holders of not less than 66 2/3% of the outstanding
Borden Shares, including the Borden Shares held by the Common Stock
Partnerships.
THE COMMON STOCK PARTNERSHIPS INTEND TO VOTE THEIR BORDEN SHARES IN FAVOR OF
APPROVAL OF THE MERGER AGREEMENT AND THE MERGER. THE COMMON STOCK PARTNERSHIPS
OWN SUFFICIENT SHARES OF BORDEN COMMON STOCK TO APPROVE THE MERGER AND,
ACCORDINGLY, NO ACTION BY ANY OTHER SHAREHOLDER IS REQUIRED TO APPROVE THE
MERGER.
Inability to Participate in Future Borden Earnings or Divestitures
After the consummation of the Merger, shareholders of Borden will not be
entitled to participate as shareholders in any future growth of Borden's
business or earnings, in any future dividends that may be declared by the Board
of Directors of Borden or in the proceeds of any future divestitures of
subsidiaries or businesses conducted by Borden.
Exclusion of the Effects of Future Tobacco Developments from Opinions of
Borden's Financial Advisors
In connection with the Borden board of directors' fiduciary duties to
Borden's shareholders, the board considered the opinions of its financial
advisors. The Borden board recognized that such opinions specifically excluded
the effects of future developments in Holdings' tobacco business in light of
such advisors' statements, contained in their opinions, that they "are not in a
position to make an independent evaluation" of such matters, because such an
evaluation would involve an assessment of legal, legislative and regulatory
contingencies that is beyond the area of their professional expertise. Following
a review of due diligence with respect to these matters which included
discussions with Borden's management and advisors, the Borden board considered
that the impact on Holdings from litigation (including pending and future
matters as well as class action litigation), legislation (pending and future)
and
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governmental regulation (present and future) involving tobacco products was
unknowable and, therefore, not capable of being determined by any expert
(including the financial advisors), although the board did not seek additional
expert opinions regarding tobacco liability. Consequently, the Borden board
accepted the financial advisors' statements that they could not independently
evaluate such matters and determined that it was acceptable for the financial
advisors to exclude such issues from the opinions. For additional information
regarding tobacco-related considerations, including disclosures with respect to
possible legislative and regulatory developments, and tobacco-related
litigation, see "Significant Considerations--Information Concerning
Holdings--Tobacco-Related Considerations." For further information concerning
the Borden board's consideration of tobacco-related considerations, including
the fact that the Borden board considered that the impact of such matters could
be devastating with respect to the value of Holdings Common Stock, see "The
Merger--Borden Background and Reasons for the Proposed Transactions--Reasons for
the Exchange Offer and Merger; Recommendation of the Borden Board of Directors."
Possible Volatility of Market Price of Holdings Common Stock Following the
Merger
After consummation of the Merger, an aggregate of an additional
approximately 118 million shares of Holdings Common Stock will be freely
tradeable. As a result of the increase in the number of freely tradeable shares
of Holdings Common Stock following the consummation of the Merger and the recent
consummation of the Exchange Offer, as well as any shares of Holdings Common
Stock owned or to be acquired by Borden which may become freely tradeable, the
market price of Holdings Common Stock may experience temporary volatility or
decline unrelated to the operating performance of Holdings. See "Significant
Considerations--Information Concerning Holdings--Significant Increase in Shares
Available for Trading."
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SUMMARY
The following is a summary of certain information contained elsewhere or
incorporated by reference in this Proxy Statement/Prospectus. Reference is made
to, and this Summary is qualified in its entirety by, the more detailed
information contained or incorporated by reference in this Proxy
Statement/Prospectus. Unless otherwise defined herein, capitalized terms used in
this Summary have the respective meanings ascribed to them elsewhere in this
Proxy Statement/Prospectus. As used herein, the term "Transactions" refers to
the Merger, the Exchange Offer and the other transactions contemplated by the
Merger Agreement and the Conditional Purchase/Option Agreement
-------------------
FOR A DISCUSSION OF CERTAIN IMPORTANT FACTORS THAT SHOULD BE CONSIDERED BY
BORDEN SHAREHOLDERS IN CONNECTION WITH THEIR CONSIDERATION OF THE MERGER,
INCLUDING CERTAIN FACTORS RELATING TO AN INVESTMENT IN HOLDINGS, SEE
"SIGNIFICANT CONSIDERATIONS."
THE SPECIAL MEETING
TIME AND PLACE
The Special Meeting of Shareholders of Borden will be held on ,
, 1995 at 10:00 a.m. at .
MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING
At the Special Meeting, holders of Borden Common Stock will consider and
vote, as a class, upon a proposal to approve the Merger Agreement, which
provides for the Merger of the Purchaser with and into Borden. A composite
conformed copy of the Merger Agreement appears as Annex I to this Proxy
Statement/Prospectus. The Merger is the final step in the acquisition of the
entire equity interest in Borden by the Common Stock Partnerships. Holders of
Borden Common Stock will also consider and vote upon any other matter that may
properly come before the Special Meeting.
RECORD DATE
The record date for the Special Meeting will be January 26, 1995.
VOTE REQUIRED
The approval of the Merger Agreement, the Merger and the other transactions
contemplated by the Merger Agreement require the affirmative vote of not less
than 66 2/3% of the outstanding shares of Borden Common Stock. As of December
30, 1994, there were 169,967,380 shares of Borden Common Stock issued and
outstanding, each of which is entitled to one vote at the Special Meeting, held
by approximately 20,889 holders of record. As of December 30, 1994, the Common
Stock Partnerships held 118,269,307 shares of Borden Common Stock (approximately
69.58% of the shares of Borden Common Stock issued and outstanding as of such
date). The Common Stock Partnerships intend to vote their Borden Shares in favor
of approval of the Merger Agreement and the Merger. Accordingly, no action by
any other shareholder is required to approve the Merger.
Shares of Common Stock represented by a properly signed, dated and returned
proxy will be treated as present at the meeting for purposes of determining a
quorum, without regard to whether the proxy is marked as casting a vote or
abstaining. Because Borden's charter requires the affirmative vote of at least
66 2/3% of the issued and outstanding shares of Borden Common Stock to approve
the Merger Agreement, proxies that do not contain an instruction to vote for or
against or to abstain from voting on the Merger will be voted in favor of
approval of the Merger Agreement and the Merger.
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RECOMMENDATION OF BORDEN BOARD OF DIRECTORS
At its September 22, 1994 Board meeting, the Board of Directors of Borden,
with seven members voting in favor and one member (Borden's chief executive
officer) abstaining, among other things, (1) determined that the Merger
Agreement and the Conditional Purchase/Option Agreement and the Transactions,
including the Merger, taken together, are fair to the shareholders of Borden,
and recommends that holders of Borden Shares, among other things, approve and
adopt the Merger Agreement, and (2) approved the Merger Agreement, the
Conditional Purchase/Option Agreement and the Transactions. See "The
Merger--Borden Background and Reasons for the Proposed Transactions" and
"Description of Merger Agreement and Conditional Purchase/Option Agreement."
VOTING OF PROXIES
Borden Shares represented by all properly executed proxies received in time
for the Special Meeting will be voted in the manner specified by the holder
thereof. Proxies that do not contain an instruction to vote for or against or to
abstain from voting on a particular matter will be voted in favor of such
matter. See "--Vote Required."
It is not expected that any matter other than those referred to herein will
be brought before the Special Meeting. If, however, other matters are properly
presented, the persons named as proxies will vote in accordance with their
judgment with respect to such matters, unless authority to do so is withheld in
the proxy.
ADJOURNMENTS; REVOCABILITY OF PROXIES
If the Special Meeting is adjourned, for whatever reason, the approval of
the Merger Agreement shall be considered and voted upon by shareholders at the
subsequent adjourned meeting, if any.
You may revoke your proxy at any time prior to its exercise by attending the
Special Meeting and voting in person (although attendance at the Special Meeting
will not in and of itself constitute revocation of a proxy), by giving notice of
revocation of your proxy at the Special Meeting, or by delivering a written
notice of revocation, or a duly executed proxy relating to the matters to be
considered at the Special Meeting and bearing a later date than the proxy
previously executed, to the Secretary of Borden at 180 East Broad Street,
Columbus, Ohio 43215. Unless revoked in the manner set forth above, proxies in
the form enclosed will be voted at the Special Meeting in accordance with your
instructions.
DISSENTERS' RIGHTS
Holders of Borden Common Stock will not be entitled to dissenters' rights
under New Jersey law in connection with the Merger, and the Purchaser does not
intend to accord dissenters' rights to holders of Borden Common Stock.
SOLICITATION OF PROXIES
The cost of soliciting proxies will be borne by Borden. Borden will solicit
proxies and Borden's directors, officers and employees may also solicit proxies
by telephone, telegram or personal interview. These persons will receive no
additional compensation for these services. Arrangements will be made to furnish
copies of proxy materials to fiduciaries, custodians and brokerage houses for
forwarding to beneficial owners of Borden Common Stock. Such persons will be
paid reasonable out-of-pocket expenses.
D.F. King & Co., Inc. will assist in the solicitation of proxies by Borden
for a fee not in excess of $5,000, plus reasonable out-of-pocket expenses.
HOLDERS OF BORDEN COMMON STOCK SHOULD NOT SEND STOCK CERTIFICATES
WITH THEIR PROXY CARDS.
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ACQUISITION OF BORDEN SHARES IN THE
EXCHANGE OFFER AND UPON EXERCISE OF THE OPTION;
CHANGES IN BORDEN BOARD OF DIRECTORS
The Exchange Offer expired at 12:00 Midnight, New York City time, on
Tuesday, December 20, 1994. In the Exchange Offer, each share of Borden Common
Stock tendered and not properly withdrawn was exchanged for 2.29146 fully paid
and nonassessable shares of Holdings Common Stock. As of December 30, 1994, the
Common Stock Partnerships acquired an aggregate of 90,131,307 shares of Borden
Common Stock as a result of the Exchange Offer.
Upon exercise of the Option in full, the Common Stock Partnerships acquired
an additional 28,138,000 shares of Borden Common Stock for consideration equal
to an aggregate of 51,106,768 shares of Holdings Common Stock. Following
consummation of the Exchange Offer and the exercise of the Option, as of
December 30, 1994, the Common Stock Partnerships held 118,269,307 Borden Shares
(representing approximately 69.58% of the issued and outstanding shares of
Borden Common Stock).
In addition, following consummation of the Exchange Offer and the exercise
of the Option, pursuant to the Merger Agreement and the Conditional
Purchase/Option Agreement, all of the directors of Borden other than Ervin R.
Shames, Frank J. Tasco and Wilbert J. LeMelle resigned as directors of Borden,
Henry R. Kravis, George R. Roberts, Clifton S. Robbins, Scott M. Stuart and
Alexander Navab were elected to the Borden board of directors by the remaining
members of the Borden board of directors and Mr. Kravis succeeded Mr. Tasco as
Chairman of the Board of Directors of Borden.
THE MERGER AND THE MERGER AGREEMENT
By virtue of the Merger and without any action on the part of the holder of
any shares of Borden Common Stock or any shares of capital stock of the
Purchaser: (a) each issued and outstanding share of Borden Common Stock (other
than those referred to in clause (c) below) will be converted into the right to
receive 2.29146 fully paid and nonassessable shares of Holdings Common Stock;
(b) each share of common stock of the Purchaser issued and outstanding
immediately prior to the effective time of the Merger will be converted into a
number of shares of common stock, par value $.01 per share, of the surviving
corporation in the Merger equal to one one-thousandth of the total number of
outstanding shares of Borden Common Stock immediately prior to the Merger, which
will be all of the issued and outstanding capital stock of the surviving
corporation; and (c) each share of Borden Common Stock that is owned by Borden
or by any subsidiary of Borden and each share of Borden Common Stock that is
owned by the Common Stock Partnerships, the Purchaser or any other subsidiary of
the Partnership will automatically be cancelled and retired and cease to exist,
and no cash, Holdings Common Stock or other consideration will be delivered or
deliverable in exchange therefor.
Conditions to Each Party's Obligations to Effect the Merger. The Merger
Agreement provides that the respective obligation of each party to effect the
Merger is subject to certain conditions, including, among other things, the
truth and correctness as of the effective date of the Merger of certain
representations and warranties of the parties to the Merger Agreement with
respect to material adverse changes in their business, financial condition or
results of operations.
Termination. The Merger Agreement may be terminated and the Merger
contemplated thereby may be abandoned at any time, notwithstanding approval
thereof by the shareholders of Borden, but prior to the effective time of the
Merger, under certain circumstances.
See "Description of Merger Agreement and Conditional Purchase/Option
Agreement--Merger Agreement" for a discussion of the material provisions of the
Merger Agreement, including a discussion of the exchange procedures to be used
in the Merger, the treatment of fractional shares in the Merger and provisions
regarding receipt of any future dividends or distributions on the Holdings
Common Stock
14
<PAGE>
after the effective date of the Merger and prior to surrender of certificates
for Borden Common Stock pursuant to such exchange procedures.
MATERIAL TAX CONSEQUENCES
The receipt of shares of Holdings Common Stock pursuant to the Merger will
result in the recognition of gain or loss for federal income tax purposes by a
Borden shareholder in an amount equal to the difference between the fair market
value of the consideration received (including cash received in lieu of
fractional shares) and such shareholder's adjusted tax basis in the Borden
Shares exchanged, and may also have tax consequences under applicable state,
local, foreign or other tax laws. See "The Merger--Material Tax Consequences."
CERTAIN REGULATORY APPROVALS AND LEGAL MATTERS
The Purchaser and Borden know of no remaining federal, state or foreign
government regulatory requirements that must be complied with or approvals that
must be obtained in order to consummate the Merger, other than the delivery of
the Certificate of Merger to, and filing by, the Secretary of State of the State
of New Jersey. See "The Merger--Certain Regulatory Approvals and Legal Matters."
15
<PAGE>
RJR NABISCO HOLDINGS CORP.
The operating subsidiaries of Holdings owned through RJRN comprise one of
the largest tobacco and food companies in the world. In the United States, the
tobacco business is conducted by RJRT, the second largest manufacturer of
cigarettes, and the packaged foods business is conducted by Nabisco, the largest
manufacturer and marketer of cookies and crackers. Tobacco operations outside
the United States are conducted by Tobacco International and food operations
outside the United States and Canada are conducted by Nabisco International,
Inc. ("Nabisco International"), a subsidiary of Nabisco. Together, RJRT's and
Tobacco International's tobacco products are sold around the world under a
variety of brand names. Food products are sold in the United States, Canada,
Latin America and certain other international markets.
Domestic Tobacco. RJRT's largest selling cigarette brands in the United
States include WINSTON, DORAL, SALEM, CAMEL, MONARCH and VANTAGE. RJRT's other
cigarette brands, including BEST VALUE, MORE, NOW, STERLING, MAGNA and CENTURY,
are marketed to meet a variety of smoker preferences. All RJRT brands are
marketed in a variety of styles. A primary long-term objective of RJRT is to
increase earnings and cash flow through selective marketing investments in its
key brands and continual improvements in its cost structure and operating
efficiency. Marketing programs for full-price brands are designed to build brand
awareness and add value to the brands in order to retain current adult smokers
and attract adult smokers of competitive brands. RJRT believes it is essential
to compete in all segments of the cigarette market, and accordingly offers a
range of lower-priced brands intended to appeal to more cost-conscious adult
smokers. Based on data collected for RJRT by an independent market research
firm, RJRT had an overall share of retail consumer cigarette sales during 1993
of 29.8%, an increase of approximately one share point from 1992.
International Tobacco. Tobacco International operates in over 160 markets
around the world and is the second largest of two international cigarette
producers that have significant positions in the American Blend segment of the
international tobacco market. Tobacco International markets over 55 brands of
which WINSTON, CAMEL and SALEM, all American Blend cigarettes, are its
international leaders. Tobacco International has strong brand presence in
Western Europe and is well established in its other key markets in the Middle
East/Africa, Asia and Canada. Tobacco International is aggressively pursuing
development opportunities in Eastern Europe and the former Soviet Union.
Nabisco. Nabisco's domestic operations represent one of the largest packaged
food businesses in the world. Through its domestic divisions, Nabisco
manufactures and markets cookies, crackers, snack foods, hard and bite-size
candy, gum, nuts, hot cereals, margarine, pet foods, dry-mix dessert products
and other grocery products under established and well-known trademarks,
including OREO, CHIPS AHOY!, NEWTONS, SNACKWELL'S, RITZ, PREMIUM, LIFE SAVERS,
PLANTERS, A.1, GREY POUPON, MILK-BONE, ORTEGA, CREAM OF WHEAT, FLEISCHMANN'S and
BLUE BONNET. Nabisco Biscuit Company ("Nabisco Biscuit") is the largest
manufacturer and marketer in the United States cookie and cracker industry with
nine of the top ten selling brands, each of which had annual sales of over $100
million in 1993. Overall, in 1993, Nabisco Biscuit had a 37% share of the
domestic cookie industry sales and a 55% share of the domestic cracker industry
sales, in the aggregate more than three times the share of its closest
competitor. In 1992, Nabisco Biscuit became the leading manufacturer and
marketer of no fat/reduced fat cookies and crackers with the introduction of the
SNACKWELL'S line. In 1993, the SNACKWELL'S brand recorded net sales of $186
million, which made SNACKWELL'S the sixth largest cookie/cracker brand in the
United States. Based on 1993 net sales, LIFE SAVERS is the largest selling hard
roll candy in the United States, with an approximately 25.4% share of the hard
roll candy category, and PLANTERS nuts are the clear leader in the packaged nut
category, with a market share of more than five times that of its nearest
competitor.
16
<PAGE>
Nabisco International is also a leading producer of powdered dessert and
drink mixes, biscuits, baking powder and other grocery items, industrial yeast
and bakery ingredients in many of the 17 Latin American countries in which it
has operations. Nabisco International has significantly increased its presence
in Europe through the acquisition of Royal Brands S.A. in Spain and Royal Brands
Portugal.
RJRN was acquired in 1989 by an indirect, wholly owned subsidiary of
Holdings (the "Acquisition") at the direction of KKR. Prior to the Acquisition,
RJRN was a publicly held corporation. See "Significant Considerations--KKR
Ownership."
The principal executive office of Holdings is located at 1301 Avenue of
Americas, New York, New York 10019; its telephone number is (212) 258-5600.
RECENT DEVELOPMENTS
Nabisco Initial Public Offering and Related Transactions. On October 28,
1994, Nabisco filed a registration statement with the Commission for the initial
public offering of 45 million shares of its Class A Common Stock (51.75 million
shares if the underwriters' over-allotment options are exercised in full). For
purposes of the filing, the initial offering price was estimated to be between
$23 and $26 per share. Upon completion of the proposed public offering, Holdings
would beneficially own 100% of Nabisco's outstanding Class B Common Stock, which
would represent approximately 82.6% of the economic interest in Nabisco (80.5%
if the underwriters' over-allotment options are exercised in full). Holders of
Class A Common Stock of Nabisco generally would have identical rights to holders
of Class B Common Stock except that holders of Class A Common Stock would be
entitled to one vote per share while holders of Class B Common Stock would be
entitled to ten votes per share on all matters submitted to a vote of
stockholders. The registration statement has not become effective and there can
be no assurance that such offering will be consummated.
The initial public offering of shares of Nabisco is part of a broader
proposed initiative of Holdings designed to reduce consolidated debt of Holdings
by approximately $1 billion and establish a separately traded common stock for
Nabisco. After completion of the proposed public offering, Holdings anticipates
commencing a quarterly cash dividend on its common stock of $.075 per share or
$.30 per share on an annualized basis.
At the time of the proposed public offering, Nabisco is expected to have
approximately $4.1 billion of intercompany debt and approximately $1.4 billion
of borrowings under a short-term bank credit agreement. The net proceeds of the
proposed public offering will be used by Nabisco to repay a portion of the
borrowings under its bank facility.
As part of the initiative, RJRN redeemed several issues of debt securities,
including $1.5 billion of 10 1/2% Senior Notes due 1998, approximately $374
million of 8 3/8% Sinking Fund Debentures due 2017, $100 million of 13 1/2%
Subordinated Debentures due 2001 and approximately $25 million of 7 3/8% Sinking
Fund Debentures due 2001, all of which were redeemed with various redemption
premiums. RJRN funded these redemptions with borrowings under its existing
credit facilities, proceeds from Holdings' Series C Preferred Stock offering
completed on May 6, 1994 and internally generated cash flow. See "RJR Nabisco
Holdings Corp. Selected Pro Forma Consolidated Financial Data."
Upon completion of the proposed public offering of Nabisco, RJRN may seek to
restructure approximately $6 billion of its domestic publicly held debt which
currently limits the ability of Nabisco to incur long-term debt other than
intercompany debt. The restructuring, which would require consent of public
debtholders and lenders under bank facilities, may include one or more offers to
exchange Nabisco debt securities for a portion of such debt. The goal of the
exchange offers would be to permit Nabisco to establish long-term borrowing
capacity independent of its parent and to reduce its intercompany debt. No
assurance can be given that RJRN will seek to restructure its debt or that any
such restructuring will be consummated.
17
<PAGE>
The Board of Directors of Holdings has adopted certain policies that would
become effective upon the closing of the Nabisco initial public offering. One
policy would provide that Holdings would limit, until December 31, 1998, the
aggregate amount of cash dividends on its capital stock. Under this policy,
during that period Holdings would not pay any extraordinary cash dividends and
would limit the amount of its cash dividends, cash distributions and repurchases
for cash of capital stock and subordinated debt to an amount equal to the sum of
$500 million plus (i) 65% of Holdings' cumulative consolidated net income before
extraordinary gains or losses and restructuring charges and (ii) net cash
proceeds of up to $250 million in any year from the sale of capital stock of
Holdings or its subsidiaries (other than proceeds from the Nabisco initial
public offering) to the extent used to repay, purchase or redeem debt or
preferred stock. Another policy would provide that Holdings would not declare a
dividend or distribution to its stockholders of the shares of capital stock of a
subsidiary before December 31, 1996. Another policy sets forth the intention of
Holdings that it would not make such a distribution prior to December 31, 1998
if that distribution would cause the ratings of the senior indebtedness of RJRN
to be reduced from investment grade to non-investment grade or if, after giving
effect to such distribution, any publicly held senior indebtedness of the
distributed company would not be rated investment grade. There is no assurance
that any such distribution will take place. Additional policies provide that an
amount equal to the net cash proceeds from any issuance and sale of equity by
Holdings or from any sale outside the ordinary course of business of material
assets owned or used by subsidiaries in the tobacco business, in each case
before December 31, 1998, would be used either to repay, purchase or redeem
consolidated indebtedness or to acquire properties, assets or businesses to be
used in existing or new lines of business and that an amount equal to the net
cash proceeds of any secondary sale of shares of Nabisco before December 31,
1998 would be used to repay, purchase or redeem consolidated debt. No assurance
can be given that Holdings will issue or sell any equity or sell any material
assets outside the ordinary course of business.
Termination of Agreement in Principle Relating to Borden. On October 25,
1994, Holdings and KKR concluded that they were unable to reach a definitive
agreement for the transaction contemplated by their agreement in principle for
Holdings to acquire a minority interest in Borden, as had been previously
announced on September 12, 1994. The September 12, 1994 announcement indicated
that, following KKR's successful acquisition of Borden, Holdings would issue to
Borden approximately $500 million of newly issued common shares of Holdings for
newly issued shares of Borden common stock representing a 20% pro forma interest
in Borden and a warrant to acquire an additional 10% pro forma interest in
Borden. The inability to reach agreement resulted from various complexities
affecting the transaction, including certain accounting issues. In particular,
because Holdings would have been required to account for its investment in
Borden using the equity method (thereby being required to reflect a portion of
Borden's potentially low or volatile earnings in its financial statements) and
to amortize a substantial amount of goodwill resulting from the transaction, the
proposed transaction would likely have had a dilutive effect on Holdings'
near-term earnings. Attempts to resolve these issues by restructuring the
transaction were unsuccessful. Holdings could in the future explore a basis on
which it or its Nabisco subsidiary may acquire a minority equity interest in
Borden in exchange for common stock of Holdings. However, Holdings is not
currently engaged in any such negotiations, and there is no assurance that
Holdings will seek to pursue any such negotiations or that any such negotiations
will be successful.
18
<PAGE>
BORDEN, INC.
Borden is engaged primarily in manufacturing, processing, purchasing and
distributing a broad range of products through three operating sectors: Consumer
Packaged Products, Dairy Products, and Packaging and Industrial Products.
Consumer Packaged Products is composed of niche grocery products, pasta
products, International Foods products (including European bakery products,
international milk powder, Latin American dairy and European grocery and pasta),
and Diversified Products (including cheese products, home and professional
products, Cracker Jack and, until such time as Borden's regional units are
divested, snacks. Dairy Products is composed of fluid milk, frozen desserts and
cultured products. Packaging and Industrial Products is composed of decorative
products (principally wallcoverings), adhesives and resins, plastic films and
packaging and high-technology coatings.
Borden was incorporated in New Jersey on April 24, 1899 as the successor to
a business founded in 1857. Borden's principal executive offices are located at
180 East Broad Street, Columbus, Ohio 43215 (telephone number 614-225-4000).
THE PURCHASER AND THE COMMON STOCK PARTNERSHIPS
The Purchaser, a New Jersey corporation and a subsidiary of the Partnership,
was organized in connection with the Transactions and has not carried on any
activities to date other than those incident to its formation and the
Transactions. The Common Stock Partnerships together own 100% of the outstanding
shares of common stock of the Purchaser. Each of the Common Stock Partnerships
is a Delaware limited partnership, the general partner of which is KKR
Associates, an affiliate of KKR. The principal assets of each of the Common
Stock Partnerships consist of investments in various entities, including
investments in Holdings Common Stock and Borden Common Stock. The principal
offices of the Purchaser and the Common Stock Partnerships are located at 9 West
57th Street, New York, New York 10019; telephone number (212) 750-8300.
For information concerning beneficial ownership of Holdings Common Stock and
Borden Common Stock by affiliates of the Purchaser, see "Security Ownership of
Certain Beneficial Owners and Management of Holdings" and "Security Ownership of
Certain Beneficial Owners and Management of Borden," respectively.
19
<PAGE>
COMPARATIVE MARKET PRICES AND DIVIDENDS
The Holdings Common Stock and the Borden Common Stock are listed and
principally traded on the NYSE (Symbols: RN and BN, respectively). The following
tables set forth the high and low sales prices per share of the Holdings Common
Stock as reported on the NYSE Composite Tape and the high and low sales prices
per share of the Borden Common Stock and cash dividends paid by Borden for each
period indicated. See "Borden, Inc.--Recent Developments." Holdings has not paid
dividends on the Holdings Common Stock. See "RJR Nabisco Holdings Corp.--Recent
Developments" and "Description of Holdings Capital Stock." The fiscal year for
each company ends on December 31 of each year. On September 9, 1994, the last
full trading day prior to the public announcement of the execution of the letter
of intent with respect to the Transactions, the closing sale price per share, as
reported on the NYSE Composite Tape, was $7 for the Holdings Common Stock and
$11 7/8 for the Borden Common Stock. Recent reported last sale prices for shares
of Holdings Common Stock and Borden Common Stock are set forth on the cover page
of this Proxy Statement/Prospectus.
SHAREHOLDERS ARE URGED TO OBTAIN CURRENT QUOTATIONS FOR THE HOLDINGS COMMON
STOCK AND THE BORDEN COMMON STOCK.
HOLDINGS COMMON STOCK
<TABLE>
<CAPTION>
SALES PRICE
-------------------------------
FISCAL YEAR HIGH LOW
- - - --------------------------------------------------------------- ------------- ------------
<S> <C> <C>
1993
First Quarter................................................ $ 9 1/4 $ 7 5/8
Second Quarter............................................... 8 1/8 5 1/8
Third Quarter................................................ 5 7/8 4 1/2
Fourth Quarter............................................... 7 3/8 4 3/8
1994
First Quarter................................................ $ 8 1/8 $ 5 5/8
Second Quarter............................................... 7 5 1/2
Third Quarter................................................ 7 1/8 5 5/8
Fourth Quarter............................................... 7 1/4 5 5/16
1995
First Quarter (through January 5, 1995)...................... $ 6 $ 5 3/8
</TABLE>
BORDEN COMMON STOCK
<TABLE>
<CAPTION>
SALES PRICE
-------------------------------- CASH
FISCAL YEAR HIGH LOW DIVIDEND
- - - --------------------------------------------------- ------------- ------------- --------
<S> <C> <C> <C>
1993
First Quarter.................................... $ 29 1/8 $ 24 1/4 $ .300
Second Quarter................................... 27 17 5/8 .300
Third Quarter.................................... 19 5/8 14 3/4 .150
Fourth Quarter................................... 19 5/8 14 3/8 .150
1994
First Quarter.................................... $ 18 3/8 $ 13 1/8 $ .075
Second Quarter................................... 13 7/8 11 7/8 .075
Third Quarter.................................... 14 1/4 11 .075
Fourth Quarter................................... 14 ] 11 1/4 .010
1995
First Quarter (through January 5, 1995).......... $ 13 3/8 $ 12 1/4
</TABLE>
20
<PAGE>
COMPARISON OF CERTAIN HISTORICAL PER SHARE DATA
The following table shows comparative historical per share data for Holdings
and Borden. The information presented below should be read in conjunction with
the historical consolidated financial statements and notes thereto, which appear
elsewhere or are incorporated by reference in this Proxy Statement/Prospectus.
See "RJR Nabisco Holdings Corp. Selected Historical Consolidated Financial Data"
and "Borden, Inc. Selected Historical Consolidated Financial Data."
<TABLE>
<CAPTION>
FOR THE NINE FOR THE YEAR
MONTHS ENDED ENDED
SEPTEMBER 30, 1994 DECEMBER 31, 1993
------------------ -----------------
<S> <C> <C>
HOLDINGS
Book value per common share after conversion Series A
Preferred Stock and Series C Preferred Stock
(at end of period)...................................... $ 5.94 $5.77
Cash dividends declared per common share.................. -- --
Income (loss) from continuing operations
per common and common equivalent share.................. .33 (.05)
BORDEN
Book value per common share
(at end of period)...................................... $ .99 $1.74
Cash dividends paid per
common share............................................ .225 .90
Income (loss) from continuing
operations per common share............................. .80 (.40)
</TABLE>
21
<PAGE>
RJR NABISCO HOLDINGS CORP.
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA
The summary consolidated financial data presented below as of September 30,
1994 and for the nine months ended September 30, 1994 and 1993 were derived from
Holdings Consolidated Condensed Financial Statements incorporated herein by
reference. The summary consolidated financial data presented below as of
December 31, 1993 and 1992 and for each of the years in the three-year period
ended December 31, 1993 for Holdings were derived from the historical
consolidated financial statements of Holdings and notes thereto (the "Holdings
Consolidated Financial Statements"), incorporated herein by reference, which
have been audited by Deloitte & Touche LLP, independent auditors. In addition,
the summary consolidated financial data as of December 31, 1991, 1990 and 1989,
for the year ended December 31, 1990 and for the period from February 9, 1989
through December 31, 1989 for Holdings and for the period from January 1, 1989
through February 8, 1989 for RJRN were derived from the consolidated financial
statements of Holdings and RJRN as of December 31, 1991, 1990 and 1989, for the
year ended December 31, 1990 and for each of the periods within the one-year
period ended December 31, 1989, not presented or incorporated herein by
reference, which have been audited by Deloitte & Touche LLP, independent
auditors. The data should be read in conjunction with the Holdings Consolidated
Financial Statements and the historical consolidated condensed financial
statements of Holdings and notes thereto (the "Holdings Consolidated Condensed
Financial Statements") incorporated herein by reference.
<TABLE><CAPTION>
HOLDINGS RJRN
------------------------------------------------------------------------ ----------
FOR THE NINE
MONTHS ENDED
SEPTEMBER 30,
FOR THE YEARS ENDED DECEMBER 31,
(DOLLARS IN MILLIONS EXCEPT PER ----------------- -----------------------------------------------------------------
SHARE AMOUNTS) 1994 1993 1993 1992 1991 1990 1989
------- ------- ------- ------- ------- ------- -------------------------
2/9 TO 12/31 1/1 TO 2/8
------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS
Net sales......................... $11,322 $11,053 $15,104 $15,734 $14,989 $13,879 $ 12,114 $ 650
------- ------- ------- ------- ------- ------- ------ -----
Cost of products sold............. 5,079 4,709 6,640 6,326 6,088 5,652 5,241 332
Selling, advertising,
administrative and
general expenses................ 3,789 4,182 5,731 5,788 5,358 4,801 4,276 295
Amortization of trademarks and
goodwill........................... 469 466 625 616 609 608 557 10
Restructuring expense............. -- -- 730 106 -- -- -- --
------- ------- ------- ------- ------- ------- ------ -----
Operating income(1)............. 1,985 1,696 1,378 2,898 2,934 2,818 2,040 13
Interest and debt expense......... (828) (910) (1,209) (1,449) (2,217) (3,176) (3,340) (44)
Change in control costs........... -- -- -- -- -- -- -- (247)
Other income (expense), net....... (81) (4) (58) 7 (69) (44) 169 15
------- ------- ------- ------- ------- ------- ------ -----
Income (loss) from continuing
operations before income
taxes.............................. 1,076 782 111 1,456 648 (402) (1,131) (263)
Provision (benefit) for income
taxes.............................. 474 356 114 680 280 60 (156) (66)
------- ------- ------- ------- ------- ------- ------ -----
Income (loss) from continuing
operations......................... 602 426 (3) 776 368 (462) (975) (197)
Income (loss) from operations of
discontinued businesses, net of
income taxes(2).................... -- -- -- -- -- -- (1) 24
Extraordinary item--(loss) gain on
early extinguishments of debt,
net of income
taxes........................... (145) (110) (142) (477) -- 33 -- --
------- ------- ------- ------- ------- ------- ------ -----
Net income (loss)................. 457 316 (145) 299 368 (429) (976) (173)
Preferred stock dividends......... 98 33 68 31 173 50 -- 4
------- ------- ------- ------- ------- ------- ------ -----
Net income (loss) applicable to
common stock....................... $ 359 $ 283 $ (213) $ 268 $ 195 $ (479) $ (976) $ (177)
------- ------- ------- ------- ------- ------- ------ -----
------- ------- ------- ------- ------- ------- ------ -----
PER SHARE DATA
Income (loss) from continuing
operations
per common and common equivalent
share.............................. $ .33 $ .29 $ (.05) $ .55 $ .22 $ (1.19) $ (3.21) $ (.89)
Dividends per share of Series A
Preferred Stock(3).............. 2.51 2.51 3.34 3.34 .49 -- -- --
Dividends per share of Series C
Preferred Stock(3).............. 2.44 -- -- -- -- -- -- --
BALANCE SHEET DATA
(AT END OF PERIODS)
Working capital................... $ 358 -- $ 202 $ 730 $ 165 $(1,089) $ 106 --
Total assets...................... 31,851 -- 31,295 32,041 32,131 32,915 36,412 --
Total debt........................ 11,205 -- 12,448 14,218 14,531 18,918 25,159 --
Redeemable preferred stock(4)..... -- -- -- -- -- 1,795 -- --
Stockholders' equity(5)........... 10,957 -- 9,070 8,376 8,419 2,494 1,237 --
Book value per common share after
conversion of Series A Preferred
Stock and Series C Preferred
Stock.............................. 5.94 -- 5.77 -- -- -- -- --
</TABLE>
(Footnotes on following page)
22
<PAGE>
(Footnotes for preceding page)
- - - ------------
(1) The 1992 amount includes a gain of $98 million on the sale of the
ready-to-eat cold cereal business.
(2) The 1989 amount for Holdings includes $237 million of interest expense
allocated to discontinued operations.
(3) On November 8, 1991, Holdings issued 52,500,000 shares of Series A Preferred
Stock and sold 210,000,000 Series A Depositary Shares. On May 6, 1994,
Holdings issued 26,675,000 shares of Series C Preferred Stock and sold
266,750,000 Series C Depositary Shares. Because Series A Preferred Stock and
Series C Preferred Stock mandatorily convert into Holdings Common Stock,
dividends on such shares are reported similar to common equity dividends.
(4) On December 16, 1991, an amendment to the Amended and Restated Certificate
of Incorporation of Holdings was filed which deleted the provisions
providing for the mandatory redemption of the redeemable preferred stock of
Holdings on November 1, 2015. Accordingly, such securities were presented as
a component of Holdings' stockholders' equity as of December 31, 1992 and
1991. Such securities were redeemed on December 6, 1993.
(5) Holdings' stockholders' equity at September 30, 1994 and December 31 of each
year from 1993 to 1989 includes non-cash expenses related to accumulated
trademark and goodwill amortization of $3.484 billion, $3.015 billion,
$2.390 billion, $1.774 billion, $1.165 billion and $557 million,
respectively.
See Notes to Holdings Consolidated Financial Statements and Holdings
Consolidated Condensed Financial Statements incorporated herein by reference.
23
<PAGE>
RJR NABISCO HOLDINGS CORP.
SUMMARY PRO FORMA CONSOLIDATED FINANCIAL DATA
The following tables present summary pro forma consolidated financial data
of Holdings derived from the pro forma consolidated condensed financial
statements of Holdings and notes thereto (the "Holdings Pro Forma Financial
Statements") set forth herein. The data should be read in conjunction with the
Holdings Consolidated Financial Statements, the Holdings Consolidated Condensed
Financial Statements and other financial information set forth or incorporated
by reference herein. NABISCO HAS FILED A REGISTRATION STATEMENT WITH THE
COMMISSION WITH RESPECT TO A PROPOSED INITIAL PUBLIC OFFERING OF 45,000,000
SHARES OF ITS CLASS A COMMON STOCK, BUT SUCH REGISTRATION STATEMENT HAS NOT BEEN
DECLARED EFFECTIVE BY THE COMMISSION. NO ASSURANCE CAN BE GIVEN THAT SUCH
OFFERING WILL BE CONSUMMATED.
<TABLE><CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30,
1994 FOR THE YEAR ENDED
------------------- DECEMBER 31,
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS) 1993
------------------
<S> <C> <C>
PRO FORMA CONSOLIDATED STATEMENT OF INCOME DATA(1)
Net sales................................................ $11,322 $ 15,104
Cost of products sold.................................... 5,079 6,640
Selling, advertising, administrative and general
expenses................................................. 3,789 5,731
Amortization of trademarks and goodwill.................. 469 625
Restructuring expense.................................... -- 730
------- -------
Operating income....................................... 1,985 1,378
Interest and debt expense................................ (716) (1,048)
Other income (expense), net.............................. (81) (58)
------- -------
Income before income taxes............................. 1,188 272
Provision for income taxes............................... 513 170
------- -------
Income before minority interest in income of Nabisco... 675 102
Minority interest in income of Nabisco................... (32) (29)
------- -------
Net income(2).......................................... 643 73
Less preferred stock dividends........................... 98 68
------- -------
Net income applicable to Common Stock.................. $ 545 $ 5
------- -------
------- -------
PER SHARE DATA
Net income per common and common equivalent(2)........... $ .36 $ .00
Dividends per share of Common Stock...................... .225 .30
Dividends per share of Series A Preferred Stock.......... 2.505 3.34
Dividends per share of Series C Preferred Stock.......... 2.438 --
<CAPTION>
SEPTEMBER 30, 1994
------------------
<S> <C> <C>
PRO FORMA CONSOLIDATED BALANCE SHEET DATA(3)
Working capital................................................................ $ 108
Total assets................................................................... 31,439
Total debt..................................................................... 10,018
Stockholders' equity........................................................... 11,208
Book value per common share after conversion of Series A Preferred Stock and
Series C Preferred Stock....................................................... 6.06
</TABLE>
- - - ------------
(1) Gives effect to the following transactions and events as if they occurred as
of January 1, 1993: (i) borrowings of $1.35 billion under the Nabisco Credit
Agreement (as hereafter defined) and the application of funds provided
through such borrowings to repay a portion of the borrowings under the 1991
Credit Agreement; (ii) the sale and issuance of 45,000,000 shares of Nabisco
Class A Common Stock in the Nabisco Common Stock Offerings (as hereafter
defined), the resulting reduction in Holdings' proportionate interest in
Nabisco and the application of the estimated net proceeds of approximately
$1,047 million (assuming an initial public offering price of $24.50 per
share) therefrom to repay a portion of the borrowings under the Nabisco
Credit Agreement; (iii) the assumed payment of quarterly dividends on
Holdings' Common Stock of $.075 per share and the increased level of net
indebtedness assumed to be outstanding had such dividend payments been made;
(iv) the redemption of $1.5 billion of the 10 1/2% Senior Notes dues 1998,
approximately $374 million of the 8 3/8% Debentures due 2017, $100 million
of the 13 1/2% Subordinated Debentures due 2001 and approximately $25
million of the 7 3/8% Debentures due 2001 through borrowings under the 1991
Credit Agreement and proceeds from Holdings' Series C Preferred Stock
offering completed on May 6, 1994; and (v) the tax effect of the foregoing.
(2) Excludes extraordinary items related to the loss on early extinguishments of
debt, net of income taxes, for the nine months ended September 30, 1994 and
the year ended December 31, 1993 of $145 million and $142 million,
respectively.
(3) Gives effect to the pro forma transactions and events described in clauses
(i), (ii), and (iv) of Note (1) above as if they occurred on September 30,
1994.
24
<PAGE>
BORDEN, INC.
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA
The summary consolidated financial data presented below for the nine months
ended September 30, 1994 and 1993 were derived from unaudited quarterly
consolidated financial statements contained in Borden's Quarterly Report on Form
10-Q at and for the nine months ended September 30, 1994 and incorporated herein
by reference. The summary consolidated financial data presented below for each
of the years in the three-year period ended December 31, 1993 for Borden were
derived from the consolidated financial statements contained in Borden's Annual
Report on Form 10-K for the year ended December 31, 1993 and incorporated by
reference herein, which have been audited by Price Waterhouse LLP, independent
accountants. The unaudited quarterly consolidated financial statements include
all adjustments which are, in the opinion of Borden management, necessary for a
fair statement of the interim results. Results for interim periods are not
necessarily indicative of results to be expected for the full year. The data
below should be read in conjunction with the audited consolidated financial
statements and unaudited quarterly consolidated condensed financial statements
of Borden, and the related notes thereto, incorporated by reference herein.
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30, FOR THE YEARS ENDED DECEMBER 31,
-------------------- --------------------------------------------------------
1994 1993 1993 1992 1991 1990 1989
-------- -------- -------- -------- -------- -------- --------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUE
Net sales.................................. $ 4,082 $ 4,037 $ 5,506 $ 5,872 $ 5,924 $ 6,273 $ 6,391
COST AND EXPENSES
Cost of goods sold......................... 3,075 2,967 4,078 4,302 4,269 4,644 4,859
Marketing, general and administrative
expenses.................................... 859 803 1,224 1,163 1,024 1,020 902
Restructuring charges(1)................... (40) -- 115 298 67 -- 463
Interest expense........................... 92 93 125 116 167 156 129
Equity in income of affiliates............. (9) (10) (16) (19) (24) (23) (17)
Minority interest.......................... 29 30 41 40 3 3 1
Other (income) and expense, net............ 104 29 23 (4) (13) 12 11
Income taxes............................... 27 42 (27) 14 151 169 76
-------- -------- -------- -------- -------- -------- --------
4,137 3,954 5,563 5,910 5,644 5,981 6,424
-------- -------- -------- -------- -------- -------- --------
EARNINGS
(Loss) income from continuing operations... (55) 83 (57) (38) 280 292 (33)
Discontinued operations:(1)(2)
(Loss) income from operations............ -- (46) (66) (86) 15 28 16
Loss on disposal......................... (59) -- (490) -- -- -- --
-------- -------- -------- -------- -------- -------- --------
(Loss) income before extraordinary item and
cumulative effect of accounting
changes..................................... (114) 36 (613) (124) 295 320 (17)
Extraordinary loss on early retirement of
debt........................................ -- -- -- (11) -- -- --
Cumulative effect of change in accounting
for:
Postemployment benefits.................. -- (18) (18) -- -- -- --
Postretirement benefits other than
pensions.................................... -- -- -- (189) -- -- --
Income taxes............................. -- -- -- (40) -- -- --
-------- -------- -------- -------- -------- -------- --------
Net (loss) income.......................... $ (114) $ 18 $ (631) $ (364) $ 295 $ 320 $ (17)
-------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- --------
SHARE DATA
(Loss) income from continuing operations... $ (.39) $ .59 $ (.40) $ (.27) $ 1.90 $ 1.97 $ (0.22)
Discontinued operations:
(Loss) income from operations............ -- (.33) (.47) (.60) .10 0.19 0.11
Loss on disposal......................... (.41) -- (3.47) -- -- -- --
-------- -------- -------- -------- --------
(Loss) income before extraordinary item and
cumulative effect of accounting
changes..................................... (.80) .26 (4.34) (.87) 2.00 2.16 (0.11)
Extraordinary loss on early retirement of
debt........................................ -- -- -- (.07) -- -- --
Cumulative effect of change in accounting
for:
Postemployment benefits.................. -- (.13) (.13) -- -- -- --
Postretirement benefits other than
pensions.................................... -- -- -- (1.32) -- -- --
Income taxes............................. -- -- -- (.28) -- -- --
-------- -------- -------- -------- -------- -------- --------
Net (loss) income per common share......... $ (.80) $ .13 $ (4.47) $ (2.54) $ 2.00 $ 2.16 $ (0.11)
-------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- --------
Cash dividends paid per common share....... $ .23 $ .75 $ .90 $ 1.185 $ 1.12 $ 1.035 $ 0.90
Average number of common shares outstanding
during the period........................ 141.5 140.9 141.0 143.4 147.6 147.9 148.2
</TABLE>
(Footnotes on following page)
25
<PAGE>
<TABLE>
<CAPTION>
AT
SEPTEMBER 30, AT DECEMBER 31,
---------------- ----------------------------------------------
1994 1993 1992 1991 1990 1989
---------------- ------ ------ ------ ------ ------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Current assets....................................... $1,370 $1,290 $1,928 $1,921 $2,026 $2,011
Investments and other assets......................... 561 443 352 319 237 160
Property and equipment............................... 1,321 1,337 1,788 1,904 1,707 1,441
Intangibles.......................................... 762 802 1,178 1,317 1,314 1,213
Total assets......................................... 4,014 3,872 5,246 5,461 5,284 4,825
Current liabilities.................................. 1,418 1,372 1,808 1,414 1,847 1,466
Long-term debt....................................... 1,416 1,241 1,330 1,346 1,340 1,441
Other liabilities (including long-term debt)......... 2,457 2,254 2,312 2,072 1,595 1,670
Shareholders' equity................................. 140 246 1,126 1,975 1,842 1,689
Book value per common share.......................... .99 1.74 8.01 13.39 12.50 11.41
</TABLE>
- - - ------------
(1) 1993 includes a pretax charge of $752.3 million for business divestitures
and restructuring. 1992, 1991 and 1989 include pretax restructuring charges
of $377.2 million, $71.6 million and $570.7 million, respectively. The nine
months ended September 30, 1994 includes a pretax credit of $50.1 million
for reversal of prior restructuring charges.
(2) Financial data for the years prior to 1993 were restated in 1993 to reflect
discontinued operations.
See Notes to Borden's Consolidated Financial Statements and Borden's Unaudited
Quarterly
Consolidated Financial Statements incorporated herein by reference.
26
<PAGE>
THE SPECIAL MEETING
TIME AND PLACE
The Special Meeting of Shareholders of Borden will be held on ,
, 1995 at 10:00 a.m., Eastern time, at .
MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING
At the Special Meeting, holders of Borden Common Stock will consider and
vote, as a class, upon a proposal to approve the Merger Agreement, which
provides for the Merger of the Purchaser with and into Borden. A composite
conformed copy of the Merger Agreement appears as Annex I to this Proxy
Statement/Prospectus. The Merger is the final step in the acquisition of the
entire equity interest in Borden by the Common Stock Partnerships.
RECORD DATE
The record date for the Special Meeting will be January 26, 1995.
VOTE REQUIRED
The approval of the Merger Agreement, the Merger and the other transactions
contemplated by the Merger Agreement require the affirmative vote of not less
than 66 2/3% of the outstanding shares of Borden Common Stock. As of December
30, 1994, there were 169,967,380 shares of Borden Common Stock issued and
outstanding, each of which is entitled to one vote at the Special Meeting, held
by approximately 20,889 holders of record. As of December 30, 1994, the Common
Stock Partnerships held 118,269,307 shares of Borden Common Stock (approximately
69.58% of the shares of Borden Common Stock issued and outstanding as of such
date). The Common Stock Partnerships intend to vote their Borden Shares in favor
of approval of the Merger Agreement and the Merger. Accordingly, no action by
any other shareholder is required to approve the Merger.
Shares of Common Stock represented by a properly signed, dated and returned
proxy will be treated as present at the meeting for purposes of determining a
quorum, without regard to whether the proxy is marked as casting a vote or
abstaining. Because Borden's charter requires the affirmative vote of at least
66 2/3% of the issued and outstanding shares of Borden Common Stock to approve
the Merger Agreement, proxies that do not contain an instruction to vote for or
against or to abstain from voting on the Merger will be voted in favor of
approval of the Merger Agreement and the Merger.
VOTING OF PROXIES
Borden Shares represented by all properly executed proxies received in time
for the Special Meeting will be voted in the manner specified by the holder
thereof. Proxies that do not contain an instruction to vote for or against or to
abstain from voting on a particular matter will be voted in favor of such
matter. See "--Vote Required."
It is not expected that any matter other than those referred to herein will
be brought before the Special Meeting. If, however, other matters are properly
presented, the persons named as proxies will vote in accordance with their
judgment with respect to such matters, unless authority to do so is withheld in
the proxy.
ADJOURNMENTS; REVOCABILITY OF PROXIES
If the Special Meeting is adjourned, for whatever reason, the approval of
the Merger Agreement shall be considered and voted upon by shareholders at the
subsequent adjourned meeting, if any.
You may revoke your proxy at any time prior to its exercise by attending the
Special Meeting and voting in person (although attendance at the Special Meeting
will not in and of itself constitute
27
<PAGE>
revocation of a proxy), by giving notice of revocation of your proxy at the
Special Meeting, or by delivering a written notice of revocation, or a duly
executed proxy relating to the matters to be considered at the Special Meeting
and bearing a later date than the proxy previously executed, to the Secretary
of Borden at 180 East Broad Street, Columbus, Ohio 43215. Unless revoked in
the manner set forth above, proxies in the form enclosed will be voted at the
Special Meeting in accordance with your instructions.
DISSENTERS' RIGHTS
Holders of Borden Common Stock will not be entitled to dissenters' rights
under New Jersey law in connection with the Merger, and the Purchaser does not
intend to accord dissenters' rights to holders of Borden Common Stock.
SOLICITATION OF PROXIES
The cost of soliciting proxies will be borne by Borden. Borden will solicit
proxies and Borden's directors, officers and employees may also solicit proxies
by telephone, telegram or personal interview. These persons will receive no
additional compensation for these services. Arrangements will be made to furnish
copies of proxy materials to fiduciaries, custodians and brokerage houses for
forwarding to beneficial owners of Borden Common Stock. Such persons will be
paid reasonable out-of-pocket expenses.
D.F. King & Co., Inc. will assist in the solicitation of proxies by Borden
for a fee not in excess of $5,000, plus reasonable out-of-pocket expenses.
HOLDERS OF BORDEN COMMON STOCK SHOULD NOT SEND STOCK CERTIFICATES WITH THEIR
PROXY CARDS.
28
<PAGE>
THE MERGER
PURCHASER BACKGROUND
In early 1993, representatives of KKR met with Anthony S. D'Amato, then
chairman and chief executive officer of Borden, Lawrence O. Doza, then vice
president and chief financial officer of Borden, and a representative of one of
Borden's financial advisors to discuss KKR's interest in exploring a possible
transaction involving KKR and Borden. Following that meeting, Mr. D'Amato
advised KKR's representatives that Borden preferred not to pursue a transaction
with KKR at that time. Thereafter, although no formal discussions were held,
KKR's interest in a possible transaction with Borden continued, especially when
Borden's analysis of possible restructuring alternatives became known to KKR in
the late summer of 1993. Borden continued to maintain that it was not interested
in a transaction with any third parties, including KKR.
In December 1993, Lazard Freres & Co. ("Lazard Freres"), financial advisor
to the Borden board of directors, initiated contact with KKR regarding a
possible transaction with KKR. KKR, in turn, brought the possibility of a
transaction with Borden to the attention of senior executives of Holdings.
Holdings thereafter had several investigatory meetings with Borden's advisors in
New York City, but no formal due diligence was conducted at Borden's
headquarters in Columbus, Ohio. Following such meetings and further analysis by
Holdings of a possible transaction with Borden, Holdings decided that it would
not pursue a transaction with Borden. Among other things, Holdings believed
that, in light of its own indebtedness, Borden's debt levels precluded the
acquisition of all of Borden. Additionally, Holdings determined that its
strategic interest was in substantially less than all of Borden's businesses.
Investigatory discussions between representatives of KKR and Borden resumed
in February 1994 and occurred sporadically thereafter. In April 1994, KKR
indicated to Borden's representatives that it might be willing to assist Borden
in connection with Borden's restructuring efforts, although Borden did not
express interest in such assistance at that time. In July and August, KKR again
initiated contact with Borden's advisors to reiterate KKR's continuing interest
in exploring an investment in Borden. In early August 1994, KKR discussed with
Borden's advisors its possible interest in an investment in Borden using
securities owned by partnerships controlled by KKR. Lazard Freres indicated to
KKR Borden's willingness to pursue discussions and, shortly thereafter, KKR and
Borden signed a confidentiality agreement and KKR began to receive certain due
diligence information concerning Borden.
Following its initial review of this information, KKR indicated an interest
in pursuing more complete due diligence. KKR was advised that, if it planned to
make a proposal to Borden regarding a transaction, it should be prepared to do
so by September 7, 1994, when Borden's board of directors was scheduled to meet
to consider its management's proposed new restructuring plan, which Borden was
to consider as an alternative to a transaction with KKR. This plan would have
involved the sale of Borden's dairy business, sale of profitable non-food
businesses and a cut in Borden's quarterly dividend to $.01 per share. On August
25 and 26, 1994, representatives of KKR and representatives of Borden held due
diligence meetings in Columbus, Ohio. Charles M. Harper, Chairman of the Board
and Chief Executive Officer of Holdings, and H. John Greeniaus, Chairman of the
Board and Chief Executive Officer of Nabisco Foods Group, attended the meetings
on August 25, 1994 at the request of KKR.
On Friday, September 2, 1994, KKR made an oral proposal to acquire a 75%
interest in Borden for consideration valued at $13.50 per Borden Share, based on
an exchange of Holdings Common Stock for Borden Common Stock. Negotiations
continued over the next several days, particularly with regard to KKR's
willingness to pursue an acquisition of the entire company. KKR's revised
proposal for all of Borden was presented to Borden's board of directors on
September 7, 1994, following meetings between representatives of KKR and the
Chairman of the Board and the Chief Executive Officer of Borden. Discussions and
negotiations continued between representatives of KKR and Borden and, on
September 11, 1994, the Partnership and Borden signed a letter of intent with
respect to the Transactions based on a value of $14.25 per Borden Share.
29
<PAGE>
Following the signing of the letter of intent on September 11, 1994, KKR and
Borden, and their representatives, negotiated the Merger Agreement and
Conditional Purchase/Option Agreement, which were executed on September 23,
1994, following approval by Borden's board of directors.
Following the execution of the Merger Agreement on September 23, 1994, but
before consummation of the Exchange Offer, Borden, the Partnership and the
Purchaser entered into two amendments to the Merger Agreement. The first
amendment was entered into as of November 15, 1994 and modified the term
"Valuation Period" for purposes of the Exchange Offer. The second amendment was
entered into as of December 6, 1994 in connection with the settlement of various
legal proceedings then pending in New Jersey state court, Ohio state court and
in the United States District Court for the Southern District of New York
against Borden, KKR and their respective directors, executive officers and
related parties and, among other things, modified the definition of "Exchange
Ratio" for purposes of the Exchange Offer. Pursuant to the Merger Agreement, as
amended by such amendments, the Exchange Ratio in the Exchange Offer was 2.29146
shares of Holdings Common Stock for each Borden Share validly tendered and not
properly withdrawn and accepted for exchange, which ratio is the quotient
(rounded to the nearest 1/100,000) obtained by dividing (i) $14.25 by (ii) the
average of the average of the high and low sales prices of the Holdings Common
Stock as reported on the NYSE Composite Tape on each of the ten full consecutive
trading days ending on and including December 6, 1994. This ratio is the same
ratio that will be applicable in the Merger. The value of 2.29146 shares of
Holdings Common Stock may be more or less than $14.25 at any given time. A
recent reported last sale price for shares of Holdings Common Stock is set forth
on the cover page of this Proxy Statement/Prospectus.
The Exchange Offer expired at 12:00 Midnight, New York City time, on
Tuesday, December 20, 1994. As of December 30, 1994, the Common Stock
Partnerships acquired an aggregate of 90,131,307 shares of Borden Common Stock
as a result of the Exchange Offer.
Upon exercise of the Option in full, the Common Stock Partnerships acquired
an additional 28,138,000 shares of Borden Common Stock for consideration equal
to an aggregate of 51,106,768 shares of Holdings Common Stock. Following
consummation of the Exchange Offer and the exercise of the Option, as of
December 30, 1994, the Common Stock Partnerships held 118,269,307 Borden Shares
(representing approximately 69.58% of the issued and outstanding shares of
Borden Common Stock).
Following consummation of the Exchange Offer and the exercise of the Option,
pursuant to the Merger Agreement and the Conditional Purchase/Option Agreement,
all of the directors of Borden other than Ervin R. Shames, Frank J. Tasco and
Wilbert J. LeMelle resigned as directors of Borden, Henry R. Kravis, George R.
Roberts, Clifton S. Robbins, Scott M. Stuart and Alexander Navab were elected to
the Borden board of directors by the remaining members of the Borden board of
directors and Mr. Kravis succeeded Mr. Tasco as Chairman of the Board of
Directors of Borden.
As of January 4, 1995, Borden, the Partnership and the Purchaser further
amended the Merger Agreement so that Borden Shares owned by either Common Stock
Partnership would be cancelled in the Merger and not converted into a right to
receive Holdings Common Stock. In addition, the amendment effected a change to
one of the exhibits to the Merger Agreement. A composite conformed copy of the
Merger Agreement, after giving effect to all the amendments thereto, is included
as Annex I hereto.
BORDEN BACKGROUND AND REASONS FOR THE PROPOSED TRANSACTIONS
Borden Background
The decision by the Borden board of directors to enter into the Merger
Agreement reflected, in part, an assessment of the risks and potential benefits
of ongoing restructuring efforts against the risks and benefits of a transaction
that would offer all shareholders the opportunity to receive a premium for their
Borden Shares payable in Holdings Common Stock. A significant factor in the
Borden board's
30
<PAGE>
deliberation was the history of Borden's prior restructuring efforts. Set forth
below is a summary of the events that led to the Borden board's decision.
1992 Restructuring Plan. In October 1992, Borden announced its third
restructuring program since 1989 (the "1992 Restructuring Plan"). The 1992
Restructuring Plan was aimed at integrating the numerous acquisitions Borden had
made, reducing costs and reversing a downward trend in earnings. In conjunction
with the 1992 Restructuring Plan, Borden established a restructuring reserve of
$642 million (pre-tax) charged against third quarter 1992 results, which reduced
Borden's 1992 year end shareholders' equity to $1.13 billion, down from $1.69
billion in 1989, before the successive restructurings began.
The 1992 Restructuring Plan did not achieve the anticipated results.
Borden's first quarter 1993 net income was $27.2 million and earnings per share
was $.20, a 43% decline in net income from the same period in 1992 (excluding
charges in 1993 and 1992 for accounting changes). Sales in the first quarter of
1993 fell 7.2% to $1.30 billion, from $1.40 billion in the same period of 1992.
In the second quarter of 1993, earnings per share declined 76.4% to $.13 from
$.55 in the second quarter of 1992. Net income of $18.5 million was down 76.7%
from $79.3 million in the second quarter of 1992. Sales were $1.35 billion, down
6% from $1.44 billion in the second quarter of 1992.
In early 1993, at the initiation of KKR, representatives of KKR met with
Anthony S. D'Amato, then Chairman and Chief Executive Officer of Borden,
Lawrence O. Doza, then Vice President and Chief Financial Officer of Borden, and
a representative of Borden's financial advisor, CS First Boston Corporation
("First Boston") to discuss a possible transaction involving KKR and Borden.
After discussion, Mr. D'Amato advised KKR's representatives that Borden did not
wish to pursue a transaction with KKR at that time.
Development of 1993 Restructuring Plan. In 1993, Borden began to develop
alternatives to the 1992 Restructuring Plan. In addition, in June 1993, Borden
hired Ervin R. Shames as President and Chief Operating Officer. Mr. Shames
joined Borden with 22 years of experience in the food business, including
positions as President and Chief Executive Officer of General Foods USA and
President of Kraft USA. On July 28, 1993, Borden announced that it was reviewing
its portfolio of businesses to identify those it would retain and those it would
not, and was reducing the quarterly cash dividend on the Borden Shares to $.15
per share from $.30 per share.
During the fall of 1993, Borden accelerated the review of its portfolio of
businesses and its strategic alternatives. Booz Allen & Hamilton Inc. ("Booz
Allen"), a business consulting firm, was asked to assess the existing businesses
and their long-term potential and to recommend which businesses to retain and
which to divest. In September 1993, First Boston was retained by Borden to
provide financial advice with respect to this program. In October 1993, the
Borden board engaged Lazard Freres to act as financial advisor to the Borden
board with regard to the consideration of strategic alternatives. The Borden
board also engaged Wachtell, Lipton, Rosen & Katz, which had previously advised
Borden in special situations, as special counsel.
Borden's third quarter 1993 results showed a net loss of $9.4 million, or
$.07 per share, versus a net loss in the third quarter of 1992 of $1.8 million,
or $.01 per share before the charge for the 1992 Restructuring Plan. Sales in
the third quarter of 1993 fell to $1.39 billion from $1.53 billion in the
comparable period of 1992. Nearly all of the principal businesses of Borden
posted substantial declines versus prior year performance.
In November 1993, Borden management with the assistance of Booz Allen
presented to the Borden board a plan (the "1993 Restructuring Plan") for
restructuring the portfolio of Borden's businesses. The 1993 Restructuring Plan
provided for major divestitures, including the sale of Borden's North American
snacks business, its seafood business, its jams and jellies business and certain
other businesses and products representing, in the aggregate, annual revenues of
approximately $1.25 billion, or nearly 20% of projected 1993 sales of $6.75
billion. The 1993 Restructuring Plan also aimed at improving
31
<PAGE>
Borden's domestic dairy business, largely through volume recovery and cost
reduction, and contemplated retention of nearly all of the non-food businesses.
The 1993 Restructuring Plan envisioned cost reductions phased in over two years,
reaching an annualized savings rate of $100 million by the end of 1995. These
savings were to be achieved through a combination of divestitures and
productivity gains.
Under the 1993 Restructuring Plan, which was reviewed by Booz Allen,
management projected 1994 earnings per share at the upper end of the $.75 to
$1.00 per share range of estimates by securities analysts, and set performance
targets for annual earnings per share growth in 1995 and 1996 of at least double
the food industry average, sales growth of 6% annually and an increase in return
on investment from a range of 5% to 6% in 1994 to 12% in 1996. Further, the 1993
Restructuring Plan contemplated a further reduction in Borden's quarterly cash
dividend from $.15 per share to $.075 per share, and a $752.3 million pre-tax
restructuring charge against 1993 fourth quarter earnings of which approximately
$637.4 million was for business divestitures and $114.9 million was for
organizational restructuring.
Evaluation of 1993 Restructuring Plan and Possible Sale of Borden. In
reviewing the proposed 1993 Restructuring Plan, the Borden board considered that
continued poor performance would reduce financial flexibility (which, in turn,
could limit Borden's ability to raise capital at attractive rates and to pursue
strategic growth opportunities); that the 1993 Restructuring Plan was premised
on significant turnarounds within a year or slightly longer in Borden's dairy
and pasta business and improvements in almost all of Borden's other divisions;
that many of the asset sales included in the 1993 Restructuring Plan would be
difficult and time-consuming to consummate; that Borden's quarterly dividend
payout might not be sustainable even at the reduced rate contemplated; and that
a number of key management positions were held by new managers, making it
difficult to assess the likelihood of success of the 1993 Restructuring Plan.
The Borden board also took into consideration the fact that Borden was highly
leveraged and exposed to liquidity risk by virtue of its relatively high ratio
of short-term debt (particularly commercial paper) to total debt in the event of
rating agency downgrades, and that the 1993 Restructuring Plan would leave
Borden with debt coverages less favorable than the median for investment grade
companies and without tangible net worth.
After weighing these risks and considering that previous restructuring
efforts had not achieved targeted results and after receiving two unsolicited
inquiries regarding the sale of Borden, one from KKR and one from another party,
the Borden board determined to instruct Lazard Freres to make contacts with a
selected group of companies considered to be potential buyers of Borden. The
potential buyers contacted by Lazard Freres consisted primarily of industrial
buyers, rather than financial buyers, because Lazard Freres believed that a
leveraged buyout did not appear to be feasible given Borden's operating
performance and high debt levels. Lazard Freres, however, did contact KKR
because of its prior indication of interest in Borden and its ownership interest
in Holdings. KKR, in turn, brought the possibility of a transaction with Borden
to the attention of Holdings. The other party that had previously contacted
Borden was also contacted by Lazard Freres.
In response to Lazard Freres' solicitations, only Holdings and one other
company expressed interest in obtaining information about Borden. Both Holdings
and the other potential buyer (the "Potential Buyer") entered into
confidentiality agreements with Borden and commenced due diligence. Holdings,
however, after preliminary meetings, declined to pursue its interest. Holdings
indicated that, due to the then-current trading price of the Borden Shares,
Holdings' own indebtedness and the debt levels of Borden, Holdings was unwilling
to proceed with an acquisition of Borden. In addition, Holdings said that it had
determined that its strategic interest was in substantially less than all of
Borden's businesses.
At a Borden board meeting held on December 9, 1993, Lazard Freres indicated
that the Potential Buyer appeared to be interested in acquiring all of Borden.
At the board meeting, management recommended that Borden proceed with the 1993
Restructuring Plan it had previously recommended. The Borden board, however,
determined that, given the risks inherent in the 1993 Restructuring Plan, talks
with the Potential Buyer should continue, and the decision as to whether to
implement the 1993
32
<PAGE>
Restructuring Plan was postponed. That same day, the Borden board accepted the
resignation of Anthony S. D'Amato, as Chairman and Chief Executive Officer of
Borden, and appointed Frank J. Tasco, a director of Borden and retired Chairman
and Chief Executive Officer of Marsh & McLennan Companies, Inc., as Chairman of
the Board of Borden and Ervin R. Shames, as Chief Executive Officer of Borden.
On December 21, 1993 the Potential Buyer indicated that it would not be
interested in pursuing an acquisition of the entire company but that it would be
willing to explore the acquisition of just Borden's Packaging and Industrial
Products Division ("PIP") and a concurrent investment in the remaining food
company. However, the indicated price levels from the Potential Buyer's proposal
would not have generated proceeds sufficient to reduce Borden's debt to a level
appropriate to the remaining food business. Thus, the Borden board rejected this
suggestion in part because it was advised that such a divestiture would leave
Borden undercapitalized. The Borden board then instructed Borden's management to
prepare the 1993 Restructuring Plan for final approval.
1993 Restructuring Plan Adopted; Goals Set. On January 4, 1994, the Borden
board formally approved the 1993 Restructuring Plan. Over the previous months,
the Borden board had received from management and Booz Allen an extensive review
of Borden's 50 distinct domestic and international businesses. Borden announced
that, with the help of its financial advisors, the Borden board had evaluated a
full range of alternatives for Borden, including sale or merger, and that Borden
was not aware of any third party expressing interest in proposing such
transactions. The Borden board also reviewed the alternative of liquidation and
concluded that adverse tax consequences and the uncertainties involved in the
sale of Borden in parts rendered this alternative unattractive.
In announcing the 1993 Restructuring Plan, Borden stated that it had set
financial goals, including earnings per share for 1994 at the upper end of the
$.75 to $1.00 range of analysts' estimates, cash flow of $400 million to $450
million after capital expenditures and including divestiture proceeds,
substantially all of which was intended to be applied to debt repayment, and
cost reductions reaching an annualized rate of $70 million to $85 million by the
end of the year.
As a result of the write-off related to the implementation of the 1993
Restructuring Plan, Borden's shareholders' equity as of December 31, 1993 was
reduced to $245.9 million.
Progress Under the 1993 Restructuring Plan. Following the adoption of the
1993 Restructuring Plan, the Borden board, with the assistance of its financial
advisors and management, closely monitored its implementation and the associated
divestitures. In its 1993 Annual Report to Shareholders which was issued in late
March 1994, Borden acknowledged that the success of the 1993 Restructuring Plan
depended on multiple divestitures at anticipated prices, sharply reduced costs
throughout Borden, a reversal of the weak sales and income performance of
Borden's pasta business and a turnaround of Borden's domestic dairy operations,
which, based on early 1994 results, would be a significant challenge.
Borden's first quarter 1994 earnings per share were $.04 and net income was
$5.8 million. In its announcement of first quarter results, Borden also stated
that its earnings projections for 1994 were then "in line" with the current
range of analyst projections of $.70 to $.95 per share, as opposed to the
January 1994 earnings per share target at the "upper end" of the $.75 to $1.00
range.
In June 1994, the Borden board and management became increasingly concerned
about Borden's progress in achieving the cost reductions and earnings
improvements targeted under the 1993 Restructuring Plan. The Borden board and
management were particularly concerned that the failure to achieve significant
progress by that time would make it difficult to reach the targets for 1994 and
subsequent years.
Further Restructuring Contemplated in Light of Six-Month Results. On July
26, 1994, management advised the Borden board that it would begin to explore
possible modifications to the 1993 Restructuring Plan which might involve the
sale or closure of all or part of the dairy operations and
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other businesses. The board determined that the alternative of a sale of the
company should also be explored again. The board was advised that the only
parties that had contacted Borden since January 1994 were KKR and Japonica
Partners ("Japonica").
On May 24, 1994, Japonica wrote to Mr. Tasco stating that Japonica was
interested in an equity investment in Borden as a "proactive white knight." In
response, the Borden board authorized Lazard Freres to contact Japonica to
investigate, on behalf of the Borden board, Japonica's interest in Borden and
its capacity to effectuate a transaction involving Borden.
On June 13, 1994, Mr. Tasco wrote to Japonica, advising them that Lazard
Freres was acting as Borden's financial advisor and was authorized to represent
Borden in discussions with third parties. Subsequently, a representative of
Japonica contacted Lazard Freres, but did not propose any transaction and did
not provide any evidence of Japonica's source of funds for any transaction,
despite Lazard Freres' repeated inquiries. (Japonica, in letters to Mr. Tasco,
disputed the foregoing characterization of its contacts with Lazard Freres
although it never stated that it had proposed a transaction or provided evidence
of its financial resources.)
Accordingly, on July 16, 1994, Mr. Tasco wrote to Japonica explaining that
in light of the serious challenges facing Borden, it was disinclined to pursue
discussions with a party who was unable or unwilling to make substantive
proposals or to provide any evidence of its financial capacity. At no point
during any of its contacts with Borden or its advisors did Japonica make any
substantive proposal or provide evidence of its ability to finance any
transaction with respect to Borden. The discussion herein of Borden's written
correspondence with Japonica is qualified by reference to the full texts of such
correspondence which are included as exhibits to the Schedule 14D-9, which is
incorporated herein by reference.
Pursuant to its decision to explore the alternative of a sale of Borden, the
Borden board, at its July 26, 1994 meeting, instructed Lazard Freres to respond
to KKR's prior contacts. Based on the advice of Lazard Freres and given the
publicity concerning Borden's efforts to find a buyer in late 1993 and the lack
of inquiries, the Borden board determined that it was reasonable to conclude
that no other bidder was interested.
On July 27, 1994, Borden announced that for the second quarter of 1994, it
had net income of $11.1 million or $.08 per share compared with income from
continuing operations of $30.5 million, or $.22 per share, in the same period of
1993. Net sales rose 1.3% to $1.37 billion from $1.35 billion in the second
quarter of 1993. The six-month results included continuing losses in Borden's
dairy business that were considerable. Borden stated that it was moving more
slowly than it had hoped in achieving the goals of the 1993 Restructuring Plan.
Borden further stated that each of Borden's businesses must contribute to
Borden's objectives by virtue of market position, growth prospects, profit
potential or some combination of those objectives. In light of this, Borden
further stated that it was reviewing progress to date and planned to take any
corrective measure that might become necessary. Borden announced that, given its
results in the first half of 1994, it was clear that its earlier expectation of
earnings for the year would not be realized, and did not give a further earnings
forecast.
The results for the first half of 1994 also caused the Borden board and
management to focus on the liquidity of Borden. In connection with the 1993
Restructuring Plan, Borden obtained an amendment to its only financial covenant
which was contained in the T.M. Investors Limited Partnership credit agreement,
a covenant related to the net worth of Borden. The amendment required
achievement of financial ratios that would be met under the goals of the 1993
Restructuring Plan. The Borden board and management were particularly concerned
about the level of Borden's short-term liabilities, including the commercial
paper used to finance operations. The Borden board was advised that, if earnings
continued below the amounts forecasted in the 1993 Restructuring Plan and Borden
undertook a further restructuring, its debt ratings could be lowered and its
ability to issue commercial paper could be limited. In early July 1994, Borden
sought to increase its $520 million credit facilities on terms which were
substantially the same terms as existed previously for a majority of the
facilities. Due in part to the
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five-year term of the proposed facility and the existence of other Borden credit
facilities with terms more favorable to the lenders, these efforts met
resistance in the marketplace. Later in July 1994, Borden determined to pursue a
larger bridge facility that would consolidate Borden's bank lines and backstop
its commercial paper. Accordingly, Borden obtained $1.4 billion, 2 1/2 year
financing facilities in August 1994 from a group of banks led by Citibank, N.A.
and Credit Suisse.
Proposed 1994 Restructuring Plan. At a special meeting of the Borden board
on August 16, 1994, management presented further analysis of the alternatives
available to Borden. First Boston provided a financial analysis for each such
alternative and management recommended a plan to further reconfigure Borden (the
"Proposed 1994 Restructuring Plan"). The Proposed 1994 Restructuring Plan
provided for the divestiture of the dairy business (excluding cheese), Borden's
largest business, which was depleting Borden's earnings and cash. Management
advised the Borden board that, in its view, Borden did not have the time or the
resources to turn the dairy business around. While the sale of the dairy
business would improve cash flow, it was expected to generate a substantial
writeoff without meaningful debt reduction. Management also recommended the
additional sale of two profitable businesses from the PIP division,
Wallcoverings and Packaging Resources, principally in order to generate cash to
reduce debt.
The Proposed 1994 Restructuring Plan also called for realigning Borden into
two operating divisions: Consumer Packaged Products and Worldwide Adhesives and
Resins, and significantly reducing costs in Borden's continuing operations by
substantial personnel reductions and other programs. As part of the Proposed
1994 Restructuring Plan, Borden management also recommended that the Borden
board reduce the quarterly cash dividend on the Borden Shares to $.01 per share.
The Borden board was advised that adoption of the Proposed 1994 Restructuring
Plan would require a significant charge of approximately $500 million
(after-tax) in the third quarter of 1994, resulting in substantial negative
shareholders' equity. In addition, the Borden board was advised that in the
third quarter of 1994, Borden would likely incur additional pre-tax charges of
approximately $95 million as a result of less than estimated proceeds from the
divestiture of discontinued operations pursuant to the 1993 Restructuring Plan
and could possibly incur certain other balance sheet adjustments of up to $100
million. Management had projected that Borden's 1994 earnings per share would be
$.50 without a restructuring, and earnings per share under the Proposed 1994
Restructuring Plan were projected to be $.47 for 1994, $.75 for 1995, $0.84 for
1996, $1.10 for 1997 and $1.21 for 1998. The Proposed 1994 Restructuring Plan
called for a reduction in Borden's debt level from $2.287 billion in 1994 to
$1.659 billion in 1996 and $1.294 billion in 1998. After presentation by
management and Borden's financial advisors, the Borden board authorized
management to finalize the details of the Proposed 1994 Restructuring Plan with
a view to its formal approval and announcement in early September 1994.
Developing the KKR Proposal. On August 3, 1994, KKR signed a confidentiality
agreement (the "Confidentiality Agreement") and began to receive certain
nonpublic information concerning Borden, specifically Borden's then current
"base case" projections for 1994 showing earnings per share of $.50 and net
income from continuing operations of $71 million. The Confidentiality Agreement
contained certain provisions that would prohibit KKR from making an unsolicited
tender offer for Borden's stock. On the same day, KKR proposed exploring a
transaction, the consideration for which would be securities owned by
partnerships controlled by KKR. Following the Borden board meeting of August 16,
1994, KKR communicated to Lazard Freres that it would be interested in pursuing
a transaction with Borden in which it would pay a "meaningful" premium to
Borden's trading price using Holdings Common Stock as currency. At a special
meeting of the Borden board on August 18, 1994, management conveyed this to the
board. Management explained that KKR would require "due diligence" meetings with
the senior management of Borden before it would be in a position to formalize a
proposal. Management further indicated that KKR would be willing to make a
decision prior to the September 7, 1994 Borden board meeting at which the board
intended to take final action on the Proposed 1994 Restructuring Plan.
During the course of the Borden board's deliberations concerning continuing
discussions with KKR, Mr. Shames expressed his view that the Proposed 1994
Restructuring Plan was achievable and
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should be pursued by Borden. He said that implementation of the Proposed 1994
Restructuring Plan would make Borden more saleable if the board chose to sell
Borden in the future. He said that he believed that it was imperative to
commence implementing the Proposed 1994 Restructuring Plan without additional
delays. Cognizant that Borden's prior restructuring plans had fallen short of
their goals and that further restructuring efforts posed significant risks, the
Borden board determined that it was in the best interests of Borden and its
shareholders to continue discussions with KKR prior to acting on the Proposed
1994 Restructuring Plan. The Borden board, therefore, directed management, with
the assistance of Lazard Freres and First Boston, to proceed with KKR to
determine whether KKR would make a proposal that would provide a premium for all
shareholders. At the same time, Borden management was instructed to prepare to
implement the Proposed 1994 Restructuring Plan on September 7, 1994, as had been
contemplated, so that there would be no delay in the event that an acceptable
proposal from KKR did not materialize.
On August 22, 1994, Lazard Freres met with KKR. KKR expressed interest in
meeting with management to conduct due diligence and indicated that it would be
ready to make a definitive proposal by September 7, 1994. On August 25 and 26,
1994, Lazard Freres, First Boston and members of Borden senior management met
with KKR in Columbus, Ohio to conduct due diligence. On September 2, 1994, KKR
proposed an offer to acquire 75% of Borden through an exchange offer for
approximately 100 million Borden Shares, at $13.50 per share, and a conditional
purchase/stock option agreement wherein it would have the right to acquire
28,138,000 Borden Shares for $11 per share, with the consideration in both cases
to be paid in Holdings Common Stock valued at market. Over the course of the
next three days, management of Borden, Lazard Freres and First Boston negotiated
with KKR and Morgan Stanley & Co. Incorporated ("Morgan Stanley"), KKR's
investment banker, particularly with respect to KKR's willingness to pursue an
offer to acquire the entire company.
On September 7, 1994, the Borden board met to consider both management's
Proposed 1994 Restructuring Plan and the KKR proposal that had resulted from the
negotiations upon the understanding that these were the two viable alternatives
available to Borden. During the meeting, management again reviewed for the
directors the principal elements of the Proposed 1994 Restructuring Plan.
Management then summarized the KKR proposal. Responding to Borden's request for
an offer that could be made for all of the Borden Shares, KKR proposed to
acquire 100% of the Borden Shares at $13.50 per share, payable in Holdings
Common Stock, through an exchange offer for all of the Borden Shares followed by
a merger in which any Borden Shares remaining outstanding would receive the same
consideration that had been paid in the exchange offer. Under New Jersey law,
such a merger would require the affirmative vote of 66 2/3% of Borden's
outstanding shares. KKR's proposal was contingent upon Borden agreeing to enter
into a conditional purchase/stock option agreement for up to approximately
28,138,000 Borden Shares, payable in Holdings Common Stock, at $11 per share. In
addition, the KKR proposal contemplated certain fees and reimbursements for KKR
on terms to be negotiated. Finally, KKR proposed that it would be entitled to
representation on the Borden board proportionate to its ownership, subject to a
minimum of 40% representation if it acquired 28,138,000 Borden Shares
(approximately 19.9% of the total then outstanding Borden Shares) pursuant to
the exercise of its option or otherwise. The proposal was contingent on
completion of due diligence, and the exchange offer would be contingent on
certain waivers being obtained under Borden's credit facilities. The proposal
was not otherwise subject to financing. Both the Borden board and its advisors
believed that KKR intended to keep current management, to offer management an
opportunity to obtain an equity interest in the surviving enterprise and to
restructure Borden. However, the Borden board was advised that KKR had no
substantive discussions of these matters, had made no commitments to management
and had made no decision with respect to the precise nature of its restructuring
plan. Borden management advised the Borden board that it understood that any
decisions by KKR would be made only after it had completed a thorough analysis
of Borden.
In reporting to the Borden board on the negotiations, Borden's
representatives indicated that they wished to ensure that, in the event of a
competing transaction proposal, KKR would not be able both to
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profit on the conditional purchase/stock option agreement and to obtain a
"topping" fee. KKR had not yet agreed to that point. The representatives also
reported to the Borden board that Borden had requested that KKR provide some
post-transaction guarantee of the price level of the Holdings Common Stock that
would be issued to Borden's shareholders in the exchange offer. However, these
representatives indicated that it appeared that while KKR had stated that it
would negotiate a "collar" of approximately 10% around the trading price for
Holdings Common Stock at the time the transaction was announced to protect the
value that Borden's shareholders would receive in the exchange offer, KKR had
refused to consider any post-exchange offer guarantee of the trading value of
Holdings Common Stock. The representatives said that they would press for a
wider collar on the Holdings Common Stock price but that they did not believe
that a post-transaction guarantee would be achievable in the negotiations. The
representatives indicated that they were seeking to reduce as much as possible
the fees requested by KKR.
Although the Borden board thought that the $13.50 per share price then
offered was too low and that certain of the other terms proposed by KKR were not
acceptable, the board instructed Borden's negotiators to go back to KKR to seek
to improve the price and to seek to negotiate satisfactory arrangements with
respect to the other terms of the transaction. The Borden board took this action
in the belief that a satisfactory proposal could be elicited from KKR. The
Borden board considered that such a proposal would offer the shareholders of
Borden a premium for their Borden Shares in the form of a highly liquid
security, which presented its own risks and opportunities. At the same time, the
board noted that while the Proposed 1994 Restructuring Plan was designed to
improve Borden's operating results and reduce its debt, it nonetheless had
significantly lower earnings projections than previous restructuring plans and
that it entailed significant risks to the equity value of Borden. These risks
included, in particular, the consequences of having substantial negative net
worth, the possibility of a credit rating downgrade and, if results of
operations and divestiture proceeds were not realized as planned, the risk of
further deterioration in Borden's financial condition. The board also considered
the risk that the announcement of the Proposed 1994 Restructuring Plan would
have a negative effect on the trading price for the Borden Shares, thereby
implicitly increasing the premium inherent in a transaction with KKR. The board
took into account the fact that the previous restructuring attempts by Borden
had fallen short of their goals. The Borden board adjourned the meeting in order
to permit Borden's negotiators to proceed.
In negotiations on September 7 and 8, 1994, KKR indicated that it would be
willing to increase its offer price to $14.25 per Borden Share, and that the
collar would be approximately 13%, depending on the price of Holdings Common
Stock on the day that the transaction was announced. KKR also accepted Borden's
position that KKR not profit as a result of exercising the option in
circumstances where KKR had received a "topping" fee, and agreed that it would
receive a 33 1/3% representation on the Board as a minimum if it purchased
28,138,000 Borden Shares, or approximately 19.9% of the outstanding Borden
Shares, pursuant to exercise of the option. KKR insisted on the payment of(1) a
$20 million initial fee, (2) a $50 million topping fee, against which the
initial fee would be credited, and (3) expense reimbursement of up to $15
million. The September 7, 1994 Borden board meeting reconvened on September 9,
1994. Mr. Shames said that he believed that the Proposed 1994 Restructuring Plan
could be accomplished and was a better alternative for Borden. In that regard,
Mr. Shames stated he believed that it was the wrong time to sell Borden because
successfully pursuing the Proposed 1994 Restructuring Plan would result, over
time, in greater value for shareholders than that reflected in the KKR proposal.
Nonetheless, after careful consideration of all the factors before it, the
Borden board voted to authorize management to proceed to negotiate agreements
with KKR on the terms outlined, to complete Borden's due diligence investigation
of Holdings, and to permit KKR to complete its due diligence of Borden. Mr.
Shames abstained from the vote of the Borden board.
At a special meeting held by the Borden board on September 11, 1994, the
board authorized Borden to enter into an agreement-in-principle with the
Partnership. The Letter of Intent expressed the intent of the parties to
negotiate a definitive merger agreement on substantially the terms already
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described to the board. KKR had also requested a condition in the merger
agreement dealing with the refinancing of Borden's debt because, as a result of
its due diligence and in anticipation of costs related to the proposed
transactions, KKR believed that Borden's bank credit facilities should be
increased to provide a cushion for working capital needs and their maturities
extended. It was agreed that this condition would be limited to terms to be set
forth in the merger agreement. The Letter of Intent also provided for the
payment of the $20 million Initial Fee to KKR (which was subsequently paid) and,
in consideration of the Letter of Intent and such Initial Fee, KKR agreed that,
if for any reason no merger agreement was entered into, KKR would be required to
purchase 28,138,000 Borden Shares for $11 per share, payable in Holdings Common
Stock, providing Borden with a saleable asset of over $300 million that could be
used to reduce debt or for other purposes. The Letter of Intent also provided
for the payment of the $50 million topping fee (reduced by the Initial Fee) in
the event that, during the pendency of the Letter of Intent, a third party made
a Transaction Proposal which was subsequently consummated.
The Letter of Intent was announced on September 12, 1994 and the parties
proceeded to negotiate definitive agreements. Following the announcement on
September 12, 1994 that Borden had entered into the Letter of Intent with the
Partnership, Japonica wrote again to Borden, reiterating its interest in acting
as a "proactive white knight." Borden responded with a letter to Japonica
indicating that the Borden board was prepared to explore all serious,
substantive proposals with a view to maximizing the value of the Borden Shares.
Borden noted that none of Japonica's communications had contained any actual
proposal, but it indicated that if Japonica had a proposal that it believed
would maximize shareholder value and that could be effected, Japonica should
contact Lazard Freres, who would arrange a meeting.
On September 15, 1994, Japonica wrote again to Borden demanding that Borden
forward to Japonica all material and information provided to other potential
bidders, including KKR. In response, Borden wrote to Japonica the next day
indicating once more that, although none of its communications had yet included
any concrete proposal or provided the information regarding financing that
Borden had requested, the Borden board remained willing to explore all serious
substantive proposals. In response to Japonica's request for information that
had been provided to other bidders, Borden enclosed a form of confidentiality
agreement, already executed by Borden, for Japonica's signature. The
confidentiality agreement did not contain any "stand-still" provisions. Japonica
has never executed and delivered the confidentiality agreement.
On September 19, 1994, Borden offered to meet with Japonica and to make
available to it certain senior members of management and Borden's legal and
financial advisors on the assumption that, in view of its persistence, Japonica
must have believed that it had a proposal to maximize shareholder value that
could be effectuated. A meeting was arranged for September 21, 1994. At the
meeting, Japonica indicated that it did not wish to sign the confidentiality
agreement. Japonica presented a "Letter of Continuing Interest" with regard to
Borden and attached to it certain materials with respect to its "Dynamic
Tension(TM)" management philosophy. Although the "Letter of Continuing Interest"
contained various nonspecific suggestions with respect to Borden, it did not
contain, and upon questioning by representatives of Borden and its advisors,
Japonica did not make, any proposal for Borden. Japonica also refused to provide
any information with respect to its financing resources. Borden indicated that
it would consider any credible proposal that Japonica chose to make, and,
subject to execution of the confidentiality agreement, provide appropriate
confidential information.
On September 22, 1994, the Borden board convened to consider the Merger
Agreement and the Conditional Purchase/Option Agreement which had been
negotiated with KKR. For a description of the Merger Agreement and the
Conditional Purchase/Option Agreement, see "Description of Merger Agreement and
Conditional Purchase/Option Agreement." At the meeting, the Borden board
reviewed in detail the proposed terms of the transaction. The Borden board
received an updated report on Borden's results of operations and financial
condition. The Borden board also reviewed investor reaction to the announcement
of the Letter of Intent, the correspondence and meeting with Japonica, the due
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diligence that had been performed on Holdings, the presentations of Lazard
Freres and First Boston and the fairness opinions delivered by Lazard Freres and
First Boston.
At the September 22, 1994 Borden board meeting, the Borden board, with Mr.
Shames abstaining, voted to approve the Merger Agreement and the Conditional
Purchase/Option Agreement and the transactions contemplated thereby, to
recommend to the shareholders of Borden that they accept the Exchange Offer,
that they tender their Borden Shares to the Purchaser and that, if required by
applicable law, they approve and adopt the Merger Agreement. Mr. Shames repeated
the views he expressed on September 9, 1994 and stated that he was also
abstaining because he felt a conflict arising from the issue of his future
involvement in Borden (although he stated that he had no agreements with KKR).
The Borden board further authorized a press release relating to the Merger
Agreement and the Conditional Purchase/Option Agreement, and a letter to be sent
to Japonica, following the execution of the Merger Agreement and the Conditional
Purchase/Option Agreement, indicating that Borden's agreements with the
Partnership do not preclude the Borden board's consideration of a proposal by
Japonica, and that the board is interested in obtaining the best possible
transaction for Borden's shareholders and should Japonica decide to make a
substantive proposal, the board is prepared to work with Japonica to that end.
The board indicated that if Japonica chose to submit a proposal, it should
specify the means and sources of financing. The letter noted that Japonica had
failed to provide information as to its ability to finance the type of
transactions it had referred to even though the board had been requesting that
information for several months.
After the Borden board meeting, Borden and KKR finalized the details of the
Merger Agreement and the Conditional Purchase/Option Agreement and on September
23, 1994, Borden, Purchaser and the Partnership entered into the Merger
Agreement and the Conditional Purchase/Option Agreement. The terms of the
transactions were announced in a joint press release issued on September 23,
1994.
Events Subsequent to Announcement of the KKR Transaction. Subsequent to the
announcement of the Merger Agreement, Japonica wrote to Mr. Tasco, on September
27, 1994, requesting, among other things, that Borden not sell any more assets.
On October 5, 1994, a representative of Japonica wrote to a representative of
Borden that Japonica "is currently working on a proposal which it anticipates
forwarding to Borden in a timely manner." On October 18, 1994, Japonica again
wrote to the Borden board stating that it was "in the process of preparing a
detailed proposal for Borden." To date, no such proposal has been received. An
additional party, who had expressed an interest in a possible transaction with
Borden following the September 23rd announcement and who, to Borden's knowledge,
was not affiliated with Japonica, executed a confidentiality agreement with
Borden and met with representatives of Borden but, subsequently, indicated it
was only interested in transactions involving Borden's food business or parts
thereof. Borden has been approached by other parties following the September
23rd announcement, but none have executed a confidentiality agreement or made
any proposal.
At the regularly-scheduled meeting of the Borden board on October 25, 1994,
management reported on the third quarter results of Borden and projections for
the remainder of the fiscal year. In the third quarter of 1994, Borden reported
a net loss of $130.5 million or $.92 per share, including pre-tax charges of
$181.2 million. This pretax charge includes an accrual of $52.2 million for the
transaction fees and expenses, of which $20 million has been paid to KKR to
date. Borden's management stated that Borden's dairy operations continued to
post a wide loss, that profits of its pasta products were falling short of
expectations, and that Borden's food businesses overall were progressing more
slowly than desired. In light of the above, management advised the Borden board
that it was revising its estimate for earnings per share for 1994 to $.38 per
share (before special charges), from the $.50 per share projection which had
been reported to the Borden board in August. The Borden board considered the
implications of Borden's performance and of the revised projections for the
transaction with KKR.
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On October 28, 1994, Nabisco, a wholly owned subsidiary of Holdings, filed a
registration statement with the Commission for the proposed offering of between
17.4% and 19.5% of Nabisco's common equity. Borden and its advisors were
apprised of Nabisco's intentions immediately prior to the public announcement of
the filing of such registration statement.
On November 14, 1994, the Borden board met and approved an amendment to the
Merger Agreement changing the end of the Valuation Period for the Exchange Ratio
as a result of comments received from the Commission. The amendment to the
Merger Agreement provided that the ten day Valuation Period would end
immediately prior to the tenth business day prior to the Expiration Date for the
Exchange Offer, instead of the two business days provided in the original Merger
Agreement. In connection with this amendment, the Board received confirmation
from Lazard Freres and First Boston that the change to the Merger Agreement did
not affect the opinions dated September 22, 1994 and delivered to the Borden
board. In addition, at this meeting, the Borden board reviewed with its advisors
progress on the transactions contemplated by the Merger Agreement and the
Conditional Purchase/Option Agreement, reviewed the Exchange Offer and the
Schedule 14D-9, reviewed events subsequent to the execution of the Merger
Agreement, including the proposed public offering by Nabisco and related
transactions and the effect of such announcement on the price of Holdings Common
Stock, and ratified its recommendation that Borden's shareholders accept the
Exchange Offer, tender their Borden Shares to the Purchaser under the Exchange
Offer, and, if required by applicable law, approve and adopt the Merger
Agreement and the transactions contemplated thereby.
On November 30, 1994, Borden announced that it had received the following
letter from Japonica (the "Japonica November 30 letter") and that the Borden
board of directors would consider and respond to such letter as soon as
practicable:
November 30, 1994
Frank J. Tasco
Director
Borden, Inc.
277 Park Avenue
New York, NY 10172
Dear Mr. Tasco:
Japonica Partners is pleased to make the definitive proposal you have
requested. Under our $2.4 billion proposal, Borden, Inc. shareholders would
receive cash and securities valued at $17.00 per share, a 19% premium over
the stated value of the KKR/Lazard proposal and a 43% premium over the
trading price on the day preceding the announcement of the KKR/Lazard
proposal.
The greatest potential for an increase in shareholder wealth will come
from unleashing the value contained within the company. Shareholders who
desire to participate in Borden, Inc.'s recovery will be provided the
opportunity to do so through a tax advantaged transaction in which a
substantial portion of the consideration would be realized without the
recognition of gain. Our proposal provides the resources for those
shareholders wishing to divest their common equity investment in Borden,
Inc. at $17.00 per share (a minority in our view).
Shareholders Participate in Borden, Inc.'s Recovery
Borden, Inc. would spin off its packaged foods division ("Borden Foods")
and dairy business ("Borden Nutrition") through a stock dividend consisting
of one share each of Borden Foods and Borden Nutrition per share of Borden,
Inc. As a result, continuing shareholders of Borden, Inc. would have shares
of three independent public companies with an aggregate initial value of
$17.00 per share (see the two attached comparisons of the values in our
proposal with the KKR/Lazard proposal). We believe that the value of these
shares will increase to between $22.00 and $25.00 per share, based on our
earnings projections for 1995 of $1.41 per share and $2.03 per share for
1996
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(see attached EPS chart). We are confident that these results can be
achieved through effective execution of 1990's business practices, such as
best in class use of Efficient Consumer Response, a refocus of company
resources towards value-added products and a movement away from the current
commodity mentality.
Shareholders Desiring to Divest their Common Equity Positions
Concurrent with the spin-off, Japonica is prepared to make an initial
cash investment of $430 million to purchase common equity. This cash,
together with an additional $240 million in Borden, Inc. preferred stock,
priced to trade at par, would be used to repurchase 30% of Borden, Inc.'s
currently outstanding shares at $17.00 a share.
For our $430 million investment, Japonica would receive shares in the
three public companies in varying percentages, priced on the same basis used
for the valuation to Borden, Inc. shareholders (an aggregate of $17.00 per
share). The allocation of Japonica's investment will be weighted toward the
units requiring the greatest turnaround. Japonica would also receive
warrants to acquire 10% of Borden, Inc. at an exercise price of $17.00 per
share, i.e., an incentive comparable to that which was to be provided to RJR
Nabisco in the agreement in principle relating to its proposed equity
infusion which was subsequently withdrawn unilaterally by RJR/KKR.
Continued Control by Borden, Inc. Shareholders
Consistent with Japonica's philosophy of responsiveness to the interests
of shareholders, Japonica's representation on the boards of Borden, Inc. and
its constituent companies will be in appropriate proportion to its equity
ownership in each company. Recommendations for additional directors will be
actively solicited from shareholders. Japonica Partners' willingness to
limit the extent of its control is in response to the desire of Borden,
Inc.'s shareholders to continue to possess the potential to participate in
control premiums realized from a future change in control once the basic
shareholder values are restored.
As should be obvious, the bulk of the $2.4 billion comes from the
recovery opportunities of the three separate public companies. Our
relatively modest initial equity investment is intended to accommodate what
we believe to be current shareholders' desire to share in Borden, Inc.'s
recovery. While Japonica's ownership is smaller than our historical
investments, it is a reflection of appropriate financing for the 1990's.
Accordingly, we do not anticipate excessively leveraging our investment.
Next Steps
We wish to meet with the Board of Directors in New York on December 6th
after the close of the market. We are making arrangements for appropriate
facilities. At this meeting, we would be prepared to respond to questions
you may have as to our proposal. In order to assure appropriate shareholder
input at this meeting, we would suggest that representatives of your more
substantial institutional shareholders be invited to participate.
We believe that your fiduciary duties as directors mandate that you take
steps to provide Borden, Inc. shareholders with a fair opportunity to select
between our proposal and the KKR/Lazard proposal. Toward that end, we would
urge you to call a special meeting of Borden, Inc. shareholders. As you
know, Borden, Inc. shareholders holding 10% of Borden, Inc.'s stock have the
right under New Jersey law to petition a New Jersey court to call a special
meeting of shareholders. The ability to call a special meeting is also held
by you, individually, as Chairman of the Board, and by Ervin Shames, as
Chief Executive Officer who abstained from the vote on the KKR/Lazard
proposal. If the board would prefer that shareholders act independently to
call a meeting, we are willing to consider providing appropriate assistance
to facilitate such a meeting.
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We are firmly convinced that after you have reviewed our proposal and
met with us, the board may wish to withdraw its recommendation in favor of
the KKR-Lazard proposal, and allow shareholders to decide between the two
transactions in a non-coercive manner. We look forward to our discussions
and to our role in enhancing shareholder value as a proactive white knight.
Sincerely,
/s/ JAPONICA PARTNERS
JAPONICA PARTNERS
cc: Board of Directors
On December 1, 1994, the Borden board met and reviewed the Japonica November
30 letter. Following the conclusion of such meeting, on behalf of the Borden
board, a letter was sent to Japonica. This letter advised Japonica that the
Borden board's objective is to maximize the value of Borden for its shareholders
and to do so the Borden board will pursue whatever transaction the Borden board
believes most likely to achieve its objective. The Borden board's letter also
noted that the Japonica November 30, 1994 letter is silent on many important
details, given the complex nature of the transactions it describes. Therefore,
in view of the time factors involved in the transaction involving the Common
Stock Partnerships and the Japonica proposal, the Borden board requested that
Japonica meet with the Borden board's representatives on Sunday, December 4,
1994, noting that one of the Borden board's independent directors would chair
the meeting on the Borden board's behalf. The Borden board's letter stated that
the purpose of the meeting would be to obtain detailed information about
Japonica's plans in order to assist the Borden board in its consideration of the
proposal set forth in the Japonica November 30 letter. In this connection, the
Borden board's letter requested that Japonica provide the Borden board with
detailed information on a number of fundamental questions raised in its review
of the Japonica November 30 letter, including: how Japonica would cause all of
Borden's shares to be worth $17 in the near future, the basis for and
assumptions underlying the per share earnings forecasts of the Japonica plan
which, notwithstanding preferred stock charges, are at levels more than double
estimates by Borden's management; how Japonica intended to deal with legal
issues such as fraudulent conveyance and illegal dividends for its proposed
spin-offs; how Japonica would handle Borden's debt that would become prepayable
as a result of the split up of Borden proposed by Japonica; the sources of
Japonica's financing and any material contingencies thereto; the dividend rate
and other terms required to cause the preferred stock to be issued under the
Japonica plan to trade at par; and the time period necessary to implement the
contemplated transactions (including obtaining assurances as to the tax-free
status thereof) and how Japonica would propose to protect Borden shareholders
against possible adverse developments in the interim period. The Borden board's
letter noted that its questions were not intended to limit the discussion at the
meeting but merely to give guidance to Japonica in preparing for the meeting and
that Japonica was invited to present whatever other information it wished. The
Borden board's letter concluded by requesting confirmation that Japonica would
be willing to meet on December 4, 1994, noting that if the date was not
convenient for Japonica, the Borden board will make every effort to schedule
something more convenient; the letter also requested that if Japonica was unable
to meet on such date, that Japonica provide the Borden board with a written
response to the Borden board's questions on or before such date. Following the
delivery of the Borden board's letter to Japonica, it was publicly reported that
a Japonica spokesman had stated that Japonica would respond to the Borden
board's request as soon as practicable.
After the close of business on December 2, 1994, on behalf of the Borden
board, a letter was sent to Japonica canceling the meeting scheduled by the
Borden board for December 4, 1994 in response to the Japonica November 30, 1994
Letter. The meeting was cancelled after Borden received no confirmation
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from Japonica that it would attend the scheduled meeting, and after a telephone
call seeking such confirmation was not returned.
On December 4, 1994, a letter dated December 3, 1994 was sent to Borden by
Japonica. Among other matters, the Japonica letter requested that the Borden
board attend a meeting Japonica had scheduled on December 6, 1994 at a public
hotel room in New York. In its letter, Japonica also stated that it was prepared
to discuss modifications to its proposal that would further enhance shareholder
value.
On December 4, 1994, on behalf of the Borden board, a letter was sent to
Japonica responding to Japonica's December 3 letter. In the Borden board's
letter, the Borden board agreed to a meeting on December 6, 1994 at Borden's New
York office and requested confirmation from Japonica by 4:00 p.m. on December 5,
1994 that it would attend the scheduled meeting. The letter stated that Japonica
was welcome to bring representatives of its financing sources, if any, to the
meeting, but that Borden did not expect others to attend. The Borden board's
letter also continued to request written responses to the questions contained in
the Borden board's December 1 letter, which it had still not received.
On December 5, 1994, letters were sent to the Chairman of the Board of
Borden by Japonica and to Borden's Chief Executive Officer by Mr. Kazarian of
Japonica. Similar letters may have been sent to other directors. Among other
matters, these letters sought to confirm a public meeting Mr. Kazarian had
called on December 6, 1994.
On December 5, 1994, after Borden received no response to the letter sent to
Japonica on December 4, 1994, the Borden board met to consider further the
November 30, 1994 letter from Japonica. The Borden board determined that it had
gone out of its way to give Japonica an opportunity to address the Borden
board's concerns in a businesslike and professional manner. Based upon
Japonica's conduct, the Borden board concluded that Japonica did not have
acceptable answers to the Borden board's questions, although it expressed a
willingness to consider any additional information that Japonica might provide.
Accordingly, after consultation with Borden's management and financial and legal
advisors, the Borden board concluded that Japonica's November 30, 1994 letter
did not present an attractive alternative to the transactions contemplated by
the Merger Agreement. This determination and the reasons therefor were
summarized in a letter to Japonica which is set forth below.
December 5, 1994
Japonica Partners
30 Kennedy Plaza
Providence, RI 02903
Attention: Mr. Paul Kazarian
Gentlemen:
The Borden Board of Directors has concluded for the reasons described
below that your November 30, 1994 letter does not present an attractive
alternative to the Whitehall transaction and that your claims in that letter
are not realistic or credible.
Based upon our in-depth knowledge of Borden, including our analysis of
various restructuring alternatives over the last 18 months, the information
you have provided, and after consultation with Borden's management and our
financial and legal advisors, the Board:
. Does not believe that you could cause Borden's common shares to be
worth $17 in the near future. In this regard, we note that you do
not contemplate injecting equity into Borden and that your proposal
will increase the Company's fixed charges.
. Considers as unrealistic your earnings per share forecasts which
for most years are more than double management's estimates.
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. Considers that your proposed spin-offs would likely entail serious
legal issues involving fraudulent conveyance and illegal dividends
and believes it is far from clear that the spin-offs can be
accomplished on a tax-free basis.
. Has serious doubts that you will be able to obtain consents or
refinancing for the at least $1.4 billion of debt that would become
due as a result of the implementation of your proposal. In this
regard, we note that the Board considers that Borden already has
too much debt and that your proposal will further increase the
Company's leverage.
. Believes that if you had committed financing without material
contingencies for the transactions you contemplate, you would have
provided the Board with some evidence thereof.
. Believes that the preferred stock to be exchanged for common stock
pursuant to your proposal would require a high dividend rate and
other restrictive terms in order to trade at par, causing a further
burden to the Company.
. Believes that it would take at least six months to implement the
transactions contemplated by your proposal and possibly longer and
notes your proposal does not protect Borden or its shareholders
against any possible adverse developments in the interim period.
We have gone out of our way to give you the opportunity to address with
us in a businesslike and professional atmosphere the concerns that led to
the conclusions set forth above. You have declined to attend two meetings we
have scheduled for that purpose or to provide written responses to our
questions. These failures follow your refusal several months ago to accept
our offer to provide you confidential Borden information on customary terms.
We conclude that you have no acceptable answers to the fundamental issues we
have raised and prefer to engage in publicity-seeking rather than
substantive dialogue.
As we have advised you, our objective is to maximize the value of Borden
for its shareholders, and we will pursue whatever transaction we believe
most likely to achieve our objective. If you choose to provide us with
additional information about your proposal, we will review it in light of
this objective.
On behalf of the Board of
Directors,
/s/ Frank J. Tasco
Frank J. Tasco
Chairman
Following the delivery of the foregoing letter, several members of the
Borden board received telephone calls from a Japonica representative inviting
them to the public meeting scheduled by Japonica for December 6, 1994. The
Borden board declined to attend. The full text of the foregoing correspondence
between Japonica and Borden has been filed as exhibits to Borden's Schedule
14D-9, as amended.
At its board of directors' meeting on December 5, 1994, the Borden board
approved, subject to reaching a satisfactory agreement-in-principle, the form of
the December 6, 1994 amendment to the Merger Agreement and the proposed
settlement of the pending litigation described above under "Merger Agreement
Amendment" and "Recent Developments Relating to Certain Regulatory Approvals and
Legal Matters--Recent Litigation; Proposed Settlement," respectively. On
December 6, 1994, agreement-in-principle was reached with respect to the
Proposed Settlement and the amendment to the Merger Agreement was entered into
as of that date.
On December 6, 1994, Japonica Partners held its public meeting, which Borden
did not attend. Following the meeting, Japonica released the following letter to
the press:
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December 6, 1994
Mr. Frank Tasco
Chairman
Borden, Inc.
277 Park Avenue
New York, NY 10172
Dear Mr. Tasco:
Despite your refusal to obtain first-hand responses to questions you
have raised and despite your unwillingness to thereby avail yourself of the
opportunity to follow-on discussions, we are submitting the following
modifications to our proposal. We believe these modifications both increase
the attractiveness of the proposal to Borden shareholders and satisfy points
that you have raised.
We remain willing to address any concerns in a fair and open forum. You
shouldn't be reluctant to obtain information that could substantially
enhance shareholder value, nor should you allow your advisors to ask and
answer their own questions without challenge. Such actions are inconsistent
with shareholder democracy and the inclusive process by which corporations
should be governed.
Pursuant to your request for written information on Japonica's proposed
Plan improvements to its November 30th proposal, please accept the
following:
Point One: Increase our Investment in Borden to $660 million. We will
inject an additional $230 million cash into Borden to relieve the current
concerns regarding the Company's financial profile at the $17.00 per share
market valuation. The $230 million additional Japonica investment will be on
terms that should have a positive impact on the Company's credit rating. We
anticipate this will be in the form of convertible securities with a market
rate (which we believe to be approximately 6 percent for preferred stock)
convertible into common equity at a premium of approximately 20 percent to
the underlying common stock, and with the Borden common stock trading at
$13.625, a 20 percent premium equals almost $17 per share.
The Convertible Securities will be in the form of Pay-in-Kind ("PIK")
preferred stock but the Company will have the option to exchange the
preferred shares for debt depending on its tax position. Because of the PIK
provision, the Company will not be obliged to pay cash dividends or interest
but could if it wishes make the payments in securities at a 10 percent
coupon rate.
Point Two: $430 million Stock Purchase Via Tender Offer. The $430
million stock purchased for $17.00 per share contemplated by our original
proposal would be made by Japonica directly either in the open market or via
a tender offer at the Company's option.
This should result in substantial improvement in timing in the execution
of the proposal and should alleviate expressed concerns about the share
repurchase.
Point Three: Eliminate the Preferred to be Exchanged for Common. The
$230 million of preferred stock to be exchanged for common was eliminated to
remove any obstacles the Company's advisors may have in connection with the
Japonica Proposal and to eliminate any concerns over trading values,
additional fixed charges, or increased debt levels.
The proceeds of our increased investment could be available for
corporate purposes or securities repurchases as the situation merits.
Point Four: Change in Board Composition. In connection with this
increased investment, we would be willing to allow all the current Board
members to withdraw and be replaced by directors to be designated by major
institutional shareholders. Our assumption is that all directors will wish
to withdraw. Japonica would have board representation equal to its economic
investment.
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Point Five: Other. Given our increased investment, we are required to
increase the level of $17.00 warrants to 20 percent. Also, the revised structure
will require transaction fees of approximately 40 percent of the fees approved
in connection with the KKR offer.
We look forward to maximizing Borden's shareholder value as a proactive
white knight. Our proposal is made pursuant to your on-going request.
Respectfully,
/s/ Japonica Partners
JAPONICA PARTNERS
At Borden's board of directors meeting held on December 9, 1994, the Borden
board reviewed Japonica's December 6, 1994 letter which modified Japonica's
November 30 letter. The Borden board also reviewed reports of Japonica's
December 6, 1994 public meeting held in New York. After consultation with
Borden's management and the Borden board's financial and legal advisors, the
Borden board determined that Japonica had still failed to address in meaningful
detail the fundamental questions raised by the Borden board in its December 1
letter. In the Borden board's view, Japonica's modifications to its proposal
still did not present an attractive alternative to the Partnership's
transaction. Among other things, Borden believed that Japonica had still not
provided any evidence of its financing sources, presented a plan to refinance
the at least $1.4 billion of debt that would become payable as a result of
implementation of Japonica's proposal or explained how it would resolve the
legal and tax issues involved in its proposed spin-offs of Borden businesses.
The Borden board reiterated its commitment to review any additional information
that Japonica may choose to provide in response to the concerns raised by the
Borden board.
Although subsequent press reports indicated that Japonica desired to engage
in a transaction, no further correspondence or contacts were received by Borden
from Japonica or Mr. Kazarian prior to the expiration of the Exchange Offer at
12:00 Midnight, New York City time, on December 20, 1994.
The Exchange Offer expired at 12:00 Midnight, New York City time, on
Tuesday, December 20, 1994. As of December 30, 1994, the Common Stock
Partnerships acquired an aggregate of 90,131,307 shares of Borden Common Stock
as a result of the Exchange Offer.
Upon exercise of the Option in full, the Common Stock Partnerships acquired
an additional 28,138,000 shares of Borden Common Stock for consideration equal
to an aggregate of 51,106,768 shares of Holdings Common Stock. Following
consummation of the Exchange Offer and the exercise of the Option as of December
30, 1994, the Common Stock Partnerships held 118,269,307 Borden Shares
(representing approximately 69.58% of the issued and outstanding shares of
Borden Common Stock).
Following consummation of the Exchange Offer and the exercise of the Option,
pursuant to the Merger Agreement and the Conditional Purchase/Option Agreement,
all of the directors of Borden other than Ervin R. Shames, Frank J. Tasco and
Wilbert J. LeMelle resigned as directors of Borden, Henry R. Kravis, George R.
Roberts, Clifton S. Robbins, Scott M. Stuart and Alexander Navab were elected to
the Borden board of directors by the remaining members of the Borden board of
directors and Mr. Kravis succeeded Mr. Tasco as Chairman of the Board of
Directors of Borden.
As of January 4, 1995, Borden, the Partnership and the Purchaser further
amended the Merger Agreement so that Borden Shares owned by either Common Stock
Partnership would be cancelled in the merger and not converted into a right to
receive Holdings Common Stock. In addition, the amendment effected a change to
one of the exhibits to the Merger Agreement. A composite conformed copy of the
Merger Agreement, after giving effect to all the amendments thereto, is included
as Annex I hereto.
Reasons for the Exchange Offer and Merger; Recommendation of the Borden
Board of Directors
At its board meeting on September 22, 1994, the Borden board of directors
determined that the Merger Agreement and the Conditional Purchase/Option
Agreement and the transactions contemplated thereby, including the Exchange
Offer and Merger, taken together, are fair to the shareholders of
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Borden and recommended that holders of Borden Shares accept the Exchange Offer
and tender their Borden Shares thereunder to the Purchaser and recommends that
holders of Borden Shares approve and adopt the Merger Agreement. This
determination and recommendation was made by the entire Borden board at such
meeting, with Mr. Shames, Borden's Chief Executive Officer, abstaining.
As described above under "--Borden Background," the Borden board was
confronted with two realistic choices: to approve the Proposed 1994
Restructuring Plan or to authorize Borden to enter into the Merger Agreement.
The Borden board's decision to enter into the Merger Agreement was based, in
large part, upon balancing the risks and opportunities of the Proposed 1994
Restructuring Plan recommended by management against the risks and benefits of
the Merger Agreement. On the one hand, the Borden board considered the Proposed
1994 Restructuring Plan to involve risk to the equity value of Borden in the
short run and, if the restructuring were to be unsuccessful, a substantial
future risk. On the other hand, although the Merger Agreement offers all
shareholders the opportunity to receive a premium for their Borden Shares,
because the form of consideration to be paid to shareholders is Holdings Common
Stock, the Borden board took into account the risk to the Holdings Common Stock
because of tobacco developments (including litigation, legislation and
governmental regulation) that the Borden board recognized were not determinable.
In balancing the two alternatives, the Borden board determined that the
transactions contemplated by the Merger Agreement were the less risky and
preferable alternative.
The recommendation by the Borden board that Borden's shareholders approve
and adopt the Merger Agreement is not, and should not be considered to be, a
recommendation that Borden's shareholders continue to own or, alternatively,
make a decision to sell the Holdings Common Stock acquired by such holders as a
result of the Merger.
In its deliberations, the Borden board considered a number of factors
including, without limitation, the following which includes all of the factors
the Borden board considered material:
1. The Borden board's knowledge of the business, operations, properties,
assets, financial condition, operating results and prospects of Borden,
including, in particular, its close monitoring of the adoption and
implementation of the 1993 Restructuring Plan, and the failure of that plan
to attain its goals (see "--Borden Background" for a description of the 1993
Restructuring Plan);
2. The Borden board's knowledge and judgments as to the results of
Borden's restructurings in 1989, 1991 and 1992, and their failure to achieve
the anticipated results;
3. The Borden board's judgment as to the future prospects of Borden in
light of management's Proposed 1994 Restructuring Plan (see "--Borden
Background" for a description of the Proposed 1994 Restructuring Plan),
which the Borden board viewed as posing significant risks for the equity
value of Borden including that it would result in Borden having a
substantial negative net worth; that it would require the sale of some of
Borden's profitable businesses; that there were risks inherent in selling
such businesses and attendant uncertainties as to what prices could be
realized; and that the proposed restructuring would still leave Borden
highly leveraged with a significant amount of indebtedness even after
application of the proceeds from the sales of the businesses. The Borden
board considered that the projected earnings for Borden following
implementation of the proposed restructuring would not, based upon the
advice of Lazard Freres, even if such earnings projections were met, likely
result in an implied stock price on an undiscounted basis (calculated by
multiplying leading earnings per share amounts by assumed multiples)
exceeding $14.25 until 1997, using a multiple of 13, or until mid-1996,
using a multiple of 16;
4. The view expressed by Borden's Chief Executive Officer that the
Proposed 1994 Restructuring Plan could be accomplished and that it was a
better alternative for Borden (see "--Borden Background");
5. The oral and written presentations of First Boston and Lazard Freres
and the opinions of First Boston and Lazard Freres that, as of September 22,
1994, the consideration to be received by the shareholders of Borden (other
than KKR and its affiliates) in the Exchange Offer and the Merger is fair to
such shareholders from a financial point of view. These opinions were based
on
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drafts of the Merger Agreement and the Conditional Purchase/Option Agreement
and were subsequently reconfirmed in writing upon the financial advisors'
review of the definitive agreements. Such opinions, which are subject to
limitations, qualifications and assumptions, including those relating to the
absence of adverse future developments in Holdings' tobacco business, are
included as Annexes II and III hereto, respectively, and should be read in
their entirety;
6. The terms and conditions of the Merger Agreement and the Conditional
Purchase/Option Agreement; the Borden board considered in particular the
"no-solicitation" provision of the Merger Agreement, the fees and expense
reimbursements payable to KKR (which could require payments of up to $65
million in the aggregate and which provisions were negotiated at arms'
length between the parties) and the termination provisions of the Merger
Agreement and concluded that the terms of the Merger Agreement and the
Conditional Purchase/Option Agreement would not preclude the Borden board
from considering alternative transaction proposals for Borden;
7. Possible alternatives to the Exchange Offer and the Merger, including
continuing to operate Borden as an independent public company, approving the
further restructuring proposed by Borden's management, or liquidating
Borden, as well as a range of potential values to Borden's shareholders
associated with such alternatives determined with the assistance of Borden's
financial advisors, the timing of effectuating such alternatives and the
likelihood of achieving those values;
8. Information concerning the business, financial condition and results
of operations of Holdings, including a discussion by Borden's management and
advisors regarding the due diligence investigation of Holdings undertaken on
the Borden board's behalf; in that connection the Borden board took into
account that the impact on Holdings from litigation (including pending and
future matters as well as class action litigation), legislation (pending and
future) and governmental regulation (present and future) involving tobacco
products was unknowable and could be devastating with respect to the value
of Holdings Common Stock;
9. The historical market prices of the Borden Shares and the Holdings
Common Stock;
10. The fact that the consideration to be received by Borden's
shareholders in the Exchange Offer and the Merger represented a premium over
the trading price of the Borden Shares prior to the announcement of the
Letter of Intent. In this regard, the Borden board considered the risk that
announcement of the Proposed 1994 Restructuring Plan might negatively impact
the trading price of the Borden Shares;
11. The fact that the consideration to be received by shareholders of
Borden in the Exchange Offer and the Merger will consist of equity
securities of Holdings, a widely followed, publicly traded company,
affording them a significant degree of liquidity should Borden's
shareholders determine to sell shares of Holdings Common Stock acquired in
the Exchange Offer or the Merger;
12. The fact that the Exchange Offer is for all of the outstanding
Borden Shares and holders of Borden Shares have the right to choose whether
or not to exchange their shares in the Exchange Offer;
13. The taxable nature of the transaction (as opposed to a transaction
that would be tax-free), recognizing that shareholders of Borden subject to
taxation whose basis in the Borden Shares was less than $14.25 would be
required to pay taxes even though they would receive no cash proceeds in the
transaction.
14. The correspondence from, and the results of, the discussions and the
meeting with Japonica and its representatives, the fact that no specific
transaction was proposed by Japonica, that Japonica would provide no
information with respect to its potential sources of financing and that the
Merger Agreement does not, in the Board's judgment, preclude consideration
by the Borden board of any proposal made by Japonica or any other party; and
15. The fact that the efforts to sell Borden in late 1993 were not
successful and that despite the public disclosure that Borden was
considering a number of alternatives for Borden, including
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the possible sale or merger of Borden, no third party contacted Borden
subsequent to such announcement and prior to the execution of the Merger
Agreement except the Partnership and Japonica and only the Partnership made
a proposal to acquire Borden (see "--Borden Background").
In reaching the conclusion that the holders of Borden Shares will receive
fair value in the Merger in Holdings Common Stock, Borden's board considered the
opinions of its financial advisors which appear as Annexes II and III to this
Proxy Statement/Prospectus, and are further described under "-- Opinions of
Financial Advisors", its knowledge of Borden's businesses and discussions with
Borden's management and Borden's and the board's financial advisors of their
views concerning the businesses, financial condition and prospects of Holdings.
The Borden board, with the assistance of Borden's financial advisors, also
considered recent and current market prices of Holdings Common Stock, on which
the Exchange Ratio for the Exchange Offer and the Merger was based. The Borden
board recognized that if KKR and its affiliates acquire more than 51% of Borden,
the financial advisors would be entitled to aggregate fees equal to $20,000,000
which the Borden board believed to be reasonable for complex transactions of
this type and appropriate in light of the services provided by such financial
advisors to the board and Borden.
As noted in the second paragraph of "--Reasons for the Exchange Offer and
Merger; Recommendation of the Borden Board of Directors" and in paragraph 8
above, the Borden board gave considerable weight to tobacco-related
considerations in weighing the risks and benefits of the Merger Agreement
against the risks and benefits of a fifth restructuring of Borden. As described
in paragraph 8 above, members of Borden's senior management and advisors
undertook a due diligence investigation of Holdings, including these matters,
with members of Holdings' senior management. The Borden board also reviewed the
statements in Holdings' recent public filings with respect to these matters. The
Borden board was advised that Holdings' disclosures with respect to these
matters in due diligence sessions with Borden's management and advisors were
consistent with the statements made in such public filings. Holdings advised
Borden that its due diligence access and investigation with respect to these
matters was at least equal to the access and investigation of any other third
party that had conducted due diligence of Holdings recently, including lenders
and underwriters of publicly issued securities. The Borden board determined
that, following its review of due diligence with respect to these matters as
discussed above, which included discussions with Borden's management and
advisors, evaluation of these matters was a matter of judgment and that the
impact on Holdings from litigation (including pending and future matters as well
as class action litigation), legislation (pending and future) and governmental
regulation (present and future) involving tobacco products was unknowable and,
therefore, not capable of being determined by any expert. Although the Borden
board did not seek additional expert opinions regarding tobacco liability, for
this reason, the Borden board accepted the opinions of its financial advisors
recognizing that such opinions specifically excluded the effects of future
developments in Holdings' tobacco business in light of such advisors'
statements, contained in their opinions, that they "are not in a position to
make an independent evaluation" of such matters. Given the nature of these
matters (see "Significant Considerations--Information Concerning
Holdings--Tobacco-Related Considerations"), the Borden board considered that the
impact of such matters could be devastating with respect to the value of the
Holdings Common Stock. On the other hand, the Borden board, as noted in
paragraph 9 above, considered the historical market prices of Holdings Common
Stock and noted that Holdings Common Stock is a liquid, well-followed security.
After considering all of the factors described in this section (including the
tobacco-related risks to Holdings Common Stock), the Borden board determined to
enter into the Merger Agreement.
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Prior to the commencement of the Exchange Offer on November 22, 1994, the
Borden board reviewed developments since September 22, 1994, including Borden's
financial performance, contacts from third parties and Nabisco's proposed public
offering, and ratified the recommendation set forth above. The Borden board has
taken no further action with respect to the recommendations since September 22,
1994.
The foregoing discussion of the information and factors considered and given
weight by the Borden board is not intended to be exhaustive. In view of the
variety of factors considered in connection with its evaluation of the Exchange
Offer and the Merger, the Borden board did not find it practicable to and did
not, quantify or otherwise assign relative weights to the specific factors
considered in reaching its determination. In addition, individual members of the
Borden board may have given different weights to different factors.
OPINIONS OF BORDEN FINANCIAL ADVISORS
Opinion of Lazard Freres. Lazard Freres delivered its written opinion to the
Borden board that, as of September 22, 1994, the consideration to be received by
the shareholders of Borden (other than the Partnership, the Purchaser or any
other subsidiary of the Partnership) in the Exchange Offer and the Merger is
fair to such shareholders, from a financial point of view. The opinion of Lazard
Freres has not been, and is not anticipated to be, updated.
The full text of the written opinion of Lazard Freres, dated September 22,
1994, which sets forth the assumptions made, matters considered and the review
undertaken with regard to such opinion, appears as Annex II to this Proxy
Statement/Prospectus. Lazard Freres' opinion is directed only to the fairness of
the consideration to be received by the shareholders of Borden (other than the
Partnership, the Purchaser or any other subsidiary of the Partnership) and does
not address any other terms of any transaction involving Borden, the Partnership
and its affiliates, including Holdings, or Borden's underlying business decision
to affect the transaction with the Partnership. Lazard Freres' opinion was
delivered for the information of the Borden board and does not constitute a
recommendation to any shareholder of Borden as to whether such shareholder
should tender Borden Shares in the Exchange Offer or as to how such shareholder
should vote at any meeting of Borden's shareholders called to consider the
Merger. The summary of the opinion of Lazard Freres set forth below is qualified
in its entirety by reference to the full text of the opinion. Borden's
shareholders are urged to read this opinion in its entirety.
In rendering its opinion, Lazard Freres, among other things, (i) reviewed
the terms and conditions of a draft of each of the Merger Agreement, the
Conditional Purchase/Option Agreement and the financial terms of the
transactions as set forth therein; (ii) analyzed historical business and
financial information relating to Borden and Holdings, including certain public
filings of each of Borden and Holdings; (iii) reviewed certain financial
forecasts and other data provided by Borden and each of Holdings and the
Partnership relating to the businesses of Borden and Holdings, respectively,
including the most recent business plan for Borden prepared by Borden's senior
management, the Proposed 1994 Restructuring Plan; (iv) conducted discussions
with members of the senior managements of Borden and each of Holdings and the
Partnership with respect to the businesses and prospects of Borden and Holdings,
respectively, and the strategic objectives of each; (v) reviewed public
information with respect to certain other companies in lines of businesses
believed by Lazard Freres to be generally comparable in whole or in part to the
businesses of Borden and Holdings, and reviewed the financial terms of certain
other business combinations that have recently been effected; (vi) reviewed the
historical stock prices and trading volumes of Borden Common Stock and Holdings
Common Stock; and (vii) conducted such other financial studies, analyses and
investigations as Lazard Freres deemed appropriate. The foregoing factors
represent all of the material factors considered by Lazard Freres.
In connection with its review, Lazard Freres relied upon the accuracy and
completeness of the financial and other information concerning Borden and
Holdings that had been received by Lazard Freres and did not assume any
responsibility for independent verification of such information or any
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independent valuation or appraisal of any of the assets of Borden or Holdings,
nor did Lazard Freres receive any such appraisals. With respect to the financial
forecasts, Lazard Freres assumed that they had been reasonably prepared on the
bases reflecting the best currently available estimates and judgments of
management of Borden and Holdings as to the future financial performance of
Borden and Holdings, respectively. Lazard Freres assumed no responsibility for
and expressed no view as to such forecasts or the assumptions upon which they
were based. Lazard Freres' opinion stated that it was based on economic,
monetary, market and other conditions as in effect on, and information made
available to it as of, the date of the opinion.
In giving the opinion, Lazard Freres noted that it was not in a position to
make an independent evaluation of certain matters described below (which involve
an assessment of legal, legislative and regulatory contingencies that is beyond
the area of Lazard Freres' professional expertise) and thus, with the
concurrence of the Borden board, Lazard Freres assumed, for purposes of the
opinion, that no material adverse effect on Holdings or on the trading value of
Holdings Common Stock would result from (x) the proposal, enactment or adoption
after September 22, 1994 of any laws or regulations (including the imposition of
additional taxes on the manufacture, sale or distribution of tobacco products)
by any federal, state, local or other jurisdiction or any governmental or
regulatory body or agency thereunder relating to, arising out of, or otherwise
affecting the tobacco industry, including, without limitation, the manufacture,
sale, distribution or use of tobacco products, or (y) any judicial or
administrative proceeding initiated or decided after September 22, 1994,
including any civil or criminal litigation or arbitration, relating to, arising
out of or otherwise involving or affecting Holdings, the tobacco industry, or
any other company engaged in said industry, including, without limitation, the
manufacture, sale, distribution or use of tobacco products. Lazard Freres
advised the Borden board that Lazard Freres was not assuming any responsibility
for or expressing any view with respect to the matters described in the
preceding sentence.
Lazard Freres assumed that the transactions described in the draft Merger
Agreement and draft Conditional Purchase/Option Agreement referred to above
would be identical in all material respects to the Merger Agreement and the
Conditional Purchase/Option Agreement, respectively, that the transactions would
be consummated on terms described in the draft Merger Agreement, without any
waiver of any terms or conditions by Borden and that obtaining the necessary
regulatory approvals for such transactions would not have an adverse affect on
Holdings or on the trading of the Holdings Common Stock. Lazard Freres has since
advised the Borden board that the changes incorporated in the Merger Agreement,
including the Amendment, and the Conditional Purchase/Option Agreement from the
drafts made available to Lazard Freres on which the opinion was based, would not
have affected Lazard Freres' ability to deliver its opinion set forth therein.
In its analyses, Lazard Freres did not consider the proposed public offering of
between 17.9% and 19.5% of Nabisco, since the proposed offering was not publicly
filed until October 28, 1994.
The following is a brief summary of the analyses performed by Lazard Freres
in connection with rendering its opinion as to the fairness of the consideration
to be received by the shareholders of Borden (other than the Partnership, the
Purchaser or any other subsidiary of the Partnership) from a financial point of
view and discussed with the Borden board at its meeting on September 22, 1994.
The financial analyses used by Lazard Freres in arriving at its opinion
included: (i) a "has-gets" comparison, which compared the various
characteristics, including dividend payments and earnings per share data, of a
Borden Share with the characteristics of shares of Holdings Common Stock to be
received in the Exchange Offer or the Merger at exchange ratios within the range
provided for in the Merger Agreement; (ii) valuation analyses, which consisted
of (w) discounting to the present value potential future trading values of
Borden Common Stock under the Proposed 1994 Restructuring Plan, (x) discounting
to the present value projected cash flow forecasted by Borden's management to be
derived under the Proposed 1994 Restructuring Plan, (y) discounting to the
present value potential proceeds that might have been obtained from
implementation of the Proposed 1994 Restructuring Plan for a period of time,
followed by the tax-free distribution to Borden's shareholders of its non-food
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business segment and the tax-free disposition of Borden's food business segment
and (z) valuing the proceeds on an after-tax basis that might have been obtained
from divestitures of Borden's business units; (iii) comparable company trading
analyses, which consisted of comparing financial, market and operating
performances of selected publicly traded companies to business segments of
Borden; and (iv) comparable transaction analyses, which consisted of reviewing
financial aspects of selected acquisitions of assets or businesses comparable to
those of Borden.
The material portions of the foregoing analyses (which are all of the
material valuation methodologies performed by Lazard Freres) are summarized in
more detail below.
Has--Gets Comparison
Lazard Freres compared the various characteristics, including dividend
payments and earnings per share data, of a share of Borden Common Stock with the
characteristics of shares of Holdings Common Stock to be received in the
Exchange Offer or the Merger, assuming a price of Holdings Common Stock in the
range of $6 to $8, which represents the exchange value of Holdings Common Stock
within the collar. Lazard Freres noted that Borden's shareholders would be
receiving a premium of 22.6% over the closing price of a share of Borden Common
Stock on September 9, 1994, and a premium of 19.2% over the average price of a
share of Borden Common Stock during the period from August 9, 1994 to September
9, 1994.
Lazard Freres also presented the Borden board with information concerning
the historical trading prices of the Borden Common Stock which indicated that
for part of the 12-month period preceding September 9, 1994, the Borden Common
Stock traded at market prices higher than $14.25, although in the six-month
period preceding September 9, 1994, the Borden Common Stock generally traded at
market prices less than $14.25.
Valuations of Alternative Scenarios
Lazard Freres also analyzed Borden's possible value under four alternative
scenarios. These scenarios included (i) a discounted present value analysis of
the potential future public market trading values of Borden Common Stock based
upon management's earnings per share forecast under the Proposed 1994
Restructuring Plan; (ii) a discounted unleveraged cash flow analysis based upon
unleveraged cash flow projected under the Proposed 1994 Restructuring Plan
through 1998 plus terminal values based on projected 1998 earnings before
interest, taxes and amortization ("EBITA") under the Plan; (iii) a valuation
analysis assuming that the Proposed 1994 Restructuring Plan is implemented
through December 31, 1995 and, on January 1, 1996, a tax-free distribution of
the non-food business segment to Borden's shareholders, as well as a tax-free
disposition of the food business segment, are consummated; and (iv) an after-tax
breakup analysis. These alternative valuation scenarios are described below.
Discounted Value--Proposed 1994 Restructuring Plan
Lazard Freres analyzed the potential future public market trading values of
Borden suggested by Borden management's earnings per share forecasts under the
Proposed 1994 Restructuring Plan, applying at the beginning of each year
multiples of 13 to 16 times the forecasted earnings per share for that year, and
discounting the result at a 13.7% annual discount rate. This analysis, which was
conducted for the 1995 through 1998 earnings per share forecast, generated per
share present values of potential future trading values ranging from $9.60 to
$13.61.
Unleveraged Discounted Cash Flow Analysis
Lazard Freres' unleveraged discounted cash flow analysis was based upon the
financial information for each of Borden's major business units forecast by
Borden management to be derived under the Proposed 1994 Restructuring Plan.
Lazard Freres calculated a range of the net present values of the projected
unleveraged free cash flows in the forecast, using various discount rates
reflecting a weighted average cost of capital in the range of 10% to 12%, of
$894 million to $932 million. Lazard Freres also calculated a range of terminal
values for Borden by multiplying projected EBITA for 1998 by a range of
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exit multiples from 9.5 to 10.5 and discounting the result to present value
using the same discount rates. The net present value of projected free cash
flow, when combined with the terminal values, yielded a total enterprise value
in the range of $3.416 billion to $3.929 billion. In order to derive total
equity value and the equity value per share of Borden, Lazard Freres subtracted
from the total enterprise value the estimated net debt and other liabilities
forecasted under the Proposed 1994 Restructuring Plan at December 31, 1994 to
yield a total equity value range of $1.646 billion to $2.158 billion, or a per
share equity value in the range of $11.64 to $15.26.
1996 Tax-free Distribution/Sale
In analyzing the possible value of Borden assuming a tax-free distribution
of the non-food business segment and concurrent tax-free disposition of the food
business segment as of January 1, 1996, Lazard Freres established a range of
potential per share public trading values for the Borden's non-food business
segment as of January 1, 1996, as well as a range of aggregate sales valuations
for each of Borden's food business segments. This analysis yielded a value range
per share, discounted to January 1, 1995, at a 13.7% annual discount rate, of
$10.40 to $15.09.
After-tax Breakup Analysis
Lazard Freres also analyzed Borden's possible value under an after-tax
breakup analysis, assuming that its businesses are sold in separate taxable
transactions. In determining such possible values, Lazard Freres deducted
potential tax payments from the reference valuation range for each of the
business units, assuming a tax rate of 38%. For purposes of this analysis,
Lazard Freres relied upon tax data (including as to basis) provided by Borden.
This analysis yielded a valuation range of $7.64 to $12.87 per share.
Comparable Company Trading Analysis
Lazard Freres selected other publicly traded companies whose lines of
business made them, in Lazard Freres' judgment, comparable to Borden (the
"Comparable Group"). Using publicly available financial data for historical
periods, as well as publicly available financial data estimates for 1994 and
1995, Lazard Freres determined the relationship for the companies in the
Comparable Group between their then current price per share and earnings per
share ("P/E Ratio"), as well as between aggregate valuation ("AV") and earnings
before interest, taxes, depreciation and amortization ("EBITDA") ("AV/EBITDA
Ratio"), EBITA ("AV/EBITA Ratio") and earnings before interest and taxes
("EBIT") ("AV/EBIT Ratio"). Lazard Freres also performed similar analyses for
Borden based upon the multiples implied by a transaction value estimated at
$14.25 per share in relation to the actual results through June 1994 (the "12
Month Actual Period"), and estimated results for the years ended 1994 and 1995
(the "1994 and 1995 Periods") forecasted under the Proposed 1994 Restructuring
Plan. These analyses generated an estimated 1994 and 1995 P/E Ratio for Borden
of 30.3 and 19.0, respectively, as compared to the average, median, high and low
1994 P/E Ratios for the Comparable Group of 16.1, 15.9, 17.7 and 14.6, and the
average, median, high and low 1995 P/E Ratios for the Comparable Group of 14.6,
14.3, 15.5 and 13.7. These analyses generated AV/EBITDA Ratios for Borden for
the 12 Month Actual Period and the 1994 and 1995 Periods of 13.2, 10.2 and 8.4,
respectively, as compared to the average, median, high and low AV/EBITDA Ratios
for the Comparable Group of 8.3, 8.4, 9.2 and 5.8 for the 12 Month Actual Period
of 8.0, 8.0, 9.0 and 7.2 for the 1994 Period and of 7.5, 7.4, 8.4 and 7.0 for
the 1995 Period. These analyses also generated AV/EBITDA Ratios for Borden for
the 12 Month Actual Period, and the 1994 and 1995 Periods, of 30.0, 13.1 and
10.5, respectively, as compared to the average, median, high and low AV/EBITA
Ratios for the Comparable Group of 10.3, 10.4, 11.3 and 7.6 for the 12 Month
Actual Period, of 9.8, 9.7, 10.7 and 8.9 for the 1994 Period, and of 9.2, 9.1,
9.7 and 8.7 for the 1995 Period. These analyses also generated AV/EBIT Ratios
for Borden for the 12 Month Actual Period, and the 1994 and 1995 Periods, of
41.0, 14.0 and 11.0, respectively, as compared to the average, median, high and
low AV/EBIT Ratios for the Comparable Group of 10.7, 10.9, 11.7 and 8.0 for the
12 Month Actual Period, of 10.1, 10.1, 10.9 and 9.3 for the 1994 Period, and of
9.5, 9.6, 10.1 and 9.0 for the 1995 Period. The Comparable Companies
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examined in Lazard Freres' analysis included Campbell Soup Company; Conagra,
Inc.; CPC International Inc.; General Mills, Inc.; H.J. Heinz Company; Hershey
Foods Corporation; Kellogg Company; Pet Incorporated; The Quaker Oats Company;
and Ralston Purina Company.
Comparable Acquisition Analysis
Lazard Freres reviewed acquisitions of companies and businesses similar to
those of Borden over the past several years, and selected a number of those
acquisitions which it believed were most comparable to a transaction involving
the sale of Borden (the "Comparable Transactions"). Using publicly available
information, Lazard Freres determined for the Comparable Transactions the
relationship between the transaction price per target company share and the last
12 months earnings per target company share ("P/E Ratio") and book value per
target company share ("P/BV Ratio"), as well as between the aggregate target
company valuation and the last 12 months target company sales ("AV/Sales
Ratio"), EBITDA ("AV/EBITDA Ratio") and EBIT ("AV/EBIT Ratio"). Lazard Freres
also noted the premium of the transaction price over the target company price
one month prior to the announcement of the transaction. Lazard Freres also
performed similar analyses for Borden based upon an acquisition at $14.25 in
relation to its actual results for the 12 months ended June 1994 and its
forecasted results for fiscal 1994 on a pro forma basis as forecasted by the
Proposed 1994 Restructuring Plan. These analyses generated an estimated P/E
Ratio for Borden of 30.3, for the 12 months ended June 1994 as compared to the
average, median, high and low P/E Ratios for the Comparable Transactions of
26.5, 25.9, 60.1 and 13.1, respectively. These analyses also generated a P/BV
Ratio for Borden of 7.8 for the 1994 fiscal year, on a pro forma basis, as
compared to the average, median, high and low P/BV Ratios for the Comparable
Transactions of 8.1, 5.2, 37.6 and 1.4, respectively. These analyses also
generated AV/Sales Ratios for Borden of 0.8 (actual to June 1994) and 1.1 (pro
forma 1994), as compared to the average, median, high and low AV/Sales Ratios
for the Comparable Transactions of 1.3, 1.1, 3.3 and 0.5, respectively. These
analyses also generated AV/EBITDA Ratios for Borden of 13.2 (actual to June
1994) and 10.2 (pro forma 1994), as compared to the average, median, high and
low AV/EBITDA Ratios for the Comparable Transactions of 9.8, 9.0, 17.5 and 6.1,
respectively. These analyses also generated AV/EBIT Ratios for Borden of
approximately 41.0 (actual to June 1994) and 14.0 (pro forma 1994), as compared
to the average, median, high and low AV/EBIT Ratios for the Comparable
Transactions of 13.8, 13.9, 20.9 and 7.9, respectively. Finally, this analysis
reflected a premium over trading price one month prior to announcement for
Borden of 17.5%, as compared to the average, median, high and low premium for
the Comparable Transactions of 63.4%, 57.9%, 131.9% and 18.5%, respectively. The
Comparable Transactions examined in Lazard Freres' analyses included: Sandoz
Ltd./Gerber Products Company; Specialty Foods Acquisition Corporation/North
American food business of Beledia N.V.; Tomkins plc/Ranks, Hovis, McDougall plc;
Campbell Soup Company/Arnotts Ltd.; The Phillip Morris Companies Inc./Freia
Marabou A/S; Nestle S.A./Source Perrier Company; The Phillip Morris Companies
Inc./Suchard; Conagra, Inc./Beatrice Companies, Inc.; KKR/RJR Nabisco, Inc.; The
Philip Morris Companies Inc./Kraft Inc.; Grand Metropolitan plc/The Pillsbury
Companies Inc.; Nestle S.A./Rowntree Company; KKR/Beatrice Companies, Inc.; The
Philip Morris Companies Inc./General Foods Corporation; R.J. Reynolds
Company/Nabisco, Inc.; and Nestle S.A./Carnation Company.
In arriving at its written opinion and in discussing its opinion with the
Borden board, Lazard Freres performed various financial analyses, portions of
which are summarized above. The summary set forth above does not purport to be a
complete description of Lazard Freres' analyses. Lazard Freres believes that its
analyses and the summaries set forth above must be considered as a whole and
that selecting portions of its analyses, without considering all analyses, could
create an incomplete view of the process underlying the opinion. In performing
its analyses, Lazard Freres made numerous assumptions with respect to industry
performance, general business and economic conditions and other matters, many of
which are beyond the control of Borden or Holdings. Although, in connection with
the delivery of its opinion, Lazard Freres also analyzed Holdings, Lazard
Freres' opinion is not a valuation of Holdings and does not represent Lazard
Freres' view as to what the value of the shares of Holdings Common Stock will be
upon consummation of the Exchange Offer or the Merger. In giving its opinion as
to the
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fairness of the consideration to be received by the shareholders of Borden,
Lazard Freres derived a range of values for Borden Common Stock using the
valuation analyses described above and compared them with $14.25, the trading
value (determined pursuant to the Exchange Ratio at the time of the delivery of
Lazard Freres' opinion) of the shares of Holdings Common Stock to be received as
consideration in the Exchange Offer and the Merger. Lazard Freres reviewed
Holdings' public filings with the Commission, reviewed publicly available
analyst and other third party reports addressing Holdings and Holdings Common
Stock and held discussions with senior management of Holdings. Based solely on
the foregoing, Lazard Freres determined that it was not aware of any material
information relating to Holdings that was not publicly disclosed and thus
concluded that the trading value (at the time of the delivery of Lazard Freres'
opinion) of Holdings Common Stock, a liquid, well-followed security, reflected
the market's reasonable assessment of its value. Because of the large aggregate
amount of shares of Holdings Common Stock being issued to shareholders of Borden
and other factors, such shares may trade at prices below those at which they
would trade initially on a fully distributed basis. In addition, as described
above, in its analyses, Lazard Freres assumed, with Borden's concurrence, the
absence of certain future adverse developments affecting Holdings or the tobacco
industry in general. See "Significant Considerations--Exclusion of the Effects
of Future Tobacco Developments from Opinions of Borden's Financial Advisors."
The analyses performed by Lazard Freres are not necessarily indicative of actual
values or actual future results, which may be significantly more or less
favorable than suggested by such analyses. Additionally, analyses relating to
the values of businesses do not purport to be appraisals or to reflect actual
market valuations or trading ranges, which may vary significantly from amounts
set forth above.
Opinion of First Boston. On September 22, 1994, First Boston delivered its
written opinion to the Borden board that, as of such date, the consideration to
be received by the shareholders of Borden, other than KKR and its affiliates, in
each of the Exchange Offer and the Merger was fair to such shareholders from a
financial point of view. The opinion of First Boston has not been, and is not
anticipated to be, updated. No limitations were imposed by the Borden board upon
First Boston with respect to the investigations made or the procedures followed
by it in rendering its opinion, except that First Boston was not requested to,
and did not, solicit third party offers to acquire all or any part of Borden or
participate in efforts other advisors may have made to solicit alternative
offers.
First Boston's opinion was directed only to the fairness of the
consideration to be received by the shareholders of Borden, other than KKR and
its affiliates, and did not address any other terms of any transaction involving
Borden and KKR and its affiliates or Borden's underlying business decision to
effect the transaction with the Partnership. First Boston's opinion was
delivered for the information of the Borden board and does not constitute a
recommendation to any Borden shareholder as to whether such shareholder should
tender Borden Shares into the Exchange Offer or how such shareholder should vote
at any meeting of Borden shareholders called to consider the Merger.
In arriving at its opinion, First Boston reviewed, among other things, the
Letter of Intent, the Merger Agreement and the Conditional Purchase/Option
Agreement, as well as certain publicly available business and financial
information relating to each of Borden and Holdings. First Boston also
considered certain financial and stock market data for each of Borden and
Holdings and compared that data with similar data for other publicly held
companies in businesses similar to those of Borden and Holdings, respectively,
and considered the financial terms of certain other business combinations that
have recently been effected. In addition, First Boston participated in
discussions with Borden's management and with management of Holdings and
representatives of KKR concerning the past and current operations, financial
condition and prospects of each of Borden and Holdings, respectively, and
considered such other information, financial studies, analyses and
investigations and financial, economic and market criteria which it deemed
relevant. The foregoing factors represent all of the material factors considered
by First Boston.
In connection with its review, First Boston did not assume any
responsibility for independent verification of any of the foregoing information
and relied on its being complete and accurate in all
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material respects. With respect to the financial forecasts, First Boston assumed
that they had been reasonably prepared on bases reflecting the best currently
available estimates and judgments of each of Borden's and Holdings' managements
as to the future financial performance of Borden and Holdings, respectively, and
First Boston's opinion did not express any views as to such forecasts or the
assumptions underlying such forecasts. First Boston also did not assume any
responsibility for an independent evaluation or appraisal of the assets or
liabilities of Borden or Holdings, nor was First Boston furnished with any such
appraisals.
In giving its opinion First Boston also assumed, with Borden's consent, that
there will not be any material adverse effect on Holdings or on the trading
value of the Holdings Common Stock as a result of or relating to (x) the
proposal, enactment or adoption after September 22, 1994, of any laws or
regulations (including the imposition of additional taxes on the manufacture,
sale or distribution of tobacco products) by any federal, state, local or other
jurisdiction or any governmental or regulatory body or agency thereunder
relating to, arising out of, or otherwise affecting the tobacco industry,
including without limitation the manufacture, sale, distribution or use of
tobacco products, or (y) any judicial or administrative proceeding initiated or
decided after September 22, 1994, including any civil or criminal litigation or
arbitration relating to or arising out of or otherwise involving or affecting
Holdings, the tobacco industry, or any other company engaged in said industry,
including without limitation the manufacture, sale, distribution or use of
tobacco products. First Boston advised the Borden board that First Boston was
not in a position to make an independent evaluation of these matters (which
involve an assessment of legal, legislative and regulatory contingencies that is
beyond the area of First Boston's professional expertise) and assumed no
responsibility for and expressed no view with respect to these matters.
First Boston assumed that the transactions described in the draft Merger
Agreement and draft Conditional Purchase/Option Agreement referred to above
would be identical in all material respects to the Merger Agreement and the
Conditional Purchase/Option Agreement, respectively. First Boston also assumed
that the transactions contemplated by the Merger Agreement and the Conditional
Purchase/Option Agreement would be consummated on the anticipated terms, without
any waiver of terms or conditions by Borden and that obtaining necessary
regulatory consents will not have an adverse effect on Holdings or the trading
value of Holdings Common Stock. First Boston has since advised the Borden board
that the changes incorporated in the Merger Agreement, including the Amendment,
and the Conditional Purchase/Option Agreement from the drafts made available to
First Boston on which the opinion was based, would not have affected First
Boston's ability to deliver its opinion set forth herein.
The full text of the opinion of First Boston dated September 22, 1994, which
sets forth assumptions made, matters considered and limits on the review
undertaken, appears as Annex III to this Proxy Statement/Prospectus. Borden
shareholders are urged to read this opinion in its entirety. The summary of the
opinion of First Boston is qualified in its entirety by reference to the full
text of such opinion.
The generally accepted financial analyses First Boston used in reaching its
opinion included (i) discounted cash flow ("DCF") analyses, which consisted of
discounting to present value the projected future free cash flows and terminal
values of each of Borden's major business units on a business unit by business
unit basis, (ii) comparable company trading analyses, which consisted of
reviewing market statistics and financial and operating information in respect
of selected publicly traded companies considered for comparability to Borden's
major business units, (iii) comparable acquisition analyses, which consisted of
reviewing operating statistics and purchase price information with respect to
selected acquisitions of assets or businesses similar to those of Borden's major
business units and (iv) a disaggregation analysis in which First Boston
supplemented the other three analyses by taking into account tax costs related
to the disposition in the short term of Borden's major business units. The
material portions of these analyses (which are all of the material valuation
methodologies performed by First Boston) are summarized below. In its analyses,
First Boston did not consider the proposed public offering of between 17.9% and
19.5% of Nabisco, since the proposed offering was not
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publicly filed until October 28, 1994. To derive an implied equity reference
range for Borden as a whole, First Boston used the analyses described in (i)
through (iii) above for each major business unit to obtain a reference range for
each unit, totalled these reference ranges, and then subtracted debt and
minority interests, pension underfunding and capitalized non-allocated
administrative costs and added the present value of the benefit of net operating
losses and excess cash.
Discounted Cash Flow Analysis
First Boston's DCF analysis was based upon the four-year financial forecast
for each of Borden's major business units contained in management's financial
forecast, as well as a forecast for years five through nine prepared by First
Boston with underlying assumptions similar to management's projections for years
one through four. First Boston also calculated a range of terminal values for
each business unit by multiplying projected earnings for each business unit for
2004 by a range of exit multiples (8.5x to 9.0x for Niche Grocery; 8.0x to 8.5x
for Pasta and Packaging; 7.5x to 8.0x for International Foods Unit; 8.0x to 9.0x
for Resin and Consumer Adhesives; and 6.5x to 7.0x for Decorative Products)
derived from comparable companies and transactions. First Boston discounted the
projected unleveraged free cash flows in the forecast and the projected terminal
values at a range of discount rates for each business unit (12% to 13% for Niche
Grocery, Pasta and International Foods Unit; and 12% to 14% for Packaging,
Resin, Decorative Products and Consumer Adhesives) to arrive at an estimated
present value range for each of Borden's major business units. The hypothetical
range of values for each of the Borden's major business units derived from the
DCF analysis ranged from approximately $675 to $800 million for Niche Grocery;
$800 to $1,050 million for Pasta; $750 to $900 million for International Foods
Unit; $300 to $375 million for Packaging; $800 to $1,000 million for Resin; $275
to $325 million for Decorative Products; and $140 to $180 million for Consumer
Adhesives.
Comparable Company Trading Analysis
For each of Borden's major business units, First Boston selected other
publicly traded companies whose market positions and capital structures made
them, in its judgment, most closely comparable to the relevant Borden unit.
Using publicly available financial and stock price data, First Boston determined
the relationship for these comparable companies between equity value (total
market value of outstanding equity securities) and net income and book value and
between capitalized value (equity value plus debt, preferred stock and minority
interest less cash and marketable securities) and sales, EBITDA and EBIT. First
Boston then derived a range of multiples of capitalized value as a multiple of
1994 and 1995 sales, EBITDA and EBIT (1.8x to 2.1x, 8.5x to 10.0x and 9.2x to
10.8x, respectively, for 1994, and 1.8x to 2.1x, 8.6x to 10.1x and 9.3x to
11.0x, respectively, for 1995, for Niche Grocery; 1.0x to 1.0x, 11.5x to 12.4x
and 19.1x to 20.5x, respectively, for 1994, and 0.9x to 1.0x, 7.0x to 7.5x and
9.8x to 10.5x, respectively, for 1995, for Pasta; 0.9x to 1.0x, 7.0x to 7.9x and
9.7x to 10.9x, respectively, for 1994, and 0.9x to 1.0x, 6.9x to 7.8x and 9.6x
to 10.8x, respectively, for 1995, for the International Foods Unit; 0.6x to
0.7x, 6.7x to 8.1x and 10.0x to 12.0x, respectively, for 1994, and 0.6x to 0.7x,
5.3x to 6.3x and 7.2x to 8.6x, respectively, for 1995, for Packaging; 1.1x to
1.2x, 7.1x to 8.0x and 8.3x to 9.3x, respectively, for 1994, and 1.1x to 1.2x,
7.0x to 7.9x and 8.3x to 9.3x, respectively, for 1995, for Resins; 0.6x to 0.7x,
6.0x to 7.2x and 8.3x to 9.9x, respectively, for 1994, and 0.5x to 0.6x, 5.0x to
6.0x and 6.4x to 7.7x, respectively, for 1995, for Decorative Products; and 1.3x
to 2.0x, 5.7x to 9.2x and 6.1x to 9.8x, respectively, for 1994, and 1.2x to
1.9x, 5.3x to 8.5x and 5.7x to 9.1x, respectively, for 1995, for Consumer
Adhesives) based on the high, average, median and low multiples among comparable
companies and applied these ranges to financial data for each of Borden's major
business units. The hypothetical range of values for each of Borden's major
business units derived from such analysis ranged from approximately $725 to $850
million for Niche Grocery; $755 to $810 million for Pasta; $800 to $900 million
for the International Foods Unit; $275 to $330 million for Packaging; $900 to
$1,010 million for Resins; $250 to $300 million for Decorative Products; and
$100 to $160 million for Consumer Adhesives. The comparable companies examined
in First Boston's analysis for each Borden unit included, among others: Niche
Grocery, Pasta and the International Foods Unit: Campbell Soup
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Company; CPC International, Inc.; Flowers Industries; General Mills, Inc.;
Hershey Foods Corporation; H.J. Heinz Company; Interstate Bakeries Corporation;
Kellogg Company; Pet Incorporated; Ralston Continental Baking Group. Packaging
Unit: Bemis Company, Inc.; Sealed Air Corporation; Sonoco Products Company;
Union Camp Corporation; The Valspar Corporation. Decorative Products Unit:
Armstrong World Industries, Inc.; Collins & Aikman Group, Inc.; Premark
International, Inc.; Sherwin-Williams Company. Worldwide Resins Unit: Grow
Group, Inc.; H.B. Fuller Company; Lilly Industries, Inc.; Loctite Corporation.
Consumer Adhesives Unit: BIC Corporation; Duracell International, Inc.; First
Brands Corporation; Rubbermaid Incorporated.
Comparable Acquisition Analysis
For each of the Borden's major business units, First Boston reviewed
acquisitions of companies in similar industries over the past several years.
First Boston then selected a number of those acquisitions which it believed were
most comparable to a hypothetical transaction involving the particular Borden
business unit. Using publicly available information, First Boston determined for
the comparable transactions the relationship between capitalized value (equity
value plus debt, preferred stock and minority interest less cash and marketable
securities) and sales, EBITDA and EBIT. First Boston then derived a range of
these multiples of estimated sale value as a multiple of 1994 sales, EBITDA and
EBIT (1.8x to 2.3x, 8.8x to 11.2x and 9.5x to 12.0x, respectively, for Niche
Grocery; 1.0x to 1.2x, 11.5x to 14.5x and 19.0x to 24.1x, respectively, for
Pasta; 0.9x to 1.1x, 7.5x to 9.2x and 10.3x to 12.7x, respectively, for
International Foods Unit; 0.7x to 0.9x, 7.3x to 9.2x and 10.9x to 13.7x,
respectively, for Packaging; 1.1x to 1.3x, 7.5x to 8.6x and 8.8x to 10.0x,
respectively, for Resins; 0.6x to 0.9x, 6.6x to 9.7x and 9.1x to 13.2x,
respectively, for Decorative Products; and 1.3x to 2.3x, 6.0x to 10.3x and 6.4x
to 11.0x, respectively, for Consumer Adhesives) and applied these ranges to
financial data for each Borden unit. The hypothetical range of values for each
of Borden's major business units derived from this analysis ranged from
approximately $750 to $950 million for Niche Grocery; $750 to $950 million for
Pasta; $850 to $1,050 million for International Foods Unit; $300 to $375 million
for Packaging; $950 to $1,080 million for Resins; $275 to $400 million for
Decorative Products; and $105 to $180 million for Consumer Adhesives. The
comparable acquiror/target transactions examined in First Boston's analysis for
each Borden unit included, among others: Niche Grocery, Pasta and the
International Foods Unit: Investor Group/Del Monte Foods; Sandoz AG/Gerber
Products; Doskocil Cos./Frozen Specialty Foods Unit (Int'l Multifood); Tomkins
PLC/Ranks Hovis McDougall; Campbell Soup Company/Arnotts Ltd. Packaging Unit:
Applied Extrusion/Technologies, Inc./Packaging Film Group (Hercules, Inc.);
Sonoco Products Company/Engraph, Inc. Decorative Products Unit: Arjo Wiggins
Appleton PLC/Gebrueder Buhl Papierfabrite; Coloroll Group PLC/Burlington; Wickes
Companies/Collins & Aikman Group, Inc. Worldwide Resins Unit: Scapa Group
PLC/Society des Adhesifs de Bellgrade; Laporte/Evode Group PLC. Consumer
Adhesives Unit: Orkem SA/Bostic Division (Black & Decker Corp.); Borden,
Inc./Jadow & Sons, Inc. (Krazy Glue).
Disaggregation Analysis
First Boston analyzed Borden's possible value assuming Borden was sold in
pieces in a tax efficient manner. In this analysis, First Boston added the
reference range for each business unit derived from the analyses described above
to arrive at an enterprise value for Borden. The hypothetical range of values
for each of Borden's major business units derived from such analysis ranged from
approximately $800 million to $900 million for Niche Grocery; $750 million to
$950 million for Pasta; $800 million to $900 million for International Foods
Unit; $290 million to $350 million for Packaging; $900 million to $1,050 million
for Resins; $250 million to $325 million for Decorative Products; $130 million
to $170 million for Consumer Adhesives; and $140 million to $295 million for
miscellaneous businesses. Using these ranges gives a range of enterprise values
of $4,060 million to $4,940 million for Borden. After subtracting debt ($2,287
million), pension underfunding ($97 million) and capitalized administrative
overhead costs ($257 million), and adding in the present value of the net
operating loss carryforwards (reduced by the amount used to offset the tax
liability incurred in the hypothetical disaggregation of the business units)
(from $34 million (corresponding to the upper end of the divested businesses'
value
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range) to $125 million (corresponding to the lower end of the divested
businesses' value range) depending on the proceeds of the hypothetical
divestitures) the range of equity values for Borden is $1,544 million to $2,333
million, or $10.92 to $16.50 per share of Borden Common Stock. This compares to
the approximately $14.25 (based upon the Exchange Ratio and the Valuation
Period) to be received for each Borden Share in the Exchange Offer. As noted
above, these per share calculations are derived from the ranges obtained in the
Discounted Cash Flow, Comparable Trading and Comparable Acquisition analyses
described above, but no per share calculations were presented to the Borden
board from the individual analyses. For purposes of this Disaggregation
analysis, First Boston relied upon tax data and calculations provided by Borden
and assumed the Packaging and Industrial Products Unit and the Dairy Unit were
sold separately in taxable transactions and the balance of the food segment was
sold tax free or retained by Borden.
Although in connection with the delivery of its opinion First Boston also
analyzed Holdings, First Boston's opinion is not a valuation of Holdings and
does not represent First Boston's view as to what the value of the Holdings
Common Stock to be exchanged for Borden Shares actually will be when the
Exchange Offer or the Merger is consummated. In giving its opinion as to the
fairness of the consideration to be received by the shareholders of Borden,
First Boston derived a range of values for Borden Common Stock using the
valuation analyses described above and compared them with $14.25, the trading
value (determined pursuant to the Exchange Ratio at the time of the delivery of
First Boston's opinion) of the shares of Holdings Common Stock to be received as
consideration in the Exchange Offer and the Merger. First Boston reviewed
Holdings' public filings with the Commission, reviewed publicly available
analyst and other third party reports addressing Holdings and Holdings Common
Stock and held discussions with senior management of Holdings. Based solely on
the foregoing, First Boston determined that it was not aware of any material
information relating to Holdings that was not publicly disclosed and thus
concluded that the trading value (at the time of the delivery of First Boston's
opinion) of Holdings Common Stock, a liquid, well-followed security, reflected
the market's reasonable assessment of its value. As a result of the limitation
on the Exchange Ratio, such actual value could be higher or lower than $14.25
per share at such times depending on the value of Holdings Common Stock. Because
of the large aggregate amount of Holdings Common Stock being distributed to
shareholders of Borden in exchange for their Borden Shares and other factors,
such securities may trade initially at prices below those at which they would
trade on a fully distributed basis.
In arriving at its opinion dated September 22, 1994, First Boston performed
a variety of financial analyses, including those summarized above. The summary
set forth in this section does not purport to be a complete description of First
Boston's analyses. First Boston believes that its analyses and the summary set
forth above must be considered as a whole and that selecting portions of its
analyses, without considering all analyses, or of the summary above, without
considering all factors and analyses, could create an incomplete view of the
processes underlying First Boston's opinion. In addition, First Boston may have
given various analyses more or less weight than other analyses, and may have
deemed various assumptions more or less probable than other assumptions, so that
the ranges of valuation resulting from any particular analysis described above
should not be taken to be First Boston's view of the actual value of Borden or
Holdings. First Boston's analyses depend upon numerous assumptions with respect
to industry performance, general business, economic, market and financial
conditions and other matters, many of which are beyond the control of Borden and
Holdings. As described above, in its analyses First Boston assumed, with
Borden's consent, the absence of future adverse developments affecting Holdings'
tobacco business. See "Significant Considerations--Exclusion of the Effects of
Future Tobacco Developments from Opinions of Borden's Financial Advisors." First
Boston's analyses are not necessarily indicative of actual values or actual
future results that might be achieved and are not and do not purport to be
appraisals or otherwise reflective of prices at which the business units
actually could be sold or prices at which securities actually would trade.
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OTHER INFORMATION CONCERNING BORDEN FINANCIAL ADVISORS
Borden has retained Lazard Freres and First Boston as financial advisors in
connection with the Merger, the Exchange Offer and other matters arising in
connection therewith. Pursuant to an engagement letter agreement dated September
13, 1994, between Borden and Lazard Freres, Borden paid Lazard Freres a fee of
$3 million on execution of the Merger Agreement and an additional fee of $7
million on consummation of the Exchange Offer. Lazard Freres was originally
retained by Borden on October 11, 1993 to provide certain financial advisory
services to Borden and earned fees aggregating $2.2 million for such services.
Borden also agreed to reimburse Lazard Freres for its out-of-pocket expenses,
including reasonable fees and disbursements of counsel, and to indemnify Lazard
Freres and its partners, employees, agents, affiliates or controlling persons
against certain liabilities, including certain liabilities under the federal
securities laws, relating to or arising out of its engagement.
Lazard Freres is an internationally recognized investment banking firm and
regularly engages in the valuation of businesses and their securities in
connection with mergers and acquisitions and for other purposes. The Borden
board selected Lazard Freres to act as its financial advisor with respect to
certain matters, including the transactions with the Partnership, on the basis
of Lazard Freres' qualifications, expertise and reputation in investment
banking, in general, and mergers and acquisitions specifically. From time to
time, in the past, Lazard Freres has represented KKR and received customary fees
therefore.
Pursuant to an engagement letter dated as of October 26, 1993, as amended on
September 22, 1994, between Borden and First Boston, Borden paid First Boston
(i) a fee of $3 million upon commencement of the Exchange Offer and (ii) an
additional fee of $7 million upon consummation of the Exchange Offer. First
Boston earned fees aggregating $2.3 million for other services rendered pursuant
to this engagement letter. Borden also agreed to reimburse First Boston for its
out-of-pocket expenses, including reasonable fees and disbursements of counsel.
Borden has also agreed to indemnify First Boston and its affiliates, their
respective directors, officers, partners, agents and employees and each person,
if any, controlling First Boston or any of its affiliates against certain
liabilities, including certain liabilities under the federal securities laws,
relating to or arising out of its engagement.
First Boston is an internationally recognized investment banking firm and
regularly engages in the valuation of businesses and their securities in
connection with mergers and acquisitions and for other purposes. The Borden
board selected First Boston to act as its financial advisor on the basis of
First Boston's international reputation, Borden's prior relationship with First
Boston and First Boston's familiarity with Borden. In the past, First Boston has
provided investment banking services for Borden, Holdings and KKR for which
First Boston has received customary compensation. In the ordinary course of
First Boston's business, First Boston actively trades the debt and equity
securities of both Borden and Holdings for its own account and for the accounts
of customers and, accordingly, may at any time hold a long or short position in
such securities.
THE MERGER
By virtue of the Merger and without any action on the part of the holder of
any shares of Borden Common Stock or any shares of capital stock of the
Purchaser: (a) each issued and outstanding share of Borden Common Stock (other
than those referred to in clause (c) below) will be converted into the right to
receive 2.29146 fully paid and nonassessable shares of Holdings Common Stock;
(b) each share of common stock of the Purchaser issued and outstanding
immediately prior to the effective time of the Merger will be converted into a
number of shares of common stock, par value $.01 per share, of the surviving
corporation in the Merger equal to one one-thousandth of the total number of
outstanding shares of Borden Common Stock immediately prior to the Merger, which
will be all of the issued and outstanding capital stock of the surviving
corporation; and (c) each share of Borden Common Stock that is owned by Borden
or by any subsidiary of Borden and each share of Borden Common Stock that is
owned by the Common Stock Partnerships, the Purchaser or any other subsidiary of
the Partnership will automatically be cancelled and retired and cease to exist,
and no cash, Holdings Common Stock or other consideration will be delivered or
deliverable in exchange therefor.
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EXCHANGE OF CERTIFICATES AND EXCHANGE PROCEDURES IN THE MERGER
Pursuant to the Merger Agreement, at or prior to the effective time, the
Purchaser shall deposit with or for the account of a bank or trust company
designated by the Partnership, which shall be reasonably satisfactory to Borden
(the "Merger Exchange Agent"), for the benefit of the holders of shares of
Borden Common Stock, for exchange, the consideration to be paid in the Merger in
respect of each Borden Share outstanding immediately prior to the effective time
(other than Borden Shares to be cancelled and retired in connection with the
Merger). The Partnership has retained First Chicago Trust Company of New York to
act as Merger Exchange Agent.
HOLDERS OF BORDEN COMMON STOCK SHOULD NOT SEND STOCK CERTIFICATES WITH THEIR
PROXY CARDS.
As soon as reasonably practicable after the effective time of the Merger,
the Purchaser will instruct the Merger Exchange Agent to mail to each holder of
record immediately prior to the effective time (other than holders of Borden
Shares to be cancelled and retired in connection with the Merger) of a
certificate or certificates for Borden Shares (each a "Share Certificate") (i) a
letter of transmittal (which shall specify that delivery shall be effected, and
risk of loss and title to the Share Certificates shall pass, only upon proper
delivery of the Share Certificates to the Merger Exchange Agent and shall be in
such form and have such other provisions as the Partnership or the Purchaser may
reasonably specify) (the "Merger Letter of Transmittal") and (ii) instructions
for use in effecting the surrender of the Share Certificates in exchange for
Holdings Common Stock. Upon surrender to the Merger Exchange Agent of Share
Certificates, together with such Merger Letter of Transmittal duly executed and
any other required documents, and acceptance thereof by the Merger Exchange
Agent, each holder of a Share Certificate shall be entitled to a certificate or
certificates representing the number of full shares of Holdings Common Stock
into which the aggregate number of shares of Borden Common Stock previously
represented by such Share Certificate surrendered shall have been converted
pursuant to the Merger Agreement. The Merger Exchange Agent shall accept such
Share Certificates upon compliance with such reasonable terms and conditions as
the Merger Exchange Agent may impose to effect an orderly exchange thereof in
accordance with normal exchange practices. After the effective time of the
Merger, there shall be no further transfer on the books and records of Borden or
its transfer agent of Share Certificates and if such Share Certificates are
presented to Borden for transfer, they shall be cancelled against delivery of
certificates for Holdings Common Stock as described herein. If any certificate
for such Holdings Common Stock is to be issued in a name other than that in
which the Share Certificate surrendered for exchange is registered, it shall be
a condition of such exchange that the Share Certificate so surrendered shall be
properly endorsed, with signature guaranteed, or otherwise in proper form for
transfer and that the person requesting such exchange shall pay to the Purchaser
or its transfer agent any transfer or other taxes required by reason of the
issuance of certificates for such Holdings Common Stock in a name other than
that of the registered holder of the Share Certificate surrendered, or establish
to the satisfaction of the Purchaser or its transfer agent that such tax has
been paid or is not applicable. Until surrendered as described herein, each
Share Certificate shall be deemed at any time after the effective time of the
Merger to represent only the right to receive upon such surrender the merger
consideration.
No certificates or scrip representing fractional shares of Holdings Common
Stock shall be issued upon the surrender for exchange of Share Certificates, and
such fractional share interests will not entitle the owner thereof to vote or to
any rights of a stockholder of Holdings; and notwithstanding any other provision
of the Merger Agreement, each record holder of shares of Borden Common Stock
exchanged pursuant to the Merger who would otherwise have been entitled to
receive a fraction of a share of Holdings Common Stock (after taking into
account all shares of Borden Common Stock delivered by such holder) shall
receive, in lieu thereof, a cash payment (without interest) representing such
record holder's proportionate interest in the net proceeds from the sale by the
Merger Exchange Agent (following the deduction of applicable transaction costs
of third parties other than the Merger Exchange Agent, Borden, the Purchaser or
affiliates of any of the foregoing), for the accounts of all such record
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holders, of the shares of Holdings Common Stock representing all such fractions.
Such sale shall be made as soon as practicable after the effective time. In
addition, the Merger Exchange Agent has advised the Purchaser that, upon notice
to the Merger Exchange Agent from the related record holder, the Merger Exchange
Agent will aggregate fractional shares on behalf of any beneficial holder of
Borden Shares for whose account a broker, nominee or other intermediary does not
effect such a sale. Beneficial holders will have the opportunity to indicate on
a form provided in connection with the Merger their desire to have fractional
shares sold for their account, although no assurance can be given that a broker,
nominee or other intermediary will carry out such instruction. Whether or not a
beneficial holder so indicates, the Merger Exchange Agent has advised the
Purchaser that brokers, nominees or other intermediaries customarily effect
sales, including through disbursing or exchange agents, of fractional shares
otherwise held for the account of a beneficial holder and distribute the
proceeds of such sales to the beneficial holder of such shares. Proceeds from
sales of fractional shares will be paid by the Merger Exhange Agent based upon
the average net selling price per share of all such sales (following the
deduction of applicable transaction costs of third parties other than the Merger
Exchange Agent, Borden, the Purchaser or affiliates of any of the foregoing).
No dividends or other distributions with respect to Holdings Common Stock
with a record date after the effective time of the Merger shall be paid to the
holder of any unsurrendered Share Certificate for shares of Borden Common Stock
with respect to the shares of Holdings Common Stock represented thereby, and no
cash payment in lieu of fractional shares shall be paid to any such holder as
described above, until the surrender of such Share Certificate as described
herein. Subject to the effect of applicable laws, following surrender of any
such Share Certificate, there shall be delivered to the holder of such Share
Certificate a certificate representing whole shares of Holdings Common Stock
issued in exchange therefor and, without interest, (i) at the time of such
surrender or promptly after the sale of the shares of Holdings Common Stock
representing fractions, the amount of any cash payable in lieu of a fractional
share of Holdings Common Stock to which such holder is entitled as described
herein and the amount of dividends or other distributions with a record date
after the effective time of the Merger theretofore paid with respect to such
whole shares of Holdings Common Stock and (ii) at the appropriate payment date,
the amount of dividends or other distributions payable with respect to such
whole shares of Holdings Common Stock with a record date after the effective
time of the Merger but prior to such surrender and a payment date subsequent to
such surrender. In no event shall the persons entitled to receive such dividends
or other distributions be entitled to receive interest on such dividends or
other distributions.
All shares of Holdings Common Stock delivered and cash paid upon the
surrender for exchange of Share Certificates which represented shares of Borden
Common Stock (including any cash paid in respect of fractional shares of
Holdings Common Stock) shall be deemed to have been delivered (and paid) in full
satisfaction of all rights pertaining to the shares of Borden Common Stock
theretofore represented by such Share Certificates, subject, however, to the
surviving corporation's obligation, with respect to shares of Borden Common
Stock, to pay any dividends or make any other distributions with a record date
prior to the effective time of the Merger which may have been declared or made
by Borden on such shares of Borden Common Stock prior to the date of the Merger
Agreement and which remain unpaid at the effective time of the Merger.
Any portion of the consideration in the Merger deposited with the Merger
Exchange Agent (the "Exchange Fund") which remains undistributed to the holders
of the certificates representing shares of Borden Common Stock for nine months
after the effective time of the Merger shall be delivered to the Partnership,
upon demand, and any holders of shares of Borden Common Stock who have not
theretofore complied with the foregoing exchange procedures shall thereafter
look only to the Partnership and only as general creditors thereof for payment
of their claim for Holdings Common Stock (or any security or consideration into
which Holdings Common Stock is converted) and any cash in lieu of fractional
shares of Holdings Common Stock and shall look only to the Partnership and only
as general
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creditors thereof for payment of any dividends or distributions with respect to
Holdings Common Stock to which such holders may be entitled.
None of the Partnership, the Purchaser, Holdings, Borden or the Merger
Exchange Agent shall be liable to any person in respect of any shares of
Holdings Common Stock (or dividends or distributions with respect thereto) or
cash from the Exchange Fund delivered to a public official pursuant to any
applicable abandoned property, escheat or similar law. If any Share Certificates
which represented shares of Borden Common Stock shall not have been surrendered
prior to five years after the effective time of the Merger (or immediately prior
to such earlier date on which any shares of Holdings Common Stock, any cash in
lieu of fractional shares of Holdings Common Stock or any dividends or
distributions with respect to Holdings Common Stock in respect of such Share
Certificate would otherwise escheat to or become the property of any
governmental entity), any such shares, cash, dividends or distributions in
respect of such certificate shall, to the extent permitted by applicable law,
become the property of the Partnership, free and clear of all claims or interest
of any person previously entitled thereto.
The Merger Exchange Agent shall invest any cash included in the Exchange
Fund, as directed by the Partnership, on a daily basis. Any interest and other
income resulting from such investments shall be paid to the Partnership.
MATERIAL TAX CONSEQUENCES
Certain Federal Income Tax Consequences. In the opinion of Simpson Thacher &
Bartlett, the following summary sets forth the material federal income tax
consequences of the Merger to a Borden shareholder. The tax treatment of each
Borden shareholder will depend in part upon his particular situation. The
discussion below applies to a Borden shareholder that is, for United States
federal income tax purposes, a citizen or resident of the United States, a
corporation, partnership or other entity created or organized in or under the
laws of the United States or any political subdivision thereof, or an estate or
trust the income of which is subject to United States federal income taxation
regardless of its source. Moreover, the discussion below deals only with Borden
Shares held as capital assets and does not deal with persons in special tax
situations, such as financial institutions, insurance companies, broker-dealers,
persons who are not citizens or residents of the United States, shareholders who
acquired their Borden Shares through the exercise of an employee stock option or
otherwise as compensation, and persons who received payments in respect of
options to acquire Borden Shares. ALL SHAREHOLDERS SHOULD CONSULT WITH THEIR OWN
TAX ADVISORS AS TO THE PARTICULAR TAX CONSEQUENCES OF THE MERGER TO THEM,
INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL AND FOREIGN TAX LAWS.
The receipt of shares of Holdings Common Stock pursuant to the Merger will
be a taxable transaction for federal income tax purposes and may also be a
taxable transaction under applicable state, local, foreign or other tax laws. A
Borden shareholder will recognize gain or loss for federal income tax purposes
in an amount equal to the difference between the fair market value of the
consideration received (including cash received in lieu of fractional shares)
and such shareholder's adjusted tax basis in the Borden Shares. The fair market
value of the Holdings Common Stock will be the mean between the high and the low
trading prices on the NYSE Composite Tape on the effective date of the Merger.
For federal income tax purposes, such gain or loss will be a capital gain or
loss, and a long-term capital gain or loss if such shareholder's holding period
is more than one year as of the effective date of the Merger. There are
limitations on the deductibility of capital losses. The exchange of Borden
Shares for shares of Holdings Common Stock pursuant to the Merger may also have
tax consequences under applicable state, local, foreign or other tax laws.
A Borden shareholder will have a tax basis in the shares of Holdings Common
Stock received pursuant to the Merger equal to the fair market value of such
shares as the effective date of the Merger and a new holding period for such
shares will commence on the day after such date.
New York Real Estate Transfer Taxes. The New York State Real Property
Transfer Gains Tax, the New York State Real Estate Transfer Tax and the New York
City Real Property Transfer Tax
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(collectively, the "Real Estate Transfer Taxes") are imposed on the transfer or
acquisition, directly or indirectly, of controlling interests in an entity which
owns interests in real property located in New York State or New York City, as
the case may be. The Exchange Offer resulted in the taxable transfer of
controlling interests in entities which own New York State or New York City real
property for purposes of the Real Estate Transfer Taxes. Although any Real
Estate Transfer Taxes could be imposed directly on the shareholders of Borden,
Borden will complete and file any necessary tax returns, and Borden will pay all
Real Estate Transfer Taxes that are imposed as a result of the Exchange Offer or
the Merger. Upon receipt of the consideration for the Merger, each shareholder
of Borden will be deemed to have agreed to be bound by the Real Estate Transfer
Tax returns filed by Borden.
ACCOUNTING TREATMENT OF THE MERGER
The Merger will have no effect on the assets and liabilities of Holdings or
Borden.
FEES AND EXPENSES OF THE MERGER AND SOURCE OF FUNDS
The Purchaser has retained D.F. King & Co., Inc. to act as a proxy solicitor
(the "Solicitor") and First Chicago Trust Company of New York to act as the
Merger Exchange Agent in connection with the Merger. The Solicitor may contact
holders of shares of Borden Common Stock by mail, telephone, telex, telegraph
and personal interviews and may request brokers, dealers and other nominee
shareholders to forward materials relating to the Merger to beneficial owners.
The Solicitor and the Merger Exchange Agent each will receive reasonable and
customary compensation for their respective services, will be reimbursed for
certain reasonable out-of-pocket expenses and will be indemnified against
certain liabilities in connection therewith, including certain liabilities under
the federal securities laws. Neither the Solicitor nor the Merger Exchange Agent
has been retained to make recommendations in their respective roles as Solicitor
or Merger Exchange Agent.
The Purchaser will not pay any fees or commissions to any broker or dealer
or any other person for soliciting proxies. Brokers, dealers, commercial banks
and trust companies will, upon request, be reimbursed by the Purchaser for
reasonable and necessary costs and expenses incurred by them in forwarding
materials to their customers.
The consideration to be provided to Borden's shareholders pursuant to the
Merger will be shares of Holdings Common Stock currently owned by the Common
Stock Partnerships. Certain fees and expenses of the Partnership and the
Purchaser in connection with the Transactions will be paid by Borden pursuant to
the Merger Agreement or by the Partnership and/or KKR, from internally generated
funds. See "Description of Merger Agreement and Conditional Purchase/Option
Agreement--Merger Agreement."
Pursuant to the Registration Rights Agreement, Holdings will pay certain
expenses incident to the registration of the Holdings Common Stock to be
exchanged for Borden Common Stock, including filing fees.
Pursuant to an Indemnification Agreement, each of Holdings, Borden and the
Partnership and the Purchaser have agreed to indemnify the other parties for
certain liabilities under the Securities Act and the Exchange Act with respect
to certain information furnished by such parties to the others in connection
with the preparation of the Registration Statement and this Proxy
Statement/Prospectus.
CERTAIN REGULATORY APPROVALS AND LEGAL MATTERS
Under the Hart-Scott-Rodino Antitrust Improvements Act of 1978, as amended
(the "HSR Act"), and the rules that have been promulgated thereunder by the
Federal Trade Commission (the "FTC"), certain acquisition transactions may not
be consummated unless certain information has been furnished to the Antitrust
Division of the Department of Justice (the "Antitrust Division") and the FTC and
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certain waiting period requirements have been satisfied. The acquisition of
Borden Shares pursuant to the Exchange Offer and the Merger was subject to such
requirements.
The Partnership filed on September 19, 1994 with the FTC and the Antitrust
Division a Premerger Notification and Report Form in connection with the
exchange of Borden Shares pursuant to the Exchange Offer and the Merger. Under
the provisions of the HSR Act applicable to the Exchange Offer and the Merger,
the exchange of Borden Shares pursuant to the Exchange Offer and the Merger was
not permitted to be consummated until the expiration of a 30-calendar day
waiting period following the filing by the Partnership. Accordingly, the waiting
period under the HSR Act applicable to such exchange of Borden Shares pursuant
to the Exchange Offer and the Merger was to expire at 11:59 P.M., New York City
time, on October 19, 1994, unless extended by a request from the FTC or the
Antitrust Division for additional information or documentary material prior to
its expiration. On October 19, 1994, the FTC requested additional information
and documentary material from the Partnership and the Partnership responded to
such request on November 4, 1994. The waiting period was terminated by the FTC
effective at 11:59 P.M., New York City time, on November 17, 1994.
The FTC and the Antitrust Division frequently scrutinize the legality under
the antitrust laws of transactions such as the proposed acquisition of Borden
Shares by the Purchaser pursuant to the Exchange Offer and the Merger. At any
time before or after the exchange by the Purchaser of Borden Shares pursuant to
the Exchange Offer and the Merger, the FTC and the Antitrust Division could,
notwithstanding termination of the waiting period, take such action under the
antitrust laws as it deems necessary or desirable in the public interest,
including seeking to enjoin the exchange of Borden Shares pursuant to the
Exchange Offer and the Merger or seeking the divestiture of Borden Shares
acquired by the Purchaser or the divestiture of substantial assets of Holdings,
the Partnership, its subsidiaries or Borden. Private parties and state attorneys
general may also bring legal action under federal or state antitrust laws under
certain circumstances. Based upon an examination of publicly available
information relating to the businesses in which Holdings, the Partnership and
its subsidiaries and Borden and its subsidiaries are engaged, the Partnership
and the Purchaser believe that the Exchange Offer and the Merger will not
violate the antitrust laws. Nevertheless, there can be no assurance that a
challenge to the Exchange Offer or the Merger on antitrust grounds will not be
made or, if such a challenge is made, of the result.
In the Merger Agreement, Borden has agreed to make any and all divestitures
or undertakings required by the FTC, the Antitrust Division or any other
applicable governmental entity in connection with the Transactions, which
divestitures in each case shall be reasonably acceptable to the Partnership and
the Purchaser, provided that certain conditions are met. See "Description of
Merger Agreement and Conditional Purchase/Option Agreement--Merger Agreement."
The Purchaser and Borden know of no remaining federal, state or foreign
government regulatory requirements that must be complied with or approvals that
must be obtained in order to consummate the Merger, other than the delivery of
the Certificate of Merger to, and filing by, the Secretary of State of the State
of New Jersey.
CERTAIN LITIGATION
Following the announcement of the Transactions, numerous putative class
actions were filed in New Jersey state court, Ohio state court and the United
States District Court for the Southern District of New York by putative Borden
and Holdings shareholders against Borden, members of Borden's board of
directors, Holdings, members of Holdings' board of directors, KKR and others
challenging certain aspects of the proposed Transactions and alleging, among
other things, breach of fiduciary duties. The parties to these various legal
proceedings entered into a written Agreement, dated as of December 12, 1994 (the
"Settlement Agreement"), to fully and finally resolve, settle and dismiss with
prejudice all litigations of any kind, asserted and unasserted, arising out of
or related to the Exchange Offer and related transactions, subject to the terms
and conditions of the Settlement Agreement,
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pursuant to which, among other things, (i) the definition of Exchange Ratio was
changed such that unless the Exchange Offer was extended past 12:00 Midnight,
New York City time, on Friday, January 20, 1995, the Exchange Ratio would be
2.29146, (ii) the Partnership committed to exercise its Option to acquire all of
the 28,138,000 shares of Borden Common Stock subject to the Option but not
previously purchased upon the exercise thereof if the Purchaser or the
Partnership or a direct or indirect wholly owned subsidiary of the Partnership
acquired more than 41% of the Borden Shares in accordance with the terms and
conditions of the Exchange Offer and (iii) the Partnership committed that, if
Borden Shares were acquired pursuant to the Exchange Offer, the Partnership
would cause, for so long as KKR and its affiliates retained majority voting
control of Borden, at least two independent directors unaffiliated with KKR, the
Common Stock Partnerships or Borden to be elected to the board of directors of
Borden until the Merger is consummated.
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DESCRIPTION OF MERGER AGREEMENT AND
CONDITIONAL PURCHASE/OPTION AGREEMENT
The following are summaries of certain provisions of the Merger Agreement
and the Conditional Purchase/Option Agreement. Such summaries include the
material terms of such agreements but are not necessarily complete and are
qualified in their entirety by reference, in the case of the Merger Agreement,
to Annex I hereto, and, in the case of the Conditional Purchase/Option
Agreement, to the copy of such agreement filed as an Exhibit to the Registration
Statement.
MERGER AGREEMENT
In accordance with the Merger Agreement, Borden approved of and consented to
the Exchange Offer and represented and warranted that (a) its Board of Directors
has (i) determined that the Merger Agreement and the Conditional Purchase/Option
Agreement and the transactions contemplated thereby, including the Exchange
Offer and the Merger, taken together, are fair to the shareholders of Borden,
and resolved to recommend that holders of Borden Shares (A) accept the Exchange
Offer, (B) tender their Borden Shares to the Purchaser, and (C) if required by
applicable law, approve and adopt the Merger Agreement and the Merger
(collectively, the "Recommendations") and (ii) approved the Merger Agreement and
the Conditional Purchase/Option Agreement and the transactions contemplated
thereby, and that such approval constitutes approval of the Merger Agreement and
the Conditional Purchase/Option Agreement and the transactions contemplated
thereby for purposes of Sections 14A:10A-4 and 14A:10A-5 of the NJBCA and
Article VIII of Borden's Restated Certificate of Incorporation (the "Charter")
(relating to the approval requirements for certain business combinations) and
renders inapplicable certain change in control provisions of certain debt
securities and loan documents of Borden and its subsidiaries and (b) Borden's
financial advisors have delivered to the Board of Directors of Borden their
respective written opinions to the effect that, as of September 22, 1994, the
consideration to be received by holders of Borden Shares pursuant to each of the
Exchange Offer and the Merger was fair to such holders from a financial point of
view. Borden also agreed, subject to certain exceptions, including those
described below under "--No Solicitation," not to change the Recommendations
unless the average of the average of the high and the low sales prices of the
Holdings Common Stock as reported on the NYSE Composite Tape for the Valuation
Period was less than the price per share that would yield an Exchange Ratio of
2.375 or less (without giving effect to the limitation regarding the minimum and
maximum Exchange Ratio pursuant to the definition thereof). Borden will not have
any right to terminate the Merger Agreement as a result of any such change in
the Recommendations and notwithstanding any such change in the Recommendations,
Borden will continue to be bound by its representations and warranties and
covenants contained in the Merger Agreement (except representations and
warranties and covenants with respect to the Recommendations), including,
without limitation, those with respect to the Rights Agreement, antitrust
approvals and divestitures (provided that following receipt of such approvals
the Purchaser purchases at least 28,138,000 Borden Shares), Article VIII of the
Charter and Sections 14A:10A-4 and 14A:10A-5 of the NJBCA.
According to the Merger Agreement, to the knowledge of Borden after due
inquiry, all the directors of Borden intend to vote their Borden Shares in favor
of approval and adoption of the Merger and the Merger Agreement at the Special
Meeting.
The Merger Agreement provides that, if requested by the Partnership, Borden
will, following the acceptance for exchange of the Borden Shares to be exchanged
pursuant to the Exchange Offer and/or the purchase of the Option Shares in
accordance with the Conditional Purchase/Option Agreement, and from time to time
thereafter, take all actions necessary to cause the Applicable Percentage (as
defined below) of directors (and of members of each committee of the Board of
Directors) (rounded in each case to the next highest director or member) of
Borden selected by the Partnership to consist of persons designated or elected
by the Partnership (whether, at the election of Borden, by means of increasing
the size of the board of directors or seeking the resignation of directors and
causing the Partnership's designees to be elected). The term "Applicable
Percentage" means the ratio of (i) the
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total voting power of all Borden Shares accepted for exchange pursuant to the
Exchange Offer and/or purchased in accordance with the Conditional
Purchase/Option Agreement to (ii) the total voting power of the outstanding
voting securities of Borden, rounded to the nearest whole number and expressed
as a percentage; provided that, if the Purchaser has acquired at least
28,138,000 Borden Shares, the Applicable Percentage will not be less than 33
1/3%. See "The Merger--Purchaser Background" for a discussion of the changes
made to the Borden board of directors following the consummation of the Exchange
Offer and exercise of the Option.
Following the election or appointment of the Partnership's designees as
described in the preceding paragraph and prior to the effective time of the
Merger, any amendment by Borden or termination by Borden of the Merger Agreement
or the Conditional Purchase/Option Agreement, extension by Borden for the
performance or waiver of the obligations, conditions or other acts of the
Partnership or the Purchaser or waiver by Borden of its rights under the Merger
Agreement or the Conditional Purchase/Option Agreement, will require the
concurrence of a majority of directors of Borden then in office who are not
affiliated with the Partnership or the Purchaser or selected by the Partnership
for appointment or election to the board of directors of Borden ("Independent
Borden Directors").
Merger. Pursuant to the Merger Agreement, Borden, acting through its Board
of Directors, has agreed that it will, in accordance with applicable law, as
soon as practicable following the expiration or termination of the Exchange
Offer: duly call, give notice of, convene and, subject to the right of the
parties to delay a special meeting under certain circumstances described in the
Merger Agreement, hold the Special Meeting for the purpose of considering and
taking action upon the Merger Agreement and the Merger and use its best efforts
to obtain the necessary approval by its shareholders of the Merger Agreement and
the transactions contemplated thereby, including the Merger.
In the Merger Agreement, Borden has agreed that (a) its obligations
described in the preceding paragraph (including, without limitation, the
obligation to submit the Merger Agreement and the Merger to a vote of Borden's
shareholders) will not be affected by the withdrawal or modification of the
Recommendations (but there shall be no obligation of the Board of Directors of
Borden to continue the Recommendation that shareholders approve and adopt the
Merger Agreement and the Merger) and (b) (i) if the Merger is not approved by
the shareholders of Borden following the acceptance for exchange of Borden
Shares pursuant to the Exchange Offer or the purchase of Borden Shares pursuant
to the Conditional Purchase/Option Agreement or (ii) if the Merger is not
submitted to the shareholders of Borden but the Purchaser has acquired at least
28,138,000 Borden Shares, the approval of the transactions contemplated by the
Merger Agreement, including the Exchange Offer and the Merger, by the Board of
Directors of Borden shall constitute, solely for the purposes of Sections
14A:10A-4 and 14A:10A-5 of the NJBCA and, to the extent that there are no
Continuing Directors (as defined in the Charter), Article VIII of the Charter,
an approval of any future "Business Combination" (as defined in Section
14A:10A-3 of the NJBCA and Article VIII of the Charter) between Borden and the
Partnership or any affiliate thereof, provided that (x) such "Business
Combination" is approved by a majority of the Independent Borden Directors and
(y) if appropriate, Borden shall have received the opinion of an investment
banking firm selected by the Independent Directors that such "Business
Combination" is fair to Borden's shareholders from a financial point of view (an
"Excepted Future Transaction").
At the Special Meeting, each of the Partnership and the Purchaser has agreed
that it will vote, or cause to be voted, all Borden Shares acquired in the
Exchange Offer or otherwise beneficially owned by it or any of its respective
subsidiaries in favor of the approval and adoption of the Merger Agreement and
the transactions contemplated thereby, including the Merger.
Upon the effective time of the Merger, the Purchaser will be merged with and
into Borden, and Borden will continue as the surviving corporation in the Merger
under the name "Borden, Inc."
The directors of the Purchaser at the effective time of the Merger will be
the directors of the surviving corporation, each to hold office in accordance
with the restated certificate of incorporation and by-laws of the surviving
corporation and until the earlier of his or her resignation or removal or until
his or her successor is duly elected and qualified, as the case may be. The
officers of Borden at the effective time of the Merger will be the officers of
the surviving corporation, each to hold office in accordance
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with the restated certificate of incorporation and by-laws of the surviving
corporation and until the earlier of his or her resignation or removal or until
his or her successor is duly appointed and qualified, as the case may be.
By virtue of the Merger and without any action on the part of the holder of
any shares of Borden Common Stock or any shares of capital stock of the
Purchaser: (a) each share of common stock of the Purchaser issued and
outstanding immediately prior to the effective time of the Merger will be
converted into a number of shares of common stock, par value $.01 per share, of
the surviving corporation equal to one one-thousandth of the total number of
outstanding shares of Borden Common Stock immediately prior to the Merger, which
will be all of the issued and outstanding capital stock of the surviving
corporation; (b) each share of Borden Common Stock that is owned by Borden or by
any subsidiary of Borden and each share of Borden Common Stock that is owned by
the Partnership, the Purchaser or any other subsidiary of the Partnership will
automatically be cancelled and retired and cease to exist, and no cash, Holdings
Common Stock or other consideration will be delivered or deliverable in exchange
therefor; and (c) each issued and outstanding share of Borden Common Stock will
be converted into the right to receive 2.29146 fully paid and nonassessable
shares of Holdings Common Stock.
The Merger Agreement provides that, as of the effective time of the Merger,
each holder of a then outstanding option to purchase Borden Common Stock (a
"Stock Option") shall receive with respect to each share subject to such Stock
Option an amount in cash equal to the excess, if any, of (i) the product of the
final Exchange Ratio and the average of the average of the high and the low
sales prices of the Holdings Common Stock as reported on each of the ten
consecutive trading days immediately preceding the effective time of the Merger
over (ii) the per share exercise price of such Stock Option, and Borden shall
cause the surrender and cancellation of each Stock Option (and any related stock
appreciation right) with respect to which a payment by Borden is made. Based
upon the closing stock price of $6 5/8 for the Holdings Common Stock on November
7, 1994, the estimated aggregate net payment to holders of Borden Stock Options
would be $2,722,928. With respect to Stock Options not so surrendered and
cancelled, such Stock Options shall, if not previously terminated or expired in
accordance with their terms, terminate upon the grantee leaving Borden except
upon such grantee's death, Disability (as defined for purposes of the plans
under which the Stock Options were granted) or retirement at or after age
sixty-five (or such earlier age as the Purchaser may expressly agree) and except
that, to the extent provided under any such existing Stock Option, if the
grantee is terminated by Borden without Cause (as defined for purposes of the
plans under which the Stock Options were granted) within two years following a
Change in Control (as defined for purposes of the plans under which the Stock
Options were granted) of Borden, the grantee shall have a period of ninety days
following such termination within which to exercise such Stock Option. No
employee who has been previously granted a Stock Option or stock appreciation
right will be approved for retirement for purposes of any plan or agreement
under which such Stock Option or right has been granted without the express
consent of the Purchaser. The Purchaser and Borden have agreed to continue to
discuss the manner in which outstanding Stock Options shall be treated after the
Merger is consummated. As of November 15, 1994, there were outstanding Stock
Options with respect to 7,121,373 Borden Shares. Of these, as of November 15,
1994, Stock Options with respect to 1,397,876 Borden Shares, with an average
exercise price of $12.31, were exercisable at prices of $14.25 or less.
Under the Merger Agreement, Borden has agreed to take all steps necessary so
that no participant in any employee plans, programs or arrangements of Borden
will have any right to acquire or receive any Borden Common Stock or other
equity interest in Borden on or after the effective time of the Merger other
than in connection with the exercise of Stock Options outstanding on the date of
the Merger Agreement which have not been cancelled as described in the preceding
paragraph. On or prior to the effective time of the Merger, Borden has agreed to
amend each of its (and cause the amendment of each of its affiliate's) qualified
defined contribution plans to eliminate any investment in Borden Common Stock
after such effective time. In addition, Borden has agreed to cause an amendment
of each of its employee plans, programs and arrangements pursuant to which an
employee may be entitled to receive Borden Common Stock (each a "Stock Plan") to
provide that any employee entitled to receive
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Borden Common Stock in respect of previously deferred bonuses or compensation
will receive instead cash equal to the product of (i) the final Exchange Ratio
multiplied by the average of the average of the high and the low closing sales
prices of the Holdings Common Stock as reported on each of the ten consecutive
trading days immediately preceding the effective time of the Merger and (ii) the
number of shares of Borden Common Stock so deferred, plus interest equal to the
rate otherwise credited on deferred amounts under the applicable plans or, if no
such rate is credited, the prime rate established by Chemical Bank, from time to
time on such deferred bonuses or compensation from the effective time of the
Merger to the date of distribution.
Pursuant to the Merger Agreement, subject to the terms of any Borden plan,
any merger consideration paid in respect of restricted shares of Borden Common
Stock held by any employee or former employee of Borden or any of its affiliates
will remain restricted and subject to the same terms and conditions imposed on
such restricted shares.
Exchange of Certificates and Exchange Procedures in the Merger. For a
description of the procedure for exchanging certificates in the Merger, see "The
Merger--Exchange of Certificates and Exchange Procedures in the Merger."
Representations and Warranties. The Merger Agreement contains customary
representations and warranties of Borden relating, with respect to Borden and
its subsidiaries, to, among other things, (a) organization, standing and similar
corporate matters; (b) certain subsidiaries; (c) Borden's capital structure; (d)
the authorization, execution, delivery, performance and enforceability of the
Merger Agreement, the Conditional Purchase/Option Agreement and related matters;
(e) documents filed by Borden with the Commission and the accuracy of
information contained therein; (f) the accuracy of information supplied by
Borden in connection with this Offering Circular/Prospectus and other documents
filed with the Commission in connection with the Exchange Offer and the Merger;
(g) the absence of certain changes or events since the date of the most recent
audited financial statements filed with the Commission, including material
adverse changes with respect to Borden; (h) benefit plans and other matters
relating to the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), and employment matters; (i) filing of tax returns and payment of
taxes; (j) the inapplicability of provisions of Borden's Charter and the NJBCA
relating to business combinations with interested stockholders and state
takeover or similar statutes, to the Merger Agreement, the Conditional
Purchase/Option Agreement and related agreements and transactions; (k)
environmental matters; (l) brokers' fees and expenses; (m) no material conflicts
with laws or agreements of Borden and its subsidiaries; (n) any required vote of
shareholders to approve the Merger Agreement, the Merger and the other
transactions contemplated thereby and the Conditional Purchase/Option Agreement
and the transactions contemplated thereby; (o) certain matters relating to the
Rights; and (p) certain resolutions of Borden's Board of Directors relating to
the declaration and payment of future dividends.
The Merger Agreement also contains customary representations and warranties
of the Purchaser and the Partnership relating to, among other things, (a)
organization, standing and similar corporate matters with respect to the
Purchaser and Holdings; (b) subsidiaries of the Purchaser and Holdings; (c) the
Purchaser's and Holdings' capital structures; (d) the authorization, execution,
delivery, performance and enforceability of the Merger Agreement and the
Conditional Purchase/Option Agreement and related matters with respect to the
Purchaser, the Partnership and Holdings, as applicable; (e) documents filed by
Holdings with the Commission and the accuracy of information contained therein;
(f) the accuracy of information supplied by the Partnership or the Purchaser in
connection with this Offering Circular/Prospectus and other documents filed with
the Commission in connection with the Exchange Offer and the Merger; (g)
brokers' fees and expenses; (h) interim operations of the Purchaser; and (i) the
absence of certain changes or events since the most recent financial statements
filed with the Commission, including material adverse changes with respect to
Holdings.
In addition, the Merger Agreement contains representations of the
Partnership relating to, among other things, (a) the authorization, execution,
delivery, performance and enforceability of the Merger Agreement and related
matters; (b) the Partnership's good title to the Holdings Common Stock to be
transferred pursuant to the Merger Agreement and the Conditional Purchase/Option
Agreement, and
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the listing thereof on the NYSE; and (c) no material conflicts with laws or
agreements of the Partnership.
Covenants Regarding Conduct of Business. Except as contemplated by the
Merger Agreement, during the period from the date of the Merger Agreement to the
date on which a majority of the Board of Directors of Borden consist of
designees or representatives of the Partnership, Borden, with respect to itself
and each of its subsidiaries, has agreed in the Merger Agreement to conduct its
operations according to its ordinary course of business consistent with past
practice and to use its best efforts to preserve intact its business
organization, to keep available the services of its current officers and
employees and to preserve existing relationships with licensors, licensees,
suppliers, contractors, distributors, customers and others having business
relationships with it to the end that its goodwill and ongoing businesses will
be unimpaired at the date on which a majority of the Board of Directors of
Borden consist of designees or representatives of the Partnership. Without
limiting the generality of the foregoing, and except as otherwise contemplated
by the Merger Agreement, or as required by law or contract existing on the date
of the Merger Agreement, prior to the date on which a majority of the Board of
Directors of Borden consists of designees or representatives of the Partnership,
Borden has agreed that neither it nor any of its subsidiaries will, without the
prior written consent of the Partnership: (i) (x) declare, set aside or pay any
dividends on, or make any other distributions in respect of, any of its capital
stock (except (A) certain dividends and distributions by subsidiaries of Borden
to their respective parents and (B) that Borden may continue the declaration and
payment of regular quarterly cash dividends not in excess of $.01 per share on
the shares of Borden Common Stock (with usual record and payment dates and in
accordance with its past dividend policy)), (y) split, combine or reclassify any
of its capital stock or issue or authorize the issuance of any other securities
in respect of, in lieu of or in substitution for shares of its capital stock or
(z) except for the redemption of the Rights and the outstanding Preferred
Stock-Series B of Borden, purchase, redeem or otherwise acquire any shares of
capital stock of Borden or any of its subsidiaries or any other securities
thereof or any rights, warrants or options to acquire any such shares or other
securities; (ii) subject to certain exceptions, authorize for issuance, issue,
deliver, sell or agree or commit to issue, sell or deliver (whether through the
issuance or granting of options, warrants, commitments, subscriptions, rights to
purchase or otherwise), pledge or otherwise encumber any shares of its capital
stock or the capital stock of any of its subsidiaries, any other voting
securities or any securities convertible into, or any rights, warrants or
options to acquire, any such shares, voting securities or convertible securities
or any other securities or equity equivalents; (iii) amend its certificate of
incorporation, by-laws or other comparable charter or organizational documents
or alter through merger, liquidation, reorganization, restructuring or in any
other fashion the corporate structure or ownership of any subsidiary not
constituting an inactive subsidiary of Borden; (iv) acquire or agree to acquire
(x) by merging or consolidating with, or by purchasing a substantial portion of
the stock or assets of, or by any other manner, any business or any corporation,
partnership, joint venture, association or other business organization or
division thereof or (y) any assets that are material, individually or in the
aggregate, to Borden and its subsidiaries taken as a whole, except purchases of
inventory in the ordinary course of business consistent with past practice; (v)
sell, lease, license, mortgage or otherwise encumber or subject to any lien or
otherwise dispose of any of its properties or assets, except sales of (A)
inventory in the ordinary course of business consistent with past practice, (B)
properties or assets (x) with a value of less than $10 million individually but
not more than $25 million in the aggregate, (y) that are currently being
marketed or sold by Borden pursuant to Borden's January 1994 restructuring plan
(but for consideration not lower than certain specified prices to the extent
disclosed in writing to the Partnership) or (z) with respect to which a
definitive agreement has been entered into by Borden prior to September 12, 1994
(provided that no material modification or amendment shall be made to any such
agreements), (C) sales of accounts receivable in the ordinary course of
business, (D) certain sales and pledges of accounts receivable, or mortgages of
other property in connection with certain financings or refinancings outside the
United States and (E) in connection with certain capital expenditures otherwise
permitted by the Merger Agreement; (vi) except in the ordinary course of
business consistent with past practice and except for an increase of up to $300
million of the amount available or outstanding under a certain credit agreement
and the refinancing of certain industrial revenue bonds in an aggregate
outstanding principal amount of $40 million, subject to certain
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conditions, (y) incur any indebtedness for borrowed money or guarantee any such
indebtedness of another person (other than certain guarantees by Borden in favor
of subsidiaries or by any of its subsidiaries in favor of Borden), issue or sell
any debt securities or warrants or other rights to acquire any debt securities
of Borden or any of its subsidiaries, guarantee any debt securities of another
person, enter into any "keep well" or other agreement to maintain any financial
statement condition of another person or enter into any arrangement having the
economic effect of any of the foregoing, except for short-term borrowings
incurred in the ordinary course of business consistent with past practice or (z)
make any loans, advances or capital contributions to, or investments in, any
other person, other than to Borden or any direct or indirect wholly owned
subsidiary of Borden; (vii) expend funds for capital expenditures other than in
accordance with Borden's current capital expenditure plans; (viii) waive,
release, grant, or transfer any rights of value or modify or change in any
material respect any existing license, lease, contract or other document, other
than in the ordinary course of business consistent with past practice; (ix)
adopt a plan of complete or partial liquidation or resolutions providing for or
authorizing such a liquidation or a dissolution, merger, consolidation,
restructuring, recapitalization or reorganization; (x) enter into or amend any
material collective bargaining agreement, other than in the ordinary course of
business; (xi) change any accounting principle used by it, unless required by
the Commission or the Financial Accounting Standards Board; (xii) subject to
certain exceptions, make any tax election or settle or compromise any income tax
liability or file its 1994 federal income tax return prior to the last day
(including extensions) prescribed by law, in the case of any of the foregoing,
material to the business, financial condition or results of operations of Borden
and its subsidiaries taken as a whole; (xiii) settle or compromise any
litigation (whether or not commenced prior to the date of the Merger Agreement)
or settle, pay or compromise any claims not required to be paid, individually in
an amount in excess of $1 million and in the aggregate in an amount in excess of
$10 million, other than in consultation and cooperation with the Purchaser, and,
with respect to any such settlement, with the prior written consent of the
Purchaser; (xiv) take any action which would cause any debt securities of Borden
or any of its subsidiaries no longer to be listed on any national securities
exchange or registered pursuant to the Exchange Act, other than with respect to
any such debt securities that have become due as a result of the maturity
thereof; or (xv) authorize any of, or commit or agree to take any of, the
foregoing actions.
In the Merger Agreement, Borden has also agreed, subject to certain
exceptions, that neither it nor any of its subsidiaries will adopt or amend any
bonus, profit sharing, compensation, severance, termination, stock option, stock
appreciation right, pension, retirement, employment or other employee benefit
agreement, trust, plan or other arrangement for the benefit or welfare of any
director, officer or, except in the ordinary course of business consistent with
past practice with respect to employees of Borden or any of its subsidiaries,
increase in any manner the compensation or fringe benefits of any director,
officer or, except in the ordinary course of business consistent with past
practice with respect to employees of Borden or any of its subsidiaries, pay any
benefit not required by any existing agreement or place any assets in any trust
for the benefit of employees or directors of Borden or any of its subsidiaries,
other than contributions to the directors trust fund in the ordinary course of
business and consistent with past practice; provided, however, that
notwithstanding the foregoing, any amendments required to be made to the
provisions of any employee pension plan which is intended to be qualified under
Section 401(a) of the Internal Revenue Code in order to maintain such status may
be made.
Pursuant to the Merger Agreement, the Partnership and the Purchaser have
agreed that, during the period from the date of the Merger Agreement to the
effective time of the Merger, the Purchaser will not engage in any activities of
any nature except as provided in, or in connection with the transactions
contemplated by, the Merger Agreement.
No Solicitation. Under the Merger Agreement, except with respect to
divestitures in accordance with Borden's January 1994 restructuring plan, Borden
has agreed that neither it nor any of its subsidiaries will, nor will it or any
of its subsidiaries authorize or permit any of its officers, directors or
employees or any investment banker, financial advisor, attorney, accountant or
other representative retained by it or any of its subsidiaries to, (a) solicit,
initiate, encourage (including by way of furnishing information), or take any
other action to facilitate, any Transaction Proposal or agree to or endorse any
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Transaction Proposal or (b) enter into or participate in any discussions or
negotiations regarding any of the foregoing, or furnish to any other person any
information with respect to its business, properties or assets or any of the
foregoing, or otherwise cooperate in any way with, or assist or participate in,
facilitate or encourage, any effort or attempt by any other person to do or seek
any of the foregoing; provided, however, that the foregoing clauses will not
prohibit Borden from (i) furnishing information pursuant to an appropriate
confidentiality letter concerning Borden and its businesses, properties or
assets to a third party who has made a Transaction Proposal, (ii) engaging in
discussions or negotiations with such a third party who has made a Transaction
Proposal or (iii) following receipt of a Transaction Proposal, taking and
disclosing to its shareholders a position contemplated by Rule 14e-2(a) under
the Exchange Act or changing the Recommendations, but in each case referred to
in the foregoing clauses (i) through (iii), only after the Board of Directors of
Borden concludes in good faith that such action is necessary or appropriate in
order for the Board of Directors of Borden to act in a manner which is
consistent with its fiduciary obligations under applicable law. If the Board of
Directors of Borden receives a Transaction Proposal, then Borden has agreed
promptly to inform the Partnership of the terms and conditions of such proposal
and the identity of the person making it and to keep the Partnership generally
informed with reasonable promptness of any steps it is taking pursuant to the
foregoing with respect to such Transaction Proposal.
Under the Merger Agreement, neither Borden nor any subsidiary will waive any
provision of any confidentiality or standstill or similar agreement to which it
is a party without the prior written consent of the Partnership, unless the
Board of Directors of Borden or such subsidiary concludes in good faith that
waiving such provision is necessary or appropriate in order for the Board of
Directors of Borden to act in a manner which is consistent with its fiduciary
obligations under applicable law.
Access to Information. Subject to applicable provisions regarding
confidentiality, each of Borden and the Partnership has agreed in the Merger
Agreement to, and to cause each of its subsidiaries to, afford to the other
parties and to their representatives reasonable access during normal business
hours during the period prior to the effective time of the Merger to all its
properties, books, contracts, commitments, personnel and records and, during
such period, to, and to cause each of its subsidiaries to, furnish as promptly
as practicable to the other parties and their respective representatives such
information concerning its business, properties, financial conditions,
operations and personnel as they may from time to time reasonably request. The
Partnership has also agreed to use its reasonable best efforts to make available
to Borden and to the officers, employees, counsel, financial advisors and other
representatives of Borden reasonable access during normal business hours during
the period prior to the effective time of the Merger to all the properties,
books, contracts, commitments, personnel and records of Holdings and, during
such period, the Partnership shall use its reasonable best efforts to furnish as
promptly as practicable to Borden such information concerning the business,
properties, financial conditions, operations and personnel of Holdings as the
Borden party may from time to time reasonably request.
Cooperation and Best Efforts. Pursuant to the Merger Agreement, subject to
certain conditions and limitations described therein, the parties have agreed to
cooperate with each other and to use their respective best efforts to take
actions appropriate so that the transactions contemplated by the Merger
Agreement and the Conditional Purchase/Option Agreement may be consummated.
Certain Antitrust Matters and Divestitures. In the Merger Agreement, Borden
and the Partnership have agreed, as promptly as practicable, to file
notification and report forms under the HSR Act with the FTC and the Antitrust
Division and to make any other necessary filings with the applicable
governmental entities related to the transactions contemplated by the Merger
Agreement, including the Transactions, and the Conditional Purchase/Option
Agreement and to use their best efforts to respond as promptly as practicable to
all inquiries received from the FTC or the Antitrust Division or such other
governmental entities for additional information or documentation. Provided that
following receipt of such approvals the Purchaser (or one of its affiliates)
acquires at least 28,138,000 Borden Shares pursuant to the Exchange Offer and/or
the Option, Borden has agreed to make any and all divestitures or undertakings
required by the FTC, the Antitrust Division or any other applicable governmental
entity in connection with the Transactions, which divestitures in each case
shall be reasonably
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acceptable to the Partnership and the Purchaser. See "The Merger--Certain
Regulatory Approvals and Legal Matters."
Employee Benefits Matters. Pursuant to the Merger Agreement, prior to the
occurrence of a "Change in Control" as defined in the Supplemental Benefit Trust
Agreement between Borden and Wachovia Bank of North Carolina, N.A. (the "Trust
Agreement"), Borden has agreed to take all such action as may be necessary so
that no funding of the Trust created thereunder will occur as a result of the
transactions contemplated by the Merger Agreement. The Trust Agreement will be
amended prior to a Change in Control to permit the disposition of all Borden
Shares held thereunder. Borden may amend certain benefit plans that would have
been required to be funded pursuant to the terms of the Trust Agreement in a
manner which provides for a lump-sum distribution to, but does not result in the
constructive receipt of compensation by, a covered employee of his or her
deferred compensation thereunder in the event of the involuntary termination or
normal retirement (under Borden's Employees Retirement Income Plan) of such
employee.
Prior to the effective time of the Merger, the Purchaser will not request
that Borden cancel, and Borden will be under no obligation to cancel, certain
agreements ("Core Management Agreements") between Borden and certain executives
of Borden designated by Borden which provide for certain payments and benefits
in the event of certain terminations of employment.
The Purchaser (or its affiliate) has agreed to continue Borden's Non-Exempt
Associate Assistance Program and Exempt Associate Assistance Program, on terms
no less favorable than the terms in existence on the date of the Merger
Agreement, for the one-year period following the effective time of the Merger.
Pursuant to the Merger Agreement, Borden is required to maintain, for the
two-year period following the effective time of the Merger, employee plans and
programs which are substantially similar in the aggregate to those pension and
welfare plans maintained for employees of Borden generally.
Borden has agreed that neither it nor any of its affiliates will accelerate
the payment of any deferred award under any bonus plan or arrangement nor award
or pay any pro rata awards thereunder as a result, or in anticipation, of the
transactions contemplated by the Merger Agreement; provided that Borden may pay
the 1994 annual bonuses pursuant to its Management Incentive Plan or other
similar annual bonus plan in a manner which is consistent with past practice and
the achievement of goals set forth therein.
Borden also has agreed to ensure that no prohibited transaction (within the
meaning of Section 406 of ERISA or 4975 of the Internal Revenue Code) will occur
with respect to any Borden Plan as a result of the transactions contemplated by
the Merger Agreement.
With respect to any of certain employees of Borden, in lieu of any other
severance arrangement for such individual, Borden has agreed to pay such
employee in the event of that employee's termination by Borden after a "Change
in Control" without "Cause" (as those terms are defined in the Core Management
Agreements) a cash severance amount equal to twelve months of salary. The
special severance payments described herein will no longer be applicable when
twelve (eighteen for one employee) months have elapsed after the Change in
Control. For certain executives of Borden, such executive's letter of employment
will be modified so that a termination without Cause prior to the second
anniversary of a Change in Control (as defined in such letters) will include a
termination by the executive due to the occurrence of any one of the following
events without his advance consent: (i) the executive's office is relocated to a
different city; (ii) the executive's base salary is reduced or his bonus
opportunity is materially lower than other Borden executives of comparable rank;
(iii) there is a material diminution in the nature or scope of the authority or
responsibilities attached to the executive's position (and, for this purpose, a
diminution in nature or scope of authority or responsibilities will not be
deemed to occur simply because the company or business in which the executive is
engaged has changed in size or structure); or (iv) in the case of one executive,
the business (either separately or as part of a larger business unit) in which
the executive is engaged is sold or otherwise disposed of. The maximum payment
Borden would be required to pay to management described above as a result of the
transaction assuming all change in control payments on termination and other
severance payments are triggered (including those in the immediately preceding
sentence) is estimated to be approximately $31 million.
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Indemnification and Insurance. Under the Merger Agreement, the certificate
of incorporation and by-laws of the surviving corporation in the Merger shall
contain provisions eliminating personal liability of directors and officers of
the surviving corporation and with respect to indemnification, which provisions
shall not be amended, repealed or otherwise modified for a period of six years
from the effective time of the Merger in any manner that would adversely affect
the rights thereunder of individuals who at such time were directors, officers,
agents or employees of Borden.
In addition, pursuant to the Merger Agreement, the surviving corporation in
the Merger will maintain in effect for six years from the effective time of the
Merger policies of directors' and officers' liability insurance containing terms
and conditions which are not less advantageous than those policies maintained by
Borden at the date of the Merger Agreement, with respect to matters occurring
prior to the effective time of the Merger, to the extent available, and having
the maximum available coverage under the current policies of directors and
officers' liability insurance; provided that such surviving corporation will not
be required to spend in excess of a $3 million annual premium therefor; provided
further that if such surviving corporation would be required to spend in excess
of a $3 million premium per annum to obtain insurance having the maximum
available coverage under the current policies, such surviving corporation will
be required, subject to availability, to spend $3 million to maintain or procure
such insurance coverage, subject to its availability.
In furtherance of and not in limitation of the preceding paragraph, the
Partnership and the Purchaser have agreed that the officers and directors of
Borden that are defendants in all litigation commenced by shareholders of Borden
with respect to (x) the performance of their duties as such officers and/or
directors under federal or state law (including litigation under federal and
state securities laws) and (y) the Purchaser's offer or proposal to acquire
Borden, including, without limitation, any and all such litigation commenced on
or after September 11, 1994 (the "Subject Litigation"), will be entitled to be
represented, at the reasonable expense of Borden, in the Subject Litigation by
one counsel (and New Jersey counsel if appropriate and one local counsel in each
jurisdiction in which a case is pending) each of which such counsel will be
selected by a plurality of such director defendants; provided that neither
Borden nor the surviving corporation nor the Partnership shall be liable for any
settlement effected without its prior written consent (which consent shall not
be unreasonably withheld) and that a condition to the indemnification payments
provided as described above shall be that such director defendant not have
settled any Subject Litigation without the consent of the Partnership or the
surviving corporation; and provided further that the surviving corporation and
the Partnership shall have no obligation to any officer/director defendant when
and if a court of competent jurisdiction shall ultimately determine, and such
determination shall have become final and non-appealable, that indemnification
of such officer/director defendant in the manner contemplated by the Merger
Agreement is prohibited by applicable law.
Redemption of Series B Preferred Stock. The Merger Agreement provides that,
if the Minimum Condition is satisfied without having been waived or lowered,
Borden will, promptly after consummation of the Exchange Offer, in the manner
and to the extent permitted by the Charter, redeem all of its outstanding shares
of Preferred Stock-Series B prior to any record date in connection with the
Proposed Merger at the amount provided for redemption in the Charter, and Borden
has agreed, subject to first obtaining required approvals under certain debt
instruments of Borden, promptly to commence taking all steps necessary to effect
such redemptions.
The Preferred Stock-Series B of Borden has been called for redemption and is
scheduled to be redeemed on January 25, 1995 in accordance with the provisions
of the Merger Agreement described in the preceding paragraph.
Redemption of Rights. Pursuant to the Merger Agreement, Borden has redeemed
all outstanding Rights at a redemption price of one and two-thirds cents per
Right effective immediately prior to the acceptance for exchange of any Borden
Shares pursuant to the Exchange Offer. In accordance with the Merger Agreement,
Borden has amended the Rights Agreement so that none of the execution or the
delivery of the Merger Agreement or the Conditional Purchase/Option Agreement,
or both such agreements taken together, or commencement of the Exchange Offer or
the acceptance of Borden
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Shares for exchange pursuant to the Exchange Offer, or the consummation of the
transactions contemplated by the Conditional Purchase/Option Agreement will (i)
trigger the exercisability of the Rights, the separation of the Rights from the
stock certificates to which they are attached or any other provisions of the
Rights Agreement, including causing the Partnership and/or the Purchaser from
becoming an Acquiring Person (as defined in the Rights Agreement), the
occurrence of a Distribution Date (as defined in the Rights Agreement) or a
Shares Acquisition Date (as defined in the Rights Agreement) or (ii) trigger the
right of the holders of the common units of Borden Chemicals and Plastics
Limited Partnership, pursuant to the Second Amended and Restated Deposit
Agreement dated February 16, 1993, to require Borden to purchase the common
units held by such holders. Borden and the Partnership have also agreed in the
Merger Agreement that, if Borden amends any provision of the Rights Agreement in
connection with a Transaction Proposal (or with respect to any person) or if the
application of the Rights Agreement or any provision thereof is enjoined with
respect to any person or Transaction Proposal or if Borden agrees to redeem the
Rights on terms more favorable than the terms set forth with respect to the
Partnership and the Purchaser in the Merger Agreement (any of such events, a
"Third Party Rights Amendment") in a manner that makes such Third Party Rights
Amendment less restrictive with respect to such person, or in connection with
such Transaction Proposal, or is otherwise more favorable with respect to such
person, or in connection with such Transaction Proposal, than the Rights
Agreement as then in effect with respect to Parent and Purchaser, Borden will be
deemed (if and to the extent possible and without derogating the obligations of
Borden pursuant to the next sentence), without the necessity of any action by
Borden or the Rights Agent, to have so amended the Rights Agreement with respect
to the Partnership and the Purchaser to the same extent or to have agreed to
redeem the Rights with respect to the Partnership and the Purchaser on terms as
favorable. Borden has agreed to notify the Partnership promptly of any Third
Party Rights Amendment and simultaneously with the execution of the Third Party
Rights Amendment to execute a written amendment to the Rights Agreement with
respect to the foregoing.
Conditions to Each Party's Obligations to Effect the Merger. The Merger
Agreement provides that the respective obligation of each party to effect the
Merger is subject to the following conditions: (i) if required by New Jersey law
or the Charter, the approval of Borden's shareholders shall have been obtained;
(ii) any waiting period applicable to the Merger under the HSR Act shall have
terminated or expired; (iii) Borden Shares shall have been purchased pursuant to
the Exchange Offer; (iv) the Registration Statement shall have become effective,
and any required post-effective amendment shall have become effective, under the
Securities Act and shall not be the subject of any stop order or proceedings
seeking a stop order, and any material "blue sky" and other state securities
laws applicable to the registration of the Holdings Common Stock to be exchanged
for shares of Borden Common Stock shall have been complied with; and (v) no
statute, rule, regulation, executive order, decree, or injunction shall have
been enacted, entered, promulgated or enforced by any governmental entity which
prohibits the consummation of the Merger, whether temporary, preliminary or
permanent, provided, however, that the parties have agreed to use their best
efforts to have any such order, decree or injunction vacated.
Conditions to Obligation of Borden. Pursuant to the Merger Agreement, if
fewer than 66 2/3% of the Borden Shares outstanding on a fully diluted basis
(other than dilution due to the Rights) shall have been accepted for exchange in
the Exchange Offer, the obligation of Borden to effect the Merger is further
subject to the condition that the representation and warranty of the Purchaser
and the Partnership to the effect that, except as disclosed in documents filed
by Holdings with the Commission, since the date of the most recent audited
financial statements included in such documents, Holdings has conducted its
business only in the ordinary course consistent with past practice, and there is
not and has not been any change in the business, financial condition or results
of operations of Holdings or any of its subsidiaries which has had, or would
reasonably be expected to have, a Material Adverse Effect with respect to
Holdings shall be true and correct, as of the date of the Merger Agreement and
as of the closing date as though made on and as of the closing date.
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Conditions to Obligations of the Purchaser and the Partnership to Effect the
Merger. If fewer than 66 2/3% of the Borden Shares outstanding on a fully
diluted basis (other than dilution due to the Rights) shall have been accepted
for exchange in the Exchange Offer, the obligations of the Purchaser and the
Partnership to effect the Merger are further subject to the following
conditions: (i) the representation and warranty of Borden to the effect that,
except as disclosed in SEC Documents filed by Borden with the Commission, since
the date of the most recent audited financial statements included in such
documents, Borden has conducted its business only in the ordinary course
consistent with past practice, and there is not and has not been any change in
the business, financial condition or results of operations of Borden or any of
its subsidiaries which has had, or would reasonably be expected to have a
Material Adverse Effect with respect to Borden shall be true and correct, as of
the date of the Merger Agreement and as of the closing date as though made on
and as of the closing date; (ii) subject to certain exceptions, Borden shall
have performed in all material respects certain affirmative covenants required
to be performed by it under the Merger Agreement at or prior to the effective
date; and (iii) the representation and warranty referred to in clause (e) of the
first paragraph under "Representations and Warranties" above, applied mutatis
mutandis to the documents filed by Borden with the Commission since the date of
the Merger Agreement, shall be true and correct in all material respects as of
closing date as though made on and as of the closing date.
Termination. The Merger Agreement may be terminated and the Merger
contemplated thereby may be abandoned at any time, notwithstanding approval
thereof by the shareholders of Borden, but prior to the effective time of the
Merger: (a) by mutual written consent of the Partnership, the Purchaser and
Borden; (b) by the Partnership or Borden, if any court of competent jurisdiction
or other governmental body located or having jurisdiction within the United
States or any country or economic region in which either Borden or the
Partnership, directly or indirectly, has material assets or operations, shall
have issued an order, decree or ruling or taken any other action permanently
restraining, enjoining or otherwise prohibiting the Merger and such order,
decree, ruling or other action shall have become final and nonappealable; (c) by
the Partnership if due to an occurrence or circumstance which would result in a
failure to satisfy any of the conditions to the Exchange Offer the Purchaser
shall have terminated the Exchange Offer, unless such termination shall have
been caused by or resulted from the failure of the Partnership or the Purchaser
to perform in any material respect their material covenants and agreements
contained in the Merger Agreement; (d) by the Partnership, if Borden shall have
modified or amended in any respect materially adverse to the Partnership or the
Purchaser or withdrawn its approval or recommendation of the Exchange Offer, the
Merger or the Merger Agreement, provided that any communication that advises
that Borden has received a Transaction Proposal or is engaging in certain
permitted activities with respect to a Transaction Proposal and that takes no
action or position with respect to the Exchange Offer, the Merger, the Merger
Agreement or any Transaction Proposal shall not be deemed to be a withdrawal,
modification or amendment of Borden's approval or recommendation of the Exchange
Offer, the Merger or the Merger Agreement and provided, further, that a
"stop-look-and-listen" communication with respect to the Exchange Offer, the
Merger or the Merger Agreement of the nature contemplated in Rule 14d-9(e) under
the Exchange Act made by Borden as a result of a Transaction Proposal (whether
or not a tender offer), without more, shall not be deemed to be a modification
or amendment of Borden's approval or recommendation of the Exchange Offer, the
Merger or the Merger Agreement that is materially adverse to the Partnership or
the Purchaser, if within 10 business days after the date of such communication
Borden shall have reaffirmed its recommendation of the Exchange Offer, the
Merger and the Merger Agreement; (e) by the Partnership if Borden shall have (i)
entered into any definitive agreement to effect the transaction contemplated by
a Transaction Proposal, (ii) recommended any Transaction Proposal from a person
other than the Partnership or the Purchaser or any of its affiliates or (iii)
resolved to do any of the foregoing; (f) by the Partnership, if any corporation
(including Borden or any of its subsidiaries), partnership, person, other entity
or group (as defined in Section 13(d)(3) of the Exchange Act) other than the
Partnership or any of its subsidiaries (collectively, "Persons") shall have
become the beneficial owner of more than 35% of the outstanding Borden Shares
(excluding any dilution due to the Rights)
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(an "Alternative Acquisition"); (g) by Borden if (i) due to an occurrence or
circumstance that would result in a failure to satisfy any of the conditions of
the Exchange Offer the Purchaser shall have terminated the Exchange Offer,
unless such termination shall have been caused by or resulted from the failure
of Borden to perform in any material respect its material covenants and
agreements contained in the Merger Agreement or (ii) prior to the exchange of
Borden Shares pursuant to the Exchange Offer, any person shall have made a bona
fide Transaction Proposal (A) that the Board of Directors of Borden determines
in its good faith judgment is more favorable to Borden's shareholders than the
Exchange Offer and the Merger and (B) as a result of which the Board of
Directors concludes in good faith that termination of the Merger Agreement is
necessary or appropriate in order for the Board of Directors to act in a manner
which is consistent with its fiduciary obligations under applicable law,
provided that such termination under this clause (ii) shall not be effective
until payment of the full fee and expense reimbursement required as described
under "--Certain Required Payments" below; (h) by the Partnership or Borden if,
without fault of the terminating party, the effective time of the Merger shall
not have occurred on or before June 30, 1995 (provided, that the right to
terminate the Merger Agreement under this clause (h) shall not be available to
any party whose failure to fulfill any obligation under the Merger Agreement has
been the cause of, or results in, the failure of the Merger to have been
consummated within such period); (i) by Borden if (i) on or after December 15,
1994, the termination date of the waiver granted to Borden of certain provisions
relating to changes in control of the credit agreement dated as of August 16,
1994 among Borden and the banks' party thereto shall not then extend past
December 15, 1994 and (ii) Borden (A) shall have received written notice from
the administrative agent under such credit agreement that, as a result of the
applicability of such provisions, all amounts payable under the credit agreement
and the other related loan documents shall have become and be due and payable
(and provided that the Merger Agreement shall be deemed to be terminated without
any further action by any party immediately prior to the receipt by Borden of
such notice), (B) shall have been advised in writing by the administrative agent
that, as a result of such provisions, the required number of banks have
requested or consented to such action or (C) Borden shall reasonably believe
either such action referred to in (A) or (B) above to be imminent based on
communications with the administrative agent, any of the banks party to such
credit agreement or representatives thereof; or (j) by the Partnership or Borden
if any required approval of the shareholders of Borden 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 shareholders or at any adjournment thereof.
Because the Exchange Offer has been consummated, the provisions described in
clauses (c) and (g) of the preceding paragraph are no longer applicable. In
addition, because Borden's and T.M. Investors Limited Partnership's credit
facilities were refinanced, subject to the consummation of the Exchange Offer,
the condition set forth in clause (i) of the preceding paragraph is no longer
applicable.
Amendment. Subject to the concurrence of a majority of the Independent
Borden Directors (following the election or appointment of the Partnership's
designees pursuant to the Merger Agreement and prior to the effective time of
the Merger), the Merger Agreement may be amended or supplemented at any time
before or after the date on which a majority of the board of directors of Borden
shall consist of designees or representatives of the Partnership but, after such
date, no amendment shall be made which decreases or increases the Exchange Ratio
or which adversely affects the rights of Borden's shareholders under the Merger
Agreement without the approval of Borden and Borden's shareholders. The Merger
Agreement may not be amended except by an instrument in writing signed on behalf
of the parties.
Extension; Waiver. Subject to the concurrence of a majority of the
Independent Borden Directors (following the election or appointment of the
Partnership's designees pursuant to the Merger Agreement and prior to the
effective time of the Merger), at any time prior to the effective time of the
Merger, the parties may (i) extend the time for the performance of any of the
obligations or other acts of the other parties hereto, (ii) waive any
inaccuracies in the representations and warranties contained herein of the other
parties hereto or in any document, certificate or writing delivered pursuant
hereto or
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(iii) waive compliance by the other parties hereto with any of the agreements or
conditions contained herein. Any agreement on the part of any party to any such
extension or waiver shall be valid only if set forth in an instrument in writing
signed on behalf of such party. The failure of any party to assert any of its
rights under the Merger Agreement shall not constitute a waiver of such rights.
Certain Required Payments. Pursuant to the Merger Agreement, Borden has
agreed promptly, but in no event later than two business days following written
notice thereof, together with related bills or receipts, to reimburse the Parent
and the Purchaser for all of their Expenses (as defined below) as incurred from
time to time in an aggregate amount of up to $15 million, against which
aggregate amount Expenses actually reimbursed (other than the fee in the amount
of $20 million (the "Initial Advisory Fee") reimbursed by Borden upon the
execution of a certain letter agreement dated September 11, 1994 between the
Parent and Borden (the "Letter Agreement")) may be credited. The term "Expenses"
includes all out-of-pocket expenses and fees including the fees and
disbursements of counsel, financial printers, experts, consultants and
accountants, as well as all fees and expenses payable to investment banking
firms and other financial institutions and their respective agents and counsel,
whether incurred prior to, on or after the date of the Merger Agreement,
incurred in connection with the transactions contemplated by the Merger
Agreement, the Letter Agreement and the Conditional Purchase/Option Agreement.
The parties have acknowledged that the reimbursement of the Initial Advisory Fee
shall not limit the reimbursement of any additional advisory fees paid by the
Parent or the Purchaser to non-affiliates of the Purchaser.
Under the Merger Agreement, if (i) (x) prior to termination of the Merger
Agreement, any Person shall have commenced, publicly proposed or communicated to
Borden a Transaction Proposal (a "Pre-Termination Transaction Proposal") (y) the
Merger Agreement is terminated and (z) on or prior to June 30, 1996, any Person
who commenced, publicly proposed or communicated to Borden a Pre-Termination
Transaction Proposal enters into any definitive agreement to effect the
transaction contemplated by such Transaction Proposal (whether or not related to
such Pre-Termination Transaction Proposal) or effects an Alternative
Acquisition; or (ii) prior to the purchase of Borden Shares pursuant to the
Exchange Offer, the Merger Agreement is terminated pursuant to clause (d) under
"--Termination" above (other than solely in the event that the average of the
closing sales prices of the Holdings Common Stock as reported on the NYSE
Composite Tape for the Valuation Period is less than the price per share that
would yield an Exchange Ratio of 2.375 or less without giving effect to any
minimum or maximum Exchange Ratio pursuant to the definition thereof) or (iii)
prior to the purchase of Borden Shares pursuant to the Exchange Offer, the
Merger Agreement is terminated pursuant to clause (e), (f) or clause (g)(ii)
under "--Termination" above, then in each case, Borden shall promptly, but in no
event later than one business day after the first of such events shall occur,
pay KKR a fee of $30 million in cash, which amount shall be payable in same day
funds. No fee shall be payable to KKR pursuant to this provision if, as has
occurred, $30 million has been paid to KKR as described in the succeeding
paragraph.
Pursuant to the Merger Agreement, if the Parent, together with any
subsidiary or affiliate of the Parent including the Purchaser, shall acquire
beneficial ownership (in one or more transactions) of a majority of the
outstanding shares of Borden Common Stock, then Borden shall promptly, but in no
event later than one business day after such event shall occur, pay KKR a fee of
$30 million in cash, which amount shall be payable in same day funds. No fee
shall be payable to KKR pursuant to this provision if $30 million has been paid
to KKR as described in the preceding paragraph.
Pursuant to the provisions described in the preceding paragraph, the $30
million fee was paid by Borden to KKR following acceptance for exchange of
Borden Shares in the Exchange Offer.
In addition to the foregoing, Borden has agreed in the Merger Agreement
promptly, but in no event later than two business days following written notice
thereof, together with related bills or receipts, to reimburse KKR, the Parent
and the Purchaser for all reasonable out-of-pocket costs, fees and expenses,
including, without limitation, the reasonable fees and disbursements of counsel
and the expenses of
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<PAGE>
litigation, incurred in connection with collecting Expenses and the Transaction
Fee as a result of any willful breach by Borden of its obligations described
above.
Except as otherwise provided above, under the Merger Agreement, whether or
not the Merger is consummated, all costs and expenses incurred in connection
with the transactions contemplated by the Merger Agreement and the Conditional
Purchase/Option Agreement will be paid by the party incurring such expenses
(including, in the case of Borden, the costs of printing the Schedule 14D-9 and
any other filings to be printed, and in each case all exhibits, amendments or
supplements thereto). Notwithstanding the foregoing, the costs and expenses of
preparing and distributing any proxy statement and obtaining and complying with
the antitrust requirements of any governmental entity will be paid by Borden.
No Recourse Provisions. Nothwithstanding anything that may be expressed or
implied in the Merger Agreement, no recourse under the Merger Agreement or the
Conditional Purchase/Option Agreement or any documents or instruments delivered
in connection therewith shall be had against any officer, agent or employee of
the Partnership or against any partner of the Partnership or any director,
officer, employee, partner, affiliate or assignee of any of the foregoing,
whether by the enforcement of any assessment or by any legal or equitable
proceeding, or by virtue of any statute, regulation or other applicable law, and
no personal liability whatsoever shall attach to, be imposed on or otherwise be
incurred by an officer, agent or employee of the Partnership or any partner of
the Partnership or any director, officer, employee, partner, affiliate or
assignee of any of the foregoing, as such for any obligations of the Partnership
under the Merger Agreement or any documents or instruments delivered in
connection with the Merger Agreement or the Conditional Purchase/Option
Agreement or for any claim based on, in respect of or by reason of such
obligations or their creation; provided, however, that the foregoing limitation
of liability shall in no way constitute a limitation on the rights of Borden to
enforce any remedies it may have against the undistributed assets of the
Partnership for the collection of any obligations or liabilities in connection
with the Merger Agreement or the Conditional Purchase/Option Agreement.
Dissenters' Rights. Holders of Borden Common Stock will not be entitled to
dissenters' rights under New Jersey law in connection with the Exchange Offer or
the Merger, and the Purchaser does not intend to accord dissenters' rights to
holders of Borden Common Stock unless required by applicable law.
CONDITIONAL PURCHASE/OPTION AGREEMENT
Pursuant to the Conditional Purchase/Option Agreement, Borden granted to the
Purchaser the irrevocable Option to purchase up to 28,138,000 Option Shares (or
approximately 19.9% of the outstanding Borden Shares as of the date thereof), on
the terms and subject to the conditions set forth therein. On December 21, 1994,
pursuant to the exercise in full of the Option, the Partnership, on behalf of
the Common Stock Partnerships, delivered 51,106,768 shares of Holdings Common
Stock to Borden in exchange for the 28,138,000 Option Shares, which were issued
from Borden's treasury.
Registration Rights. The Conditional Purchase/Option Agreement provides that
Borden will extend to the Purchaser (or its designee) registration rights with
respect to the Option Shares on substantially the same terms and subject to the
same conditions as Holdings has extended to the Partnership pursuant to the
Registration Rights Agreement dated July 15, 1990 between Holdings and the
Partnership (the "Registration Rights Agreement"), a copy of which is on file
with the Commission, except that only the first two registrations of Registrable
Securities (as defined in the Registration Rights Agreement) will be at the
expense of Borden.
The Conditional Purchase/Option Agreement also provides that, subject in all
respects to the terms and conditions of the Registration Rights Agreement,
Borden will succeed with respect to the shares of Holdings Common Stock acquired
as a result of the exercise of the Option to the rights and obligations of a
subsequent Holder (as defined in the Registration Rights Agreement) under such
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<PAGE>
agreement, unless, in the written opinion of counsel to Holdings, which opinion
shall be delivered to Borden and shall be reasonably satisfactory in form and
substance to Borden and its counsel, registration of the shares of Holdings
Common Stock acquired as a result of the exercise of the Option is not required
to lawfully sell and distribute such shares in the manner contemplated by
Borden. By its execution of the Conditional Purchase/Option Agreement, Borden
has agreed to be bound by the terms of the Registration Rights Agreement. If the
Option is exercised, the Partnership and Borden have agreed that Borden will be
entitled to two registrations at the expense of Holdings (or if Holdings refuses
to bear such expenses, at the expense of the Partnership or the Purchaser) of
Registrable Securities and, subject to the terms of the Registration Rights
Agreement, such other registrations at its own expense as it shall request.
Board of Directors. The Conditional Purchase/Option Agreement includes
provisions relating to the Purchaser's designation of persons as directors of
Borden following the exercise of the Option similar to those described with
respect to the Merger Agreement under "--Merger Agreement--Board of Directors"
above.
Amendments. The Conditional Purchase/Option Agreement may not be modified,
amended, altered or supplemented, except upon the execution and delivery of a
written agreement executed by the parties thereto.
Certain Antitrust Matters and Divestitures. In the Conditional
Purchase/Option Agreement, Borden has made certain agreements relating to
antitrust matters and divestitures similar to those described with respect to
the Merger Agreement under "--Merger Agreement--Certain Antitrust Matters and
Divestitures."
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RJR NABISCO HOLDINGS CORP.
The operating subsidiaries of Holdings owned through RJRN comprise one of
the largest tobacco and food companies in the world. In the United States, the
tobacco business is conducted by RJRT, the second largest manufacturer of
cigarettes, and the packaged foods business is conducted by Nabisco, the largest
manufacturer and marketer of cookies and crackers. Tobacco operations outside
the United States are conducted by Tobacco International and food operations
outside the United States and Canada are conducted by Nabisco International, a
subsidiary of Nabisco. Together, RJRT's and Tobacco International's tobacco
products are sold around the world under a variety of brand names. Food products
are sold in the United States, Canada, Latin America and certain other
international markets.
Domestic Tobacco. RJRT's largest selling cigarette brands in the United
States include WINSTON, DORAL, SALEM, CAMEL, MONARCH and VANTAGE. RJRT's other
cigarette brands, including BEST VALUE, MORE, NOW, STERLING, MAGNA and CENTURY,
are marketed to meet a variety of smoker preferences. All RJRT brands are
marketed in a variety of styles. A primary long-term objective of RJRT is to
increase earnings and cash flow through selective marketing investments in its
key brands and continual improvements in its cost structure and operating
efficiency. Marketing programs for full-price brands are designed to build brand
awareness and add value to the brands in order to retain current adult smokers
and attract adult smokers of competitive brands. RJRT believes it is essential
to compete in all segments of the cigarette market, and accordingly offers a
range of lower-priced brands intended to appeal to more cost-conscious adult
smokers. Based on data collected for RJRT by an independent market research
firm, RJRT had an overall share of retail consumer cigarette sales during 1993
of 29.8%, an increase of approximately one share point from 1992.
International Tobacco. Tobacco International operates in over 160 markets
around the world and is the second largest of two international cigarette
producers that have significant positions in the American Blend segment of the
international tobacco market. Tobacco International markets over 55 brands of
which WINSTON, CAMEL and SALEM, all American Blend cigarettes, are its
international leaders. Tobacco International has strong brand presence in
Western Europe and is well established in its other key markets in the Middle
East/Africa, Asia and Canada. Tobacco International is aggressively pursuing
development opportunities in Eastern Europe and the former Soviet Union.
Nabisco. Nabisco's domestic operations represent one of the largest packaged
food businesses in the world. Through its domestic divisions, Nabisco
manufactures and markets cookies, crackers, snack foods, hard and bite-size
candy, gum, nuts, hot cereals, margarine, pet foods, dry-mix dessert products
and other grocery products under established and well-known trademarks,
including OREO, CHIPS AHOY!, NEWTONS, SNACKWELL'S, RITZ, PREMIUM, LIFE SAVERS,
PLANTERS, A.1, GREY POUPON, MILK-BONE, ORTEGA, CREAM OF WHEAT, FLEISCHMANN'S and
BLUE BONNET. Nabisco Biscuit Company ("Nabisco Biscuit") is the largest
manufacturer and marketer in the United States cookie and cracker industry with
nine of the top ten selling brands, each of which had annual sales of over $100
million in 1993. Overall, in 1993, Nabisco Biscuit had a 37% share of the
domestic cookie industry sales and a 55% share of the domestic cracker industry
sales, in the aggregate more than three times the share of its closest
competitor. In 1992, Nabisco Biscuit became the leading manufacturer and
marketer of no fat/reduced fat cookies and crackers with the introduction of the
SNACKWELL'S line. In 1993, the SNACKWELL'S brand recorded net sales of $186
million, which made SNACKWELL'S the sixth largest cookie/cracker brand in the
United States. Based on 1993 net sales, LIFE SAVERS is the largest selling hard
roll candy in the United States, with an approximately 25.4% share of the hard
roll candy category, and PLANTERS nuts are the clear leader in the packaged nut
category, with a market share of more than five times that of its nearest
competitor.
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Nabisco International is a leading producer of powdered dessert and drink
mixes, biscuits, baking powder and other grocery items, industrial yeast and
bakery ingredients in many of the 17 Latin American countries in which it has
operations. Nabisco International has significantly increased its presence in
Europe through the acquisition of Royal Brands S.A. in Spain and Royal Brands
Portugal.
RJRN was acquired in 1989 by an indirect, wholly owned subsidiary of
Holdings in the Acquisition. Prior to the Acquisition, RJRN was a publicly held
corporation. See "Significant Considerations--KKR Ownership."
RECENT DEVELOPMENTS
Nabisco Initial Public Offering and Related Transactions. On October 28,
1994, Nabisco filed a registration statement with the Commission for the initial
public offering of 45 million shares of its Class A Common Stock (51.75 million
shares if the underwriters' over-allotment options are exercised in full). For
purposes of the filing, the initial offering price was estimated to be between
$23 and $26 per share. Upon completion of the proposed public offering, Holdings
would beneficially own 100% of Nabisco's outstanding Class B Common Stock, which
would represent approximately 82.6% of the economic interest in Nabisco (80.5%
if the underwriters' over-allotment options are exercised in full). Holders of
Class A Common Stock of Nabisco generally would have identical rights to holders
of Class B Common Stock except that holders of Class A Common Stock would be
entitled to one vote per share while holders of Class B Common Stock would be
entitled to ten votes per share on all matters submitted to a vote of
stockholders. The registration statement has not become effective and there can
be no assurance that such offering will be consummated.
The initial public offering of shares of Nabisco is part of a broader
proposed initiative of Holdings designed to reduce consolidated debt of Holdings
by approximately $1 billion and establish a separately traded common stock for
Nabisco. After completion of the proposed public offering, Holdings anticipates
commencing a quarterly cash dividend on its common stock of $.075 per share or
$.30 per share on an annualized basis.
At the time of the proposed public offering, Nabisco is expected to have
approximately $4.1 billion of intercompany debt and approximately $1.4 billion
of borrowings under a short-term bank credit agreement. The net proceeds of the
proposed public offering will be used by Nabisco to repay a portion of the
borrowings under its bank facility.
As part of the initiative, RJRN redeemed several issues of debt securities,
including $1.5 billion of 10 1/2% Senior Notes due 1998, approximately $374
million of 8 3/8% Sinking Fund Debentures due 2017, $100 million of 13 1/2%
Subordinated Debentures due 2001 and approximately $25 million of 7 3/8% Sinking
Fund Debentures due 2001, all of which were redeemed with various redemption
premiums. RJRN funded these redemptions with borrowings under its existing
credit facilities, proceeds from Holdings' Series C Preferred Stock offering
completed on May 6, 1994 and internally generated cash flow. See "RJR Nabisco
Holdings Corp. Selected Pro Forma Consolidated Financial Data."
Upon completion of the proposed public offering of Nabisco, RJRN may seek to
restructure approximately $6 billion of its domestic publicly held debt which
currently limits the ability of Nabisco to incur long-term debt other than
intercompany debt. The restructuring, which would require consent of public
debtholders and lenders under bank facilities, may include one or more offers to
exchange Nabisco debt securities for a portion of such debt. The goal of the
exchange offers would be to permit Nabisco to establish long-term borrowing
capacity independent of its parent and to reduce its intercompany debt. No
assurance can be given that RJRN will seek to restructure its debt or that any
such restructuring will be consummated.
The Board of Directors of Holdings has adopted certain policies, which would
become effective upon the closing of the Nabisco initial public offering. One
policy would provide that Holdings would limit, until December 31, 1998, the
aggregate amount of cash dividends on its capital stock. Under this
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policy, during that period Holdings would not pay any extraordinary cash
dividends and would limit the amount of its cash dividends, cash distributions
and repurchases for cash of capital stock and subordinated debt to an amount
equal to the sum of $500 million plus (i) 65% of Holdings' cumulative
consolidated net income before extraordinary gains or losses and restructuring
charges and (ii) net cash proceeds of up to $250 million in any year from the
sale of capital stock of Holdings or its subsidiaries (other than proceeds from
the Nabisco initial public offering) to the extent used to repay, purchase or
redeem debt or preferred stock. Another policy would provide that Holdings would
not declare a dividend or distribution to its stockholders of the shares of
capital stock of a subsidiary before December 31, 1996. Another policy sets
forth the intention of Holdings that it would not make such a distribution prior
to December 31, 1998 if that distribution would cause the ratings of the senior
indebtedness of RJRN to be reduced from investment grade to non-investment grade
or if, after giving effect to such distribution, any publicly held senior
indebtedness of the distributed company would not be rated investment grade.
There is no assurance that any such distribution will take place. Additional
policies provide that an amount equal to the net cash proceeds from any issuance
and sale of equity by Holdings or from any sale outside the ordinary course of
business of material assets owned or used by subsidiaries in the tobacco
business, in each case before December 31, 1998, would be used either to repay,
purchase or redeem consolidated indebtedness or to acquire properties, assets or
businesses to be used in existing or new lines of business and that an amount
equal to the net cash proceeds of any secondary sale of shares of Nabisco before
December 31, 1998 would be used to repay, purchase or redeem consolidated debt.
No assurance can be given that Holdings will issue or sell any equity or sell
any material assets outside the ordinary course of business.
Termination of Agreement in Principle Relating to Borden. On October 25,
1994, Holdings and KKR concluded that they were unable to reach a definitive
agreement for the transaction contemplated by their agreement in principle for
Holdings to acquire a minority interest in Borden, as had been previously
announced on September 12, 1994. The September 12, 1994 announcement indicated
that, following KKR's successful acquisition of Borden, Holdings would issue to
Borden approximately $500 million of newly issued common shares of Holdings for
newly issued shares of Borden common stock representing a 20% pro forma interest
in Borden and a warrant to acquire an additional 10% pro forma interest in
Borden. The inability to reach agreement resulted from various complexities
affecting the transaction, including certain accounting issues. In particular,
because Holdings would have been required to account for its investment in
Borden using the equity method (thereby being required to reflect a portion of
Borden's potentially low or volatile earnings in its financial statements) and
to amortize a substantial amount of goodwill resulting from the transaction, the
proposed transaction would likely have had a dilutive effect on Holdings'
near-term earnings. Attempts to resolve these issues by restructuring the
transaction were unsuccessful. Holdings could in the future explore a basis on
which it or its Nabisco subsidiary may acquire a minority equity interest in
Borden in exchange for common stock of Holdings. However, Holdings is not
currently engaged in any such negotiations, and there is no assurance that
Holdings will seek to pursue any such negotiations or that any such negotiations
will be successful.
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RJR NABISCO HOLDINGS CORP.
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data presented below as of September 30,
1994 and for the nine months ended September 30, 1994 and 1993 were derived from
the Holdings Consolidated Condensed Financial Statements incorporated herein by
reference. The selected consolidated financial data presented below as of
December 31, 1993 and 1992 and for each of the years in the three-year period
ended December 31, 1993 for Holdings were derived from the Holdings Consolidated
Financial Statements, incorporated herein by reference, which have been audited
by Deloitte & Touche LLP, independent auditors. In addition, the selected
consolidated financial data as of December 31, 1991, 1990 and 1989, for the year
ended December 31, 1990 and for the period from February 9, 1989 through
December 31, 1989 for Holdings and for the period from January 1, 1989 through
February 8, 1989 for RJRN were derived from the consolidated financial
statements of Holdings and RJRN as of December 31, 1991, 1990 and 1989, for the
year ended December 31, 1990 and for each of the periods within the one-year
period ended December 31, 1989, not presented or incorporated herein by
reference, which have been audited by Deloitte & Touche LLP, independent
auditors. The data should be read in conjunction with the Holdings Consolidated
Financial Statements and the Holdings Consolidated Condensed Financial
Statements incorporated herein by reference.
<TABLE><CAPTION>
HOLDINGS
------------------------------------------------------------------------
RJRN
FOR THE NINE ----------
MONTHS ENDED
SEPTEMBER 30,
FOR THE YEARS ENDED DECEMBER 31,
(DOLLARS IN MILLIONS EXCEPT PER ----------------- -----------------------------------------------------------------
SHARE AMOUNTS) 1994 1993 1993 1992 1991 1990 1989
------- ------- ------- ------- ------- ------- -------------------------
2/9 TO 12/31 1/1 TO 2/8
------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS
Net sales......................... $11,322 $11,053 $15,104 $15,734 $14,989 $13,879 $ 12,114 $ 650
------- ------- ------- ------- ------- ------- ------ ----------
Cost of products sold............. 5,079 4,709 6,640 6,326 6,088 5,652 5,241 332
Selling, advertising,
administrative and
general expenses................ 3,789 4,182 5,731 5,788 5,358 4,801 4,276 295
Amortization of trademarks and
goodwill........................... 469 466 625 616 609 608 557 10
Restructuring expense............. -- -- 730 106 -- -- -- --
------- ------- ------- ------- ------- ------- ------ ----------
Operating income(1)............. 1,985 1,696 1,378 2,898 2,934 2,818 2,040 13
Interest and debt expense......... (828) (910) (1,209) (1,449) (2,217) (3,176) (3,340) (44)
Change in control costs........... -- -- -- -- -- -- -- (247)
Other income (expense), net....... (81) (4) (58) 7 (69) (44) 169 15
------- ------- ------- ------- ------- ------- ------ ----------
Income (loss) from continuing
operations before income
taxes.............................. 1,076 782 111 1,456 648 (402) (1,131) (263)
Provision (benefit) for income
taxes.............................. 474 356 114 680 280 60 (156) (66)
------- ------- ------- ------- ------- ------- ------ ----------
Income (loss) from continuing
operations......................... 602 426 (3) 776 368 (462) (975) (197)
Income (loss) from operations of
discontinued businesses, net of
income taxes(2).................... -- -- -- -- -- -- (1) 24
Extraordinary item--(loss) gain on
early extinguishments of debt,
net of income
taxes........................... (145) (110) (142) (477) -- 33 -- --
------- ------- ------- ------- ------- ------- ------ ----------
Net income (loss)................. 457 316 (145) 299 368 (429) (976) (173)
Preferred stock dividends......... 98 33 68 31 173 50 -- 4
------- ------- ------- ------- ------- ------- ------ ----------
Net income (loss) applicable to
common stock....................... $ 359 $ 283 $ (213) $ 268 $ 195 $ (479) $ (976) $ (177)
------- ------- ------- ------- ------- ------- ------ ----------
------- ------- ------- ------- ------- ------- ------ ----------
PER SHARE DATA
Income (loss) from continuing
operations
per common and common equivalent
share.............................. $ .33 $ .29 $ (.05) $ .55 $ .22 $ (1.19) $ (3.21) $ (.89)
Dividends per share of Series A
Preferred Stock(3).............. 2.51 2.51 3.34 3.34 .49 -- -- --
Dividends per share of Series C
Preferred Stock(3).............. 2.44 -- -- -- -- -- -- --
BALANCE SHEET DATA
(AT END OF PERIODS)
Working capital................... 358 -- $ 202 $ 730 $ 165 $(1,089) $ 106 --
Total assets...................... 31,851 -- 31,295 32,041 32,131 32,915 36,412 --
Total debt........................ 11,205 -- 12,448 14,218 14,531 18,918 25,159 --
Redeemable preferred stock(4)..... -- -- -- -- -- 1,795 -- --
Stockholders' equity(5)........... 10,957 -- 9,070 8,376 8,419 2,494 1,237 --
Book value per common share after
conversion of Series A Preferred
Stock and Series C Preferred
Stock.............................. 5.94 -- 5.77 -- -- -- -- --
</TABLE>
(Footnotes on following page)
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(Footnotes for preceding page)
- - - ------------
(1) The 1992 amount includes a gain of $98 million on the sale of the
ready-to-eat cold cereal business.
(2) The 1989 amount for Holdings includes $237 million of interest expense
allocated to discontinued operations.
(3) On November 8, 1991, Holdings issued 52,500,000 shares of Series A Preferred
Stock and sold 210,000,000 Series A Depositary Shares. On May 6, 1994,
Holdings issued 26,675,000 shares of Series C Preferred Stock and sold
266,750,000 Series C Depositary Shares. Because Series A Preferred Stock and
Series C Preferred Stock mandatorily convert into Holdings Common Stock,
dividends on such shares are reported similar to common equity dividends.
(4) On December 16, 1991, an amendment to the Amended and Restated Certificate
of Incorporation of Holdings was filed which deleted the provisions
providing for the mandatory redemption of the redeemable preferred stock of
Holdings on November 1, 2015. Accordingly, such securities were presented as
a component of Holdings' stockholders' equity as of December 31, 1992 and
1991. Such securities were redeemed on December 6, 1993.
(5) Holdings' stockholders' equity at September 30, 1994 and December 31 of each
year from 1993 to 1989 includes non-cash expenses related to accumulated
trademark and goodwill amortization of $3.484 billion, $3.015 billion,
$2.390 billion, $1.774 billion, $1.165 billion and $.557 billion,
respectively.
See Notes to Holdings Consolidated Financial Statements and Holdings Unaudited
Quarterly Consolidated Condensed Financial Statements incorporated herein by
reference.
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RJR NABISCO HOLDINGS CORP.
SELECTED PRO FORMA CONSOLIDATED FINANCIAL DATA
The Holdings Pro Forma Financial Statements reflect the effects of
adjustments to the historical results of operations and financial condition of
Holdings. The Holdings Pro Forma Financial Statements should be read in
conjunction with the Holdings Consolidated Financial Statements, the Holdings
Consolidated Condensed Financial Statements and other financial information set
forth or incorporated by reference herein.
The Holdings pro forma consolidated condensed statements of income excluding
extraordinary items related to the loss on early extinguishments of debt, net of
income taxes, give effect to the following transactions and events as if they
occurred as of January 1, 1993: (i) borrowings of $1.35 billion under the
Nabisco Credit Agreement and the application of funds provided through such
borrowings to repay a portion of the borrowings under the 1991 Credit Agreement;
(ii) the sale and issuance of 45,000,000 shares of Nabisco Class A Common Stock
in the Nabisco Common Stock Offerings, the resulting reduction in Holdings'
proportionate interest in Nabisco and the application of the estimated net
proceeds of approximately $1,047 million (assuming an initial public offering
price of $24.50 per share) therefrom to repay a portion of the borrowings under
the Nabisco Credit Agreement; (iii) the assumed payment of quarterly dividends
on Holdings' Common Stock of $.075 per share and the increased level of net
indebtedness assumed to be outstanding had such dividend payments been made;
(iv) the redemption of $1.5 billion of the 10 1/2% Senior Notes due 1998,
approximately $374 million of the 8 3/8% Debentures due 2017, $100 million of 13
1/2% Subordinated Debentures due 2001 and approximately $25 million of the 7
3/8% Debentures due 2001 through borrowings under the 1991 Credit Agreement and
proceeds from Holdings' Series C Preferred Stock offering completed on May 6,
1994; and (v) the tax effect of the foregoing. Holdings' pro forma consolidated
condensed balance sheet gives effect to the pro forma transactions and events
described in clauses (i), (ii) and (iv) above, as if they occurred on September
30, 1994.
Management believes the assumptions used provide a reasonable basis on which
to present the pro forma financial data. THE HOLDINGS PRO FORMA FINANCIAL
STATEMENTS ARE PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE
CONSTRUED TO BE INDICATIVE OF HOLDINGS' RESULTS OF OPERATIONS OR FINANCIAL
POSITION HAD THE TRANSACTIONS AND EVENTS DESCRIBED ABOVE BEEN CONSUMMATED ON THE
DATES ASSUMED AND DO NOT PROJECT HOLDINGS' RESULTS OF OPERATIONS OR FINANCIAL
POSITION FOR ANY FUTURE DATE OR PERIOD. NABISCO HAS FILED A REGISTRATION
STATEMENT WITH THE COMMISSION WITH RESPECT TO A PROPOSED INITIAL PUBLIC OFFERING
OF 45,000,000 SHARES OF ITS CLASS A COMMON STOCK, BUT SUCH REGISTRATION
STATEMENT HAS NOT BEEN DECLARED EFFECTIVE BY THE COMMISSION. NO ASSURANCE CAN BE
GIVEN THAT SUCH OFFERING WILL BE CONSUMMATED.
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RJR NABISCO HOLDINGS CORP.
PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1994
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
<S> <C> <C> <C>
Net sales...................................................... $ 11,322 $11,322
---------- ---------
Cost and expenses:
Cost of products sold.......................................... 5,079 5,079
Selling, advertising, administrative and general expenses...... 3,789 3,789
Amortization of trademarks and goodwill........................ 469 469
---------- ---------
Operating income............................................. 1,985 1,985
Interest and debt expense....................................... (828) $ 112(a) (716)
Other income (expense), net..................................... (81) (81)
---------- --- ---------
Income before income taxes................................... 1,076 112 1,188
Provision for income taxes...................................... 474 39(b) 513
---------- --- ---------
Income before minority interest in income of Nabisco......... 602 73 675
Minority interest in income of Nabisco.......................... -- (32)(c) (32)
---------- --- ---------
Net income................................................... 602 41 643
Less preferred stock dividends.................................. 98 98
---------- --- ---------
Net income applicable to Common Stock........................ $ 504 $ 41 $ 545
---------- --- ---------
---------- --- ---------
Per Share Data
Net income per common and common equivalent.................. $ .33 $ .36
Dividends per share of Common Stock.......................... -- .225
Dividends per share of Series A Preferred Stock.............. 2.505 2.505
Dividends per share of Series C Preferred Stock.............. 2.438 2.438
</TABLE>
See Notes to Pro Forma Consolidated Condensed Statements of Income.
88
<PAGE>
RJR NABISCO HOLDINGS CORP.
PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1993
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
<S> <C> <C> <C>
Net sales....................................................... $ 15,104 $15,104
---------- ---------
Cost and expenses:
Cost of products sold.......................................... 6,640 6,640
Selling, advertising, administrative and general expenses...... 5,731 5,731
Amortization of trademarks and goodwill........................ 625 625
Restructuring expense.......................................... 730 730
---------- ---------
Operating income............................................. 1,378 1,378
Interest and debt expense....................................... (1,209) $ 161(a) (1,048)
Other income (expense), net..................................... (58) (58)
---------- --- ---------
Income before income taxes................................... 111 161 272
Provision for income taxes...................................... 114 56(b) 170
---------- --- ---------
Income (loss) before minority interest in income of
Nabisco......................................................... (3) 105 102
Minority interest in income of Nabisco.......................... -- (29)(c) (29)
---------- --- ---------
Net income (loss)............................................ (3) 76 73
Less preferred stock dividends.................................. 68 68
---------- --- ---------
Net income (loss) applicable to Common Stock................. $ (71) $ 76 $ 5
---------- --- ---------
---------- --- ---------
Per Share Data
Net income (loss) per common and common equivalent........... $ (.05) $ .00
Dividends per share of Common Stock.......................... -- .30
Dividends per share of Series A Preferred Stock.............. 3.34 3.34
</TABLE>
See Notes to Pro Forma Consolidated Condensed Statements of Income.
89
<PAGE>
RJR NABISCO HOLDINGS CORP.
NOTES TO PRO FORMA CONSOLIDATED CONDENSED STATEMENTS OF INCOME
The following is a summary of the pro forma adjustments reflected in the Pro
Forma Consolidated Condensed Statements of Income:
(a) Adjust historical interest and debt expense, as applicable, based
upon (i) borrowings of $1.35 billion under the Nabisco Credit Agreement and
the application of funds provided through such borrowings to repay a portion
of the borrowings under the 1991 Credit Agreement; (ii) the sale and
issuance of 45,000,000 shares of Nabisco Class A Common Stock in the Nabisco
Common Stock Offerings, the resulting reduction in Holdings' proportionate
interest in Nabisco and the application of the estimated net proceeds of
approximately $1,047 million (assuming an initial public offering price of
$24.50 per share) therefrom to repay a portion of the borrowings under the
Nabisco Credit Agreement; (iii) the assumed payment of quarterly dividends
on Holdings' Common Stock of $.075 per share and the increased level of net
indebtedness assumed to be outstanding had such dividend payments been made;
(iv) the redemption of $1.5 billion of the 10 1/2% Senior Notes due 1998,
approximately $374 million of the 8 3/8% Debentures due 2017, $100 million
of 13 1/2% Subordinated Debentures due 2001 and approximately $25 million of
the 7 3/8% Debentures due 2001 through borrowings under the 1991 Credit
Agreement and proceeds from Holdings' Series C Preferred Stock offering
completed on May 6, 1994.
(b) Recognize income taxes on the pro forma adjustments at the U.S.
statutory rate of 35%.
(c) Record the reduction of Holdings' proportionate interest in Nabisco
resulting from the Nabisco Common Stock Offerings.
90
<PAGE>
RJR NABISCO HOLDINGS CORP.
PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET
SEPTEMBER 30, 1994
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS AFTER ADJUSTMENTS
---------- ----------- -----------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................ $ 647 $ (399) (a) $ 248
Accounts and notes receivable, net................... 1,107 1,107
Inventories.......................................... 2,504 2,504
Prepaid expenses and excise taxes.................... 414 414
---------- ----------- -------
TOTAL CURRENT ASSETS............................. 4,672 (399) 4,273
---------- ----------- -------
Property, plant and equipment, at cost................. 7,710 7,710
Less accumulated depreciation.......................... (2,281) (2,281)
---------- -------
Net property, plant and equipment.................... 5,429 5,429
---------- -------
Trademarks, net........................................ 8,573 8,573
Goodwill, net.......................................... 12,761 12,761
Other assets and deferred charges...................... 416 (13)(a) 403
---------- ----------- -------
$ 31,851 $ (412) $31,439
---------- ----------- -------
---------- ----------- -------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable........................................ $ 229 $ 229
Accounts payable..................................... 469 469
Accrued liabilities.................................. 2,646 (83)(a) 2,563
Current maturities of long-term debt................. 613 613
Income taxes accrued................................. 357 $ (66)(a) 291
---------- ----------- -------
TOTAL CURRENT LIABILITIES........................ 4,314 (149) 4,165
---------- ----------- -------
Long-term debt (less current maturities)............... 10,363 (140)(a) 9,176
-- (b)
(1,350)(c)
303(c)
Other noncurrent liabilities........................... 2,534 673(c) 3,207
Deferred income taxes.................................. 3,683 3,683
Stockholders' equity:
ESOP convertible preferred stock..................... 247 247
Series A convertible preferred stock................. 2 2
Series B preferred stock............................. 1,250 1,250
Series C convertible preferred stock................. 3 3
Common Stock......................................... 11 11
Paid-in capital...................................... 10,214 374(c) 10,588
Retained earnings (accumulated deficit).............. (427) (123)(a) (550)
Receivable from ESOP................................. (190) (190)
Other stockholders' equity........................... (153) (153)
---------- ----------- -------
TOTAL STOCKHOLDERS' EQUITY....................... 10,957 251 11,208
---------- ----------- -------
$ 31,851 $ (412) $31,439
---------- ----------- -------
---------- ----------- -------
</TABLE>
See Notes to Pro Forma Consolidated Condensed Balance Sheet.
91
<PAGE>
RJR NABISCO HOLDINGS CORP.
NOTES TO PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET
The following is a summary of the pro forma adjustments reflected in the Pro
Forma Consolidated Condensed Balance Sheet:
(a) The redemption of $1.5 billion of the 10 1/2% Senior Notes dues
1998, approximately $374 million of the 8 3/8% Debentures due 2017, $100
million of the 13 1/2% Subordinated Debentures due 2001 and approximately
$25 million of the 7 3/8% Debentures due 2001, including the payment of
accrued interest on such notes and debentures in the aggregate amount of $83
million, through borrowings under the 1991 Credit Agreement and proceeds
from Holdings' Series C Preferred Stock offering completed on May 6, 1994,
the write off of related unamortized financing costs of $13 million and the
resulting extraordinary loss of $123 million net of related income taxes of
$66 million. Because the income statement impact of such events will be
included in Holdings' consolidated statement of income within the twelve
months subsequent to September 30, 1994, such income statement impact was
not considered in the accompanying pro forma consolidated income statement.
(b) Borrowings of $1.35 billion under the Nabisco Credit Agreement and
the application of funds provided through such borrowings to repay a portion
of the borrowings under the 1991 Credit Agreement.
(c) The sale and issuance of 45,000,000 shares of Nabisco Class A Common
Stock in the Nabisco Common Stock Offerings, the resulting reduction in
Holdings' proportionate interest in Nabisco and the application of the
estimated net proceeds of approximately $1,047 million (assuming an initial
public offering price of $24.50 per share) therefrom to repay a portion of
the borrowings under the Nabisco Credit Agreement. Holdings' accounting
policy with respect to sales of stock by its subsidiaries is to recognize
any gains in paid-in capital if subsequent capital transactions are
contemplated that may affect the realization of such gains.
92
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT OF HOLDINGS
The following table sets forth certain information regarding the beneficial
ownership of Holdings Common Stock as of November 30, 1994 (after giving effect
to the Exchange Offer which expired on December 20, 1994) by (a) persons known
to Holdings to be the beneficial owners of more than five percent of the
outstanding Holdings Common Stock, (b) each director of Holdings, (c) each of
the five most highly compensated executive officers of Holdings during the 1993
fiscal year of Holdings, (d) one individual who served as Chief Executive
Officer of Holdings during the 1993 fiscal year of Holdings and (e) all
directors and executive officers of Holdings as a group. Except as otherwise
noted, the persons named in the table below have sole voting and investment
power with respect to all shares shown as beneficially owned by them.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
NAME OF BENEFICIAL OWNER PRIOR TO MERGER AFTER MERGER(1)
- - - ------------------------------------------------- ---------------------- ----------------------
SHARES PERCENT SHARES PERCENT
----------- ------- ----------- -------
<S> <C> <C> <C> <C>
KKR Associates(2)................................ 350,233,951 25.76% 231,769,884 17.05%
9 West 57th Street
New York, New York 10019
FMR Corp.(3)..................................... 120,887,980 8.89 120,887,980 8.89
82 Devonshire Street
Boston, Massachusetts 02109
John T. Chain, Jr.(4)............................ 40,000 * 40,000 *
Julius L. Chambers............................... -- -- -- --
John L. Clendenin................................ 2,266 * 2,266 *
Louis V. Gerstner, Jr.(5)........................ 1,444,047 .11 1,444,047 .11
James H. Greene, Jr.(2).......................... 27,301 * 27,301 *
H. John Greeniaus(4)............................. 2,471,693 .18 2,471,693 .18
Charles M. Harper(4)............................. 2,810,490 .24 2,810,490 .24
James W. Johnston(4)(6).......................... 2,412,055 .18 2,412,055 .18
Henry R. Kravis(2)............................... 289,189 * 289,189 *
John G. Medlin, Jr............................... 34,333 * 34,333 *
Paul E. Raether(2)............................... 94,185 * 94,185 *
Lawrence R. Ricciardi(4)(7)...................... 1,435,339 .11 1,435,339 .11
Rozanne L. Ridgway(4)............................ 30,000 * 30,000 *
Clifton S. Robbins(2)............................ 21,614 * 21,614 *
George R. Roberts(2)............................. 289,189 * 289,189 *
Scott M. Stuart(2)............................... 14,106 * 14,106 *
G. Richard Thoman(4)............................. -- -- -- --
Michael T. Tokarz(2)............................. 29,577 * 29,577 *
Karl M. von der Heyden(4)........................ 1,921,315 .14 1,921,315 .14
All directors and executive officers of Holdings
as a group (other than as set forth above in
relation to KKR Associates)(2)(4).............. 19,338,781 1.41% 19,338,781 1.41%
</TABLE>
- - - ------------
* Less than 0.1%.
(1) In the Merger, it is assumed that 118,464,067 shares of Holdings Common
Stock beneficially owned by KKR Associates will be exchanged for 51,698,073
shares of Borden Common Stock. The foregoing information (which is reflected
in the table) assumes that, after December 30, 1994, no further options for
Borden Common Stock are exercised and no further shares of Borden's
Preferred Stock--Series B are converted into Borden Common Stock.
Information concerning Borden Shares outstanding is based on information
available on December 30, 1994.
(2) Shares of Holdings Common Stock shown as beneficially owned by KKR
Associates include shares owned of record by the limited partnerships of
which KKR Associates is the sole general partner and as to which it
possesses sole voting and investment power, including the Partnership and
51,106,768 shares of Holdings Common Stock held by Borden upon exercise of
the Option and indirectly controlled by KKR Associates. KKR Associates is a
limited partnership of which Messrs. Greene, Kravis, Raether, Robbins,
Roberts, Stuart and Tokarz, all directors of Holdings, and Saul A. Fox,
Edward A. Gilhuly, Perry Golkin, Robert I. MacDonnell and Michael N.
Michelson are the general partners. Such persons may be deemed to share
beneficial ownership of
(Footnotes continued on following page)
93
<PAGE>
(Footnotes continued from preceding page)
the shares shown as owned by KKR Associates. The foregoing persons disclaim
beneficial ownership of any such shares.
(3) According to the Schedule 13G dated October 7, 1994 jointly filed by FMR
Corp. and Edward C. Johnson 3d, Chairman of FMR Corp. and a member of a
controlling group with respect to FMR Corp., the 120,887,980 shares of
Holdings Common Stock shown as beneficially owned by FMR Corp. and Mr.
Johnson include (i) 112,056,000 shares beneficially owned by Fidelity
Management & Research Company, a registered investment adviser and wholly
owned subsidiary of FMR Corp., as a result of acting as investment adviser
to several registered investment companies that own such shares (the
"Fidelity Funds") and (ii) 8,831,980 shares beneficially owned by Fidelity
Management Trust Company, a bank and wholly owned subsidiary of FMR Corp.,
as a result of serving as investment manager of institutional accounts.
According to the Schedule 13G, FMR Corp. and Mr. Johnson also beneficially
own 580,150 shares of Series C Preferred Stock as a result of (i) the
Fidelity Funds owning 4,383,100 Series C Depositary Shares and (ii) such
investment accounts owning 1,418,400 Series C Depositary Shares. According
to the Schedule 13G, (a) FMR Corp. and Mr. Johnson each has sole investment
power, but neither has sole voting power, over the shares owned by the
Fidelity Funds and (b) FMR Corp. has sole investment power over all of, has
sole voting power over certain of, and has no voting power over the
remainder of, the shares owned by the institutional accounts.
(4) For purposes of this table, a person or group of persons is deemed to be the
"beneficial owner" of any shares that such person has the right to acquire
within 60 days. For purposes of computing the percentage of outstanding
shares held by each person or group of persons named above on a given date,
any security that such person or persons has the right to acquire within 60
days is deemed to be outstanding, but is not deemed to be outstanding for
the purpose of computing the percentage ownership of any other person. The
number of shares beneficially owned includes (i) 30,000 shares subject to
currently exercisable options granted to each of Mr. Chain and Ms. Ridgway;
2,187,500 shares subject to currently exercisable options granted to Mr.
Harper; 1,840,200 shares subject to currently exercisable options granted to
each of Messrs. Greeniaus and Johnston; 1,254,599 shares subject to
currently exercisable options granted to Mr. Ricciardi; and 13,078,470
shares subject to currently exercisable options granted to all directors and
executive officers as a group; and (ii) 768, 1,308, 1,317, 1,315, 1,315 and
19,486 shares of Holdings Common Stock currently issuable on conversion of a
like number of shares of ESOP Preferred Stock (as defined below) owned by,
respectively, Messrs. Harper, Greeniaus, Johnston, Ricciardi, von der Heyden
and all directors and executive officers as a group.
(5) The outstanding shares of Holdings Common Stock shown as beneficially owned
by Mr. Gerstner include 103,600 shares held in trust for the benefit of Mr.
Gerstner's children, as to which Mr. Gerstner disclaims beneficial
ownership.
(6) The outstanding shares of Holdings Common Stock shown as beneficially owned
by Mr. Johnston include 60,000 shares held in trust for the benefit of Mr.
Johnston's children, as to which Mr. Johnston disclaims beneficial
ownership.
(7) The outstanding shares of Holdings Common Stock shown as beneficially owned
by Mr. Ricciardi include 60,000 shares held in trust for the benefit of Mr.
Ricciardi's children, as to which Mr. Ricciardi disclaims beneficial
ownership.
As of November 30, 1994, Wachovia Bank of North Carolina, N.A. ("Wachovia"),
Box 3875, Trust Operations, Winston-Salem, North Carolina 27102, beneficially
owned 15,490,964 shares of ESOP Convertible Preferred Stock of Holdings ("ESOP
Preferred Stock"), representing 100% of the issued and outstanding ESOP
Preferred Stock. Wachovia holds such shares in its capacity as Trustee of the
RJRN Defined Contribution Master Trust. Under the terms of the Master Trust,
Wachovia is required to vote shares of ESOP Preferred Stock allocated to
participants' accounts in accordance with instructions received from such
participants and to vote allocated shares of ESOP Preferred Stock for which it
has not received instructions and unallocated shares in the same ratio as shares
with respect to which instructions have been received. Wachovia has no
investment power with respect to shares of ESOP Preferred Stock.
94
<PAGE>
BORDEN, INC.
Borden is engaged primarily in manufacturing, processing, purchasing and
distributing a broad range of products through three operating sectors: Consumer
Packaged Products, Dairy Products, and Packaging and Industrial Products.
Consumer Packaged Products is composed of niche grocery products, pasta
products, International Foods products (including European bakery products,
international milk powder, Latin American dairy and European grocery and pasta),
and Diversified Products (including cheese products, home and professional
products, Cracker Jack and, until such time as Borden's regional units are
divested, snacks. Dairy Products is composed of fluid milk, frozen desserts and
cultured products. Packaging and Industrial Products is composed of decorative
products (principally wallcoverings), adhesives and resins, plastic films and
packaging and high-technology coatings.
95
<PAGE>
BORDEN, INC.
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data presented below for the nine months
ended September 30, 1994 and 1993 were derived from unaudited quarterly
consolidated financial statements contained in Borden's Quarterly Report on Form
10-Q at and for the nine months ended September 30, 1994 and incorporated herein
by reference. The selected consolidated financial data presented below for each
of the years in the three-year period ended December 31, 1993 for Borden were
derived from the consolidated financial statements contained in Borden's Annual
Report on Form 10-K for the year ended December 31, 1993 and incorporated by
reference herein, which have been audited by Price Waterhouse LLP, independent
accountants. The unaudited quarterly consolidated financial statements include
all adjustments which are, in the opinion of Borden management, necessary for a
fair statement of the interim results. Results for interim periods are not
necessarily indicative of results to be expected for the full year. The data
below should be read in conjunction with the audited consolidated financial
statements and unaudited quarterly consolidated condensed financial statements
of Borden, and the related notes thereto, incorporated by reference herein.
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30, FOR THE YEARS ENDED DECEMBER 31,
-------------------- ----------------------------------------------------
1994 1993 1993 1992 1991 1990 1989
-------- -------- -------- -------- -------- -------- --------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUE
Net sales........................................ $ 4,082 $ 4,037 $ 5,506 $ 5,872 $ 5,924 $ 6,273 $ 6,391
COST AND EXPENSES
Cost of goods sold............................... 3,075 2,967 4,078 4,302 4,269 4,644 4,859
Marketing, general and administrative expenses... 859 803 1,224 1,163 1,024 1,020 902
Restructuring charges(1)......................... (40) -- 115 298 67 -- 463
Interest expense................................. 92 93 125 116 167 156 129
Equity in income of affiliates................... (9) (10) (16) (19) (24) (23) (17)
Minority interest................................ 29 30 41 40 3 3 1
Other (income) and expense, net.................. 104 29 23 (4) (13) 12 11
Income taxes..................................... 27 42 (27) 14 151 169 76
-------- -------- -------- -------- -------- -------- --------
4,137 3,954 5,563 5,910 5,644 5,981 6,424
-------- -------- -------- -------- -------- -------- --------
EARNINGS
(Loss) income from continuing operations......... (55) 83 (57) (38) 280 292 (33)
Discontinued operations:(1)(2)
(Loss) income from operations.................. -- (46) (66) (86) 15 28 16
Loss on disposal............................... (59) -- (490) -- -- -- --
-------- -------- -------- -------- -------- -------- --------
(Loss) income before extraordinary item and
cumulative effect of
accounting changes............................. (114) 36 (613) (124) 295 320 (17)
Extraordinary loss on early retirement of debt... -- -- -- (11) -- -- --
Cumulative effect of change in accounting for:
Postemployment benefits........................ -- (18) (18) -- -- -- --
Postretirement benefits other than pensions.... -- -- -- (189) -- -- --
Income taxes................................... -- -- -- (40) -- -- --
-------- -------- -------- -------- -------- -------- --------
Net (loss) income................................ $ (114) $ 18 $ (631) $ (364) $ 295 $ 320 $ (17)
-------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- --------
SHARE DATA
(Loss) income from continuing operations......... $ (.39) $ .59 $ (.40) $ (.27) $ 1.90 $ 1.97 $ (0.22)
Discontinued operations:
(Loss) income from operations.................. -- (.33) (.47) (.60) .10 0.19 0.11
Loss on disposal............................... (.41) -- (3.47) -- -- -- --
-------- -------- -------- -------- -------- -------- --------
(Loss) income before extraordinary item and
cumulative effect of
accounting changes............................. (.80) .26 (4.34) (.87) 2.00 2.16 (0.11)
Extraordinary loss on early retirement of debt... -- -- -- (.07) -- -- --
Cumulative effect of change in accounting for:
Postemployment benefits........................ -- (.13) (.13) -- -- -- --
Postretirement benefits other than pensions.... -- -- -- (1.32) -- -- --
Income taxes................................... -- -- -- (.28) -- -- --
-------- -------- -------- -------- -------- -------- --------
Net (loss) income per common share............... $ (.80) $ .13 $ (4.47) $ (2.54) $ 2.00 $ 2.16 $ (0.11)
-------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- --------
Cash dividends paid per common share............. $ .23 $ .75 $ .90 $ 1.185 $ 1.12 $ 1.035 $ 0.90
Average number of common shares outstanding
during the period................................. 141.5 140.9 141.0 143.4 147.6 147.9 148.2
</TABLE>
(Footnotes on following page)
96
<PAGE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
AT SEPTEMBER 30, ----------------------------------------------
1994 1993 1992 1991 1990 1989
---------------- ------ ------ ------ ------ ------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Current assets....................................... $1,370 $1,290 $1,928 $1,921 $2,026 $2,011
Investments and other assets......................... 561 443 352 319 237 160
Property and equipment............................... 1,321 1,337 1,788 1,904 1,707 1,441
Intangibles.......................................... 762 802 1,178 1,317 1,314 1,213
Total assets......................................... 4,014 3,872 5,246 5,461 5,284 4,825
Current liabilities.................................. 1,418 1,372 1,808 1,414 1,847 1,466
Long-term debt....................................... 1,416 1,241 1,330 1,346 1,340 1,441
Other liabilities (including long-term debt)......... 2,457 2,254 2,312 2,072 1,595 1,670
Shareholders' equity................................. 140 246 1,126 1,975 1,842 1,689
Book value per common share.......................... 0.99 1.74 8.01 13.39 12.50 11.41
</TABLE>
- - - ------------
(1) 1993 includes a pretax charge of $752.3 million for business divestitures
and restructuring. 1992, 1991 and 1989 include pretax restructuring charges
of $377.2 million, $71.6 million and $570.7 million, respectively. The nine
months ended September 30, 1994 includes a pretax credit of $50.1 million
for reversal of prior restructuring charges.
(2) Financial data for the years prior to 1993 were restated in 1993 to reflect
discontinued operations.
See Notes to Borden's Consolidated Financial Statements and Borden's Unaudited
Quarterly
Consolidated Financial Statements incorporated herein by reference.
97
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT OF BORDEN
The following table sets forth certain information regarding the beneficial
ownership of Borden Common Stock as of November 15, 1994 (before giving effect
to the Transactions, except as otherwise indicated in the footnotes to the
following table) by (a) persons known to Borden to be the beneficial owners of
more than five percent of the outstanding Borden Common Stock, (b) each director
of Borden, (c) each of the five most highly compensated executive officers of
Borden during the 1993 fiscal year of Borden and (d) all directors and executive
officers of Borden as a group. Except as otherwise noted, the persons named in
the table below have sole voting and investment power with respect to all shares
shown as beneficially owned by them.
<TABLE><CAPTION>
BENEFICIAL OWNERSHIP
OF BORDEN COMMON STOCK
NAME OF ----------------------
BENEFICIAL OWNER SHARES PERCENT
- - - --------------------------------------------------------------------------------- ----------- -------
<S> <C> <C>
KKR Associates(1)................................................................ 118,269,307 69.58
9 West 57th Street
New York, New York 10019
FMR Corp.(2)..................................................................... 14,599,083 10.29
82 Devonshire Street
Boston, Massachusetts 02109
Frederick E. Hennig(3)(4)(5)..................................................... 4,513 *
Wilbert J. LeMelle(3)(4)......................................................... 998 *
Robert P. Luciano(5)............................................................. 1,000 *
H. Barclay Morley(5)............................................................. 1,000 *
John E. Sexton(5)................................................................ 100 *
Ervin R. Shames(3)............................................................... 230,100 *
Patricia Carry Stewart(5)........................................................ 1,200 *
Frank J. Tasco(3)(4)............................................................. 34,707 *
Henry R. Kravis(6)............................................................... -- *
George R. Roberts(6)............................................................. -- *
Clifton S. Robbins(6)............................................................ -- *
Scott M. Stuart(6)............................................................... -- *
Alexander Navab(6)............................................................... -- *
Anthony S. D'Amato(3)(7)......................................................... 583,624 *
Lawrence O. Doza(3)(7)........................................................... 181,875 *
Jon G. Hettinger(3)(7)........................................................... 4,387 *
Allan L. Miller(3)............................................................... 216,646 *
Joseph M. Saggese(3)............................................................. 145,996 *
George J. Waydo(3)(7)............................................................ 29,193 *
All Directors and Executive Officers as a group (20 persons)(3)(8)............... 1,601,948 1.12
</TABLE>
- - - ------------
* Less than 0.1%
(1) Information is as of December 30, 1994 and gives effect to the acquisition
by the Common Stock Partnerships of shares of Borden Common Stock pursuant
to the Exchange Offer and the exercise in full of the Option. Shares of
Borden Common Stock shown as beneficially owned by KKR Associates include
shares owned of record by the limited partnerships of which KKR Associates
is the sole general partner and as to which it possesses sole voting and
investment power, including the Partnership. KKR Associates is a limited
partnership of which Messrs. Saul A. Fox, Edward A. Gilhuly, Perry Golkin,
James H. Greene, Henry R. Kravis, Robert I. MacDonnell, Michael N.
Michelson, Paul E. Raether, Clifton S. Robbins, George R. Roberts, Scott M.
Stuart and Michael T. Tokarz are the general partners. Such persons may be
deemed to share beneficial ownership of the shares shown as owned by KKR
Associates. The foregoing persons disclaim beneficial ownership of any such
shares.
(2) In a Schedule 13G filing with the Commission, FMR Corp. ("FMR") has reported
that these shares are beneficially owned by two wholly owned subsidiaries of
FMR, Fidelity Management & Research Company, which beneficially owns shares
of Borden Common Stock as a result of acting as investment advisor to
several investment companies, and Fidelity Management Trust Company, through
which FMR has sole voting power with respect to 95,911 shares of Borden
Common Stock and sole dispositive power with respect to 14,599,083 shares of
Borden Common Stock.
(3) Includes deferred shares of Borden Common Stock earned pursuant to the
Management Incentive Plan, shares of Borden Common Stock held in the RSP,
Directors' deferred compensation share equivalents, shares under the
Executives Supplemental Pension Plan ("ESPP") and also shares allocated
under the ESOP. The numbers of shares of Borden Common Stock held in the
RSP, under the ESPP and allocated under the ESOP are stated as of December
31, 1993, which is the most current information available to Borden. Shares
in the RSP will be
98
<PAGE>
voted in the same proportion as the shares allocated to employees are voted
by employees in the ESOP. Also includes a total of 30,000 shares originally
granted to Mr. Shames as restricted stock under the 1994 Stock Option Plan.
Also includes shares of Borden Common Stock that can be acquired within 60
days, pursuant to outstanding employee Stock Options, which total 513,000
shares for Mr. D'Amato, 125,700 for Mr. Doza, 140,100 shares for Mr. Miller,
117,200 shares for Mr. Saggese, 200,000 shares for Mr. Shames and 1,204,100
shares for all directors and executive officers as a group.
(4) Member of Dividend Reinvestment Plan.
(5) Following consummation of the Exchange Offer and the exercise of the Option,
pursuant to the Merger Agreement and the Conditional Purchase/Option
Agreement, all of the directors of Borden other than Messrs. Shames, Tasco
and LeMelle resigned as directors of Borden, Messrs. Kravis, Roberts,
Robbins, Stuart and Alexander Navab were elected to the Borden board of
directors by the remaining members of the Borden board of directors and Mr.
Kravis succeeded Mr. Tasco as Chairman of the Board of Directors of Borden.
(6) See footnotes (1) and (5). The business address, age, principal occupation
or employment at the present time and during the last five years, the name,
principal business and address of any corporation or other organization in
which such occupation or employment is or was conducted and current
directorships of Messrs. Kravis, Roberts, Robbins and Stuart is incorporated
herein by reference to Holdings' Annual Report on Form 10-K for the year
ended December 31, 1993. For Mr. Navab, who is a citizen of the United
States, he is a Director, Vice President and Secretary of the Purchaser and,
since June 1993, an executive of KKR; and, from September 1991 to June 1993,
he was an employee of James D. Wolfensohn Incorporated, an investment
banking firm.
(7) Messrs. D'Amato, Doza, Hettinger, and Waydo are no longer employed by the
Company. Information as to their beneficial ownership is as of November 1,
1994.
(8) The percentage owned has been indicated where the percentage exceeds 1.0%.
Pursuant to Rule 13d-3, Stock Options that are presently exercisable or
exercisable within 60 days after November 15, 1994 which are owned by each
individual are deemed to be outstanding for purposes of computing the
percentage of shares of Borden Common Stock owned by that individual.
Therefore, each percentage is computed based on the sum of (i) the shares
actually outstanding as of November 15, 1994 and (ii) the number of Stock
Options exercisable within 60 days of November 15, 1994 owned by that
individual or entity whose percentage of share ownership is being computed,
but not taking account of the exercise of Stock Options by any other person
or entity.
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THE PURCHASER AND THE COMMON STOCK PARTNERSHIPS
The Purchaser, a New Jersey corporation and a subsidiary of the Partnership,
was organized in connection with the Transactions and has not carried on any
activities to date other than those incident to its formation and the
Transactions. The Common Stock Partnerships together own 100% of the outstanding
shares of common stock of the Purchaser. Each of the Common Stock Partnerships
is a Delaware limited partnership, the general partner of which is KKR
Associates, an affiliate of KKR. The principal assets of each of the Common
Stock Partnerships consist of investments in various entities, including
investments in Holdings Common Stock and Borden Common Stock.
DESCRIPTION OF HOLDINGS CAPITAL STOCK
The authorized capital stock of Holdings consists of 2,200,000,000 shares of
Holdings Common Stock and 150,000,000 shares of preferred stock, par value $.01
per share (the "Preferred Stock"). As of November 30, 1994, 1,359,364,429 shares
of Holdings Common Stock were outstanding. As of such date, 94,664,699 shares of
Preferred Stock were outstanding, of which 52,500,000 shares were Series A
Preferred Stock, 50,000 shares were Series B Cumulative Preferred Stock (the
"Series B Preferred Stock"), 26,675,000 shares were Series C Preferred
Conversion Stock (the "Series C Preferred Stock") and 15,490,964 shares were
ESOP Preferred Stock.
The following is a description of the terms of the capital stock of
Holdings. This description does not purport to be complete and is qualified in
its entirety by reference to Holdings' Amended and Restated Certificate of
Incorporation, as amended (the "Holdings Certificate of Incorporation"), which
has been incorporated by reference as an exhibit to the Registration Statement
of which this Offering Circular/Prospectus is a part and is incorporated by
reference herein. Holdings believes that the summaries of the Holdings
Certificate of Incorporation set forth below are accurate and complete summaries
of the material terms of such instruments.
COMMON STOCK
Each share of Holdings Common Stock is entitled to one vote at all meetings
of stockholders of Holdings for the election of directors of Holdings and on all
other matters. Dividends may be paid to the holders of Holdings Common Stock
when, as and if declared by the board of directors of Holdings out of funds
legally available therefor. The Holdings Common Stock has no preemptive or
similar rights. Holders of Holdings Common Stock are not liable to further call
or assessment. Upon liquidation, dissolution or winding up of the affairs of
Holdings, any assets remaining after provision for payment of creditors (and any
liquidation preference of any outstanding preferred stock) would be distributed
pro rata among holders of the Holdings Common Stock. Holdings has never paid any
cash dividends on shares of the Holdings Common Stock. The Credit Agreements
restrict cash dividends and other distributions on Holdings Common Stock. The
indenture relating to subordinated debentures (the "RJRN Subordinated
Debentures") of RJRN (the "RJRN Subordinated Debenture Indenture") and the
indenture relating to certain senior notes (the "Senior Notes") of RJRN (the
"Senior Note Indenture") restrict dividends or distributions to Holdings from
RJRN and its subsidiaries which could otherwise be used for the payment of cash
dividends on the Holdings Common Stock by Holdings. The timing, amount and form
of future dividends, if any, will depend, among other things, upon the effect of
applicable restrictions on the payment of dividends, results of operations,
financial condition, cash requirements, prospects and other factors deemed
relevant by the board of directors of Holdings. See "Certain Significant
Considerations--Holding Company Structure" and "Description of Holdings Capital
Stock--Contractual Restrictions on Payment of Dividends."
The Holdings Common Stock is listed on the NYSE.
First Chicago Trust Company of New York is the registrar and transfer agent
for the Holdings Common Stock.
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PREFERRED STOCK
Series B Preferred Stock. Each share of Series B Preferred Stock is entitled
to receive, when, as and if declared by the board of directors of Holdings, out
of funds legally available therefor, cumulative preferential cash dividends at
the rate per annum of 9.25%, payable quarterly in arrears. On and after August
19, 1998, Holdings, at its option upon not less than 30 nor more than 60 days'
notice, may redeem shares of the Series B Preferred Stock, as a whole or in
part, at any time, at a redemption price equivalent to $25,000 per share, plus
accrued and unpaid dividends thereon to the date fixed for redemption, without
interest, to the extent Holdings will have funds legally available therefor.
The Series B Preferred Stock has no stated maturity and is not subject to
any sinking fund or mandatory redemption. The Series B Preferred Stock is not
convertible into, or exchangeable for, shares of any other class or series of
stock of Holdings.
The holders of the Series B Preferred Stock do not have any voting rights,
except as otherwise provided by law and under certain other limited
circumstances.
Upon any voluntary or involuntary liquidation, dissolution or winding up of
Holdings, holders of Series B Preferred Stock will be entitled to receive
$25,000 per share, plus an amount equal to any accrued and unpaid dividends,
before any distribution is made on any class of junior securities, including
Holdings Common Stock.
Series C Preferred Stock. Each share of Series C Preferred Stock is entitled
to receive, when, as and if declared by the board of directors of Holdings, out
of funds legally available therefor, cumulative preferential cash dividends
accruing at a rate of $6.012 per annum, payable quarterly in arrears. Each share
of Series C Preferred Stock will mandatorily convert into ten shares of Holdings
Common Stock on May 15, 1997, subject to adjustment in certain events (the
"Series C Common Stock Equivalent"), plus accrued and unpaid dividends on the
Series C Preferred Stock until the date of conversion. In addition, each share
of Series C Preferred Stock may be redeemed by Holdings, in whole or in part, at
any time or from time to time prior to the mandatory conversion date at a
redemption price to be paid in shares of Holdings Common Stock (or following
certain circumstances, other consideration), plus accrued and unpaid dividends.
The optional redemption price declines from $112.286 per share by $.01656 per
share on each day following May 6, 1994 to $95.246 per share on March 15, 1997,
and is $94.25 thereafter (the "Call Price").
Immediately prior to a merger or consolidation of Holdings (other than a
merger or consolidation of Holdings with or into a wholly owned subsidiary of
Holdings) that results in the conversion or exchange of Holdings Common Stock
into other securities or property, outstanding Series C Preferred Stock may be
converted at the option of Holdings into (i) shares of Holdings Common Stock at
a rate equal to the Series C Common Stock Equivalent (currently ten shares for
each share of Series C Preferred Stock), in effect immediately prior to such
merger or consolidation, plus (ii) the right to receive an amount in cash (which
may, at the option of Holdings, be payable in shares of Holdings Common Stock)
equal to all accrued and unpaid dividends on such Series C Preferred Stock to
and including the Settlement Date, plus (iii) the right to receive an amount of
cash (which may, at the option of Holdings, be payable in shares of Holdings
Common Stock) initially equal to $18.036 per share, declining by $.01656 on each
day following May 6, 1994 to $.996 on March 15, 1997 and equal to zero
thereafter. The shares of Holdings Common Stock issuable under clause (i) above
will be reduced, if necessary, so that the value of the aggregate consideration
described in clauses (i) and (iii) above does not exceed the Call Price on the
Settlement Date. Alternatively, Holdings may cause the Series C Preferred Stock
to remain outstanding or convert into a substantially similar security of
Holdings or of the entity issuing the consideration in such merger or
consolidation. In that event, each holder of a share of Series C Preferred Stock
may elect to convert the Series C Preferred Stock into Holdings Common Stock at
a rate equal to the Series C Common Stock Equivalent immediately prior to the
merger or consolidation (provided that the number of shares of Holdings Common
Stock issuable will be reduced, if necessary, so that the value of such shares
does not exceed the Call Price on the Settlement Date), plus the right to
receive an amount of cash (which may, at the option of Holdings, be
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payable in shares of Holdings Common Stock) equal to all accrued and unpaid
dividends on such Series C Preferred Stock to and including the Settlement Date.
If Holdings has recommended acceptance of (or has expressed no opinion and
is remaining neutral toward) a tender offer which would result in the ownership
by the bidder (or an affiliate of the bidder) of more than 50% of the then
outstanding Holdings Common Stock, then each holder of Series C Preferred Stock
will have the option to convert such shares, in whole (but not in part), into
Holdings Common Stock at the Series C Stock Equivalent in effect at the close of
business on the day prior to the date of expiration or termination of such
tender offer; provided that the number of shares of Holdings Common Stock
issuable upon such conversion will be reduced if necessary, so that the value of
such shares does not exceed the Call Price on such date.
If Holdings distributes to holders of Holdings Common Stock the capital
stock of a subsidiary representing all or substantially all of either of
Holdings' two present principal lines of business (the "Spinoff Company"),
Holdings will (subject to the final sentence of this paragraph) convert each
share of Series C Preferred Stock into one-half of a share of the existing
Series C Preferred Stock and one-half of a share of a substantially equivalent
security of the Spinoff Company. In such case, the conversion rate per share of
the new Series C Preferred Stock will be equal to a fraction, of which the
numerator will be the product of the market price of Holdings Common Stock prior
to the distribution and the Series C Common Stock Equivalent and of which the
denominator will be the excess of the market price of Holdings Common Stock
prior to the distribution over the market value of a share of the Spinoff
Company. The conversion rate per share of the new security of the Spinoff
Company will be equal to a fraction, of which the numerator will be the product
of the market price of Holdings Common Stock prior to the distribution and the
Series C Common Stock Equivalent and of which the denominator will be the market
value of a share of the Spinoff Company. Alternatively, Holdings may elect to
distribute to each holder of Series C Preferred Stock the number of shares of
capital stock of the Spinoff Company that such holder would have been entitled
to receive if the Series C Preferred Stock had been converted to Holdings Common
Stock immediately prior to the distribution at the Series C Common Stock
Equivalent then in effect. In the event that either (a) the fair value of the
shares of the Spinoff Company distributed are greater than or equal to 95% of
the market price of Holdings Common Stock prior to the distribution or (b) the
record date for the distribution is fixed less than twenty-one trading days
prior to such record date, then Holdings must elect to distribute the shares of
the Spinoff Company to the holders of the shares of Series C Preferred Stock in
accordance with the preceding sentence.
Holders of Series C Preferred Stock have the right, voting together with the
holders of Holdings Common Stock (and any other class of capital stock of
Holdings entitled to vote together with the Holdings Common Stock, including the
ESOP Preferred Stock) as one class, to vote in the election of directors and
upon each other matter coming before any meeting of the stockholders on the
basis initially of one vote (equal to one-tenth of the Series C Common Stock
Equivalent) for each Series C Preferred Stock held; provided that the holders of
Series C Preferred Stock are not entitled to vote on any increase or decrease in
the number of authorized shares of any class or classes of stock. In the event
dividends on all series of Preferred Stock, including the Series C Preferred
Stock, were in arrears and unpaid for six quarterly periods, the holders of
Series C Preferred Stock, together with the holders of all other outstanding
series of Preferred Stock entitled to vote thereon, were entitled to elect two
additional directors to the board of directors of Holdings until all cumulative
dividends on all series of Preferred Stock, have been paid or declared and set
aside for payment; provided that such directors may not have exceeded 25% of the
total board of directors or be less than one director. While such holders were
entitled to elect two directors, they were not entitled to participate with the
holders of Holdings Common Stock in the election of any other directors, but
would have continued to vote with the holders of Holdings Common Stock upon each
other matter coming before any meeting of the stockholders.
Upon any voluntary or involuntary liquidation, dissolution or winding up of
Holdings, holders of Series C Preferred Stock will be entitled to receive $60.50
per share, plus an amount equal to any accrued and unpaid dividends, before any
distribution is made on any class of junior securities, including Holdings
Common Stock.
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ESOP Preferred Stock. Each share of ESOP Preferred Stock is entitled to
receive, when, as and if declared by the board of directors of Holdings, out of
funds legally available therefor, cumulative cash dividends at a rate of 7.8125%
of stated value per annum ($1.25 per annum) at least until April 10, 1999,
payable semi-annually in arrears. Each share of ESOP Preferred Stock is
convertible into one share of Holdings Common Stock, subject to adjustment in
certain events. The ESOP Preferred Stock is redeemable at the option of
Holdings, in whole or in part, at any time on or after April 10, 1999, at an
initial optional redemption price of $16.25 per share, declining thereafter on
an annual basis in the amount of $.125 a year to $16 per share on April 10,
2001, plus accrued and unpaid dividends. Under certain other circumstances, the
ESOP Preferred Stock is subject to redemption at any time. Holders of ESOP
Preferred Stock have voting rights which are generally consistent with those of
the holders of the Series A Preferred Stock prior to its mandatory conversion on
November 15, 1994.
Upon any voluntary or involuntary liquidation, dissolution or winding up of
Holdings, holders of ESOP Preferred Stock will be entitled to receive $16.00 per
share, plus an amount equal to any accrued and unpaid dividends, before any
distribution is made on any class of junior securities, including Holdings
Common Stock.
CONTRACTUAL RESTRICTIONS AND POLICIES ON PAYMENT OF DIVIDENDS
Holdings is subject to various contractual restrictions on its ability to
pay dividends on its Preferred Stock and Holdings Common Stock.
The Credit Agreements have been amended to permit the completion of the
proposed Nabisco initial public offering and to allow Nabisco Inc., Nabisco's
immediate subsidiary, to obtain a $1.5 billion short-term credit facility. In
the amendments (the "Amendments") to the Credit Agreements, Holdings is subject
to limits on its ability to pay dividends on its Preferred Stock and Holdings
Common Stock. Specifically, Holdings is able to (i) issue shares of Holdings
Common Stock upon the exercise of any warrants or options or upon the conversion
or redemption of any convertible or redeemable preferred stock and, in
connection with any such exercise, conversion or redemption, Holdings would be
able to pay cash in lieu of issuing fractional shares of Holdings Common Stock;
(ii) if no event of default existed under the Credit Agreements, repurchase
Holdings Common Stock (and/or options or warrants in respect thereof) pursuant
to, and in accordance with the terms of, management and/or employee stock plans;
(iii) if no event of default existed under the Credit Agreements, declare and
pay, or otherwise effect, any other cash dividend or other dividend or
distribution, or repurchase or redeem any capital stock, provided that the
aggregate amount of such dividends, distributions, repurchases and redemptions,
when added to all dividends, distributions, repurchases and redemptions made in
accordance with this clause (iii) after the effective date of the Amendments,
would not exceed an amount equal to the sum of (x) $1 billion plus (y) 50% of
the sum of (A) consolidated net income of Holdings and its subsidiaries for the
period (taken as one accounting period) from January 1, 1995 to the last day of
the last fiscal quarter of Holdings then ended plus (B) all losses from debt
retirement deducted in determining consolidated net income of Holdings and its
subsidiaries for the period referred to in clause (A) above plus (z) the
aggregate cash proceeds (net of underwriting discounts and commissions) received
by Holdings after the effective date of the Amendments from issuances of its
equity securities (provided that the aggregate amount of such aggregate net cash
proceeds received in any twelve-month period shall be deemed not to exceed $250
million for purposes of this clause (iii)(z)), in each case determined at the
time of the declaration thereof, provided that such dividend, distribution or
redemption payment was paid within 45 days of the making of such declaration;
(iv) issue and exchange shares of any class or series of its common stock now or
hereafter outstanding for shares of any other class or series of its common
stock now or hereafter outstanding; and (v) in connection with any
reclassification of its common stock and any exchange permitted by clause (v)
above, pay cash in lieu of issuing fractional shares of any class or series of
its common stock.
In addition to the contractual restrictions referred to above, the Board of
Directors of Holdings has adopted a policy, which will become effective upon the
closing of the proposed Nabisco initial public
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offering, under which Holdings would limit, until December 31, 1998, the
aggregate amount of cash dividends on its Capital Stock. Under this policy,
Holdings:
(a) would not pay any extraordinary cash dividends;
(b) would not make any Restricted Payment if, after giving effect to such
Restricted Payment, the aggregate amount expended for all Restricted Payments
subsequent to December 31, 1994 exceeds the sum of (i) $500 million, plus (ii)
65% of Consolidated Net Income of Holdings on a cumulative basis subsequent to
December 31, 1994, plus (iii) aggregate cash proceeds of up to $250 million
received in any year subsequent to December 31, 1994 by Holdings or a Subsidiary
from the issuance and sale (other than to a Subsidiary) of Holdings' or such
Subsidiary's Capital Stock (or of other securities that are subsequently
converted into or exchanged for Holdings' or such Subsidiary's Capital Stock)
(other than proceeds from the initial public offering of Nabisco), it being
understood that any aggregate net cash proceeds from any issuance and sale of
any Capital Stock will be counted only up to the amount of any indebtedness or
preferred stock of Holdings or any Subsidiary that has been repaid, purchased,
redeemed or otherwise acquired for value by Holdings or any Subsidiary within
one year before or after such issuance and sale. If Holdings or a Subsidiary
repays, purchases, redeems or otherwise acquires for value indebtedness or
preferred stock of Holdings or a Subsidiary in exchange for Capital Stock of
Holdings or a Subsidiary, Holdings or such Subsidiary shall be deemed to have
received the net cash proceeds equal to the market value of the Capital Stock so
issued in exchange (such market value to be determined by Holdings' Board of
Directors, whose good faith determination shall be conclusive);
(c) will use an amount equal to the net cash proceeds received prior to
December 31, 1998 from (i) the issuance and sale by Holdings of any Capital
Stock (other than to a Subsidiary or current, future or former directors,
officers or employees of Holdings or any Subsidiary (or their estates or
beneficiaries under their estates) or (ii) any sale outside the ordinary course
of business of material assets owned or used by any of its Subsidiaries in the
tobacco business (other than to another Subsidiary) either to repay, purchase,
redeem or otherwise acquire for value indebtedness of Holdings or a Subsidiary
or to acquire properties, assets or businesses to be used in existing or new
lines of business of Holdings or its Subsidiaries; and
(d) will use an amount equal to the net cash proceeds received by Holdings
or RJRN prior to December 31, 1998 from the sale to third parties of shares of
common stock of Nabisco held by either of them to repay, purchase, redeem or
otherwise acquire for value indebtedness of Holdings or a Subsidiary.
The foregoing policy will not prevent the payment of a cash dividend within
90 days of its declaration if, at the time of declaration, such payment would
have complied with the foregoing policy or the purchase, redemption,
acquisition, cancellation or other retirement for value of Capital Stock,
options on Capital Stock, stock appreciation rights or similar securities held
by current, future or former directors, officers or employees of Holdings or any
Subsidiary or certain trusts or estates for their benefit.
Holdings has also adopted a policy, which will become effective upon the
closing of the proposed Nabisco initial public offering, to the effect that it
will not declare a dividend or distribution on its Capital Stock prior to
December 31, 1996 that is paid in Capital Stock of a Subsidiary owned by
Holdings or a Subsidiary and that it is its intent not to make such a
distribution to its stockholders prior to December 31, 1998 if (a) such
distribution would cause the ratings of RJRN's publicly held senior indebtedness
to be reduced from investment grade to non-investment grade or (b) any publicly
held senior indebtedness of the distributed Subsidiary would, after giving
effect to such distribution, be rated non-investment grade.
For purposes of the foregoing policies:
"Capital Stock" means any and all shares, interests, participations or other
equivalents (however designated) of capital stock and any rights (other than
debt securities convertible into capital stock), warrants or options to acquire
such Capital Stock.
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"Consolidated Net Income" of Holdings means, for any period, the aggregate
consolidated net income of Holdings and its Subsidiaries for such period,
determined on a consolidated basis in accordance with generally accepted
accounting principles as in effect from time to time, adjusted by excluding (to
the extent not otherwise excluded in calculating consolidated net income) any
net extraordinary gain or net extraordinary loss, as the case may be, and any
restructuring charges.
"Restricted Payment" means (i) any payment of any cash dividend or
distribution by Holdings on its Capital Stock, (ii) any purchase, redemption or
other acquisition for cash by Holdings of its Capital Stock (other than any such
purchase, redemption or acquisition for value in exchange for, or in an amount
equal to the proceeds of, an offering of Capital Stock of Holdings or any
Subsidiary or, in the case of Holdings' Series B Preferred Stock or any other
non-convertible preferred stock of Holdings outstanding from time to time, for
indebtedness of Holdings or any Subsidiary and (iii) any purchase, redemption or
other acquisition for cash by Holdings of any Subordinated Debt prior to any
scheduled maturity, scheduled repayment or scheduled sinking fund payment (other
than any such purchase, redemption or other acquisition for value in exchange
for, or in an amount equal to the proceeds of, an offering of Capital Stock or
Subordinated Debt of Holdings or any Subsidiary).
"Subordinated Debt" means any indebtedness of Holdings or any Subsidiary
which by its terms is expressly subordinated in right of payment to any other
indebtedness of Holdings or any Subsidiary, provided, however, that the term
Subordinated Debt shall not include any intercompany indebtedness.
"Subsidiary" means any entity of which securities or other ownership
interests having ordinary voting power to elect a majority of the board of
directors or other persons performing similar functions are at the time directly
or indirectly owned by Holdings.
CERTAIN STATUTORY AND BY-LAW PROVISIONS
Holdings is currently, and following the consummation of the offering will
be, subject to the "business combination" statute of the Delaware General
Corporation Law (the "DGCL"). In general, Section 203 of the DGCL prohibits a
publicly held Delaware corporation from engaging in a "business combination"
with an "interested stockholder" for a period of three years after the date of
the transaction in which the person became an "interested stockholder," unless
(a) prior to such date the board of directors of the corporation approved either
the "business combination" or the transaction which resulted in the stockholder
becoming an "interested stockholder," (b) upon consummation of the transaction
which resulted in the stockholder becoming an "interested stockholder," the
"interested stockholder" owned at least 85% of the voting stock of the
corporation outstanding at the time the transaction commenced, excluding for
purposes of determining the number of shares outstanding those shares owned (i)
by persons who are directors and also officers and (ii) employee stock plans in
which employee participants do not have the right to determine confidentially
whether shares held subject to the plan will be tendered in a tender or exchange
offer, or (c) on or subsequent to such date the "business combination" is
approved by the board of directors and authorized at an annual or special
meeting of stockholders by the affirmative vote of at least 66 2/3% of the
outstanding voting stock which is not owned by the "interested stockholder." A
"business combination" includes mergers, certain stock or asset sales and
certain other transactions resulting in a financial benefit to, or increase in
voting power held by, the "interested stockholders." An "interested stockholder"
is a person who, together with affiliates and associates, owns (or if such
person is an affiliate or associate of the corporation within three years, did
own) 15% or more of the corporation's voting stock.
Holdings' By-laws establish an advance notice procedure for stockholders to
make nominations of candidates for election as directors, or to bring other
business before an annual meeting of stockholders of Holdings. The By-laws
provide that only persons who are nominated by, or at the direction of, the
board of directors of Holdings or any committee designated by the board of
directors of Holdings, or by a stockholder who has given timely written notice
to the Secretary of Holdings prior to the meeting at which directors are to be
elected, will be eligible for election as directors of Holdings. The By-laws
also provide that in order to properly submit any business to an annual meeting
of stockholders, a stockholder must give timely written notice to the Secretary
of Holdings of such stockholder's intention
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to bring such business before such meeting. Generally, for notice of stockholder
nominations or other business to be made at an annual meeting to be timely under
the By-laws, such notice must be received by Holdings (i) not less than 120 days
nor more than 150 days before the first anniversary date of Holdings' proxy
statement in connection with the last annual meeting of stockholders or (ii) if
no annual meeting was held in the previous year or the date of the applicable
annual meeting has been changed by more than 30 days from the date contemplated
at the time of the previous year's proxy statement, not less than a reasonable
time, as determined by the board of directors of Holdings, prior to the date of
the applicable annual meeting. Under the By-laws, a stockholder's notice must
also contain certain information specified in the By-laws.
The provisions described above, together with certain terms of Holdings
outstanding Preferred Stock and its ability to issue additional Preferred Stock,
may have the effect of delaying stockholder actions with respect to certain
business combinations and the election of new members of the board of directors
of Holdings. As such, the provisions could have the effect of discouraging open
market purchases of Holdings Common Stock because they may be considered
disadvantageous by a stockholder who desires to participate in a business
combination or elect a new director.
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DESCRIPTION OF BORDEN CAPITAL STOCK AND RIGHTS
Borden has authorized 480,000,000 shares of Borden Common Stock, of which
169,967,380 shares were outstanding as of December 30, 1994 (excluding
25,015,994 shares held in Borden's treasury). Borden has also authorized
10,000,000 shares of Preferred Stock, without par value. Of these 10,000,000
Preferred Shares, 475,000 have been designated Preferred Stock--Series A, none
of which were issued or outstanding as of December 30, 1994. In addition,
688,700 shares of Preferred Stock have been designated Preferred Stock--Series
B, of which 6,532 were issued and outstanding as of December 30, 1994. At
December 30, 1994, 43,118 shares of Borden Common Stock were reserved for
issuance upon conversion of the Preferred Stock--Series B. The outstanding
Preferred Stock--Series B has been called for redemption and is scheduled to be
redeemed on January 25, 1995, on which date all conversion rights of such stock
will cease. In addition, 2,400,000 shares of Preferred Stock have been
designated Series C Junior Participating Preferred Stock of Borden (the "Series
C Stock"), none of which were issued and outstanding as of December 30, 1994.
COMPARISON OF RIGHTS OF HOLDERS
OF BORDEN COMMON STOCK AND HOLDINGS COMMON STOCK
The rights of shareholders of Borden are currently governed by applicable
New Jersey law, including the NJBCA, and by Borden's Charter and By-laws. If the
Merger is consummated, shareholders of Borden will become shareholders of
Holdings and their rights will be governed by applicable Delaware law, including
the DGCL, and by Holdings' Certificate of Incorporation and By-laws. Although it
is not practicable to compare all of the differences between the corporation
laws of Delaware and New Jersey and between the governing corporate documents of
Borden and Holdings, the following is a summary of the material differences
which may significantly affect the rights of Borden's shareholders.
Antitakeover Provisions
Both Delaware and New Jersey have enacted legislation which encourages a
potential acquiror of certain publicly-held corporations organized in the state
to negotiate with the board of directors and make it more difficult to effect an
acquisition not approved by the board. Under Delaware law, a publicly-held
corporation may be prohibited from consummating a business combination with an
"interested shareholder" for a period of three years after the shareholder
became interested unless (i) the business combination was approved by the board
of directors prior to the date the shareholder became interested, (ii) the
business combination was approved by the holders of 66 2/3% of the outstanding
voting other than shares held by the interested shareholder or (iii) upon
consummation of the transaction that resulted in the shareholder becoming an
interested shareholder, the interested shareholder owned at least 85% of the
corporation's voting stock. Under Delaware law, "beneficial ownership" of 15% or
more of the outstanding voting stock results in "interested shareholder" status.
Under New Jersey law, a publicly-traded New Jersey corporation with its
principal executive offices or significant business operations located in New
Jersey is prohibited from consummating a business combination with an interested
shareholder for a period of five years unless the business combination is
approved by the board of directors prior to the date the shareholder became
interested. In addition, after the five-year period, a New Jersey corporation
may not engage in a business combination with an interested shareholder unless
either (i) the business combination is approved by the board of directors prior
to the date the shareholder became an interested shareholder or (ii) the
business combination is approved by the holders of two-thirds of the voting
stock not held by the interested shareholder or (iii) subject to certain other
requirements, the consideration per share received in the business combination
is at least equal to the greater of (x) the highest price per share paid by the
interested shareholder in the five years prior to either the announcement of the
business combination or the date at which the interested shareholder became
such, whichever results in a higher price, and
107
<PAGE>
(y) the market price on either the date the business combination is announced or
on the date the interested shareholder first became such, whichever is higher.
New Jersey law defines "interested shareholder" as a person beneficially owning
10% or more of the outstanding voting stock of the corporation.
Borden's Charter adds to the requirements of the NJBCA and provides that no
business combination with a "related person" (defined as a shareholder who
beneficially owns 20% or more of any class of capital stock of the corporation)
may occur unless (i) the business combination is approved by the affirmative
vote of at least 80% of the outstanding shares of capital stock entitled to vote
for directors, (ii) the business combination is approved by a majority of the
continuing directors (defined as a director who is not affiliated with any
"related person" and was a director prior to the time that the "related person"
crossed the threshold of 5% voting power of any class of capital stock) or (iii)
the consideration to be received per share in the business combination is at
least as high as the greater of the highest price per share of prior purchases
of Borden's capital stock by the "related person" and the average closing price
per share on the NYSE for the prior 200 trading days. See "The Exchange
Offer--Description of Merger Agreement and Conditional Purchase/Option
Agreement" for a discussion of certain agreements of Borden with respect to the
antitakeover provisions of the NJBCA and Borden's Charter in connection with the
Exchange Offer, the Merger and the Option.
Dissenters' or Appraisal Rights
Both the DGCL and the NJBCA give shareholders the right to dissent from
certain business acquisitions, dispositions and combinations and to demand and
receive cash payment of the fair value of their shares. These rights are known
as "appraisal rights" in Delaware and "dissenters' rights" in New Jersey.
Shareholders of a Delaware corporation generally have appraisal rights with
respect to a merger or consolidation. Unless the corporation's certificate of
incorporation provides otherwise, such appraisal rights generally are not
available (i) when the corporation is to be the surviving corporation and no
vote of its shareholders is required for the merger, except that appraisal
rights are available in certain short-form mergers under Section 253 of the DGCL
in which the parent corporation of a subsidiary more than 90% (but less than
100%) of the common stock of which is owned by the parent merges with such
subsidiary, or (ii) when the stock of the constituent corporation, on the record
date fixed to determine the shareholders entitled to receive notice of and vote
on the agreement of merger, is listed on a national securities exchange or held
of record by more than 2,000 shareholders, unless in the case of (i) or (ii)
above, such shareholders are required by the terms of the merger to accept
anything other than shares of stock of the surviving corporation, shares of
stock of another corporation that are so listed or held by such number of record
holders, cash in lieu of fractional shares of such stock, or any combination
thereof. Shareholders of a Delaware corporation do not have appraisal rights
with respect to the disposition of all or substantially all the assets of the
corporation unless the corporation's certificate of incorporation provides
otherwise.
Shareholders of a New Jersey corporation generally have dissenters' rights
with respect to a merger or consolidation as well as with respect to the
disposition of all or substantially all of the assets of the corporation. Such
dissenters' rights are not available to shareholders of a New Jersey corporation
(i) if the shares that they hold are a class or series that is listed on a
national securities exchange or is held of record by 1,000 or more shareholders
or (ii) if, pursuant to such disposition of assets, merger or consolidation,
they will receive stock or other securities so listed or held, cash, or a
combination of cash and such securities. A shareholder of a surviving
corporation in a merger will not have dissenters' rights if the vote of
shareholders of the corporation was not required for approval of the plan of
merger. Dissenters' rights are not available to holders of Borden Shares in the
Exchange Offer or the Merger. See "The Exchange Offer--Right to Dissent and
Appraisal Rights."
108
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Special Meetings of Shareholders
Under Delaware law, special meetings of shareholders may be called by the
board of directors of a corporation or by such person or persons as may be
authorized by the certificate of incorporation or by the by-laws of the
corporation. Holdings' By-laws permit the chairman of the board of directors or,
upon written request to the chairman or secretary, the holders of not less than
25% of the outstanding shares of Holdings Common Stock to call a special
meeting.
Under New Jersey law, special meetings of shareholders may be called by the
president or board of directors of a corporation or by such other officers,
directors or shareholders, as may be provided in the by-laws. The By-laws of
Borden permit the chairman, chief executive officer, president or a majority of
directors to call a special meeting. In addition, under New Jersey law, upon the
application of a holder or holders of not less than 10% of all the shares
entitled to vote at a meeting, a court for good cause shown may order a special
meeting to be called and held.
Action By Written Consent
The DGCL provides that, unless otherwise provided in the certificate of
incorporation, any action required or permitted to be taken at any annual or
special meeting of shareholders of a corporation may be taken without a meeting,
without prior notice and without a vote, if a consent in writing, setting forth
the action so taken, is signed by the holders of outstanding stock having not
less than the minimum number of votes that would be necessary to authorize or
take such action at a meeting at which all shares entitled to vote thereon were
present and voted. Holdings' Certificate of Incorporation does not contain a
provision limiting the right to act by written consent.
Under the NJBCA, except as otherwise provided in a corporation's certificate
of incorporation, any action required or permitted to be taken at a meeting of
shareholders, other than the annual election of directors, may be taken without
a meeting upon (i) the written consent of shareholders who would have been
entitled to cast the minimum number of votes that would be necessary to
authorize such action at a meeting at which all shareholders entitled to vote
thereon were present and voting and (ii) ten or twenty days' (depending on the
circumstances) written notice to all non-consenting shareholders who would have
been entitled to notice of a meeting to vote on such action. Borden's Charter
does not contain a provision limiting the right to act by written consent.
Statutory Voting Requirements
The DGCL generally requires the approval of a majority of the outstanding
voting shares for merger, consolidation, sale of all or substantially all of the
corporation's assets, or an amendment to its certificate of incorporation unless
the corporation's certificate of incorporation provides for a higher voting
requirement. The NJBCA generally requires approval by a majority of votes cast
at a meeting of shareholders by those entitled to vote, unless the charter or
another provision of the NJBCA requires a greater plurality. Holdings'
Certificate of Incorporation does not contain any higher voting requirement.
Borden's Charter provides that the affirmative vote of two-thirds of all issued
and outstanding voting stock is required to adopt a plan of merger or
consolidation involving Borden. In addition, Borden's Charter provides that the
consent of 85% of all the issued and outstanding voting stock is required to
approve the lease or sale of all the property and assets of Borden.
The NJBCA permits a New Jersey corporation, without shareholder approval, to
sell all or substantially all of its assets if such sale is in the ordinary
course of the corporation's business. The DGCL contains no similar provision.
Limiting of Liability and Indemnification of Directors and Officers
Delaware law permits a corporation to indemnify its directors and officers
and limit the liability of its directors for monetary damages for breach of the
fiduciary duty of care as a director or officer except in certain circumstances.
New Jersey law permits a corporation to indemnify and limit the liability of
both directors and officers under similar circumstances. Holdings' Certificate
of Incorporation and By-
109
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laws contain provisions limiting the liability of directors and officers to the
maximum extent permitted by the DGCL. Borden's Charter and By-laws contain
provisions indemnifying and limiting the liability of directors and officers to
the maximum extent permitted by the NJBCA.
Classified Board of Directors
Under Delaware law, a corporation may have a classified board of directors
providing for up to three classes of directors each having a term of up to three
years, and newly elected directors selected by the board of directors may serve
to the expiration of the term of the class to which they are named. Under New
Jersey law a corporation may have a classified board of directors, but no class
of directors shall hold office for a term shorter than one year or longer than
five years, and the term of at least one class shall expire in each year. In
addition, directors elected to the board of directors to fill newly created
directorships serve until the next annual meeting of shareholders. Neither
Holdings nor Borden has a classified board of directors.
Dividends
Delaware law permits corporations to pay dividends out of surplus or, in the
event there is no surplus and the aggregate capital of the corporation at least
equals the amount of capital of classes of capital stock having a preference on
distribution of assets, out of (i) net profits for the fiscal year in which the
dividend is declared or (ii) net profits for the preceding year.
Under New Jersey law, a dividend may not be paid if the corporation would be
unable to pay its debts as they become due in the usual course of business or if
the corporation's total assets would be less than its total liabilities. The
liquidation preference of capital stock having a preference on distribution of
assets is not "debt" for this purpose.
Shareholder Derivative Actions
Under New Jersey law, if the shareholder-plaintiffs in a shareholder
derivative action own less than 5% of the outstanding shares of any class of the
stock of the corporation on behalf of which such shareholders are bringing suit
(unless such shares have a fair market value in excess of $25,000), the
corporation may require the shareholder-plaintiffs to give security for the
reasonable expenses, including attorneys' fees of the corporation or any
defendants; moreover, shareholders found by a court of competent jurisdiction to
have instituted a derivative suit without reasonable cause may be required to
pay the reasonable expenses, including attorney's fees, of the defendants named
in such action.
No comparable provisions exist under the DGCL.
Loans to and Guarantees of Obligations of Officers and Employees
Under both Delaware and New Jersey law, a corporation may lend money to, or
guarantee of an obligation of, an officer, employee or director of a corporation
whenever in the judgment of the board of directors of the corporation such loan
or guarantee may reasonably be expected to benefit the corporation. Delaware law
also requires that loans or guarantees may be made for a director only if the
director is an officer or employee.
LEGAL MATTERS
The legality of the Holdings Common Stock being offered hereby is being
passed upon for Holdings by Jo-Ann Ford, Vice President, Assistant General
Counsel and Secretary of Holdings. Ms. Ford owns options to purchase shares of
Holdings Common Stock which represent less than 0.1% of the currently
outstanding shares of Holdings Common Stock.
110
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EXPERTS
The consolidated financial statements of Holdings as of December 31, 1993
and 1992 and for each of the years in the three year period ended December 31,
1993 incorporated in this Offering Circular/Prospectus by reference from (1)
Holdings' Registration Statement No. 33-52381 on Form S-3, at the time such
Registration Statement was declared effective and (2) Holdings' Annual Report on
Form 10-K for the year ended December 31, 1993 have been audited by Deloitte &
Touche LLP, independent auditors, as stated in their reports, which are
incorporated herein by reference, and have been so incorporated in reliance upon
the reports of such firm given upon their authority as experts in accounting and
auditing. A representative of Deloitte & Touche LLP is not expected to be
present at the Special Meeting.
The consolidated financial statements of Borden, Inc. incorporated in this
Prospectus by reference to the Annual Report on Form 10-K for the year ended
December 31, 1993, have been so incorporated in reliance on the report (which
contains an explanatory paragraph relating to the restatement and
reclassification of the 1992 consolidated financial statements as described in
note 3 to the financial statements) of Price Waterhouse LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting. A representative of Price Waterhouse LLP is not expected to be
present at the Special Meeting.
OTHER MATTERS
The Borden board of directors does not intend to bring any other matters
before the Special Meeting and does not know of any other matters that may be
brought before the Special Meeting by others.
If the Merger is not consummated, shareholder proposals intended to be
presented at the 1995 Annual Meeting of Shareholders must have been received by
the Company not later than December 7, 1994 for inclusion in the proxy materials
for such meeting.
111
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ANNEX I
COMPOSITE CONFORMED COPY
- - - --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
AMONG
WHITEHALL ASSOCIATES, L.P.,
BORDEN ACQUISITION CORP.
AND
BORDEN, INC.
DATED AS OF
SEPTEMBER 23, 1994*
- - - --------------------------------------------------------------------------------
- - - ------------
* As amended by the amendments thereto dated as of November 15, 1994, December
6, 1994 and January 4, 1995.
<PAGE>
AGREEMENT
TABLE OF CONTENTS
<TABLE>
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<S> <C> <C>
ARTICLE 1
THE EXCHANGE OFFER ....................................... I-2
Section 1.1 The Exchange Offer..................................................... I-2
Section 1.2 Company Action......................................................... I-3
Section 1.3 Board of Directors; Section 14(f)...................................... I-4
ARTICLE 2
PLAN OF MERGER ......................................... I-5
Section 2.1 The Merger............................................................. I-5
Section 2.2 Closing................................................................ I-5
Section 2.3 Effective Time......................................................... I-5
Section 2.4 Effects of the Merger.................................................. I-5
Section 2.5 Restatement of Surviving Corporation's Certificate of Incorporation I-5
and By-Laws..........................................................
Section 2.6 Directors.............................................................. I-6
Section 2.7 Officers............................................................... I-6
Section 2.8 Preparation of Proxy Statement; Shareholder Meeting.................... I-6
Section 2.9 Merger Without Meeting of Shareholders................................. I-7
ARTICLE 3
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT CORPORATIONS I-7
Section 3.1 Effect on Capital Stock................................................ I-7
Section 3.2 Company Stock Options and Related Matters.............................. I-8
Section 3.3 Exchange of Certificates............................................... I-8
ARTICLE 4
REPRESENTATIONS AND WARRANTIES .................................. I-11
Section 4.1 Representations and Warranties of the Company.......................... I-11
Section 4.2 Representations and Warranties of Purchaser and Parent................. I-19
Section 4.3 Representations and Warranties of Parent............................... I-23
ARTICLE 5
COVENANTS ........................................... I-24
Section 5.1 Conduct of Business of the Company..................................... I-24
Section 5.2 Conduct of Business of Purchaser....................................... I-26
Section 5.3 No Solicitation........................................................ I-26
Section 5.4 Access to Information.................................................. I-27
Section 5.5 Notification........................................................... I-27
Section 5.6 Best Efforts........................................................... I-28
Section 5.7 Certain Filings, Consents and Arrangements............................. I-28
Section 5.8 Public Announcements................................................... I-28
Section 5.9 Antitrust Filings and Divestitures..................................... I-28
Section 5.10 Employee Benefits...................................................... I-29
Section 5.11 Indemnification and Insurance.......................................... I-30
Section 5.12 Redemption of Series B Preferred Stock................................. I-30
Section 5.13 Certain Agreements..................................................... I-30
Section 5.14 Redemption of Rights................................................... I-31
</TABLE>
<PAGE>
<TABLE>
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<S> <C> <C>
Section 5.15 Affiliates and Certain Stockholders.................................... I-31
Section 5.16 Proxy Solicitation For Shareholders' Meeting........................... I-31
ARTICLE 6
CONDITIONS TO CONSUMMATION OF THE MERGER ............................. I-32
Section 6.1 Conditions to Each Party's Obligations to Effect the Merger............ I-32
Section 6.2 Conditions to Obligation of the Company................................ I-32
Conditions to Obligations of Purchaser and Parent to Effect the
Section 6.3 Merger................................................................. I-32
ARTICLE 7
TERMINATION; AMENDMENT; WAIVER .................................. I-33
Section 7.1 Termination............................................................ I-33
Section 7.2 Effect of Termination.................................................. I-34
Section 7.3 Amendment.............................................................. I-34
Section 7.4 Extension; Waiver...................................................... I-35
ARTICLE 8
MISCELLANEOUS ......................................... I-35
Section 8.1 Non-Survival of Representations and Warranties......................... I-35
Section 8.2 Entire Agreement; Assignment........................................... I-35
Section 8.3 Fees and Expenses...................................................... I-35
Section 8.4 Definitions............................................................ I-37
Section 8.5 Gains and Transfer Taxes............................................... I-37
Section 8.6 Interpretation......................................................... I-37
Section 8.7 Parties in Interest.................................................... I-37
Section 8.8 Notices................................................................ I-37
Section 8.9 Non-Recourse........................................................... I-38
Section 8.10 Governing Law.......................................................... I-38
Section 8.11 Enforcement............................................................ I-38
Section 8.12 Descriptive Headings................................................... I-39
Section 8.13 Counterparts........................................................... I-39
Section 8.14 Severability........................................................... I-39
ANNEX A--Conditions to the Offer
EXHIBIT A--Restated Certificate of Incorporation of Surviving Corporation
EXHIBIT B--Affiliate Letter
</TABLE>
I-ii
<PAGE>
AGREEMENT AND PLAN OF MERGER
DATED AS OF SEPTEMBER 23, 1994*
AMONG BORDEN ACQUISITION CORP.,
A NEW JERSEY CORPORATION ("PURCHASER"),
WHITEHALL ASSOCIATES, L.P., A DELAWARE LIMITED
PARTNERSHIP ("PARENT"), AND BORDEN, INC.,
A NEW JERSEY CORPORATION (THE "COMPANY").
WHEREAS, Parent and the Company have entered into a letter agreement, dated
as of September 11, 1994, setting forth, among other things, the intention of
Parent and the Company to enter into this agreement and to consummate the
transactions contemplated hereby;
WHEREAS the respective Boards of Directors of Purchaser and the Company have
approved the acquisition of the Company by Purchaser;
WHEREAS, in furtherance thereof, it is proposed that Purchaser will commence
an exchange offer (the "Offer") to exchange shares of common stock, par value
$.01 per share ("Holdings Common Stock"), of RJR Nabisco Holdings Corp., a
Delaware Corporation ("Holdings"), owned by Parent for all of the issued and
outstanding shares of common stock, par value $.625 per share (the "Common
Stock"), of the Company (the "Shares") in accordance with the terms provided
herein;
WHEREAS, the Board of Directors of the Company has approved the making of
the Offer and recommended its acceptance by the Company's stockholders;
WHEREAS, also in furtherance of such acquisition, the respective Boards of
Directors of Purchaser and the Company have determined that the merger of
Purchaser with and into the Company (the "Merger"), on the terms and subject to
the conditions set forth in this Agreement, would be fair to and in the best
interests of their respective shareholders, and such Boards of Directors have
approved such Merger;
WHEREAS, Parent and Purchaser are unwilling to enter into this Agreement
unless the Company, contemporaneously with the execution and delivery of this
Agreement, grants to Purchaser a right (the "Conditional Purchase Right") to
purchase up to 28,138,000 shares of Common Stock (or such other number of Shares
as is equal to 19.9% of the Company's outstanding Shares on the date hereof)
(the "Option Shares"), in exchange for the number of whole shares of Holdings
Common Stock as set forth in the Conditional Purchase/Stock Option Agreement,
dated as of the date hereof (the "Conditional Purchase/Stock Option Agreement"),
among Purchaser, Parent and the Company; and in order to induce Parent and
Purchaser to enter into this Agreement, the Company has agreed to grant
Purchaser the Conditional Purchase Right and to execute and deliver the
Conditional Purchase/Stock Option Agreement;
WHEREAS, it is presently contemplated that the right of Purchaser to
purchase shares of Common Stock pursuant to the Offer and the right of Purchaser
to exercise the Conditional Purchase Right granted in the Conditional
Purchase/Stock Option Agreement will be assigned to Parent (or a direct or
indirect wholly owned subsidiary of Parent);
WHEREAS, Purchaser, Parent and the Company desire to make certain
representations, warranties, covenants and agreements in connection with the
Offer and the Merger and also to prescribe various conditions to the Offer and
the Merger; and
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein, and
intending to be legally bound hereby, Parent, Purchaser and the Company hereby
agree as follows:
- - - ------------
* As amended by the amendments thereto dated as of November 15, 1994, December
6, 1994 and January 4, 1995.
I-1
<PAGE>
ARTICLE 1
THE EXCHANGE OFFER
SECTION 1.1 The Exchange Offer. (a) Provided that (i) this Agreement shall
not have been terminated in accordance with Section 7.1 and (ii) none of the
events set forth in Annex A hereto shall have occurred or be existing, Parent
shall cause Purchaser to commence, and Purchaser shall commence, the Offer as
soon as reasonably practicable following the effectiveness of a registration
statement on Form S-4 relating to the Offer (together with all amendments and
supplements thereto, the "Form S-4") under the Securities Act of 1933, as
amended (the "Securities Act"). Each Share accepted by Purchaser in accordance
with the Offer shall be converted into the right to receive from Purchaser that
number of fully paid and nonassessable shares of Holdings Common Stock equal to
the Exchange Ratio. The "Exchange Ratio" shall mean the quotient (rounded to the
nearest 1/100,000) obtained by dividing (i) $14.25 by (ii) the average of the
average of the high and low sales prices of Holdings Common Stock as reported on
the New York Stock Exchange Composite Tape on each of the ten full consecutive
trading days ending immediately prior to the ten business day period ending on
the date of expiration of the Offer (the "Valuation Period"); provided that the
Exchange Ratio shall not be less than 1.78125 or greater than 2.375; and
provided, further, that, unless the Offer is extended past 12:00 Midnight, New
York City time, on Friday, January 20, 1995, the Exchange Ratio shall be
2.29146. For purposes of the preceding sentence, a full trading day is a day on
which the NYSE is open for trading and does not close prior to its scheduled
closing time for such day).The obligations of Purchaser to consummate the Offer
and to accept for exchange the Shares tendered pursuant to the Offer shall be
subject only to the conditions set forth in Annex A hereto and, without the
written consent of the Company, Purchaser shall not decrease the number of
Shares being sought in the Offer, change the form of consideration payable in
the Offer (other than by adding consideration), add additional conditions to the
Offer or make any other change in the terms or conditions of the Offer which is
adverse to the holders of Shares, it being agreed that a waiver by Purchaser of
any condition in whole or in part at any time and from time to time in its
discretion shall not be deemed to be materially adverse to any holder of Shares;
provided that if Purchaser shall have exercised the Conditional Purchase Right
in whole or in part prior to the termination of the Offer, Purchaser shall not
be permitted to waive the Minimum Condition (as defined herein). Purchaser
agrees that upon the request of the Company (and without limiting the number of
times that Purchaser may extend the Offer, or the total number of days for which
the Offer may be extended), Purchaser shall extend the Offer, one or more times,
for an aggregate of not more than twenty business days.
The Offer shall be made by means of an offering circular/prospectus and
related letter of transmittal (the "Letter of Transmittal") (collectively, the
"Offering Circular"). Purchaser expressly reserves the right to increase the
number of shares of Holdings Common Stock to be exchanged for each share of
Common Stock in the Offer. Upon the terms and subject to the conditions of the
Offer, Purchaser will accept (and Parent will cause Purchaser to accept) for
exchange any and all Shares which are validly tendered and not properly
withdrawn on or prior to the expiration of the Offer. Purchaser may, at any
time, transfer or assign to Parent or to one or more corporations directly or
indirectly wholly owned by Parent the right to purchase all or any portion of
the Shares tendered pursuant to the Offer, but any such transfer or assignment
shall not relieve Purchaser of its obligations under the Offer or materially
prejudice the rights of tendering shareholders to receive shares of Holdings
Common Stock for Shares validly tendered and not properly withdrawn and accepted
for exchange. In the event that Purchaser assigns the right to purchase all or
any portion of the Shares tendered pursuant to the Offer or an affiliate of
Purchaser purchases Shares under the Conditional Purchase/Stock Option
Agreement, then for purposes of any provision of this Agreement which is
predicated upon Purchaser holding or owning a specified number or percentage of
Shares, the number of Shares held or owned by Purchaser shall be deemed to
include all Shares purchased by any affiliate or affiliates pursuant to the
transactions contemplated hereby or by the Conditional Purchase/Stock Option
Agreement.
I-2
<PAGE>
(b) Promptly after the date hereof, in accordance with Rule 14d-2(e) under
the Securities Exchange Act of 1934, as amended (together with the rules and
regulations thereunder, the "Exchange Act"), Parent, pursuant to its
Registration Rights Agreement with Holdings dated July 15, 1990 (the "1990
Registration Rights Agreement") and, if applicable, its Registration Rights
Agreement with Holdings dated February 9, 1989 (the "1989 Registration Rights
Agreement"), shall request that Holdings promptly prepare and file with the
Securities and Exchange Commission (the "SEC") the Form S-4 covering the
registration of the Holdings Common Stock to be exchanged in the Offer and that
will be issued in the Merger, as well as all other information and exhibits
required by law with respect to the registration and offering of the Holdings
Common Stock (the "Offering Materials"). Not later than the date of commencement
of the Offer (which shall be the date that the definitive Offering Circular is
first published, sent or given to shareholders of the Company), Purchaser shall
file with the SEC a Tender Offer Statement on Schedule 14D-1 (together with all
amendments and supplements thereto, the "Schedule 14D-1") with respect to the
Offer. The Schedule 14D-1 shall contain (included as an exhibit) or shall
incorporate by reference the Offering Circular (or portions thereof) and forms
of the summary advertisement, as well as all other information and exhibits
required by law. Parent and Purchaser each agrees promptly to correct any
information in the Offering Materials and the Schedule 14D-1 (together the
"Offer Documents") that shall be or have become false or misleading in any
material respect and Parent and Purchaser each further agrees to request
Holdings to take all steps necessary to cause the Offer Documents as so
corrected to be filed with the SEC and disseminated to holders of Shares, in
each case as and to the extent required by applicable federal securities laws.
The Company and its counsel shall be given an opportunity to review each of the
Offer Documents prior to its being filed with the SEC. Parent and Purchaser
agree to provide the Company and its counsel in writing with any written
comments Parent and Purchaser or their respective counsel may receive from the
SEC with respect to the Offer Documents promptly after the receipt of such
comments.
SECTION 1.2 Company Action. (a) The Company hereby approves of and consents
to the Offer and represents and warrants that (x) its Board of Directors, at a
meeting duly called and held, has (i) determined that this Agreement and the
Conditional Purchase/Stock Option Agreement and the transactions contemplated
hereby, including the Offer and the Merger, and thereby, taken together, are
fair to the shareholders of the Company, and has resolved to recommend that
holders of Shares (A) accept the Offer, (B) tender their Shares thereunder to
Purchaser and, if required by applicable law, and (C) approve and adopt this
Agreement and Plan of Merger (collectively, the "Recommendations") and (ii)
approved this Agreement and the Conditional Purchase/Stock Option Agreement and
the transactions contemplated hereby and thereby, and that such approval
constitutes approval of this Agreement and the Conditional Purchase/Stock Option
Agreement and the transactions contemplated hereby and thereby for purposes of
Sections 14A:10A-4 and 14A:10A-5 of the New Jersey Business Corporation Act (the
"NJBCA") and Article VIII of the Company's Restated Certificate of Incorporation
(the "Charter") and renders inapplicable the "Change in Control" provisions of
the 8 3/8% Sinking Fund Debentures due 2016, the "Change in Control" provisions
of the Medium Term Notes, Series A, the "Change in Control" provisions of the 9
7/8% Notes due 1997, Paragraph 4.1 of the letter dated November 20, 1987 from
the Company to Wachovia Bank and Trust Company, N.A. with respect to a $20
million line of credit for Borden Chemical & Plastics Operating Limited
Partnership ("BCPO") and Section 6.5 of the ESOP Loan Agreement dated as of
February 6, 1989 between the Company and First National Bank of Boston and (y)
Lazard Freres and Co. and CS First Boston Corporation have delivered to the
Board of Directors of the Company their respective written opinions to the
effect that the consideration to be received by holders of Shares pursuant to
each of the Offer and the Merger is fair to such holders from a financial point
of view. The Company hereby consents to the inclusion in the Offer Documents of
the Recommendations, provided that they have not theretofore been withdrawn as
permitted pursuant to Section 1.2(b) or 5.3 herein.
(b) The Company hereby agrees to file with the SEC contemporaneously with
the commencement of the Offer, and distribute contemporaneously with the
Offering Circular to its shareholders, a Tender Offer
Solicitation/Recommendation Statement on Schedule 14D-9 (together with all
amendments and
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supplements thereto, the "Schedule 14D-9") containing the Recommendations. The
Company further agrees, subject to clause (iii) of the proviso to the first
sentence in Section 5.3, not to change the Recommendations unless (i) the second
proviso in the definition of Exchange Ratio is not applicable and (ii) the
average of the average of the high and the low sales prices of the Holdings
Common Stock as reported on the New York Stock Exchange Composite Tape for the
Valuation Period is less than the price per share that would yield an Exchange
Ratio of 2.375 or less without giving effect to the first proviso in the
definition of Exchange Ratio. The Company will not have any right to terminate
this Agreement as a result of any such change in the Recommendations and
notwithstanding any such change in the Recommendations, the Company will
continue to be bound by its representations and warranties and covenants
contained herein (except representations and warranties and covenants with
respect to the Recommendations), including, without limitation, those with
respect to the Rights Agreement (as hereinafter defined), antitrust approvals
and divestitures (assuming that following receipt of such approvals Purchaser
purchases at least 28,138,000 Shares), Article VIII of the Charter and Sections
14A:10A-4 and 14A:10A-5 of the NJBCA. The Company, Parent and Purchaser each
agrees promptly to correct any information provided by it for use in the
Schedule 14D-9 that shall have become false or misleading in any material
respect, and the Company further agrees to take all steps necessary to cause the
Schedule 14D-9 as so corrected to be filed with the SEC and disseminated to
holders of Shares, in each case as and to the extent required by applicable
federal securities laws. To the knowledge of the Company after due inquiry, all
the directors of the Company intend to tender their Shares pursuant to the Offer
or to vote their Shares in favor of approval and adoption of the Merger and this
Agreement at the shareholders' meeting referred to in Section 2.8. Parent and
Purchaser and their counsel shall be given an opportunity to review the Schedule
14D-9 prior to its being filed with the SEC.
(c) In connection with the Offer, if requested by Purchaser, the Company
shall promptly furnish Purchaser with mailing labels, security position listings
and any available listing or computer file containing the names and addresses of
the record holders of shares of Common Stock as of a recent date and shall
furnish Purchaser with such information and assistance (including, without
limitation, updated lists of shareholders, mailing labels and lists of
securities positions) as Purchaser or its agents may reasonably request in
communicating the Offer to the record and beneficial holders of Shares.
SECTION 1.3 Board of Directors; Section 14(f). (a) If requested by Parent,
the Company shall, following the acceptance for exchange of the Shares to be
exchanged pursuant to the Offer and/or the purchase of the Option Shares in
accordance with the Conditional Purchase/Stock Option Agreement, and from time
to time thereafter, take all actions necessary to cause the Applicable
Percentage (as defined below) of directors (and of members of each committee of
the Board of Directors) (rounded in each case to the next highest director or
member) of the Company selected by Parent to consist of persons designated or
elected by Parent (whether, at the election of the Company, by means of
increasing the size of the board of directors or seeking the resignation of
directors and causing Parent's designees to be elected). The "Applicable
Percentage" means the ratio of (i) the total voting power of all Shares accepted
for exchange pursuant to the Offer and/or purchased in accordance with the
Conditional Purchase/Stock Option Agreement to (ii) the total voting power of
the outstanding voting securities of the Company, rounded to the nearest whole
number and expressed as a percentage; provided that if Purchaser has acquired at
least 28,138,000 Shares the Applicable Percentage shall not be less than 33
1/3%.
(b) The Company's obligations to cause designees of Parent to be elected or
appointed to the Board of Directors of the Company shall be subject to Section
14(f) of the Exchange Act, and Rule 14f-1 promulgated thereunder. The Company
shall promptly take all actions required pursuant to Section 14(f) and Rule
14f-1 in order to fulfill its obligations under this Section 1.3, and shall
include in the Schedule 14D-9 such information with respect to the Company and
its officers and directors as is required under Section 14(f) and Rule 14f-1.
Parent and Purchaser will supply to the Company any information with respect to
any of them and their nominees, officers, directors and affiliates required by
Section 14(f) and Rule 14f-1.
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(c) Following the election or appointment of Parent's designees pursuant to
this Section and prior to the Effective Time (as hereinafter defined), any
amendment by the Company or termination by the Company of this Agreement or the
Conditional Purchase/Stock Option Agreement, extension by the Company for the
performance or waiver of the obligations, conditions or other acts of Parent or
Purchaser or waiver by the Company of its rights hereunder or thereunder, will
require the concurrence of a majority of directors of the Company then in office
who are not affiliated with Parent or Purchaser or selected by Parent for
appointment or election to the board of directors of the Company in accordance
with Section 1.3(a) hereof (the "Independent Directors").
ARTICLE 2
PLAN OF MERGER
SECTION 2.1 The Merger. At the Effective Time (as defined herein) and on the
terms and subject to the conditions set forth in this Agreement, and in
accordance with the NJBCA, Purchaser shall be merged with and into the Company.
Upon the Effective Time, the separate existence of Purchaser shall cease, and
the Company shall continue as the surviving corporation (the "Surviving
Corporation") and shall continue under the name "Borden, Inc." The manner and
basis of converting the shares of Purchaser and the Company into shares of the
Surviving Corporation or into or of any other corporation or, in whole or in
part, into cash shall be as provided for in Article 3 of this Agreement.
SECTION 2.2 Closing. Unless this Agreement shall have been terminated and
the transactions herein contemplated shall have been abandoned pursuant to
Section 7.1 and subject to the satisfaction or waiver of the conditions set
forth in Article 6, the closing of the Merger (the "Closing") will take place at
10:00 a.m. on the second Business Day after satisfaction of the conditions set
forth in Section 6.1 (or as soon as practicable thereafter following
satisfaction or waiver of the conditions set forth in Sections 6.2 and 6.3) (the
"Closing Date"), at the offices of Simpson Thacher & Bartlett, 425 Lexington
Avenue, New York, New York 10017, unless another date, time or place is agreed
to in writing by the parties hereto.
SECTION 2.3 Effective Time. As promptly as practicable following the
satisfaction or waiver of the conditions to the Merger set forth in Article 6,
the parties shall file a certificate of merger or other appropriate documents
(in any such case, the "Certificate of Merger"), executed in accordance with the
relevant provisions of the NJBCA, and shall make all other filings or recordings
required under the NJBCA in connection with the Merger. The Merger shall become
effective at such time as the Certificate of Merger is duly filed with the
Secretary of State of the State of New Jersey, or at such later time as is
permissible in accordance with the NJBCA and as Purchaser and the Company shall
agree should be specified in the Certificate of Merger (the time the Merger
becomes effective being the "Effective Time").
SECTION 2.4 Effects of the Merger. The Merger shall have the effects set
forth in Section 14A:10-6 of the NJBCA (or any successor provision). Without
limiting the generality of the foregoing, and subject thereto, at the Effective
Time, all the properties, rights, privileges, powers, immunities, purposes and
franchises of the Company and Purchaser shall vest in the Surviving Corporation,
and all debts, liabilities, obligations and duties of the Company and Purchaser
shall become debts, liabilities, obligations and duties of the Surviving
Corporation.
SECTION 2.5 Restatement of Surviving Corporation's Certificate of
Incorporation and By-Laws. (a) The Charter, as in effect immediately prior to
the Effective Time, shall be restated so as to read in its entirety in the form
set forth as Exhibit A hereto, and, as so restated, until thereafter and further
amended or restated as provided therein and under the NJBCA, it shall be the
restated certificate of incorporation of the Surviving Corporation.
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(b) The By-laws of Purchaser as in effect at the Effective Time shall be the
By-laws of the Surviving Corporation until thereafter changed or amended as
provided therein or by applicable law.
SECTION 2.6 Directors. The directors of Purchaser at the Effective Time
shall be the directors of the Surviving Corporation, each to hold office in
accordance with the Restated Certificate of Incorporation and By-laws of the
Surviving Corporation and until the earlier of his or her resignation or removal
or until his or her successor is duly elected and qualified, as the case may be.
SECTION 2.7 Officers. The officers of the Company at the Effective Time
shall be the officers of the Surviving Corporation, each to hold office in
accordance with the Certificate of Incorporation and By-laws of the Surviving
Corporation and until the earlier of his or her resignation or removal or until
his or her respective successor is duly appointed and qualified, as the case may
be.
SECTION 2.8 Preparation of Proxy Statement; Shareholder Meeting. (a) If
approval of the Company's shareholders is required by applicable law in order to
consummate the Merger, provided that the Minimum Condition is satisfied without
being reduced or waived, following the acceptance for exchange of Shares
pursuant to the Offer, the Company, acting through its Board of Directors,
shall, in accordance with applicable law, as soon as practicable following the
expiration or termination of the Offer: (a) duly call, give notice of, convene
and, subject to Section 5.16, hold a special meeting of its shareholders (the
"Shareholders' Meeting") for the purpose of considering and taking action upon
this Agreement and the Merger and prepare and file with the SEC a proxy
statement (such proxy statement as amended or supplemented from time to time,
the "Proxy Statement"), and (b) use its best efforts (i) to obtain and furnish
the information required to be included by it in the Proxy Statement and, after
consultation with Parent and Purchaser, respond promptly to any comments made by
the SEC with respect to the Proxy Statement and any preliminary version thereof
and cause the Proxy Statement to be mailed to its stockholders at the earliest
practicable time following the expiration or termination of the Offer and (ii)
to obtain the necessary approval by its shareholders of this Agreement and the
transactions contemplated hereby, including the Merger.
(b) Subject to the Company's right, pursuant to Section 1.2(b) hereof, to
withdraw or modify the Recommendations, the Company shall include in the Proxy
Statement the recommendation of its Board of Directors that holders of Shares
vote in favor of the approval and adoption of this Agreement and the
transactions contemplated hereby, including the Merger.
(c) Notwithstanding the other provisions of this Section 2.8, the Company
agrees that (i) its obligations pursuant to Section 2.8(a) hereof (including,
without limitation, the obligation to submit the Agreement and the Merger to a
vote of its shareholders) shall not be affected by the withdrawal or
modification of the Recommendations (but there shall be no obligation of the
Board of Directors of the Company to continue the Recommendation that
shareholders approve and adopt the Agreement and the Merger) and (ii) (A) if the
Merger is not approved by the shareholders of the Company following the
acceptance for exchange of Shares pursuant to the Offer or the purchase of
Shares pursuant to the Conditional Purchase/Stock Option Agreement or (B) if the
Merger is not submitted to the shareholders of the Company but Purchaser has
acquired at least 28,138,000 Shares, the approval of the transactions
contemplated by this Agreement, including the Offer and the Merger, by the Board
of Directors of the Company shall constitute, solely for the purposes of
Sections 14A:10A-4 and 14A:10A-5 of the NJBCA and, to the extent that there are
no Continuing Directors (as defined in the Charter), Article VIII of the
Charter, an approval of any future "Business Combination" (as defined in Section
14A:10A-3 of the NJBCA and Article VIII of the Charter) between the Company and
Parent or any affiliate thereof, provided that (x) such "Business Combination"
is approved by a majority of the Independent Directors and (y) if appropriate,
the Company shall have received the opinion of an investment banking firm
selected by the Independent Directors that such "Business Combination" is fair
to the Company's shareholders from a financial point of view (an "Excepted
Future Transaction").
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(d) At the Shareholders' Meeting, each of Parent and Purchaser will vote, or
cause to be voted, all Shares acquired in the Offer or otherwise beneficially
owned by it or any of its respective subsidiaries in favor of the approval and
adoption of this Agreement and the transactions contemplated hereby, including
the Merger.
(e) The information provided and to be provided by Purchaser and the
Company, respectively, for use in the Proxy Statement shall, at the date it is
first mailed to shareholders of the Company and on the date of the Shareholders'
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 Company and Purchaser each agree
to correct any information provided by it for use in the Proxy Statement which
shall have become false or misleading.
SECTION 2.9 Merger Without Meeting of Shareholders. Notwithstanding the
foregoing, in the event that Parent and Purchaser, or any other direct or
indirect subsidiary of Parent shall acquire at least 90% of the outstanding
Shares, the parties hereto agree to take all necessary or appropriate action to
cause the Merger to become effective as soon as practicable after the expiration
of the Offer without a meeting of shareholders of the Company, in accordance
with Section 14A:10-5.1 of the NJBCA.
ARTICLE 3
EFFECT OF THE MERGER ON THE CAPITAL STOCK
OF THE CONSTITUENT CORPORATIONS
SECTION 3.1 Effect on Capital Stock. At the Effective Time, by virtue of the
Merger and without any action on the part of the holder of any shares of Common
Stock or any shares of capital stock of Purchaser:
(a) Common Stock of Purchaser. Each share of common stock of Purchaser
issued and outstanding immediately prior to the Effective Time shall be
converted into a number of shares of common stock, par value $.01 per share,
of the Surviving Corporation equal to one one-thousandth of the total number
of outstanding shares of Common Stock immediately prior to the Merger, which
shall be all of the issued and outstanding capital stock of the Surviving
Corporation.
(b) Cancellation of Treasury Stock and Purchaser-Owned or Parent-Owned
Common Stock. Each share of Common Stock that is owned by the Company or by
any subsidiary of the Company and each share of Common Stock that is owned
by Parent, KKR Partners II, L.P., Purchaser or any other subsidiary of
Parent shall automatically be cancelled and retired and shall cease to
exist, and no cash, Holdings Common Stock or other consideration shall be
delivered or deliverable in exchange therefor.
(c) Conversion of Common Stock. Except as otherwise provided herein,
each issued and outstanding share of Common Stock shall be converted into
the right to receive that number of fully paid and nonassessable shares of
Holdings Common Stock equal to the Final Exchange Ratio (as defined herein).
The aggregate amount of Holdings Common Stock which a holder of Common Stock
is entitled to receive with respect to each such share of Common Stock shall
be hereinafter referred to as the "Merger Consideration". The "Final
Exchange Ratio" shall equal that number of fully paid and nonassessable
shares of Holdings Common Stock that was delivered by the Purchaser with
respect to each share of Common Stock that was validly tendered and not
properly withdrawn and accepted for exchange pursuant to the terms of the
Offer.
(d) Cancellation and Retirement of Common Stock. All shares of Common
Stock (other than shares referred to in Section 3.1(b)) issued and
outstanding immediately prior to the Effective Time shall no longer be
outstanding and shall automatically be cancelled and retired and shall cease
to exist, and each holder of a certificate representing any such shares of
Common Stock shall
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cease to have any rights with respect thereto, except the right to receive,
upon surrender of such certificate to the Exchange Agent (as defined herein)
and acceptance thereof in accordance with Section 3.3, the Merger
Consideration (and/or any cash in lieu of fractional shares of Holdings
Common Stock to be issued or paid in consideration therefor).
SECTION 3.2 Company Stock Options and Related Matters. (a) As of the
Effective Time, each holder of a then outstanding option to purchase Common
Stock (an "Option") shall receive with respect to each share subject to such
Option an amount in cash equal to the excess, if any, of (i) the product of the
Final Exchange Ratio and the average of the average of the high and the low
sales prices of Holdings Common Stock as reported on each of the ten consecutive
trading days immediately preceding the Effective Time over (ii) the per share
exercise price of such Option, and the Company shall cause the surrender and
cancellation of each Option (and any related stock appreciation right) with
respect to which a payment by the Company is made. With respect to Options not
so surrendered and cancelled, such Options shall, if not previously terminated
or expired in accordance with their terms, terminate upon the grantee leaving
the Company except upon such grantee's death, Disability or retirement at or
after age sixty-five (or such earlier age as the Purchaser may expressly agree)
and except that, to the extent provided under any such existing Option, if the
grantee is terminated by the Company without Cause within two years following a
Change in Control of the Company, the grantee shall have a period of ninety days
following such termination within which to exercise such Option. The terms
Disability, Change in Control and Cause for this purpose shall have the meanings
set forth in the plans pursuant to which the Options were granted. No employee
who has been previously granted an Option or stock appreciation right shall be
approved for retirement for purposes of any plan or agreement under which such
Option or right has been granted without the express consent of the Purchaser.
The Purchaser and the Company agree to continue to discuss the manner in which
outstanding stock options shall be treated after the Merger.
(b) In addition to the foregoing, the Company shall take all steps necessary
so that no participant in any employee plans, programs or arrangements of the
Company shall have any right to acquire or receive any Common Stock or other
equity interest in the Company on or after the Effective Time other than in
connection with the exercise of Options outstanding on the date hereof which
have not been cancelled pursuant to Section 3.2(a). On or prior to the Effective
Time, the Company shall amend each of its (and cause the amendment of each of
its affiliate's) qualified defined contribution plans to eliminate any
investment in Common Stock after the Effective Time.
(c) At or immediately prior to the Effective Time, the Company shall cause
an amendment of each of its employee plans, programs and arrangements pursuant
to which an employee may be entitled to receive Common Stock (each a "Stock
Plan") to provide that any employee entitled to receive Common Stock in respect
of previously deferred bonuses or compensation shall receive instead cash equal
to the product of (i) the Final Exchange Ratio multiplied by the average of the
average of the high and the low closing sales prices of Holdings Common Stock as
reported on each of the ten consecutive trading days immediately preceding the
Effective Time and (ii) the number of shares of Common Stock so deferred, plus
interest equal to the rate otherwise credited on deferred amounts under the
applicable plans or if no such rate is credited the prime rate established by
Chemical Bank from time to time on such deferred bonuses or compensation from
the Effective Time to the date of distribution.
(d) Subject to the terms of any Company Plan, any Merger Consideration paid
in respect of restricted shares of Common Stock held by any employee or former
employee of the Company or any of its affiliates shall remain restricted and
subject to the same terms and conditions imposed on such restricted shares.
SECTION 3.3 Exchange of Certificates. (a) Exchange Agent. At or prior to the
Effective Time, Purchaser shall deposit with or for the account of a bank or
trust company designated by Parent, which shall be reasonably satisfactory to
the Company (the "Exchange Agent"), for the benefit of the holders of shares of
Common Stock, for exchange in accordance with this Article 3, the Merger
Consideration
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in respect of each Share outstanding immediately prior to the Effective Time,
except the shares of Common Stock referred to in Section 3.1 (b) (the "Aggregate
Merger Consideration").
(b) Exchange Procedures. As soon as reasonably practicable after the
Effective Time, Purchaser will instruct the Exchange Agent to mail to each
holder of record immediately prior to the Effective Time (other than holders
referred to in Section 3.1(b)) of a certificate or certificates which
represented shares of Company Stock (the "Certificates") (i) a letter of
transmittal (which shall specify that delivery shall be effected, and risk of
loss and title to the Certificates shall pass, only upon proper delivery of the
Certificates to the Exchange Agent and shall be in such form and have such other
provisions as Parent or Purchaser may reasonably specify) (the "Merger Letter of
Transmittal") and (ii) instructions for use in effecting the surrender of the
Certificates in exchange for Holdings Common Stock. Upon surrender to the
Exchange Agent of Certificates, together with such Merger Letter of Transmittal
duly executed and any other required documents, and acceptance thereof by the
Exchange Agent, each holder of a Certificate shall be entitled to a certificate
or certificates representing the number of full shares of Holdings Common Stock
into which the aggregate number of shares of Common Stock previously represented
by such Certificate surrendered shall have been converted pursuant to this
Agreement. The Exchange Agent shall accept such Certificates upon compliance
with such reasonable terms and conditions as the Exchange Agent may impose to
effect an orderly exchange thereof in accordance with normal exchange practices.
After the Effective Time, there shall be no further transfer on the books and
records of the Company or its transfer agent of Certificates and if such
Certificates are presented to the Company for transfer, they shall be cancelled
against delivery of certificates for Holdings Common Stock as herein provided.
If any certificate for such Holdings Common Stock is to be issued in a name
other than that in which the Certificate surrendered for exchange is registered,
it shall be a condition of such exchange that the Certificate so surrendered
shall be properly endorsed, with signature guaranteed, or otherwise in proper
form for transfer and that the person requesting such exchange shall pay to
Purchaser or its transfer agent any transfer or other taxes required by reason
of the issuance of certificates for such Holdings Common Stock in a name other
than that of the registered holder of the Certificate surrendered, or establish
to the satisfaction of Purchaser or its transfer agent that such tax has been
paid or is not applicable. Until surrendered as contemplated by this Section
3.3(b), each Certificate (other than certificates referred to in Section 3.1(b)
shall be deemed at any time after the Effective Time to represent only the right
to receive upon such surrender the Merger Consideration as contemplated by
Section 3.1.
(c) No Fractional Shares. (i) No certificates or scrip representing
fractional shares of Holdings Common Stock shall be issued upon the surrender
for exchange of Certificates, and such fractional share interests will not
entitle the owner thereof to vote or to any rights of a stockholder of Holdings;
and (ii) notwithstanding any other provision of this Agreement, each holder of
shares of Common Stock exchanged pursuant to the Merger who would otherwise have
been entitled to receive a fraction of a share of Holdings Common Stock (after
taking into account all shares of Common Stock delivered by such holder) shall
receive, in lieu thereof, a cash payment (without interest) representing such
holder's proportionate interest in the net proceeds from the sale by the
Exchange Agent (following the deduction of applicable transaction costs of third
parties other than the Exchange Agent, the Company, the Purchaser or affiliates
of any of the foregoing), on behalf of all such holders, of the shares (the
"Excess Shares") of Holdings Common Stock representing all such fractions. Such
sale shall be made as soon as practicable after the Effective Time.
(d) Distributions with Respect to Unexchanged Shares. No dividends or other
distributions with respect to Holdings Common Stock with a record date after the
Effective Time shall be paid to the holder of any unsurrendered Certificate for
shares of Common Stock with respect to the shares of Holdings Common Stock
represented thereby, and no cash payment in lieu of fractional shares shall be
paid to any such holder pursuant to Section 3.3(c), until the surrender of such
Certificate in accordance with this Article 3. Subject to the effect of
applicable laws, following surrender of any such Certificate, there shall be
delivered to the holder of such Certificate a certificate representing whole
shares of
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Holdings Common Stock issued in exchange therefor and, without interest, (i) at
the time of such surrender or as promptly after the sale of the Excess Shares as
practicable, the amount of any cash payable in lieu of a fractional share of
Holdings Common Stock to which such holder is entitled pursuant to Section
3.3(c) and the amount of dividends or other distributions with a record date
after the Effective Time theretofore paid with respect to such whole shares of
Holdings Common Stock and (ii) at the appropriate payment date, the amount of
dividends or other distributions payable with respect to such whole shares of
Holdings Common Stock with a record date after the Effective Time but prior to
such surrender and a payment date subsequent to such surrender. In no event
shall the persons entitled to receive such dividends or other distributions be
entitled to receive interest on such dividends or other distributions.
(e) No Further Ownership Rights in Common Stock. All shares of Holdings
Common Stock delivered and cash paid upon the surrender for exchange of
Certificates which represented shares of Common Stock in accordance with the
terms of this Article 3 (including any cash paid pursuant to Section 3.3(d))
shall be deemed to have been delivered (and paid) in full satisfaction of all
rights pertaining to the shares of Common Stock theretofore represented by such
Certificates, subject, however, to the Surviving Corporation's obligation, with
respect to shares of Common Stock, to pay any dividends or make any other
distributions with a record date prior to the Effective Time which may have been
declared or made by the Company on such shares of Common Stock prior to the date
of this Agreement and which remain unpaid at the Effective Time.
(f) Termination of Exchange Fund. Any portion of the Merger Consideration
deposited with the Exchange Agent pursuant to this Article 3 (the "Exchange
Fund") which remains undistributed to the holders of the certificates
representing shares of Common Stock for nine months after the Effective Time
shall be delivered to Parent, upon demand, and any holders of shares of Common
Stock who have not theretofore complied with this Article 3 shall thereafter
look only to Parent and only as general creditors thereof for payment of their
claim for Holdings Common Stock (or any security or consideration into which
Holdings Common Stock is converted) and any cash in lieu of fractional shares of
Holdings Common Stock and shall look only to Parent and only as general
creditors thereof for payment of any dividends or distributions with respect to
Holdings Common Stock to which such holders may be entitled.
(g) No Liability. None of Parent, Purchaser, Holdings, the Company or the
Exchange Agent shall be liable to any person in respect of any shares of
Holdings Common Stock (or dividends or distributions with respect thereto) or
cash from the Exchange Fund delivered to a public official pursuant to any
applicable abandoned property, escheat or similar law. If any Certificates which
represented shares of Common Stock shall not have been surrendered prior to five
years after the Effective Time (or immediately prior to such earlier date on
which any shares of Holdings Common Stock, any cash in lieu of fractional shares
of Holdings Common Stock or any dividends or distributions with respect to
Holdings Common Stock in respect of such Certificate would otherwise escheat to
or become the property of any Governmental Entity (as defined herein)), any such
shares, cash, dividends or distributions in respect of such certificate shall,
to the extent permitted by applicable law, become the property of the Parent,
free and clear of all claims or interest of any person previously entitled
thereto.
(h) Investment of Exchange Fund. The Exchange Agent shall invest any cash
included in the Exchange Fund, as directed by Parent, on a daily basis. Any
interest and other income resulting from such investments shall be paid to
Parent.
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ARTICLE 4
REPRESENTATIONS AND WARRANTIES
SECTION 4.1 Representations and Warranties of the Company. The Company
represents and warrants to Parent and Purchaser as follows:
(a) Organization, Standing and Corporate Power. Each of the Company and
each of its Significant Subsidiaries (as defined herein) is duly organized,
validly existing and in good standing under the laws of the jurisdiction in
which it is incorporated and has the requisite corporate or partnership
power and authority to carry on its business as now being conducted, except
for failures which, in the aggregate, would not have a Material Adverse
Effect (as defined herein) with respect to the Company. Each of the Company
and each of its Significant Subsidiaries is duly qualified or licensed to do
business and is in good standing as a foreign corporation in each
jurisdiction in which the nature of its business or the ownership or leasing
of its properties makes such qualification or licensing necessary, other
than in such jurisdictions where the failure to be so qualified or licensed
(individually or in the aggregate) is not reasonably likely to have a
Material Adverse Effect with respect to the Company. Complete and correct
copies of the Charter and By-laws of the Company are included within the SEC
Documents (as defined herein).
(b) Subsidiaries. All the outstanding shares of capital stock of each of
the significant subsidiaries (as defined in Rule 1-02 of Regulation S-X of
the SEC) of the Company, (the "Significant Subsidiaries"; which term shall
include T.M.I. Associates, L.P. ("TMI")) which is a corporation have been
validly issued and are fully paid and nonassessable and all outstanding
shares of capital stock of each Significant Subsidiary owned (of record and
beneficially) by the Company, by another Significant Subsidiary of the
Company or by the Company and another such Significant Subsidiary are owned,
free and clear of all pledges, claims, options, rights of first refusal,
liens, charges, encumbrances and security interests of any kind or nature
whatsoever (collectively, "Liens"), except for such rights of first refusal,
claims, options, charges and encumbrances as would not in the aggregate have
a Material Adverse Effect with respect to the Company. Except as set forth
in Section 4.1(b) of the disclosure schedule delivered to Parent by the
Company at the time of execution of this Agreement (the "Disclosure
Schedule"), all ownership interests of each Significant Subsidiary which is
not a corporation and which is held (of record and beneficially) by the
Company, by another Significant Subsidiary of the Company or by the Company
and another such Significant Subsidiary have been validly issued and are
owned, free and clear of all Liens, except for such rights of first refusal,
claims, options, charges and encumbrances as would not in the aggregate have
a Material Adverse Effect with respect to the Company.
(c) Capital Structure. The authorized capital stock of the Company
consists of (i) 480,000,000 shares of Common Stock and (ii) 10,000,000
shares of preferred stock, without par value ("Preferred Stock"). As of the
date hereof, there are (i) 141,515,502 shares of Common Stock issued and
outstanding (including the shares of Common Stock held by the trust created
under the Supplemental Benefit Trust Agreement dated December 9, 1993); (ii)
53,465,136 shares of Common Stock held in the treasury of the Company; (iii)
7,357,473 shares of Common Stock issuable upon exercise of outstanding
Options (of which 1,408,326 shares, with an average exercise price of
$12.31, are exercisable at prices of $14.25 or less); (iv) 4,779,200 shares
of Common Stock reserved for issuance upon exercise of authorized but
unissued Options; (v) 45,031 shares of Common Stock reserved for issuance
upon conversion of Preferred Stock designated as Preferred Stock-Series B
("Series B Preferred Stock"), 45,031 shares of which are issuable upon
conversion of all outstanding shares of Series B Preferred Stock; (vi)
6,000,000 shares of Common Stock reserved for issuance upon exercise of the
Company's Lynx Equity Units (the "Lynx Equity Units"), 5,950,000 shares of
which are issuable upon exercise of all outstanding Lynx Equity
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<PAGE>
Units; (vii) 475,000 shares of Preferred Stock designated as Preferred
Stock-Series A ("Series A Preferred Stock"), none of which are issued or
outstanding; (viii) 688,700 shares of Series B Preferred Stock, of which
6,822 shares are issued and outstanding; and (ix) 2,400,000 shares of
Preferred Stock designated as Series C Junior Participating Preferred Stock
("Series C Preferred Stock") reserved for issuance upon the exercise of the
rights (the "Rights") distributed to the holders of shares of Common Stock
pursuant to the Rights Agreement, dated as of January 28, 1986 between the
Company and The Bank of New York, as Rights Agent (the "Rights Agreement"),
as amended as of November 29, 1988, May 22, 1991, September 11, 1994 and the
date hereof, none of which are issued or outstanding. Except as set forth
above, no shares of capital stock or other equity securities of the Company
are issued, reserved for issuance or outstanding. All outstanding shares of
capital stock of the Company are, and all shares which may be issued
pursuant to the Stock Plans will be, when issued, duly authorized, validly
issued, fully paid and nonassessable and not subject to preemptive rights.
Except for the Series B Preferred Stock, the Rights and the Lynx Equity
Units, there are no outstanding bonds, debentures, notes or other
indebtedness or other securities of the Company having the right to vote (or
convertible into, or exchangeable for, securities having the right to vote)
on any matters on which shareholders of the Company may vote. Except for the
Series B Preferred Stock, the Rights and the Lynx Equity Units, there are no
outstanding securities, options, warrants, calls, rights, commitments,
agreements, arrangements or undertakings of any kind to which the Company or
any of its Significant Subsidiaries is a party or by which any of them is
bound obligating the Company or any of its Significant Subsidiaries to
issue, deliver or sell, or cause to be issued, delivered or sold, additional
shares of capital stock or other equity or voting securities of the Company
or of any of its Significant Subsidiaries or obligating the Company or any
of its Significant Subsidiaries to issue, grant, extend or enter into any
such security, option, warrant, call, right, commitment, agreement,
arrangement or undertaking. The only outstanding indebtedness for borrowed
money of the Company and its subsidiaries having (x) a principal amount of
$25,000,000 or more and (y) a maturity of one year or longer is listed on
Section 4.1(c) of the Disclosure Schedule. Other than the Lynx Equity Units,
the Stock Options and the Rights there are no outstanding contractual
obligations, commitments, understandings or arrangements of the Company or
any of its Significant Subsidiaries to repurchase, redeem or otherwise
acquire or make any payment in respect of any shares of capital stock of the
Company or any of its Significant Subsidiaries. Except with respect to the
Lynx Equity Units, there are no agreements or arrangements to which the
Company or any of its subsidiaries is a party pursuant to which the Company
is or could be required to register shares of Common Stock or other
securities under the Securities Act.
(d) Authority; Noncontravention. The Company has the requisite corporate
power and authority to enter into this Agreement and the Conditional
Purchase/Stock Option Agreement, and, subject to the Company Shareholder
Approval (as defined herein) with respect to the Merger, to consummate the
transactions contemplated hereby and thereby. The execution and delivery of
this Agreement and the Conditional Purchase/Stock Option Agreement by the
Company and the consummation by the Company of the transactions contemplated
hereby and thereby have been duly authorized by all necessary corporate and
shareholder action on the part of the Company, subject, in the case of the
Merger, to the Company Shareholder Approval. Each of this Agreement and the
Conditional Purchase/Stock Option Agreement has been duly executed and
delivered by the Company and constitutes a valid and binding obligation of
the Company, enforceable against the Company in accordance with its terms
subject to the effects of bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and other similar laws relating to or affecting
creditors' rights generally, general equitable principles (whether
considered in a proceeding in equity or at law) and an implied covenant of
good faith and fair dealing. Except as set forth in Section 4.1(d) of the
Disclosure Schedule, the execution and delivery of this Agreement and the
Conditional Purchase/Stock Option Agreement do not, and the consummation of
the transactions contemplated by this Agreement and the Conditional
Purchase/Stock Option Agreement and
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<PAGE>
compliance with the provisions hereof and thereof will not, conflict with,
or result in any breach or violation of or default (with or without notice
or lapse of time or both) under, or give rise to a right of termination,
cancellation or acceleration of any obligation or a right to require the
purchase or repurchase or give rise to a loss of a material benefit under,
or result in the creation of any Lien upon, any of the properties,
indebtedness or assets of the Company or any of its Significant Subsidiaries
under (i) the Charter or By-laws of the Company or the comparable governing
or organizational documents of any of its Significant Subsidiaries, (ii) any
loan or credit agreement (other than the credit agreement dated August 16,
1994 between Citibank, N.A., as administrative agent, and the Company and
the credit agreement dated August 16, 1994 between Citibank, N.A., as
administrative agent, and T.M. Investors Limited Partnership), note, bond,
mortgage, indenture, lease or other agreement, instrument, permit,
concession, franchise or license to which the Company or any of its
subsidiaries is a party or by which any of their respective properties or
assets is bound or (iii) except for the governmental filings and other
matters referred to in the following sentence, any judgment, order, decree,
statute, law, ordinance, rule, regulation or arbitration award applicable to
the Company or any of its subsidiaries or their respective properties or
assets, other than, in the case of clauses (ii) and (iii) above, any such
conflicts, breaches, violations, defaults, rights, losses or Liens that
individually or in the aggregate would not have a Material Adverse Effect
with respect to the Company. No consent, approval, order or authorization
of, or registration, declaration or filing with, or notice to, any Federal,
national, state or local government or any court, administrative agency or
commission or other governmental authority or agency, domestic or foreign (a
"Governmental Entity"), is required by or with respect to the Company or any
of its Significant Subsidiaries in connection with the execution and
delivery of this Agreement or the Conditional Purchase/Stock Option
Agreement by the Company or the consummation by the Company of the
transactions contemplated hereby or thereby, except for (i) the filing of a
premerger notification and report form by the Company under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act") and the applicable requirements, if any, of any relevant foreign
jurisdictions, (ii) the filing with the SEC of (x) the Offer Documents and
the Schedule 14D-9, (y) the Proxy Statement and (z) such reports under the
Exchange Act as may be required by law in connection with this Agreement,
the Conditional Purchase/Stock Option Agreement and the transactions
contemplated hereby or thereby, (iii) the filing of the Certificate of
Merger with the Secretary of State of the State of New Jersey and
appropriate documents with the relevant authorities of other states in which
the Company is qualified to do business, (iv) filings, consents and
approvals under Environmental Laws (as defined herein) of jurisdictions in
which the Company transacts business, (v) such reports or filings under the
securities laws of the various states or the securities laws of non-U.S.
jurisdictions in connection with the Offer and the Merger as may be required
by law in connection with this Agreement, the Conditional Purchase/Stock
Option Agreement and the transactions contemplated hereby or thereby, and
(vi) such other consents, approvals, orders, authorizations, registrations,
declarations, filings or notices as are set forth in Section 4.1(d) of the
Disclosure Schedule.
(e) SEC Documents. The Company has filed all required reports,
schedules, forms, statements and other documents with the SEC since January
1, 1990, and the Company has delivered or made available to Purchaser all
reports, schedules, forms, statements and other documents filed with the SEC
since such date (collectively, and in each case including all exhibits and
schedules thereto and documents incorporated by reference therein, the "SEC
Documents"). As of their respective dates, the SEC Documents complied in all
material respects with the requirements of the Securities Act or the
Exchange Act, as the case may be, and the rules and regulations of the SEC
promulgated thereunder applicable to such SEC Documents, and none of the SEC
Documents (including any and all financial statements included therein),
except to the extent revised or superseded by a subsequent filing with the
SEC, as of such dates contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary
in order to make the statements therein, in light of the circumstances under
which they were made, not
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<PAGE>
misleading. The consolidated financial statements of the Company included in
all SEC Documents filed since January 1, 1994 (the "SEC Financial
Statements") comply as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC
with respect thereto, have been prepared in accordance with generally
accepted accounting principles (except, in the case of unaudited
consolidated quarterly statements, as permitted by Form 10-Q of the SEC)
applied on a consistent basis during the periods involved (except as may be
indicated in the notes thereto) and fairly present the consolidated
financial position of the Company and its consolidated subsidiaries as of
the dates thereof and the consolidated results of their operations and cash
flows for the periods then ended (subject, in the case of unaudited
quarterly statements, to normal year-end audit adjustments).
(f) Information Supplied. Neither the Schedule 14D-9, nor any of the
information supplied by the Company for inclusion in the Offer Documents,
shall, at the respective times such Schedule 14D-9, the Offer Documents or
any amendments or supplements thereto are filed with the SEC or are first
published, sent or given to shareholders, as the case may be, contain any
untrue statement of a material fact or omit 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 were made, not
misleading. The Proxy Statement shall not, at the date the Proxy Statement
(or any amendment thereof or supplement thereto) is first mailed to
shareholders and at the time of the Shareholders Meeting and at the
Effective Time, be false or misleading with respect to any material fact, or
omit to state any 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 or necessary to
correct any statement in any earlier communication with respect to the
solicitation of proxies for the Shareholders Meeting which has become false
or misleading. The Schedule 14D-9 and the Proxy Statement and information
statement will comply in all material respects as to form with the
requirements of the Exchange Act and the rules and regulations thereunder.
Notwithstanding the foregoing, the Company makes no representation or
warranty (i) with respect to any information supplied by Parent, the
Purchaser or Holdings or any of their representatives which is contained in
any of the Offer Documents, the Schedule 14D-9 or the Proxy Statement or
(ii) with respect to the Proxy Statement, to the extent that (A) on the date
the Proxy Statement is first mailed to shareholders, a majority of the board
of directors of the Company shall have been designated or elected by Parent
or (B) if on such date of first mailing a majority of such board shall not
have been designated or elected by Parent, between the date the Proxy
Statement is first mailed to shareholders and at the time of the
Shareholders Meeting or at the Effective Time, a majority of the board of
directors of the Company shall have been designated or elected by Parent and
subsequent to such time the Proxy Statement shall have become false or
misleading with respect to any material fact.
(g) Absence of Certain Changes or Events. Except as disclosed in the SEC
Documents or in Section 4.1(g) of the Disclosure Schedule, since the date of
the most recent audited financial statements included in such SEC Documents,
the Company has conducted its business only in the ordinary course
consistent with past practice, and there is not and has not been any change
in the business, financial condition or results of operations of the Company
or any of its subsidiaries which has had, or would reasonably be expected to
have, a Material Adverse Effect with respect to the Company.
(h) Benefit Plans. (i) Section 4.1(h) of the Disclosure Schedule
contains a true and complete list of each "employee benefit plan" (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 ERISA section 3(37)), 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, whether
or not subject to ERISA (including any funding mechanism therefor
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<PAGE>
now in effect or required in the future as a result of the transactions
contemplated by this Agreement, the Conditional Purchase/Stock Option
Agreement or otherwise), under which any employee or former employee of the
Company or any of its affiliates has any present or future right to benefits
or under which the Company or any of its affiliates has any present or
future liability. All such plans, agreements, programs, policies and
arrangements shall be collectively referred to as the "Company Plans".
(ii) With respect to each Company Plan, the Company has delivered to
Purchaser a current, accurate and complete copy (or, to the extent no such
copy exists, an accurate description) thereof and, to the extent applicable,
any related trust agreement, annuity contract or other funding instrument;
except where the failure to deliver the documents as set forth above,
individually or in combination with the breach of any other representation
contained herein, would not reasonably be expected to have a Material
Adverse Effect.
(iii) (1) Each Company Plan has been established and administered in all
material respects in accordance with its terms, and in compliance with the
applicable provisions of ERISA, the Internal Revenue Code of 1986, as
amended (the "Code"), and other applicable laws, rules and regulations; (2)
each Company Plan which is intended to be qualified within the meaning of
Code section 401(a) is so qualified and has received a favorable
determination letter as to its qualification and nothing has occurred,
whether by action or failure to act, which would cause the loss of such
qualification.
(iv) Except to the extent that the inaccuracy of any of the following
(or the circumstances giving rise to such inaccuracy) individually or in
combination with the breach of any other representation contained herein,
would not reasonably be expected to have a Material Adverse Effect: (1) with
respect to any Company Plan, no actions, suits or claims (other than routine
claims for benefits in the ordinary course) are pending or threatened and
the Company will promptly notify Purchaser in writing of any pending or
threatened claims arising between the date hereof and the Effective Time;
(2) no event has occurred and no condition exists with respect to a Company
Plan that would subject the Company or any of its affiliates, either
directly or by reason of their affiliation with any member of their
respective Controlled Groups (defined as any organization which is a member
of a controlled group of organizations within the meaning of Code section
414(b), (c), (m) or (o)), to any tax, fine, penalty or other liability
imposed by ERISA, the Code or other applicable laws, rules and regulations;
(3) for each Company Plan with respect to which a Form 5500 has been filed,
no material change has occurred with respect to the matters covered by the
most recent Form 5500 since the date thereof; (4) except as disclosed on
Section 4.1(h) of the Disclosure Schedule, each Company Plan may be amended
or terminated without obligation or liability (other than those obligations
and liabilities for which specific assets have been set aside in a trust or
other funding vehicle or reserved for on the Company's most recent audited
financial statements included in the Recent SEC Documents); (5) no Company
Plan has incurred any "accumulated funding deficiency" as such term is
defined in ERISA section 302 and Code section 412 (whether or not waived);
(6) no event or condition exists which could be deemed a reportable event
within the meaning of ERISA section 4043 which could result in a liability
to the Company, its affiliates or any member of their respective Controlled
Groups; and (7) neither the Company, any affiliate nor any member of their
respective Controlled Groups has engaged in a transaction which could
subject any of them to liability under ERISA section 4069.
(v) With respect to any multiemployer plan (within the meaning of
section 4001(a)(3) of ERISA) to which the Company, any affiliate or any
member of their respective Controlled Groups has any liability or
contributes (or has at any time contributed or had an obligation to
contribute): (1) neither the Company, its affiliates nor any member of their
respective Controlled Groups would be subject to withdrawal liability in
excess of $15,000,000 if, as of the Effective Time, the Company, any
affiliate or any member of their respective Controlled Groups were to engage
in a complete withdrawal (as defined in ERISA section 4203) from any such
multiemployer plan;
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<PAGE>
(2) no such multiemployer plan is in reorganization or insolvent (as those
terms are defined in ERISA sections 4241 and 4245, respectively); and (3)
neither the Company, any affiliate nor any member of their respective
Controlled Groups has engaged in a transaction which could subject any of
them to liability under ERISA section 4212(c) which would reasonably be
expected to have a Material Adverse Effect.
(vi) Except as set forth in Section 4.1(h)(vi) of the Disclosure
Schedule, no Company Plan exists which could result in a payment of $100,000
or more to any employee or former employee of the Company or any affiliate
of any money or other property or rights, or accelerate or provide any other
rights or benefits with a value in the aggregate of $100,000 or more to any
such employee or former employee as a result of the transactions
contemplated by this Agreement or the Conditional Purchase/Stock Option
Agreement, whether or not such payment would constitute a parachute payment
within the meaning of Code section 280G.
(i) Tax Matters. Except where the failure to do so would not have a
Material Adverse Effect on the Company, each of the Company and each of its
subsidiaries, and any consolidated, combined, unitary or aggregate group for
tax purposes of which the Company or any of its subsidiaries is or has been
a member has timely filed all material Tax Returns required to be filed by
it, has paid all Taxes shown thereon to be due and has provided adequate
reserves in its financial statements for any Taxes that have not been paid,
whether or not shown as being due on any returns. Except as set forth in
Section 4.1(i) of the Disclosure Schedule, (i) no claim for unpaid Taxes has
become a lien or encumbrance of any kind against the property of the Company
or any of its subsidiaries or is being asserted against the Company or any
of its subsidiaries, except for such claims which have become a lien or
encumbrance which would not have a Material Adverse Effect; (ii) no audit of
any Tax Return of the Company or any of its subsidiaries is being conducted
by a Tax authority, except for such audits which would not have a Material
Adverse Effect; and (iii) no extension of the statute of limitations on the
assessment of any Taxes has been granted by the Company or any of its
subsidiaries and is currently in effect, except for such extensions which
would not have a Material Adverse Effect. As used herein, "Taxes" shall mean
any taxes of any kind, including but not limited to those measured by or
referred to as income, gross receipts, sales, use, ad valorem, franchise,
profits, license, withholding, payroll, employment, excise, severance,
stamp, occupation, premium, value added, property or windfall profits taxes,
customs, duties or similar fees, assessments or charges of any kind
whatsoever, together with any interest and any penalties, additions to tax
or additional amounts imposed by any governmental authority, domestic or
foreign. Neither the Company nor any of its subsidiaries has made an
election under Section 341(f) of the Internal Revenue Code. As used herein,
"Tax Return" shall mean any return, report or statement required to be filed
with any governmental authority with respect to Taxes.
(j) Article VIII of the Company's Restated Certificate of Incorporation
and Sections 14A:10A-4 and 14A:10A-5 of the NJBCA. With respect to Article
VIII of the Charter and Sections 14A:10A-4 and 104:10A-5 of the NJBCA, the
Merger, this Agreement, the Conditional Purchase/Stock Option Agreement, the
transactions contemplated hereby or thereby and any Excepted Future
Transactions have been approved by the Board of Directors of the Company. No
other state takeover statute or similar statute or regulation of the State
of New Jersey (and, to the knowledge of the Company after due inquiry, of
any other state or jurisdiction) applies or purports to apply to the Merger,
this Agreement, the Conditional Purchase/Stock Option Agreement or any of
the other transactions contemplated hereby or thereby and no provision of
the Charter (other than with respect to the Series C Preferred Stock which
will be redeemed pursuant to Section 5.15, subject to the conditions
therein) or By-laws of the Company or any governing instruments of its
Significant Subsidiaries would, directly or indirectly, restrict or impair
the ability of Purchaser to vote, or otherwise to exercise the rights and
receive the benefits of a shareholder with respect to, securities of the
Company or any of its subsidiaries that may be acquired or controlled by
Purchaser, Parent or any subsidiary of Parent or permit any shareholder to
acquire securities of the
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<PAGE>
Company on a basis not available to Purchaser in the event that Purchaser
were to acquire securities of the Company.
(k) Environmental Matters. Except as set forth in Section 4.1(k) of the
Disclosure Schedule or except to the extent that the inaccuracy of any of
the following (or the circumstances giving rise to such inaccuracy),
individually or in the aggregate, would not have a Material Adverse Effect,
in connection with any properties or facilities currently or formerly owned,
leased or used by the Company or any of its subsidiaries and the current and
former operations of the Company or any of its subsidiaries:
(i) the Company or its subsidiaries hold, and are in compliance with
and have been in continuous compliance with for the last five (5) years,
all Environmental Permits, and are otherwise in compliance and have been
in compliance for the last five (5) years with all applicable
Environmental Laws and there is no condition that would reasonably be
expected to prevent or materially interfere with compliance by the
Company and its subsidiaries with Environmental Laws in the future;
(ii) no modification, revocation, reissuance, alteration, transfer,
or amendment of the Environmental Permits, or any review by, or approval
of, any third party of the Environmental Permits is required in
connection with the execution or delivery of this Agreement or the
Conditional Purchase/Stock Option Agreement or the consummation by the
Company of the transactions contemplated hereby or thereby or the
continuation of the business of the Company or its subsidiaries following
such consummation;
(iii) neither the Company nor any of its subsidiaries has received
any Environmental Claim, and neither the Company nor any of its
subsidiaries has knowledge of any threatened Environmental Claim;
(iv) the Company and its subsidiaries have not entered into, have not
agreed to, and are not subject to any judgment, decree, order or other
similar requirement of any governmental authority under any Environmental
Laws, including without limitation those relating to compliance with
Environmental Laws or to investigation, cleanup, remediation or removal
of Hazardous Substances;
(v) There are no (A) underground or aboveground storage tanks, (B)
polychlorinated biphenyls, (C) asbestos or asbestos-containing materials,
(D) Hazardous Materials, (E) urea-formaldehyde insulation, (F) sumps, (G)
surface impoundments, (H) landfills or (I) sewer or septic systems
currently or formerly present at or about any of the properties or
facilities currently or formerly owned, leased or otherwise used by the
Company or any of its subsidiaries, that would reasonably be expected to
give rise to liability of the Company or any of its subsidiaries under
any Environmental Laws;
(vi) Hazardous Materials have not been generated, transported,
treated, stored, disposed of, released or threatened to be released at,
on, from or under any of the properties or facilities currently or
formerly owned, leased or otherwise used by the Company or any of its
subsidiaries, in violation of, or in a manner or to a location that would
reasonably be expected to give rise to liability of the Company or any of
its subsidiaries under, any Environmental Laws.
(vii) For purposes of this Agreement, the following terms shall have
the following meanings:
"Environmental Claim" means any written notice, claim, demand,
action, suit, complaint, proceeding or other communication by any
person to the Company or any of its subsidiaries alleging liability
or potential liability (including without limitation liability or
potential liability for investigatory costs, cleanup costs,
governmental response
I-17
<PAGE>
costs, natural resource damages, property damage, personal injury,
fines or penalties) arising out of, relating to, based on or
resulting from (i) the presence, discharge, emission, release or
threatened release of any Hazardous Materials at any location, (ii)
circumstances forming the basis of any violation or alleged violation
of any Environmental Laws or Environmental Permits, or (iii)
otherwise relating to obligations or liabilities under any
Environmental Law.
"Environmental Permits" means all permits, licenses,
registrations and other governmental authorizations required under
Environmental Laws for the Company and its subsidiaries to conduct
their operations.
"Environmental Laws" means all applicable foreign, federal, state
and local statutes, rules, regulations, ordinances, orders, decrees
and common law relating in any manner to pollution or protection of
human health or the environment, to the extent and in the form that
such exist at the date hereof.
"Hazardous Materials" means all hazardous or toxic substances,
wastes, materials or chemicals, petroleum (including crude oil or any
fraction thereof) and petroleum products, asbestos and
asbestos-containing materials, pollutants, contaminants and all other
materials and substances, including but not limited to
electromagnetic fields, regulated pursuant to any Environmental Laws
or that could result in liability under any Environmental Laws.
(l) Brokers. No broker, investment banker, financial advisor or other
person, other than Lazard Freres and Co. and CS First Boston Corporation,
the fees and expenses of which will be paid by the Company (pursuant to fee
agreements, copies of which have been provided to Purchaser), is entitled to
any broker's, finder's, financial advisor's or other similar fee or
commission in connection with the transactions contemplated by this
Agreement based upon arrangements made by or on behalf of the Company.
(m) Compliance. Neither the Company nor any of its subsidiaries is in
conflict with, or in default or violation of, (i) any law, rule, regulation,
order, judgment or decree applicable to the Company or any of its
subsidiaries or by which its or any of their respective properties are bound
or affected, or (ii) 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 its or any of their
respective properties are bound or affected, except for any such conflicts,
defaults or violations which would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect.
(n) Required Company Vote. Assuming the Series B Preferred Stock is
redeemed as provided in Section 5.12 the affirmative vote of two-thirds of
the shares of the Common Stock (the "Company Shareholder Approval") is the
only vote of the holders of any class or series of the Company's securities
necessary to approve this Agreement, the Merger and the other transactions
contemplated hereby and the Conditional Purchase/Stock Option Agreement and
the transactions contemplated thereby.
(o) Rights Agreement. The Board of Directors of the Company, at a
meeting duly called and held, has resolved that the Rights shall be redeemed
immediately prior to the acceptance for payment of any of the outstanding
Shares pursuant to the Offer, provided that the Minimum Condition has been
satisfied. The Board of Directors of the Company has amended the Rights
Agreement, prior to the execution of this Agreement and the Conditional
Purchase/Stock Option Agreement, so that none of the execution or the
delivery of this Agreement or the Conditional Purchase/Stock Option
Agreement, or both such agreements taken together, or commencement of the
Offer or the acceptance of Shares for exchange pursuant to the Offer, or the
consummation of the transactions contemplated by the Conditional
Purchase/Stock Option Agreement will
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<PAGE>
(i) trigger the exercisability of the Rights (as defined in the Rights
Agreement), the separation of the Rights from the stock certificates to
which they are attached, or any other provisions of the Rights Agreement,
including causing Parent and/or Purchaser from becoming an Acquiring Person
(as defined in the Rights Agreement), the occurrence of a Distribution Date
(as defined in the Rights Agreement) or a Shares Acquisition Date (as
defined in the Rights Agreement) or (ii) trigger the right of the holders of
the common units of Borden Chemicals and Plastics Limited Partnership,
pursuant to the Second Amended and Restated Deposit Agreement dated February
16, 1993, to require the Company to purchase the common units held by them.
(p) Dividends. The Board of Directors of the Company, at a meeting duly
called and held, has resolved that, until resolved otherwise, the Company
will not declare, set aside or pay any dividends other than quarterly
dividends on the shares of Common Stock in excess of $0.01 per share.
SECTION 4.2 Representations and Warranties of Purchaser and
Parent. Purchaser and Parent represent and warrant, jointly and severally, to
the Company as follows:
(a) Organization, Standing and Corporate Power. Each of Purchaser and
Holdings has been duly incorporated, is validly existing as a corporation
and in good standing under the laws of the jurisdiction in which it is
incorporated and has the corporate power and authority to own its property
and conduct its business as now being conducted. Each of Purchaser and
Holdings is duly qualified to transact business and is in good standing as a
foreign corporation in each jurisdiction in which the conduct of its
business or its ownership or leasing of property requires such
qualification, except to the extent that the failure to be so qualified or
be in good standing would not have a Material Adverse Effect with respect to
Purchaser or Holdings. Purchaser has delivered to the Company complete and
correct copies of its Certificate of Incorporation and By-laws. Complete and
correct copies of the Restated Certificate of Incorporation, as amended, and
By-Laws of Holdings are included within the Holdings SEC Documents (as
defined herein).
(b) Subsidiaries. Purchaser has no direct or indirect subsidiaries. Each
of the Significant Subsidiaries (as defined in Rule 1-02 of Regulation S-X
of the SEC) of Holdings (which, including RJR Nabisco, Inc. ("RJRN"), R.J.
Reynolds Tobacco Company ("RJRT"), R.J. Reynolds Tobacco International, Inc.
and Nabisco, Inc. ("NI") are collectively referred to as the "Holdings
Significant Subsidiaries") has been duly incorporated, is validly existing
as a corporation in good standing under the laws of its jurisdiction of
incorporation, has the corporate power and authority to own its property and
to conduct its business and is duly qualified to transact business and is in
good standing in each jurisdiction in which the conduct of its business or
its ownership or leasing of property requires such qualification, except to
the extent that the failure to be so qualified or be in good standing would
not have a Material Adverse Effect with respect to Purchaser or Holdings.
All of the outstanding shares of capital stock of each Holdings Significant
Subsidiary have been validly issued and are fully paid and non-assessable
and all outstanding shares of capital stock of each Holdings Significant
Subsidiary owned (of record and beneficially) by Holdings, by another
Holdings Significant Subsidiary or by Holdings and another such Holdings
Significant Subsidiary are owned free and clear of all Liens, except for (i)
such rights of first refusal, claims, options, charges and encumbrances as
would not in the aggregate have a Material Adverse Effect with respect to
Holdings and (ii) for shares of capital stock of (x) RJRT and Nabisco
Brands, Inc. that are pledged pursuant to that certain RJRN Pledge Agreement
dated May 13, 1992 made by RJRN in favor of Manufacturers Hanover Trust
Company, as collateral agent, and (y) RJRN that are pledged pursuant to that
certain Parent Pledge Agreement dated as of February 2, 1989, amended and
restated December 19, 1991, between Holdings and Chemical Bank, as
collateral agent.
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(c) Capital Structure. The authorized capital stock of Holdings consists
of (i) 2,200,000,000 shares of Holdings Common Stock and (ii) 150,000,000
shares of preferred stock, par value $.01 per share. As of August 31, 1994,
there were, (i) 1,147,681,192 shares of Holdings Common Stock issued and
outstanding, (ii) 114,206,576 shares of Holdings Common Stock reserved for
issuance pursuant to Holdings stock plans, (iii) 210,000,000 shares of
Holdings Common Stock reserved for issuance upon conversion of the Series A
Conversion Preferred Stock, par value $.01 per share, of Holdings ("Holdings
Series A Stock"), (iv) 15,617,453 shares of Holdings Common Stock reserved
for issuance upon conversion of the ESOP Convertible Preferred Stock, par
value $.01 per share, of Holdings (the "Holdings ESOP Stock"), (v)
266,750,000 shares of Holdings Common Stock reserved for issuance upon
conversion of the Series C Conversion Preferred Stock, par value $.01 per
share, of Holdings (the "Holdings Series C Stock"), (vi) no shares of
Holdings Common Stock held by Holdings in its treasury or by its
subsidiaries, (vii) 52,500,000 shares of Holdings Series A Stock
outstanding, (viii) 50,000 shares of Series B Preferred Stock, par value
$.01 per share, of Holdings (the "Holdings Series B Stock") outstanding,
(ix) 15,490,964 shares of Holdings ESOP Stock outstanding and (x) 26,675,000
shares of Holdings Series C Stock outstanding. Except for the Holdings
Common Stock, the Holdings Series A Stock, the Holdings Series B Stock, the
Holdings Series C Stock and the Holdings ESOP Stock, no shares of capital
stock or other equity securities of Holdings are issued, reserved for
issuance or outstanding. All outstanding shares of capital stock of Holdings
are, and all shares which may be issued pursuant to Holdings stock plans
will be, when issued, duly authorized, validly issued, fully paid and
nonassessable and not subject to preemptive rights. There are no outstanding
bonds, debentures, notes or other indebtedness of Holdings having the right
to vote (or convertible into, or exchangeable for, securities having the
present right to vote) on any matters on which stockholders of Holdings may
vote. Except with respect to preferred stock and options pursuant to
Holdings stock plans referred to above, there are no outstanding securities,
options, warrants, calls, rights, commitments, agreements, arrangements or
undertakings of any kind to which Holdings is a party or by which it is
bound obligating Holdings to issue, deliver or sell, or cause to be issued,
delivered or sold, additional shares of capital stock or other equity or
voting securities of Holdings or obligating Holdings to issue, grant, extend
or enter into any such security, option, warrant, call, right, commitment,
agreement, arrangement or undertaking. Except with respect to certain shares
of Holdings Common Stock sold to employees of Holdings pursuant to stock
subscription agreements containing standard put and call rights upon the
occurrence of certain events, there are no outstanding contractual
obligations of Holdings to repurchase, redeem or otherwise acquire any
shares of capital stock of Holdings. The authorized capital stock of
Purchaser consists of 1000 shares of common stock, par value $.01 per share,
100 shares of which have been validly issued, are fully paid and
nonassessable and are owned by Parent, free and clear of any Lien. Each
share of Holdings Common Stock to be delivered to shareholders of the
Company pursuant to the Offer or the Merger, or to the Company pursuant to
the Conditional Purchase/Stock Option Agreement, is a "Registrable
Security," as defined in the 1990 Registration Rights Agreement or, as
applicable, the 1989 Registration Rights Agreement.
(d) Authority; Noncontravention. (i) Purchaser has the requisite
corporate power and authority, and Parent has full partnership authority, to
enter into this Agreement and the Conditional Purchase/Stock Option
Agreement and to consummate the transactions contemplated hereby and
thereby. The execution and delivery of this Agreement and the Conditional
Purchase/Stock Option Agreement by Parent and Purchaser and the consummation
by Parent and Purchaser of the transactions contemplated hereby and thereby
have been duly authorized by all necessary action, corporate or other, on
the part of Parent and Purchaser. Each of this Agreement and the Conditional
Purchase/Stock Option Agreement has been duly executed and delivered by
Purchaser and Parent and constitutes a valid and binding obligation of each
of Purchaser and Parent, enforceable against such party in accordance with
its terms subject to the effects of bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium and other similar laws
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relating to or affecting creditors' rights generally, general equitable
principles (whether considered in a proceeding in equity or at law) and an
implied covenant of good faith and fair dealing. The execution and delivery
of this Agreement and the Conditional Purchase/Stock Option Agreement do
not, and the consummation of the transactions contemplated by this Agreement
and the Conditional Purchase/Stock Option Agreement and compliance with the
provisions hereof and thereof will not, conflict with, or result in any
breach or violation of or default (with or without notice or lapse of time
or both) under, or give rise to a right of termination, cancellation or
acceleration of any obligation or a right to require the purchase or
repurchase or give rise to a loss of a material benefit under, or result in
the creation of any Lien upon, any of the properties, indebtedness or assets
of Purchaser or any of the properties, indebtedness or assets of Parent
under (i) the certificate of incorporation or by-laws of Purchaser or the
comparable governing or organizational documents of Parent, (ii) any loan or
credit agreement, note, bond, mortgage, indenture, lease or other agreement,
instrument, permit, concession, franchise or license to which Purchaser or
Parent is a party or by which any of its properties or assets is bound or
(iii) except for the governmental filings and other matters referred to in
the following sentence, any judgment, order, decree, statute, law,
ordinance, rule, regulation or arbitration award applicable to each of
Purchaser or Parent or their respective properties or assets, other than, in
the case of clauses (ii) and (iii) above, any such conflicts, breaches,
violations, defaults, rights, losses or Liens that individually or in the
aggregate would not have a Material Adverse Effect with respect to Purchaser
or Parent. No consent, approval, order or authorization of, or registration,
declaration or filing with, or notice to, any Governmental Entity is
required by or with respect to Purchaser or Parent in connection with the
execution and delivery of this Agreement or the Conditional Purchase/Stock
Option Agreement by Purchaser and Parent or the consummation by Purchaser
and Parent of the transactions contemplated hereby or thereby, except for
(i) the filing with the SEC of (x) the Offer Documents and the Schedule
14D-9, (y) the Proxy Statement and (z) such reports or filings under the
Exchange Act or under the securities laws of the various states or the
securities laws of non-U.S. jurisdictions in connection with the offer and
sale of the Holdings Common Stock as may be required by law in connection
with this Agreement, the Conditional Purchase/Stock Option Agreement and the
transactions contemplated hereby or thereby, and (ii) with respect to
Purchaser, except for (A) the filing of a premerger notification and report
form by Purchaser under the HSR Act and the applicable requirements, if any,
of any relevant foreign jurisdictions, (B) the filing of the Certificate of
Merger with the Secretary of State of the State of New Jersey, (C) filings,
consents and approvals under Environmental Laws (as defined herein) of
jurisdictions in which the Company transacts business and (D) such other
consents, approvals, orders, authorizations, registrations, declarations,
filings or notices as may be required under the "takeover" laws of the
various states.
(ii) The execution and delivery by Purchaser and Parent of this
Agreement and the Conditional Purchase/Stock Option Agreement do not, and
the consummation of the transactions contemplated by this Agreement and the
Conditional Purchase/Stock Option Agreement and compliance with the
provisions hereof and thereof will not, conflict with, or result in any
breach or violation of or default (with or without notice or lapse of time
or both) under, or give rise to a right of termination, cancellation or
acceleration of any obligation or a right to require the purchase or
repurchase or give rise to a loss of a material benefit under, or result in
the creation of any Lien upon, any of the properties, indebtedness or assets
of Holdings or any of the Holdings Significant Subsidiaries under (i) the
certificate of incorporation or by-laws of Holdings or any of the Holdings
Significant Subsidiaries, (ii) any loan or credit agreement (other than
Holdings' and RJRN's credit agreement dated as of April 5, 1993, as amended,
and Holdings' and RJRN's credit agreement dated as of December 1, 1991, as
amended), note (other than Holdings' 10 1/2% Senior Notes due 1998 and
Holdings' 13 1/2% Subordinated Debentures due 2001), bond, mortgage,
indenture, lease or other agreement, instrument, permit, concession,
franchise or license to which Holdings or any of its subsidiaries is a party
or by which any of its properties or assets is bound or
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<PAGE>
(iii) except for the governmental filings and other matters referred to in
the following sentence, any judgment, order, decree, statute, law,
ordinance, rule, regulation or arbitration award applicable to Holdings or
any of its subsidiaries or their respective properties or assets, other
than, in the case of clauses (ii) and (iii) above, any such conflicts,
breaches, violations, defaults, rights, losses or Liens that individually or
in the aggregate would not have a Material Adverse Effect with respect to
Holdings. No consent, approval, order or authorization of, or registration,
declaration or filing with, or notice to, any Governmental Entity is
required by or with respect to Holdings in connection with the execution and
delivery of this Agreement or the Conditional Purchase/Stock Option
Agreement by Purchaser and Parent or the consummation by Purchaser and
Parent of the transactions contemplated hereby or thereby, except for (i)
the filing of a premerger notification and report form by Purchaser under
the HSR Act and the applicable requirements, if any, of any relevant foreign
jurisdictions and (ii) the filing with the SEC of (x) the Form S-4, and (y)
such reports or filings under the Securities Act or Exchange Act or under
the securities laws of the various states or the securities laws of non-U.S.
jurisdictions in connection with the offer and sale of the Holdings Common
Stock as may be required by law in connection with this Agreement, the
Conditional Purchase/Stock Option Agreement and the transactions
contemplated hereby or thereby.
(e) SEC Documents. Holdings has filed all required reports, schedules,
forms, statements and other documents with the SEC since January 1, 1990,
and Purchaser has delivered or made available to the Company all reports,
schedules, forms, statements and other documents filed with the SEC since
such date (collectively, and in each case including all exhibits and
schedules thereto and documents incorporated by reference therein, the
"Holdings SEC Documents"). As of their respective dates, the Holdings SEC
Documents complied in all material respects with the requirements of the
Securities Act or the Exchange Act, as the case may be, and the rules and
regulations of the SEC promulgated thereunder applicable to such Holdings
SEC Documents, and none of the Holdings SEC Documents (including any and all
consolidated financial statements included therein), except to the extent
revised or superseded by a subsequent filing with the SEC, as of such date
contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they were
made, not misleading. The consolidated financial statements of Holdings
included in such Holdings SEC Documents comply as to form in all material
respects with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto, have been prepared in
accordance with generally accepted accounting principles (except, in the
case of unaudited consolidated quarterly statements, as permitted by Form
10-Q of the SEC) applied on a consistent basis during the periods involved
(except as may be indicated in the notes thereto) and fairly present the
consolidated financial position of Holdings and its consolidated
subsidiaries as of the dates thereof and the consolidated results of their
operations and cash flows for the periods then ended (subject, in the case
of unaudited quarterly statements, to normal year-end audit adjustments).
(f) Information Supplied. Neither the Offer Documents, nor any of the
information supplied by Parent or the Purchaser for inclusion in the
Schedule 14D-9, shall, at the respective times such Offer Documents or
Schedule 14D-9 (or any of the amendments or supplements thereto) are filed
with the SEC or are first published, sent or given to shareholders, as the
case may be, contain any untrue statement of a material fact or omit to
state any material fact required to be stated or incorporated by reference
therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. The
information supplied by Purchaser concerning Purchaser and Parent for
inclusion in the Proxy Statement shall not contain any statement which, at
such time and in light of the circumstances under which it shall be made, is
false or misleading with respect to any material fact, or shall omit to
state a material fact required to be stated therein or necessary in order to
make the statements therein not false or misleading or
I-22
<PAGE>
necessary to correct any statement in any earlier communication with respect
to the solicitation of proxies for the Shareholders Meeting which has become
false or misleading. Notwithstanding the foregoing, Purchaser makes no
representation or warranty with respect to any information supplied by the
Company or any of its representatives which is contained in any of the Offer
Documents, the Schedule 14D-9 or the Proxy Statement. The Offer Documents
and, to the extent that on the date the Proxy Statement is first mailed to
shareholders, at the time of the Shareholders Meeting or at the Effective
Time a majority of the board of directors of the Company shall have been
designated or elected by Parent, the Proxy Statement, will comply in all
material respects as to form with the requirements of the Exchange Act and
the rules and regulations thereunder.
(g) Brokers. No broker, investment banker, financial advisor or other
person, other than Morgan Stanley & Co., the fees and expenses of which will
be paid by Parent, is entitled to any broker's, finder's, financial
advisor's or other similar fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by
or on behalf of Purchaser or Parent.
(h) Interim Operations of Purchaser. Purchaser was incorporated on
September 12, 1994, has engaged in no other business activities and has
conducted its operations only as contemplated hereby.
(i) Absence of Certain Changes or Events. Except as disclosed in the
Holdings SEC Documents, since the date of the most recent audited financial
statements included in such Holdings SEC Documents, Holdings has conducted
its business only in the ordinary course consistent with past practice, and
there is not and has not been any change in the business, financial
condition or results of operations of Holdings or any of its subsidiaries
which has had, or would reasonably be expected to have, a Material Adverse
Effect with respect to Holdings.
SECTION 4.3 Representations and Warranties of Parent. Parent represents and
warrants to the Company as follows:
(a) Authority. Parent has all requisite power and authority to enter
into this Agreement and to consummate the transactions contemplated by this
Agreement. The execution and delivery of this Agreement by Parent and the
consummation by Parent of the transactions contemplated hereby have been
duly authorized by all necessary action on the part of Parent and no other
proceedings are necessary to authorize this Agreement or to consummate the
transactions so contemplated. This Agreement has been duly executed and
delivered by and constitutes a valid and binding obligation of Parent,
enforceable against Parent in accordance with its terms.
(b) Title to Holdings Common Stock. Subject to any transfer of shares to
Purchaser (or its assignee) in connection with the transactions contemplated
by this Agreement and the Conditional Purchase/Stock Option Agreement,
Parent has good and valid title to the shares of Holdings Common Stock that
will serve as the Aggregate Merger Consideration, free and clear of all
Liens. The shares of Holdings Common Stock that will serve as the aggregate
Merger Consideration have been approved for listing on the New York Stock
Exchange, Inc.
(c) Noncontravention. The execution and delivery by Parent of, and the
performance by Parent of its obligations under, this Agreement will not
contravene any provision of applicable law or the governing documents of
Parent or any agreement or other instrument, including, without limitation,
the 1990 Registration Rights Agreement or, as applicable, the 1989
Registration Rights Agreement, binding upon Parent or any of its
subsidiaries or any judgment, order or decree of any Governmental Entity
having jurisdiction over Parent or any of its subsidiaries, except for such
contravention that would not, individually, or in the aggregate, have a
Material Adverse Effect with respect to Parent.
I-23
<PAGE>
ARTICLE 5
COVENANTS
SECTION 5.1 Conduct of Business of the Company. Except as contemplated by
this Agreement, during the period from the date of this Agreement to the date on
which a majority of the board of directors of the Company shall consist of
designees or representatives of Parent, the Company and each subsidiary shall
conduct its operations according to its ordinary course of business consistent
with past practice and shall use its best efforts to preserve intact its
business organization, to keep available the services of its current officers
and employees and to preserve existing relationships with licensors, licensees,
suppliers, contractors, distributors, customers and others having business
relationships with it to the end that their goodwill and ongoing businesses
shall be unimpaired at the date on which a majority of the board of directors of
the Company shall consist of designees or representatives of Parent. Without
limiting the generality of the foregoing, and except as otherwise contemplated
by this Agreement, or as required by law or contract existing on the date
hereof, prior to the date on which a majority of the board of directors of the
Company shall consist of designees or representatives of Parent, neither the
Company nor any of its subsidiaries shall, without the prior written consent of
Parent:
(a) (x) declare, set aside or pay any dividends on, or make any other
distributions in respect of, any of its capital stock (except (A) dividends
and distributions by a direct or indirect wholly owned subsidiary of the
Company to its parent, (B) dividends and distributions in the ordinary
course of business by any other subsidiary to its parent and (C) that the
Company may continue the declaration and payment of regular quarterly cash
dividends not in excess of $0.01 per share on the shares of Company Common
Stock (with usual record and payment dates and in accordance with its past
dividend policy)), (y) split, combine or reclassify any of its capital stock
or issue or authorize the issuance of any other securities in respect of, in
lieu of or in substitution for shares of its capital stock or (z), except
for the redemption of the Rights and the Series B Preferred Stock, purchase,
redeem or otherwise acquire any shares of capital stock of the Company or
any of its subsidiaries or any other securities thereof or any rights,
warrants or options to acquire any such shares or other securities;
(b) authorize for issuance, issue, deliver, sell or agree or commit to
issue, sell or deliver (whether through the issuance or granting of options,
warrants, commitments, subscriptions, rights to purchase or otherwise),
pledge or otherwise encumber any shares of its capital stock or the capital
stock of any of its subsidiaries, any other voting securities or any
securities convertible into, or any rights, warrants or options to acquire,
any such shares, voting securities or convertible securities or any other
securities or equity equivalents (including without limitation stock
appreciation rights) (other than (x) upon exercise of options outstanding on
the date hereof, as in effect on the date hereof or as amended pursuant
hereto, (y) in connection with any employment agreements between the Company
or any of its subsidiaries and the employees thereof, as in effect on the
date hereof, and in each case subject to the provisions of Section 3.2 or
5.10 hereof, or (z) sales of capital stock of any wholly owned subsidiary of
the Company to the Company or another wholly owned subsidiary of the
Company) provided, however, and not in limitation of the foregoing, no
additional equity securities or rights to purchase equity securities will be
granted after the date hereof;
(c) except as provided in Section 3.2 or 5.10 hereof, adopt or amend any
bonus, profit sharing, compensation, severance, termination, stock option,
stock appreciation right, pension, retirement, employment or other employee
benefit agreement, trust, plan or other arrangement for the benefit or
welfare of any director, officer or, except in the ordinary course of
business consistent with past practice with respect to employees of the
Company or any of its subsidiaries increase in any manner the compensation
or fringe benefits of any director, officer or, except in the ordinary
course of business consistent with past practice with respect to employees
of the Company or any of its subsidiaries or pay any benefit not required by
any existing agreement or place any assets in any trust for the benefit of
employees or directors of the Company or any of its subsidiaries, other than
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<PAGE>
contributions to the directors trust fund created pursuant to the Advisory
Directors Plan Trust Agreement in the ordinary course of business and
consistent with past practice; provided, however, that notwithstanding the
foregoing, any amendments required to be made to the provisions of any
employee pension plan which is intended to be qualified under Section 401(a)
of the Code in order to maintain such qualified status may be made;
(d) amend its certificate of incorporation, by-laws or other comparable
charter or organizational documents or alter through merger, liquidation,
reorganization, restructuring or in any other fashion the corporate
structure or ownership of any subsidiary not constituting an inactive
subsidiary of the Company;
(e) acquire or agree to acquire (x) by merging or consolidating with, or
by purchasing a substantial portion of the stock or assets of, or by any
other manner, any business or any corporation, partnership, joint venture,
association or other business organization or division thereof or (y) any
assets that are material, individually or in the aggregate, to the Company
and its subsidiaries taken as a whole, except purchases of inventory in the
ordinary course of business consistent with past practice;
(f) sell, lease, license, mortgage or otherwise encumber or subject to
any Lien or otherwise dispose of any of its properties or assets, except
sales of (i) inventory in the ordinary course of business consistent with
past practice, (ii) properties or assets (A) with a value of less than
$10,000,000 individually but not more than $25,000,000 in the aggregate, (B)
that are currently being marketed or sold by the Company pursuant to the
Company's January 1994 restructuring plan to the extent set forth in Section
5.1(f) of the Disclosure Schedule or (C) with respect to which a definitive
agreement has been entered into by the Company prior to September 12, 1994
(provided that no material modification or amendment shall be made to any
such agreements), (iii) sales of accounts receivable in the ordinary course
of business, (iv) sales or pledges of accounts receivable, or mortgages of
other property in connection with certain financings or refinancings outside
of the United States, in an aggregate amount of such financings or
refinancings not to exceed $250 million, subject to the terms of any such
refinanced debt not becoming materially more restrictive to the Company and
the Company paying only market fees related thereto and (v) in connection
with capital expenditures permitted to be expended by the Company pursuant
to Section 5.1(h);
(g) except in the ordinary course of business consistent with past
practice and except for (i) an increase in the amount of up to $300 million
of the amount available or outstanding under the Amended and Restated Credit
Agreement dated as of August 16, 1994 between the Company and Citibank, as
amended and (ii) the refinancing of two issues of industrial revenue bonds
in an aggregate outstanding principal amount of $40,000,000, subject in the
case of (i) and (ii) to the terms of such refinanced debt instruments not
becoming materially more restrictive to the Company and the Company paying
only market fees related thereto, (y) incur any indebtedness for borrowed
money or guarantee any such indebtedness of another person (other than (A)
guarantees by the Company in favor of any of its wholly owned subsidiaries
or by any of its subsidiaries in favor of the Company or (B) guarantees of
subsidiaries or, in the ordinary course of business, 50% owned affiliates of
the Company, in an aggregate amount not exceeding $10,000,000, on market
terms (including fees)), issue or sell any debt securities or warrants or
other rights to acquire any debt securities of the Company or any of its
subsidiaries, guarantee any debt securities of another person, enter into
any "keep well" or other agreement to maintain any financial statement
condition of another person or enter into any arrangement having the
economic effect of any of the foregoing, except for short-term borrowings
incurred in the ordinary course of business consistent with past practice or
(z) make any loans, advances or capital contributions to, or investments in,
any other person, other than to the Company or any direct or indirect wholly
owned subsidiary of the Company;
I-25
<PAGE>
(h) expend funds for capital expenditures other than in accordance with
the Company's current capital expenditure plans;
(i) waive, release, grant, or transfer any rights of value or modify or
change in any material respect any existing license, lease, contract or
other document, other than in the ordinary course of business consistent
with past practice;
(j) adopt a plan of complete or partial liquidation or resolutions
providing for or authorizing such a liquidation or a dissolution, merger,
consolidation, restructuring, recapitalization or reorganization;
(k) enter into or amend any material collective bargaining agreement,
other than in the ordinary course of business;
(l) change any accounting principle used by it, unless required by the
SEC or the Financial Accounting Standards Board;
(m) make any tax election or settle or compromise any income tax
liability or file the 1994 federal income tax return prior to the last day
(including extensions) prescribed by law, in the case of any of the
foregoing, material to the business, financial condition or results of
operations of the Company and its subsidiaries taken as a whole;
(n) settle or compromise any litigation (whether or not commenced prior
to the date of this Agreement) or settle, pay or compromise any claims not
required to be paid, individually in an amount in excess of $1,000,000 and
in the aggregate in an amount in excess of $10,000,000, other than in
consultation and cooperation with Purchaser, and, with respect to any such
settlement, with the prior written consent of Purchaser;
(o) take any action which would cause any debt securities of the Company
or any of its subsidiaries to no longer be listed on any national securities
exchange or registered pursuant to Section 13 or 15(d) of the Exchange Act,
other than with respect to any such debt securities that have become due as
a result of the maturity thereof; or
(p) authorize any of, or commit or agree to take any of, the foregoing
actions.
SECTION 5.2 Conduct of Business of Purchaser. During the period from the
date of this Agreement to the Effective Time, Purchaser shall not engage in any
activities of any nature except as provided in, or in connection with the
transactions contemplated by, this Agreement.
SECTION 5.3 No Solicitation. Except with respect to divestitures in
accordance with the Company's January 1994 restructuring plan, neither the
Company nor any of is subsidiaries shall, nor shall it or any of its
subsidiaries authorize or permit any of its officers, directors or employees or
any investment banker, financial advisor, attorney, accountant or other
representative retained by it or any of its subsidiaries to, (a) solicit,
initiate, encourage (including by way of furnishing information), or take any
other action to facilitate, any inquiry or the making of any proposal which
constitutes, or may reasonably be expected to lead to, any acquisition or
purchase of a substantial amount of assets of, or any equity interest in, the
Company or any of its subsidiaries or any tender offer (including a self tender
offer) or exchange offer, merger, consolidation, business combination, sale of
substantially all assets, sale of securities, recapitalization, liquidation,
dissolution or similar transaction involving the Company or any of its
subsidiaries (other than the transactions contemplated by this Agreement or the
Conditional Purchase/Stock Option Agreement) or any other transaction the
consummation of which would or could reasonably be expected to impede, interfere
with, prevent or materially delay the Merger or the exercise of the Conditional
Purchase Right or which would or could reasonably be expected to materially
dilute the benefits to Purchaser of the transactions contemplated hereby
(collectively, "Transaction Proposals") or agree to or endorse any Transaction
Proposal or (b) enter into or participate in any discussions or negotiations
regarding any of the foregoing, or furnish to any other
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<PAGE>
person any information with respect to its business, properties or assets or any
of the foregoing, or otherwise cooperate in any way with, or assist or
participate in, facilitate or encourage, any effort or attempt by any other
person to do or seek any of the foregoing; provided, however, that the foregoing
clauses (a) and (b) shall not prohibit the Company from (i) furnishing
information pursuant to an appropriate confidentiality letter concerning the
Company and its businesses, properties or assets to a third party who has made a
Transaction Proposal, (ii) engaging in discussions or negotiations with such a
third party who has made a Transaction Proposal or (iii) following receipt of a
Transaction Proposal, taking and disclosing to its shareholders a position
contemplated by Rule 14e-2(a) under the Exchange Act or changing the
Recommendations, but in each case referred to in the foregoing clauses (i)
through (iii) only after the Board of Directors of the Company concludes in good
faith that such action is necessary or appropriate in order for the Board of
Directors of the Company to act in a manner which is consistent with its
fiduciary obligations under applicable law. If the Board of Directors of the
Company receives a Transaction Proposal, then the Company shall promptly inform
Parent of the terms and conditions of such proposal and the identity of the
person making it and shall keep Parent generally informed with reasonable
promptness of any steps it is taking pursuant to the proviso of the first
sentence with respect to such Transaction Proposal.
SECTION 5.4 Access to Information. (a) The Company shall, and shall cause
each of its subsidiaries to, afford to Purchaser and Parent and to the officers,
employees, counsel, financial advisors, environmental consultants and other
representatives of Purchaser and Parent ("Parent Representatives") reasonable
access during normal business hours during the period prior to the Effective
Time to all its properties, books, contracts, commitments, personnel and records
and, during such period, the Company shall, and shall cause each of its
subsidiaries to, furnish as promptly as practicable to Purchaser, Parent and
Parent Representatives such information concerning its business, properties,
financial conditions, operations and personnel as they may from time to time
reasonably request. Parent and Purchaser will hold, and will cause the Parent
Representatives to hold, any nonpublic information obtained from the Company in
confidence to the extent required by, and in accordance with, the provisions of
the letter dated August 1994, between Kohlberg Kravis Roberts & Co. and the
Company (the "Company Confidentiality Agreement"), provided that Parent and
Purchaser may disclose any such nonpublic information to lenders or potential
lenders who are advised of the confidentiality of such information to the extent
necessary to satisfy the condition set forth in clause (iv) of the first
paragraph of Annex A hereto. The Company and Parent hereby agree that the terms
and provisions of the Company Confidentiality Agreement, other than with respect
to the use of Evaluation Material (as defined in the Company Confidentiality
Agreement), shall be superseded by this Agreement.
(b) Parent shall use its reasonable best efforts to make available to the
Company and to the officers, employees, counsel, financial advisors and other
representatives of the Company reasonable access during normal business hours
during the period prior to the Effective Time to all the properties, books,
contracts, commitments, personnel and records of Holdings and, during such
period, Parent shall use its reasonable best efforts to furnish as promptly as
practicable to the Company such information concerning the business, properties,
financial conditions, operations and personnel of Holdings as the Company party
may from time to time reasonably request. The Company 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 Parent and Holdings in confidence to the extent
required by, and in accordance with, the provisions of the letter dated
September 11, 1994, between Holdings and the Company.
(c) No investigation pursuant to this Section 5.4 shall affect any
representations or warranties of the parties herein or the conditions to the
obligations of the parties hereto.
SECTION 5.5 Notification. Each of the Company, Parent and Purchaser will, in
the event of, or promptly after obtaining knowledge of the occurrence (or
non-occurrence) or threatened occurrence (or non-occurrence) of, any fact or
event which would cause or constitute a material breach of or failure of
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any of the representations and warranties, covenants or conditions set forth
herein or, in the case of the Company, would constitute or result in a Material
Adverse Effect, give notice thereof to each other party hereto and will use its
reasonable efforts to prevent or promptly to remedy such breach or satisfy such
conditions; provided, however, that the delivery of, or failure to deliver, any
notice pursuant to this Section 5.5 shall not limit or otherwise affect any
remedies available hereunder.
SECTION 5.6 Best Efforts. Upon the terms and subject to the conditions
herein provided, each of the parties hereto agrees (subject to the last sentence
of Section 5.9 and to Section 8.3(f)) to use its best efforts to take, or cause
to be taken, all action, and to do, or cause to be done, and to assist and
cooperate with the other parties hereto in doing all things necessary, proper or
advisable under applicable laws and regulations to ensure that the conditions
set forth in Article 6 and Annex A are satisfied and to consummate and make
effective, in the most expeditious manner practicable, the transactions
contemplated by this Agreement and the Conditional Purchase/Stock Option
Agreement, including, without limitation, using its best efforts to obtain all
necessary waivers, consents and approvals, and effecting all necessary
registrations and filings in accordance with Section 5.7. In case at any time
after the Effective Time any further action is necessary or desirable to carry
out the purposes of this Agreement, the proper officers and directors of each
party to this Agreement shall take all such necessary action. The Company and
Parent and Purchaser will execute any additional instruments necessary to
consummate the transactions contemplated hereby.
SECTION 5.7 Certain Filings, Consents and Arrangements. Parent, Purchaser
and the Company will use their best efforts and cooperate with one another (i)
in promptly determining whether any filings are required to be made or consents,
approvals, permits or authorizations are required to be obtained (or, which if
not obtained, would result in an event of default, termination or acceleration
of any agreement) under any United States or foreign law or regulation or from
any Governmental Entity or third parties, including parties to loan agreements,
in connection with the transactions contemplated by this Agreement, including
the Offer and the Merger, and the Conditional Purchase/Stock Option Agreement
and (ii) subject to the last sentence of Section 5.9 and to Section 8.3(f), in
promptly making any such filings, furnishing information required in connection
therewith and in timely seeking to obtain any such consents, approvals, permits
or authorizations.
SECTION 5.8 Public Announcements. The initial press release with respect to
the transactions contemplated hereby shall be mutually satisfactory to the
parties hereto and thereafter, except as may be required by applicable laws,
court process or by obligations pursuant to any listing agreement with a
national securities exchange, no party shall issue any press release or make any
public filings relating to the transactions contemplated by this Agreement,
including the Offer and the Merger, and the Conditional Purchase/Stock Option
Agreement, without affording the Company, on the one hand, and Parent, on the
other hand, the opportunity to review and comment upon such release or filing.
SECTION 5.9 Antitrust Filings and Divestitures. The Company and Parent
shall, as promptly as practicable, file notification and report forms under the
HSR Act with the Federal Trade Commission (the "FTC") and the Antitrust Division
of the Department of Justice (the "Antitrust Division") and make any other
necessary filings with the applicable Government Entities related to the
transactions contemplated by this Agreement, including the Offer and the Merger,
and the Conditional Purchase/Stock Option Agreement and shall use their best
efforts to respond as promptly as practicable to all inquiries received from the
FTC or the Antitrust Division or such other Governmental Entities for additional
information or documentation. Provided that following receipt of such approvals
Purchaser (or one of its affiliates) acquires at least 28,138,000 Shares
pursuant to the Offer and/or the Conditional Purchase/Stock Option Agreement,
the Company agrees to make any and all divestitures or undertakings required by
the FTC, the Antitrust Division or any other applicable Governmental Entity in
connection with the transactions contemplated by this Agreement and the
Conditional Purchase/Stock Option Agreement, which divestitures in each case
shall be reasonably acceptable to Parent and Purchaser.
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SECTION 5.10 Employee Benefits. (a) Prior to the occurrence of a "Change in
Control" as defined in the Supplemental Benefit Trust Agreement between the
Company and Wachovia Bank of North Carolina, N.A. (the "Trust Agreement"), the
Company shall take all such action as may be necessary so that no funding of the
Trust created thereunder shall occur as a result of the transactions
contemplated by this Agreement. The Trust Agreement shall be amended prior to a
Change in Control to permit the disposition of all Common Shares it holds. The
Company may amend the plans listed in Section 5.10(a) of the Disclosure Schedule
that would have been required to be funded pursuant to the terms of the Trust
Agreement in a manner which provides for a lump-sum distribution to, but does
not result in the constructive receipt of compensation by, a covered employee of
his or her deferred compensation thereunder in the event of the involuntary
termination or normal retirement (under the Employees Retirement Income Plan) of
such employee.
(b) Prior to the Effective Time, Purchaser shall not request that the
Company cancel, and the Company shall be under no obligation to cancel, the CORE
Management Arrangements. For this purpose, "CORE Management Arrangements" mean
those agreements between the Company and the executives so designated by the
Company and disclosed in Section 5.10(b) of the Disclosure Schedule which
provide for certain payments and benefits in the event of certain terminations
of employment.
(c) The Purchaser (or its affiliate) shall continue the Company's Non-Exempt
Associate Assistance Program and Exempt Associate Assistance Program, on terms
no less favorable than the terms in existence on the date hereof, for the
one-year period following the Effective Time. The Company shall maintain, for
the two-year period following the Effective Time, employee plans and programs
which are substantially similar in the aggregate to those pension and welfare
plans maintained for employees of the Company generally.
(d) Neither the Company nor any of its affiliates shall accelerate the
payment of any deferred award under any bonus plan or arrangement nor award or
pay any pro rata awards thereunder as a result, or in anticipation, of the
transactions contemplated by this Agreement; provided that the Company may pay
the 1994 annual bonuses pursuant to its Management Incentive Plan or other
similar annual bonus plan in a manner which is consistent with past practice and
the achievement of goals set forth therein.
(e) The Company shall ensure that no prohibited transaction (within the
meaning of Section 406 of ERISA or 4975 of the Code) shall occur with respect to
any Company Plan as a result of the transactions contemplated by this Agreement.
(f) With respect to any of the eleven individuals listed in Section 5.10(f)
of the Disclosure Schedule, in lieu of any other severance arrangement for such
individual, the Company shall pay such individual in the event of that
individual's termination by the Company after a "Change in Control" without
"Cause" (as those terms are defined in the Core Management Agreements referred
to in Section 5.10(b)) a cash severance amount equal to twelve months of salary.
The special severance payments set forth in this Section 5.10(f) shall no longer
be applicable when twelve (eighteen for that individual next to whose name an
asterisk appears in Section 5.10(f) of the Disclosure Schedule) months have
elapsed after the Change in Control. For any executive listed on Schedule
5.10(g), such executive's letter of employment shall be modified so that a
termination without cause prior to the second anniversary of a Change in Control
(as defined in such letters) shall include a termination by the executive due to
the occurrence of any one of the following events without his advance consent:
<TABLE>
<C> <S>
i. the executive's office is relocated to a different city;
ii. the executive's base salary is reduced or executive's bonus opportunity is
materially lower than other Company executives of comparable rank;
iii. there is a material diminution in the nature or scope of the authority or
responsibilities attached to the executive's position. A diminution in nature or
scope of authority or responsibilities will not be deemed to occur simply because
the company or business in which the executive is engaged has changed in size or
structure; or
</TABLE>
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<TABLE>
<C> <S>
iv. in the case of the executive next to whose name a double asterisk appears in Section
5.10(g) of the Disclosure Schedule, the business (either separately or as part of a
larger business unit) in which the executive is engaged is sold or otherwise
disposed of.
</TABLE>
SECTION 5.11 Indemnification and Insurance. (a) The Certificate of
Incorporation and By-laws of the Surviving Corporation shall contain provisions
identical with respect to elimination of personal liability and indemnification
to those set forth in Articles VI and VII of the Restated Certificate of
Incorporation set forth in Exhibit A hereto and Article X of the By-laws of the
Company, respectively, which provisions shall not be amended, repealed or
otherwise modified for a period of six years from the Effective Time in any
manner that would adversely affect the rights thereunder of individuals who at
the Effective Time were directors, officers, agents or employees of the Company.
(b) Surviving Corporation shall maintain in effect for six years from the
Effective Time policies of directors' and officers' liability insurance
containing terms and conditions which are not less advantageous than those
policies maintained by the Company at the date hereof, with respect to matters
occurring prior to the Effective Time, to the extent available, and having the
maximum available coverage under the current policies of directors and officers'
liability insurance; provided that the Surviving Corporation shall not be
required to spend in excess of a $3,000,000 annual premium therefor; provided
further that if the Surviving Corporation would be required to spend in excess
of a $3,000,000 premium per annum to obtain insurance having the maximum
available coverage under the current policies, the Surviving Corporation will be
required to spend $3,000,000 to maintain or procure insurance coverage pursuant
hereto, subject to availability of such (or similar) coverage.
(c) In furtherance of and not in limitation of the preceding paragraph,
Parent and Purchaser agree that the officers and directors of the Company that
are defendants in all litigation commenced by shareholders of the Company with
respect to (x) the performance of their duties as such officers and/or directors
under federal or state law (including litigation under federal and state
securities laws) and (y) Purchaser's offer or proposal to acquire the Company
including, without limitation, any and all such litigation commenced on or after
the date of the Letter Agreement (as defined herein) (the "Subject Litigation")
shall be entitled to be represented, at the reasonable expense of the Company,
in the Subject Litigation by one counsel (and New Jersey counsel if appropriate
and one local counsel in each jurisdiction in which a case is pending) each of
which such counsel shall be selected by a plurality of such director defendants;
provided that neither the Company nor the Surviving Corporation nor Parent shall
be liable for any settlement effected without its prior written consent (which
consent shall not be unreasonably withheld) and that a condition to the
indemnification payments provided in paragraph 5.11(a) shall be that such
officer/director defendant not have settled any Subject Litigation without the
consent of Parent or the Surviving Corporation; and provided further that the
Surviving Corporation and Parent shall have no obligation hereunder to any
officer/director defendant when and if a court of competent jurisdiction shall
ultimately determine, and such determination shall have become final and
non-appealable, that indemnification of such officer/director defendant in the
manner contemplated hereby is prohibited by applicable law.
SECTION 5.12 Redemption of Series B Preferred Stock. Without limiting the
conditions to the Offer set forth in Annex A hereto and provided that the
Minimum Condition is satisfied without having been waived or lowered, the
Company will, promptly after consummation of the Offer, in the manner and to the
extent permitted by the Charter, redeem all of its outstanding shares of Series
B Preferred Stock prior to any record date in connection with the Merger at the
amount provided for redemption in the Charter, and the Company agrees, subject
to first obtaining any required approvals under its debt instruments or other
agreements to which the Company is subject, promptly to commence taking all
steps necessary to effect such redemptions.
SECTION 5.13 Certain Agreements. Neither the Company nor any subsidiary will
waive any provision of any confidentiality or standstill or similar agreement to
which it is a party without the prior written consent of Parent, unless the
board of directors of the Company or such subsidiary concludes in
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good faith that waiving such provision is necessary or appropriate in order for
the Board of Directors of the Company to act in a manner which is consistent
with its fiduciary obligations under applicable law.
SECTION 5.14 Redemption of Rights. The Company will redeem all outstanding
Rights at a redemption price of one and two-thirds cents per Right effective
immediately prior to the acceptance for exchange of any Shares pursuant to the
Offer, provided that the Minimum Condition will be satisfied in the Offer. The
Company will amend the Rights Agreement in accordance with Section 4.1(o) hereof
prior to the acceptance for payment of any Shares pursuant to the Offer if the
Minimum Condition is waived to permit only such purchase of Shares. The Company
and Parent hereby agree that if the Company amends any provision of the Rights
Agreement in connection with a Transaction Proposal or with respect to any
Person (as defined in Section 7.1(f)) or if the application of the Rights
Agreement or any provision thereof is enjoined with respect to any Person or
Transaction Proposal or if the Company agrees to redeem the Rights on terms more
favorable than the terms set forth with respect to Parent and Purchaser in this
Agreement (any of such events, a "Third Party Rights Amendment") in a manner
that makes such Third Party Rights Amendment less restrictive with respect to
such Person, or in connection with such Transaction Proposal, or is otherwise
more favorable with respect to such Person, or in connection with such
Transaction Proposal, than the Rights Agreement as then in effect with respect
to Parent and Purchaser, the Company shall be deemed (if and to the extent
possible and without derogating the obligations of the Company pursuant to the
next sentence), without the necessity of any action by the Company or the Rights
Agent, to have so amended the Rights Agreement with respect to Parent and
Purchaser to the same extent or to have agreed to redeem the Rights with respect
to Parent and Purchaser on terms as favorable. The Company agrees to notify
Parent promptly of any Third Party Rights Amendment and simultaneously with the
execution of the Third Party Rights Amendment to execute a written amendment to
the Rights Agreement with respect to the foregoing.
SECTION 5.15 Affiliates and Certain Stockholders. Prior to the Closing Date,
the Company shall deliver to Parent a letter identifying all persons who are, at
the time the Merger is submitted for approval to the shareholders of the
Company, "affiliates" of the Company for purposes of Rule 145 under the
Securities Act. The Company shall use its reasonable best efforts to cause each
such person to deliver to Parent on or prior to the Closing Date a written
agreement substantially in the form attached as Exhibit B hereto. Parent shall
not be required to cause Holdings to maintain the effectiveness of the Form S-4
or any other registration statement under the Securities Act for the purposes of
resale of Holdings Common Stock by such affiliates and the certificates
representing Holdings Common Stock received by such affiliates in the Merger
shall bear a customary legend regarding applicable Securities Act restrictions
and the provisions of this Section 5.15.
SECTION 5.16 Proxy Solicitation For Shareholders' Meeting. If approval of
the Company's shareholders is required by applicable law in order to consummate
the Merger, the Company, Purchaser and Parent agree that, if the Company or
Parent is advised by its respective or joint proxy solicitors prior to the
Shareholders' Meeting that a vote in favor of the Merger is not likely to be
obtained at the Shareholders' Meeting, the Shareholders' Meeting shall, at the
request of the Independent Directors, be adjourned from time to time, provided
that in no event will the Shareholders' Meeting be required hereunder to be held
more than sixty days from the date that the Proxy Statement was first mailed to
the Company's shareholders, which sixty day period shall be extended by the
number of days, if any, that the Company or Parent is enjoined from soliciting
proxies for the Merger in connection with the Shareholders' Meeting or that the
holding of the Shareholders Meeting or the vote thereat is enjoined.
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ARTICLE 6
CONDITIONS TO CONSUMMATION OF THE MERGER
SECTION 6.1 Conditions to Each Party's Obligations to Effect the Merger. The
respective obligation of each party to effect the Merger is subject to the
satisfaction at or prior to the Effective Time of the following conditions:
(a) If required by New Jersey law or the Charter, the Company
Shareholder Approval shall have been obtained;
(b) any waiting period applicable to the Merger under the HSR Act shall
have terminated or expired;
(c) Shares shall have been purchased pursuant to the Offer;
(d) The Form S-4 shall have become effective, and any required
post-effective amendment shall have become effective, under the Securities
Act and shall not be the subject of any stop order or proceedings seeking a
stop order, and any material "blue sky" and other state securities laws
applicable to the registration of the Holdings Common Stock to be exchanged
for Common Stock shall have been complied with; and
(e) no statute, rule, regulation, executive order, decree, or injunction
shall have been enacted, entered, promulgated or enforced by any
Governmental Entity which prohibits the consummation of the Merger, whether
temporary, preliminary or permanent; provided, however, that the parties
hereto shall use their best efforts to have any such order, decree or
injunction vacated.
SECTION 6.2 Conditions to Obligation of the Company. If fewer than 66 2/3%
of the Shares outstanding on a fully diluted basis (other than dilution due to
the Rights) shall have been accepted for exchange in the Offer, the obligation
of the Company to effect the Merger is further subject to the satisfaction or
waiver at or prior to the Effective Time of the following conditions:
(a) The representation and warranty of Purchaser and Parent set forth in
Section 4.2(i) of this Agreement shall be true and correct, as of the date
of this Agreement and as of the Closing Date as though made on and as of the
Closing Date.
SECTION 6.3 Conditions to Obligations of Purchaser and Parent to Effect the
Merger. If fewer than 66 2/3% of the Shares outstanding on a fully diluted basis
(other than dilution due to the Rights) shall have been accepted for exchange in
the Offer, the obligations of Purchaser and Parent to effect the Merger are
further subject to the satisfaction or waiver at or prior to the Effective Time
of the following conditions:
(a) The representation and warranty of the Company set forth in Section
4.1(g) of this Agreement shall be true and correct, as of the date of this
Agreement and as of the Closing Date as though made on and as of the Closing
Date;
(b) The Company shall have performed in all material respects the
affirmative covenants required to be performed by it under Sections 5.1
(except to the extent the same would not cause a Material Adverse Effect
with resect to the Company), 5.9, 5.12 and 5.14 of this Agreement at or
prior to the Closing Date;
(c) The representation and warranty of the Company set forth in Section
4.1(e) of this Agreement, applied mutatis mutandis to the SEC Documents
filed by the Company with the SEC since the date of the Agreement, shall be
true and correct in all material respects as of the Closing Date as though
made on and as of the Closing Date.
Notwithstanding the foregoing, the obligations of the Company or Purchaser and
Parent to effect the Merger are not subject to the satisfaction or waiver of any
of the conditions set forth in this Section 6.2
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<PAGE>
or 6.3 to the extent that the failure of any such condition to be satisfied is
the result of any action approved by a majority of those directors of the
Company who are designees or representatives of Parent or to the extent the same
results from affirmative action taken by the Company with the knowledge of the
board of directors while a majority of the directors of the Company consists of
persons designated or elected by Parent.
ARTICLE 7
TERMINATION; AMENDMENT; WAIVER
SECTION 7.1 Termination. This Agreement may be terminated and the Merger
contemplated hereby may be abandoned at any time, notwithstanding approval
thereof by the shareholders of the Company, but prior to the Effective Time:
(a) by mutual written consent of Parent, Purchaser and the Company;
(b) by Parent or the Company, if any court of competent jurisdiction or
other governmental body located or having jurisdiction within the United
States or any country or economic region in which either the Company or
Parent, directly or indirectly, has material assets or operations, shall
have issued an order, decree or ruling or taken any other action permanently
restraining, enjoining or otherwise prohibiting the Merger and such order,
decree, ruling or other action shall have become final and nonappealable;
(c) by Parent if due to an occurrence or circumstance which would result
in a failure to satisfy any of the conditions to the Offer set forth in
Annex A hereto Purchaser shall have terminated the Offer, unless such
termination shall have been caused by or resulted from the failure of Parent
or Purchaser to perform in any material respect their material covenants and
agreements contained in this Agreement.
(d) by Parent, if the Company shall have modified or amended in any
respect materially adverse to Parent or Purchaser or withdrawn its approval
or recommendation of the Offer, the Merger or this Agreement, provided that
any communication that advises that the Company has received a Transaction
Proposal or is engaging in an activity permitted by clauses (i) or (ii) of
the proviso to the first sentence of Section 5.3 hereof with respect to a
Transaction Proposal and that takes no action or position with respect to
the Offer, the Merger, this Agreement or any Transaction Proposal shall not
be deemed to be a withdrawal, modification or amendment of the Company's
approval or recommendation of the Offer, the Merger or this Agreement and
provided, further, that a "stop-look-and-listen" communication with respect
to the Offer, the Merger or this Agreement of the nature contemplated in
Rule 14d-9(e) under the Exchange Act made by the Company as a result of a
Transaction Proposal (whether or not a tender offer), without more, shall
not be deemed to be a modification or amendment of the Company's approval or
recommendation of the Offer, the Merger or this Agreement that is materially
adverse to Parent or Purchaser, if within 10 business days after the date of
such communication the Company shall have reaffirmed its recommendation of
the Offer, the Merger and this Agreement;
(e) by Parent if the Company shall have (i) entered into any definitive
agreement to effect the transaction contemplated by a Transaction Proposal,
(ii) recommended any Transaction Proposal from a person other than Parent or
Purchaser or any of its affiliates or (iii) resolved to do any of the
foregoing;
(f) by Parent, if any corporation (including the Company or any of its
subsidiaries), partnership, person, other entity or group (as defined in
Section 13(d)(3) of the Exchange Act) other than Parent or any of its
subsidiaries (collectively, "Persons") shall have become the beneficial
owner of more than 35% of the outstanding Shares (excluding any dilution due
to the Rights)(an "Alternative Acquisition");
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(g) by the Company if (i) due to an occurrence or circumstance that
would result in a failure to satisfy any of the conditions set forth in
Annex A hereto Purchaser shall have terminated the Offer, unless such
termination shall have been caused by or resulted from the failure of the
Company to perform in any material respect its material covenants and
agreements contained in this Agreement or (ii) prior to the purchase of
Shares pursuant to the Offer, any person shall have made a bona fide
Transaction Proposal (A) that the Board of Directors of the Company
determines in its good faith judgement is more favorable to the Company's
shareholders than the Offer and the Merger and (B) as a result of which the
Board of Directors concludes in good faith that termination of this
Agreement is necessary or appropriate in order for the Board of Directors to
act in a manner which is consistent with its fiduciary obligations under
applicable law, provided that such termination under this clause (ii) shall
not be effective until payment of the full fee and expense reimbursement
required by Section 8.3(b) hereof;
(h) by Parent or the Company if, without fault of the terminating party,
the Effective Time shall not have occurred on or before June 30, 1995
(provided, that the right to terminate this Agreement under this Section
7.1(h) shall not be available to any party whose failure to fulfill any
obligation under this Agreement has been the cause of, or results in, the
failure of the Merger to have been consummated within such period);
(i) by the Company if (i) on or after December 15, 1994, the termination
date of the waiver granted to the Company of the provisions of Subsection
6.01(j)(iii) of the Credit Agreement dated as of August 16, 1994 among the
Company and the banks party thereto (the "Credit Agreement") shall not then
extend past December 15, 1994 and (ii) the Company (A) shall have received
written notice from the Administrative Agent (as defined in the Credit
Agreement) pursuant to the terms of the Credit Agreement that, as a result
of the applicability of the provisions of Subsection 6.01(j)(iii) of the
Credit Agreement, all amounts payable under the Credit Agreement and the
other Loan Documents (as defined in the Credit Agreement) shall have become
and be forthwith due and payable (and provided that this Agreement shall be
deemed to be terminated hereby without any further action by any party
immediately prior to the receipt by the Company of such notice), (B) shall
have been advised in writing by the Administrative Agent that, as a result
of the provisions of Subsection 6.01(j)(iii) of the Credit Agreement, the
Required Banks (as defined in the Credit Agreement) have requested or
consented to such action or (C) the Company shall reasonably believe either
such action referred to in (A) or (B) above to be imminent based on
communications with the Administrative Agent, any of the banks party to the
Credit Agreement or representatives thereof; or
(j) by Parent or the Company if any required approval of the
shareholders of the Company 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 shareholders or at any adjournment thereof.
SECTION 7.2 Effect of Termination. In the event of the termination and
abandonment of this Agreement pursuant to Section 7.1, this Agreement shall
forthwith become void and have no effect, without any liability on the part of
any party or its directors, officers or shareholders, other than the provisions
of this Section 7.2, Section 1.3(a), Section 2.8(c), Section 4.1(j), the last
sentences of Sections 5.4(a) and (b), Section 5.14, Section 8.1 and Section 8.3.
Nothing contained in this Section shall relieve any party from liability for any
breach of the covenants or agreements contained in this Agreement.
SECTION 7.3 Amendment. Subject to Section 1.3(c), this Agreement may be
amended or supplemented at any time before or after the date on which a majority
of the board of directors of the Company shall consist of designees or
representatives of Parent but, after such date, no amendment shall be made which
decreases or increases the Final Exchange Ratio or which adversely affects the
rights of the Company's shareholders hereunder without the approval of the
Company and such
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shareholders. This Agreement may not be amended except by an instrument in
writing signed on behalf of the parties.
SECTION 7.4 Extension; Waiver. Subject to Section 1.3(c), at any time prior
to the Effective Time, the parties may (i) extend the time for the performance
of any of the obligations or other acts of the other parties hereto, (ii) waive
any inaccuracies in the representations and warranties contained herein of the
other parties hereto or in any document, certificate or writing delivered
pursuant hereto or (iii) waive compliance by the other parties hereto with any
of the agreements or conditions contained herein. Any agreement on the part of
any party to any such extension or waiver shall be valid only if set forth in an
instrument in writing signed on behalf of such party. The failure of any party
hereto to assert any of its rights hereunder shall not constitute a waiver of
such rights.
ARTICLE 8
MISCELLANEOUS
SECTION 8.1 Non-Survival of Representations and Warranties. Except for
Section 2.8(c) and 4.1(j), the representations and warranties made herein shall
not survive beyond the Effective Time or a termination of this Agreement.
SECTION 8.2 Entire Agreement; Assignment. This Agreement and the other
agreements (other than the Letter Agreement (as defined below) which has been
superseded by this Agreement except to the extent the terms of the Letter
Agreement are expressly referred to herein) referred to herein (a) constitute
the entire agreement among the parties with respect to the subject matter hereof
and, except as provided herein, supersede all other prior agreements and
understandings, both written and oral, between the parties or any of them with
respect to the subject matter hereof and (b) shall not be assigned by operation
of law or otherwise, provided that Parent may assign its rights and obligations
or those of Purchaser, and Purchaser may assign its rights and obligations, to
Parent or to any direct or indirect wholly owned subsidiary of Parent, but no
such assignment shall relieve Parent or Purchaser, as the case may be, of its
obligations hereunder if such assignee does not perform such obligations.
SECTION 8.3 Fees and Expenses. (a) The Company shall promptly, but in no
event later than two business days following written notice thereof, together
with related bills or receipts, reimburse Parent and Purchaser for all of their
Expenses (as defined below) as incurred from time to time in an aggregate amount
of up to $15,000,000, against which aggregate amount Expenses actually
reimbursed (other than the fee in the amount of $20,000,000 (the "Initial
Advisory Fee") reimbursed by the Company upon the execution of that certain
letter agreement dated September 11, 1994 between Parent and the Company (the
"Letter Agreement")) under the Letter Agreement may be credited. For purposes of
this Section 8.3, "Expenses" shall include all out-of-pocket expenses and fees
including the fees and disbursements of counsel, financial printers, experts,
consultants and accountants, as well as all fees and expenses payable to
investment banking firms and other financial institutions and their respective
agents and counsel, whether incurred prior to, on or after the date hereof,
incurred in connection with the transactions contemplated by this Agreement, the
Letter Agreement and the Conditional Purchase/Stock Option Agreement. The
parties acknowledge that the reimbursement of the Initial Advisory Fee shall not
limit the reimbursement of any additional advisory fees paid by Parent or
Purchaser to non-affiliates of Purchaser.
(b) If (i) (x) prior to termination of this Agreement, any Person shall have
commenced, publicly proposed or communicated to the Company a Transaction
Proposal (a "Pre-Termination Transaction Proposal") (y) this Agreement is
terminated pursuant to Section 7.1 and (z) on or prior to June 30, 1996, any
Person who commenced, publicly proposed or communicated to the Company a Pre-
Termination Transaction Proposal enters into any definitive agreement to effect
the transaction
I-35
<PAGE>
contemplated by such Transaction Proposal (whether or not related to such
Pre-Termination Transaction Proposal) or effects an Alternative Acquisition; or
(ii) prior to the purchase of Shares pursuant to the Offer, this Agreement is
terminated pursuant to Section 7.1(d) (other than solely in the event that the
average of the average of the high and low sales prices of the Holdings Common
Stock as reported on the New York Stock Exchange Composite Tape for the
Valuation Period is less than the price per share that would yield an Exchange
Ratio of 2.375 or less without giving effect to the first proviso in the
definition of Exchange Ratio, provided that this exclusion shall not be given
effect so long as the second proviso in the definition of Exchange Ratio is
applicable); or (iii) prior to the purchase of Shares pursuant to the Offer,
this Agreement is terminated pursuant to Section 7.1(e), 7.1(f) or clause (ii)
of Section 7.1(g); then in each case the Company shall promptly, but in no event
later than one business day after the first of such events shall occur, pay
Kohlberg Kravis Roberts & Co. ("KKR & Co.") a fee of $30,000,000 in cash, which
amount shall be payable in same day funds. No more than $30,000,000 in aggregate
shall be payable to KKR & Co. pursuant to this Section 8.3(b), and no fee shall
be payable to KKR & Co. pursuant to this Section 8.3(b) if $30,000,000 has been
paid to KKR & Co. pursuant to Section 8.3(c).
(c) If Parent, together with any subsidiary or affiliate of Parent including
Purchaser) shall acquire beneficial ownership (in one or more transactions) of a
majority of the outstanding shares of Common Stock, then the Company shall
promptly, but in no event later than one business day after such event shall
occur, pay KKR & Co. a fee of $30,000,000 in cash, which amount shall be payable
in same day funds. No fee shall be payable to KKR & Co. pursuant to this Section
8.3(c) if $30,000,000 has been paid to KKR & Co. pursuant to Section 8.3(b).
(d) If the fee of $30,000,000 in cash required to be paid by the Company to
KKR & Co. pursuant to Section 8.3(b) or 8.3(c) hereof (the "Transaction Fee") is
not paid within five business days after the events set forth in such Sections
requiring payment of the Transaction Fee occur, KKR & Co., at its sole option,
may demand (the "Fee Demand") that the Company tender to KKR & Co., immediately
in satisfaction of the Transaction Fee, such number of shares (rounded to the
nearest whole share) of (i) Common Stock ((A) if it is publicly traded and (B)
which at the request of KKR & Co. shall be issued in shares of treasury stock,
if available) or (ii), at the sole option of KKR & Co. if the Conditional
Purchase Right shall have been exercised, and the Company shall at the time own
Holdings Common Stock that is not subject to any other call or exchange right,
Holdings Common Stock equal to (x) $30,000,000 divided by (y) the Average Market
Price. For purposes of this Section 8.3(d) "Average Market Price" shall mean the
average of the average of the high and low prices of Common Stock, or Holdings
Common Stock, as the case may be, as reported on the New York Stock Exchange
Composite Tape on each of the ten consecutive trading days immediately preceding
the second trading day prior to the Fee Demand. The Company acknowledges that it
is obligated hereunder to pay the Transaction Fee in cash and that such
obligation is not derogated in any respect by the existence of the option of KKR
& Co. to seek satisfaction of such obligation by means of the Fee Demand.
(e) In addition to the other provisions of this Section 8.3, the Company
agrees promptly, but in no event later than two business days following written
notice thereof, together with related bills or receipts, to reimburse KKR & Co.,
Parent and Purchaser for all reasonable out-of-pocket costs, fees and expenses,
including, without limitation, the reasonable fees and disbursements of counsel
and the expenses of litigation, incurred in connection with collecting Expenses
and the Transaction Fee as a result of any willful breach by the Company of its
obligations under Section 8.3.
(f) Except as otherwise provided in this Section 8.3, whether or not the
Merger is consummated, all costs and expenses incurred in connection with the
transactions contemplated by this Agreement and the Conditional Purchase/Stock
Option Agreement shall be paid by the party incurring such expenses (including,
in the case of the Company, the costs of printing the Schedule 14D-9 and any
other filings to be printed, and in each case all exhibits, amendments or
supplements thereto). Notwithstanding the foregoing, the costs and expenses of
preparing and distributing the Proxy Statement and obtaining and complying with
the antitrust requirements of any Governmental Entity shall be paid by the
Company.
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<PAGE>
SECTION 8.4 Definitions. For purposes of this Agreement:
(a) an "affiliate" of any person means another person that directly or
indirectly, through one or more intermediaries, controls, is controlled by,
or is under common control with, such first person;
(b) "Material Adverse Change" or "Material Adverse Effect" means, when
used in connection with any person, any change or effect that either
individually or in the aggregate with all other such changes or effects is
materially adverse to the business, financial condition or results of
operations of such person and its subsidiaries taken as a whole or adversely
effects the ability of such person to consummate the transactions
contemplated by this Agreement in any material respect;
(c) "person" means an individual, corporation, partnership, joint
venture, association, trust, unincorporated organization or other entity;
and
(d) a "subsidiary" of any person means another person, an amount of the
voting securities, other voting ownership or voting partnership interests of
which is sufficient to elect at least a majority of its board of directors
or other governing body (or, if there are no such voting interests, more
than 50% of the equity interests of which) are owned directly or indirectly
by such first person and includes, in addition, with respect to the Company,
BCPO and Borden Chemicals and Plastics Limited Partnership ("BCPLP").
Notwithstanding anything to the contrary contained herein, neither BCPO nor
BCPLP shall be a "subsidiary" for the purposes of Article V hereof.
SECTION 8.5 Gains and Transfer Taxes. Any liability with respect to the
transfer of the property of the Company arising out of the New York State Real
Property Gains Tax, the New York State Real Estate Transfer Tax or the New York
City Real Property Transfer Tax shall be borne by the Company and expressly
shall not be the liability of the shareholders of the Company.
SECTION 8.6 Interpretation. When a reference is made in this Agreement to a
Section, Exhibit or Schedule, such reference shall be to a Section of, or an
Exhibit or Schedule to, this Agreement unless otherwise indicated. The table of
contents and headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement. Whenever the words "include", "includes" or "including" are used in
this Agreement, they shall be deemed to be followed by the words "without
limitation".
SECTION 8.7 Parties in Interest. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto, and, with respect to the
provisions of Section 5.11 and 8.3, shall inure to the benefit of the persons or
entities benefitting from the provisions thereof who are intended to be third-
party beneficiaries thereof. Except as provided in the preceding sentence,
nothing in this Agreement, express or implied, is intended to or shall confer
upon any other person any rights, benefits or remedies of any nature whatsoever
under or by reason of this Agreement.
SECTION 8.8 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 delivery, telegram 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:
If to Parent or Purchaser:
c/o Kohlberg Kravis Roberts & Co.
9 West 57th St.
New York, New York 10019
Attention: Clifton S. Robbins
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<PAGE>
with a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
Attention: David J. Sorkin
if to the Company:
180 East Broad Street
Columbus, Ohio 43215
Attention: Frank J. Tasco
with a copy to:
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
Attention: Andrew R. Brownstein, Esq.
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.
SECTION 8.9 Non-Recourse. Notwithstanding anything that may be expressed or
implied in this Agreement, Parent covenants, agrees and acknowledges and the
Company, by its acceptance of the benefits of this Agreement, covenants, agrees
and acknowledges that notwithstanding that Parent is a partnership no recourse
under this Agreement or the Conditional Purchase/Stock Option Agreement or any
documents or instruments delivered in connection with this Agreement or the
Conditional Purchase/Stock Option Agreement shall be had against any officer,
agent or employee of Parent or against any partner of Parent or any director,
officer, employee, partner, affiliate or assignee of any of the foregoing,
whether by the enforcement of any assessment or by any legal or equitable
proceeding, or by virtue of any statute, regulation or other applicable law, it
being expressly agreed and acknowledged that no personal liability whatsoever
shall attach to, be imposed on or otherwise be incurred by an officer, agent or
employee of Parent or any partner of Parent or any director, officer, employee,
partner, affiliate or assignee of any of the foregoing, as such for any
obligations of Parent under the Agreement or any documents or instruments
delivered in connection with this Agreement or the Conditional Purchase/Stock
Option Agreement or for any claim based on, in respect of or by reason of such
obligations or their creation; provided, however, that the foregoing limitation
of liability shall in no way constitute a limitation on the rights of the
Company to enforce any remedies it may have against the undistributed assets of
Parent for the collection of any obligations or liabilities in connection with
this Agreement or the Conditional Purchase/Stock Option Agreement.
SECTION 8.10 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New Jersey, regardless of
the laws that might otherwise govern under applicable principles of conflicts of
laws thereof.
SECTION 8.11 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 in any court of the United States
located in the State of New Jersey or the City of New York, this being in
addition to any other remedy to which they are entitled at law or in equity. In
addition, each of the parties hereto (a) consents to submit itself to the
personal jurisdiction of (i) the United States District Court for the District
of New Jersey and the United States District Court for the Southern District of
New York in the event any dispute arises out of this Agreement or any of the
transactions contemplated by this Agreement to the extent such courts would have
subject matter
I-38
<PAGE>
jurisdiction with respect to such dispute and (ii) the courts of the State of
New Jersey and the State of New York otherwise, (b) agrees that it will not
attempt to deny or defeat such personal jurisdiction or venue by motion or other
request for leave from any such court and (c) agrees that it will not bring any
action relating to this Agreement or any of the transactions contemplated by
this Agreement in any court other than such courts sitting in the State of New
Jersey or the State of New York.
SECTION 8.12 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.
SECTION 8.13 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.
SECTION 8.14 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.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed on its behalf by its officers thereunto duly authorized, all as of the
day and year first above written.
WHITEHALL ASSOCIATES, L.P.
By: KKR Associates, a limited
partnership, its General Partner
By /s/ HENRY KRAVIS
...................................
Title: General Partner
BORDEN ACQUISITION CORP.
By /s/ CLIFTON S. ROBBINS
...................................
Name: Clifton S. Robbins
Title: President
BORDEN, INC.
By /s/ ALLAN L. MILLER
...................................
Name: Allan L. Miller
Title: Senior Vice President, Chief
Administrative Officer and General
Counsel
I-39
<PAGE>
ANNEX A
The capitalized terms used herein have the meanings set forth in the
Agreement and Plan of Merger (the "Agreement") to which this Annex A is
attached.
CONDITIONS OF THE OFFER
Notwithstanding any other provision of the Offer, Purchaser shall not be
required to accept for exchange, exchange or deliver any shares of Holdings
Common Stock for, subject to Rule 14e-1(c) under the Exchange Act, any Shares
tendered and may terminate or (subject to the terms of the Merger Agreement)
amend the Offer or may postpone the acceptance for exchange of the Shares
tendered, if immediately before acceptance for exchange of any such Shares
(whether or not any Shares have theretofore been accepted for exchange pursuant
to the Offer): (i) there shall not have been validly tendered and not properly
withdrawn pursuant to the Offer a number of Shares which, when added to any
Shares previously acquired by Parent or Purchaser (other than pursuant to the
Conditional Purchase Right) represent more than 41% of the Shares outstanding on
a fully diluted basis (other than dilution due to the Rights) (the "Minimum
Condition"); (ii) any waiting period under the HSR Act applicable to the
purchase of Shares pursuant to the Offer shall not have expired or been
terminated or the requisite approvals, authorizations or consents required by
the Investment Canada Act, Canada's Competition Act and the European Community
shall not have been obtained; (iii) the obtaining of all consents and waivers on
terms satisfactory to Parent necessary in order that the consummation of the
transactions contemplated by the Agreement and the Conditional Purchase/Stock
Option Agreement not constitute (A) an event of default or an event which with
or without notice or the passage of time would constitute an event of default
under any indebtedness, partnership agreement or equityholders agreement of the
Company or any subsidiary (or Borden Chemicals and Plastics Limited Partnership,
Borden Chemicals and Plastics Operating Limited Partnership and T.M. Investors
Limited Partnership) ("Indebtedness"), including, without limitation, the
Company's Amended and Restated Credit Agreement dated as of August 16, 1994 with
Citibank, N.A. as Administrative Agent and T.M. Investors Limited Partnership's
Amended and Restated Credit Agreement dated as of August 16, 1994 with Citibank,
N.A. as Administrative Agent, or (B) an event which would individually or in
combination with other events give rise to an obligation on the part of the
Company to repay or repurchase any Indebtedness, partnership interest or equity
interest, which event of default or other event described in clause (A) or (B)
above would give rise to, with or without notice or the passage of time and
taking into account any cross-acceleration or cross-default provisions, the
obligation to repay prior to maturity or the acceleration of an aggregate of at
least $25 million of Indebtedness or other obligations; (iv) the Company shall
not have refinanced, or received commitments for refinancing or indications
satisfactory to Parent from lenders that it will be able to refinance, in each
case on market terms reasonably acceptable to Parent, the principal bank credit
facilities of the Company and TMI, provided that such refinancing shall not be
required to increase the available lines of credit under such facilities except
to meet the working capital and other reasonable needs of the Company and its
subsidiaries and shall principally be related to extending maturities and
renegotiating repayment schedules under such facilities as appropriate to meet
the business plan as determined by Parent and the Company; (v) the Form S-4 and
any required post-effective amendment shall not have become effective, under the
Securities Act and shall be the subject of any stop order or proceedings seeking
a stop order, and any material "blue sky" and other state securities laws
applicable to the registration of the Holdings Common Stock to be exchanged for
Common Stock shall not have been complied with; or (vi) any of the following
shall occur and remain in effect and shall, in the reasonable judgment of
Purchaser in any such case, make it inadvisable to proceed with the Offer or
such acceptance for exchange of any of the Shares or to proceed with the Merger:
A-1
<PAGE>
(a) (i) any representation or warranty of the Company in the Agreement
shall have been untrue as of the date of the Agreement and shall continue to
be untrue, which untrue representations or warranties, in the aggregate,
would have a Material Adverse Effect on the Company; or there has been a
breach by the Company of any covenant or agreement set forth in the
Agreement or the Conditional Purchase/Stock Option Agreement having a
Material Adverse Effect on the Company which has not been cured; (ii) the
SEC Documents filed by the Company with the SEC since the date of the
Agreement did not comply in all material respects with the requirements of
the Securities Act or the Exchange Act, as the case may be, and the rules
and regulations of the SEC promulgated thereunder applicable to such SEC
Documents, and the SEC Documents (including any and all financial statements
included therein), except to the extent revised or superseded by a
subsequent filing with the SEC, as of such dates contained any untrue
statement of a material fact or omitted to state a material fact required to
be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading; or
(iii) the consolidated financial statements of the Company included in the
SEC Documents filed since the date of the Agreement did not comply as to
form in all material respects with applicable accounting requirements and
the published rules and regulations of the SEC with respect thereto, were
not prepared in accordance with generally accepted accounting principles
(except, in the case of unaudited consolidated quarterly statements, as
permitted by Form 10-Q of the SEC) applied on a consistent basis during the
periods involved (except as may be indicated in the notes thereto) and did
not fairly present the consolidated financial position of the Company and
its consolidated subsidiaries as of the dates thereof and the consolidated
results of their operations and cash flows for the periods then ended
(subject, in the case of unaudited quarterly statements, to normal year-end
audit adjustments).
(b) there shall be any United states or foreign statute, rule,
regulation, decree, order or injunction promulgated, enacted, entered into
or enforced by any Governmental Entity, that (i) restrains or prohibits the
making or consummation of the Offer or the Merger or restrains or prohibits
the performance of this Agreement or the Conditional Purchase/Stock Option
Agreement, (ii) prohibits or materially limits the ownership or operation by
Parent or Purchaser of all or any substantial portion of the business or
assets of the Company or any of its subsidiaries or compels Parent or
Purchaser to dispose of or to hold separate all or any substantial portion
of the business or assets of the Company or any of its subsidiaries, or
imposes any material limitation on the ability of Parent or Purchaser to
conduct such business or own such assets or (iii) imposes material
limitations on the ability of Parent or Purchaser (or any other affiliate of
Parent or Purchaser) to acquire or hold or to exercise full rights of
ownership of the Shares, including, but not limited to, the right to vote
the Shares purchased by Purchaser on all matters properly presented to the
shareholders of the Company; provided, however, that Parent and Purchaser
shall have used their best efforts to have any such decree, order or
injunction vacated or reversed;
(c) any change shall have occurred since the date hereof in the
business, financial condition or results of operations of the Company or any
of its subsidiaries which has had, or would reasonably be expected to have,
a Material Adverse Effect with respect to the Company, including, without
limitation, the commencement in respect of, or by, the Company of an
involuntary, or voluntary, proceeding under any applicable bankruptcy law,
decree, order or any other case or proceeding adjudging the Company a
bankrupt or insolvent, or the condition of the Company is such that it is
unable to pay all of its liabilities as such liabilities mature or has
unreasonably small capital for conducting the business theretofore or
proposed to be conducted by it;
(d) there shall have occurred (and the adverse effect of such occurrence
shall, in the reasonable judgment of Purchaser, be continuing) (i) any
general suspension of trading in, or limitation on prices for, securities on
any national securities exchange or in the over-the-counter market in the
United States, (ii) any extraordinary or material adverse change in United
States financial markets generally, including, without limitation, a decline
of at least 25% in either the
A-2
<PAGE>
Dow Jones Average of Industrial Stocks or the Standard & Poor's 500 index
from the date hereof, (iii) a declaration of a banking moratorium or any
suspension of payments in respect of banks in the United States, (iv) any
limitation (whether or not mandatory) by any Governmental Entity, on, or any
other event that would reasonably be expected to materially adversely
affect, the extension of credit by banks or other lending institutions, (v)
a commencement of a war or armed hostilities or other national or
international calamity directly or indirectly involving the United States
(other than in Haiti) which would reasonably be expected to have a Material
Adverse Effect or materially adversely affect (or materially delay) the
consummation of the Offer or (vi) in the case of any of the foregoing
existing at the time of commencement of the Offer, a material acceleration
or worsening thereof;
(e) the Agreement shall have been terminated in accordance with its
terms or the Offer shall have been amended or terminated with the consent of
the Company.
The foregoing conditions are for the sole benefit of the Parent and
Purchaser and may be asserted by the Parent or Purchaser regardless of the
circumstances giving rise to any such condition and may be waived by the Parent
or Purchaser in whole or in part, provided however, that if Purchaser shall have
exercised the Conditional Purchase Right in whole or in part prior to the
termination of the Offer Purchaser shall not be permitted to waive the Minimum
Condition. The Parent's or Purchaser's failure at any time to exercise any of
the foregoing rights shall not be deemed a waiver of any such right and each
such right shall be deemed an ongoing right which may be asserted at any time
and from time to time.
A-3
<PAGE>
EXHIBIT A
RESTATED CERTIFICATE OF INCORPORATION
OF
BORDEN, INC.
PURSUANT TO N.J.S. 14A:9-5(4)
DATED: , 1995
THE UNDERSIGNED corporation certifies that it has adopted the following
restated certificate of incorporation:
ARTICLE I
CORPORATE NAME
The name of the corporation is Borden, Inc.
ARTICLE II
PURPOSE
The purpose for which this corporation is organized is to engage in any
activity within the purposes for which corporations may be organized under the
New Jersey Business Corporation Act.
ARTICLE III
CAPITAL STOCK
1. AUTHORIZED SHARES
The corporation is authorized to issue 400,000,000 shares, divided into:
(a) 300,000,000 shares of common stock, par value $0.01 per share; and
(b) 100,000,000 shares of preferred stock.
The board is authorized to amend the certificate of incorporation to divide
the preferred shares into one or more series and to determine the designation,
the number, and the relative rights, preferences and limitations of the shares
of each series so created.
For purposes of illustration only, the foregoing power of the board includes
but is not limited to the determination of:
(i) The number of shares constituting each series;
(ii) The rate and times at which, and the terms and conditions on which,
dividends on shares of a series will be paid, and whether the dividends are
cumulative or non-cumulative or are participating or non-participating;
(iii) The voting rights of the holders of shares of the series,
including whether the shares shall have no voting rights, or multiple, full,
limited or special voting rights;
(iv) The right, if any, of the holders of shares of the series to
convert their shares into, or exchange them for, shares of other classes or
series of stock of the corporation, and the terms and
<PAGE>
conditions of the conversion or exchange, including provisions for
adjustment of the conversion price or rate in such events as the board shall
determine;
(v) The right, if any, of the corporation or the holders of the shares
to cause the shares of the series to be redeemed, the redemption price or
prices and the time or times at which, and the terms and conditions on
which, shares of the series may be redeemed, and whether the shares shall be
redeemed in exchange for cash or other property, or a combination thereof;
(vi) The rights of the holders of shares of the series upon the
voluntary or involuntary dissolution, liquidation or winding-up of the
corporation and whether those rights are limited or participating; and
(vii) The obligation, if any, of the corporation to establish a sinking
fund for the purchase or redemption of the shares of the series, the amounts
and time of payments to that fund, and the other terms and conditions of
that fund.
2. PRE-EMPTIVE RIGHTS
The shareholders of the corporation shall not have pre-emptive rights.
3. SHAREHOLDER VOTE REQUIRED
The affirmative vote of a majority of votes cast by the shareholders shall
be required to authorize or approve any action or matter to be voted upon by the
shareholders, except that directors shall be elected as provided by law.
ARTICLE IV
REGISTERED OFFICE AND AGENT
The address of the corporation's current registered office is 65 Livingston
Avenue, Roseland, New Jersey 07068; the name of the corporation's current
registered agent at that address is John R. MacKay 2nd.
ARTICLE V
CURRENT BOARD OF DIRECTORS
The current board of directors consists of persons whose name and
addresses are as follows:
[To be completed with then current board members.]
ARTICLE VI
INDEMNIFICATION
Every person who is or was a director or an officer of the corporation shall
be indemnified by the corporation to the fullest extent allowed by law,
including the indemnification permitted by N.J.S. 14A:3-5(8), against all
liabilities and expenses imposed upon or incurred by that person in connection
with any proceeding in which that person may be made, or threatened to be made,
a party, or in which that person may become involved by reason of that person
being or having been a director or an officer of or of serving or having served
in any capacity with any other enterprise at the request of the corporation,
whether or not that person is a director or an officer or continues to serve the
other enterprise at the time the liabilities or expenses are imposed or
incurred. During the pendency of any such proceeding, the corporation shall, to
the fullest extent permitted by law, promptly advance expenses that are
incurred, from time to time, by a director or an officer in connection with the
proceeding, subject to the receipt by the corporation of an undertaking as
required by law.
2
<PAGE>
ARTICLE VII
PERSONAL LIABILITY OF DIRECTORS OR OFFICERS
A director or officer of the corporation shall not be personally liable to
the corporation or its shareholders for the breach of any duty owed to the
corporation or its shareholders except to the extent that an exemption from
personal liability is not permitted by the New Jersey Business Corporation Act.
IN WITNESS WHEREOF, the undersigned corporation has caused this certificate
to be executed on its behalf by its duly authorized officer as of the date first
above written.
BORDEN, INC.
BY:___________________________________________
NAME:
TITLE:
3
<PAGE>
EXHIBIT B
[Closing Date]
RJR Nabisco Holdings Corp.
1301 Avenue of the Americas
New York, New York 10019
Gentlemen:
I have been advised that I have been identified as a possible "affiliate" of
Borden, Inc., a New Jersey corporation (the "Company"), as that term is defined
for purposes of paragraphs (c) and (d) of Rule 145 of the General Rules and
Regulations (the "Rules and Regulations") of the Securities and Exchange
Commission (the "Commission") under the Securities Act of 1933 (the "Securities
Act"), although nothing contained herein should be construed as an admission of
such fact.
Pursuant to the terms of an Agreement and Plan of Merger dated as of
September 23, 1994 (the "Merger Agreement") among Borden Acquisition Corp., a
New Jersey corporation ("Purchaser"), Whitehall Associates, L.P., a Delaware
limited partnership, and the Company, Purchaser will be merged with and into the
Company (the "Merger"). As a result of the Merger, I will receive Merger
Consideration (as defined in the Merger Agreement), including shares of common
stock, par value $.01 per share ("Holdings Common Stock"), of RJR Nabisco
Holdings Corp., a Delaware corporation ("Holdings") in exchange for shares of
common stock, par value $.625 per share ("Common Stock"), of the Company owned
by me at the effective time of the Merger as determined pursuant to the Merger
Agreement.
A. In connection therewith, I represent, warrant and agree that:
1. I shall not make any sale, transfer or other disposition of the
Holdings Common Stock I receive as a result of the Merger in violation of
the Securities Act or the Rules and Regulations.
2. I have been advised that the issuance of Holdings Common Stock to me
as a result of the Merger has been registered with the Commission under the
Securities Act on a Registration Statement on Form S-4. However, I have also
been advised that, because at the time the Merger was submitted for a vote
of the stockholders of the Company I may have been an "affiliate" of the
Company and the distribution by me of the shares of Holdings Common Stock I
receive as a result of the Merger has not been registered under the
Securities Act, such shares must be held by me indefinitely unless (i) such
distribution of such shares has been registered under the Securities Act,
(ii) a sale of such shares is made in conformity with the provisions of Rule
145 promulgated by the Commission under the Securities Act or (iii) such
sale is pursuant to a transaction which, in the opinion of counsel
reasonably satisfactory to Holdings or as described in a "no-action" or
interpretive letter from the staff of the Commission, is not required to be
registered under the Securities Act.
3. I have carefully read this letter and the Merger Agreement and have
discussed the requirements of the Merger Agreement and other limitations
upon the sale, transfer or other disposition of the shares of Holdings
Common Stock to be received by me, to the extent I have felt necessary, with
my counsel or with counsel for the Company.
B. Furthermore, in connection with the matters set forth herein, I
understand and agree that:
1. Holdings is under no further obligation to register the sale,
transfer or other disposition of the shares of Holdings Common Stock
received by me as a result of the Merger or to take any other action
necessary in order to make compliance with an exemption from registration
available, except as set forth in paragraph C below.
2. Stop transfer instructions will be given to the transfer agents of
Holdings with respect to the shares of Holdings Common Stock I will receive
as a result of the merger, and there will be placed on the certificates
representing such shares, or any certificates delivered in substitution
therefor, a legend stating in substance:
<PAGE>
"The shares represented by this certificate were issued in
a transaction to which Rule 145 under the Securities Act
of 1933 applies. The shares represented by this
certificate may be transferred only in accordance with the
terms of an agreement dated , 1994 between the
registered holder hereof and RJR Nabisco Holdings Corp., a
copy of which agreement is on file at the principal
offices of RJR Nabisco Holdings Corp."
3. Unless the transfer by me of my shares of Holdings Common Stock is a
sale made in conformity with the provisions of Rule 145 of the Rules and
Regulations or made pursuant to a registration under the Securities Act,
Holdings reserves the right to put the following legend on the certificates
issued to my transferee:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933 and were
acquired by the holder not with a view to, or for resale
in connection with, any distribution thereof within the
meaning of the Securities Act of 1933 and may not be sold,
pledged or otherwise transferred except pursuant to a
registration statement or in accordance with an exemption
from the registration requirements of the Securities Act
of 1933."
It is understood and agreed that the legends set forth above shall be
removed and substitute certificates shall be delivered without any such legend
and the transfer agents will be instructed to effectuate transfers of shares of
Holdings Common Stock if the undersigned delivers to Holdings a letter from the
staff of the Commission or an opinion of counsel in form and substance
reasonably satisfactory to Holdings to the effect that such legend is not
required for the purposes of the Securities Act.
C. Holdings hereby represents, warrants and agrees that:
For as long as resales of any shares of Holdings Common Stock owned by
me are subject to Rule 145, Holdings will use all reasonable efforts to make
all filings of the nature specified in paragraph (c)(1) of Rule 144 of the
Rules and Regulations.
Very truly yours,
2
<PAGE>
ANNEX II
[LAZARD FRERES & CO. LETTERHEAD]
September 22, 1994
The Board of Directors
Borden, Inc.
180 East Broad Street
Columbus, OH 43215
Dear Members of the Board:
You have requested our opinion as to the fairness, from a financial point of
view, to the holders of shares of Common Stock, par value $.625 per share
("Company Common Stock"), of Borden, Inc. (the "Company") of the consideration
to be received in a series of transactions (collectively, the "Transactions")
pursuant to the Agreement and Plan of Merger, to be entered into among the
Company, Whitehall Associates, L.P. ("WA") and Borden Acquisition Corp. ("Merger
Co."), a draft of which, dated September 19, 1994 (the "Merger Agreement"), has
been furnished to us. The terms of the Merger Agreement provide, among other
things, that (i) WA promptly will offer to exchange (the "Exchange Offer"), for
each outstanding share of Company Common Stock, a number (the "Applicable
Number") of shares of common stock, par value $.01 per share ("RJR Common
Stock"), of RJR Nabisco Holdings Corp. ("RJR"), having a trading value (as
determined in the Merger Agreement) equal to $14.25; provided that the
Applicable Number may not be less than 1.78125 nor exceed 2.375, and (ii)
following the consummation of the Exchange Offer, subject to, among other
things, WA having obtained the favorable vote of holders of at least 66 2/3% of
the outstanding shares of Company Common Stock, Merger Co. will merge with and
into the Company, and each of the remaining outstanding shares of Company Common
Stock (other than shares owned by the Company as treasury stock or owned by WA,
Merger Co. or any other subsidiary of WA) will be converted into the right to
receive the Applicable Number of shares of RJR Common Stock.
In connection with the rendering of this opinion, we have:
(i) Reviewed the terms and conditions of the Merger Agreement and the
financial terms of the Transactions as set forth therein, and the
Conditional Purchase/Stock Option Agreement, to be entered into among the
Company, WA and Merger Co., a draft of which, dated September 19, 1994 (the
"Option Agreement"), has been furnished to us;
(ii) Analyzed certain historical business and financial information
relating to the Company and RJR, including the Annual Reports to
Stockholders and Annual Reports on Forms 10-K of each of the Company and RJR
for each of the fiscal years ended December 31, 1991 through 1993, and the
Quarterly Reports on Forms 10-Q of each of the Company and RJR for the
quarters ended March 31, 1994 and June 30, 1994;
(iii) Reviewed certain financial forecasts and other data provided to us
by the Company and each of RJR and WA relating to the businesses of the
Company and RJR, respectively, including the most recent business plan for
the Company prepared by the Company's senior management, in the form
furnished to us;
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(iv) Conducted discussions with members of senior managements of the
Company and each of RJR and WA with respect to the businesses and prospects
of the Company and RJR, respectively, and the strategic objectives of each;
(v) Reviewed public information with respect to certain other companies
in the lines of businesses we believe to be generally comparable in whole or
in part to the businesses of the Company and RJR and reviewed the financial
terms of certain other business combinations that have recently been
effected;
(vi) Reviewed the historical stock prices and trading volumes of Company
Common Stock and RJR Common Stock; and
(vii) Conducted such other financial studies, analyses and
investigations as we deemed appropriate.
We have relied upon the accuracy and completeness of the financial and other
information concerning the Company and RJR that have been received by us and
have not assumed any responsibility for independent verification of such
information or any independent valuation or appraisal of any of the assets of
the Company or RJR nor have we been furnished with any such appraisals. With
respect to financial forecasts, we have assumed that they have been reasonably
prepared on bases reflecting the best currently available estimates and
judgements of managements of the Company and RJR as to the future financial
performance of the Company and RJR, respectively. We assume no responsibility
for and express no view as to such forecasts or the assumptions on which they
are based.
Our opinion is necessarily based on economic, monetary, market and other
conditions as in effect on, and the information made available to us as of, the
date hereof. In that regard, as you are aware, we are not in a position to make
an independent evaluation of the matters discussed below. Accordingly, for
purposes of this opinion, we have assumed, with your concurrence, that no
material adverse effect on RJR or on the trading value of RJR Common Stock will
result from (x) the proposal, enactment or adoption after the date hereof of any
laws or regulations (including the imposition of additional taxes on the
manufacture, sale or distribution of tobacco products) by any federal, state,
local or other jurisdiction or any governmental or regulatory body or agency
thereunder relating to, arising out of, or otherwise affecting the tobacco
industry, including without limitation the manufacture, sale, distribution or
use of tobacco products, or (y) any judicial or administrative proceeding
initiated or decided after the date hereof, including any civil or criminal
litigation or arbitration, relating to or arising out of or otherwise involving
or affecting RJR, the tobacco industry, or any other company engaged in said
industry, including without limitation the manufacture, sale, distribution or
use of tobacco products. We assume no responsibility for and express no view
with respect to the matters described in the previous sentence.
In rendering our opinion, we have assumed that the actual Agreement and Plan
of Merger and the actual Conditional Purchase/Stock Option Agreement, entered
into among the parties thereto, will be identical in all material respects to
the Merger Agreement and the Option Agreement, respectively, and that the
Transactions will be consummated on the terms described in the Merger Agreement,
without any waiver of any terms or conditions by the Company and that obtaining
the necessary regulatory approvals for the Transactions will not have an adverse
effect on RJR or on the trading value of RJR Common Stock. In addition, we note
that because of the large number of shares of RJR Common Stock being issued to
stockholders of the Company and other factors, such securities may trade
initially at prices below those at which they would trade on a fully distributed
basis.
We are acting as financial advisor to the Company's Board of Directors in
connection with the Transactions and will receive fees for such services, a
substantial portion of which fees are contingent upon the consummation of the
Transactions. Our firm has in the past provided and is currently providing
investment banking and financial advisory services to the Company and has
received fees for
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<PAGE>
rendering such services. Our firm has in the past also provided investment
banking and financial advisory services to RJR and affiliates of WA and has
received fees for rendering such services.
This letter and the opinion expressed herein are being delivered pursuant to
our engagement by the Company's Board of Directors. It is understood that,
except for inclusion of this letter in its entirety in a proxy statement or
exchange offer recommendation statement on Schedule 14D-9 from the Company to
holders of shares of Company Common Stock relating to the Transactions, this
letter may not be disclosed or otherwise referred to without our prior written
consent, except as may otherwise be required by law or by a court of competent
jurisdiction.
Based on and subject to the foregoing provisions of this letter, we are of
the opinion that, as of the date hereof, the consideration to be paid to the
stockholders of the Company (other than WA, Merger Co. or any other subsidiary
of WA) in the Exchange Offer and the Merger is fair to such stockholders, from a
financial point of view.
Very truly yours,
/s/ LAZARD FRERES & CO.
---------------------------------
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<PAGE>
ANNEX III
[CS FIRST BOSTON CORPORATION LETTERHEAD]
September 22, 1994
Board of Directors
Borden, Inc.
277 Park Avenue
New York, NY 10172
Gentlemen and Madame:
You have requested our opinion as to the fairness, from a financial point of
view, to the holders of Common Stock, par value $.625 per share (the "Company
Shares"), of Borden, Inc., a New Jersey corporation ("Borden" or the "Company"),
other than Kohlberg Kravis Roberts & Co. ("KKR") and its affiliates, of the
consideration to be received by Borden's stockholders pursuant to the Merger
Agreement expected to be dated as of September 22, 1994 among Borden Acquisition
Corp., a New Jersey corporation ("Acquisition"), Whitehall Associates, L.P., a
Delaware limited partnership ("Whitehall"), and the Company (the "Merger
Agreement"). The Merger Agreement provides for an exchange offer (the "Exchange
Offer") and subsequent merger (the "Merger"; the Exchange Offer and Merger,
together, the "Transaction") in which each Company Share (other than treasury
stock and shares owned by Whitehall or any of its subsidiaries) will be
exchanged for a number of shares of Common Stock, par value $.01 per share ("RN
Shares"), of RJR Nabisco Holdings Corp., a Delaware corporation ("RN"),
determined by dividing $14.25 by the average of the average of the high and low
sales prices of RN Shares as reported on the New York Stock Exchange Composite
Tape on each of the ten consecutive trading days immediately preceding the
second trading day prior to the date of expiration of the Exchange Offer, but
subject to the limitation that in no event will Borden stockholders receive more
than 2.375 RN Shares nor less than 1.78125 RN Shares for each Company Share.
In arriving at our opinion, we have reviewed, among other things, the letter
of intent dated as of September 11, 1994 between the Company and Whitehall (the
"Letter of Intent"), a draft of the Merger Agreement and a draft of the
Conditional Purchase/Stock Option Agreement expected to be dated as of September
22, 1994 by and among Whitehall, Acquisition and the Company (the "Option
Agreement"), as well as certain publicly available business and financial
information relating to each of RN and the Company. We have also reviewed
certain other information, including financial forecasts provided to us by each
of RN and the Company. We have met with RN's management and representatives of
KKR and with the Company's management to discuss the past and current operations
and financial condition and prospects of each of RN and the Company,
respectively. We have also considered certain financial and stock market data
for each of RN and the Company and we have compared that data with similar data
for other publicly held companies in businesses similar to those of RN and the
Company, respectively, and we have considered the financial terms of certain
other business combinations that have recently been effected. We also considered
such other information, financial studies, analyses and investigations and
financial, economic and market criteria that we deemed relevant.
In connection with our review, we have not assumed any responsibility for
independent verification of any of the foregoing information and have relied on
its being complete and accurate in all material respects. With respect to the
financial forecasts, we have assumed that they have been reasonably prepared on
bases reflecting the best currently available estimates and judgments of each of
RN's and
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the Company's management as to the future financial performance of RN and the
Company, respectively. We express no view as to such forecasts or the
assumptions on which they are based (which, in the case of RN, includes the
assumption that RN's tobacco business will not become subject to materially more
burdensome litigation costs or regulatory requirements) and there cannot be any
assurance that actual results of the Company or RN will not differ materially
from those reflected in the projections. We have not assumed any responsibility
for an independent evaluation or appraisal of the assets or liabilities of RN or
the Company, nor have we been furnished with any such appraisals. In rendering
our opinion, we have assumed that the execution versions of the Merger Agreement
and the Option Agreement will not differ materially from the drafts we have
reviewed, that the Transaction will be consummated on the terms described in the
Merger Agreement and the Option Agreement, without any waiver of any terms or
conditions by the Company and that obtaining the necessary regulatory approvals
for the Transaction will not have an adverse effect on RN or on the trading
value of the RN Shares.
In giving this opinion we have assumed, with your consent, that there will
not be any material adverse effect on RN or on the trading value of the RN
Shares as a result of or relating to (x) the proposal, enactment or adoption
after the date hereof of any laws or regulations (including the imposition of
additional taxes on the manufacture, sale or distribution of tobacco products)
by any federal, state, local or other jurisdiction or any governmental or
regulatory body or agency thereunder relating to, arising out of, or otherwise
affecting the tobacco industry, including without limitation the manufacture,
sale, distribution or use of tobacco products, or (y) any judicial or
administrative proceeding initiated or decided after the date hereof, including
any civil or criminal litigation or arbitration relating to or arising out of or
otherwise involving or affecting RN, the tobacco industry, or any other company
engaged in said industry, including without limitation the manufacture, sale,
distribution or use of tobacco products. We are not in a position to make an
independent evaluation of these matters and we assume no responsibility for and
express no view with respect to these matters.
Our opinion addresses only the fairness from a financial point of view of
the consideration to be received by stockholders of the Company, other than KKR
and its affiliates, in each of the Exchange Offer and the Merger. We do not
express any views on any other terms of the Transaction or any related
agreements or arrangements, including any transactions which might occur among
KKR, RN and the Company after consummation of the Exchange Offer or the Merger.
Our opinion also does not address the Company's underlying business decision to
effect the Transaction. We were not requested to, and did not, solicit third
party offers to acquire all or any part of the Company or participate in efforts
other advisors may have made to solicit alternative offers. Our opinion is
necessarily based solely upon information available to us and business, market,
economic and other conditions as they exist on, and can be evaluated as of, the
date hereof. This opinion does not represent our opinion as to what the value of
the RN Shares to be exchanged for Company Shares actually will be when the
Exchange Offer or the Merger is consummated. As a result of the limitation on
the number of RN Shares to be received as described in the first paragraph of
this letter, such actual value could be higher or lower than $14.25 per share at
such times. Because of the large aggregate amount of RN shares being issued to
stockholders of the Company and other factors, such securities may trade
initially at prices below those at which they would trade on a fully distributed
basis.
We have acted as financial advisor to the Company in connection with the
Transaction and will receive a fee for our services, a significant portion of
which is contingent upon KKR's acquisition of a majority of the outstanding
Company Shares. In the past, we have provided investment banking services for
the Company, RN and KKR for which we have received customary compensation. In
the ordinary course of our business, we actively trade the debt and equity
securities of both the Company and RN for our own account and for the accounts
of customers and, accordingly, may at any time hold a long or short position in
such securities.
It is understood that this opinion is only for the information of the Board
of Directors of the Company. However, this opinion may be included in its
entirety in any proxy statement or exchange
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<PAGE>
offer recommendation statement on Schedule 14D-9 from the Company to holders of
Company Shares. This opinion may not, however, be summarized, excerpted from or
otherwise publicly referred to without our prior written consent. In addition,
we may not be otherwise publicly referred to without our prior consent.
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the consideration to be received by the stockholders of the
Company, other than KKR and its affiliates, in each of the Exchange Offer and
the Merger is fair to such stockholders from a financial point of view.
Very truly yours,
CS FIRST BOSTON CORPORATION
by /S/ CS FIRST BOSTON CORPORATION
-----------------------------------
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the General Corporation Law of the State of Delaware (the
"Delaware Law") empowers a Delaware corporation to indemnify any person who was
or is, or is threatened to be made, a party to any threatened, pending or
completed legal action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of such
corporation), by reason of the fact that such person is or was a director,
officer, employee or agent of such corporation, or is or was serving at the
request of such corporation as a director, officer, employee or agent of another
corporation or enterprise. The indemnity may include expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such action, suit or
proceeding, provided that such person acted in good faith and in a manner he
reasonably believed to be in or not opposed to the corporation's best interests,
and, with respect to any criminal action or proceeding, had no reasonable cause
to believe his conduct was unlawful. A Delaware corporation may indemnify any
person who was or is a director, officer, employee or agent of the corporation
against expenses (including attorneys' fees) actually and reasonably incurred by
him in connection with the defense or settlement of an action by or in the right
of the corporation under the same conditions, except that no indemnification is
permitted without judicial approval if the director, officer, employee or agent
is adjudged to be liable to the corporation. Where a director, officer, employee
or agent is successful on the merits or otherwise in the defense of any action
referred to above, the corporation must indemnify him against the expenses
(including attorneys' fees) which such director, officer, employee or agent
actually and reasonably incurred in connection therewith.
In accordance with the Delaware Law, Article Sixth of the Certificate of
Incorporation of Holdings contains a provision to limit the personal liability
of the directors of Holdings for monetary damages for breach of their fiduciary
duty. This provision eliminates each director's liability to Holdings or its
stockholders for monetary damages except (i) for any breach of the director's
duty of loyalty to the Company or its stockholders, (ii) for acts or omissions
not in good faith or which involve intentional misconduct or a knowing violation
of law, (iii) under Section 174 of the Delaware Law providing for liability of
directors for unlawful payment of dividends or unlawful stock purchases or
redemptions, or (iv) for any transaction from which a director derived an
improper personal benefit. The effect of this provision is to eliminate the
personal liability of directors for monetary damages for actions involving a
breach of their fiduciary duty of care, including any such actions involving
gross negligence.
Article IV of the By-laws of Holdings provides for indemnification of any
current or former officer or director of Holdings to the full extent permitted
by applicable law.
In connection with the Exchange Offer, the Partnership has agreed to
indemnify Holdings and its directors, officers, affiliates and controlling
persons and Borden and its directors, officers, affiliates and controlling
persons from certain liabilities under the federal securities laws to the extent
they arise out of or are based upon information relating to the Partnership
furnished by the Partnership to Holdings for inclusion in the Registration
Statement or required to be included therein and omitted from the information
furnished. In addition, Borden has provided a similar indemnity to Holdings and
its directors, officers, affiliates and controlling persons and the Partnership
and its partners and affiliates and their respective directors, officers and
controlling persons with respect to information it furnishes to Holdings for
inclusion in the Registration Statement or required to be included therein and
omitted from the information furnished. Holdings has provided a similar
indemnity to the Partnership and its partners and affiliates and their
respective directors, officers and controlling persons and Borden and its
directors, officers, affiliates and controlling persons with respect to
information it furnishes for inclusion in the Registration Statement or required
to be included therein and omitted from the information furnished. See
"Summary."
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ITEM 21. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- - - ----------- -----------------------------------------------------------------
<S> <C>
**1.1 Form of Dealer Manager Agreement.
2.1 Composite conformed copy of Agreement and Plan of Merger dated as
of September 23, 1994, as amended as of November 15, 1994,
December 6, 1994 and January 4, 1995, among Borden Acquisition
Corp., Whitehall Associates, L.P. and Borden, Inc. (Included in
Annex I to the Proxy Statement/Prospectus.)
**2.2 Conditional Purchase/Stock Option Agreement dated as of September
23, 1994 by and among Whitehall Associates, L.P., Borden
Acquisition Corp. and Borden, Inc.
3.1 Amended and Restated Certificate of Incorporation of RJR Nabisco
Holdings Corp., filed October 1, 1990 (incorporated by
reference to Exhibit 3.1 to Amendment No. 4 filed on October 2,
1990, to the Registration Statement on Form S-4 of RJR Nabisco
Holdings Corp., Registration No. 33-36070, filed on July 25,
1990, as amended (the "Form S-4, Registration No. 33-36070")).
3.1(a) Certificate of Amendment to Amended and Restated Certificate of
Incorporation of RJR Nabisco Holdings Corp., filed January 29,
1991 (incorporated by reference to Exhibit 3.1(a) to Amendment
No. 3, filed on January 31, 1991, to the Registration Statement
on Form S-4 of RJR Nabisco Holdings Corp., Registration No.
33-38227).
3.1(b) Certificate of Designation of ESOP Convertible Preferred Stock,
filed April 10, 1991 (incorporated by reference to Exhibit
3.1(b) to Amendment No. 2 filed on April 11, 1991, to the
Registation Statement on Form S-1 of RJR Nabisco Holdings
Corp., Registration No. 33-39532, filed on March 20, 1991).
3.1(c) Certificate of Designation of Series A Conversion Preferred
Stock, filed November 7, 1991 (incorporated by reference to
Exhibit 3.1(c) to Amendment No. 3, filed on November 1, 1991,
to the Registration Statement on Form S-1 of RJR Nabisco
Holdings Corp., Registration No. 33-43137, filed October 2,
1991).
3.1(d) Certificate of Amendment to Amended and Restated Certificate of
Incorporation of RJR Nabisco Holdings Corp., filed December 16,
1991 (incorporated by reference to Exhibit 3.1(d) of the Annual
Report on Form 10-K of RJR Nabisco Holdings Corp., RJR Nabisco
Holdings Group, Inc., RJR Nabisco Capital Corp. and RJR
Nabisco, Inc. for the fiscal year ended December 31, 1991, File
Nos. 1-10215, 1-10214, 1-10248 and 1-6388 (the "1991 Form
10-K")).
3.1(e) Certificate of Amendment to the Amended and Restated Certificate
of Incorporation of RJR Nabisco Holdings Corp. (relating to the
authorization of the issuance of additional shares of Common
Stock) filed April 6, 1993 (incorporated by reference to
Exhibit 3.3 of the Quarterly Report on Form 10-Q of RJR Nabisco
Holdings Corp. and RJR Nabisco, Inc. for the fiscal quarter
ended March 31, 1993, filed April 30, 1993 (the "March 1993
Form 10-Q")).
3.1(f) Certificate of Designation of Series B Cumulative Preferred
Stock, filed August 16, 1993 (incorporated by reference to
Exhibit 3.1(f) of the Annual Report on Form 10-K of RJR Nabisco
Holdings Corp. and RJR Nabisco, Inc. for the fiscal year ended
December 31, 1993, File Nos. 1-10215 and 1-6388 (the "1993 Form
10-K")).
3.1(g) A composite of the Amended and Restated Certificate of
Incorporation of RJR Nabisco Holdings Corp., as amended to
August 16, 1993 (incorporated by reference to Exhibit 3.1(g) of
the 1993 Form 10-K).
3.1(h) Certificate of Designation of Series C Conversion Preferred Stock
(incorporated by reference to Exhibit 4.1(h) to the
Registration Statement on Form S-3 of RJR Nabisco Holdings
Corp., Registration No. 33-52381 filed on February 2, 1994, as
amended (the Form S-3, Registration No. 33-52381).
3.2 Amended and Restated By-laws of RJR Nabisco Holdings Corp., as
amended, effective January 20, 1994 (incorporated by reference
to Exhibit 3.2 to the 1993 Form 10-K).
4.1 Credit Agreement dated as of December 1, 1991, among RJR Nabisco
Holdings Corp., RJR Nabisco Holdings Group, Inc., RJR Nabisco
Capital Corp., RJR Nabisco, Inc. and the lending institutions
party thereto (incorporated by reference to Exhibit 4.1 of the
1991 Form 10-K) (the "Credit Agreement").
4.1(a) Amendment No. 1 to Credit Agreement, dated as of October 21, 1992
(incorporated by reference to Exhibit 4.1(a) of the Annual
Report on Form 10-K of RJR Nabisco Holdings Corp. and RJR
Nabisco, Inc. for the fiscal year ended December 31, 1992, File
Nos. 1-10215 and 1-6388).
4.1(b) Amendment No. 2 to Credit Agreement, dated as of March 4, 1993
(incorporated by reference to Exhibit 4.2 of the March 1993
Form 10-Q).
</TABLE>
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<TABLE>
<S> <C>
4.1(c) Amendment No. 3 to Credit Agreement, dated as of October 12, 1993
(incorporated by reference to Exhibit 10.1 of the Quarterly
Report on Form 10-Q of RJR Nabisco Holdings Corp. and RJR
Nabisco, Inc. for the quarter ended September 30, 1993 (the
"September 1993 Form 10-Q").
4.2 Credit Agreement dated as of April 5, 1993 among RJR Nabisco
Holdings Corp., RJR Nabisco, Inc. and the lending institutions
party thereto (incorporated by reference to Exhibit 4.3 of the
March 1993 Form 10-Q) (the "1993 Credit Agreement")
4.2(a) Amendment No. 1 to 1993 Credit Agreement, dated October 12, 1993
(incorporated by reference to Exhibit 10.1 of the September
1993 10-Q).
4.3 Indenture dated as of April 25, 1991 among RJR Nabisco Capital
Corp., RJR Nabisco Holdings Corp., RJR Nabisco Holdings Group,
Inc., RJR Nabisco, Inc. and Citibank, N.A., as Trustee,
relating to the 10 1/2% Senior Notes due 1998, including form
of securities. (incorporated by reference to Exhibit 4.5 to
Amendment No. 7 filed on August 11, 1993, to the Registration
Statement on Form S-3 of RJR Nabisco Holdings Corp.,
Registration No. 33-58930, filed March 1, 1993, as amended (the
"Form S-3, Registration No. 33-58930")).
4.3(a) First Supplemental Indenture dated as of May 18, 1992 among RJR
Nabisco, Inc., RJR Nabisco Holdings Corp., RJR Nabisco Holdings
Group, Inc. and Citibank, N.A., as Trustee, relating to the 10
1/2% Senior Notes due 1998 (incorporated by reference to
Exhibit 4.5(a) to the Form S-3, Registration No. 33-58930).
4.5 Indenture dated as of May 22, 1989 among RJR Holdings Capital
Corp., RJR Holdings Corp., RJR Holdings Group, Inc., RJR
Nabisco, Inc. and Security Pacific National Trust Company (New
York), as Trustee, relating to the 15% Payment-in-Kind
Subordinated Debentures due 2001, including form of securities
(incorporated by reference to Exhibit 4.6 to the Form S-3,
Registration No. 33-58930).
4.5(a) First Supplemental Indenture dated as of May 18, 1992 among RJR
Nabisco, Inc., RJR Nabisco Holdings Corp., RJR Nabisco Holdings
Group, Inc. and Security Pacific National Trust Company (New
York), as Trustee, relating to the 15% Payment-in-Kind
Subordinated Debentures due 2001 (incorporated by reference to
Exhibit 4.6(a) to the Form S-3, Registration No. 33-58930).
4.6 Indenture dated as of May 22, 1989 among RJR Holdings Capital
Corp., RJR Holdings Corp., RJR Holdings Group, Inc., RJR
Nabisco, Inc. and Security Pacific National Trust Company (New
York), as Trustee, relating to the Subordinated Discount
Debentures due 2001, including form of securities (incorporated
by reference to Exhibit 4.7 to the Form S-3, Registration No.
33-58930).
4.6(a) First Supplemental Indenture dated as of May 18, 1992 among RJR
Nabisco, Inc., RJR Nabisco Holdings Corp., RJR Nabisco Holdings
Group, Inc. and Security Pacific National Trust Company (New
York), as Trustee, relating to the Subordinated Discount
Debentures due 2001 (incorporated by reference to Exhibit
4.7(a) to the Form S-3, Registration No. 33-58930).
4.7 Indenture dated as of May 22, 1989 among RJR Holdings Capital
Corp., RJR Holdings Corp., RJR Holdings Group, Inc., RJR
Nabisco, Inc. and U.S. Trust Company of California, N.A., as
Trustee, relating to the 13 1/2% Subordinated Debentures due
2001, including form of securities (incorporated by reference
to Exhibit 4.8 to the Form S-3, Registration No. 33-58930).
4.7(a) First Supplemental Indenture dated as of May 18, 1992 among RJR
Nabisco, Inc., RJR Nabisco Holdings Corp., RJR Nabisco Holdings
Group, Inc. and Security Pacific National Trust Company (New
York), as trustee, relating to the 13 1/2% Subordinated
Debentures due 2001 (incorporated by reference to Exhibit
4.8(a) to the Form S-3, Registration No. 33-58930).
**5.1 Opinion of Jo-Ann Ford regarding the legality of the securities
being registered.
**5.2 Opinion of Simpson Thacher & Bartlett regarding certain United
States federal income tax consequences.
10.1 Registration Rights Agreement, dated as of February 9, 1989,
among RJR Holdings Corp., RJR Associates, L.P., KKR Partners
II, L.P., Drexel Burnham Lambert Incorporated and Merrill Lynch
& Co. (incorporated by reference to Exhibit 4.3 to the
Registration Statement on Form S-1 of RJR Holdings Corp.,
Registration No. 33-29401, filed on June 20, 1989, as amended).
10.28 Registration Rights Agreement (Common Stock), dated as of July
15, 1990, between RJR Nabisco Holdings Corp. and Whitehall
Associates, L.P. (incorporated by reference to Exhibit 4.5 to
the Form S-4, Registration No. 33-36070).
</TABLE>
II-3
<PAGE>
<TABLE>
<S> <C>
**10.50 Form of Indemnification Agreement, dated as of October 4, 1994,
among RJR Nabisco Holdings Corp., Whitehall Associates, L.P.,
Borden Acquisition Corp. and Borden, Inc.
21 Subsidiaries of the Registrant (incorporated by reference to
Exhibit 21 of the 1993 Form 10-K).
+23.1 Consent of Deloitte & Touche LLP, Independent Auditors for RJR
Nabisco Holdings Corp. and RJR Nabisco, Inc.
+23.2 Consent of Price Waterhouse LLP, Independent Accountants for
Borden, Inc.
**23.3 Consent of Jo-Ann Ford (included in her opinion filed as Exhibit
5.1).
**23.4 Consent of Simpson Thacher & Bartlett (included in their opinion
filed as Exhibit 5.2).
**23.5 Consent of Lazard Freres & Co.
**23.6 Consent of CS First Boston Corporation.
**24.1 Powers of Attorney of Charles M. Harper, Stephen R. Wilson,
Robert S. Roath, John T. Chain, Jr., John R. Clendenin, James
H. Greene, Jr., H. John Greeniaus, James W. Johnston, Henry R.
Kravis, John G. Medlin, Jr., Paul E. Raether, Lawrence R.
Ricciardi, Rozanne L. Ridgway, Clifton S. Robbins and Scott M.
Stuart.
**99.1 Form of Letter of Transmittal for Exchange Offer.
**99.2 Form of Notice of Guaranteed Delivery for Exchange Offer.
**99.3 Form of Letter from the Dealer Manager to Brokers, Dealers,
Commercial Banks, Trust Companies and Other Nominees for
Exchange Offer.
**99.4 Form of letter to clients for use by Brokers, Dealers, Commercial
Banks and Other Nominees for Exchange Offer.
**99.5 Form of Guidelines for Certification of Taxpayer Indentification
Number on Substitute Form W-9 for Exchange Offer.
**99.6 Opinion of Lazard Freres & Co. (Also included in Annex II to the
Proxy Statement/Prospectus.)
**99.7 Opinion of CS First Boston Corporation (Also included in Annex
III to the Proxy Statement/Prospectus.)
</TABLE>
- - - ------------
+ Filed herewith.
** Previously filed.
ITEM 22. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
the registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(4) If the registrant is a foreign private issuer, to file a
post-effective amendment to the registration statement to include any
financial statements required by Rule 3-19 of Regulation S-X at the start of
any delayed offering or throughout a continuous offering.
II-4
<PAGE>
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in this
registration statement shall be deemed to be a new registration statement
relating to the securities offered herein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
The undersigned registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus is sent or
given, the latest annual report to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of
1934; and, where interim financial information required to be presented by
Article 3 of Regulation S-X are not set forth in the prospectus, to deliver, or
cause to be delivered to each person to whom the prospects is sent or given, the
latest quarterly report that is specifically incorporated by reference in the
prospectus to provide such interim financial information.
The undersigned registrant hereby undertakes that prior to any public
reoffering of the securities registered hereunder through use of a prospectus
which is a part of this registration statement, by any person or party who is
deemed to be an underwriter within the meaning of Rule 145(c), such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other Items of
the applicable form.
The undersigned registrant hereby undertakes that every prospectus (i) that
is filed pursuant to the paragraph immediately preceding, or (ii) that purports
to meet the requirements of Section 10(a)(3) of the Securities Act of 1933 and
is used in connection with an offering of securities subject to Rule 415, will
be filed as part of an amendment to the registration statement and will not be
used until such amendment is effective, and that, for purposes of determining
any liability under the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
of 1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act of 1933 and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
The undersigned hereby undertakes to supply by means of a post-effective
amendment all information concerning a transaction, and the company being
acquired involved therein, that was not the subject of and included in the
registration statement when it became effective.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of New York,
State of New York, on January 5, 1995.
RJR NABISCO HOLDINGS CORP.
By: /s/ JO-ANN FORD
Title: Vice President, Assistant
General Counsel and Secretary
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed below by the following persons in
the capacities indicated on January 5, 1995.
SIGNATURE TITLE
- - - ----------------------------- ----------------------------
* Chairman of the Board and
............................. Chief Executive Officer
(Charles M. Harper) (principal executive
officer) and Director
* Executive Vice President and
............................. Chief Financial Officer
(Stephen R. Wilson) (principal financial
officer)
* Senior Vice President and
............................. Controller (principal
(Robert S. Roath) accounting officer)
* Director
.............................
(John T. Chain, Jr.)
............................. Director
(Julius L. Chambers)
* Director
.............................
(John L. Clendenin)
* Director
.............................
(James H. Greene, Jr.)
* Director
.............................
(H. John Greeniaus)
* Director
.............................
(James W. Johnston)
* Director
.............................
(Henry R. Kravis)
* Director
.............................
(John G. Medlin, Jr.)
* Director
.............................
(Paul E. Raether)
II-6
<PAGE>
SIGNATURE TITLE
- - - ----------------------------- ----------------------------
* Director
.............................
(Lawrence R. Ricciardi)
* Director
.............................
(Rozanne L. Ridgway)
* Director
.............................
(Clifton S. Robbins)
............................. Director
(George R. Roberts)
* Director
.............................
(Scott M. Stuart)
............................. Director
(Michael T. Tokarz)
*By: /s/ JO-ANN FORD
.....................................
Jo-Ann Ford
Attorney-in-fact
II-7
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE
- - - ----------- ----------------------------------------------------------------- --------
<S> <C> <C>
**1.1 Form of Dealer Manager Agreement.
2.1 Composite conformed copy of Agreement and Plan of Merger dated as
of September 23, 1994, as amended as of November 15, 1994,
December 6, 1994 and January 4, 1995, among Borden Acquisition
Corp., Whitehall Associates, L.P. and Borden, Inc. (Included in
Annex I to the Proxy Statement/Prospectus.)
**2.2 Conditional Purchase/Stock Option Agreement dated as of September
23, 1994 by and among Whitehall Associates, L.P., Borden
Acquisition Corp. and Borden, Inc.
3.1 Amended and Restated Certificate of Incorporation of RJR Nabisco
Holdings Corp., filed October 1, 1990 (incorporated by
reference to Exhibit 3.1 to Amendment No. 4 filed on October 2,
1990, to the Registration Statement on Form S-4 of RJR Nabisco
Holdings Corp., Registration No. 33-36070, filed on July 25,
1990, as amended (the "Form S-4, Registration No. 33-36070")).
3.1(a) Certificate of Amendment to Amended and Restated Certificate of
Incorporation of RJR Nabisco Holdings Corp., filed January 29,
1991 (incorporated by reference to Exhibit 3.1(a) to Amendment
No. 3, filed on January 31, 1991, to the Registration Statement
on Form S-4 of RJR Nabisco Holdings Corp., Registration No.
33-38227).
3.1(b) Certificate of Designation of ESOP Convertible Preferred Stock,
filed April 10, 1991 (incorporated by reference to Exhibit
3.1(b) to Amendment No. 2 filed on April 11, 1991, to the
Registation Statement on Form S-1 of RJR Nabisco Holdings
Corp., Registration No. 33-39532, filed on March 20, 1991).
3.1(c) Certificate of Designation of Series A Conversion Preferred
Stock, filed November 7, 1991 (incorporated by reference to
Exhibit 3.1(c) to Amendment No. 3, filed on November 1, 1991,
to the Registration Statement on Form S-1 of RJR Nabisco
Holdings Corp., Registration No. 33-43137, filed October 2,
1991).
3.1(d) Certificate of Amendment to Amended and Restated Certificate of
Incorporation of RJR Nabisco Holdings Corp., filed December 16,
1991 (incorporated by reference to Exhibit 3.1(d) of the Annual
Report on Form 10-K of RJR Nabisco Holdings Corp., RJR Nabisco
Holdings Group, Inc., RJR Nabisco Capital Corp. and RJR
Nabisco, Inc. for the fiscal year ended December 31, 1991, File
Nos. 1-10215, 1-10214, 1-10248 and 1-6388 (the "1991 Form
10-K")).
3.1(e) Certificate of Amendment to the Amended and Restated Certificate
of Incorporation of RJR Nabisco Holdings Corp. (relating to the
authorization of the issuance of additional shares of Common
Stock) filed April 6, 1993 (incorporated by reference to
Exhibit 3.3 of the Quarterly Report on Form 10-Q of RJR Nabisco
Holdings Corp. and RJR Nabisco, Inc. for the fiscal quarter
ended March 31, 1993, filed April 30, 1993 (the "March 1993
Form 10-Q")).
3.1(f) Certificate of Designation of Series B Cumulative Preferred
Stock, filed August 16, 1993 (incorporated by reference to
Exhibit 3.1(f) of the Annual Report on Form 10-K of RJR Nabisco
Holdings Corp. and RJR Nabisco, Inc. for the fiscal year ended
December 31, 1993, File Nos. 1-10215 and 1-6388 (the "1993 Form
10-K")).
3.1(g) A composite of the Amended and Restated Certificate of
Incorporation of RJR Nabisco Holdings Corp., as amended to
August 16, 1993 (incorporated by reference to Exhibit 3.1(g) of
the 1993 Form 10-K).
3.1(h) Certificate of Designation of Series C Conversion Preferred Stock
(incorporated by reference to Exhibit 4.1(h) to the
Registration Statement on Form S-3 of RJR Nabisco Holdings
Corp., Registration No. 33-52381 filed on February 2, 1994, as
amended (the Form S-3, Registration No. 33-52381).
3.2 Amended and Restated By-laws of RJR Nabisco Holdings Corp., as
amended, effective January 20, 1994 (incorporated by reference
to Exhibit 3.2 to the 1993 Form 10-K).
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
4.1 Credit Agreement dated as of December 1, 1991, among RJR Nabisco
Holdings Corp., RJR Nabisco Holdings Group, Inc., RJR Nabisco
Capital Corp., RJR Nabisco, Inc. and the lending institutions
party thereto (incorporated by reference to Exhibit 4.1 of the
1991 Form 10-K) (the "Credit Agreement").
4.1(a) Amendment No. 1 to Credit Agreement, dated as of October 21, 1992
(incorporated by reference to Exhibit 4.1(a) of the Annual
Report on Form 10-K of RJR Nabisco Holdings Corp. and RJR
Nabisco, Inc. for the fiscal year ended December 31, 1992, File
Nos. 1-10215 and 1-6388).
4.1(b) Amendment No. 2 to Credit Agreement, dated as of March 4, 1993
(incorporated by reference to Exhibit 4.2 of the March 1993
Form 10-Q).
4.1(c) Amendment No. 3 to Credit Agreement, dated as of October 12, 1993
(incorporated by reference to Exhibit 10.1 of the Quarterly
Report on Form 10-Q of RJR Nabisco Holdings Corp. and RJR
Nabisco, Inc. for the quarter ended September 30, 1993 (the
"September 1993 Form 10-Q").
4.2 Credit Agreement dated as of April 5, 1993 among RJR Nabisco
Holdings Corp., RJR Nabisco, Inc. and the lending institutions
party thereto (incorporated by reference to Exhibit 4.3 of the
March 1993 Form 10-Q) (the "1993 Credit Agreement")
4.2(a) Amendment No. 1 to 1993 Credit Agreement, dated October 12, 1993
(incorporated by reference to Exhibit 10.1 of the September
1993 10-Q).
4.3 Indenture dated as of April 25, 1991 among RJR Nabisco Capital
Corp., RJR Nabisco Holdings Corp., RJR Nabisco Holdings Group,
Inc., RJR Nabisco, Inc. and Citibank, N.A., as Trustee,
relating to the 10 1/2% Senior Notes due 1998, including form
of securities. (incorporated by reference to Exhibit 4.5 to
Amendment No. 7 filed on August 11, 1993, to the Registration
Statement on Form S-3 of RJR Nabisco Holdings Corp.,
Registration No. 33-58930, filed March 1, 1993, as amended (the
"Form S-3, Registration No. 33-58930")).
4.3(a) First Supplemental Indenture dated as of May 18, 1992 among RJR
Nabisco, Inc., RJR Nabisco Holdings Corp., RJR Nabisco Holdings
Group, Inc. and Citibank, N.A., as Trustee, relating to the 10
1/2% Senior Notes due 1998 (incorporated by reference to
Exhibit 4.5(a) to the Form S-3, Registration No. 33-58930).
4.5 Indenture dated as of May 22, 1989 among RJR Holdings Capital
Corp., RJR Holdings Corp., RJR Holdings Group, Inc., RJR
Nabisco, Inc. and Security Pacific National Trust Company (New
York), as Trustee, relating to the 15% Payment-in-Kind
Subordinated Debentures due 2001, including form of securities
(incorporated by reference to Exhibit 4.6 to the Form S-3,
Registration No. 33-58930).
4.5(a) First Supplemental Indenture dated as of May 18, 1992 among RJR
Nabisco, Inc., RJR Nabisco Holdings Corp., RJR Nabisco Holdings
Group, Inc. and Security Pacific National Trust Company (New
York), as Trustee, relating to the 15% Payment-in-Kind
Subordinated Debentures due 2001 (incorporated by reference to
Exhibit 4.6(a) to the Form S-3, Registration No. 33-58930).
4.6 Indenture dated as of May 22, 1989 among RJR Holdings Capital
Corp., RJR Holdings Corp., RJR Holdings Group, Inc., RJR
Nabisco, Inc. and Security Pacific National Trust Company (New
York), as Trustee, relating to the Subordinated Discount
Debentures due 2001, including form of securities (incorporated
by reference to Exhibit 4.7 to the Form S-3, Registration No.
33-58930).
4.6(a) First Supplemental Indenture dated as of May 18, 1992 among RJR
Nabisco, Inc., RJR Nabisco Holdings Corp., RJR Nabisco Holdings
Group, Inc. and Security Pacific National Trust Company (New
York), as Trustee, relating to the Subordinated Discount
Debentures due 2001 (incorporated by reference to Exhibit
4.7(a) to the Form S-3, Registration No. 33-58930).
4.7 Indenture dated as of May 22, 1989 among RJR Holdings Capital
Corp., RJR Holdings Corp., RJR Holdings Group, Inc., RJR
Nabisco, Inc. and U.S. Trust Company of California, N.A., as
Trustee, relating to the 13 1/2% Subordinated Debentures due
2001, including form of securities (incorporated by reference
to Exhibit 4.8 to the Form S-3, Registration No. 33-58930).
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
4.7(a) First Supplemental Indenture dated as of May 18, 1992 among RJR
Nabisco, Inc., RJR Nabisco Holdings Corp., RJR Nabisco Holdings
Group, Inc. and Security Pacific National Trust Company (New
York), as trustee, relating to the 13 1/2% Subordinated
Debentures due 2001 (incorporated by reference to Exhibit
4.8(a) to the Form S-3, Registration No. 33-58930).
**5.1 Opinion of Jo-Ann Ford regarding the legality of the securities
being registered.
**5.2 Opinion of Simpson Thacher & Bartlett regarding certain United
States federal income tax consequences.
10.1 Registration Rights Agreement, dated as of February 9, 1989,
among RJR Holdings Corp., RJR Associates, L.P., KKR Partners
II, L.P., Drexel Burnham Lambert Incorporated and Merrill Lynch
& Co. (incorporated by reference to Exhibit 4.3 to the
Registration Statement on Form S-1 of RJR Holdings Corp.,
Registration No. 33-29401, filed on June 20, 1989, as amended).
10.28 Registration Rights Agreement (Common Stock), dated as of July
15, 1990, between RJR Nabisco Holdings Corp. and Whitehall
Associates, L.P. (incorporated by reference to Exhibit 4.5 to
the Form S-4, Registration No. 33-36070).
**10.50 Form of Indemnification Agreement, dated as of October 4, 1994,
among RJR Nabisco Holdings Corp., Whitehall Associates, L.P.,
Borden Acquisition Corp. and Borden, Inc.
21 Subsidiaries of the Registrant (incorporated by reference to
Exhibit 21 of the 1993 Form 10-K).
+23.1 Consent of Deloitte & Touche LLP, Independent Auditors for RJR
Nabisco Holdings Corp. and RJR Nabisco, Inc.
+23.2 Consent of Price Waterhouse LLP, Independent Accountants for
Borden, Inc.
**23.3 Consent of Jo-Ann Ford (included in her opinion filed as Exhibit
5.1).
**23.4 Consent of Simpson Thacher & Bartlett (included in their opinion
filed as Exhibit 5.2).
**23.5 Consent of Lazard Freres & Co.
**23.6 Consent of CS First Boston Corporation.
**24.1 Powers of Attorney of Charles M. Harper, Stephen R. Wilson,
Robert S. Roath, John T. Chain, Jr., John R. Clendenin, James
H. Greene, Jr., H. John Greeniaus, James W. Johnston, Henry R.
Kravis, John G. Medlin, Jr., Paul E. Raether, Lawrence R.
Ricciardi, Rozanne L. Ridgway, Clifton S. Robbins and Scott M.
Stuart.
**99.1 Form of Letter of Transmittal for Exchange Offer.
**99.2 Form of Notice of Guaranteed Delivery for Exchange Offer.
**99.3 Form of Letter from the Dealer Manager to Brokers, Dealers,
Commercial Banks, Trust Companies and Other Nominees for
Exchange Offer.
**99.4 Form of letter to clients for use by Brokers, Dealers, Commercial
Banks and Other Nominees for Exchange Offer.
**99.5 Form of Guidelines for Certification of Taxpayer Indentification
Number on Substitute Form W-9 for Exchange Offer.
**99.6 Opinion of Lazard Freres & Co. (Also included in Annex II to the
Proxy Statement/Prospectus)
**99.7 Opinion of CS First Boston Corporation (Also included in Annex
III to the Proxy Statement/Prospectus.)
</TABLE>
- - - ------------
+ Filed herewith.
** Previously filed.
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Post-EffectiveAmendment
No. 1 to Registration Statement No. 33-55767 of RJR Nabisco Holdings Corp.
("Holdings") on Form S-4 (the "Registration Statement") of (1) our report dated
February 1, 1994 (except with respect to the subsequent events discussed in Note
17, as to which the date is April 13, 1994), included in Holdings' Registration
Statement No. 33-52381 on Form S-3 ("Form S-3"), at the time such Form S-3 was
declared effective by the Commission and (2) our report dated February 1, 1994
(except with respect to the subsequent event discussed in Note 17, as to which
the date is February 24, 1994), appearing in the Annual Report on Form 10-K of
Holdings for the year ended December 31, 1993.
We also consent to the reference to us under the headings "RJR Nabisco
Holdings Corp. Summary Historical Consolidated Financial Data", "RJR Nabisco
Holdings Corp. Selected Historical Consolidated Financial Data" and "Experts" in
the Proxy Statement/Prospectus, which is part of this Registration Statement.
DELOITTE & TOUCHE LLP
New York, New York
January 6, 1995
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Post-Effective Amendment No. 1 to Registration
Statement No. 33-55767 on Form S-4 of RJR Nabisco Holdings Corp. of our report
dated March 20, 1994, which appears on page 41 of Borden, Inc.'s 1993 Annual
Report to Shareholders, which is incorporated by reference in its Annual Report
on Form 10-K for the year ended December 31, 1993. We also consent to the
incorporation by reference of our report on the Financial Statement Schedules,
which appears on page 12 of such Annual Report on Form 10-K. We also consent to
the reference to us under the headings "Experts" and "Borden, Inc. Selected
Historical Consolidated Financial Data" in such Prospectus. However, it should
be noted that Price Waterhouse LLP has not prepared or certified such "Borden,
Inc. Selected Historical Consolidated Financial Data."
PRICE WATERHOUSE LLP
Columbus, Ohio
January 5, 1995
