-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, C7W73dh4W3U1hd2sQfcaVZ85dirUQfREgdug8BXmICeX/Qo9R5Xryqet7quzwxGX VTjK8Qrty4NX8H9HZM6XJA== 0000950152-95-000348.txt : 19971020 0000950152-95-000348.hdr.sgml : 19971020 ACCESSION NUMBER: 0000950152-95-000348 CONFORMED SUBMISSION TYPE: 10-K405/A PUBLIC DOCUMENT COUNT: 17 CONFORMED PERIOD OF REPORT: 19941231 FILED AS OF DATE: 19950317 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: BORDEN INC CENTRAL INDEX KEY: 0000013239 STANDARD INDUSTRIAL CLASSIFICATION: 2020 IRS NUMBER: 130511250 STATE OF INCORPORATION: NJ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405/A SEC ACT: SEC FILE NUMBER: 001-00071 FILM NUMBER: 95521379 BUSINESS ADDRESS: STREET 1: 180 EAST BROAD ST 25TH FLR CITY: COLUMBUS STATE: OH ZIP: 43201 BUSINESS PHONE: 6142254000 MAIL ADDRESS: STREET 1: BORDEN INC STREET 2: 180 EAST BROAD STREET 25TH FLOOR CITY: COLUMBUS STATE: OH ZIP: 43201 FORMER COMPANY: FORMER CONFORMED NAME: BORDEN CO DATE OF NAME CHANGE: 19680813 10-K405 1 BORDEN, INC. 10-K405 1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [ X ] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended: DECEMBER 31, 1994 Commission file number: 1-71 ----------------- ---- BORDEN, INC. New Jersey 13-0511250 - - --------------------------------------- ----------------------------------- (State of incorporation) (I.R.S. Employer Identification No.) 180 East Broad St., Columbus, OH 43215 614-225-4000 - - --------------------------------------- ----------------------------------- (Address of principal executive offices) (Registrant's telephone number) SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: Title of each class Name of each exchange on which registered ------------------- ----------------------------------------- Common stock par value $0.625* New York Stock Exchange ("NYSE") Preferred Share Purchase Rights** NYSE 8 3/8% Sinking Fund Debentures NYSE SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No . ----- ----- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein and will not be contained, to the best of registrant's knowledge, in any amendment to this Form 10-K. [x]. Aggregate market value in thousands of the voting stock held by nonaffiliates of the Registrant based upon the average bid and asked prices of such stock on March 14, 1995: $0.* Number of shares of Common Stock, $0.625 par value, outstanding as of the close of business on March 14, 1995: 0.* Number of shares of common stock, par value $0.01 per share, outstanding as of the close of business on March 14, 1995: 170,273,814 *The common stock, par value $.625 per share, was cancelled and retired pursuant to the merger of Borden, Inc. with and into Borden Acquisition Corp. on March 14, 1995. Such common stock will be delisted from the NYSE and exchanges in Switzerland and Tokyo. **All Preferred Share Purchase Rights were redeemed on December 20, 1994. DOCUMENTS INCORPORATED BY REFERENCE Document Incorporated -------- ------------ none none ================================================================================ The Exhibit Index is located herein at sequential pages 52 through 57. 2 PART I Item 1. Business - - ------- -------- The Company was incorporated on April 24, 1899. Borden is engaged primarily in manufacturing, processing, purchasing and distributing a broad range of products through three business segments: Consumer Packaged Products, Dairy Products, and Packaging & Industrial Products. Corporate departments provide certain centralized services for all operating units. The Company's executive and administrative offices are located in Columbus, Ohio. Production facilities are located throughout the United States and in many foreign countries. The consumer packaged products segment currently includes the following businesses: pasta and pasta sauces, bakery products, processed cheese, non-dairy creamer, sweetened condensed milk, reconstituted lemon and lime juices, bouillon, confections, dehydrated soups, whole milk powder and consumer adhesives. The dairy products segment currently includes homogenized milk, ice cream, sherbet, yogurt, cottage cheese, frozen novelties, low-fat dairy products, milk-based products for foodservice trade, and fruit drinks. The packaging and industrial segment currently includes wallcoverings, transparent wrapping film, adhesives for the forest products industry, foundry and industrial resins, and flexible packaging. Domestic products for the consumer packaged products and the dairy segments are marketed primarily through food brokers and distributors, and to a lesser extent, directly to wholesalers, retail stores, foodservice businesses, food processors, institutions and governmental agencies. Domestic products for the packaging and industrial segment are sold throughout the United States to industrial users and, in the case of consumer products, by in-house and independent sales forces to distributors, wholesalers, jobbers and retailers. To the extent practicable, international distribution techniques parallel those used in the United States. However, raw materials, production considerations, pricing competition, government policy toward industry and foreign investment, and other factors may vary substantially from country to country for both industry segments. The Company's businesses in all industry segments must deal with intense competition on local and national levels, both in the United States and in foreign markets. Total advertising and promotion expense in support of Borden products was $552.6 million in 1994, $735.5 million in 1993 and $698.0 million in 1992. The Company has undertaken numerous restructuring efforts in recent years in an effort to reduce expenses by streamlining operations and to divest unprofitable business lines. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" herein. In addition, following extensive analysis of the effects of such restructuring efforts, and numerous other factors, in September 1994, the Company entered into a merger agreement providing for the acquisition of all of the Company's outstanding common stock by affiliates of Kohlberg Kravis Roberts & Co. ("KKR") in exchange for shares of RJR Nabisco Holdings Corp. ("RJR Holdings") common stock owned by affiliates of KKR. As part of the acquisition, in December 1994, affiliates of KKR acquired 69.5% of the outstanding common stock of the Company in exchange for shares of RJR Holdings common stock pursuant to an exchange offer and the 2 3 exercise of an option (the "Option") to purchase 28,138,000 shares of the Company's common stock, which were issued from the Company's treasury. Thereafter, affiliates of KKR contributed to the Company approximately 69 million additional shares of RJR Holdings common stock and received shares of the Company's common stock as consideration therefor. In February 1995, these RJR Holdings shares, together with the approximately 51 million RJR Holdings shares received by the Company upon exercise of the Option, were sold by the Company in a registered public offering for aggregate proceeds of approximately $662 million. The acquisition was completed on March 14, 1995 following approval of the merger (the "Merger") of the Company with and into an affiliate of KKR by shareholders of the Company at a special meeting held on that date. As a result of the Merger, as of March 14, 1995, affiliates of KKR own 100% of the Company's outstanding common stock. Following the Merger, affiliates of KKR contributed an additional 111,047,230 shares of RJR Holdings common stock to the Company and will receive additional Company equity securities as consideration therefor. RJR Holdings has been requested to register the additional RJR Holdings shares acquired by the Company and, on March 15, 1995, a registration statement was filed with the Securities and Exchange Commission relating to the offering of such shares from time to time. Such registration statement has not yet been declared effective by the Commission and no offers or sales will be made until such registration statement becomes effective. The primary raw materials used by the businesses of the consumer packaged products segment are flour, tomato products, milk and cheese. The primary raw material used by the dairy segment is raw milk. The primary raw materials used by the packaging and industrial segment businesses are polyvinyl chloride resins, methanol, phenol and formaldehyde. Raw materials are generally available from numerous sources in sufficient quantities but are subject to price fluctuations which cannot always be passed on to the Company's customers. Long-term purchase agreements are used in certain circumstances to assure availability of adequate raw material supplies at guaranteed prices. Research and development expenditures were $26.3 million in 1994, $31.9 million in 1993 and $30.8 million in 1992. The development and marketing of new products are carried out at the division level and integrated with quality controls for existing product lines. Working capital for all segments is generally funded through operations or short-term borrowings. Segment operating income (loss) is total revenue less operating expenses. In computing segment operating income (loss), none of the following items have been deducted from revenue: general corporate expenses, interest expense and Federal, state and local income taxes. Identifiable assets by segment are those assets that are used in the segment's continuing operations. Corporate assets consist primarily of cash and equivalents, investments, prepaid expenses, fixed assets and deferred taxes. At December 31, 1994, the Company had approximately 32,400 employees. The Company believes that its relationships with its union and non-union employees are generally good. 3 4 BORDEN, INC. INFORMATION ABOUT THE COMPANY'S OPERATIONS BY INDUSTRY SEGMENT (in millions)
1994 1993 1992 --------- --------- --------- Sales to Unaffiliated Customers: Consumer Packaged Products $ 2,332.1 $ 2,380.5 $ 2,617.8 Dairy Products 1,277.0 1,298.9 1,450.0 Packaging and Industrial 2,017.0 1,826.9 1,803.9 --------- --------- --------- $ 5,626.1 $ 5,506.3 $ 5,871.7 ========= ========= ========= Segment Operating Income (Loss): Consumer Packaged Products $ 107.4 $ 128.5 $ 116.4 Dairy Products (425.3) (84.2) (7.0) Packaging and Industrial 201.5 150.0 124.6 --------- --------- --------- (116.4) 194.3 234.0 General Corporate (Expense) Income (222.3) (153.3) (141.9) Interest Expense (130.7) (125.1) (116.6) --------- --------- --------- Loss Before Income Taxes, Cumulative Effect of Accounting Changes and Discontinued Operations $ (469.4) $ (84.1) $ (24.5) ========= ========= ========= Identifiable Assets at Year End: Consumer Packaged Products $ 1,435.5 $ 1,510.4 $ 2,798.3 Dairy Products 315.4 575.5 740.4 Packaging and Industrial 1,242.0 1,114.0 1,353.6 --------- --------- --------- 2,992.9 3,199.9 4,892.3 Discontinued Operations 40.5 222.2 Corporate Assets 788.9 449.6 353.7 --------- --------- --------- $ 3,822.3 $ 3,871.7 $ 5,246.0 ========= ========= ========= Depreciation and Amortization Expense: Consumer Packaged Products $ 70.7 $ 122.2 $ 124.9 Dairy Products 44.4 43.4 43.2 Packaging and Industrial 45.9 46.8 47.4 Capital Expenditures: Consumer Packaged Products $ 54.5 $ 75.8 $ 167.8 Dairy Products 23.9 27.7 37.8 Packaging and Industrial 54.7 57.9 71.9 Unusual or Infrequently Occurring Items Included in Segment Operating Income (Loss):* Consumer Packaged Products $ (34.5) $ (91.8) $ (191.1) Dairy Products (338.7) (33.2) (24.6) Packaging and Industrial 4.9 (7.5) (55.0) --------- --------- --------- $ (368.3) $ (132.5) $ (270.7) ========= ========= ========= * See Management's Discussion and Analysis on pages 11 to 12 for a review of unusual or infrequently occurring items included in income.
4 5 BORDEN, INC. INFORMATION ABOUT THE COMPANY'S OPERATIONS BY INDUSTRY SEGMENT (in millions) (continued)
1994 1993 1992 --------- --------- --------- Geographic Information - - ---------------------- Net Sales: United States $ 3,694.6 $ 3,620.9 $ 3,928.7 Europe 908.4 914.8 979.2 Other 1,023.1 970.6 963.8 --------- --------- --------- $ 5,626.1 $ 5,506.3 $ 5,871.7 ========= ========= ========= Operating (Loss) Income: United States $ (299.1) $ 82.7 $ 155.1 Europe 75.4 73.7 54.4 Other 107.3 37.9 24.5 --------- --------- --------- $ (116.4) $ 194.3 $ 234.0 ========= ========= ========= Identifiable Assets: United States $ 2,589.8 $ 2,408.0 $ 3,534.4 Europe 783.1 695.2 858.0 Other 408.9 546.3 853.6 Discontinued operations 40.5 222.2 --------- --------- --------- $ 3,822.3 $ 3,871.7 $ 5,246.0 ========= ========= ========= Unusual or Infrequently Occurring Items Included in Segment Operating (Loss) Income: United States $ (380.5) $ (89.0) $ (165.9) Europe 11.4 (2.9) (38.2) Other 0.8 (40.6) (66.6) --------- --------- --------- $ (368.3) $ (132.5) $ (270.7) ========= ========= ========= ___________________________________________________________________________________________________________________________________
Item 2. Properties - - ------ ---------- As of December 31, 1994 the Company operated 21 domestic consumer packaged product manufacturing and processing facilities in 13 states and Puerto Rico. The most significant of these facilities are an Illinois plant producing Cracker Jack, bouillon and dehydrated soup; the Arizona, Massachusetts, Michigan, Minnesota, and Missouri pasta plants and the Pennsylvania snacks plant. In addition, the Company operated 45 foreign food manufacturing and processing facilities located principally in Canada, Latin America and Western Europe. As of December 31, 1994, the Company operated 43 domestic dairy processing facilities in 22 states. The most significant of these facilities are the milk processing facilities in Texas, and the milk and cultured products facilities in Utah, Hawaii and Illinois. As of December 31, 1994 the Company operated 36 domestic packaging and industrial manufacturing and processing facilities in 19 states, the most significant being the Resinite plants in Georgia, Massachusetts and Texas; the Proponite plant in Massachusetts; the forest products adhesives plants in Oregon and North Carolina; and a specialty resins plant in Kentucky. In addition, the Company operated 58 foreign packaging and industrial manufacturing and processing facilities located principally in Brazil, Canada, the Far East and Western Europe. The Company's manufacturing and processing facilities are generally well maintained and effectively utilized. Substantially all facilities are owned by the Company. 5 6 Borden is actively engaged in complying with environmental protection laws, as well as various Federal and state statutes and regulations relating to manufacturing, processing and distributing its many products. In this connection, the Company incurred capital expenditures of $7.1 million in 1994 compared to $4.3 million in 1993 and $16.6 million in 1992. The Company estimates that it will spend $13.2 million for environmental control facilities during 1995. Item 3. Legal Proceedings - - ------- ----------------- Environmental Proceedings - - ------------------------- The Company has been notified that it is or may be a potentially responsible party with respect to the cleanup of certain waste sites (currently approximately 50 in number) in proceedings brought under the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA") or similar state environmental laws. While the Company cannot predict with certainty the total cost of such cleanup, the Company's ultimate liability will depend on many factors including its volumetric share of waste, the financial viability of other responsible parties, the remediation methods and technology used, the amount of time necessary to accomplish remediation, and the availability of insurance coverage. The Company has established reserves for environmental remediation costs for these and other sites in amounts which it believes are probable and reasonably estimable. Based on currently available information and analysis, the Company believes that it is reasonably possible that costs associated with such sites may exceed current reserves by amounts that may prove insignificant or by amounts, in the aggregate, up to approximately $40 million. This estimate of the range of reasonably possible additional costs is less certain than the estimates upon which reserves are based, and in order to establish the upper limit of such range, assumptions least favorable to the Company among the range of reasonably possible outcomes were used. In estimating both its current reserves for environmental remediation and the possible range of additional costs, the Company has not assumed that it will bear the entire cost of remediation of every site to the exclusion of other known potentially responsible parties who may be jointly and severally liable. The ability of other potentially responsible parties to participate has been taken into account, based generally on the parties' probable contribution on a per site basis. No attempt has been made to discount the estimated amounts to net present value, and no amounts have been recorded for potential recoveries from insurance carriers. Based upon previous experience and the information presently available, however, management believes that, as of the date hereof, future costs incurred will not have a material adverse effect on the financial condition of the Company. Private actions against the Company and numerous other defendants are currently pending in U.S. District Court in Baton Rouge, Louisiana alleging personal injuries and property damage in connection with a waste disposal site in Louisiana. Similar actions are pending in state court in Camden, New Jersey in connection with a waste disposal site in New Jersey and in state court in Los Angeles, California in connection with a landfill site in Monterey Park, California (September 1994). The U.S. Environmental Protection Agency ("EPA") has issued a notice of violation alleging the violation of air pollution regulations by a plant in Massachusetts (September 1988). A notice of violation has been issued by the Maine Department of Environmental Protection (April 1991) alleging the violation of certain solid waste and wetlands regulations at a Scarborough, Maine facility. A notice of violation has been issued by the Puerto Rican sewer and water authority (July 1994) alleging violations of wastewater regulations by an ice cream plant in Mantecados Nevada, Puerto Rico. 6 7 BORDEN CHEMICALS AND PLASTICS LIMITED PARTNERSHIP In 1987, the Company's basic chemical and PVC resin businesses located at Geismar, Louisiana and Illiopolis, Illinois were acquired by the Borden Chemicals and Plastics Limited Partnership ("BCP"). Under an Environmental Indemnity Agreement ("EIA"), the Company has agreed, subject to certain conditions and limitations, to indemnify BCP from certain environmental liabilities arising from facts or circumstances that existed and requirements in effect prior to November 30, 1987, and share on an equitable basis those arising from facts or circumstances existing and requirements in effect both prior to and after such date. No claim can be made by BCP under the EIA after November 30, 2002 and no claim can, with certain exceptions, be made with respect to the first $500,000 of liabilities which Borden would otherwise be responsible for thereunder in any year, but such excluded amounts may not exceed $3.5 million in the aggregate. Excluded amounts under the EIA have aggregated approximately $2.2 million through December 31, 1994. Accordingly, certain BCP legal proceedings are discussed below. In 1985 the Louisiana Department of Environmental Quality ("LDEQ") and the Company entered into a Settlement Agreement that called for the implementation of a long-term groundwater and soil remediation program at the Geismar complex to address contaminants. Borden and BCP have implemented the Settlement Agreement, and have worked in cooperation with the LDEQ to remediate the groundwater and soil contamination. BCP believes that it already has sufficiently identified the extent of the groundwater plume. Nevertheless, BCP intends to drill and test some additional groundwater wells for the purpose of addressing issues raised by the LDEQ concerning whether the extent of the groundwater contamination has been identified. The Company has paid substantially all of the costs to date of the Settlement Agreement with LDEQ. It is unknown how long the remediation program will continue or whether the LDEQ will require BCP to incur costs to take further remedial measures in response to data generated by the planned additional groundwater wells. If the LDEQ requires BCP to take further remedial measures, a portion of such costs may be covered under the EIA. In February 1993, an EPA Administrative Law Judge held that the Illiopolis, Illinois facility violated CERCLA and the Emergency Planning and Community Right to Know Act ("EPCRA") by failing to report certain relief valve releases which occurred between February 1987 and July 1989, that BCP and the Company believe are exempt from CERCLA and EPCRA reporting. BCP's petition for reconsideration was denied, a penalty hearing has been scheduled and further appeals are possible if the parties cannot reach an agreement. Management does not believe that any ultimate penalty arising from this proceeding would have a material adverse effect on the Company. On October 27, 1994, the U.S. Department of Justice ("DOJ") acting on behalf of the EPA, filed an action against BCP and its General Partner, BCP Management, Inc., a wholly owned subsidiary of the Company, in U.S. District Court for the Middle District of Louisiana. The complaint seeks civil penalties for alleged violations of the Resource Conservation and Recovery Act ("RCRA"), CERCLA and the Clean Air Act as well as corrective action, at the Geismar facility. BCP plans to vigorously defend against all the allegations. Prior to the filing of the complaint, BCP and the DOJ had engaged in settlement discussions and are currently engaged in such discussions. If BCP is unsuccessful in defending itself against the allegations, it could be subject to penalties, costs for corrective action and costs needed to obtain a RCRA permit. As to penalties, although the maximum statutory penalties that would apply in a successful enforcement action by the government would be in excess of $150.0 million, BCP believes, assuming it is unsuccessful and based on information currently available to it, that the more likely amount of any liability for civil penalties would not exceed several million dollars. 7 8 If unsuccessful, BCP could also be subject to costs for facility-wide corrective action to address the contamination at the Geismar complex. The cost of any corrective action could be material to BCP, depending on the scope of such corrective action which cannot be determined at this time. The extent to which any costs that may be incurred by BCP as the result of the above described legal proceedings will be subject to the EIA will depend, in large part, on whether such costs or penalties are attributable to facts or circumstances that existed and requirements in effect prior to November 30, 1987. The costs that may be subject to the EIA have not yet been determined. Other Legal Proceedings - - ----------------------- The States of West Virginia, Ohio and Louisiana have filed suits (12/93, 8/93 and 10/94) alleging antitrust violations in connection with the sale of milk to schools in certain of their school districts. A private antitrust suit filed in Federal Court in Oklahoma (4/93) on behalf of four school districts sought, but was denied class action certification. Although Federal Grand Jury investigations are pending in Oklahoma (8/92), Ohio (2/93) and the Plains States (9/93), only the Plains States investigation is continuing. Private antitrust suits alleging price fixing of wholesale/retail accounts have been filed in Florida (7/93) and Virginia (9/93). The Company is a defendant in litigation in Montreal, Canada involving allegations of personal injury or property damage arising from the misapplication of, or defects in, a urea-formaldehyde foam insulation product which the Company manufactured from 1973 through 1980. The litigation, which was tried from September 1983 through December 1989, was dismissed by the trial court in December 1991. An Appeal filed by plaintiffs will be heard in late 1995. In December 1994, the Company agreed to a proposed settlement in twelve putative class actions that were filed by purported Company shareholders in the New Jersey and Ohio state courts against the Company, members of the Board and, in two of the cases, Kohlberg Kravis Roberts & Co.("KKR"). These actions alleged among other things, that the Company was being sold at too low a price, and that the Company's directors breached their fiduciary duties by failing to "auction" the Company and by "locking up" a transaction that was not in the best interests of shareholders. KKR was alleged to have aided and abetted these breaches of fiduciary duty. The complaints sought preliminary and permanent relief, including a preliminary injunction, damages in an unspecified amount and attorneys' fees. In connection with the proposed settlement, the defendants agreed to take certain actions under the Agreement and Plan of Merger and Conditional Purchase/Stock Option Agreement both between the Company and KKR, and both dated as of September 23, 1994 as amended; agreed to publish certain information in an Offering Circular supplement; agreed to cause the Company's Board of Directors to include up to two independent directors until such time as the merger is completed; and agreed to arrange a meeting between plaintiffs' counsel and the Company's investment bankers. The proposed settlement is subject to court approval. The Company has also been named as a defendant in a shareholder derivative action filed against RJR Nabisco Holdings Corp.("RJR") in the Court of Chancery of the State of Delaware. That action alleges that the proposed acquisition by RJR of a stake in the Company constitutes a breach of the fiduciary duty of loyalty of RJR's Board of Directors because the transaction is unfair to the public shareholders of RJR. The complaint seeks to enjoin RJR's purchase of Company shares and damages in an unspecified amount. The Company is involved in other litigation throughout the United States which is considered to be in the ordinary course of the Company's business. The Company believes, based upon the information it presently possesses, and taking into account its established reserves for estimated liability and its insurance coverage, that the ultimate outcome of the foregoing proceedings and actions is 8 9 unlikely to have a materially adverse effect on the Company's financial position or operating results. Item 4. Submission of Matters to a Vote of Security Holders - - ------- --------------------------------------------------- No matter was submitted during the fourth quarter of 1994 to a vote of security holders, through the solicitation of proxies or otherwise. PART II Item 5. Market for the Registrant's Common Equity and Related - - ------- ----------------------------------------------------- Stockholder Matters ------------------- Prior to the Merger, the Company's common stock, par value $.625 per share, was traded on the New York Stock Exchange and exchanges in Tokyo, Japan; and Basel, Geneva, Lausanne and Zurich, Switzerland. As a result of such Merger, all such common stock was cancelled and retired and will be de-listed from trading on such exchanges. Following the Merger, the Company's authorized common stock consists of 300,000,000 shares, with a par value of $0.01 per share, 170,273,814 of which are issued and outstanding and held by affiliates of KKR. No shares of such common stock trade on any exchange. The high and low stock price and dividend payments by quarter for the last two fiscal years is presented in Footnote 18 on page 38. The high and low sales prices of the Company's common stock, par value $.625 per share, on the last trading day for such stock on the New York Stock Exchange, March 14, 1995, were $13.50 and $13.25, respectively. The closing sale price on such date was $13.25 per share. 9 10 Item 6. Selected Financial Data - - ------- ----------------------- Following is the five-year selected financial data for the years 1990 through 1994. - - ------------------------------------------------------------------------------------------------------------------------------------ FIVE YEAR SELECTED FINANCIAL DATA (All dollar and share amounts in millions--except per share data)
FOR THE YEARS 1994 1993 1992 1991 1990 SUMMARY OF EARNINGS Net sales $5,626.1 $5,506.3 $5,871.7 $5,924.1 $6,272.6 Net (loss) income from continuing operations (539.0) (56.9) (38.7) 279.9 291.5 Net (loss)income (597.7) (630.7) (364.4) 294.9 319.6 - - ------------------------------------------------------------------------------------------------------------------------------------ Net (loss) income per common share from continuing operations $ (3.75) $ (0.40) $ (0.27) $ 1.90 $ 1.97 Net (loss) income per common share (4.16) (4.47) (2.54) 2.00 2.16 - - ------------------------------------------------------------------------------------------------------------------------------------ Dividends: Common share $ 0.252 $ 0.90 $ 1.185 $ 1.12 $1.035 Preferred series B share 1.32 1.32 1.32 1.32 1.32 - - ------------------------------------------------------------------------------------------------------------------------------------ Average number of common shares outstanding during the year 143.7 141.0 143.4 147.6 147.9 - - ------------------------------------------------------------------------------------------------------------------------------------ FINANCIAL STATISTICS Capital expenditures $ 147.7 $ 177.0 $ 286.2 $ 376.0 $ 331.1 Inventories 514.9 490.4 641.1 655.4 665.5 Property, plant and equipment, net 1,106.9 1,336.7 1,788.1 1,903.7 1,706.8 Depreciation and amortization 169.4 224.0 227.6 216.9 197.3 Total assets 3,822.3 3,871.7 5,246.0 5,461.3 5,284.3 Current assets 1,623.4 1,290.2 1,927.5 1,921.2 2,026.1 Current liabilities 1,529.2 1,371.5 1,807.8 1,413.7 1,847.0 Working capital (deficiency) 94.2 (81.3) 119.7 507.5 179.1 Current ratio 1.1:1 0.9:1 1.1:1 1.4:1 1.1:1 Long-term debt $1,379.0 $1,240.8 $1,329.9 $1,345.8 $1,339.8 Total debt to adjusted total capitalization 81% 69% 55% 41% 53% Shareholders' equity (deficiency) $ (92.1) $ 245.9 $1,126.3 $1,974.5 $1,841.6 Liquidating value of preferred stock (.2) (.2) (.2) (.2) (.2) Equity per common share at year end (0.54) 1.74 8.01 13.39 12.50 Return on average shareholders' equity * * * 15.6% 18.3% - - ------------------------------------------------------------------------------------------------------------------------------------ SHAREHOLDER DATA Outstanding common shares at year end 169.9 141.4 140.6 147.5 147.3 - - ------------------------------------------------------------------------------------------------------------------------------------ Market price of common stock: At year end $ 12 1/4 $ 17 $ 28 5/8 $ 32 5/8 $ 29 7/8 Range during year 18 3/8-11 29 1/8-14 3/8 34 7/8-26 1/4 38 3/4-27 1/2 37 7/8-27 - - ------------------------------------------------------------------------------------------------------------------------------------ Number of common shareholders 20,889 40,927 38,953 39,234 39,010 - - ------------------------------------------------------------------------------------------------------------------------------------ EMPLOYEE DATA Payroll $1,072.7 $1,116.4 $1,123.8 $1,133.6 $1,135.5 Average number of employees 35,000 39,500 41,900 44,400 46,300 - - ------------------------------------------------------------------------------------------------------------------------------------ *Not meaningful because of net loss.
10 11 Item 7. Management's Discussion and Analysis of Financial Condition - - ------- ----------------------------------------------------------- and Results of Operations ------------------------- Overview - - -------- The Company has undertaken numerous restructuring efforts in recent years in an effort to reduce expenses by streamlining operations and to divest unprofitable business lines. In addition, following extensive analysis of the effects of such restructuring efforts, and numerous other factors, in September 1994, the Company entered into a merger agreement providing for the acquisition of all of the Company's outstanding common stock by affiliates of KKR in exchange for shares of RJR Holdings common stock owned by affiliates of KKR. As part of the acquisition, in December 1994, affiliates of KKR acquired 69.5% of the outstanding common stock of the Company in exchange for shares of RJR Holdings common stock pursuant to an exchange offer and the exercise of the Option to purchase 28,138,000 shares of the Company's common stock, which were issued from the Company's treasury. Thereafter, affiliates of KKR contributed to the Company approximately 69 million additional shares of RJR Holdings common stock and will receive shares of the Company's common stock as consideration therefor. In February 1995, these RJR Holdings shares, together with the approximately 51 million RJR Holdings shares received by the Company upon exercise of the Option, were sold by the Company in a registered public offering for aggregate proceeds of approximately $662 million. The acquisition was completed on March 14, 1995 following approval of the Merger by shareholders of the Company at a special meeting held on that date. As a result of the merger, as of March 14, 1995, affiliates of KKR own 100% of the Company's common stock. The Company reported a third consecutive year of losses in 1994. Contributing to the losses for each of the three years were certain unusual or infrequently occurring pretax charges to income, as shown in the table below.
PRETAX CHARGES TO INCOME (In millions) 1994 1993 1992 - - ------------------------------------------------------------------------------------------ Restructuring $ 64.4 $114.9 $297.8 Reversal of prior restructuring (49.3) Merger and other expenses 105.2 Fees on terminated or renegotiated debt agreements 64.0 Dairy impairment 263.8 Cheese impairment 28.9 Other asset writedowns and changes in accounting estimates 73.6 94.1 Gain on sale of businesses (59.3) (14.8) ------ ------ ------ Total continuing operations 491.3 194.2 297.8 ------ ------ ------ Loss on disposal 104.5 637.4 Restructuring 79.4 Reversal of prior restructuring (9.8) ------ ------ ------ Total discontinued operations 94.7 637.4 79.4 ------ ------ ------ Total pretax charges to income $586.0 $831.6 $377.2 ====== ====== ====== - - ------------------------------------------------------------------------------------------
11 12
The allocation of these charges by division was as follows: (In millions) 1994 1993 1992 - - -------------------------------------------------------------------------------------------------------------- Consumer Packaged Products $ 34.5 $ 91.8 $ 191.1 Dairy Products 338.7 33.2 24.6 Packaging and Industrial (4.9) 7.5 55.0 ------- ------- ------- 368.3 132.5 270.7 Corporate 123.0 61.7 27.1 ------- ------- ------- Total continuing operations $ 491.3 $ 194.2 $ 297.8 ======= ======= ======= - - --------------------------------------------------------------------------------------------------------------
The 1994 restructuring program includes $13.0 million for administrative headcount reductions and $51.4 million for Dairy and Pasta plant closings, partly offset by a credit of $49.3 million in continuing operations and a credit of $9.8 million in discontinued operations for the reversal of prior restructuring charges. Management reviewed the prior restructuring programs in light of events that occurred during 1994 and determined that a portion of the reserves for these programs would not be utilized. Merger expenses of $105.2 million in 1994 primarily includes fees paid to KKR and financial advisors and other incremental expenses directly related to the Merger. Additionally, the Company incurred $64.0 million of expenses to renegotiate its $1.4 billion credit facility and for payments to terminate other debt agreements. Impairment writedowns of goodwill, plant and equipment of $263.8 million for Dairy and $28.9 million for cheese were recorded in 1994 due to ongoing and projected operating losses at certain profit centers, which indicated that the carrying values of such assets were not expected to be recovered by their future undiscounted cash flows. Consistent with the Company's accounting policy (see page 24) future cash flows were measured at the profit center level which is the level at which the Dairy division is managed. Future cash flows were based on forecasted trends for individual operations and assumed capital spending in line with expected requirements. Also in 1994, the Company recorded a pretax charge of $73.6 million for other asset writedowns and changes in accounting estimates, primarily related to increases in the Company's estimated general insurance liabilities, especially worker's compensation. Partly offsetting these charges was a net pretax gain of $59.3 million from selling two international businesses and one domestic business which were not part of the discontinued operations plan of 1993. In 1993 the Company recorded a pretax charge to provide for a business divestiture program. The program involved the divestment of North American snacks, seafood, jams and jellies, and various other businesses, for which a pretax charge of $637.4 million, $490.0 million after tax, was recorded for estimated losses on disposal. The businesses to be divested had 1993 net sales of $1.194 billion, or 17.8% of total 1993 sales. Proceeds in 1994 from divestitures amounted to $232.2 million, which was approximately equal to original estimates except for snacks divestitures, in which a significant shortfall occurred. The shortfall in proceeds resulted in an additional pretax provision for loss on disposal of $104.5 million partially offset by the $9.8 million restructuring reversal during third quarter 1994. The 1994 operating results for the businesses being divested were charged against the reserve for the loss on disposal. The operating results for the years ended December 31, 1993 and 1992 and the estimated losses on disposal have been segregated and reported net of tax as discontinued operations. All except two of the businesses to be divested were sold in 1994. The Company anticipates that the sale of these businesses will be completed in 1995. Proceeds from the remaining sales will be used to reduce debt. 12 13 Net assets of $40.5 million and $222.2 million related to the discontinued operations have been segregated in the Consolidated Balance Sheets at December 31, 1994 and 1993, respectively. These amounts consist primarily of working capital, property, plant and equipment, and intangibles, net of the estimated losses on disposal. Also in 1993, the Company recorded a pretax charge of $94.1 million for asset writedowns and changes in accounting estimates primarily relating to the cost of consumer and trade promotions. In addition, fourth quarter 1993 results include a pretax gain of $14.8 million on the sale of a European packaging operation. In 1993 the Company adopted Statement of Financial Accounting Standard (SFAS) No. 112, "Employers' Accounting for Postemployment Benefits," retroactive to January 1, 1993. The cumulative effect of the accounting change reduced first quarter and 1993 net income by $18.0 million, or $.13 per share. The accounting change had no significant effect on 1993 income before cumulative effect of accounting changes. During 1992 the Company adopted SFAS No. 106 "Employers' Accounting for Postretirement Benefits Other Than Pensions" and No. 109 "Accounting for Income Taxes." These accounting changes reduced 1992 net income before the cumulative effect of accounting changes by $8.1 million, or $.06 per share. The cumulative effect of the accounting changes as of January 1, 1992 reduced 1992 net income by $229.0 million, or $1.60 per share. Including the effect of the pretax charges discussed on page 11 and accounting changes, the Company had net losses of $597.7 million or $4.16 per share in 1994, $630.7 million or $4.47 per share in 1993, and $364.4 million or $2.54 per share in 1992. RESTRUCTURING CHARGES Following is a schedule of restructuring reserve balances at the end of the last three years by major component and the amounts charged to income:
1994 Balances at December 31, Charge to Restructuring --------------------------------- (In millions) Income Reversal 1994 1993 1992 - - ------------------------------------------------------------------------------------------------------------------ 1994 RESTRUCTURING: Business Re-engineering $ 13.0 $ 13.0 Closure and Consolidation 51.4 51.4 ------- ------- 64.4 64.4 ------- ------- 1993 RESTRUCTURING: Business Re-engineering 90.6 $ (41.0) 13.2 $ 89.0 Business Divestitures 16.3 (4.5) 4.0 16.3 Closure and Consolidation 8.0 0.0 8.0 ------- ------- ------- ------- 114.9 (45.5) 17.2 113.3 ------- ------- ------- ------- 1992 RESTRUCTURING: Business Re-engineering 46.4 (13.0) 0.4 6.8 $ 44.1 Business Divestitures 161.5 15.1 0.8 11.8 71.7 Closure and Consolidation 169.3 (15.7) 4.3 14.0 73.6 ------- ------- ------- ------- ------- 377.2 (13.6) 5.5 32.6 189.4 ------- ------- ------- ------- ------- $ 556.5 $ (59.1) $ 87.1 $ 145.9 $ 189.4 ======= ======= ======= ======= ======= - - ------------------------------------------------------------------------------------------------------------------
The 1994 restructuring reversal includes $49.3 million for continuing operations and $9.8 million relating to discontinued operations. The 1992 restructuring charge includes $79.4 million relating to discontinued operations. The 1994 restructuring charge of $64.4 million includes $13.0 million for administrative severance covering approximately 85 positions and $51.4 million for several dairy and pasta plant closings in early 1995. Included in the $51.4 million is severance, asset write-offs and other exit costs. 13 14 The 1993 restructuring charge of $114.9 million consisted of three parts. The business re-engineering is primarily $76.5 million of severence and other personnel costs as a result of an administrative downsizing. The majority of the 1994 restructuring reversal of $59.1 million related to this item, due to actual terminations of approximately 525 employees versus an original plan of approximately 1800 employees. Additionally, it included $14.1 million to reorganize dairy operations by closing certain administrative centers. Business divestitures represents an increase in the estimated costs to divest an international operation which was provided for in the 1992 restructuring reserve. Closure and consolidation costs of $8.0 million were provided for the expected loss on divestiture of a small operation. The 1992 restructuring charge of $377.2 million was primarily for divestitures and plant closings. Although some ongoing costs remain, virtually all of the 1992 restructuring programs had been completed at December 31, 1994. Cash spending in 1994 relating to the 1993 and 1992 restructuring programs was $71.9 million. The 1994 pretax income benefit approximated the amount of spending. During 1994 restructuring proceeds from the sale of a business were $40.4 million. Cash spending in 1994 of $3.4 million related to discontinued operations and will produce no future income benefits. Of the remaining $87.1 million of restructuring reserves, approximately $45 million represents cash charges, the majority of which are expected to be incurred in 1995. Personnel and related costs are expected to be reduced in excess of $20.0 million annually in 1995 because of the employee terminations from the 1993 and 1992 restructuring programs. There are no significant offsetting expenses to these savings. RESULTS OF CONTINUING OPERATIONS Following is a three year comparison of division sales and operating (loss) income:
Year Ended December 31, ------------------------------------------------------------------- (Dollars in millions) 1994 1993 1992 - - ------------------------------------------------------------------------------------------------------------------- DIVISION SALES Consumer Packaged Products $2,332.1 41% $2,380.5 43% $2,617.8 44% Dairy Products 1,277.0 23 1,298.9 24 1,450.0 25 Packaging and Industrial Products 2,017.0 36 1,826.9 33 1,803.9 31 -------- --- -------- --- -------- --- Total $5,626.1 100% $5,506.3 100% $5,871.7 100% ======== === ======== === ======== === DIVISION OPERATING (LOSS) INCOME Consumer Packaged Products $ 107.4 * % $ 128.5 66% $ 116.4 50% Dairy Products (425.3) * (84.2) (43) (7.0) (3) Packaging and Industrial Products 201.5 * 150.0 77 124.6 53 -------- --- -------- --- -------- --- Total (116.4) * % 194.3 100% 234.0 100% === === === Discontinued operations, net of tax (58.7) (555.8) (85.9) Other expense and income not allocable to divisions and income taxes (422.6) (269.2) (512.5) -------- -------- -------- Net loss $ (597.7) $ (630.7) $ (364.4) ======== ======== ======== * Not meaningful - - -------------------------------------------------------------------------------------------------------------------
Net sales in 1994 increased 2.2% to $5.626 billion from $5.506 billion in 1993. Net sales in 1993 decreased 6.2% from $5.872 billion in 1992. 14 15
The 1992-1994 restructuring (reversals)/charges included in operating income are allocated by division as follows: (In millions) 1994 1993 1992 - - ----------------------------------------------------------------------------------------------- Consumer Packaged Products $ (7.3) $ 16.3 $ 191.1 Dairy Products 48.4 22.1 24.6 Packaging and Industrial Products (13.6) 55.0 -------- ------- ------- 27.5 38.4 270.7 Not allocable to divisions (12.4) 76.5 27.1 -------- ------- ------- 15.1 114.9 297.8 Income tax benefit 5.7 37.5 65.0 -------- ------- ------- Reversals/charges, net of tax $ 9.4 $ 77.4 $ 232.8 ======== ======= ======= - - -----------------------------------------------------------------------------------------------
The loss from continuing operations was $539.0 million in 1994, $56.9 million in 1993 and $38.7 million in 1992. Excluding restructuring charges, continuing operations produced a loss of $529.6 million in 1994, and income of $20.5 million and $194.1 million in 1993 and 1992, respectively. Division operating income included pretax restructuring charges of $27.5 million, $38.4 million and $270.7 million in 1994, 1993 and 1992, respectively. 1994 division operating income decreased 159.9% to a loss of $116.4 million from income of $194.3 million in 1993, while 1993 decreased 17.0% from $234.0 million in 1992. Excluding the charges, 1994 operating results decreased 138.2% and 1993 results decreased 53.9% from the respective prior years. A significant portion of the Company's operating income is generated by foreign operations and can be affected by currency fluctuations. Most of this exposure is attributable to the translation of income generated by these foreign operations in their functional currency; functional currency operating results are not hedged. When appropriate, the Company will hedge cash flow transaction exposures, including hedging of cash flows related to exports or imports denominated in currencies different from the functional currency of the operating unit. The effect of changes in foreign currency exchange rates was immaterial in 1994 compared to 1993. The effect of changes in foreign currency exchange rates adversely impacted sales and division operating income in 1993 compared to 1992. Had exchange rates remained unchanged from the prior year, sales and operating income in 1993 would have been approximately $140 million and $30 million higher, respectively. Foreign countries where the Company has significant operations include Brazil, Canada, Colombia, England, Germany and Italy. During 1994 the Company was reorganized into three operating divisions: Consumer Packaged Products, Dairy Products, and Packaging and Industrial Products. Consumer Packaged Products is comprised of niche grocery, pasta and sauce, cheese products, consumer adhesives, international milk powder, European bakery products and several European grocery and pasta businesses. Dairy Products includes fluid milk, ice cream and cultured milk products. Packaging and Industrial Products includes primarily wallcoverings, adhesives and resins, and plastic films and packaging. Consumer Packaged Products 1994 sales decreased 2.0% to $2.332 billion from $2.380 billion in 1993 primarily due to divestitures that occurred during 1993. Consumer Packaged Products operating income of $107.4 million in 1994 declined 16.4% from income of $128.5 million in 1993. Gains were achieved in both International Foods and Niche Grocery Products, offsetting operating income declines in North American Pasta and Diversified Products. Consumer Packaged Products 1993 sales decreased 9.1% to $2.380 billion from $2.618 billion in 1992 due primarily to volume declines in pasta; the divestitures of Laura Scudder's, Southwest Snacks and Deran candy; decreases in most niche grocery products; and a slight decline in International Foods. The volume declines were due to increased 15 16 competition from low-priced branded and private label products, the adjusting of promotions to reduce "trade loading," as well as customer service issues in pasta. Excluding restructuring charges, 1993 operating income decreased substantially compared to 1992 primarily as a result of volume declines and higher wheat costs which could not be fully recovered in product pricing due to the competitive environment, and due to the negative impact of foreign exchange rate fluctuations as well as declines in European grocery and pasta and Puerto Rican businesses. The Dairy Products operating loss in 1994 was $425.3 million versus the loss of $84.2 million in 1993. In addition to impairment and restructuring charges, the downward operating trend experienced in 1993 continued in 1994. Sales declined 1.7% to $1.277 billion from $1.299 billion. Dollar sales were up for fluid milk in most market regions, but lower in ice cream. Dairy Products 1993 sales decreased 10.4% to $1.299 billion from $1.450 billion in 1992 due primarily to volume declines in fluid milk and ice cream. The volume declines were due to increased competition from low-price branded and private label products, as well as pricing issues. Operating results decreased to a loss of $84.2 million compared to a loss of $7.0 million in 1992. Excluding restructuring charges, 1993 operating income decreased substantially compared to 1992 primarily as a result of volume declines and higher raw milk and cream costs which could not be fully recovered in product pricing due to the competitive environment. Packaging and Industrial Products reported record sales of $2.017 billion, an increase of 10.4% from the $1.827 billion in 1993. North American Resins contributed most of the gain, with a smaller increase in North American Plastics Operations. The division also reported record operating income of $201.5 million for 1994, an increase of 34.3% over the $150.0 million in 1993. The North American and Latin American Resins businesses were each up strongly, as was the contribution to income from BCP. Higher income in North American Plastics Operations more than offset a decline in Europe, and results were even in Worldwide Decorative Products. Packaging and Industrial Products' 1993 sales increased 1.3% to $1.827 billion from $1.804 billion in 1992 primarily as a result of increases in the North American operations of forest products adhesives, resins and wallcoverings, partially offset by decreases in most of the European businesses. Operating income increased 20.4% to $150.0 million from $124.6 million in 1992. Excluding restructuring charges, 1993 operating income decreased 16.5% compared to 1992 as a result of the negative impact of foreign exchange rate fluctuations and the continuing effects of the European recession on European packaging and resins, partially offset by improvements in North American adhesives and resins and worldwide wallcoverings. The effect of foreign exchange rate changes negatively impacted 1993 operating income by 9.6%. Interest expense in 1994 increased as a result of higher interest rates. Interest expense in 1993 increased as a result of increased average debt levels. Interest expense in 1992 decreased from the prior year due to lower average debt levels and lower interest rates. Income tax expense of $33.6 million was recorded in 1994 compared to a benefit of $210.8 million in 1993 and $30.9 million in 1992. Income tax for 1994 was an expense rather than a benefit due to $122.4 million of expenses that are not deductible for income tax purposes, a $49.5 million provision related to foreign source earnings and a $55.6 million adjustment for estimated prior liabilities. The low effective tax rate in both 1993 and 1992 reflects certain restructuring expenses with reduced tax benefits. The net deferred tax asset at December 31, 1994 was $370.2 million. Of this amount $410.4 million represents deferred tax assets (net of valuation allowances) relating to future tax deductions, tax loss and tax credit carryovers and other future tax benefits, with the remainder being a net foreign liability of $40.2 million. In order to realize the net deferred asset the Company will need to generate approximately 16 17 $1,175.0 million of future taxable income before the expiration of the carryforward periods. The deferred tax benefits are expected to be fully utilized through the future operating benefits generated by the divestiture and restructuring programs. An operating loss for domestic income tax purposes occurred in 1994, amounting to approximately $361 million. Operating losses can be carried back three years and forward 15 years. FINANCIAL POSITION At December 31, 1994 the Company's financial position was not strong. At the end of 1994, liabilities exceeded assets by $92.1 million. However, the Company expects positive cash flow from operations and divestitures in 1995, has reduced its common stock dividend, and in December 1994, signed a new five year $2.075 billion credit agreement with various domestic and foreign lending institutions. Borrowings under the credit agreement bear interest at LIBOR plus 1.75% or prime plus 1.75%; the margin on borrowings increases to LIBOR plus 2.25% if the Company's public debt ratings fall below BB and Ba2. The unused portion of the credit agreement at December 31, 1994 was $743.6 million. The effective interest rate on outstanding borrowings under the credit agreement at December 31, 1994 was 7.94%. The Credit Agreement contains certain restrictions on the activities of the Company and its subsidiaries, including restrictions on liens, the incurrence of indebtedness, mergers and consolidations, sales of assets, investments, payment of dividends, changes in business, prepayments of certain indebtedness, transactions with affiliates, capital expenditures, changes in control of the Company and the use of proceeds from asset sales and certain debt and equity issuances. In addition, the Company has agreed under the Credit Agreement to maintain a minimum ratio of EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) to interest expense beginning in June 1995 and a maximum ratio of total debt to EBITDA. At the end of 1994, the Company was not in violation of such restrictions and covenants. During 1994 the Company's long-term debt and commercial paper ratings were downgraded to Ba1 and Non-Prime by Moody's and to BBB and P-3 by Standard & Poor's. This action increased the Company's cost of borrowing in 1994 and will increase the Company's cost of borrowing in future years. The Company cut its quarterly common stock dividend during 1994 from $0.075 to $0.01. In January 1995, the Company announced that no common stock dividend would be paid prior to the pending merger with KKR. The Company's current ratio at December 31, 1994 was 1.1 to 1. During 1995 operating and divestment cash sources should be sufficient to meet the Company's current liabilities. Current maturities of long-term debt coming due during 1995 aggregate approximately $252 million. In January 1995 the Company filed a registration statement for the issuance of up to $2 billion of debt and/or preferred stock securities, some of which may be issued during 1995. In December 1994 affiliates of KKR exercised an option to purchase 28,138,000 of the Company's common shares at $11.00 per share. The Company issued the shares from treasury stock and received 51,106,768 RJR Holdings common shares as proceeds, with an approximate market value at year end of $281 million. After the exercise of the option, affiliates of KKR owned approximately 69.5% of the Company's outstanding common shares. On February 15, 1995 affiliates of KKR contributed an additional 68,893,232 shares of RJR Holdings common stock to the Company in exchange for $380.3 million of Borden, Inc. capital stock to be issued later in 1995. These RJR Holdings shares and the 51,106,768 shares discussed above were sold by the Company on February 16, 1995. Net proceeds of $662.4 million were realized from the sale which were used by the Company to reduce debt and minority interest. The sale resulted in an after tax loss 17 18 of $51.7 million which will be reflected in the Company's first quarter 1995 financial statements. Following the Merger, affiliates of KKR contributed an additional 111,047,230 shares of RJR Holdings common stock to the Company and will receive additional Company equity securities as consideration therefor. RJR Holdings has been requested to register the additional RJR Holdings shares acquired by the Company and, on March 15, 1995, a registration statement was filed with the Securities and Exchange Commission relating to the offering of such shares from time to time. Such registration statement has not yet been declared effective by the Commission and no offers or sales will be made until such registration statement becomes effective. LIQUIDITY AND CAPITAL RESOURCES Cash (used) provided from operating activities in 1994, 1993 and 1992 was $(250.8) million, $552.3 million and $292.9 million, respectively. Cash provided from operating activities decreased in 1994 due primarily to declines in operating results and spending in connection with restructuring programs. Cash provided from operating activities in 1993 increased from the prior year primarily due to the sale of receivables of $400.0 million. Capital expenditures decreased 16.6% from 1993 to $147.7 million in 1994, while 1993 capital expenditures of $177.0 million decreased 38.2% from 1992. These decreases were primarily the result of the completion in 1992 of capital expenditures relating to the 1989 reconfiguration program. Capital expenditures in 1995 are expected to approximate $225 million. During 1993 the Company acquired a U.S. dairy operation for a total cost of $9.5 million. The Company acquired a bakery operation, a foodservice operation, a foundry resin operation and a rigid plastics operation in 1992 for a total cost of $20.1 million. Short term debt decreased $198.6 million in 1994 and decreased $536.2 million in 1993. The decrease in short-term debt in 1993 was primarily the result of the proceeds from the sale of receivables being used to repay commercial paper. In 1994, 1993 and 1992 long-term debt financing provided $615.8, $274.6 and $45.2 million, respectively. The 1994 financing reflects the five year credit agreement signed in December 1994. The 1993 financing includes proceeds from a $250.0 million issuance of 30-year, 7 7/8% debentures which were used primarily to repay short-term commercial paper. The Company expects to have adequate liquidity during 1995 due to cash flows from operations and divestitures, amounts available under the credit agreement, and proceeds from the sale of RJR Holdings common stock discussed earlier. 18 19 Item 8. Financial Statements and Supplementary Data - - ------- ------------------------------------------- CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended (In millions except per share data) December 31, 1994 1993 1992 - - -------------------------------------------------------------------------------------------------------------------------- REVENUE Net Sales $5,626.1 $5,506.3 $5,871.7 - - -------------------------------------------------------------------------------------------------------------------------- COSTS AND EXPENSES Cost of goods sold 4,243.4 4,078.6 4,301.9 Marketing, general and administrative expenses 1,238.1 1,223.7 1,163.6 Restructuring charges 15.1 114.9 297.8 Impairment of long lived assets 292.7 Interest expense 130.7 125.1 116.6 Equity in income of affiliates (16.7) (16.0) (19.4) Minority interest 41.1 40.7 39.7 Other expense and (income), net 151.1 23.4 (4.0) Income taxes 69.6 (27.2) 14.2 -------- -------- -------- 6,165.1 5,563.2 5,910.4 -------- -------- -------- - - -------------------------------------------------------------------------------------------------------------------------- EARNINGS Loss from continuing operations (539.0) (56.9) (38.7) Discontinued operations: Loss from operations (65.8) (85.9) Loss on disposal (58.7) (490.0) -------- -------- -------- Loss before extraordinary item and cumulative effect of accounting changes (597.7) (612.7) (124.6) Extraordinary loss on early retirement of debt (10.8) Cumulative effect of change in accounting for: Postemployment benefits (18.0) Postretirement benefits other than pensions (189.0) Income taxes (40.0) -------- -------- -------- Net loss $ (597.7) $ (630.7) $ (364.4) ======== ======== ======== - - -------------------------------------------------------------------------------------------------------------------------- SHARE DATA Loss from continuing operations $ (3.75) $ (.40) $ (.27) Discontinued operations: Loss from operations (.47) (.60) Loss on disposal (0.41) (3.47) -------- -------- -------- Loss before extraordinary item and cumulative effect of accounting changes (4.16) (4.34) (.87) Extraordinary loss on early retirement of debt (.07) Cumulative effect of change in accounting for: Postemployment benefits (.13) Postretirement benefits other than pensions (1.32) Income taxes (.28) --------- -------- -------- Net loss per common share $ (4.16) $ (4.47) $ (2.54) ======== ======== ======== Cash dividends paid per common share $ 0.252 $ 0.90 $ 1.185 Average number of common shares outstanding during the period 143.7 141.0 143.4 - - -------------------------------------------------------------------------------------------------------------------------- See Notes to Consolidated Financial Statements
19 20 CONSOLIDATED BALANCE SHEETS
(In millions except share and per share data) December 31, 1994 1993 - - ----------------------------------------------------------------------------------------------------------------------- ASSETS - - ----------------------------------------------------------------------------------------------------------------------- CURRENT ASSETS Cash and equivalents $ 125.3 $ 100.3 Accounts receivable (less allowance for doubtful accounts of $13.6 and $8.9, respectively) 411.8 334.7 Inventories: Finished and in process goods 331.0 319.4 Raw materials and supplies 183.9 171.0 Investment securities 281.1 Other current assets 249.8 142.6 Net assets of discontinued operations 40.5 222.2 -------- -------- 1,623.4 1,290.2 -------- -------- - - ----------------------------------------------------------------------------------------------------------------------- INVESTMENTS AND OTHER ASSETS Investments in and advances to affiliated companies 86.9 91.3 Deferred income taxes 284.0 225.4 Other assets 119.0 126.6 -------- -------- 489.9 443.3 -------- -------- - - ----------------------------------------------------------------------------------------------------------------------- PROPERTY AND EQUIPMENT Land 95.2 105.5 Buildings 574.2 609.6 Machinery and equipment 1,893.1 1,949.3 -------- -------- 2,562.5 2,664.4 Less accumulated depreciation (1,455.6) (1,327.7) -------- -------- 1,106.9 1,336.7 -------- -------- - - ----------------------------------------------------------------------------------------------------------------------- INTANGIBLES Intangibles resulting from business acquisitions (net of accumulated amortization of $182.8 and $189.8, respectively) 602.1 801.5 -------- -------- - - ----------------------------------------------------------------------------------------------------------------------- $3,822.3 $3,871.7 ======== ======== - - -----------------------------------------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements 20 21
(In millions except share and per share data) December 31, 1994 1993 - - ----------------------------------------------------------------------------------------------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY - - ----------------------------------------------------------------------------------------------------------------------- CURRENT LIABILITIES Debt payable within one year $ 331.9 $ 410.6 Accounts and drafts payable 498.0 433.3 Restructuring reserve 87.1 145.9 Income taxes 146.3 56.5 Other current liabilities 465.9 325.2 -------- -------- 1,529.2 1,371.5 -------- -------- - - ----------------------------------------------------------------------------------------------------------------------- OTHER Long-term debt 1,379.0 1,240.8 Deferred income taxes 44.3 47.1 Non-pension postemployment benefit obligations 348.6 353.8 Other long-term liabilities 108.7 103.8 Minority interest 504.6 508.8 -------- -------- 2,385.2 2,254.3 -------- -------- - - ----------------------------------------------------------------------------------------------------------------------- SHAREHOLDERS' EQUITY Common stock - $0.625 par value Authorized 480,000,000 shares Issued 194,983,374 shares 121.9 121.9 Paid-in capital 120.0 88.1 Accumulated translation adjustment (140.9) (171.1) Minimum pension liability and other (145.4) (95.5) Retained earnings 201.8 835.1 -------- -------- 157.4 778.5 Less common stock in treasury (at cost) - 25,124,740 shares and 53,625,339 shares, respectively (249.5) (532.6) -------- -------- (92.1) 245.9 -------- -------- - - ----------------------------------------------------------------------------------------------------------------------- $3,822.3 $3,871.7 ======== ======== - - -----------------------------------------------------------------------------------------------------------------------
21 22 CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended (In millions) December 31, 1994 1993 1992 - - ---------------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES Net loss $ (597.7) $ (630.7) $ (364.4) Adjustments to reconcile net loss to net cash from operating activities: Depreciation and amortization 169.4 224.0 227.6 Loss on disposal of discontinued operations 94.7 637.4 Impairment losses 292.7 Restructuring (56.9) 52.5 316.5 Non-pension postemployment benefit obligation (5.2) 36.1 317.7 Sale of receivables (150.0) 400.0 Net changes in assets and liabilities: Trade receivables (43.8) 47.8 (30.3) Inventories (44.2) 21.2 1.0 Trade payables 65.8 (0.5) (4.4) Current and deferred taxes 24.0 (242.4) (175.3) Other assets 40.7 49.1 (9.6) Other, net 104.9 (122.1) 14.1 Discontinued operations (145.2) 79.9 -------- ------- ------- (250.8) 552.3 292.9 -------- ------- ------- - - ---------------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES* Capital expenditures (147.7) (177.0) (286.2) Divestiture of businesses 409.1 53.4 123.0 Purchase of businesses (9.5) (20.1) -------- ------- ------- 261.4 (133.1) (183.3) -------- ------- ------- - - ---------------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES* (Decrease)increase in short-term debt (198.6) (536.2) 255.5 Reduction in long-term debt (372.7) (128.7) (266.1) Long-term debt financing 615.8 274.6 45.2 Dividends paid (35.6) (126.7) (170.4) Issuance of stock under stock options and benefits and awards plans 5.5 12.1 3.9 -------- -------- -------- 14.4 (504.9) (131.9) -------- -------- -------- - - ---------------------------------------------------------------------------------------------------------------------------- Increase/(decrease)increase in cash and equivalents 25.0 (85.7) (22.3) Cash and equivalents at beginning of year 100.3 186.0 208.3 -------- -------- -------- Cash and equivalents at end of year $ 125.3 $ 100.3 $ 186.0 ======== ======== ======== - - ---------------------------------------------------------------------------------------------------------------------------- SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Interest paid $ 136.2 $ 133.3 $ 130.4 Taxes paid 8.0 20.5 67.1 - - ---------------------------------------------------------------------------------------------------------------------------- See Notes to Consolidated Financial Statements *NONCASH INVESTING AND FINANCING ACTIVITIES Investment in RJR Holdings Stock $( 281.1) Treasury Stock issued to KKR Affiliates 309.5 See Notes 11 and 17 to the Consolidated Financial Statements
22 23 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Minimum Accumulated Pension Common Paid-In Translation Liability Retained Treasury (In millions) Stock Capital Adjustment & Other Earnings Stock - - -------------------------------------------------------------------------------------------------------------------------- BALANCE, DECEMBER 31, 1991 $126.2 $314.9 $(51.3) $ (1.4) $2,127.3 $(541.2) Net loss (364.4) Cash dividends (170.4) Translation adjustments (77.0) Stock issued for preferred series B converted, exercised options and benefits and awards plans 2.3 1.6 Stock purchased and retired (4.3) (234.2) Minimum pension liability adjustment (1.8) - - -------------------------------------------------------------------------------------------------------------------------- BALANCE, DECEMBER 31, 1992 121.9 83.0 (128.3) (3.2) 1,592.5 (539.6) Net loss (630.7) Cash dividends (126.7) Translation adjustments (42.8) Stock issued for preferred series B converted, exercised options and benefits and awards plans 5.1 7.0 Minimum pension liability adjustment (92.3) - - -------------------------------------------------------------------------------------------------------------------------- BALANCE, DECEMBER 31, 1993 121.9 88.1 (171.1) (95.5) 835.1 (532.6) Net loss (597.7) Cash dividends (33.2) Stock rights redemption payment, $0.01 2/3 per right- Note 9 (2.4) Translation adjustments 30.2 Treasury stock issued to KKR affiliates 30.1 279.4 Stock issued for preferred series B converted, exercised options and benefits and awards plans 1.8 3.7 Minimum pension liability adjustment (11.8) Valuation allowance-securities (38.1) - - -------------------------------------------------------------------------------------------------------------------------- BALANCE, DECEMBER 31, 1994 $121.9 $120.0 $(140.9) $(145.4) $201.8 $(249.5) - - -------------------------------------------------------------------------------------------------------------------------- See Notes to Consolidated Financial Statements
23 24 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in millions except per share data) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Significant accounting policies followed by the company, as summarized below, are in conformity with generally accepted accounting principles. PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include the accounts of Borden, Inc. and its subsidiaries, after elimination of material intercompany accounts and transactions. The Company's proportionate share of the net earnings of unconsolidated 20% to 50% owned companies is included in income. The carrying value of these companies approximates Borden's interest in their underlying net assets. Investments of less than 20% ownership are carried at cost. CASH AND EQUIVALENTS/STATEMENTS OF CASH FLOWS - The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. The effect of exchange rate changes on cash flows is not material. INVENTORIES - Inventories are stated at the lower of cost or market. Cost is determined using the average cost and first-in, first-out methods. PROPERTY AND EQUIPMENT - Land, buildings and machinery and equipment are carried at cost. Depreciation is recorded on the straight-line basis by charges to costs and expenses at rates based on estimated useful lives of properties (average rates for buildings 3.5%; machinery and equipment 6.5%). Major renewals and betterments are capitalized. Maintenance, repairs and minor renewals are expensed as incurred. When properties are retired or otherwise disposed of, related cost and accumulated depreciation are removed from the accounts. INTANGIBLES - The excess of purchase price over net tangible assets of businesses acquired is carried as intangibles in the consolidated balance sheets. It is the Company's policy to carry intangibles arising prior to November 1, 1970 at cost, while those arising after that date are amortized on a straight-line basis over not more than forty years. IMPAIRMENT - The carrying value of property, equipment and intangibles is evaluated periodically in relation to the operating performance and future undiscounted cash flows of the underlying businesses. Adjustments are made if the sum of expected future cash flows is less than book value. REVENUE RECOGNITION - Revenues are recognized when products are shipped. ADVERTISING AND PROMOTION EXPENSE - Production costs of future media advertising are deferred until the advertising occurs. All other advertising and promotion costs are expensed when incurred or expensed ratably over the year in relation to sales. INCOME TAXES - In 1992 the Company adopted Statements of Financial Accounting Standard (SFAS) No. 109 "Accounting for Income Taxes," which requires the use of the liability method of accounting for deferred income taxes. The provision for income taxes includes Federal, foreign, state and local income taxes currently payable and those deferred because of temporary differences between the financial statement and tax bases of assets and liabilities. A substantial portion of the undistributed earnings of foreign subsidiaries has been reinvested and is not 24 25 expected to be remitted to the parent company. Accordingly, no Federal income taxes have been provided on such earnings. The cumulative amount of reinvested earnings was approximately $730.0 at December 31, 1994. The determination of the tax effect relating to such earnings is not practicable. PENSION AND RETIREMENT SAVINGS PLANS - Most of the Company's employees are covered under one of the Company's pension plans or one of the union-sponsored plans to which the Company contributes. Substantially all domestic and Canadian employees participate in the Company's retirement savings plans. The Company's cost of providing the retirement savings plans represents its matching of eligible contributions made by participating employees and is recognized as a charge to income in the year the cost is incurred. NON-PENSION POSTEMPLOYMENT BENEFITS - The Company provides certain health and life insurance benefits for eligible retirees and their dependents. In 1992 the Company adopted SFAS No 106 "Employers' Accounting for Postretirement Benefits Other Than Pensions" whereby the cost of postretirement benefits is accrued during employees' working careers. The cost of providing these benefits was previously recognized as a charge to income in the period the benefits were paid. The Company elected to immediately recognize this obligation rather than amortize it over future periods. The Company provided certain other postemployment benefits to qualified former or inactive employees. In 1993 the Company adopted, effective January 1, 1993, SFAS No. 112 "Employers' Accounting for Postemployment Benefits." The standard requires that the cost of benefits provided to former or inactive employees after employment, but before retirement, be accrued when it is probable that a benefit will be provided. The cost of providing these benefits was previously recognized as a charge to income in the period the benefits were paid. FOREIGN CURRENCY TRANSLATIONS - Assets and liabilities of foreign affiliates are generally translated at current exchange rates, and related translation adjustments are reported as a component of shareholders' equity. Income statement accounts are translated at the average rates during the period. For entities in highly inflationary countries, a combination of current and historical rates are used in translating assets and liabilities and related exchange adjustments are included in net income. EARNINGS PER SHARE - Earnings per common share are computed based on the weighted average number of common shares outstanding. FINANCIAL INSTRUMENTS - The Company uses forward exchange contracts and currency swaps to reduce the effect of the fluctuations in foreign currency rates. The Company hedges certain net foreign investments, firm commitments and transactions denominated in foreign currencies. Gains and losses on forward contracts are deferred and offset against foreign exchange gains or losses on the underlying hedged item. Premiums on currency swaps which hedge net foreign investments are recorded in the accumulated translation adjustment account to offset translation adjustments. The Company uses interest rate swaps to manage interest rate risk. The net interest differentials from these swaps are recorded in interest expense. The fair values of financial instruments are estimated based on quotes from brokers or current rates offered for instruments with similar characteristics. The Company does not hold or issue derivative financial instruments for trading purposes. 25 26 2. DISCONTINUED OPERATIONS AND RESTRUCTURING CHARGES In 1993 and 1994 the Company recorded pretax charges of $637.4 and $104.5, respectively, to provide for a comprehensive divestiture and restructuring program which includes the divestment of North American snacks, seafood, jams and jellies and other businesses. All except two of the businesses were sold in 1994. The results indicated below for the businesses being divested have been reported separately as discontinued operations in the Consolidated Statements of Income. 1994 results were charged against the reserve for loss on disposal.
1994 1993 1992 - - ------------------------------------------------------------------------------------------------------------- Sales $ 868.7 $1,193.8 $1,270.9 Loss before income taxes (69.1) (102.0) (131.0) Income tax (benefit) expense (24.4) (36.2) (45.1) Net loss from discontinued operations (44.7) (65.8) (85.9) - - -------------------------------------------------------------------------------------------------------------
The Company anticipates that the sale of the two remaining operations will be completed in 1995. The Company intends to use net proceeds from the sales of the operations to reduce debt. There is a provision for future operating losses of $1.3 at December 31, 1994. Net assets of $40.5 related to the discontinued operations have been segregated in the December 31, 1994 Consolidated Balance Sheet. This amount consists of the assets and liabilities of the businesses to be sold less the estimated losses on disposal. Information about restructuring charges is provided on pages 13 to 14 and is an integral part of the Consolidated Financial Statements. 3. ACCOUNTS RECEIVABLE The Company has an agreement which expires in 1999 that enables the Company to sell accounts receivable without recourse. At December 1994 and 1993, $250.0 and $400.0, respectively, of accounts receivable were sold. Accounts receivable include tax refund receivables of $14.1 and $103.3 at December 31, 1994 and 1993, respectively. 26 27 4. DEBT, LEASE OBLIGATIONS AND RELATED COMMITMENTS Debt outstanding at December 31, 1994 and 1993 is as follows:
1994 1993 ------------------------- --------------------------- Due Due Within Within (In millions) Long-Term One Year Long-Term One Year - - ------------------------------------------------------------------------------------------------------------------- Borrowings under credit line $ 381.6 $ 213.4 16 1/2% Australian Dollar Notes due 1994 $ 66.8 9 7/8% Notes due 1997 78.1 $ 78.1 Medium Term Notes, Series A (at an average rate of 7.8% and 7.8%, respectively) 66.5 33.5 100.0 50.0 Zero-Coupon Convertible Bonds due 2002 272.5 257.6 9.2% Debentures due 2021 117.1 117.1 7.875% Debentures due 2023 250.0 250.0 Sinking fund debentures: 8 3/8% due 2016 78.5 78.5 9 1/4% due 2019 48.7 48.7 Commercial paper (at average rate of 3.6%) 200.0 Industrial Revenue Bonds (at an average rate of 8.4% and 8.4%, respectively) 54.9 0.3 55.2 0.3 Other (at an average rate of 6.1% and 9.1%, respectively) 31.1 4.7 55.6 14.8 - - ------------------------------------------------------------------------------------------------------------------- Total current maturities of long-term debt 251.9 131.9 Short-term debt: Commercial paper (at an average rate of 3.6%) 59.0 Other (primarily foreign bank loans at an average rate of 7.7% and 5.4%, respectively) 80.0 219.7 - - ------------------------------------------------------------------------------------------------------------------- Total debt $1,379.0 $ 331.9 $1,240.8 $410.6 ======== ======== ======== ====== - - -------------------------------------------------------------------------------------------------------------------
The Company entered into a five year $2.075 billion credit agreement in December 1994. The credit agreement includes a $1,295.0 credit line, a $300.0 facility for the sale of accounts receivable, and a $480.0 term loan for T.M.I. Associates L.P. (see Note 6 to the Consolidated Financial Statements for additional information on T.M.I. Associates L.P.). The credit agreement contains certain restrictions on the activities of the Company and its subsidiaries, including restrictions on liens, the incurrence of indebtedness, mergers and consolidations, sales of assets, investments, payment of dividends, changes in business, prepayments of certain indebtedness, transactions with affiliates, capital expenditures, changes in control of the Company and the use of proceeds from asset sales and certain debt and equity issuances. In addition, the stock of a number of subsidiaries of the Company have been pledged as collateral, and the Company has agreed under the Credit Agreement to maintain a minimum ratio of EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) to interest expense beginning in June 1995 and a maximum ratio of total debt to EBITDA. At the end of 1994, the Company was not in violation of such restrictions and covenants. 27 28 Aggregate maturities of long-term debt and minimum annual rentals under operating leases at December 31, 1994 are as follows:
Long-Term Minimum Rentals on Debt Operating Leases - - --------------------------------------------------------------------------------------------------------- 1995 $ 251.9 $ 62.6 1996 171.7 50.9 1997 173.9 40.3 1998 4.7 25.8 1999 197.4 21.9 2000 and beyond 831.3 70.3 - - ---------------------------------------------------------------------------------------------------------
Maturities relating to amounts borrowed against the $1.295 billion credit line are $213.4 in 1995, $122.0 in 1996, $61.0 in 1997, $3.6 in 1998 and $195.0 in 1999. In conjunction with the sale of the RJR Holdings stock which occurred February 16, 1995, the amounts due in 1995 and 1996 were repaid on February 27, 1995. The average amount of short-term commercial paper outstanding was $305.6 during 1994 and $341.7 during 1993, and the average amount of other short-term debt was $164.8 during 1994 and $189.7 during 1993. The respective weighted average interest rates for short-term commercial paper and other short-term debt were 4.2% and 6.7% during 1994 and 3.3% and 7.4% during 1993. Maximum month-end borrowings were $590.0 in 1994 and $440.0 in 1993 for short-term commercial paper, and $214.8 in 1994 and $219.7 in 1993 for other short-term debt. The Company had $743.6 available for borrowing under its five year credit agreement at December 31, 1994. The Company capitalizes interest related to the cost of constructing fixed assets. The total interest costs incurred and the portions capitalized were $131.4 and $0.6 in 1994, $126.2 and $1.2 in 1993, and $151.1 and $3.1 in 1992. 5. INCOME TAXES In 1992 the Company adopted SFAS No. 109 which requires the use of the liability method of accounting for deferred income taxes. The cumulative effect as of January 1, 1992 of the change was a deferred tax expense of $40.0, or $.28 per share. The effect of the accounting change in 1992 was to decrease the net loss by $3.1, or $.02 per share. Comparative analysis of the provisions (benefits) for income taxes from continuing and discontinued operations and the loss on disposal of discontinued operations follows:
1994 1993 1992 - - ----------------------------------------------------------------------------------------------------------- CURRENT Federal $ (39.1) $ (28.7) $ 5.6 State and Local 2.5 (.3) 5.9 Foreign 41.5 27.1 47.3 ------- ------- ------- 4.9 (1.9) 58.8 ------- ------- ------- - - ----------------------------------------------------------------------------------------------------------- DEFERRED Federal 39.5 (175.2) (80.6) State and Local 5.5 (32.1) (8.2) Foreign (16.3) (1.6) (.9) ------- ------- ------- 28.7 (208.9) (89.7) ------- ------- ------- - - ----------------------------------------------------------------------------------------------------------- $ 33.6 $(210.8) $ (30.9) ======= ======= ======= - - -----------------------------------------------------------------------------------------------------------
The 1994 income tax expense of $33.6 included expense of $69.6 from continuing operations, partially offset by a benefit of $36.0 from loss on disposal of discontinued operations. The 1993 tax benefit of $210.8 was comprised of $27.2 from continuing operations, $36.2 from losses of discontinued operations and $147.4 from loss on disposal of discontinued operations. 28 29 The 1992 tax benefit of $30.9 consists of a tax expense of $14.2 from continuing operations and a tax benefit of $45.1 from discontinued operations. The tax expense related to continuing operations reflects write offs of intangibles and other assets with reduced tax basis in connection with certain businesses divested under the 1992 restructuring program. The deferred tax provisions in 1994, 1993 and 1992 include $80.5, $(196.6), and $(116.3), respectively, for the tax effects of costs and expenses related to the restructuring programs and the disposal of discontinued operations which are deductible for income tax purposes subsequent to their recognition for book purposes, when the assets are disposed or expenditures incurred. The deferred tax provisions in 1994, 1993 and 1992 also reflect the tax effects of accelerated depreciation of $6.4, $13.7, and $11.7, respectively, and pension contributions with tax effects of $3.4, $6.0, and $6.2, respectively. Reconciliations of the differences between income taxes computed at Federal statutory tax rates and consolidated provisions for income taxes are as follows:
1994 1993 1992 - - ------------------------------------------------------------------------------------------------------- Income taxes computed at Federal statutory tax rate $(197.4) $(280.0) $ (52.8) State tax provision, net of Federal benefits 5.2 (22.6) (2.2) Foreign tax differentials (1.7) 0.1 1.7 Foreign source income subject to U.S. taxation 49.5 Capital loss benefit (17.9) Write-offs of assets with lower tax bases and differences in tax rates 75.8 4.3 40.0 Losses and merger and other expenses not deductible for tax 46.6 81.3 Adjustment of prior estimates 55.6 Other - net 6.1 0.3 - - ------------------------------------------------------------------------------------------------------- Provision for income taxes $ 33.6 $(210.8) $ (30.9) ======== ======= ======= - - -------------------------------------------------------------------------------------------------------
The domestic and foreign components of loss before income taxes, extraordinary loss and cumulative effect of accounting changes are as follows:
1994 1993 1992 - - ------------------------------------------------------------------------------------------------------- Domestic $(647.1) $(878.9) $(195.3) Foreign 83.0 55.4 39.8 - - ------------------------------------------------------------------------------------------------------- $(564.1) $(823.5) $(155.5) ======= ======= ======= - - -------------------------------------------------------------------------------------------------------
The net current and non-current components of deferred income taxes recognized in the balance sheet at December 31, 1994 and 1993 follow:
1994 1993 - - ------------------------------------------------------------------------------------------------------- Net current asset $130.5 $ 44.0 Net non-current asset 239.7 178.3 - - ------------------------------------------------------------------------------------------------------- Net asset $370.2 $222.3 ====== ====== - - -------------------------------------------------------------------------------------------------------
The net deferred tax asset at December 31, 1994 consisted of an asset of $410.4 related to Federal income taxes and a net foreign liability of $40.2. 29 30 The tax effects of the significant temporary differences and loss and credit carryforwards which comprise the deferred tax assets and liabilities at December 31, 1994 and 1993 follow:
1994 1993 - - --------------------------------------------------------------------------------------------------- ASSETS Non-pension post-employment benefit obligations $134.2 $131.7 Restructuring and other reserves 45.7 140.1 Divestiture reserve 73.3 147.4 Accrued expenses and other expenses 76.0 50.8 Foreign property, plant and equipment 19.1 14.1 Minimum pension liability 65.8 58.5 Loss and credit carryforwards 303.5 108.6 Dairy impairment 57.4 Other prepaids 44.1 Other 7.3 ------ ------ Gross deferred tax assets 819.1 658.5 Valuation allowance (68.5) (58.7) ------ ------ 750.6 599.8 LIABILITIES Property, plant, equipment, and intangibles 214.9 236.5 Foreign property, plant, equipment/other 59.8 Certain foreign intangibles 24.9 26.4 Deferred gain on sale of partnership interest 17.2 21.0 Pension and health plan contributions 43.7 26.5 Prepaid expenses and deferred charges 52.4 Other 19.9 14.7 ------ ------ Gross deferred tax liabilities 380.4 377.5 - - --------------------------------------------------------------------------------------------------- Net asset $370.2 $222.3 ====== ====== - - ---------------------------------------------------------------------------------------------------
The net change in valuation allowances of $9.8 in 1994 and $15.8 in 1993 primarily relates to loss carryforwards of foreign operations which are not expected to be realized. The net deferred tax asset at December 31, 1994 was $370.2. Of this amount, $410.4 represents deferred tax assets (net of valuation allowances) related to future tax benefits. Realization of the deferred tax asset is dependent on the generation of approximately $1,175.0 of future taxable income. Management believes that it is more likely than not that this future income will be generated over the 15 year carryforward period applicable to loss carryforwards. This belief is based on an analysis of the future plans of the Company's new owners and management, the expected future benefits resulting from the 1994 and earlier restructuring programs, the effect of the divestitures of unprofitable operations and various cost reduction plans. Management has considered the limitations on loss carryforwards resulting from the change in ownership of the Company in reaching this conclusion. In addition, there is also the possibility of the future profitable sale of various business units. Management also considered in its assessment that over $1 billion of the prior years' losses were related to items that could be considered one time charges (see discussion on page 11) that offset operating income that can be expected to continue. The Internal Revenue Service has examined the Company's tax returns for the period 1989-1990 and has proposed adjustments to the utilization of certain capital losses. Full disallowance of the contested items could result in a net charge to earnings in excess of $100.0, including penalties and interest. The Company disagrees with the 30 31 position of the Service, will contest the proposed adjustments and believes it has meritorious support for its position. The Company expects that the ultimate resolution of this matter, after considering amounts already provided, will not have a material effect on its financial position. 6. MINORITY INTEREST In 1991 three wholly owned subsidiaries of the Company contributed $1,700.5 in assets to T.M.I. Associates, L.P., a Delaware limited partnership (the Partnership), in exchange for a 77.28% general partner interest in the Partnership. The contributed assets consisted of selected trademarks which are licensed to the Company pursuant to exclusive long-term license agreements, a long-term note guaranteed by the Company and cash. Additionally, an outside investor contributed $500.0 in cash to the Partnership in exchange for a 22.72% limited partner interest. The Partnership, whose purpose is to invest in and manage a portfolio of assets, is a separate and distinct legal entity from the Company. For financial reporting purposes the Partnership's assets, liabilities and earnings are consolidated with those of the Company, and the limited partner's interest in the Partnership is included in the Company's financial statements as minority interest. Under an agreement signed in December 1994, the Company may be required during 1995 to purchase a majority ownership interest in the limited partnership that owns 22.72% of T.M.I. Associates L.P. The purchase price would be approximately $18.0. If this purchase occurs, $500.0 currently classified as minority interest would be reclassified as long-term debt. 7. PENSION AND RETIREMENT SAVINGS PLANS For most salaried employees, the Company's pension plans provide benefits generally based on compensation and credited service. For most hourly employees, the plans provide benefits based on specified amounts per year of credited service.
Following are the components of the net pension expense (credit) recognized by the Company: 1994 1993 1992 - - ---------------------------------------------------------------------------------------------------------- Service cost-benefits earned during the period $ 14.6 $ 13.4 $ 13.7 Interest cost on the projected benefit obligation 41.7 45.6 46.3 Actual return on plan assets 2.1 (20.0) (18.9) Net amortization and deferral (52.4) (34.2) (42.6) - - ---------------------------------------------------------------------------------------------------------- Net pension expense(credit) $ 6.0 $ 4.8 $ (1.5) ======= ====== ====== - - ----------------------------------------------------------------------------------------------------------
The weighted average rates used to determine net periodic pension expense were as follows: 1994 1993 1992 - - ---------------------------------------------------------------------------------------------------------- Discount rate 7.6% 8.8% 8.5% Rate of increase in future compensation levels 4.5% 5.4% 5.3% Expected long-term rate of return on plan assets 9.1% 10.2% 10.1% - - ----------------------------------------------------------------------------------------------------------
Most employees not covered by the Company's plans are covered by collectively bargained agreements which are generally effective for five years. Under Federal pension law, there would be continuing liability to these pension trusts if the Company ceased all or most participation in any such trust, and under certain other specified conditions. Operations were charged $5.1, $5.8, and $7.0 in 1994, 1993 and 1992, respectively, for payments to pension trusts on behalf of employees not covered by the Company's plans. 31 32 The funded status of the plans and amounts included in the Company's balance sheets at December 31, 1994 and 1993 were as follows:
1994 1993 ----------------------------- ---------------------------- Plan Assets Accumulated Plan Assets Accumulated Exceed Benefits Exceed Benefits Accumulated Exceed Accumulated Exceed Benefits Plan Assets Benefits Plan Assets - - ----------------------------------------------------------------------------------------------------------------- Plan assets at fair value $ 124.0 $ 354.0 $ 134.3 $ 378.2 Actuarial present value of: Vested benefit obligations (99.7) (401.9) (106.0) (456.2) Accumulated benefit obligations (102.4) (419.7) (108.8) (474.5) ------- ------- ------- ------- Projected benefit obligations (121.5) (424.8) (128.4) (484.1) ------- ------- ------- ------- Plan assets greater(less) than projected benefit obligation 2.5 (70.8) 5.9 (105.9) Unrecognized prior service (benefit) (0.2) (5.5) (1.6) (7.5) Unrecognized loss 35.4 196.4 37.3 187.2 Unrecognized net transition (asset) obligation (0.4) (12.3) (0.5) (15.5) Minimum liability adjustment (174.9) (156.3) - - ----------------------------------------------------------------------------------------------------------------- Net pension asset (liability) $ 37.3 $ (67.1) $ 41.1 $ (98.0) ======= ======= ======= ======= - - -----------------------------------------------------------------------------------------------------------------
The weighted average discount rates and rates of increase in future compensation levels used in determining the projected benefit obligation were 8.8% and 5.2%, respectively, as of December 31, 1994, and 7.6% and 4.5%, respectively, as of December 31, 1993. Plan assets consist primarily of equity securities and corporate obligations. At December 20, 1994 all Company stock in the plan was converted to shares of RJR Nabisco stock. At December 31, 1993 the plan held 2,185,000 shares of Company common stock with a market value of $37.1, on which dividends of $1.7 were received. In accordance with SFAS No. 87 the Company recorded an additional minimum pension liability for underfunded plans, representing the excess of accumulated benefits over plan assets and accrued pension costs, of $18.6 and $148.3 at December 31, 1994 and 1993, respectively. This liability, which had no effect on income, reduced equity by $11.8 and $92.3, net of income taxes, in 1994 and 1993, respectively. Charges to operations for matching contributions under the Company's retirement savings plans in 1994, 1993 and 1992 amounted to $9.7, $16.1 and $20.6, respectively. Eligible salaried and hourly non-bargaining employees may contribute up to 5% of their pay (7% for certain longer service salaried employees), which was matched 100% by the Company through the third quarter of 1993. The 1993 expense was reduced as a result of the temporary suspension of the Company match in the fourth quarter; the match was reinstated at 50% in the first quarter of 1994. 8. NON-PENSION POSTEMPLOYMENT BENEFITS The Company provides certain health and life insurance benefits for eligible domestic retirees and their dependents. In 1992 the Company adopted SFAS No. 106 whereby the cost of postretirement benefits is accrued during employees' working careers. The Company elected to immediately recognize this obligation rather than amortize it over future periods. The cost of providing these benefits was previously recognized as a charge to income in the period the benefits were paid. 32 33 The cumulative effect of the change as of January 1, 1992 was to decrease net income by $189.0, or $1.32 per share, after a deferred tax benefit of $111.0. The effect of the accounting change in 1992 was to reduce net income by $11.2, or $.08 per share. Participants who are not eligible for Medicare are provided with the same medical benefits as active employees, while those who are eligible for Medicare are provided with supplemental benefits. The postretirement medical benefits are contributory for retirements after 1983; the postretirement life insurance benefit is noncontributory. In 1993 the Company amended the postretirement benefit plan for most employees primarily to reduce, and over several years eliminate, the Company subsidy of retiree medical benefits. This plan amendment reduced the accumulated postretirement benefit obligation by $74.8 million and is being amortized over future years. The components of net postretirement benefit expense for the year ended December 31, 1994 and 1993 follow:
1994 1993 - - --------------------------------------------------------------------------- Service cost $ 3.4 $ 4.9 Interest cost 17.9 22.6 Net amortization and deferral (9.6) (5.6) - - --------------------------------------------------------------------------- Net postretirement benefit expense $ 11.7 $ 21.9 ====== ====== - - ---------------------------------------------------------------------------
The status of the Company's unfunded postretirement benefit obligation at December 31, 1994 and 1993 follows:
1994 1993 - - --------------------------------------------------------------------------- Actuarial present value of accumulated postretirement benefit obligation: Retirees $(132.5) $(186.9) Fully eligible active plan participants (3.5) (33.9) Other active plan participants (25.8) (33.5) - - --------------------------------------------------------------------------- (161.8) (254.3) - - --------------------------------------------------------------------------- Unrecognized prior service benefit (79.6) (73.0) Unrecognized (gain) loss (84.0) 1.6 - - --------------------------------------------------------------------------- Accrued postretirement benefit liability $(325.4) $(325.7) ======= ======= - - ---------------------------------------------------------------------------
The discount rate used in determining the accumulated postretirement benefit obligation at December 31, 1994 and 1993 was 8.8% and 7.5%, respectively. The assumed health care cost trend rate used in measuring the accumulated postretirement benefit obligation at December 31, 1994 was 11.5% for 1995, gradually declining to 6.8% in 2009 and thereafter. The comparable assumptions for the prior year were 14.4% and 5.5%. A one-percentage point increase in the health care cost trend rate would increase the accumulated postretirement benefit obligation as of December 31, 1994 by $16.2 and the sum of the service and interest costs in 1994 by $3.0. The Company provides certain other postemployment benefits, primarily medical and life insurance benefits for long-term disabled employees, to qualified former or inactive employees. In 1993 the Company adopted, SFAS No. 112 effective January 1, 1993. The standard requires that the cost of benefits provided to former or inactive employees after employment, but before retirement, be accrued when it is probable that a benefit will be provided. The cost of providing these benefits was previously recognized as a charge to income in the period the benefits were paid. The amounts of such charges were not significant in the prior years. 33 34 The cumulative effect of the change as of January 1, 1993 was to decrease net income by $18.0, or $.13 per share, after deferred tax benefit of $11.0. 9. SHAREHOLDERS' EQUITY During 1994 the Company had authorized 10,000,000 shares of no-par preferred series B stock. At December 31, 1994 and 1993, 6,532 and 6,989 shares, respectively, were issued and outstanding. Each share of the preferred series B stock had an involuntary liquidating value of $28.88, and an annual cumulative dividend of $1.32, was convertible into 6.6 common shares, and was redeemable at the Company's option at $39. At December 31, 1994 43,118 common shares were reserved for conversion of preferred series B stock. On January 25, 1995 all outstanding shares of preferred series B stock were redeemed by the Company at $39.2748 per share. Under a Preferred Share Purchase Rights Plan, each outstanding share of common stock had one preferred stock purchase right (Right) which entitled shareholders to purchase, under certain circumstances, one-hundredth of a share of Series C Junior Participating Preferred Stock at an exercise price of $175, subject to adjustment. On December 20, 1994, all of these rights were redeemed by the Company at $0.01 2/3 per right. The payments for the rights redemption were recorded as dividends. Following is an analysis of common shares reserved for stock options under the Company's 1974, 1984 and 1994 Stock Option Plans as Amended:
Shares Price Range - - ------------------------------------------------------------------------------------------------ AT DECEMBER 31, 1991 4,296,464 $ 4.78-36.06 Grants 603,325 27.31-33.38 Exercises (133,636) 4.78-31.56 Expirations and cancellations (257,050) 26.81-36.06 - - ------------------------------------------------------------------------------------------------ AT DECEMBER 31, 1992 4,509,103 $ 8.22-36.06 Grants 263,350 27.56 Exercises (30,970) 9.62-27.85 Expirations and cancellations (545,375) 17.75-36.06 - - ------------------------------------------------------------------------------------------------ AT DECEMBER 31, 1993 4,196,108 $ 9.62-36.06 Grants 2,050,400 12.25-18.50 Exercises (87,050) 9.62-10.64 Expirations and cancellations (733,151) 9.62-36.06 - - ------------------------------------------------------------------------------------------------ AT DECEMBER 31, 1994 5,426,307 $10.64-36.06 ========= ============ - - ------------------------------------------------------------------------------------------------
As a result of the change in control of the Company, on December 21, 1994 all options outstanding became exercisable. The Company's 1994 Stock Option Plan provides for the grant of options to purchase up to 6,000,000 shares of the Company's common stock. No options may be granted under this plan after April 30, 1999. At December 31, 1994 there were 3,990,650 shares available for future grants. Additionally, there were outstanding options of 1,406,600, 1,508,900 and 118,250 at December 31, 1994, 1993, and 1992, respectively, relating to various other stock option plans, at prices ranging from $17.12 to $34.81. During 1992 7,000,000 of the Company's common shares were purchased on the open market and retired. 10. FOREIGN AFFILIATES Realized and unrealized net foreign exchange losses aggregating $20.1, $38.1 and $22.8 were charged against net income in 1994, 1993 and 1992, respectively. These losses were principally attributable to foreign exchange losses in Brazil in each of the three years. 34 35 11. INVESTMENTS At December 31, 1994, the Company owned 51,106,768 common shares of RJR Nabisco Holdings Corp. with an aggregate cost of $309.5. These securities are classified as available for sale; no sales of such securities occurred during 1994. The net unrealized loss deducted from shareholders' equity at December 31, 1994 was $38.1. 12. DERIVATIVE FINANCIAL INSTRUMENTS The Company enters into interest rate swaps to lower funding costs or to alter interest rate exposures between fixed and floating rates on long term debt. Under interest rate swaps, the Company agrees with other parties to exchange, at specified intervals, the difference between fixed rate and floating rate interest amounts calculated by reference to an agreed notional principal amount. The notional amount of interest rate swaps was $904.3 at both December 31, 1994 and 1993. These swaps have maturities ranging from 1995 to 2002. The net impact of interest rate swaps was an increase in the Company's interest expense of $11.2 in 1994, $11.9 in 1993 and $4.4 in 1992. The Company's total floating rate debt at December 31, 1994 was $1,026.8. The following table indicates the types of swaps used by the Company and their weighted average interest rates. Variable rates change with market conditions and may vary significantly in the future.
1994 1993 1992 ------ ------ ------ Receive fixed swaps Average rate received 7.9% 7.5% 7.6% Average rate paid 5.3% 3.9% 4.6% Pay fixed swaps Average rate paid 10.1% 10.1% 10.1% Average rate received 4.6% 3.2% 3.8%
The Company enters into foreign exchange contracts to hedge certain firm purchase and sale commitments denominated in foreign currencies and to hedge net investments in foreign subsidiaries. The purpose of the Company's foreign currency hedging activities is to protect the Company from the risk that the eventual dollar net cash inflows that result from operating in foreign countries will be adversely affected by changes in exchange rates. The impact of exchange rate fluctuations in 1992 to 1994 is reviewed on pages 15 and 16. The notional amount of foreign exchange contracts was $420.4 at December 31, 1994 and $285.4 at December 31, 1993. All of the contracts mature in less than one year. The Company is exposed to credit loss in the event of nonperformance by the other parties to interest rate swaps and foreign exchange contracts. However, the Company does not anticipate nonperformance by the counterparties. 35 36 13. FAIR VALUE OF FINANCIAL INSTRUMENTS The following table presents the carrying amounts and fair values of the Company's financial instruments at December 31, 1994 and 1993. The fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale.
1994 1993 ------------------------- ------------------------ Carrying Fair Carrying Fair Amount Value Amount Value NONDERIVATIVES Assets Cash and cash equivalents $ 125.3 $ 125.3 $ 100.3 $ 100.3 Receivables 411.8 411.8 334.7 334.7 Investment securities 281.1 281.1 Liabilities Debt 1,710.9 1,587.0 1,651.4 1,828.8 DERIVATIVES RELATING TO: Foreign currency contracts (0.9) 45.5 Interest rate swaps (34.8) (73.1)
14. OPERATIONS BY INDUSTRY SEGMENT Information about the Company's industry and geographic segments is provided on pages 2 to 5 and is an integral part of the consolidated financial statements. 15. SUPPLEMENTAL INFORMATION
1994 1993 1992 - - ------------------------------------------------------------------------------------------------------------ Maintenance and repairs $110.9 $133.6 $134.4 Depreciation and amortization (including amortization of $25.9, $39.2 and $47.1, respectively) 169.4 224.0 227.6 Advertising and promotions (including promotions of $418.0, $531.9 and $519.6, respectively) 552.6 735.5 698.0 Research and development 26.3 31.9 30.8 Rent 79.3 81.3 82.3 - - ------------------------------------------------------------------------------------------------------------
The impact of adopting SOP 93-7 was not material as the Company expenses advertising during the year it is incurred. Other expense and income for 1994 includes fees paid to KKR, a related party, of $50.0, $55.2 for other merger related expenses and expenses of $64.0 related to renegotiation of the $1.4 billion credit line and for payments to terminate other debt agreements. Other current assets include a deferred tax asset of $130.5. Other current liabilities at December 31, 1994 include insurance accruals of $120.5. 36 37 16. COMMITMENTS A wholly owned subsidiary as general partner of Borden Chemicals and Plastics Limited Partnership (BCP) has certain fiduciary responsibilities to BCP's unitholders. The Company believes that such responsibilities will not have a material adverse effect on its financial condition. 17. SUBSEQUENT EVENTS On February 15, 1995 affiliates of KKR contributed an additional 68,893,232 shares of RJR Holdings common stock to the Company in exchange for $380.3 million of Borden, Inc. capital stock to be issued later in 1995. These shares and the 51,106,768 shares discussed above were sold by the Company on February 16, 1995. Net proceeds of $662.4 million were realized from the sale which were used by the Company to reduce debt and minority interest. The sale resulted in an after tax loss of $51.7 million which will be reflected in the Company's first quarter 1995 financial statements. On March 7, 1995 Standard & Poor's lowered its ratings on the Company's senior debt to BBB minus from BBB, and for its commercial paper to A-3 from A-2. The acquisition of the Company by affiliates of KKR was completed on March 14, 1995 following approval of the merger of the Company with and into an affiliate of KKR by shareholders of the Company at a special meeting held on that date. As a result of the merger, as of March 14, 1995, all $0.625 par value common stock was cancelled and retired. Following the merger, the Company's authorized common stock consists of 300,000,000 shares, with a par value of $0.01 per share, of which 100% of the outstanding shares are owned by affiliates of KKR. On March 15, 1995 affiliates of KKR contributed an additional 11,047,230 shares of RJR Holdings common stock to the Company in exchange for equity securities of Borden, Inc. to be issued later in 1995. 37 38 18. QUARTERLY FINANCIAL DATA (UNAUDITED)
- - ------------------------------------------------------------------------------------------------------------------ 1994 Quarters First Second Third Fourth* - - ------------------------------------------------------------------------------------------------------------------ Net Sales $1,272.7 $1,369.3 $1,440.1 $1,544.0 - - ------------------------------------------------------------------------------------------------------------------ Gross profit 318.0 326.0 362.7 376.0 - - ------------------------------------------------------------------------------------------------------------------ Income (loss) from continuing operations 5.8 11.1 (71.8) (484.0) - - ------------------------------------------------------------------------------------------------------------------ Discontinued operations: Loss on disposal (58.7) - - ------------------------------------------------------------------------------------------------------------------ Net income (loss) 5.8 11.1 (130.5) (484.0) - - ------------------------------------------------------------------------------------------------------------------ Per share of common stock: Income (loss) from continuing operations .04 .08 (.51) (3.25) Discontinued operations: Loss on disposal (.41) Net income(loss) .04 .08 (.92) (3.25) Dividends 0.075 0.075 0.075 0.027 Market price range: Low 13 1/8 11 7/8 11 12 1/8 High 18 3/8 13 7/8 14 1/4 14 - - ------------------------------------------------------------------------------------------------------------------ - - ------------------------------------------------------------------------------------------------------------------ 1993 Quarters First Second Third Fourth** - - ------------------------------------------------------------------------------------------------------------------ Net sales $1,297.6 $1,352.5 $1,386.4 $1,469.8 - - ------------------------------------------------------------------------------------------------------------------ Gross profit 351.1 355.1 363.5 358.0 - - ------------------------------------------------------------------------------------------------------------------ Income (loss) from continuing operations 43.7 30.5 8.5 (139.6) - - ------------------------------------------------------------------------------------------------------------------ Discontinued operations: Loss from operations (16.5) (12.0) (17.9) (19.4) Loss on disposal (490.0) - - ------------------------------------------------------------------------------------------------------------------ Net income(loss) 9.2 18.5 (9.4) (649.0) - - ------------------------------------------------------------------------------------------------------------------ Per share of common stock: Income (loss) from continuing operations .31 .22 .06 (.99) Discontinued operations: Loss from operations (.11) (.09) (.13) (.13) Loss on disposal (3.47) Net income(loss) .07 .13 (.07) (4.59) Dividends 0.300 0.300 0.150 0.150 Market price range: Low 24 1/8 17 5/8 14 3/4 14 3/8 High 29 1/8 27 19 5/8 19 5/8 - - ------------------------------------------------------------------------------------------------------------------ * Fourth quarter 1994 results include pretax operating charges of $263.8 for impairment write-downs, $99.5 for plant closings and other non-recurring items, and charges of $111.8 for expenses related to the merger with affiliates of KKR and debt retirements, partially offset by a $63.0 pretax gain on the sale of a business, and $55.6 income tax expense for changes in prior years' estimated liabilities. ** Fourth quarter 1993 results include pretax operating charges of $194.2 for restructuring and other non-recurring items, partially offset by a $14.8 pretax gain on the sale of a business.
The 1994 and 1993 quarterly earnings per share amounts do not add to the annual amounts as a result of differences in average shares outstanding between the quarterly and annual calculations. 38 39 REPORT OF INDEPENDENT ACCOUNTANTS Price Waterhouse LLP The Huntington Center 41 South High Street Columbus, Ohio 43215 Board of Directors and Shareholders of Borden, Inc. In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, shareholders' equity and of cash flows present fairly, in all material respects, the financial position of Borden, Inc. and its subsidiaries at December 31, 1994 and 1993, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1994, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. In 1993, the Company changed its method of accounting for postemployment benefits to conform with Statement of Financial Accounting Standards No. 112 as discussed in Note 8 of the Consolidated Financial Statements. In 1992, the Company changed its method of accounting for postretirement benefits and income taxes to conform with Statements of Financial Accounting Standards No. 106 and No. 109 as discussed in Note 8 and Note 5 of the Consolidated Financial Statements, respectively. PRICE WATERHOUSE LLP February 16, 1995, except as to paragraphs 4 amd 5 of Note 17, which are as of March 15, 1995. 39 40 Item 9. Changes in and Disagreements with Accountants on Accounting and - - ------- --------------------------------------------------------------- Financial Disclosure -------------------- No Form 8-K was issued by the Company during the two most recent fiscal years ended December 31, 1994 reporting a change in or disagreement with accountants. A Form 8-K was filed on February 21, 1995 reporting a change in accountants. PART III Item 10. Directors and Executive Officers of the Registrant - - -------- -------------------------------------------------- Set forth below are the names and ages of the Directors and Executive Officers of the Company as of March 15, 1995 and the positions and offices with the Company presently held by each of them. Their terms of office extend to the next Annual Meeting of the Board of Directors or until their successors are elected.
Served Age on In Present Dec. 31, Position Name Position & Office 1994 Since - - -------------- ------------------------------------ -------- --------- C. R. Kidder Chairman of the Board, Director, Chief Executive Officer and President Consumer Packaged Products 50 1995 H. R. Kravis Director 50 1994 A. Navab Director 29 1994 C. S. Robbins Director 36 1994 G. R. Roberts Director 51 1994 S. M. Stuart Director 35 1994 R. W. Allen Executive Vice President, President Dairy Products 51 1995 R. L. de Ney Executive Vice President-Corporate Strategy and Development 45 1995 J. M. Saggese Executive Vice President, President Worldwide Packaging and Industrial Products 63 1990 J. C. Van Meter* Executive Vice President and Chief Financial Officer 56 1994 R. D. Kautto Senior Vice President-Human Resources and Corporate Affairs 49 1995 A. L. Miller Senior Vice President, General Counsel, and Secretary 62 1994 N. R. Iammartino Vice President-Public Affairs 47 1995 D. A. Kelly Vice President and Treasurer 56 1980 P. M. Morton Vice President and General Controller 49 1994 --------------
* James C. Van Meter resigned as Executive Vice President and Chief Financial Officer effective March 16, 1995. William H. Carter, formerly the Price Waterhouse LLP engagement partner responsible for Borden, will assume the position of Executive Vice President and Chief Financial Officer effective April 3, 1995. Price Waterhouse LLP has advised the Company that it has taken appropriate steps to ensure that it continues to be independent with respect to the Company. -------------- 40 41 C. Robert Kidder was elected a Director, Chairman of the Board and Chief Executive Officer of the Company on January 10, 1995. He also serves as President of Consumer Packaged Products. He was Chairman of the Board of Duracell International Inc. and Duracell, Inc. from August 1991 through January 10, 1995 and served as Chairman of the Board and Chief Executive Officer of both companies from April 1992 through September 30, 1994, Chairman of the Board, President and Chief Executive Officer of both companies from August 1991 until April 1992, and President and Chief Executive Officer of both companies from June 1988 until August 1991. He is also a director of Duracell International Inc., General Signal Corp., and Dean Witter, Discover & Co. He is a member of the Executive Committee of the Borden Board. Henry R. Kravis acted as Chairman of the Board of the Company from December 21, 1994 to January 10, 1995. He has been a General Partner of Kohlberg Kravis Roberts & Co. and KKR Associates, L.P. since its establishment. He is a Director of American Re Corporation, AutoZone, Inc., Duracell International Inc., Flagstar Companies, Inc., Flagstar Corporation, IDEX Corporation, K-III Communications Corp., Nabisco Holdings Corp., Owens-Illinois, Inc., Owens- Illinois Group, Inc., RJR Nabisco Holdings Corp., RJR Nabisco, Inc., Safeway Inc., The Stop & Shop Companies, Inc., Union Texas Petroleum Holdings, Inc. and World Color Press, Inc. He is a member of the Executive Committee of the Borden Board. Messrs. Kravis and Roberts are first cousins. Alexander Navab has been an Executive of Kohlberg Kravis Roberts & Co. since June 1993. He was employed by James D. Wolfensohn Incorporated, an investment banking firm, from September 1991 to June 1993. He is a member of the Audit Committee of the Borden Board. Clifton S. Robbins has been a General Partner of Kohlberg Kravis Roberts & Co. and KKR Associates, L.P. since January 1995 and an Executive with Kohlberg Kravis Roberts & Co. since 1987. He is a Director of Flagstar Companies, Inc., Flagstar Corporation, IDEX Corporation, RJR Nabisco Holdings Corp., RJR Nabisco, Inc. and The Stop & Shop Companies, Inc. He is Chairman of the Compensation Committee and a member of the Executive Committee of the Borden Board. George R. Roberts has been General Partner of Kohlberg Kravis Roberts & Co. and KKR Associates, L.P. since its establishment. He is a Director of American Re Corporation, AutoZone, Inc., Duracell International Inc., Flagstar Companies, Inc., Flagstar Corporation, IDEX Corporation, K-III Communications Corp., Nabisco Holdings Corp., Owens-Illinois, Inc., Owens-Illinois Group, Inc., Red Lion Properties, Inc., RJR Nabisco Holdings Corp., RJR Nabisco, Inc., Safeway Inc., The Stop & Shop Companies, Inc., Union Texas Petroleum Holdings, Inc., and World Color Press, Inc. Messrs. Kravis and Roberts are first cousins. Scott M. Stuart has been a General Partner of Kohlberg Kravis Roberts & Co. and KKR Associates, L.P. since January 1995 and an Executive with Kohlberg Kravis Roberts & Co. since 1986. He is a Director of Duracell International Inc., RJR Nabisco Holdings Corp., RJR Nabisco, Inc. and World Color Press, Inc. He is a member of the Executive and Compensation Committees of the Borden Board. Robert W. Allen was elected Executive Vice President of the Company effective February 16, 1995. He has served as President of Dairy Products since September 1993. From 1990 to 1993 he served as a Director and Corporate Vice President of Royal Wessanen N.U. From 1988 to 1990 he served as President and Chief Executive Officer of Crawley Foods, Inc. 41 42 Richard L. de Ney was elected Executive Vice President-Corporate Strategy and Development effective February 16, 1995. He joined the Company on January 10, 1995 as Executive Vice President-Administration. Prior to that he was Managing Director at Bear Stearns and Company, Inc. from 1987 to 1995. Joseph M. Saggese has been Executive Vice President of the Company and President of Worldwide Packaging and Industrial Products since July 1, 1990. Prior to that he served as a Senior Group Vice President of the Packaging and Industrial Products Division Domestic and International since January 1, 1989. He has also served since July 1990 as Chairman, President and Chief Executive Officer of BCP Management, Inc., a wholly owned subsidiary of the Company and General Partner of Borden Chemicals and Plastics Limited Partnership. James C. Van Meter was elected Executive Vice President and Chief Financial Officer of the Company effective June 16, 1994. From 1983 to 1993 he served as Executive Vice President and Chief Financial Officer of Georgia-Pacific Corporation, where he also served as a Director beginning in 1990 and as Vice Chairman and Chief Financial Officer beginning in 1993. Randy D. Kautto was elected Senior Vice President-Human Resources and Corporate Affairs effective February 16, 1995. He joined the Company as Vice President-Human Resources on February 1, 1994. Prior to that he was Vice President-Employee Relations at Phillip Morris Companies, Inc. since 1992. Prior to that he was Vice President-Human Resources at General Foods U.S.A. Allan L. Miller assumed the positions of General Counsel and Secretary of the Company in 1994, in addition to the position of Senior Vice President of the Company to which he was elected in 1985. He also served as Chief Administrative Officer of the Company from 1985 through 1994. Nicholas R. Iammartino was elected Vice President-Public Affairs, effective February 16, 1995. He served as Director, Public Affairs since June 1994 and prior to that time as Director, External Communications from 1989. David A. Kelly was elected Vice President and Treasurer of the Company in 1980. He has also served as a Director (since 1994) and as Treasurer and Principal Financial Officer since 1987, of BCP Management, Inc., a wholly owned subsidiary of the Company and General Partner of Borden Chemicals and Plastics Limited Partnership. P. Michael Morton was elected Vice President and General Controller of the Company effective June 9, 1994. He served as Controller of the Specialty Products Group of International Paper Company from 1990 to 1993 and as Controller of the Printing Papers Sector from June 1993 to 1994. From 1987 to 1989, he served as Vice President, Finance of the Worldwide Coffee and International Unit of General Foods Corporation. 42 43 Item 11. Executive Compensation - - -------- ---------------------- The following table provides certain summary information concerning compensation of the Company's Chief Executive Officer, the four other most highly compensated Executive Officers as of December 31, 1994 and one additional former Executive Officer of the Company (the "Named Executive Officers") for the periods indicated.
==================================================================================================================================== SUMMARY COMPENSATION TABLE - - ------------------------------------------------------------------------------------------------------------------------------------ ANNUAL COMPENSATION LONG TERM COMPENSATION ------------------- --------------------------------- AWARDS PAYOUTS --------------------------------- NAME AND (5)OTHER (7)ALL PRINCIPAL ANNUAL RESTRICTED SECURITIES LONG TERM OTHER POSITION YEAR SALARY($) BONUS($) COMPENSATION STOCK UNDERLYING INCENTIVE COMPENSATION ($) AWARD(S) OPTIONS/LSARs PLAN (LTIP) ($) ($) (#) PAYOUTS($) - - ------------------------------------------------------------------------------------------------------------------------------------ E R Shames 1994 800,000 NONE 49,454 NONE 400,000 NONE (8) 99,481 President & Chief 1993 (1)318,485 200,000 9,065 (6)555,000 200,000 NONE (9) 86,486 Executive Officer - - ------------------------------------------------------------------------------------------------------------------------------------ J M Saggese 1994 364,000 270,000 8,064 NONE 21,000 NONE 47,434 Executive Vice President 1993 364,000 NONE 2,991 NONE 14,000 NONE 35,761 & President Packaging & 1992 325,000 40,000 2,274 NONE 14,000 NONE 40,281 Industrial Products - - ------------------------------------------------------------------------------------------------------------------------------------ A L Miller 1994 345,000 NONE 5,806 NONE 15,750 NONE 43,696 Senior Vice President 1993 345,000 NONE 2,869 NONE 10,500 NONE 42,559 Chief Administrative 1992 322,000 NONE 3,337 NONE 10,500 NONE 56,269 Officer & General Counsel - - ------------------------------------------------------------------------------------------------------------------------------------ R D Kautto(2) 1994 229,167 9,000 13,111 NONE 30,000 NONE (10)111,432 Vice President Human Resources - - ------------------------------------------------------------------------------------------------------------------------------------ G P Morris(3) 1994 224,375 10,000 2,137 NONE 30,000 NONE (11) 96,649 Vice President & Chief Strategic Officer =================================================================================================================================== L O Doza 1994 (4)351,000 NONE 6,799 NONE NONE NONE (12)269,449 Former Senior Vice 1993 351,000 NONE 442 NONE 10,500 NONE 40,482 President & Chief 1992 328,000 NONE 2,648 NONE 10,500 NONE 58,718 Financial Officer =================================================================================================================================== (1) INCLUDES $11,667 OF SALARY EARNED IN 1993 BUT PAID IN 1994. (2) R D KAUTTO BECAME VP HUMAN RESOURCES EFFECTIVE 2/1/94. (3) G P MORRIS BECAME PRESIDENT NORTH AMERICAN PASTA EFFECTIVE 10/10/94. (4) L O DOZA RETIRED EFFECTIVE 3/1/94. OF THE $351,000 SHOWN AS SALARY, $292,500 REPRESENTS POST-TERMINATION SALARY PAID IN 1994. 43 44 (5) OTHER ANNUAL COMPENSATION CONSISTS OF TAX GROSS-UPS DURING 1994. (6) REPRESENTS 30,000 SHARES OF RESTRICTED STOCK GRANTED 7/1/93, 25% OF WHICH VESTED ON 7/1/94 AND THE REMAINDER OF WHICH VESTED ON 12/20/94 UPON THE CHANGE OF CONTROL OF THE COMPANY. DIVIDENDS WERE PAYABLE ON SUCH STOCK. (7) ALL OTHER COMPENSATION CONSISTS OF THE FOLLOWING:
EXECUTIVE FAMILY MATCHING CAPITAL SURVIVOR CONTRIBUTIONS ACCUMULATION YEAR PROTECTION PLAN (a) (RSP AND ESP) (b) ACCOUNT (c) TOTAL ---- ------------------- ---------------- ------------- ----- E R Shames 1994 37,605 38,103 4,200 79,908 1993 13,219 11,167 2,100 26,486 J M Saggese 1994 15,905 11,014 4,200 31,119 1993 16,122 15,439 4,200 35,761 1992 13,299 22,782 4,200 40,281 A L Miller 1994 16,758 13,752 4,200 34,710 1993 19,863 18,496 4,200 42,559 1992 20,211 31,858 4,200 56,269 R D Kautto 1994 9,818 8,021 3,850 21,689 G P Morris 1994 0 6,662 0 6,662 L O Doza 1994 3,718 1,560 700 5,978 1993 17,464 18,818 4,200 40,482 1992 22,024 32,494 4,200 58,718
[FN] (a) The Executive Family Survivor Protection Plan provides for a benefit of 2% of annual earnings each year (base pay and short-term incentive bonus) payable at termination, company provided death benefit of one times earnings and the cost of providing a preretirement annuity to a surviving spouse or dependent children upon death of the executive as an employee. (b) RSP and ESP refer to the Company's Retirement Savings Plan and the executive supplemental benefit plans, respectively. (c) The Capital Accumulation Account provides a benefit of $350 per month payable at termination in lieu of certain previously provided medical benefits. (8) INCLUDES $79,908 AS NOTED IN FOOTNOTE 7; AND $19,573 FOR MOVING EXPENSES. (9) INCLUDES $26,486 AS NOTED IN FOOTNOTE 7; AND $60,000 FOR LEGAL FEES INCIDENT TO NEGOTIATION OF MR. SHAMES' 1993 EMPLOYMENT AGREEMENT. (10) INCLUDES $21,689 AS NOTED IN FOOTNOTE 7; $69,886 COMPENSATION FOR UNVESTED STOCK OPTIONS GRANTED BY MR. KAUTTO'S PREVIOUS EMPLOYERS WHICH WERE FOREGONE UPON HIS ACCEPTANCE OF EMPLOYMENT WITH THE COMPANY; AND $19,857 FOR MOVING EXPENSES. (11) INCLUDES $6,662 AS NOTED IN FOOTNOTES 7; $60,000 COMPENSATION FOR A BONUS FOREGONE FROM MR. MORRIS' PREVIOUS EMPLOYER UPON HIS ACCEPTANCE OF EMPLOYMENT WITH THE COMPANY; AND $29,987 FOR MOVING EXPENSES. (12) INCLUDES $5,978 AS NOTED IN FOOTNOTE 7; $234,000 OF POST-TERMINATION SALARY PAYABLE IN 1995, CONTINGENT UPON HIS CONTINUED COMPLIANCE WITH THE TERMS OF HIS EMPLOYMENT AGREEMENT; AND $29,471 FOR OUTPLACEMENT-RELATED EXPENSES AND BENEFITS. 44 45 The following table provides information on option/LSAR grants during 1994 to the Named Executive Officers.
=================================================================================================================================== OPTION/LSAR GRANTS IN LAST FISCAL YEAR =================================================================================================================================== (2)POTENTIAL REALIZABLE VALUE AT ASSUMED ANNUAL RATES OF STOCK INDIVIDUAL GRANTS PRICE APPRECIATION FOR OPTION TERM =================================================================================================================================== # OF SECURITIES % OF TOTAL UNDERLYING OPTIONS/LSARS EXERCISE OR OPTIONS/LSAR'S GRANTED TO BASE PRICE EXPIRATION DATE GRANTED EMPLOYEES IN ($/SHARE) @ 5% ($) @ 10% ($) NAME (#)(1) FISCAL YEAR =================================================================================================================================== E R Shames 250,000 23.0% 12.38 6/30/2004 1,947,500 4,932,500 150,000 14.50 1/24/2004 1,368,000 3,466,500 - - ----------------------------------------------------------------------------------------------------------------------------------- J M Saggese 7,000 1.2% 12.38 6/30/2004 54,530 138,110 14,000 15.18 2/21/2004 133,700 338,660 - - ----------------------------------------------------------------------------------------------------------------------------------- A L Miller 5,250 .9% 12.38 6/30/2004 40,898 103,583 10,500 15.18 2/21/2004 100,275 253,995 - - ----------------------------------------------------------------------------------------------------------------------------------- R D Kautto 30,000 1.7% 15.18 2/21/2004 286,500 725,700 - - ----------------------------------------------------------------------------------------------------------------------------------- G P Morris 20,000 1.7% 12.38 6/30/2004 155,800 394,600 10,000 15.18 2/21/2004 95,500 241,900 =================================================================================================================================== L O Doza 0 =================================================================================================================================== (1) Under the Company's stock option plan, options have been granted at an exercise price of 100 percent of fair market value. The options are exercisable one year from date of grant and over a period of not more than ten years from the date of grant. Limited stock appreciation rights or LSAR's (rights exercisable only in the event of a change of control) attach to the stock options granted to executive officers. Executive officers were also granted cash-only units, in corresponding numbers and exercise price, exercisable within six months from date of grant after a change in control with provisions to prevent duplication of benefits. (2) These amounts represent assumed rates of appreciation only. Actual gains, if any, on stock option exercises and common stock holdings will be dependent on overall market conditions and on the future performance of the Company and its common stock. There can be no assurance that the amounts reflected in this table will be achieved.
45 46 The following table provides information on option/LSAR exercises during 1994 by the Named Executive Officers and the value of their unexercised options/LSARS at December 31, 1994.
=============================================================================================================================== AGGREGATED OPTION/LSAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION/LSAR VALUES - - ------------------------------------------------------------------------------------------------------------------------------- # OF SECURITIES UNDERLYING VALUE OF UNEXERCISED IN-THE- SHARES UNEXERCISED OPTIONS/LSARS AT MONEY OPTIONS/LSARS AT FISCAL ACQUIRED ON VALUE FISCAL YEAR END (1) YEAR END ($)(2) EXERCISE REALIZED ---------------------------------------------------------------------- NAME (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE - - ------------------------------------------------------------------------------------------------------------------------------- E R Shames 0 N/A 600,000 0 15,000 0 - - ------------------------------------------------------------------------------------------------------------------------------- J M Saggese 9,600 58,301 138,200 0 420 0 - - ------------------------------------------------------------------------------------------------------------------------------- A L Miller 9,600 47,894 155,850 0 315 0 - - ------------------------------------------------------------------------------------------------------------------------------- R D Kautto 0 N/A 30,000 0 0 0 - - ------------------------------------------------------------------------------------------------------------------------------- G P Morris 0 N/A 60,000 0 1,200 0 =============================================================================================================================== L O Doza 0 N/A 125,700 0 0 0 =============================================================================================================================== (1) REPRESENTS THE NUMBER OF OPTIONS HELD AT YEAR END WHICH CAN AND CANNOT BE EXERCISED. (2) REPRESENTS THE TOTAL GAIN WHICH WOULD BE REALIZED IF ALL OPTIONS FOR WHICH THE YEAR END STOCK PRICE WAS GREATER THAN THE EXERCISE PRICE WERE EXERCISED. BASED ON MARKET VALUE OF 12.44 ON 12/31/94.
46 47 The following table provides information on long-term incentive plan awards made in 1994 to the Named Executive Officers. - - --------------------------------------------------------------------------------------------------------------------------- LONG-TERM INCENTIVE PLANS-AWARDS IN LAST FISCAL YEAR - - --------------------------------------------------------------------------------------------------------------------------- Performance or other Estimated Future Payouts Under Number of Shares, Period Until Non-Stock Price-Based Plans (2) Units, or other Maturation or ------------------------------------------- Name Rights(#)(1) Payout Threshold Target Maximum - - --------------------------------------------------------------------------------------------------------------------------- E. R. Shames 6,000 1994-1996 $300,000 $600,000 $900,000 J. M. Saggese 1,800 1994-1996 90,000 180,000 270,000 A. L. Miller 1,400 1994-1996 70,000 140,000 210,000 R. D. Kautto 1,000 1994-1996 50,000 100,000 150,000 G. P. Morris 850 1994-1996 42,500 85,000 127,500 L. O. Doza (3) -- 1994-1996 -0- -0- -0- - - --------------------------------------------------------------------------------------------------------------------------- (1) 1 Unit = $100 (2) 1994-1996 long-term award payouts are based on earnings-per-share (EPS) improvement over the base year (1993). The target amount will be earned if 100% of target EPS improvement is achieved; the threshold amount if 75% is achieved; and the maximum amount, if 125% is achieved. 1/4 of award is allocated for each year (1994, 1995, and 1996), in which EPS improvement is achieved over base year (1993), and 1/4 of award is allocated for three year average improvement over base year (1993). (3) Mr. Doza was not eligible for any compensation under the Long-Term Incentive Plan.
47 48 RETIREMENT BENEFITS The Borden Employees Retirement Income Plan ("ERIP") for salaried employees was amended as of January 1, 1987 to provide benefit credits of 3% of earnings which are less than the Social Security wage base for the year plus 6% of earnings in excess of the wage base and an additional 1.5% and 3% respectively for certain older employees. Earnings include annual incentive awards paid currently but exclude any long-term incentive awards. Benefits for service through December 31, 1986 are based on the plan formula then in effect and have been converted to opening balances under the plan. Both opening balances and benefit credits receive interest credits at one-year Treasury bill rates until the participant commences receiving benefit payments. For the year 1994, the interest rate was 3.58%. The Company's supplemental pension plan provides for a grandfathering of benefits for certain key employees as of January 1, 1983, including certain Executive Officers, that, generally speaking, provide for the payment of any shortfall if the sum of (a) the pension actually payable on retirement under the ERIP (and any excess or supplemental plans), together with (b) the amount (converted to a pension equivalent) attributable to Company contributions that would be standing to the employee's credit at retirement under the Company's Retirement Savings Plan if the employee had contributed at the maximum permitted rate eligible for Company matching from December 31, 1983 until retirement, does not equal or exceed the sum of (c) the retirement income calculated on the basis of the December 31, 1992 ERIP pension formula (with certain adjustments), and (d) the amount (converted to a pension equivalent) attributable to company contributions (equal to 3.3% of compensation) that would be standing to the employee's credit at retirement had the Company's Retirement Savings Plan as in effect on January 1, 1983 been in effect continuously to retirement. The projected pension figures for A.L. Miller and J.M. Saggese appearing at the end of this section include the effect of the foregoing grandfathering. The ERIP contains additional transitional provisions for employees who met certain age and service requirements on January 1, 1987. The transitional minimum benefit is a final average pay benefit for service prior to 1988 plus a career average pay benefit based on each year's earning for years 1988 through 1996 (1% of each year's earnings up to the Social Security wage base plus 1-1/2% of excess). Benefits vest on a graded five-year schedule for employees hired prior to July 1, 1990. Benefits vest after completion of five years of employment for employees hired on or after July 1, 1990. The Company has supplemental plans which will provide those benefits which are otherwise produced by application of the ERIP formula, but which, under Section 415 or Section 401 (a)(17) of the Internal Revenue Code, are not permitted to be paid through a qualified plan and its related trust. Such an arrangement is specifically provided for under the law. Since no payments will be made from the ERIP on account of deferred incentive compensation awards or certain other deferred compensation, the Company will pay a supplemental pension to employees who defer such annual amounts in the same amounts realizable as if the deferred amounts had been paid currently. The total projected annual benefits payable under the formulas of the ERIP at age 65 without regard to the Section 415 or 401(a)(17) limits and recognizing supplemental pensions as described above, are as follows for the Named Executive Officers of the Company in 1994: L.O. Doza - $82,099 (reflecting accrual of benefits through 2/28/94 and immediate commencement), R.D. Kautto- $31,419, A.L. Miller - $172,403, G.W. Morris - $31,381 and J.M. Saggese - $211,688. E.R. Shames will receive no benefit under the 48 49 ERIP but will have a supplemental pension benefit payable under his employment agreement of $100,000 per year at ages 65 through 68. COMPENSATION OF DIRECTORS During 1994, each Director who was not currently an employee of the Company was paid a retainer of $28,000 per annum. Every non-employee Director was paid a meeting fee of $1,000 for attendance at each meeting of the Board of Directors. Directors could defer their compensation, in the form of deferred share equivalents, or cash with interest, until retirement from the Board. The Company assumed the payment of premiums for group life insurance in the amount of $100,000 for each non-employee Director, the cost of which in 1994 was $3,376 in the aggregate. From December 9, 1993 until December 31, 1994, the Company compensated Mr. Tasco, in addition to the foregoing compensation as a Director, at the rate of $100,000 per quarter for his services as Chairman of the Board. The Company had an agreement with Mr. R.J. Ventres, a former Chairman and Chief Executive Officer, retaining him as a consultant and as Chairman of the Executive Committee from March 1992 until April 1995, with fixed compensation at the rate of $250,000 per annum and limited benefits. Upon his resignation as a Director as of December 31, 1993, such agreement was amended to terminate such compensation at the end of April 1994. Any Officer of the Company who was also a Director did not receive any compensation for service on the Board of Directors. The Board functions in part through its committees. The non-employee members of each of these committees were paid a meeting fee of $1,000 for each committee meeting attended. In addition, a committee chairman who was also a non-employee was paid an annual retainer of $1,000. Directors who were not employees of the Company were also provided upon retirement and attaining age 70 annual benefits through a funded grantor trust equal to their final annual retainer if they served in at least three plan years. Such benefits would continue for up to fifteen years. EMPLOYMENT, TERMINATION AND CHANGE IN CONTROL ARRANGEMENTS The Company had an employment agreement, which was amended several times, with Mr. Shames, its former Chief Executive Officer, from June 1993 until his resignation of employment with the Company in January 1995, when his employment agreement was replaced by a termination agreement. Under his former employment agreement, he was paid an annual salary in 1994 of $800,000 and received a 1993 bonus payment of $200,000. Under his agreement upon termination, in accordance with the Company's obligations under prior agreements, (a) he is provided a severance and benefit payment of $170,196 in February of 1995, monthly amounts of $160,400 commencing March 1, 1995 through December 1, 1997 and a final payment of $108,658 on January 1, 1998 (b) he will continue under Company medical, executive benefits and perquisite programs through December 20, 1997, (c) he will be reimbursed for loss on his home, relocation and moving expenses and (d) if any excise tax (under Section 4999 of the Internal Revenue Code) is imposed in respect of any payments due Mr. Shames under his prior Core Arrangement, the Company will pay him an amount that will net him the same sum as he would have received if the excise tax did not apply. As a result of the Company's change in control, Mr. Shames became vested in 22,500 restricted shares of the Company's common stock which otherwise 49 50 would have vested one third each year beginning July 1, 1995. The change in control also accelerated the vesting of Mr. Shames' options as set forth above in the Option Grant Table. As provided in prior agreements, Mr. Shames will be paid a pension of $100,000 a year for four years beginning at age 65. Finally, Mr. Shames also received reimbursement of counsel fees, certain office and secretarial expenses and an amount in lieu of outplacement expenses. Upon Mr. Morris' employment by the Company as of September 21, 1993, the Company agreed to pay Mr. Morris an initial base salary of $215,000 per year; to guarantee up to $60,000 for any foregone 1993 bonus as a result of his termination of employment at his prior employer, the full amount of which was paid in February, 1994; to grant to Mr. Morris stock options on 40,000 shares of the Company's common stock in 1993, (granted at market, $17.75, on September 27, 1993) and on 10,000 shares in 1994 (granted at market, $15.18, on February 21, 1994); to match Mr. Morris' contributions to the Company's Retirement Savings Plan from his employment date forward; to provide assistance under the Company's employee relocation policy as applicable to current employees for Mr. Morris' relocation to Columbus, Ohio; to provide participation in the Company's annual and long term incentive programs; and (as amended in 1994) to pay upon termination of his employment under certain conditions after a change in control, which has occurred, two times his annual compensation. Upon Mr. Kautto's employment by the Company on February 1, 1994, the Company agreed to pay Mr. Kautto an initial base salary of $250,000; to provide for participation in the Company's annual and long-term incentive programs with a guarantee of at least $75,000 to be paid in 1997; to grant options to purchase the Company's common stock for 30,000 shares in 1994 (granted at market, $15.18) and 10,000 shares in 1995; to match Mr. Kautto's savings plan contributions as it would a long-serivce employee from his employment date forward; to provide assistance under the Company's employee relocation policy as applicable to current employees for Mr. Kautto's relocation to Columbus, Ohio; to reimburse him for lost option and bonus opportunities at his former employer up to $95,000 and to reimburse him for the expense for one year of maintaining medical coverage with his former employer. The Company has a salary continuance arrangement (the "CORE Arrangement") with a number of key employees and Executive Officers including Messrs, Saggese, Miller and Kautto ("CORE members"), which provides after a change in control, which has occurred, for payments for two to three years from the date of the change in control, but not less than for one year, if employment is terminated without cause during that period. The payments include salary, bonus and other compensation and benefits. Payments could be reduced or eliminated by compensation earned from other specified employment. Arrangements have also been made for payment by the Company, upon certain conditions, of the legal expenses of these employees if they are required to enforce the provisions of their CORE Arrangements. If any excise tax (under Sec. 4999 of the Internal Revenue Code) is imposed in respect of payments under the CORE Arrangement, the Company will pay to such Officers an amount that will net the Officers the same sum as they would have retained if the excise tax did not apply. As of December 31, 1994, there were 19 CORE members. Mr. Doza, a CORE member and Executive Officer since 1977, retired effective March 1, 1994. Pursuant to a separation agreement which superseded his CORE Arrangement, he will receive termination pay at his base salary rate through August 31, 1995. The agreement also contains provisions relating to extension of certain perquisites, reimbursement of certain outplacement-related expenses and termination dates for various employee benefits, all subject to Mr. Doza's compliance with an agreement not to compete. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION Messrs. Robbins and Stuart became members of the Compensation Committee on December 21, 1994. Both gentlemen are general partners of KKR Associates, L.P. See "Certain Relationships and Related Transactions." 50 51 Item 12. Security Ownership of Certain Beneficial Owners and Management - - ------- -------------------------------------------------------------- The following table sets forth certain information regarding the beneficial ownership of Borden Common Stock as of March 14, 1995 by (a) persons known to Borden to be the beneficial owners of more than five percent of the outstanding Borden Common Stock, (b) each director of Borden, (c) each of the Named Executive Officers of Borden during the 1994 fiscal year of Borden and (d) all directors and executive officers of Borden as a group. Except as otherwise noted, the persons named in the table below have sole voting and investment power with respect to all shares shown as beneficially owned by them.
Name of Beneficial Ownership Beneficial Owner of Borden Common Stock ---------------- ------------------------------ Shares Percent ------ ------- KKR Associates (1) 170,273,814 100.0 9 West 57th Street New York, New York 10019 C. Robert Kidder (2) -- * Henry R. Kravis (1) -- * George R. Roberts (1) -- * Clifton R. Robbins (1) -- * Scott M. Stuart (1) -- * Alexander Navab -- * Ervin R. Shames (3) 350,000 * Lawrence O. Doza (3) 125,700 * Randy D. Kautto (3) 30,000 * Allan L. Miller (3) 150,600 * George P. Morris (3) 50,000 * Joseph M. Saggese (3) 121,600 * All Directors and Executive Officers as a group (3)(4) 1,173,600 *
__________ * Less than 1.0% (1) Shares of Borden Common Stock shown as beneficially owned by KKR Associates include shares owned of record by the limited partnerships of which KKR Associates is the sole general partner and as to which it possesses sole voting and investment power, including the Partnership. KKR Associates is a limited partnership of which Messrs. Saul A. Fox, Edward A. Gilhuly, Perry Golkin, James H. Greene, Henry R. Kravis, Robert I. MacDonnell, Michael N. Michelson, Paul E. Raether, Clifton S. Robbins, George R. Roberts, Scott M. Stuart and Michael T. Tokarz are the general partners. Such persons may be deemed to share beneficial ownership of the shares shown as owned by KKR Associates. The foregoing persons disclaim beneficial ownership of any such shares. (2) On January 10, 1995, C. Robert Kidder, age 50, was elected as a Director and Chief Executive Officer of Borden. Mr. Kidder also succeeded Mr. Kravis as Chairman of the Board of Directors. Mr. Kravis remains a Director of Borden. Mr. Kidder formerly was Chairman of the Board and Chief Executive Officer of Duracell International, Inc. and Duracell Inc. since April 1992; Chairman of the Board, President and Chief Executive Officer of Duracell International, Inc. and Duracell Inc. from August 1991 until April 1992; and President and Chief Executive Officer of Duracell International, Inc. and Duracell Inc. from June 1988 until August 1991. Mr. Kidder has also been a Director of Duracell International, Inc. since June 1988. (3) Represents shares of Borden Common Stock that can be acquired within 60 days, pursuant to outstanding employee Stock Options. (4) The percentage owned has been indicated where the percentage exceeds 1.0%. Pursuant to Rule 13d-3, Stock Options that are presently exercisable or exercisable within 60 days after March 14, 1995 which are owned by each individual are deemed to be outstanding for purposes of computing the percentage of shares of Borden Common Stock owned by that individual. Therefore, each percentage is 51 52 computed based on the sum of (i) the shares actually outstanding as of March 14, 1995 and (ii) the number of Stock Options exercisable within 60 days of March 14, 1995 owned by that individual or entity whose percentage of share ownership is being computed, but not taking account of the exercise of Stock Options by any other person or entity. Item 13. Certain Relationships and Related Transactions - - ------- ---------------------------------------------- The Company made a loan of $400,000 in 1995 to Mr. Kautto, Vice President-Human Resources, in the form of a note bearing interest at prime. Accrued interest is waived each year on the anniversary of the note if Mr. Kautto remains employed. Principal payments targeted at $133,333 each are due annually after three years. The amount of each annual payment due is increased or decreased on formula based on the amount that his annual bonus earned in the prior year differs from his targeted bonus. The entire principal and unwaived interest are due upon termination of employment. The loan is secured by any contractual payments due to Mr. Kautto from the Company. Whitehall Associates, L.P. and KKR Partners II, L.P. together hold 100% of the Company's common stock. The general partner of both of these limited partnership is KKR Associates, a New York limited partnership of which Messrs. Saul A. Fox, Edward A. Gilhuly, Perry Golkin, James H. Greene, Henry R. Kravis, Robert I. MacDonnell, Michael N. Michelson, Paul E. Raether, Clifton S. Robbins, George R. Roberts, Scott M. Stuart and Michael T. Tokarz are the general partners. KKR Associates has sole voting and investment power with respect to such shares. Messrs. Kravis, Robbins, Roberts and Stuart are directors of the Company. The Company expects that in 1995, KKR will render management, consulting and financial services to the Company and its subsidiaries for an annual fee which is yet to be determined. Messrs. Kravis, Roberts, Robbins and Stuart are general partners of KKR and Mr. Navab is an executive of KKR. PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K - - ------- ---------------------------------------------------------------- (a) List of documents filed as part of this report ---------------------------------------------- 1. Financial Statements -------------------- All financial statements of the registrant are set forth under Item 8 of this Report on Form 10-K. 2. Financial Statement Schedules ----------------------------- Financial statement schedules are omitted because they are not applicable or the required information is included in the consolidated financial statements or notes thereto. 3. Exhibits -------- Executive Compensation Plans and Arrangements are listed herein at Exhibits (10)(viii) through (10)(xix)(m). (3)(i) Restated Certificate of Incorporation. 52 53 (ii) By-Laws. (4)(i) Form of Indenture dated as of January 15, 1983, as supplemented by the First Supplemental Indenture dated as of March 31, 1986 relating to the $200,000,000 8-3/8% Sinking Fund Debentures due 2016, incorporated herein by reference from Exhibit 4(a) and (b) to Amendment No. 1 to Registration Statement on Form S-3, File No. 33-4381. (ii) Form of Indenture dated as of December 15, 1986, as supplemented by the First Supplemental Debenture dated as of December 15, 1986 relating to the $315,000,000 Medium Term Notes, Series A, incorporated herein by reference from Exhibit 4(a) through (d) to Amendment No. 1 to Registration Statement on Form S-3, File No. 33-8775. (iii) Form of Indenture dated as of December 15, 1987, as supplemented by the First Supplemental Indenture dated as of December 15, 1987 and the Second Supplemental Indenture dated as of February 1, 1993, incorporated herein by reference from Exhibit 4(a) through (d) to Registration Statement on Form S-3, File No. 33-45770, relating to the following Debentures and Notes: (a) The $125,000,000 9-7/8% Notes due November 1, 1997. (b) The $150,000,000 9-1/4% Sinking Fund Debentures due 2019. (c) The $200,000,000 9-1/5% Debentures due 2021. (d) The $250,000,000 7-7/8% Debentures due 2023. (iv) Form of Indenture relating to Zero Coupon Notes due 2002, dated as of May 21, 1992, incorporated herein by reference from Exhibit 4(iv) to the 1992 Form 10-K Annual Report. (v) Form of Lynx Equity Unit Agreement relating to Zero Coupon Notes due 2002, dated as of May 21, 1992, incorporated herein by reference from Exhibit 4(v) to the 1992 Form 10-K Annual Report. (vi) Form of Indenture relating to Senior Securities, incorporated herein by reference from Exhibit 4.1 to the Company's Registration Statement on Form S-3, File No. 33-57577. (vii) Form of Indenture relating to Subordinated Securities incorporated herein by reference from Exhibit 4.2 to the Company's Registration Statement on Form S-3, File No. 33-57577. (viii) Agreement dated February 15, 1995 among Whitehall Associates, L.P., KKR Partners II, L.P., and the Company. (ix) Agreement dated March 15, 1995 among Whitehall Associates, L.P., KKR Partners II, L.P., and the Company. 53 54 (10)(i) Agreement and Plan of Merger, dated as of September 23, 1994, among Whitehall Associates, L.P., Borden Acquisition Corp. and the Company (the "Merger Agreement"), incorporated by reference to Exhibit 3 to the Company's Report on Form 8-K, dated September 23, 1994. (ii) Amendment to the Merger Agreement, dated as of November 15, 1994, incorporated herein by reference to Exhibit 99.3 to the Company's Solicitation/Recommendation Statement on Schedule 14D-9, dated November 22, 1994. (iii) Conditional Purchase/Stock Option Agreement, dated as of September 23, 1994, among Whitehall Associates, L.P., Borden Acquisition Corp. and the Company incorporated by reference to Exhibit 4 to the Company's Report on Form 8-K dated September 23, 1994. (iv) Second Amendment to the Merger Agreement, dated as of December 6, 1994 incorporated herein by reference from Exhibit 99.87 to Amendment No. 5 to the Company's Solicitation/Recommendation Statement on Schedule 14D-9, dated December 7, 1994. (v) Third Amendment to the Merger Agreement, dated as of January 4, 1995. (vi) Credit Agreement dated as of December 15, 1994 among Borden, Inc., as Borrower, and the banks named therein, as Banks, Citibank, N.A., as Administrative Agent, Bankers Trust Company, Chemical Bank, Citibank, N.A. and Credit Suisse, as Lead Managing Agents, and BT Securities Corporation, Chemical Securities, Inc., Citicorp Securities, Inc. and Credit Suisse, as Arrangers incorporated herein by reference from Exhibit 99.93 to Amendment No. 9 to the Company's Solicitation/Recommendation Statement on Schedule 14D-9, dated December 20, 1994. (vii) Second Amended and Restated Credit Agreement dated as of December 15, 1994 among T.M. Investors Limited Partnership, as Borrower, and the banks named therein, as Banks, Citibank, N.A., as Administrative Agent, Bankers Trust Company, Chemical Bank, Citibank, N.A. and Credit Suisse, as Lead Managing Agents, and BT Securities Corporation, Chemical Securities Inc., Citicorp Securities, Inc. and Credit Suisse, as Arrangers (Borden does not control T.M. Investors Limited Partnership and this exhibit has been furnished to Borden voluntarily at Borden's request) incorporated herein by reference from Exhibit 99.94 to Amendment No. 9 to the Company's Solicitation/Recommendation Statement on Schedule 14D-9, dated December 20, 1994. (viii) 1994 Management Incentive Plan incorporated by reference to Exhibit 10(iv) to the Company's Annual Report on Form 54 55 10-K for the year ended December 31, 1993 (the "1993 10-K"). (ix) 1994 Stock Option Plan incorporated by reference to Exhibit 10(v) to the 1993 10-K. (x) Executive Family Survivor Protection Plan as amended through December 9, 1993 incorporated by reference to Exhibit 10(vi) to the 1993 10-K. (xi) Executives Excess Benefits Plan as amended through December 9, 1993 incorporated by reference to Exhibit 10(vii) to the 1993 10-K. (xii) Executives Supplemental Pension Plan as amended through December 9, 1993 incorporated by reference to Exhibit 10(viii) to the 1993 10-K. (xiii) Advisory Directors Plan, incorporated herein by reference from Exhibit 10(viii) to the 1989 Form 10-K Annual Report. (xiv) Advisory Directors Plan Trust Agreement, incorporated herein by reference from Exhibit 10(ix) to the 1988 Form 10-K Annual Report. (xv) Supplemental Benefit Trust Agreement as amended through December 9, 1993 incorporated by reference to Exhibit 10(xi) to the 1993 10-K. (xvi) Amendment to Supplemental Benefit Trust Agreement dated November 15, 1994. (xvii) Form of Indemnification Letter Agreements entered into with all Directors of the Company, incorporated herein by reference from Exhibit 10(xii) to the 1988 Form 10-K Annual Report. (xviii) Form of Letter Agreement entered into with all holders of stock appreciation rights, incorporated herein by reference from Exhibit 10(xiii) to the 1989 Form 10-K Annual Report. (xix) (a) Agreement with Mr. A. S. D'Amato, Chairman and Chief Executive Officer, incorporated herein by reference from Exhibit 10(i) to the June 30, 1993 Form 10-Q. (b) Amendment to Agreement with Mr. A. S. D'Amato, incorporated herein by reference from Exhibit 10(i) to the September 30, 1993 Form 10-Q. (c) Supplement to Agreement with Mr. A. S. D'Amato incorporated by reference to Exhibit 10(xiv) (a) to the 1993 10-K. 55 56 (d) Agreement with Mr. E. R. Shames, President and Chief Operating Officer, incorporated herein by reference from Exhibit 10(ii) to the June 30, 1993 Form 10-Q. (e) Description of Amendment to Agreement with Mr. E. R. Shames incorporated by reference to Exhibit 10(xiv)(e) to the 1993 10-K. (f) Description of Amendment to Agreement with Mr. E. R. Shames incorporated by reference to Exhibit 10(i) to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1994 (the "June 30, 1994 10-Q"). (g) Form of salary continuance arrangement with Executive Officers, incorporated herein by reference from Exhibit 10(ix)(c) to the 1987 Form 10-K Annual Report. (h) Agreement with Mr. L. O. Doza dated June 2, 1994 incorporated by reference to Exhibit 10(ii) to the June 30, 1994 10-Q. (i) Description of arrangement with C. Robert Kidder, Chairman of the Board and Chief Executive Officer. (j) Agreement with Mr. J. C. Van Meter, Executive Vice President and Chief Financial Officer, dated July 7, 1994. (k) Termination Agreement with Mr. E. R. Shames dated as of January 10, 1995. (l) Summary of terms of employment for Mr. Morris and letter dated November 4, 1994 to Mr. Morris regarding special severance arrangements. (m) Letter agreement with Mr. Kautto dated January 19, 1994. (xx) Second Amended and Restated Deposit Agreement, dated February 16, 1993 among Borden Chemicals and Plastics Limited Partnership, Society National Bank, Borden, Inc. and BCP Management, Inc., incorporated herein by reference from Exhibit 10(xviii) to the 1992 Form 10-K Annual Report. (xxi) Notes Prepayment Agreement dated as of December 15, 1994 between Borden Chemicals and Plastics Operating Limited Partnership and the Company. (xxii) Prepayment Terms Agreement dated as of December 15, 1994 among Borden Chemicals and Plastics Operating Limited Partnership, The Prudential Insurance Company of America, Metropolitan Life Insurance Company, Metropolitan Insurance and Annuity Company and the Company. (xxiii) Purchase Agreement dated February 16, 1995 among RJR Nabisco Holdings Corp., Goldman, Sachs & Co., and the Company. (12) Calculation of Ratio of Earnings to Fixed Charges. 56 57 (22) Subsidiaries of Registrant. Copies of the foregoing Exhibits are available to Shareholders of record upon written request to Investor Relations at the Executive Offices of the Company, and the payment of $.50 per page to help defray the cost of handling, copying, and postage. (b) Reports on Form 8-K ------------------- On January 5, 1994 Borden, Inc. filed a Form 8-K which announced that the Company was taking a fourth quarter 1993 pretax charge of $752.3 million to provide for a restructuring and business divestment program. The Company also recorded a pretax charge of $94.1 million for asset write-downs and changes in accounting estimates. The Company also announced that it had adopted Statement of Financial Accounting Standard No. 112. On March 21, 1994 Borden, Inc. filed a Form 8-K which announced the restatement and reclassification of the 1992 and 1993 financial statements as a result of reversing and reclassifying certain items that had been included in its 1992 restructuring charge. On September 11, 1994 Borden, Inc. filed a Form 8-K which announced an amendment to the Rights Agreement between Borden, Inc. and The Bank of New York, as Rights Agent. On September 12, 1994 Borden, Inc. filed a Form 8-K which announced that Borden, Inc. entered into a Letter of Intent to merge with an affiliate of Kohlberg Kravis Roberts & Co. On October 5, 1994 Borden, Inc. filed a Form 8-K which announced pretax charges of $150 to $200 million to be recorded in the third quarter. On October 5, 1994 Borden, Inc. filed a Form 8-K for the purpose of disclosing the background and reasons for the Company's decision to enter into the Merger Agreement and the Option Agreement. On December 21, 1994 Borden, Inc. filed a Form 8-K announcing the completion of the exchange offer, the resulting acquisition by KKR affiliates of approximately 69.58% of the Company's stock and the election of five new directors to the Company's Board. 57 58 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. BORDEN, INC. By /s/ James C. Van Meter --------------------------------------------- James C. Van Meter, Executive Vice President and Chief Financial Officer (Principal Financial Officer) By /s/ P. Michael Morton --------------------------------------------- P. Michael Morton, Vice President and General Controller (Principal Accounting Officer) Date: March 15, 1995 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Company and in the capacities indicated, on the date set forth above. Signature Title --------- ----- /s/ C. Robert Kidder Chairman of the Board and - - ------------------------------------------ Chief Executive Officer (C. Robert Kidder) /s/ Henry R. Kravis Director - - ------------------------------------------ (Henry R. Kravis) /s/ George R. Roberts Director - - ------------------------------------------ (George R. Roberts) /s/ Clifton S. Robbins Director - - ------------------------------------------ (Clifton S. Robbins) /s/ Scott M. Stuart Director - - ------------------------------------------ (Scott M. Stuart) /s/ Alexander Navab Director - - ------------------------------------------ (Alexander Navab) 58 EX-3.1 2 BORDEN, INC. 10-K405 EXHIBIT (3)(I) 1 Exhibit (3)(i) RESTATED CERTIFICATE OF INCORPORATION OF BORDEN, INC. Pursuant to N.J.S. 14A:9-5(4) Dated: March 14, 1995 THE UNDERSIGNED corporation certifies that it has adopted the following restated certificate of incorporation: ARTICLE I CORPORATE NAME The name of the corporation is Borden, Inc. ARTICLE II PURPOSE The purpose for which this corporation is organized is to engage in any activity within the purposes for which corporations may be organized under the New Jersey Business Corporation Act. ARTICLE III CAPITAL STOCK 1. AUTHORIZED SHARES The corporation is authorized to issue 400,000,000 shares, divided into: (a) 300,000,000 shares of common stock, par value $0.01 per share; and (b) 100,000,000 shares of preferred stock. The board is authorized to amend the certificate of incorporation to divide the preferred shares into one or more series and to determine the designation, the number, and the 1 2 relative rights, preferences and limitations of the shares of each series so created. For purposes of illustration only, the foregoing power of the board includes but is not limited to the determination of: (i) The number of shares constituting each series; (ii) The rate and times at which, and the terms and conditions on which, dividends on shares of a series will be paid, and whether the dividends are cumulative or non-cumulative or are participating or non-participating; (iii) The voting rights of the holders of shares of the series, including whether the shares shall have no voting rights, or multiple, full, limited or special voting rights; (iv) The right, if any, of the holders of shares of the series to convert their shares into, or exchange them for, shares of other classes or series of stock of the corporation, and the terms and conditions of the conversion or exchange, including provisions for adjustment of the conversion price or rate in such events as the board shall determine; (v) The right, if any, of the corporation or the holders of the shares to cause the shares of the series to be redeemed, the redemption price or prices and the time or times at which, and the terms and conditions on which, shares of the series may be redeemed, and whether the shares shall be redeemed in exchange for cash or other property, or a combination thereof; 2 3 (vi) The rights of the holders of shares of the series upon the voluntary or involuntary dissolution, liquidation or winding-up of the corporation and whether those rights are limited or participating; and (vii) The obligation, if any, of the corporation to establish a sinking fund for the purchase or redemption of the shares of the series, the amounts and time of payments to that fund, and the other terms and conditions of that fund. 2. PRE-EMPTIVE RIGHTS The shareholders of the corporation shall not have pre-emptive rights. 3. SHAREHOLDER VOTE REQUIRED The affirmative vote of a majority of votes cast by the shareholders shall be required to authorize or approve any action or matter to be voted upon by the shareholders, except that directors shall be elected as provided by law. ARTICLE IV REGISTERED OFFICE AND AGENT The address of the corporation's current registered office is 65 Livingston Avenue, Roseland, New Jersey 07068; the name of the corporation's current registered agent at that address is John R. MacKay 2nd. -3- 4 ARTICLE V CURRENT BOARD OF DIRECTORS The current board of directors consists of eight persons whose names and addresses are as follows: C. Robert Kidder Henry R. Kravis George R. Roberts Clifton S. Robbins Scott M. Stuart Alexander Navab Frank J. Tasco Wilbert J. LeMelle c/o Borden, Inc. 180 East Broad Street Columbus, Ohio ARTICLE VI INDEMNIFICATION Every person who is or was a director or an officer of the corporation shall be indemnified by the corporation to the fullest extent allowed by law, including the indemnification permitted by N.J.S. 14A:3-5(8), against all liabilities and expenses imposed upon or incurred by that person in connection with any proceeding in which that person may be made, or threatened to be made, a party, or in which that person may become involved by reason of that person being or having been a director or an officer of or of serving or having served in any capacity with any other enterprise at the request of the corporation, whether or not that person is a director or an officer or continues to serve the other enterprise at the time the liabilities or expenses are imposed or incurred. During the pendency of any such proceeding, the corporation shall, to the -4- 5 fullest extent permitted by law, promptly advance expenses that are incurred, from time to time, by a director or an officer in connection with the proceeding, subject to the receipt by the corporation of an undertaking as required by law. ARTICLE VII PERSONAL LIABILITY OF DIRECTORS OR OFFICERS A director or officer of the corporation shall not be personally liable to the corporation or its shareholders for the breach of any duty owed to the corporation or its shareholders except to the extent that an exemption from personal liability is not permitted by the New Jersey Business Corporation Act. IN WITNESS WHEREOF, the undersigned corporation has caused this certificate to be executed on its behalf by its duly authorized officer as of the date first above written. BORDEN, INC. By: /s/ Allan L. Miller -------------------------- Name: Allan L. Miller Title: Sr. Vice President, General Counsel & Secretary -5- EX-3.2 3 BORDEN, INC. 10-K405 EXHIBIT (3)(II) 1 EXHIBIT (3)(ii) As of March 14, 1995 BY-LAWS OF BORDEN, INC. ARTICLE I OFFICES SECTION 1. The registered office of the Corporation in the State of New Jersey is at 65 Livingston Avenue, Roseland, New Jersey 07068. The registered agent of the Corporation at that office is John R. MacKay 2nd. SECTION 2. Places of business or offices may be established at any time by the board of directors (the Board) at any place or places where the Corporation is qualified to do business or where qualification is not required. ARTICLE II MEETINGS OF SHAREHOLDERS SECTION 1. An annual meeting of the shareholders for the election of directors and for the transaction of such other business as may properly come before the meeting shall be held upon not less than the ten nor more than sixty days written notice of the time, place and purposes of the meeting. The meeting shall be held at such time and place as shall be designated by the Board and specified in the notice of the meeting. SECTION 2. Special meetings of shareholders shall be held at such place and at such time as shall be fixed by resolution of the Board with respect to each such meeting and may be called at any time by the Chairman of the Board, Chief Executive Officer or President or a majority of the directors. Any special meeting of shareholders shall be held upon not less than ten nor more than sixty days written notice of the time, place, and purpose of the meeting. SECTION 3. Except as otherwise provided by law or the Restated Certificate of Incorporation of the Company, at all meetings of the shareholders, in order to constitute a quorum, there shall be present, either in person or by proxy, shareholders entitled to cast a majority of the votes at such meeting. SECTION 4. At all meetings of the shareholders, each share- holder shall be entitled to one vote for each share of the capital 2 stock standing in his name on the books of the Company, except as otherwise provided by the Restated Certificate of Incorporation of the Company. SECTION 5. At all meetings of the shareholders any shareholder shall be entitled to vote by proxy. Every proxy shall be executed in writing by the shareholder or his agent except that a proxy may be given by a shareholder or his agent by telegram or cable or by any means of electronic communication which results in a writing. SECTION 6. For the purpose of determining the shareholders entitled to (a) notice of or to vote at any meeting of shareholders or any adjournment thereof, (b) give a written consent to any action without a meeting, or (c) receive payment of any dividend or allotment of any right, or for the purpose of any other corporate action or event, the Board may fix, in advance, a date as the record date for any such determination of shareholders. Such dates shall not be more than sixty nor less than ten days before the date of such meeting, nor more than sixty days prior to any other action. The record date to determine shareholders entitled to give a written consent may not be more than 60 days before the date fixed for tabulation of the consents or, if no date has been fixed for tabulation, more than 60 days before the last day on which consents received may be counted. If no record date is so fixed by the Board, (a) the record date for a meeting of shareholders shall be the close of business on the day next preceding the day on which notice is given, or, if no notice is given, the day next preceding the day on which the meeting is held, and (b) the record date for determining shareholders for any other purpose shall be at the close of business on the day on which the resolution of the Board relating thereto is adopted. When a determination of shareholders of record entitled to notice of or to vote at any meeting of shareholders has been made as provided in this Section, such determination shall apply to any adjournment thereof, unless the Board fixes a new record date under this Section for the adjourned meeting. SECTION 7. The affirmative vote of a majority of votes cast by the shareholders shall be required to authorize or approve any action or matter to be voted upon by the shareholders, except that directors shall be elected as provided by law. SECTION 8. Unless otherwise determined by resolution of the Board, (a) the Chairman of the Board shall, or shall designate an appropriate officer of the Company to, call any annual or special meeting of shareholders to order, act as Chairman 2 3 of any such meeting of the shareholders, determine the order of business of any such meeting, and determine the rules of order and procedure to be followed in the conduct of any such meeting; and (b) the Secretary or an Assistant Secretary of the Company shall act as Secretary of the meeting. Nothing in this section shall prohibit the Chairman of the meeting from changing the order in which business shall be presented to the meeting. SECTION 9. The shareholders may act without a meeting by written consent or consents pursuant to N.J.S. 14A:5-6. The written consent or consents shall be filed in the minute book. ARTICLE III DIRECTORS SECTION 1. The business and affairs of the Company shall be managed by or under the direction of a Board of Directors consisting of not less than one nor more than fifteen directors. Subject to the provisions of the Restated Certificate of Incorporation of the Company, the members of the Board shall be elected at each annual meeting of shareholders of the Company to hold office until the next annual meeting, and the term of each director shall be from the time of his election and qualification until the annual meeting of shareholders next succeeding his election and until his successor shall have been elected and shall have qualified. The Chairman of the Board shall be elected by the Board from time to time and shall serve as Chairman of the Board until his successor shall have been elected and shall have qualified. The Chairman of the Board shall be a director, and may serve as an officer or otherwise be an employee. SECTION 2. If the office of any director is not filled at an annual meeting or becomes vacant, or if new directorships resulting from an increase in the authorized number of directors are created, the remaining directors (even though less than a quorum) by a majority vote, or the sole remaining director, may fill such directorship. A director so elected shall hold office until the next annual meeting of shareholders and until his successor is elected and qualified in his stead. Any directorship not filled by the Board may be filled by the shareholders at an annual meeting or at a special meeting called for that purpose. SECTION 3. The Board shall have the power to remove a director for cause and to suspend a director pending a final determination that cause exists for removal. SECTION 4. There shall be an annual meeting of the Board for 3 4 the election of officers and for such other business as may be brought before the meeting, immediately after the annual meeting of shareholders. SECTION 5. Regular meetings of the Board may be held without notice at such time and place as shall from time to time be determined by the Board. SECTION 6. Special meetings of the Board may be called by the Chairman of the Board, Chief Executive Officer, President or by any two directors at such time and place as specified in a notice delivered personally or by telephone to each director, or mailed, telegraphed or sent by facsimile transmission to his address upon the books of the Company, at least two days prior to the time of holding the meeting. The notice of meeting need not, but may, specify the purpose of the meeting. SECTION 7. A majority of directors shall constitute a quorum for the transaction of business. Any action approved by a majority of the votes of directors present at a meeting at which a quorum is present, shall be the act of the Board. SECTION 8. The Board may act without a meeting if, prior or subsequent to the action, each member of the Board consents in writing to the action. The written consent or consents shall be filed in the minute book. SECTION 9. Any director may participate in a meeting of the Board by means of conference telephone or any other means of communication by which all persons participating in the meeting are able to hear each other. ARTICLE IV OFFICERS SECTION 1. The officers of the Company may consist of a Chief Executive Officer, a President, one or more Vice Presidents, a Secretary, a Treasurer, and a General Controller and one or more Assistant Secretaries, Assistant Treasurers and Assistant General Controllers. The said officers shall be elected at the annual meeting of the Board by a majority vote of the Board and shall serve at the pleasure of the Board and shall be subject to removal at any time, with or without cause, provided, however, that the Board may at its pleasure omit the election of any of the foregoing officers not required by law. One person may hold more than one office. SECTION 2. The said officers shall have the powers and shall perform all the duties incident to their said respective offices and shall perform such other duties as shall from time to time be assigned to them by the Board. 4 5 SECTION 3. The Chairman or, in his absence, a director selected by a majority of the Directors, shall preside at meetings of the Board. Each Vice President or other officer shall have general charge of such departments or divisions of the Company's business, or shall perform such duties, as may from time to time be determined by the Chief Executive Officer and they shall be responsible for the proper administration of their respective departments or divisions to the Chief Executive Officer. Departmental managers shall be responsible for the proper administration of their departments to the officer in charge thereof. SECTION 4. During the absence of the Chief Executive Officer, the Chief Executive Officer shall designate, in writing to the Corporate Secretary, the officer who shall be vested with all the powers of such office in respect of the signing and execution of any contracts or other papers requiring the signature of any such absent officer. In the event of any prolonged absence of any officer of the Company, the Board may delegate his powers or duties to any other executive officer, or to any director, during such absence, and the person so delegated shall, for the time being, be the officer whose powers and duties he so assumes. SECTION 5. The Board may create such other offices as they may determine, elect or provide for the election of officers to fill the same, define their powers and duties and fix their tenures of office. The Board may also create or provide for the creation of (1) administrative divisions, and (2) offices and committees for any such divisions and may elect or provide for the election of officers and committee members to fill the positions so created, define or make provision for the duties to be performed by such officers and committees and the powers to be exercised by them and fix or make provision for their tenures of office. The Board may delegate to the Chief Executive Officer or to any other officer or any committee of the Company the power to exercise some, any or all of the powers granted to the Board by the foregoing provisions of this Section. The Chief Executive Officer in turn may delegate to any other officer or any committee of the Company the power to exercise some, any or all of the powers delegated to him by the Board pursuant to the foregoing provisions of this Section. ARTICLE V COMMITTEES SECTION 1. There shall be an Executive Committee consisting of three or more directors. The membership of this Committee shall consist of such number of directors as the Board may, by a resolution adopted by a majority of the entire Board, elect from time to time and their terms of office shall be for such periods as the Board may designate. A majority of all the members of the 5 6 Committee shall constitute a quorum for the transaction of business. The Board or Executive Committee members shall elect the Chairman of the Committee. The Committee shall determine its own procedure and shall meet on call by the Chairman of the Committee or by any two members of the Committee. In addition to any general or special duties that may from time to time be delegated to it by the Board, the Committee shall, subject to the laws of the State of New Jersey, have and may exercise the powers of the Board during the intervals between the meetings of the Board, including the periodic review of management organization. SECTION 2. There shall be an Audit Committee comprised of two or more directors. The members shall be elected by the Board, or the Executive Committee, either of which shall also elect the Chairman of the Committee. A majority of the members shall constitute a quorum of the Committee. The Committee shall assist the Board in fulfilling its fiduciary responsibilities relating to accounting policies, auditing and reporting practices for the Company and shall, through regularly scheduled meetings provide a direct line of communication between the Board and the Company's independent accountants, as well as the internal auditor. It shall receive management's recommendation of the independent auditing firm for the next year and make its recommendation to be approved by the Board. It shall review with the independent auditing firm the scope of its examination, the consolidated financial statements prior to the approval of the annual report by the Board, the competence and adequacy of financial, accounting and internal audit management and control procedures of the Company, recommendations of the independent auditors and management's response thereto, the internal audit function and such other matters relating to financial reports as it deems appropriate. It will require that serious differences between the independent auditors and the management be reported to it. SECTION 3. There shall be a Committee on Officers' Compensation comprised of three or more directors. The members shall be elected by the Board or the Executive Committee, either of which shall also elect the Chairman of the Committee. A majority of the members shall constitute a quorum of the Committee. The Committee shall establish salaries for elected officers of the Company. It shall be responsible for the administration of the Management Incentive Plan, other incentive compensation plans and related subjects. It shall also supervise and administer such employee benefits plans as the Chief Executive Officer or the Board shall, from time to time, direct. 6 7 SECTION 4. The Committees created by the preceding sections of this Article shall each keep a record of their actions and proceedings, and all their actions shall be reported to the Board at its next ensuing meeting; except that, when the meeting of the Board is held within 2 days after the committee meeting, such report shall, if not made at the first meeting, be made to the Board at its second meeting following such committee meeting. ARTICLE VI WAIVERS OF NOTICE Any notice required by these by-laws, by the Restated Certificate of Incorporation, or by the New Jersey Business Corporation Act may be waived in writing by any person entitled to notice. The waiver, or waivers, may be executed either before or after the event with respect to which the notice is waived. Each director or shareholder attending a meeting without protesting, prior to its conclusion, the lack of proper notice, shall be deemed conclusion, the lack of proper notice shall be deemed conclusively to have waived notice of the meeting. ARTICLE VII DEPOSITORIES, CHECKS AND NOTES SECTION 1. The Chairman of the Board, Chief Executive Officer, President, Chief Financial Officer, Treasurer or an Assistant Treasurer of the Company shall each have the authority to designate banks, trust companies or other depositories in which funds of the Company shall be deposited to the credit of the Company. All checks, drafts and orders for the payment of money shall be signed by any one of the aforesaid officers, or by such other person or persons as the Board or anyone of the aforesaid officers may from time to time designate. Subject to such limitations, restrictions and safeguards as any of the aforesaid officers shall prescribe, signatures in the case of all checks, drafts and orders for the payment of money may be facsimile signatures. SECTION 2. The signature of any officer upon any bond, debenture, note or similar instrument executed on behalf of the Company may be a facsimile whenever authorized by the Board. 7 8 ARTICLE VIII DIVIDENDS Subject to the provisions of law and the Restated Certificate of Incorporation of the Company, the Board shall have the power in its discretion to declare and pay dividends upon the shares of stock of the Company of any class in cash, in its own shares, in its bonds or in other property, including the shares or bonds of other corporations. Anything in the Restated Certificate of Incorporation or these by-laws to the contrary notwithstanding, no holder of any share of stock of the Company of any class shall have any right to any dividend thereon unless such dividend shall have been declared by the Board as aforesaid. ARTICLE IX SEAL The seal of the Company shall be circular in form with the words "Borden, Inc." on the circumference, and the figures "1899" in the center. ARTICLE X STOCK SECTION 1. Certificates of stock shall be issued and signed by the Chairman of the Board, Chief Executive Officer, President or a Vice President and may be countersigned by the Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary and may be sealed with the seal of the Company or a facsimile thereof. Any or all signatures upon a certificate, including those of a stock transfer agent or a registrar, may be facsimile. In case any officer or officers or any transfer agent or registrar of the Company who shall have signed, or whose facsimile signature or signatures shall have been used on any certificate or certificates shall cease to be such officer or officers, or such transfer agent or registrar, for whatever cause, before such certificate or certificates shall have been delivered, such certificate or certificates may nevertheless be issued and delivered as though the person or persons who signed such certificate or certificates or whose facsimile signature or signatures shall have been used thereon had not ceased to be such officer or officers or such transfer agent or registrar, as the case may be. SECTION 2. All transfers of stock shall be made upon the books of the Company upon surrender to the Company of the certificate or certificates for such stock, duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer. 8 9 SECTION 3. Every person claiming a stock certificate in lieu of one lost or destroyed shall give notice to the Company of such loss and destruction, and shall also file in the office of the Company an affidavit as to his ownership of the stock represented by the certificate, and of the facts which go to prove its loss or destruction. He shall, if required by the Board of Directors, give the Company a bond or agreement of indemnity in a form to be approved by counsel, with or without sureties and in such amount as may be determined by the Board or by an officer in whom authority therefor shall have been duly vested by the Board against all loss, cost and damage which may arise from issuing such new certificate. The officers of the Company, if satisfied from the proof that the certificate is lost or destroyed, may then issue to him a new certificate of the same tenor as the one lost or destroyed. SECTION 4. The Board shall have the power and authority to make all such rules and regulations as it may deem expedient concerning the issue, transfer and registration of certificates for shares of the capital stock of the Company. The Board may appoint transfer agents and registrars of transfer, and may require any or all stock certificates to bear the signature or facsimile signature of any such transfer agent and any such registrar of transfers. SECTION 5. Unless the Board by specific resolution provides otherwise, all shares of the Company, which are reacquired pursuant to the New Jersey Corporation Act, Section 14A:7-16 by purchase, by redemption or by their conversion into other shares of the Company, shall remain authorized and issued shares and shall be considered treasury shares. ARTICLE XI FISCAL YEAR SECTION 1. The fiscal year of the Company shall commence on the first day of January in each year and end on the following thirty-first day of December. SECTION 2. It shall be the duty of the principal financial officer to submit a full report of the financial condition of the Company for the preceding fiscal year at a meeting of the Board preceding the annual meeting of shareholders. ARTICLE XII AMENDMENTS TO BY-LAWS SECTION 1. These by-laws are subject to the provisions of the New Jersey Business Corporation Act and the Corporation's Restated Certificate of Incorporation, as each may be amended from time to time. If any provision in these by-laws is inconsistent with a provision in that Act or the Restated Certificate of Incorporation, 9 10 the provision of that Act or the Restated Certificate of Incorporation shall govern. SECTION 2. These by-laws may be altered, amended, or repealed by the shareholders or the Board. Any by-law adopted or amended by the shareholders may be amended or repealed by the Board, unless the resolution of the shareholders adopting the by-law expressly reserves to the shareholders the right to amend or repeal it. 10 EX-4.8 4 BORDEN, INC. 10-K405 EXHIBIT (4)(VIII) 1 EXHIBIT 4(viii) Borden, Inc. 180 East Broad Street Columbus, Ohio 43215 February 15, 1995 Whitehall Associates, L.P. and KKR Partners II, L.P. c/o Kohlberg Kravis Roberts & Co. 9 West 57th Street New York, New York 10019 Gentlemen: By your acceptance of this letter, you hereby contribute to Borden, Inc. ("Borden") effective today shares of common stock, par value $0.01 per share, of RJR Nabisco Holdings Corp. ("RN Common Stock") as follows: Whitehall Associates, L.P. ("Whitehall") hereby contributes 67,193,843 shares of RN Common Stock to Borden, and KKR Partners II, L.P. (together with Whitehall, the "Common Stock Partnerships") hereby contributes 1,699,389 shares of RN Common Stock to Borden. The shares of RN Common Stock contributed today by the Common Stock Partnerships are referred to herein as the "Contributed Stock". 1. In consideration for the contribution of the Contributed Stock, Borden hereby agrees to issue to the Common Stock Partnerships on the Issuance Date (as defined below) shares of its capital stock as further described below. The "Issuance Date" shall be August 14, 1995 unless the Common Stock Partnerships notify Borden (to the attention of either its Chief Executive Officer or General Counsel) in their sole discretion that they wish to acquire such shares at an earlier date. In such event the 2 Whitehall Associates, L.P. and KKR Partners II, L.P. -2- February 15, 1995 Common Stock Partnerships shall specify the proposed Issuance Date in the above mentioned notice, and the Issuance Date shall be the later of the date so proposed and the earliest date at which the provisions of paragraph 2 below can be satisfied. 2. In connection with the issuance of capital stock by Borden referred to in the preceding paragraph, each stockholder of record, if any, of outstanding Borden stock (other than the Common Stock Partnerships) on the Issuance Record Date (as defined below) shall be given the right to purchase that number of shares of the same class or series of capital stock of Borden as the capital stock to be issued pursuant to paragraph 3 below to the Common Stock Partnerships as bears the same proportion to the aggregate number of shares of capital stock to be received by the Common Stock Partnerships pursuant to this letter agreement as the number of shares of outstanding Borden stock held of record by any such stockholder on the Issuance Record Date bears to the aggregate number of shares of outstanding Borden stock held by the Common Stock Partnerships on the Issuance Record Date. Any Borden stockholder other than the Common Stock Partnerships desiring to subscribe for shares of capital stock pursuant to this paragraph shall be required to pay for such shares of Borden capital stock the same per share consideration paid by the Common Stock Partnerships either (at each such stockholders sole option) (i) in shares of RN Common Stock calculated, based on the applicable calculations set forth in paragraph 3 below, to have been paid by the Common Stock Partnerships for the Contributed Stock, PROVIDED that with respect to any shares of RN Common Stock contributed pursuant to this paragraph 2 by Borden stockholders of 3 Whitehall Associates, L.P. and KKR Partners II, L.P. -3- February 15, 1995 record other than the Common Stock Partnerships, the Market Value of such contributed RN Common Stock shall be determined based upon the second sentence of paragraph 3(a) below without giving effect to the proviso thereto or (ii) in cash in an amount for each Borden share to be purchased equal to (A) if paragraph 3(a) below is applicable, the average of the high and low sales prices of the Borden Common Stock as reported on the New York Stock Exchange ("NYSE") Composite Tape on the last trading day for Borden Common Stock prior to the date of the Merger or (B) if paragraph 3(b) below is applicable, $100 per share. The "Issuance Record Date" shall be July 14, 1995 unless the Common Stock Partnerships shall have given notice to Borden that they wish to fix an Issuance Date prior to July 14, 1995. In the event that the Common Stock Partnerships have given such notice to Borden, the Issuance Record Date shall be fixed by Borden 30 calendar days prior to the proposed Issuance Date; PROVIDED that if such notice is given following the Merger, the Issuance Record Date shall be the Issuance Date. 3. (a) If on the Issuance Record Date, the Merger shall have occurred, the Common Stock Partnerships shall receive in consideration for the Contributed Stock that number (rounded to the nearest whole share) of shares of Borden common stock, par value $0.01 per share (the "Borden Common Stock"), as are equal to the quotient of (i) the aggregate Market Value (as defined below) of the Contributed Stock divided by (ii) the average of the high and low sales prices of the Borden Common Stock as reported on the NYSE Composite Tape on the last trading day for Borden Common Stock prior to the date of the Merger. The "Market Value" of the Contributed Stock shall be the average of 4 Whitehall Associates, L.P. and KKR Partners II, L.P. -4- February 15, 1995 the high and low sales prices of the RN Common Stock on the NYSE Composite Tape on February 15, 1995 multiplied by 68,893,232 shares; PROVIDED that if all the shares of Contributed Stock shall have been sold by Borden prior to the Issuance Record Date and the net proceeds of such sale to Borden shall be less than the "Market Value" as defined above, the "Market Value" of the Contributed Stock shall be the aggregate net sale proceeds realized by Borden from the sale of the Contributed Stock. (b) If on the Issuance Record Date, the Merger shall not have occurred, the Common Stock Partnerships shall receive in consideration for the Contributed Stock shares of non-voting preferred stock of Borden with an aggregate liquidation preference equal to the Market Value of the Contributed Stock and bearing a dividend rate fixed by an investment banking firm mutually acceptable to Borden and the Common Stock Partnerships as would be expected to cause the issue of preferred stock to trade at par (taking into account, without limiting the factors which may be considered by such investment banking firm, Borden's credit ratings and financial condition) to institutional investors. Such preferred stock shall have other customary rights, designations and preferences; PROVIDED that such preferred stock shall not be mandatorily redeemable or redeemable at the option of the holder prior to January 1, 2000. Such issue of preferred stock shall be divided into shares each having a liquidation preference of $100 per share and may be issued in fractional shares. 4. The consideration to be received by the Common Stock Partnerships pursuant to paragraph 3 shall be divided between the Common Stock Partnerships in 5 Whitehall Associates, L.P. and KKR Partners II, L.P. -5- February 15, 1995 proportion to the amount of Contributed Stock contributed to Borden by each such Common Stock Partnership. 5. Borden agrees to complete the transactions described in this letter agreement in compliance with all federal and state securities and blue sky laws and regulations. 6. Borden agrees to extend, pursuant to one or more reasonably acceptable agreements, registration rights to the Common Stock Partnerships with respect to all Borden capital stock held by the Common Stock Partnerships. 7. This letter agreement shall be governed by and construed in accordance with the laws of the State of New York, regardless of the laws that might otherwise govern under applicable principles of conflicts of laws thereof. 8. This letter agreement may be executed in two or more counterparts each of which shall be deemed to be an original, but all of which shall constitute one and the same instrument. Very truly yours, BORDEN, INC. By: _______________________________ 6 Whitehall Associates, L.P. and KKR Partners II, L.P. -6- February 15, 1995 Agreed and Accepted: WHITEHALL ASSOCIATES, L.P. By: KKR Associates, a limited partnership, its general partner By: _______________________________ KKR PARTNERS II, L.P. By: KKR Associates, a limited partnership, its general partner By: _______________________________ EX-4.9 5 BORDEN, INC. 10-K405 EXHIBIT (4)(IX) 1 EXHIBIT (4)(ix) BORDEN, INC. 180 EAST BROAD STREET COLUMBUS, OHIO 43215 March 15, 1995 Whitehall Associates, L.P. and KKR Partners II, L.P. c/o Kohlberg Kravis Roberts & Co. 9 West 57th Street New York, New York 10019 Gentlemen: On March 15, 1995, the Board of Directors of Borden, Inc. ("Borden") declared a dividend of one right (collectively, the "Rights") per share of Common Stock, par value $.01 per share (the "Borden Common Stock"), held of record on that date. Each Right permitted its holder, upon exercise, to acquire from Borden upon written notice to Borden a number (to be determined as specified in paragraph 2 below) of shares of capital stock of Borden (as further described in paragraph 1 below) in consideration for contributing shares of Common Stock, par value $.01 per share (the "RN Common Stock"), of RJR Nabisco Holdings Corp. Whitehall Associates, L.P. ("Whitehall") and KKR Partners II, L.P. ("Partners II" and, together with Whitehall, the "Common Stock Partnerships"), the sole stockholders of record of Borden, hereby exercise their respective Rights and each of them, effective today, contributes to Borden shares of RN Common Stock as follows: Whitehall hereby contributes 108,308,275 shares of RN Common Stock to Borden and Partners II hereby contributes 2,738,955 shares of RN Common Stock to Borden. The shares of RN 2 Common Stock contributed today by the Common Stock Partnerships are referred to herein as the "Contributed Stock." 1. In consideration for the contribution of the Contributed Stock and pursuant to the Rights, Borden hereby agrees to issue to the Common Stock Partnerships a number (to be determined as specified in paragraph 2 below) of shares of either Borden Common Stock or Series A Cumulative Convertible Preferred Stock, having substantially the rights, preferences and other terms set forth in the form of Certificate of Amendment to the Restated Certificate of Incorporation of Borden attached hereto as Exhibit A ("Series A Preferred Stock"), of Borden, at the election and sole option of the Common Stock Partnerships, on such date or dates as may be specified from time to time by the Common Stock Partnerships by written notice to Borden (each such date, an "Issuance Date"). Each such notice shall designate the total number (the "Designated Number") of shares of Contributed Stock with respect to which the issuance of Borden stock is being requested on such Issuance Date. The Common Stock Partnerships may deliver such notices hereunder until the aggregate of the Designated Numbers of all such notices equals 111,047,230. 2. (a) On each Issuance Date that the Common Stock Partnerships elect to receive shares of Borden Common Stock as consideration for the Contributed Stock, Borden shall issue for each of the Designated Number of shares of the Contributed Stock with respect to such Issuance Date such fraction of a share of Borden Common Stock that is the quotient of (x) the Market Value of each share of the Contributed Stock divided by (y) $13-1/4, which is the average of the high and low sales prices of a share 3 3 of Borden Common Stock on the New York Stock Exchange Composite Tape on March 13, 1995. For purposes hereof, the "Market Value" of each share of the Contributed Stock shall be $5-13/16, which is the average of the high and low sales prices of a share of RN Common Stock on the New York Stock Exchange Composite tape on March 13, 1995; provided that if such share of Contributed Stock has been sold by Borden prior to the Issuance Date and the net proceeds to Borden of such sale shall be less than the Market Value as defined above, then the "Market Value" of such share shall be the amount of the net sale proceeds realized by Borden from the sale of such share of the Contributed Stock. If the aggregate number of shares of Borden Common Stock that would be required to be issued pursuant to the foregoing provisions of this paragraph 2(a) on any Issuance Date is not a whole number, then such aggregate number of shares shall be rounded to the nearest whole number. (b) On each Issuance Date that the Common Stock Partnerships elect to receive shares of Series A Preferred Stock as consideration for the Contributed Stock, Borden shall issue for all of the Designated Number of shares of the Contributed Stock with respect to such Issuance Date such amount of Preferred Stock as has an aggregate stated value or liquidation preference equal to the Market Values of all such Designated Number of shares of Contributed Stock with respect to such Issuance Date and bearing such dividend rate, conversion ratio and other material terms as Borden and the Common Stock Partnerships may agree. If the Common Stock Partnerships so request, in their sole discretion, the terms of the Series A Preferred Stock shall 4 4 be modified so that the Series A Preferred Stock is not convertible into Borden Common Stock. 3. The consideration to be received by the Common Stock Partnerships pursuant to paragraph 1 shall be divided between the Common Stock Partnerships in proportion to the amount of Contributed Stock contributed to Borden by each such Common Stock Partnership. 4. Borden agrees to complete the transactions described in this letter agreement in compliance with all federal and state securities and blue sky laws and regulations. 5. Borden agrees to extend, pursuant to one or more reasonably acceptable agreements, registration rights to the Common Stock Partnerships with respect to all Borden capital stock held by the Common Stock Partnerships. 6. Borden shall deliver to the Common Stock Partnerships, within 15 days after filing with the Securities and Exchange Commission (the "SEC"), copies of the reports and other documents which Borden is required to file with the SEC pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended (the "Securities Exchange Act"). If Borden is not subject to the requirements of such Section 13 or 15(d) of the Securities Exchange Act, Borden shall deliver to the Common Stock Partnerships, within 15 days after it would have been required to file such information with the SEC, financial statements, including any notes thereto, and with respect to annual reports, an auditor's report by an accounting firm of established national reputation and a "Management's Discussion and Analysis of Financial Condition and Results of Operations," each comparable 5 5 to that which Borden would have been required to include in such reports or other documents if Borden were subject to the requirements of such Section 13 or 15(d) of the Securities Exchange Act. 7. Borden agrees that, whether or not the transactions contemplated by this letter are consummated, Borden will pay or cause to be paid all costs and expenses arising in connection with the preparation, execution, administration and enforcement of, and the preservation of rights under, this letter, and all taxes (other than taxes based on income), fees or other charges that may be payable in connection with the transactions contemplated hereby. 8. Whether or not the transactions contemplated hereby are consummated, Borden agrees to indemnify and hold harmless each Common Stock Partnership and all limited and general partners of each Common Stock Partnership from and against any liabilities, obligations, losses, damages, penalties, actions, judgments, suits, claims, costs, attorneys' fees, expenses and disbursements of any kind which may be imposed upon, incurred by or asserted against each Common Stock Partnership (or any partner thereof) in any manner relating to or arising out of (i) such Common Stock Partnership's purchase and/or ownership of the Borden securities or (ii) any litigation to which such Common Stock Partnership (or any of its partners) is made a party in its capacity as a shareholder or owner of securities (or a partner of a shareholder or owner of securities) of Borden. 9. Notwithstanding any other provision of this letter, neither the general partner nor the limited partners nor any 6 6 future general or limited partner of a Common Stock Partnership shall have any personal liability for performance of any obligation of a Common Stock Partnership under this letter in excess of the respective capital contribution of such general partner and limited partners to such Common Stock Partnership. 10. This letter agreement shall be governed by and construed in accordance with the laws of the State of New York, regardless of the laws that might otherwise govern under applicable principles of conflicts of laws thereof. 11. This letter agreement may be executed in two or more counterparts each of which shall be deemed to be an original, but all of which shall constitute one and the same instrument. Very truly yours, BORDEN, INC. By: _____________________ Title: 7 7 Agreed and Accepted: WHITEHALL ASSOCIATES, L.P. By: KKR Associates, a limited partnership, its general partner By: ______________________ General Partner KKR PARTNERS II, L.P. By: KKR Associates, a limited partnership, its general partner By: ______________________ General Partner EX-10.5 6 BORDEN, INC. 10-K405 EXHIBIT (10)(V) 1 EXHIBIT 10(v) THIRD AMENDMENT --------------- THIRD AMENDMENT, dated as of January 4, 1995 (this "THIRD AMENDMENT"), among BORDEN ACQUISITION CORP., a New Jersey corporation ("PURCHASER"), WHITEHALL ASSOCIATES, L.P., a Delaware limited partnership ("PARENT"), and BORDEN, INC., a New Jersey corporation (the "COMPANY"), to the Agreement and Plan of Merger, dated as of September 23, 1994, as amended by Amendments thereto dated as of November 15, 1994 and December 6, 1994 (the "AGREEMENT"), among Purchaser, Parent and the Company. 1. AMENDMENT TO SECTION 3.1. Subsection 3.1(b) of the Agreement is hereby amended by inserting "KKR Partners II, L.P.," immediately after the phrase "owned by Parent," where such phrase appears in such subsection. 2. AMENDMENT TO EXHIBIT A. Exhibit A to the Agreement is hereby deleted from the Agreement in its entirety and in lieu thereof Annex A hereto is inserted as a new Exhibit A to the Agreement. 3. AUTHORIZATION; EFFECTIVENESS. (a) This Third Amendment has been duly executed and delivered by each party hereto and constitutes a valid and binding obligation of each such party, enforceable against such party in accordance with its terms subject to the effects of bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws relating to or affecting creditors' rights generally, general equitable principles (whether considered in a proceeding in equity or at law) and an implied covenant of good faith and fair dealing. (b) This Third Amendment shall become effective upon execution and delivery by the parties hereto. Except as expressly amended hereby, the provisions of the Agreement are and shall remain in full force and effect. 4. GOVERNING LAW. This Third Amendment shall be governed by and construed in accordance with the laws of the State of New Jersey, regardless of the laws that might otherwise govern under applicable principles of conflicts of laws thereof. 5. COUNTERPARTS. This Third Amendment may be executed in two or more counterparts, each of which shall be deemed to be an original, but all of which shall constitute one and the same agreement. (Continued on subsequent page) 2 -2- IN WITNESS WHEREOF, each of the parties has caused this Third Amendment to be executed on its behalf by its officers thereunto duly authorized, all as of the day and year first above written. WHITEHALL ASSOCIATES, L.P. By: KKR Associates, a limited partnership, its General Partner By: /s/ Henry R. Kravis ---------------------- Title: General Partner BORDEN ACQUISITION CORP. By: /s/ Clifton S. Robbins -------------------------- Name: Clifton S. Robbins Title: President BORDEN, INC. By: /s/ Allan L. Miller ----------------------------- Name: Allan L. Miller Title: Senior Vice President, Chief Administrative Officer and General Counsel EX-10.16 7 BORDEN, INC. 10-K405 EXHIBIT (10)(XVI) 1 EXHIBIT 10(xvi) AMENDMENT TO THE BORDEN, INC. SUPPLEMENTAL BENEFIT TRUST AGREEMENT Under the powers reserved to it under Section 1.4 and pursuant of the authorization of its Board of Directors, Borden, Inc. hereby amends the Borden, Inc. Supplemental Benefit Trust Agreement as amended through December 9, 1993 by adding Section 9.11 as follows: "9.11 NOTWITHSTANDING ANY OTHER PROVISION OF THIS TRUST ANY "CHANGE-IN-CONTROL" RESULTING FROM, EFFECTED BY, OR ARISING IN CONNECTION WITH MERGER AGREEMENT AMONG WHITEHALL ASSOCIATES, L.P., BORDEN ACQUISITION CORP. AND BORDEN, INC., DATED SEPTEMBER 23, 1994 SHALL NOT BE DEEMED TO BE A CHANGE-IN-CONTROL UNDER THIS TRUST AGREEMENT AND BY WAY OF ILLUSTRATION AND NOT LIMITATION NO SUCH CHANGE-IN-CONTROL SHALL RESULT IN THIS TRUST BECOMING IRREVOCABLE OR RESULT IN ANY FUNDING OBLIGATIONS BY THE CORPORATION OR IN CREATION OF ANY RIGHTS IN THE BENEFICIARIES OF THIS TRUST" This Amendment is made this 15th day of November 1994. BORDEN, INC. By: /s/ Randy Kautto -------------------- Randy Kautto Vice President Human Resources Accepted: WACHOVIA BANK OF NORTH CAROLINA, N.A. By: /s/ Joe O. Long ------------------------- Joe O. Long Senior Vice President this day of November 1994. ----- EX-10.19.I 8 BORDEN, INC. 10-K405 EXHIBIT (10)(XIX)(I) 1 EXHIBIT 10 (xix)(i) - - ------------------- DESCRIPTION OF ARRANGEMENT WITH C. ROBERT KIDDER - - ------------------------------------------------ C. Robert Kidder, Chairman of the Board and Chief Executive Officer, is employed at a base annual salary of $900,000 with an annual incentive opportunity of eighty percent of salary guaranteed to be not less than $360,000 for 1995, payable in 1996. A long-term incentive program for Mr. Kidder has not yet been determined. Mr. Kidder also receives the perquisites usual for his position and participates in the employee and executive benefit programs of the Company. His employment arrangement has no definite term. EX-10.19.J 9 BORDEN, INC. 10-K405 EXHIBIT (10)(XIX)(J) 1 [BORDEN LOGO] EXHIBIT 10(xix)(j) IF IT'S BORDEN-IT'S GOT TO BE GOOD BORDEN, INC - - ------------------------------------------------------------------------------- ALLAN L. MILLER July 7, 1994 SENIOR VICE PRESIDENT CHIEF ADMINISTRATIVE OFFICER Mr. James Van Meter 10 Cherokee Road Atlanta, GA 30305 Dear Jim: This will supplement my letter to you of June 8, 1994 and an attached corrected summary of terms of employment, copies of which are attached to and incorporated in this agreement. o Your annual base salary will be reviewed annually but no decrease in the rate of annual salary shall be made in the absence of a general decrease in senior executive salaries approved by Borden's Board of Directors. o As Executive Vice President, Chief Financial Officer you will report to Borden's Chief Executive Officer and you will have the duties normal to a Chief Financial Officer with such additional specific duties as determined by the Company's Chief Executive Officer. o The fact that the Company is not by contract required to allow your participation in its long term incentive awards program shall not preclude you from being considered in the Board of Directors discretion for long term cash awards on the basis of management's recommendation in future years. o "Cause" as a basis for termination shall be as defined in the Company's agreement with its Core Management Group namely: An act or acts of dishonesty constituting a felony and resulting or intending to result directly or indirectly in gain or personal enrichment at the expense of Borden to which Executive is not legally entitled such as to (a) cause intentional material harm to Borden; (b) materially impair the reputation of Borden; or (c) materially interfere with the operations of Borden shall constitute "cause." 180 EAST BROAD STREET COLUMBUS, OHIO 43215 TELEPHONE: 614-225-4884 2 James Van Meter July 7, 1994 Page 2 o You will establish your permanent and principal residence in the Columbus, Ohio area not later than September 5, 1994. o In the event of your termination following a change in control of Borden and during the first three (3) years of your employment, you will be reimbursed for your expenses in relocating your permanent residence from Columbus, Ohio to Atlanta, Georgia provided such relocation occurs within one year of such termination. o Attached to this agreement is a description of the benefits which are available for your participation. o In the event of a dispute concerning the terms of this agreement either party will notify the other party in writing of the existence and nature of the dispute and the parties will meet within ten (10) days in a good faith effort to resolve the dispute. Failing a mutually satisfactory resolution within ten (10) days either party may refer the matter to the American Arbitration Association for resolution under its rules for commercial arbitration. The decision of the arbitrator shall be final and binding of the parties and the prevailing party's cost including counsel fees shall be paid by the other party. Jim, I believe this covers all the terms we have discussed. Please indicate your agreement by signing below. Sincerely, /s/ Allan L. Miller --------------- Allan L. Miller Agreed: /s/ James Van Meter --------------- James Van Meter enclosure e:\et\vanmeter.7a4 -2- 3 Borden, Inc. ("Company") ----------- Summary of Terms of Employment for James C. Van Meter ("You") 1. Employment See paragraph 10 below. 2. Position Executive Vice President - Chief Financial Officer reporting to the Chief Executive Officer of the Company. 3. Base Salary $300,000 per year. 4. Annual Incentive Target opportunity 55% of base salary. Maximum: 82.5% of base salary. 5. Long-Term Incentive No Participation. Award Opportunity 6. Stock Option Award You shall be eligible to participate in the Company's stock option plan. Grants shall be as follows, with one year vesting: 300,000 shares at market (At next grant, expected in June.) 250,000 shares at market on July 1, 1994, vesting when the market price is at least $21.50 for 20 consecutive days. 200,000 shares at market on Janurary 2, 1995, vesting when the market price is at least $25.00 for 20 consecutive days. Stock options awarded to you will be exercisable for the following periods after termination of employment for any reason other than cause but in no event longer than the exercise period of the grant. Completed Years Exercise Period of Employment After Termination -------------- ----------------- 0 - 2 years 2 years 2 - 3 years 3 years 3+ years 5 years -3- 4 7. Pension Benefits You shall be eligible for pension benefits as provided under the Company's tax-qualified retirement plan and non- qualified supplemental excess benefit plan. Immediate vesting. The Company will match your contributions to its Retirement Savings Plan at 50%, as done with other long- term CORE members, from your employment date forward. We hope to go back to a 100% match on 7% of salary in 1995, if our economic performance permits. If that is done for other senior managers, it will be done for you. 8. Relocation You will permanently relocate to the greater Columbus, Ohio, area by June 27, 1994. You will participate in the Company's employee relocation policy applicaple to current employees, including the sale of your principal residence. (See attached relocation policy.) 9. Perquisites You shall be entitled to benefits in accordance with the Company's Perquisites Policy for CORE management as the same may from time to time be amended. (See attachment.) 10. CORE Management You will participate in the full CORE Program management program as it may be amended from time to time by the Board of Directors. The program currently would provide you one year's base salary if you are terminated without cause. You will be paid three years' full pay if you are terminated without cause following a change in control. (A review of the program by the Board of Directors is expected by year-end.) -4- 5 We will commit by contract that you will have this protection as described above for at least a three-year period following your employment, i.e., the one year if terminated without cause and the three years if terminated without cause following a change in control. 11. Terms of Plans Some of the above are highlights of various plans or programs, and all are subject to the terms of the actual plans and programs. -5- EX-10.19.K 10 BORDEN, INC. 10-K405 EXHIBIT (10)(XIX)(K) 1 EXHIBIT 10(XIX)(k) TERMINATION AGREEMENT TERMINATION AGREEMENT, dated as of January 10, 1995, between BORDEN, INC., a New Jersey corporation (the "Company"), and ERVIN R. SHAMES (the "Executive"). WHEREAS, the Company and the Executive are party to (i) an employment agreement dated June 24, 1993 (the "Employment Agreement"), as amended on each of December 22, 1993, January 25, 1994, February 22, 1994, April 22, 1994 and August 11, 1994, and (ii) a letter agreement dated June 28, 1993 (the "Core Agreement"), as amended on August 11, 1994, under which the Executive served as the Chief Executive Officer, President, Chief Operating Officer and a member of the Board of Directors of the Company; WHEREAS, the Company has entered into an Agreement and Plan of Merger among Whitehall Associates, L.P., Borden Acquisition Corp. and the Company, dated as of September 23, 1994 (the "Merger Agreement"); WHEREAS, consistent with the terms of the Merger Agreement, Whitehall Associates, L.P. acquired 63.5% of the Company's outstanding shares (the "Change of Control"); WHEREAS, effective January 10, 1995 (the "Termination Date"), the Executive has resigned his employment and all positions related to his employment; WHEREAS, a letter agreement dated January 10, 1995 between the Executive and Kohlberg, Kravis & Roberts & Co., the 2 2 general partner of Whitehall Associates, L.P., provided that the Executive's resignation would be treated as a termination without "cause" so that the Executive could receive such compensation and benefits in accordance with Paragraph 3.01(b) of the Employment Agreement and Paragraph 2(b) of the Core Agreement and such other benefits as the Executive may be entitled to under the applicable plans and programs of the Company; WHEREAS, the parties wish to agree upon their mutual rights and obligations arising from such resignation; NOW, THEREFORE, in consideration of the mutual promises and agreements set forth herein, and other good and valuable consideration, the receipt of which are hereby acknowledged, the Company and the Executive hereby agree as follows: SECTION 1. TERMINATION PAYMENTS. -------------------- Subject to Section 8(e), the Executive shall be entitiled to receive the following cash payments (less any applicable withholding): (a) As soon as practicable after the signing of this agreement, the Company shall pay the Executive $170,196, representing severance payments and supplemental matching contributions for the period from January 10, 1995 to January 31, 1995, and accrued vacation benefits as of the Termination Date. (b) Commencing on March 1, 1995 and on the first day of each month through December 1, 1997, the Company shall pay the Executive $160,400, representing severance payments and supplemental matching contributions for such period. (c) On January 1, 1998, the Company shall pay the Executive $108,658, representing severance and supplemental matching contributions for the period December 1, 1997 through December 21, 1997. SECTION 2. WELFARE BENEFITS. (a) Subject to Section 8(e), for the period January 1, 1995 through December 21, 1997 3 3 (the "Severance Period"), the Company shall continue to maintain Executive's level of coverage in effect as of the Termination Date under the following welfare benefit plans provided the Executive continues to contribute to the cost of coverage under these plans in the same manner and at the same level that he would be required to contribute if his employment as Chief Executive Officer were not terminated: (i) the Company's Executive Family Survivor Protection Plan; (ii) the Business, Personal Travel Accident Plan; (iii) the Life Insurance Plan; (iv) the Disability Income Plan; (v) the Supplemental Health Care Plan; and (vi) the Total Family Protection Plan (Health Care, Basic/Supplemental Life Insurance, Dependent Life Insurance, High Limit Accident Insurance and Business Travel Accident Insurance). (b) Upon request of the Executive at any time after the Severance Period, the Company shall permit the Executive to participate in the Company's retiree medical program, as it exists from time to time, provided the Executive pays 100% of the cost of his coverage thereunder and provided further that if at any time subsequent to Executive's participation in such retiree medical program his coverage thereunder shall cease at his initiative, Executive shall have no right to reparticipate therein. SECTION 3. PENSION BENEFITS. The Company shall pay a pension benefit: (a) to the Executive, if living, of $100,000 times each completed "year of service" (payable monthly in substantially equal payments of $8,333.33 per month for a period of time equal to the Executive's completed years of service), commencing on the 15th day of the 4 4 month following the day the Executive attains age 65 (and on the 15th day of each month thereafter); (b) to the Executive's designated beneficiary or his estate, if the Executive shall have died prior to his 65th birthday, a lump sum payment equal to the present value of $100,000 times each partial and completed "year of service" (as if such payments were made monthly in substantially equal payments for a period of time equal to the Executive's partial and completed years of service), payable on the first day of the month following the Executive's death; (c) to the Executive's designated beneficiary or his estate, if the Executive shall have died on or after his 65th birthday but prior to receiving all of the amounts payable pursuant to (a) above, a lump sum payment equal to the present value of the remaining payments to which the Executive was entitled to under (a) above, payable on the first day of the month following the Executive's death. Subject to Section 8(e), the Executive shall continue to receive credit towards his "years of service" for the Severance Period so that the total payments due under Section 3(a) equal $400,000. The present value calculation required by Section 3(b) or 3(c) above shall be performed by the Company's actuaries using the interest rate assumption used to calculate lump sum equivalents pursuant to the Borden, Inc. Employees Retirement Income Plan. SECTION 4. STOCK OPTIONS AND RESTRICTED STOCK. The Company acknowledges that as a result of the Change of Control, (i) restrictions on the 22,500 shares of restricted stock previously awarded to the Executive immediately lapsed, and (ii) outstanding stock options previously granted to the Executive that were not then fully vested and immediately exercisable became fully vested and immediately exercisable. The 5 5 Company further agrees that Executive's options shall remain outstanding until April 10, 1995. SECTION 5. RELOCATION EXPENSES. (a) As soon as practicable following the execution of this Agreement, the Company shall pay the Executive $119,913 in respect of his Columbus house. (b) The Company shall reimburse the Executive for (i) moving expenses incurred by the Executive in connection with his relocation to Connecticut to the extent provided by the Company's relocation policy (subject to reductions by the amounts that any subsequent employer would pay for such moving expenses under its normal policy or practice for executives at the Executive's level of employment), and (ii) prior to March 13, 1995, travel expenses incurred by the Executive and his spouse to and from Columbus, Ohio and the New York City metropolitan area, in accordance with the practice currently in effect (including the limitation on reimbursement for no more than two trips per month), as set forth in the August 11, 1994 letter between the Executive and Mr. Frank J. Tasco. SECTION 6. FRINGE BENEFITS AND PERQUISITES. ------------------------------- Subject to Section 8(e), during the Severance Period, the Company shall continue to maintain at its expense the following fringe benefits and perquisites on the Executive's behalf: (a) Continued coverage under the personal umbrella policy, at the level in effect on the Termination Date; (b) Reimbursement for the cost of financial counselling, tax preparation and drafting of wills (not to exceed $15,000 per year); 6 6 (c) Reimbursement of up to $1,000 per month for a lease on an automobile and reimbursement for automobile insurance coverage for such automobile at the level of coverage in effect on the Termination Date; (d) Reimbursement of the cost of homeowner's insurance at the level of coverage in effect on the Termination Date; (e) Reimbursement for the cost of membership in one country club and in the Harvard Club in New York City (but in the case of the country club, such costs shall not exceed $5,672 annually); (f) Continued eligibility for the Company's matching gifts program (with such matching gifts not to exceed $2,000 per year); (g) Prior to the time the Executive becomes employed (or self-employed) on a full-time basis, reimbursement for the costs of office space and a secretary and the costs associated therewith, including the costs of equipment and supplies (in an amount not to exceed $60,000) upon receipt of acceptable documentation. All claims for reimbursement must be made to the Company in writing, accompanied by a bill or other appropriate documentation detailing the nature and the amount of the expense. In addition to the foregoing, as soon as practicable after the execution of this Agreement, the Company shall pay to Executive in a single sum $50,000 in lieu of outplacement counselling. SECTION 7. STATUS OF PRIOR AGREEMENTS. The parties hereto agree that the Employment Agreement and the Core Agreement (including any amendment or modification thereto) are hereby terminated and shall be of no further force or effect. SECTION 8. RESTRICTIVE COVENANTS AND NONCOMPETITION PROVISIONS. --------------------------------------------------- (a) CONFIDENTIALITY. The Executive shall not at any time use for himself or others or divulge or convey to others any secret or confidential information, knowledge, or data of the 7 7 Company, including information, knowledge or data of third parties as to which the Company is under an obligation of confidentiality (as, for example, information supplied to allow the Company to evaluate a potential acquisition), obtained by him in the course of his activities as a director, officer or employee of the Company except when required to do so by a court of law, by a governmental agency having supervisory authority over the business of the Company or by any administrative or legislative body (including a committee thereof) with apparent jurisdiction to order him to divulge, disclose or make accessible such information. Such information, knowledge or data includes, but is not limited to, secret or confidential matters (i) of a technical natures such as, but not limited to, methods, know-how, formulae, compositions, processes, discoveries, machines, inventions, computer programs and similar items or research projects; (ii) of a business nature such as, but not limited to, information about cost, purchasing, profits, market, sales or lists of customers; and (iii) pertaining to future developments such as, but not limited to, research and development or future marketing or merchandising. Such information, knowledge or data does not include information, knowledge or data that becomes publicly known other than through a breach of this Termination Agreement by the Executive. (b) NONCOMPETITION. During the Severance Period, if the Executive "performs services" for any "competing business" of the Company or any "substantial entity" (the Company and all substantial entities, collectively, the "Borden Companies"), the 8 8 Company shall have the remedy described in Section 8(e) hereof. For purposes of this Section 8(b), the terms below shall have the following meanings: (i) to "perform services" for any "competing business" shall mean to perform services as an employee, consultant, associate, or agent on behalf of any person, principal, partnership, joint venture, firm or corporation that sells, manufactures, distributes, researches, develops or solicits orders for pasta, pasta sauce or dairy products within the United States or Canada; provided, however, that a "competing business" shall not include a business that does not manufacture and/or process pasta, pasta sauce or dairy products and provided further that the Executive shall not be deemed to be performing services for a competing business solely because (A) he owns less than 5% of the outstanding capital stock entitled to vote for the election of directors of a publicly-traded corporation, (B) he is employed by a management consulting firm (the "MCF") provided his duties therefor do not involve his performing services for a competing business which has engaged such firm or (C) he is employed by an entity which is owned (in whole or in part) by a venture capital company (a "VCC") and which entity is a competing business solely by reason of such VCC's ownership of a competing business otherwise unrelated to the entity for which the executive performs services, provided that in the case of (B) and (C) above Executive does not discuss or otherwise provide the MCF or VCC or any of their affiliates with any information which could enable any entity to engage in, or assist any entity in the engagement in, any competing 9 9 business; and (ii) a "substantial entity" shall mean a subsidiary, joint venture or other entity in which the Company's equity interest, either direct or indirect, equals at least twenty (20%) percent. Within ten business days following a request by the Executive, the Company shall determine in writing whether specified services to be performed by the Executive constitute the performance of services for a competing business; provided, however, that such request shall be in writing and contain such information as, in the Company's discretion, is necessary to make such a determination. Such determination shall be inapplicable to any services not specified in such request. Failure to respond to any such request within ten business days shall be deemed to be a determination that performance of the services specified in such request will not constitute the performance of services for a competing business for the purposes of this Section 8(b). (c) NONSOLICITATION. During the Severance Period, the Executive shall not actively and knowingly (i) solicit any person who is a customer of the Borden Companies to become a customer of a competing business, or (ii) induce or attempt to persuade any employee of a Borden Company to terminate his employment relationship with such company; provided, however, that it shall not be a violation of this Section 8(c) if the Executive solicits any employee of a Borden Company after the termination of such employee's employment with the Borden Company. (d) STATEMENTS TO OTHERS. The Company and the Executive each agree that they shall not (except as required by 10 10 law) directly or indirectly make any statement or release any information, or encourage others to make any statement or release any information that is (i) designed to embarrass or criticize the other (or any of their respective affiliates or associates), or (ii) intended to interfere with the merger contemplated by the Merger Agreement; provided that it shall not be a violation of this Section 8(d) for the Executive to make truthful statements when required to do so by a court of law, by any governmental agency having supervisory authority over the business of the Company or by any administrative or legislative body (including a committee thereof) with apparent jurisdiction to order him to divulge, disclose or make accessible such information. (e) ENFORCEMENT. (i) If the Executive breaches the covenants contained in Section 8(a), 8(b) or 8(c), the Company shall have no obligation to make any further payments provided for in Sections 1, 2 and 6 of this Termination Agreement (other than the $61,538 payment representing accrued vacation pay). Upon the occurrence of each event constituting a breach by the Executive of the covenant contained in Section 8(d), the Company shall have no obligation to make any further payments under any or all of Sections 1, 2 and 6 of the Termination Agreement until the total of the payments which otherwise would have been made equal $500,000 with respect to each such event, at which time such payments shall resume. In addition, if the Executive breaches any of the covenants contained in Section 8, the Company shall have no further obligation to credit the Executive with service for purposes of calculating the Executive's pension under 11 11 Section 3 of this Termination Agreement; PROVIDED, HOWEVER, that this sentence shall not become effective until all of the following shall have taken place: (A) the Secretary of the Company, pursuant to a resolution of the Board of Directors of the Company shall have give written notice to the Executive that, in the opinion of the Board of Directors, the Executive has breached a covenant contained in this Section 8; (B) the Executive shall have been given a reasonable opportunity upon reasonable notice to appear before and to be heard by the Board of Directors prior to the determination of the Board evidenced by such resolution; and (C) with respect to a breach of the covenant contained in Section 8(b), the Executive shall not have, either ceased to perform services for a competing business within thirty (30) days of the receipt of the notice described in (B) above, nor have diligently taken all reasonable steps to cease performing such services during such thirty (30) day period and thereafter; PROVIDED, FURTHER, that in the event of a breach of Section 8(d), any loss of pension benefits under Section 3 which is due to the cessation of the obligation to credit service shall, when combined with the cessation of payments under Sections 1, 2 and 6 hereunder which is due to a breach of Section 8(d), equal no more than $500,000. (ii) The Company and the Executive recognize that each party will have no adequate remedy at law for breach by the other of any of the covenants set forth in Section 8(a), 8(c) or 8(d) and that in the event of any breach of these covenants, the Company and the Executive hereby agree and consent that the other shall be entitled to seek a decree of specific performance, mandamus or other appropriate remedy to enforce the performance of such covenants. 12 12 SECTION 9. CONSULTATION AND LITIGATION SUPPORT. During the Severance Period, subject to his other business and personal commitments, the Executive shall make himself reasonably available for consultation with the Chief Executive Officer of the Company on business matters from time to time, and in connection with any litigation and disputes arising out of actions of the Company of which he has knowledge or information and the Executive agrees that he will cooperate with the Company in supplying data, information, and expertise within his special knowledge or competence and otherwise assist the Company in a proper and appropriate fashion in the protection of its interests. The Company shall reimburse the Executive for reasonable out-of-pocket expenses (such as hotel and travel expenses) incurred by the Executive in providing such services. SECTION 10. INDEMNITY. The Company shall, to the fullest extent permitted by law or its Certificate of Incorporation or By-laws, indemnify the Executive and hold him harmless for any acts, omissions or decisions made or alleged to be made by him, but only if such acts, omissions or decisions were, to the extent actually made, made in good faith during his employment. The Company shall advance to the Executive all reasonable costs and expenses incurred by him in connection with a proceeding for which he is indemnified under this Section 10 within 20 days after receipt by the Company of a written request for such advance. Such request shall include an undertaking by the Executive to repay the amount of such advance if it shall 13 13 ultimately be determined that he is not entitled to be indemnified against such costs and expenses. SECTION 11. PARACHUTE TAX GROSS-UP. If the Executive is required, pursuant to Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), to pay an excise tax on "excess parachute payments" as defined in Section 280G of the Code with respect to any of the payments or benefits set forth in Schedule A hereto (the "Excise Tax"), the Company shall pay to the Executive, prior to the time the Excise Tax is payable an amount equal to the Excise Tax, plus such additional amounts as shall be required so that the net amount to the Executive in respect of such scheduled payments and benefits is as if the Excise Tax had not been imposed. SECTION 12. NO OBLIGATION TO MITIGATE. The Executive shall be under no obligation to minimize or mitigate damages by seeking other employment, and, except as provided in Sections 6 and 8 hereof, the obtaining of any such other employment shall in no event effect any reduction of the Company's obligation to make the payments and provide the benefit coverages required under this Termination Agreement. SECTION 13. RELEASE. The Executive acknowledges that certain payments provided for hereunder are in excess of the amounts that the Executive would otherwise be entitled to receive under his Employment Agreement and Core Agreement and that the Company had no obligation to enter into this Termination Agreement. In consideration of the Company assuming these additional obligations and entering into this Termination 14 14 Agreement, the Executive agrees to execute a release substantially in the form attached hereto. SECTION 14. NOTICE. All notices, requests, demands and other communications provided for by this Agreement shall be in writing and shall be sufficiently given if and when mailed in the continental United States by registered or certified mail or personally delivered to the party entitled thereto at the address stated below. Such address may be changed by either party from time to time by a similar notice. Any such notice delivered in person shall be deemed to have been received on the date of delivery. Notice to the Company shall be addressed to: Borden, Inc. 180 East Broad Street Columbus, Ohio 43215-3799 Attn: Secretary With a copy to: Kenneth C. Edgar, Jr., Esq. Simpson Thacher & Bartlett 425 Lexington Avenue New York, New York 10017 Notice to the Executive shall be addressed to him at: Mr. Ervin R. Shames 35 Mollbrook Drive Wilton, CT 06897 With a copy to: Joseph E. Bachelder, Esq. Law Offices of Joseph E. Bachelder 780 Third Avenue New York, New York 10017 SECTION 15. ARBITRATION. Any dispute or controversy arising under or in connection with this Termination Agreement 15 15 shall be settled exclusively by arbitration, conducted before an arbitrator who is mutually agreeable to the Executive and the Company in the New York City metropolitan area in accordance with the rules of the American Arbitration Association then in effect or, if the Executive and the Company are unable to agree on an arbitrator, before an arbitrator chosen in accordance with the rules of the American Arbitration Association. Judgment may be entered on the arbitrator's award in any court in the State of New York or New Jersey having jurisdiction. SECTION 16. LEGAL FEES AND EXPENSES. (a) The Company shall reimburse the Executive for legal fees and expenses incurred by him in connection with the negotiation of this Termination Agreement up to a maximum reimbursement of $60,000. (b) If a claim or dispute arises out of or relates to any provision of this Termination Agreement, the Company shall pay all reasonable legal fees and expenses that the Executive may incur in any such claim or dispute. For purposes of this Section 16(b), legal expenses shall include reasonable legal fees, court costs, arbitration costs, and ordinary and necessary out-of-pocket costs and fees of attorneys, billed to and payable by the Executive or by anyone claiming under or through the Executive (such person encompassed in the term "Executive" for purposes of this Section 16(b) only) in connection with the bringing, prosecuting, defending, litigating, arbitrating, negotiating or settling of any claim or dispute by or against the Executive, or any claim or dispute between the Executive and the Company or any 16 16 third party (excluding any of the Executive's creditors or beneficiaries) that may arise out of or relate to this Termination Agreement, or the validity, operation, interpretation, enforceability or breach thereof, provided that, in the case of any request that the Company pay attorneys' fees or expenses pursuant to this sentence, the Company shall have received a statement signed by the attorney or firm of attorneys rendering the bill to the effect that (i) in the opinion of the attorney or firm a BONA FIDE dispute exists which could lead to or is in litigation, (ii) the bill for legal fees and expenses was prepared in accordance with the attorney's or firm's regular schedule of fees (which schedule shall be set forth), and (iii) the services for which the bill was rendered have already been performed or represent a reasonable retainer for services to be performed and, in case of expenses, have already been incurred. If the Executive does not prevail in his claim or dispute and the adjudicating body (E.G., the court or arbitrator) determines that the Executive did not act in good faith in bringing or pursuing the action, the Executive shall refund the legal fees and expenses paid by the Company with respect to such claim or dispute. SECTION 17. GOVERNING LAW. This Termination Agreement shall be construed and interpreted in accordance with the laws of the State of New Jersey, and subject to Section 15, the parties hereto submit to the jurisdiction of the courts of the State of New Jersey and New York for the purpose of any actions or 17 17 proceedings that may be required to enforce any provision of this Termination Agreement. SECTION 18. NONASSIGNMENT. No right, benefit or interest hereunder shall be subject to anticipation, alienation, sale, assignment, encumbrance, charge, pledge, hypothecation or set-off in respect of any claim, debt or obligation or to execution, attachment, levy or similar process or assignment by operation of law. The Executive shall not have any right, title or interest whatsoever in or to any investments which the Company may make to aid it in meeting its obligations under this Termination Agreement. SECTION 19. BENEFICIARIES. In the event of the Executive's death, the Executive's beneficiary shall mean any beneficiary or beneficiaries designated on a form filed with the Company to receive any amount payable after his death, and in the event no such beneficiary has been designated shall mean the Executive's estate. SECTION 20. COMPANY SUCCESSORS AND ASSIGNS. This Termination Agreement shall be binding upon and inure to the benefit of the Company and any successor of the Company acquiring directly or indirectly all or substantially all of the assets of the Company whether by merger, consolidation, sale or otherwise (and such successor shall thereafter be deemed embraced within the term "the Company" for purposes of this Termination Agreement) but shall not otherwise be assignable by the Company without the Executive's consent. 18 18 SECTION 21. SEVERABILITY. If any of the provisions of this Termination Agreement shall otherwise contravene or be invalid under the laws of any state or other jurisdiction where it is applicable but for such contravention or invalidity, such contravention or invalidity shall not invalidate all of the provisions of this Termination Agreement, but rather the Agreement shall be reformed and construed, insofar as the laws of that state or jurisdiction are concerned, as not containing the provision or provisions, but only to the extent that they are contravening or are invalid under the laws of that state or jurisdiction, and the rights and obligations created hereby shall be reformed and construed and enforced accordingly. SECTION 22. AMENDMENT; MODIFICATION; WAIVER. No provision of this Termination Agreement may be amended or modified unless such amendment or modification shall be agreed to in writing, signed by the Executive and by an officer of the Company thereunder duly authorized. No waiver by either party hereto of any breach by the other party hereto of any condition or provision of this Termination Agreement to be performed by such other party shall be deemed a waiver of a subsequent breach of such condition or provision or a waiver of a similar or dissimilar provision or condition at the same time or at any prior or subsequent time. SECTION 23. CAPTIONS AND HEADINGS. Captions and headings are for convenience only and are not a part of, and shall not be used to construe any provision of, this Termination Agreement. 19 19 SECTION 24. ENTIRE AGREEMENT. This Termination Agreement constitutes the entire agreement between the parties respecting the subject matter hereof and supersedes any prior agreements respecting the subject matter hereof. SECTION 25. COUNTERPARTS. This Termination Agreement may be executed in counterparts. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first written above. /s/ Ervin R Shames ___________________________________ ERVIN R. SHAMES BORDEN, INC. /s/ Allan L. Miller ___________________________________ By: 20 20 WAIVER AND GENERAL RELEASE -------------------------- INTRODUCTION Various federal, state and local laws and regulations prohibit employment discrimination based upon, among other things, age, sex, race, color, national origin, religion, disability and/or veteran status. These anti-discrimination laws and regulations are enforced through the United States Equal Employment Opportunity Commission, the United States Department of Labor, and various state and local fair employment practices agencies. Other laws and regulations prohibit employers from terminating employees tortiously or wrongfully, in breach of express or implied covenants of good faith and fair dealing, in violation of public policy, or in such a manner as to negligently or intentionally inflict emotional distress. In other situations, employees may have claims against an employer for fraud, misrepresentation or defamation. By executing the attached Termination Agreement, you have agreed to execute and be bound by this Waiver and General Release in exchange for the Company's assumption of additional payment and benefit obligations. The terms of the Termination Agreement and the eligibility for the additional payments and benefits to be paid thereunder are expressly contingent upon your signature and delivery to the Company of this Waiver and General Release. Under the terms of this Waiver and General Release, you will waive any rights to bring claims against Borden, Inc., Whitehall Associates, L.P., any successors thereto and against various other persons with respect to your employment or otherwise, except as specifically and expressly allowed by this Waiver and General Release. This is a legally binding document. DO NOT SIGN THIS WAIVER AND GENERAL RELEASE UNLESS YOU THOROUGHLY UNDERSTAND IT. 21 21 WAIVER AND GENERAL RELEASE In exchange for the agreement of Borden, Inc. (the "Company") to enter into the attached Termination Agreement and to make certain payments and benefits that I would not otherwise be entitled to pursuant to such Termination Agreement, I hereby release the Company and Whitehall Associates, L.P., all of their past and/or present divisions, affiliates, officers, directors, stockholders, partners, trustees, employees, agents, representatives, administrators, attorneys, insurers, fiduciaries, successors and assigns, in their individual and/or representative capacities (hereinafter collectively referred to as "the Employer"), from any and all causes of action, suits, agreements, promises, damages, disputes, controversies, contentions, differences, judgments, claims and demands of any kind whatsoever ("Claims") that I or my heirs, executors, administrators, successors and assigns ever had, now have or may have against the Employer, whether known or unknown to me, by reason of my employment and/or cessation of employment with the Employer, or otherwise involving facts that occurred on or prior to the date that I have signed this Release, other than a Claim that the Company has failed to pay me the payments or make available the benefits described in the attached Termination Agreement or has otherwise breached the terms of the Termination Agreement or a Claim with respect to any vested right I may have under any employee benefit plan maintained by the Company. Such released Claims include, without limitation, any and all Claims under Title VII of the Civil Rights Act of 1964, the Age Discrimination in Employment Act of 1967, the Civil Rights Act of 1871, the Civil Rights Act of 1991, the Fair Labor Standards Act, the Employee Retirement Income Security Act, the Americans with Disabilities Act, the Family and Medical Leave Act of 1993, and any and all other federal, state or local laws, statutes, rules and regulations pertaining to employment, as well as any and all Claims under state contract or tort law. I represent that I have not filed, and will not hereafter file, any Claim against the Employer relating to my employment and/or cessation of employment with the Employer, or otherwise involving facts that occurred on or prior to the date that I have signed this Waiver and General Release, other than a Claim that the Company has failed to pay me the payments or make available the benefits described in the attached Termination Agreement or has otherwise breached the terms of the Termination Agreement or a Claim with respect to any vested right I may have under any employee benefit plan maintained by the Company. I understand and agree that if I commence, continue, join in, or in any other manner attempt to assert any Claim released herein against the Employer, or otherwise violate the terms of this Waiver and General Release, I shall be required to return all payments paid to me by the Company pursuant to the Termination Agreement plus the cost of providing any benefits under such agreement (together with interest thereon), and I 22 22 agree to reimburse the Employer for all attorneys' fees and expenses incurred by it in defending against such a Claim, provided that the right to receive such payments is without prejudice to the Employer's other rights hereunder, including any waiver and release of any and all Claims against the Employer. I understand and agree that the Company's payments to me and my signing of this Waiver and General Release do not in any way indicate that I have any viable Claims against the Employer or that the Employer admits any liability to me whatsoever. I have read this Waiver and General Release carefully, have been given at least 21 days to consider all of its terms, have been advised to consult with an attorney and any other advisors of my choice, and fully understand that by signing below I am giving up any right that I may have to sue or bring any other Claims against the Employer. I have not been forced or pressured in any manner whatsoever to sign this Waiver and General Release, and I agree to all of its terms voluntarily. I understand and agree that this Waiver and General Release will be governed by New Jersey law, to the extent not preempted by federal law. I understand that I have 7 days from the date I have signed this Waiver and General Release below to revoke this Waiver and General Release, that this Waiver and General Release will not become effective until the 8th day following the date that I have signed this Waiver and General Release, and that if I revoke this Waiver and General Release the Termination Agreement shall be void AB INITIO (I.E. as if the Company had never entered into the Termination Agreement). /s/ Ervin R. Shames __________________ ______________________________________ Date Executive's Signature 23 23 SCHEDULE A Payments and benefits pursuant to Sections 1, 2(a) and 6 of the Termination Agreement. EX-10.19.L 11 BORDEN, INC. 10-K405 EXHIBIT (10)(XIX)(L) 1 EXHIBIT (10)(xix)(l) Borden, Inc. ("Company") Summary of Terms of Employment for Mr. Morris ("You") 1. Employment If Change of Control occurs within the next three years, employee entitled to receive two times annual compensation, if terminated without cause. If no Change of Control - if terminated without cause in the first three years of employment, employee will be entitled to one year's base pay. 2. Position Vice President - Strategy and Finance North American Foods and International Foods. 3. Base Salary $215,000 per year. 4. Annual Incentive For 1993: Guarantee up to $60,000 for any lost bonus as a result of termination at General Foods. Payable in February, 1994. For 1994: Target opportunity 37.5% of base salary Maximum 52% of base salary Payable in February, 1995. 5. Long-Term Incentive 1993-1995 cycle (to be paid in 1996) Award Opportunity Standard award opportunity: $60,000 Maximum: $81,000 6. Stock Option Award You shall be eligible to participate in the Company's stock option plan, subject to shareholder approval of the plan. First grant shall be as follows: 40,000 shares in September 1993 (or when the Company's Compensation Committee meets on stock options in 1993). 1994 - 10,000 shares. Subject to Board approval: Expect 1994 option meeting fall of 1994. 1 2 7. Retirement Savings The Company will match your Plan contributions to its Retirement Savings Plan at 5%, from your employment date forward. 8. Relocation You and your family will permanently relocate to greater Columbus, Ohio area by January 1, 1994. You will participate in the Company's employee relocation policy applicable to current employees, inclusive of tax gross up, including benefits relative to sale of your principal residence. We agree to pay temporary living expenses of up to 120 days (policy covers up to 30 days). 9. Terms of Plans Some of the above are highlights of various plans or programs, and all are subject to the terms of the actual plans and programs. 2 3 November 4, 1994 George Morris Borden, Inc. 180 E. Broad Street Columbus, Ohio 43215 Dear George: In addition to the written "loss on home sale" protection (which you previously received), I want you to be aware of a special provision as reflected in the merger agreement between Borden, Inc. and Whitehall Associates, L.P. (KKR). Should you be terminated (without cause) during the two-year period following the change in control effective date, you will receive two years full pay (severance). Additionally, during the first two years, this severance provision will also apply if: (i) your office is relocated to a different city; (ii) your base salary is reduced or your bonus opportunity is materially lower than other company executives of comparable rank; (iii) there is a material diminution in the nature or scope of the authority or responsibilities attached to your position. A diminution in nature or scope of authority or responsibilities will not be deemed to occur simply because the company or business in which you are engaged has changed in size or structure; or (iv) the business (either separately or as part of a larger business unit) in which you are engaged is sold or otherwise disposed of. Please let me know if you have any questions about these special change in control provisions. Sincerely, /s/ Randy K. Kautto - - -------------------- Randy D. Kautto 3 EX-10.19.M 12 BORDEN, INC. 10-K405 EXHIBIT (10)(XIX)(M) 1 EXHIBIT (10)(xix)(m) January 19, 1994 Randy Kautto 18 Neustadt Lane Chappaqua, New York 10514 Dear Randy: Erv and I are delighted that you will be joining us on or about February 1 in the position of Vice President Human Resources, reporting directly to Erv. The essentials of your package are as follows: 1. Salary: Base salary of $20,838.88 on a monthly basis, which annualizes to $250,000 a year. 2. Bonus: Your annual bonus has a 40% standard award and can go as high, with stretch, as 65% of base salary. You will be eligible for the 1994-96 Long-term Plan with a standard award of $60,000. We guarantee a payment of at least $75,000 in early 1997 under that program. 3. Your Vested Options: We will buy out your unvested 8,150 stock options at $49.05 a share at the January 14, 1994 closing price of 57-5/8, reported in Monday's Wall Street Journal. That buy-out comes to a total of $69,886.25. This will be payable within 30 days of your reporting to work. 4. Options: You will be eligible for 30,000 option shares at the next annual grant, which we expect to occur within the next 90 days. You will be eligible for 10,000 shares in 1995 and position-level grants thereafter. 2 Randy Kautto January 19, 1994 Page 2 5. Perquisites: You will be eligible for CORE perquisites package, however, as we discussed, we expect the CORE "perk" package to be reconstituted sometime during 1994. Obviously you will be involved in revising the policy as part of your new position. 6. Savings Plan: As a special exception, in 1994, the company will match 50% of your contributions to the savings plans to a maximum of 7% of salary. If that match changes for other employees, your match will obviously go up or down in the same regard. Our hope is to have a 100% match in 1995; in any case, your contributions, up to maximum of 7% of salary, will be matched at the same level as other employees are matched. 7. Relocation: You are to permanently relocate to Columbus within six months, with a full employee relocation package. During those six months, we will pay reasonable costs for an apartment and you will have commutation back to New York every two weeks. After the six months, you are to demonstrate both personally and professionally your commitment to Columbus as your home and that of your family. 8. Philip Morris Bonus: As to your 1993 bonus to be paid by Philip Morris, should Philip Morris reduce that bonus based on your resignation of this week, Borden will protect you for any loss due to your resignation, up to $25,000. 9. Termination Protection: In terms of termination protection, if termination without cause, as a CORE member you will receive one year base salary. If a change of control occurs and you are terminated without cause you would have two years of compensation protection under the CORE Plan. This will be included in your CORE contract which will be executed within 30 days of your reporting to work. 3 Randy Kautto January 19, 1994 Page 3 10. Finally, since your wife has a pre-existing condition that would not be eligible for reimbursement under the Board plan, for one year we will reimburse you for the contribution cost of electing the extension of coverage for her (COBRA) under the Philip Morris plan. Sincerely, /s/ Allan L. Miller Allan L. Miller mls cc: E. Shames OFFER ACCEPTED: /s/ Randy Kautto - - ----------------- Signature 1-19-94 - - ----------------- Date EX-21 13 BORDEN, INC. 10-K405 EXHIBIT (10)(XXI) 1 Exhibit 10(xxi) FINAL NOTES PREPAYMENT AGREEMENT -------------------------- NOTES PREPAYMENT AGREEMENT dated as of this 15th day of December, 1994 (this "Agreement") by and between Borden, Inc. ("Borden") and Borden Chemicals and Plastics Operating Limited Partnership ("BCOP"). WHEREAS, BCOP has issued and outstanding $60,000,000 in aggregate principal amount of its promissory notes held by The Prudential Insurance Company of America ("Prudential"), $70,000,000 in aggregate principal amount of its promissory notes held by Metropolitan Life Insurance Company ("MLIC") and $20,000,000 in aggregate principal amount of its promissory notes held by Metropolitan Insurance and Annuity Company ("MIAC" and, together with Prudential and MLIC, the "Noteholders")(such promissory notes collectively, the "Notes") pursuant to the Note Agreement dated as of November 20, 1987 (the "Note Agreement") among BCOP and the Noteholders; and WHEREAS, Borden entered into an Undertaking dated as of November 20, 1987 (the "Undertaking") for the benefit of the Noteholders whereunder, among other things, Borden agreed that in the event of a Change of Control of Borden (as defined in the Undertaking), Borden would offer to purchase the Notes from the Noteholders on the terms specified therein; and WHEREAS, Borden, BCOP and the Noteholders have entered into a Prepayment Terms Agreement dated as of the date thereof (the "Prepayment Terms Agreement") pursuant to which, among other things, Borden has agreed to pay a Make Whole Premium (as defined therein) to the Noteholders; and WHEREAS, the Prepayment Terms Agreement provides that upon payment by Borden of such Make Whole Premium, among other things, (i) BCOP shall have the right, not otherwise provided for in the Note Agreement, to prepay the Notes, (ii) the obligation of BCOP set forth in the Note Agreement to offer to purchase the Notes from the Noteholders (with a premium on the Notes) in the event of certain changes of control of the general or limited partner in BCOP will be modified to reduce or eliminate the premium on the Notes that might be payable by BCOP, (iii) the obligation of Borden set forth in the Undertaking to offer to purchase the Notes from the Noteholders upon a Change of Control of Borden will be terminated, (iv) BCOP will be subject to a restriction on incurrence of indebtedness in addition to the restrictions currently imposed on BCOP under the Note Agreement and (v) Borden shall have the right to purchase the Notes from the Noteholders; and WHEREAS, BCOP acknowledges that the Prepayment Terms Agreement, including the payment by Borden pursuant thereto of 2 the Make Whole Premium, will result in certain benefits to BCOP (including the provision to BCOP of a right to prepay the Notes and the reduction or elimination of the premium on the Notes that might be payable by BCOP in the event of certain changes of control of the general or limited partner in BCOP); and WHEREAS, the parties wish to set forth their understandings with respect to the terms and conditions under which BCOP would exercise its right of prepayment of the Notes and certain related matters; NOW, THEREFORE, for good and valuable consideration, the receipt, adequacy and sufficiency of which is hereby acknowledged by the parties hereto, the parties hereto hereby agree as follows: 1. DEFINITIONS. The following capitalized terms shall have the following meanings: "BONA FIDE OFFER" means a bona fide offer to purchase the Notes in cash by an institutional investor which has the financial means to effect such purchase and is unaffiliated to the parties or the Investment Bank and is not subject to any obligation to purchase or offer to purchase the Notes and has not been provided any inducement to purchase or offer to purchase the Notes. Such offer shall not contain any material conditions or contingencies not typically contained in offers from institutional investors to purchase instruments such as the Notes (other than those related to the provisions of this Agreement or the Prepayment Terms Agreement). "BORDEN REIMBURSEMENT AMOUNT" means the amount, if any, EQUAL TO (A) the Purchase Premium LESS (B) 50% of the fees and expenses of the Investment Bank for determining the Purchase Premium LESS (C) the amount, if any, of any prepayment premium actually paid by BCOP pursuant to SECTION 3(b)(C) of the Prepayment Terms Agreement (in the event BCOP prepays the Notes as contemplated in SECTION 2) or the amount, if any, of any prepayment premium that would have been paid by BCOP pursuant to SECTION 3(b)(C) of the Prepayment Terms Agreement if BCOP had prepaid the Notes on the proposed date of sale of the Notes set forth in the notice provided by Borden pursuant to SECTION 3(b) (in the event BCOP does not prepay the Notes but commits to pay the Borden Reimbursement Amount pursuant to SECTION 3(c)). In the event that the amount obtained under the foregoing formula is a negative number, Borden shall not be required to pay such amount to BCOP. "BUSINESS DAY" means any day other than a Saturday, Sunday or other day on which banking institutions are not required to be open in the State of New York. -2- 3 "INVESTMENT BANK" means any one of the following investment banks selected by BCOP: Morgan Stanley & Co. Incorporated, CS First Boston Corporation, Salomon Brothers Inc, Bear Stearns & Co. Inc., Goldman Sachs & Co. and Donaldson, Lufkin & Jenrette Securities Corporation. BCOP shall identify the investment bank selected by it in the notice provided by it pursuant to SECTION 2(a) or SECTION 3(c), as the case may be. In the event that BCOP fails to select an investment bank in the applicable notice, the Investment Bank shall be Morgan Stanley & Co. Incorporated. "MARKET VALUE" means (a) the highest and best Bona Fide Offer to purchase the Notes received by the Investment Bank within the 10 Business Days preceding the proposed date of prepayment or sale of the Notes set forth in the notice provided by BCOP pursuant to SECTION 2(a) or Borden pursuant to SECTION 3(b), as the case may be (provided that if there are fewer than 10 Business Days from the date of execution of the engagement letter referred to in SECTION 4(a) to such proposed date of prepayment or sale, such 10 Business Day period shall begin on the day following the date of execution of such engagement letter), or (b) in the event that the Investment Bank does not obtain a Bona Fide Offer within the applicable 10 Business Day period under clause (a) above, the sum of the amounts obtained by discounting (in accordance with accepted financial practice and at a discount factor (applied on the same periodic basis as that on which interest on the applicable Note is payable) equal to the Market Yield for such Note) all remaining scheduled payments of principal and interest with respect to each Note from their respective scheduled due dates to the proposed date of prepayment or sale of such Note set forth in the notice provided by BCOP pursuant to SECTION 2(a) or by Borden pursuant to SECTION 3(b), as the case may be. "MARKET YIELD" means, with respect to any Note, the yield on such Note implicit in the purchase price payable for such Note in a cash purchase and sale of such Note in an arms length transaction between an institutional purchaser of such Note (which has the financial means to purchase such Note in cash and is unaffiliated to the parties or the Investment Bank and is not subject to any obligation to purchase such Note and has not been offered any inducement to purchase such Note) and an institutional seller of such Note (which is unaffiliated to the parties or the Investment Bank and is not subject to any obligation or compulsion to sell such Note and has not been offered any inducement to sell such Note). In making such determination, the Investment Bank shall take into account (i) the maturity of such Note (taking into account any mandatory prepayment requirements with respect thereto), (ii) the interest rate on such Note, (iii) prevailing interest rates on actively traded U.S. Treasury securities having a maturity and remaining -3- 4 average life equal to that of such Note (based on the average of such rates over the 5 Business Days prior to the proposed date of prepayment or sale of the Notes set forth in the notice provided by BCOP pursuant to SECTION 2(a) or Borden pursuant to SECTION 3(b), as the case may be), (iv) the creditworthiness of BCOP, (v) the terms and conditions of the Note Agreement, as amended by the Prepayment Terms Agreement (after giving effect to SECTION 3(e) hereof) and (vi) trading levels of comparable credits having securities of similar maturity. "PURCHASE PREMIUM" means an amount equal to the EXCESS, IF ANY, OF (i) the Market Value of the Notes OVER (ii) the outstanding principal amount of the Notes together with accrued but unpaid interest thereon as of the applicable date of determination. 2. PREPAYMENT OF NOTES. (a) In the event that BCOP plans to exercise its right of prepayment of the Notes set forth in SECTION 3 of the Prepayment Terms Agreement, BCOP will provide as much advance notice to Borden as is practicable and in any event shall provide to Borden at least 10 Business Days prior notice. Such notice shall specify the proposed date of prepayment by BCOP of the Notes and shall identify the Investment Bank. (b) Subject to the provisions of SECTION 3(d), in the event that BCOP exercises its right to prepay the Notes set forth in the Prepayment Terms Agreement (including, without limitation, at any time that Borden is the holder of the Notes), BCOP will be obligated to pay Borden the Borden Reimbursement Amount, if any, in accordance with SECTION 4. 3. SALE OF NOTES. (a) Borden shall not exercise its right to purchase the Notes set forth in SECTION 4 of the Prepayment Terms Agreement until after February 28, 1995. (b) In the event that, after February 28, 1995, Borden formulates a good faith plan to sell the Notes (which plan shall not involve a sale of the Notes to any affiliate of Borden), and Borden either has purchased the Notes or intends to purchase the Notes pursuant to such plan, Borden will provide as much advance notice of such plan to BCOP as is practicable and in any event shall provide to BCOP at least 15 Business Days prior notice of such sale of the Notes. Such notice shall specify the proposed date of sale by Borden of the Notes. (c) BCOP may, by provision of notice to Borden no later than 5 Business Days after receipt by BCOP of the notice provided by Borden pursuant to paragraph (b) above, elect to commit to pay Borden the Borden Reimbursement Amount. Such notice shall identify the Investment Bank. In the event that BCOP fails -4- 5 to make such election within such 5 Business Day period, BCOP will be deemed to have waived its right to make such election with respect to such proposed sale of the Notes and, in such event (notwithstanding the provisions of SECTION 2 and paragraph (e) below) BCOP shall not exercise its right to prepay the Notes until the earlier of (i) the expiration of a period of 30 days from the 5th Business Day after provision by Borden of notice pursuant to paragraph (b) above with respect to such proposed sale or (ii) the date that Borden abandons its attempts to effect such proposed sale (and such right of prepayment, if and when exercised, shall be subject to the provisions of SECTION 2). (d) In the event that BCOP makes the election contemplated in paragraph (c) above, (i) BCOP will be obligated to pay Borden the Borden Reimbursement Amount, if any, in accordance with SECTION 4, (ii) Borden will not sell or cause the sale of the Notes, (iii) Borden's rights set forth in SECTION 4 of the Prepayment Terms Agreement shall, without the requirement of taking any further action or executing or delivering any additional document, terminate and be of no force and effect and (iv) BCOP may at any time prepay the Notes in accordance with SECTION 3 of the Prepayment Terms Agreement and BCOP shall (without limiting its obligation set forth in clause (i) above but notwithstanding the provisions of SECTION 2), in connection with such prepayment, not be required to pay Borden any Borden Reimbursement Amount. (e) In the event that BCOP waives or is deemed to have waived the election contemplated in paragraph (c) above and Borden, having purchased the Notes from the Noteholders, sells the Notes after having complied with the provisions of this SECTION 3 in connection with such sale of the Notes, BCOP's right of prepayment of the Notes set forth in SECTION 3 of the Prepayment Terms Agreement shall, immediately prior to the completion of such sale and without the requirement of taking any further action or executing or delivering any additional document, terminate and be of no force and effect. In the event of any sale by Borden of the Notes, immediately prior to the completion of such sale and without the requirement of taking any further action or executing or delivering any additional document, the amendments to SECTION 10.1(e) and SECTION 13 of the Note Agreement set forth in SECTION 5(vi) of the Prepayment Terms Agreement shall with immediate effect terminate and be of no force. The terms of the Prepayment Terms Agreement (after giving effect to the foregoing termination of the provisions of SECTION 5(vi) thereof) shall be binding upon any purchasers of the Notes and any subsequent transferees of the Notes. In the event that any proposed sale by Borden of the Notes is not consummated for any reason, BCOP's right of prepayment of the Notes set forth in SECTION 3 of the Prepayment Terms Agreement and the provisions of this SECTION 3 shall continue in force and effect. -5- 6 4. DETERMINATION OF BORDEN REIMBURSEMENT AMOUNT; INVESTMENT BANK'S FEES AND EXPENSES; RECEIPTS. (a) The parties shall, promptly upon provision by BCOP of the notice contemplated in SECTION 2(a) hereof or SECTION 3(c), negotiate an engagement letter with the Investment Bank. Any such engagement letter shall be subject to approval of both parties. The parties shall instruct the Investment Bank to determine the Purchase Premium, as provided in the definition thereof. The Investment Bank shall be required by the parties to provide its determination of such Purchase Premium (or its determination that no Purchase Premium would be payable) in writing to BCOP and Borden. The Investment Bank shall also be required by the parties to provide to the parties such supporting evidence of the basis of its determination as either of them may reasonably request. Absent manifest error, the determination of the Investment Bank of the Purchase Premium shall be binding on the parties. The parties shall on the basis of such Purchase Price determination, promptly calculate the Borden Reimbursement Amount. BCOP shall pay Borden the Borden Reimbursement Amount, if any, no later than 5 Business Days after calculation of the Borden Reimbursement Amount. (b) BCOP shall pay the reasonable fees and expenses of any Investment Bank retained pursuant to this Agreement (subject to the benefit provided to BCOP in the calculation of the Borden Reimbursement Amount by deduction of 50% of such fees and expenses from the Purchase Premium). (c) Borden shall, in connection with the transactions contemplated by this Agreement, provide to BCOP such receipts and acknowledgements of payment as BCOP may reasonably request. 5. REPRESENTATIONS AND WARRANTIES. (a) Borden represents and warrants that it has the authority to enter into this Agreement and that this Agreement constitutes a legal, valid and binding obligation of Borden. (b) BCOP represents and warrants that it has the authority to enter into this Agreement and that this Agreement constitutes a legal, valid and binding obligation of BCOP. 6. GOVERNING LAW. This Agreement and the obligations of the parties under this Agreement shall be governed and construed in accordance with the laws of the State of New York, construed and applied without giving effect to principles of conflicts of laws. 7. SUCCESSORS AND ASSIGNS. This Agreement will be binding upon and inure to the benefit of the parties hereto and their successors and assigns. -6- 7 8. AMENDMENTS; ENTIRE AGREEMENT. (a) This Agreement cannot be amended or terminated orally, but only by a writing duly executed by or on behalf of the parties. (b) This Agreement represents the entire agreement and understanding among the parties hereto with respect to the subject matter hereof and supersedes any other agreement or understanding, written or verbal, that the parties may have. To the extent that the terms of this Agreement are inconsistent with the terms of the Prepayment Terms Agreement, the terms of this Agreement shall be deemed to amend and supersede the inconsistent terms of the Prepayment Terms Agreement. 9. NOTICES. All notices and other communications hereunder shall be in writing and shall be deemed to have been duly given (i) five Business Days after mailing if mailed by certified or registered mail, return receipt requested, (ii) one Business Day after delivery to an overnight express carrier, if sent for overnight delivery with fee prepaid, (iii) upon receipt if sent via facsimile with receipt confirmed, or (iv) upon receipt if delivered personally, addressed as follows or to such other address or addresses of which the respective party shall have notified the other party: (a) if to Borden, to: 180 East Broad Street Columbus, Ohio 43215 Telecopier Number: 614-225-4973 Attention: Mr. David A. Kelly Vice President and Treasurer (b) if to BCOP, to: 180 East Broad Street Columbus, Ohio 43215 Telecopier Number: 614-225-4973 Attention: Mr. David A. Kelly Principal Financial Officer. 10. COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which will be deemed an original instrument, but all of which together will constitute one and the same agreement, and will become binding when one or more counterparts have been executed and delivered by each of the parties hereto. -7- 8 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered as of the date first above written. BORDEN, INC. By: /s/ David A. Kelly --------------------- Name: David A. Kelly Title: Vice President BORDEN CHEMICALS AND PLASTICS OPERATING LIMITED PARTNERSHIP By: BCP Management, Inc., as General Partner By: /s/ David A. Kelly -------------------------- Name: David A. Kelly Title: Principal Financial Officer -8- EX-10.22 14 BORDEN, INC. 10-K405 EXHIBIT (10)(XXII) 1 FINAL Exhibit 10(xxii) PREPAYMENT TERMS AGREEMENT -------------------------- PREPAYMENT TERMS AGREEMENT dated as of this 15th day of December, 1994 (this "Agreement") by and among Borden, Inc. ("Borden"), Borden Chemicals and Plastics Operating Limited Partnership ("BCOP"), The Prudential Insurance Company of America ("Prudential"), Metropolitan Life Insurance Company ("MLIC") and Metropolitan Insurance and Annuity Company ("MIAC" and, together with Prudential and MLIC, the "Noteholders"). WHEREAS, BCOP has issued and outstanding $60,000,000 in aggregate principal amount of its promissory notes held by Prudential, $70,000,000 in aggregate principal amount of its promissory notes held by MLIC and $20,000,000 in aggregate principal amount of its promissory notes held by MIAC (such promissory notes collectively, the "Notes") pursuant to the Note Agreement dated as of November 20, 1987, among BCOP and the Noteholders (the "Note Agreement"); and WHEREAS, Borden entered into an Undertaking dated as of November 20, 1987 (the "Undertaking") for the benefit of the Noteholders whereunder, among other things, Borden agreed in SECTION 4.1 thereof that in the event of a Change of Control of Borden (as defined in the Undertaking), Borden would offer to purchase the Notes on the terms specified therein, and the parties are desirous of amending such provisions of the Undertaking; and WHEREAS, the Note Agreement does not provide for the optional right of prepayment by BCOP of the Notes or for the purchase by Borden of the Notes and the parties are desirous of providing such a right of prepayment to BCOP and such a right of purchase to Borden; and WHEREAS, BCOP agreed in SECTION 9.3 of the Note Agreement to offer to purchase the Notes in the event of certain changes of control with respect to Borden Chemicals and Plastics Limited Partnership ("BCP"), the limited partner in BCOP, or BCP Management, Inc., the general partner of BCP and BCOP, and the parties are desirous of amending such provisions of the Note Agreement; NOW, THEREFORE, for good and valuable consideration, the receipt, adequacy and sufficiency of which is hereby acknowledged by the parties hereto, the parties hereto hereby agree as follows: 1. DEFINITIONS. The following capitalized terms shall have the following meanings: 2 "BUSINESS DAY" means any day other than a Saturday, Sunday or other day on which commercial banks in New York City are required or authorized to be closed. "EXCESS PREMIUM AMOUNT" means, with respect to each Note, the EXCESS, IF ANY, OF (A) the Make Whole Premium with respect to such Note calculated in accordance with the Note Agreement as of (i) the date of voluntary prepayment by BCOP of such Note (in the event that BCOP prepays such Note pursuant to SECTION 3), (ii) the date of voluntary purchase by Borden of such Note (in the event that Borden purchases such Note pursuant to SECTION 4), (iii) the date of mandatory prepayment by BCOP of such Note (in the event that BCOP is required to prepay such Note pursuant to SECTION 9.3 of the Note Agreement), or (iv) the date that, upon the occurrence and continuation of an Event of Default (as defined in the Note Agreement), such Note becomes due and payable in accordance with the provisions of SECTION 11 of the Note Agreement (in the event that such Note becomes due and payable in accordance with the provisions of SECTION 11 of the Note Agreement), as the case may be, OVER (B) the Make Whole Premium paid by Borden with respect to such Note pursuant to SECTION 2. "MAKE WHOLE PAYMENT DATE" means the earlier of (i) the first Business Day following a Change of Control of Borden (as defined in SECTION 4.1 of the Undertaking) and (ii) December 28, 1994; PROVIDED, HOWEVER, that if the Make Whole Payment Date would, but for this proviso, be earlier than December 21, 1994, then the Make Whole Payment Date shall be deemed to be December 21, 1994. "MAKE WHOLE PREMIUM" means, with respect to each Noteholder, the Make Whole Premium, as defined in SECTION 13 of the Note Agreement, for the Notes held by such Noteholder calculated as of the applicable date of payment or determination of such premium. "PERMITTED EVENT" means any of the following events: (A) BCOP acquires a majority of the outstanding voting shares of capital stock of BCP Management, Inc. or any other corporation or other entity which at the applicable time is the general partner of BCOP (the "General Partner") and, immediately after giving effect to such acquisition, BCOP is able to incur at least $1 of additional Funded Debt (as defined in the Note Agreement) pursuant to the Note Agreement; (B) the General Partner is merged with and into BCOP, BCOP is merged with and into the General Partner or BCOP and the General Partner are consolidated or merged with and into any other entity so long as, in each such case, the surviving or successor entity is bound by the Note Agreement and, immediately after giving effect to such acquisition, the surviving or successor entity is able to incur -2- 3 at least $1 of additional Funded Debt (as defined in the Note Agreement) pursuant to the Note Agreement; or (C) the General Partner is merged with and into BCP, BCP is merged with and into the General Partner or BCP and the General Partner are consolidated or merged with and into any other entity (provided that a Prepayment Event (as defined in SECTION 9.3 of the Note Agreement) shall be deemed to occur at such time that Borden ceases to be the beneficial owner, directly or indirectly, of a majority of the equity interests in the surviving or successor entity that Borden received in connection with any transaction referred to in this clause (C)). 2. PAYMENT OF MAKE WHOLE PREMIUM. Borden shall, in accordance with the provisions of SECTION 6, pay to each Noteholder on the Make Whole Payment Date the Make Whole Premium, calculated as of such date, with respect to the Notes then held by such Noteholder. 3. RIGHT OF PREPAYMENT. (a) BCOP shall have the right, exercisable in its discretion at any time after payment by Borden of the Make Whole Premium pursuant to SECTION 2 (but not in any event prior to January 3, 1995), to prepay, in accordance with the provisions of SECTION 6, all but not less than all the Notes. Such election shall be made by BCOP by provision to the Noteholders of at least three Business Days prior written notice of BCOP's election to prepay the Notes on a date (which shall be a Business Day) selected by BCOP in such notice. (b) The prepayment price payable by BCOP to each Noteholder upon exercise of BCOP's right to prepay the Notes shall be the sum of (A) the aggregate outstanding principal amount of the Notes held by such Noteholder as of the prepayment date PLUS (B) accrued but unpaid interest on the Notes held by such Noteholder as of and including the prepayment date PLUS (C) the Excess Premium Amount, if any, with respect to the Notes held by such Noteholder. 4. RIGHT OF PURCHASE. (a) Borden shall have the right, exercisable in its discretion at any time after payment by Borden of the Make Whole Premium pursuant to SECTION 2 (but not in any event prior to January 3, 1995), to purchase, in accordance with the provisions of SECTION 6, all but not less than all the Notes. Such election shall be made by Borden by provision to the Noteholders of at least three Business Days prior written notice of Borden's election to purchase the Notes on a date (which shall be a Business Day) selected by Borden in such notice. (b) The purchase price payable by Borden to each Noteholder upon exercise of Borden's right to purchase the Notes shall be the sum of (A) the aggregate outstanding principal -3- 4 amount of the Notes held by such Noteholder as of the purchase date PLUS (B) accrued but unpaid interest on the Notes held by such Noteholder as of and including the purchase date PLUS (C) the Excess Premium Amount, if any, with respect to the Notes held by such Noteholder. (c) Borden's right to purchase the Notes set forth in this SECTION 4 shall terminate and be of no force and effect at such time that Borden ceases to own, directly or indirectly, a majority of the outstanding capital shares of voting stock of the general partner of BCOP. 5. AMENDMENT OF AGREEMENTS AND CONTINUATION OF NOTE OBLIGATIONS. Upon receipt by the Noteholders of the Make Whole Premium pursuant to SECTION 2: (i) the provisions of SECTION 4.1 and SECTION 4.4 of the Undertaking shall be deemed terminated and of no force and effect; (ii) notwithstanding the provisions of SECTION 9.3 of the Note Agreement or any other provision of the Note Agreement, a Permitted Event shall not constitute or be deemed to constitute a Prepayment Event (as defined in SECTION 9.3 of the Note Agreement); (iii) notwithstanding the provisions of SECTION 9.3 of the Note Agreement or any other provision of the Note Agreement, no Make Whole Premium shall be payable by BCOP in connection with any mandatory prepayment of the Notes that BCOP is required to effect pursuant to SECTION 9.3 of the Note Agreement (after giving effect to clause (ii) above), and in lieu thereof, the Excess Premium Amount, if any, with respect to the Notes to be prepaid shall be payable by BCOP in accordance with the provisions of SECTION 9.3 of the Note Agreement; (iv) notwithstanding the provisions of SECTION 9.6 of the Note Agreement or any other provision of the Note Agreement, BCOP may prepay the Notes in accordance with the provisions of SECTION 3 and Borden may purchase the Notes in accordance with the provisions of SECTION 4; (v) notwithstanding the provisions of SECTION 11 of the Note Agreement or any other provision of the Note Agreement, no Make Whole Premium shall become due and payable by BCOP in connection with any Event of Default (as defined in SECTION 11 of the Note Agreement) and, in lieu thereof, the Excess Premium Amount, if any, with respect to any Notes that become due and payable pursuant to SECTION 11 of the Note Agreement shall become due and payable by BCOP -4- 5 in accordance with the provisions of SECTION 11 of the Note Agreement; (vi) SECTION 10.1(e) and SECTION 13 of the Note Agreement shall be automatically amended, without the necessity of taking any further action or executing or delivering any additional document, as follows: (A) the following additional proviso shall be added to the end of SECTION 10.1(e) of the Note Agreement after the words "Priority Debt does not exceed 15% of Consolidated Net Tangible Assets": "and PROVIDED FURTHER that on the date the Company or any Restricted Subsidiary becomes liable with respect to any such additional Funded Debt and immediately after giving effect thereto and to the concurrent retirement of any other Indebtedness, the total outstanding principal amount of all Funded Debt of the Company and its Restricted Subsidiaries does not exceed 55% of Total Capitalization"; and (B) the following additional definition shall be added to SECTION 13 of the Note Agreement after the definition of "10.70% Notes": "TOTAL CAPITALIZATION: as of the time of any determination thereof, the aggregate amount of all Funded Debt of the Company and its Restricted Subsidiaries and partners' capital (or in the event that the Company is converted or merged into a corporation, shareholders' equity), including retained earnings, of the Company determined on a consolidated basis in accordance with generally accepted accounting principles. For purposes of calculating Total Capitalization there shall be deducted from the assets of the Company all assets that would be treated as intangibles under generally accepted accounting principles (except that there shall not be deducted from the assets of the Company any assets that are treated as intangibles under generally accepted accounting principles and that arise in connection with the transactions contemplated under the Asset Transfer Agreement dated as of August 12, 1994 between the Company and Occidental Chemical Corporation, as amended from time to time)."; and (vii) the Notes shall continue to be outstanding and payable by BCOP in accordance with their terms and the terms of the Note Agreement as and to the extent amended and modified hereby. -5- 6 6. PAYMENT INSTRUCTIONS; DOCUMENTS. (a) Unless otherwise agreed to by the parties, any amounts payable by Borden or BCOP to each Noteholder pursuant to this Agreement shall be payable by wire transfer of such amounts in immediately available funds no later than 12:00 p.m. New York City time on the applicable prepayment date or payment date to the account or accounts of such Noteholder specified in the Note Agreement. (b) Each Noteholder shall, in connection with the transactions contemplated by this Agreement, provide to Borden or BCOP, as the case may be, such receipts and acknowledgements of prepayment or purchase as Borden or BCOP may reasonably request. Each Noteholder shall also, in the event of a prepayment by BCOP of the Notes pursuant to SECTION 3 or a purchase by Borden of the Notes pursuant to SECTION 4, provide to BCOP or Borden, as the case may be, the original Note held by such Noteholder (or in lieu thereof, an unsecured indemnity reasonably satisfactory to BCOP or Borden, as the case may be), together with, in the event of prepayment of the Notes, an instrument of prepayment reasonably satisfactory to BCOP acknowledging prepayment of such Note and, in the event of purchase of the Notes, an instrument of assignment reasonably satisfactory to Borden assigning such Noteholder's right, title and interest in and to such Note to Borden, free and clear of any lien, claim or encumbrance created by or arising against such Noteholder and, in each case, representing and warranting that such Noteholder is the sole beneficial owner of and has good and valid title to such Note. 7. REPRESENTATIONS AND WARRANTIES. (a) Borden represents and warrants that it has the authority to enter into this Agreement and that this Agreement constitutes a legal, valid and binding obligation of Borden. (b) BCOP represents and warrants that (i) it has the authority to enter into this Agreement and that this Agreement constitutes a legal, valid and binding obligation of BCOP and (ii) there is no Event of Default (as defined in the Note Agreement) in existence as of the date of this Agreement. (c) Each Noteholder represents and warrants as to itself that it has the authority to enter into this Agreement and that this Agreement constitutes a legal, valid and binding obligation of such Noteholder. Each Noteholder represents and warrants as to itself that it is the sole beneficial owner of Notes having an aggregate outstanding principal amount specified in the recitals to be held by such Noteholder, that it has good and valid title to such Notes and it has not entered into any agreement (other than this Agreement) to transfer, sell or pledge the Notes owned by it or any interest or participation therein. -6- 7 8. GOVERNING LAW. This Agreement and the obligations of the parties under this Agreement shall be governed and construed in accordance with the laws of the State of New York, construed and applied without giving effect to principles of conflicts of laws. 9. SUCCESSORS AND ASSIGNS. This Agreement will be binding upon and inure to the benefit of the parties hereto and their successors and assigns. Without limiting the foregoing, the provisions of this Agreement shall continue to apply (including with respect to the Notes, the Note Agreement and the Undertaking) upon and after any sale, transfer, pledge or assignment of the Notes by any Noteholder or transferee of the Notes. 10. AMENDMENTS; ENTIRE AGREEMENT. (a) This Agreement cannot be amended or terminated orally, but only by a writing duly executed by or on behalf of the parties. (b) This Agreement constitutes an amendment of the provisions of the Undertaking and the Note Agreement specifically referred to herein and represents the entire agreement and understanding among the parties hereto with respect to the subject matter hereof and supersedes any other agreement or understanding, written or verbal, that the parties may have with respect to the subject matter hereof. Except as specifically amended hereby, the Undertaking and the Note Agreement remain in full force and effect. 11. NOTICES. All notices and other communications hereunder shall be in writing and shall be deemed to have been duly given (i) five Business Days after mailing if mailed by certified or registered mail, return receipt requested, (ii) one Business Day after delivery to an overnight express carrier, if sent for overnight delivery with fee prepaid, (iii) upon receipt if sent via facsimile with receipt confirmed, or (iv) upon receipt if delivered personally, addressed as follows or to such other address or addresses of which the respective party shall have notified the other parties: (a) if to Borden, to: 180 East Broad Street Columbus, Ohio 43215 Telecopier Number: 614-225-4973 Attention: Mr. David A. Kelly Vice President and Treasurer (b) if to BCOP, to: -7- 8 180 East Broad Street Columbus, Ohio 43215 Telecopier Number: 614-225-4973 Attention: Mr. David A. Kelly Principal Financial Officer (c) if to Prudential, to: c/o Prudential Capital Group 2 Prudential Plaza 180 North Stetson Avenue Suite 5600 Chicago, Illinois 60601 Telecopier Number: 312-540-4222 Confirmation Number: 312-540-0931 Attention: Managing Director (d) if to MLIC, to: Metropolitan Life Insurance Company One Madison Avenue New York, New York 10010 Telecopier Number: 212-578-4454 Attention: Treasurer With a copy to: Metropolitan Life Insurance Company 200 Park Avenue New York, New York 10166 Telecopier Number: 212-692-5784 Attention: Vice President Corporate Investments Northeastern Office (e) if to MIAC, to: Metropolitan Life Insurance Company One Madison Avenue New York, New York 10010 Telecopier Number: 212-578-4454 Attention: Treasurer With a copy to: Metropolitan Insurance and Annuity Company -8- 9 200 Park Avenue New York, New York 10166 Telecopier Number: 212-692-5784 Attention: Vice President Corporate Investments Northeastern Office. 12. COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which will be deemed an original instrument, but all of which together will constitute one and the same agreement, and will become binding when one or more counterparts have been executed and delivered by each of the parties hereto. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered as of the date first above written. BORDEN, INC. By: /s/ David A. Kelly ------------------ Name: David A. Kelly Title: Vice President BORDEN CHEMICALS AND PLASTICS OPERATING LIMITED PARTNERSHIP By: BCP Management, Inc., as General Partner By: /s/ David A. Kelly ----------------------- Name: David A. Kelly Title: Principal Financial Officer -9- 10 THE PRUDENTIAL INSURANCE COMPANY OF AMERICA By: /s/ Mark Hoffmeister -------------------------------- Name: Mark Hoffmeister Title: METROPOLITAN LIFE INSURANCE COMPANY By: /s/ John R. Endres ------------------------------- Name: John R. Endres Title: Assistant Vice-President METROPOLITAN INSURANCE AND ANNUITY COMPANY By: /s/ Andrew T. Aoyama ------------------------------- Name: Andrew T. Aoyama Title: Assistant Vice-President -10- 11 Instrument of Affirmation and Receipt ------------------------------------- The Prudential Insurance Company of America (the "Noteholder") hereby: (i) refers to the Prepayment Terms Agreement dated as of December 15, 1994 (the "Agreement") among the Noteholder, Metropolitan Life Insurance Company and Metropolitan Insurance and Annuity Company (collectively with the Noteholder, the "Noteholders"), Borden, Inc. ("Borden") and Borden Chemicals and Plastics Operating Limited Partnership ("BCOP"); (ii) acknowledges receipt on Decmeber 21, 1994, by wire transfer to the accounts of the Noteholder at Morgan Guaranty Trust Company of New York, Account Numbers 050-54-460 (in the case of payment with respect to the Note (as defined in the Agreement) held by the Noteholder having an outstanding principal amount of $56,800,000) and 050-53-360 (in case of payment with respect to the Note held by the Noteholder having an outstanding principal amount of $3,200,000), of immediately available funds in the amount of $7,080,783.61 (Seven million Eighty Thousand Seven Hundred Eighty-three Dollars and Sixty- one Cents), respectively, collectively representing payment in full of the Make Whole Premium (as defined in the Agreement) payable by Borden pursuant to SECTION 2 of the Agreement as of the Make Whole Payment Date (as defined in the Agreement) with respect to the Notes held by the Noteholder; (iii) represents and warrants to Borden and BCOP that it is the sole beneficial owner of Notes having an aggregate outstanding principal amount of $60,000,000 and originally issued in the name of the Noteholder, that it has good and valid title to such Notes and it has not entered into any agreement (other than the Agreement) to transfer, sell or pledge the Notes owned by it or any interest or participation therein; and -11- 12 (iv) affirms and acknowledges to Borden and BCOP that the amendments to the Note Agreement (as defined in the Agreement) specified in, and the provisions of, SECTION 5 of the Agreement are in full force and effect with respect to the Noteholder and the Notes held by the Noteholder. IN WITNESS WHEREOF, the Noteholder has caused this Instrument of Affirmation and Receipt to be executed as of this 21st day of December by a duly authorized officer of the Noteholder. THE PRUDENTIAL INSURANCE COMPANY OF AMERICA By: /s/ Mark Hoffmeister ----------------------------------- Name: Mark Hoffmeister Title: -12- 13 Instrument of Affirmation and Receipt ------------------------------------- Metropolitan Life Insurance Company (the "Noteholder") hereby: (i) refers to the Prepayment terms Agreement dated as of December 15, 1994 (the "Agreement") among the Noteholder, The Prudential Insurance Company of America and Metropolitan Insurance and Annuity Company (collectively with the Noteholder, the "Noteholders"), Borden, Inc. ("Borden") and Borden Chemicals and Plastics Operating Limited Partnership ("BCOP"); (ii) acknowledges receipt on December 21, 1994, by wire transfer to the account of the Noteholder at The Chase Manhattan Bank, N.A., Account Number 002-2-410591, of immediately available funds in the amount of $3,876,325.44 (Three Million Eight Hundred Seventy-six Thousand Three Hundred Twenty-five Dollars and Forty-four Cents), representing payment in full of the Make Whole Premium (as defined in the Agreement) payable by Borden pursuant to SECTION 2 of the Agreement as of the Make Whole Payment Date (as defined in the Agreement) with respect to the Notes held by the Noteholder; (iii) represents and warrants to Borden and BCOP that it is the sole beneficial owner of Notes having an aggregate outstanding principal amount of $70,000,000 and originally issued in the name of the Noteholder, that it has good and valid title to such Notes and it has not entered into any agreement (other than the Agreement) to transfer, sell or pledge the Notes owned by it or any interest or participation therein; and (iv) affirms and acknowledges to Borden and BCOP that the amendments to the Note Agreement (as defined in the Agreement) and the Undertaking (as defined in the Agreement) specified in, and the provisions of, SECTION 5 of the Agreement are in full force and effect with respect to the Noteholder and the Notes held by the Noteholder. -13- 14 IN WITNESS WHEREOF, the Noteholder has caused this Instrument of Affirmation and Receipt to be executed as of this 21st day of December by a duly authorized officer of the Noteholder. METROPOLITAN LIFE INSURANCE COMPANY By: /s/ John R. Endres -------------------------------- Name: John R. Endres Title: Assistant Vice-President -14- 15 Instrument of Affirmation and Receipt ------------------------------------- Metropolitan Insurance and Annuity Company (the "Noteholder") hereby: (i) refers to the Prepayment Terms Agreement dated as of December 15, 1994 (the "Agreement") among the Noteholder, The Prudential Insurance Company of America and Metropolitan Life Insurance Company (collectively with the Noteholder, the "Noteholders"), Borden, Inc. ("Borden") and Borden Chemicals and Plastics Operating Limited Partnership ("BCOP"); (ii) acknowledges recepit on December 21, 1994, by wire transfer to the account of the Noteholder at The Chase Manhattan Bank, N.A., Account Number 002-1-072301, of immediately available funds in the amount of $1,107,521.56 (One Million One Hundred Seven Thousand Five Hundred Twenty-one Dollars and Fifty-six Cents), representing payment in full of the Make Whole Premium (as defined in the Agreement) payable by Borden pursuant to SECTION 2 of the Agreement as of the Make Whole Payment Date (as defined in the Agreement) with respect to the Notes held by the Noteholder; (iii) represents and warrants to Borden and BCOP that it is the sole beneficial owner of Notes having an aggregate outstanding principal amount of $20,000,000 and originally issued in the name of the Noteholder, that it has good and valid title to such Notes and it has not entered into any agreement (other than the Agreement) to transfer, sell or pledge the Notes owned by it or any interest or participation therein; and (iv) affirms and acknowledges to Borden and BCOP that the amendments to the Note Agreement (as defined in the Agreement) and the Undertaking (as defined in the Agreement) specified in, and the provisions of, SECTION 5 of the Agreement are in full force and effect with respect to the Noteholder and the Notes held by the Noteholder. -15- 16 IN WITNESS WHEREOF, the Noteholder has caused this Instrument of Affirmation and Receipt to be executed as of this 21st day of December by a duly authorized officer of the Noteholder. METROPOLITAN INSURANCE AND ANNUITY COMPANY By: /s/ Andrew T. Aoyama -------------------------------- Name: Andrew T. Aoyama Title: Vice-President -16- EX-10.23 15 BORDEN, INC. 10-K405 EXHIBIT (10)(XXIII) 1 EXHIBIT 10 (xxiii) PURCHASE AGREEMENT February 16, 1995 RJR NABISCO HOLDINGS CORP. 1301 Avenue of the Americas New York, New York 10019 BORDEN, INC. 180 East Broad Street Columbus, Ohio 43215 Dear Ladies and Gentlemen: We (the "Underwriter") understand that BORDEN, INC., a New Jersey corporation (the "Selling Stockholder"), proposes to sell 120,000,000 shares of Common Stock (par value $.01 per share) of RJR NABISCO HOLDINGS CORP. (the "Shares"). Subject to the terms and conditions set forth or incorporated by reference herein, the Selling Stockholder hereby agrees to sell and the Underwriter agrees to purchase the Shares at a purchase price of $5.52 per share. The Underwriter proposes to offer the Shares for sale upon the terms and conditions set forth in the Prospectus Supplement. The Underwriter will pay for the Shares upon delivery thereof at the offices of Davis Polk & Wardwell at 10:00 a.m. (New York time) on February 24, 1995, or at such other time, not later than 5:00 p.m. (New York time) on March 2, 1995, as shall be agreed upon in writing by the Underwriter and the Selling Stockholder. The time and date of such payment and delivery are hereinafter referred to as the Closing Date. The Shares have the terms set forth in the Prospectus dated February 15, 1995, and the Prospectus Supplement dated February 16, 1995, including the following: 2 All provisions contained in the document entitled RJR NABISCO HOLDINGS CORP./BORDEN, INC. Purchase Agreement Standard Provisions (Common Stock) dated February 15, 1995, a copy of which is attached hereto, are herein incorporated by reference in their entirety and shall be deemed to be a part of this Agreement to the same extent as if such provisions had been set forth in full herein. Please confirm your agreement by having an authorized officer sign a copy of this Agreement in the space set forth below. Very truly yours, /s/ Goldman, Sachs & Co. --------------------------- (Goldman, Sachs & Co.) Accepted: BORDEN, INC. By: /s/ C. Robert Kidder ----------------------------------------------- Name: C. Robert Kidder Title: Chairman and Chief Executive Officer RJR NABISCO HOLDINGS CORP. By: /s/ Jo-Ann Ford ----------------------------------------------- Name: Jo-Ann Ford Title: Vice President, Assistant General Counsel and Secretary -2- 3 RJR NABISCO HOLDINGS CORP. BORDEN, INC. FORM OF PURCHASE AGREEMENT STANDARD PROVISIONS (COMMON STOCK) February 15, 1995 From time to time, Borden, Inc., a New Jersey corporation (the "Selling Stockholder"), and RJR Nabisco Holdings Corp., a Delaware corporation (the "Company"), may enter into one or more purchase agreements that provide for the sale of up to 120,000,000 shares of Common Stock, par value $.01 per share (the "Registered Shares"), of the Company by the Selling Stockholder to the several underwriters or underwriter, as applicable named therein. The Registered Shares involved in any such offering are hereinafter referred to as the "Shares". The standard provisions set forth herein may be incorporated by reference in any such purchase agreement (a "Purchase Agreement"). The Purchase Agreement, including the provisions incorporated therein by reference, is herein referred to as this Agreement. The Company has filed with the Securities and Exchange Commission (the "Commission") a registration statement, including a prospectus, relating to the Shares and has filed with, or transmitted for filing to, or shall promptly hereafter file with or transmit for filing to, the Commission a prospectus supplement (the "Prospectus Supplement") specifically relating to the Shares pursuant to Rule 424 under the Securities Act of 1933, as amended (the "Securities Act"). The term "Registration Statement" means the registration statement, including the exhibits thereto, as amended to the date of this Agreement. The term "Basic Prospectus" means the prospectus included in the Registration Statement. The term "Prospectus" means the Basic Prospectus together with the Prospectus Supplement. The term "preliminary prospectus" means a preliminary prospectus supplement specifically relating to the Shares together with the Basic Prospectus. As used herein, the terms "Basic Prospectus," "Prospectus" and "preliminary prospectus" shall include in each case the documents, if any, incorporated by reference therein. The terms "supplement" and "amendment" or "amend" as used herein shall include all documents deemed to be incorporated by reference in the Prospectus that are filed subsequent to the date of the Basic Prospectus by the Company with the Commission pursuant to the Securities Exchange Act of 1934, as amended (the "Exchange Act"). -3- 4 1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents and warrants to each of the Underwriters (as defined in the Purchase Agreement) that: (a) The Registration Statement has become effective under the Securities Act; no stop order suspending the effectiveness of the Registration Statement is in effect, and no proceedings for such purpose are pending before or, to the Company's knowledge, threatened by the Commission. (b) (i) Each document, if any, filed or to be filed pursuant to the Exchange Act and incorporated by reference in the Prospectus complied or will comply when so filed in all material respects with the Exchange Act and the applicable rules and regulations of the Commission thereunder, (ii) each part of the Registration Statement, when such part became effective, did not contain, and each such part, as amended or supplemented, if applicable, will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading, (iii) the Registration Statement and the Prospectus comply, and, as amended or supplemented, if applicable, will comply in all material respects with the Securities Act and the applicable rules and regulations of the Commission thereunder and (iv) the Prospectus does not contain and, as amended or supplemented, if applicable, will not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, except that the representations and warranties set forth in this Section 1(b) do not apply to statements or omissions in the Registration Statement or the Prospectus based upon information relating to (A) any Underwriter furnished to the Company in writing by such Underwriter through the Manager (as defined in the Purchase Agreement) expressly for use therein or (B) the Selling Stockholder relating to the Selling Stockholder furnished to the Company in writing by the Selling Stockholder expressly for use therein. (c) The Company has been duly incorporated, is validly existing as a corporation in good standing under the laws of the State of Delaware, has the corporate power and authority to own its property and to conduct its business as described in the Prospectus and is duly qualified to transact business and is in good standing in each jurisdiction in which the conduct of its business or its ownership or leasing of property requires such qualification, except to the extent that the failure to be so qualified or be in good standing would not have a material adverse effect on the financial -4- 5 condition or the results of operations of the Company and its subsidiaries, taken as a whole. (d) Each of RJR Nabisco, Inc. ("RJRN"), R.J. Reynolds Tobacco Company, R.J. Reynolds Tobacco International, Inc. and Nabisco Holdings Corp. ("Nabisco") (collectively, the "Principal Operating Subsidiaries") has been duly incorporated, is validly existing as a corporation in good standing under the laws of the jurisdiction of its incorporation, has the corporate power and authority to own its property and to conduct its business as described in the Prospectus and is duly qualified to transact business and is in good standing in each jurisdiction in which the conduct of its business or its ownership or leasing of property requires such qualification, except to the extent that the failure to be so qualified or be in good standing would not have a material adverse effect on the financial condition or the results of operations of the Company and its subsidiaries, taken as a whole. (e) (i) The authorized capital stock of the Company conforms as to legal matters to the description thereof contained in the Prospectus; (ii) except as set forth in the Prospectus and except for 51,750,000 shares of Class A Common Stock of Nabisco, all of the outstanding capital stock of each of the Principal Operating Subsidiaries which is owned by the Company is owned directly or indirectly by the Company free and clear of any security interest, claim, lien or other encumbrance or preemptive rights; and (iii) except for (A) options to acquire common stock of Nabisco granted to certain directors, officers and employees of the Company and Nabisco and (B) the option granted to RJRN to acquire shares of Class B Common Stock of Nabisco pursuant to the Corporate Agreement between RJRN and Nabisco dated as of January 26, 1995, there are no outstanding rights (including, without limitation, preemptive rights), warrants or options to acquire, or instruments convertible into or exchangeable for, any shares of capital stock or other equity interest in any of the Principal Operating Subsidiaries or any contract, commitment, agreement, understanding or arrangement of any kind relating to the issuance of any such capital stock, any such convertible or exchangeable securities or any such rights, warrants or options. (f) This Agreement has been duly authorized, executed and delivered by the Company. (g) The Shares have been duly authorized and are validly issued, fully paid and nonassessable. -5- 6 (h) The execution and delivery by the Company of, and the performance by the Company of its obligations under, this Agreement will not contravene any provision of applicable law or the certificate of incorporation or by-laws of the Company or any agreement or other instrument binding upon the Company or any of its subsidiaries or any judgment, order or decree of any governmental body, agency or court having jurisdiction over the Company or any subsidiary, except for such contraventions that would not have a material adverse effect on the financial condition or results of operations of the Company and its subsidiaries taken as a whole, and no consent, approval, authorization or order of or qualification with any governmental body or agency is required for the performance by the Company of its obligations under this Agreement, except such as have been obtained and except such as may be required by the securities or Blue Sky laws of the various states or other jurisdictions in connection with the offer and sale of the Shares. (i) There has not occurred any material adverse change, or any development involving a prospective material adverse change, in the financial condition or results of operations of the Company and its subsidiaries, taken as a whole, from that set forth in the Prospectus (including any amendments or supplements thereto subsequent to the date of this Agreement which have been agreed to by the Manager and the Company). (j) There are no legal or governmental proceedings pending or, to the best of the Company's knowledge, threatened to which the Company or any of its subsidiaries is a party or to which any of the properties of the Company or any of its subsidiaries is subject that are required to be described in the Registration Statement or the Prospectus and are not so described or any statutes, regulations, contracts or other documents that are required to be described in the Registration Statement or the Prospectus or to be filed as exhibits to the Registration Statement that are not described or filed as required. (k) Neither the Company nor RJRN is, or after giving effect to the offering and sale of the Shares will be, and neither the Company nor RJRN is directly or indirectly controlled by, or acting on behalf of any person which is, an investment company within the meaning of the Investment Company Act of 1940, as amended. (l) The Company has complied with all provisions of Section 517.075 Florida Statutes (Chapter 92-198, Laws of Florida). -6- 7 2. REPRESENTATIONS AND WARRANTIES OF THE SELLING STOCKHOLDER. The Selling Stockholder represents and warrants to each of the Underwriters that: (a) The Selling Stockholder has been duly incorporated, is validly existing as a corporation in good standing under the laws of the State of New Jersey, has the corporate power and authority to own its property and to conduct its business and is duly qualified to transact business and is in good standing in each jurisdiction in which the conduct of its business or its ownership or leasing of property requires such qualification, except to the extent that the failure to be so qualified or be in good standing would not have a material adverse effect on the financial condition or results of operations of the Selling Stockholder and its subsidiaries, taken as a whole. (b) This Agreement has been duly authorized, executed and delivered by the Selling Stockholder. (c) The execution and delivery by the Selling Stockholder of, and the performance by the Selling Stockholder of its obligations under, this Agreement will not contravene any provision of applicable law or the certificate of incorporation or by-laws of the Selling Stockholder or any agreement or other instrument binding upon the Selling Stockholder or any of its subsidiaries or any judgment, order or decree of any governmental body, agency or court having jurisdiction over the Selling Stockholder or any subsidiary, except for contraventions that would not have a material adverse effect on the financial condition or results of operations of the Selling Stockholder and its subsidiaries taken as a whole, and no consent, approval, authorization or order of or qualification with any governmental body or agency is required for the performance by the Selling Stockholder of its obligations under this Agreement, except such as have been obtained and except such as may be required by the securities or Blue Sky laws of the various states or other jurisdictions in connection with the offer and sale of the Shares. (d) On the Closing Date (as defined in the Purchase Agreement), the Selling Stockholder has good and valid title to the Shares, free and clear of all liens, encumbrances, equities or claims and the legal right and power to enter into this Agreement. (e) Upon delivery of the Shares and payment therefor pursuant to this Agreement, the Selling Stockholder will pass good and valid title to the Shares free and clear of all liens, encumbrances, equities or claims. -7- 8 (f) (i) Each part of the Registration Statement relating to the Selling Stockholder furnished to the Company in writing by the Selling Stockholder expressly for use therein, when such part became effective, did not contain and each such part, as amended or supplemented, if applicable, will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading and (ii) each part of the Prospectus relating to the Selling Stockholder furnished to the Company in writing by the Selling Stockholder expressly for use therein does not contain and, as amended or supplemented, if applicable, will not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. 3. PUBLIC OFFERING. The Company and the Selling Stockholder are advised by the Manager that the Underwriters propose to make a public offering of their respective portions of the Shares as soon after this Agreement has been entered into as in the Manager's judgment is advisable. The terms of the public offering of the Shares are set forth in the Prospectus. Each Underwriter agrees and acknowledges that it will not, directly or indirectly, offer, transfer, sell, assign, pledge, hypothecate or otherwise dispose of any Shares, or solicit any offers to purchase or otherwise acquire or take a pledge of any Shares, unless (a) such offer, transfer, sale, assignment, pledge, hypothecation or other disposition is pursuant to an effective registration statement under the Securities Act or (b) it shall have furnished to Holdings and Borden an opinion of counsel to the effect that no such registration is required because of the availability of an exemption from registration under the Securities Act in connection with the offer and sale of the Shares. 4. PURCHASE AND DELIVERY. Except as otherwise provided in this Section 4, payment for the Shares shall be made by certified or official bank check or checks payable to the order of the Selling Stockholder in New York Clearing House funds (or such other funds as are specified in the Purchase Agreement) at the time and place set forth in the Purchase Agreement, upon delivery to the Manager for the respective accounts of the several Underwriters of the Shares, registered in such names and in such denominations as the Manager shall request in writing not less than two full business days prior to the date of delivery, with any transfer taxes payable in connection with the transfer of the Shares to the Underwriters duly paid. 5. CONDITIONS TO CLOSING. The several obligations of the Underwriters hereunder are subject to the following conditions: -8- 9 (a) Subsequent to the execution and delivery of the Purchase Agreement and prior to the Closing Date, there shall not have occurred any change, or any development involving a prospective change, in the financial condition or results of operations of the Company and its subsidiaries, taken as a whole, from that set forth in the Prospectus, that, in the judgment of the Manager, is material and adverse and that makes it, in the judgment of the Manager, impracticable to market the Shares on the terms and in the manner contemplated in the Prospectus. (b) The Manager shall have received on the Closing Date a certificate, dated the Closing Date and signed by an executive officer of the Company, to the effect set forth in clause (a) above and to the effect that the representations and warranties of the Company contained in this Agreement are true and correct in all material respects as of the Closing Date and that the Company has complied with all of the agreements and satisfied all of the conditions on its part to be performed or satisfied on or before the Closing Date. The officer signing and delivering such certificate may rely upon the best of such officer's knowledge as to proceedings threatened. (c) The Manager shall have received on the Closing Date a certificate, dated the Closing Date and signed by an executive officer of the Selling Stockholder, to the effect that the representations and warranties of the Selling Stockholder contained in this Agreement are true and correct in all material respects as of the Closing Date and that the Selling Stockholder has complied with all of the agreements and satisfied all of the conditions on its part to be performed or satisfied on or before the Closing Date. The officer signing and delivering such certificate may rely upon the best of such officer's knowledge as to proceedings threatened. (d) The Manager shall have received on the Closing Date an opinion of counsel for the Company, dated the Closing Date, to the effect set forth in Exhibit A. (e) The Manager shall have received on the Closing Date an opinion of counsel for the Selling Stockholder, dated the Closing Date, to the effect set forth in Exhibit B. (f) The Manager shall have received on the Closing Date an opinion of counsel for the Underwriters, dated the Closing Date, to the effect set forth in Exhibit C. (g) The Manager shall have received on the Closing Date a letter, dated the Closing Date, in form and substance -9- 10 satisfactory to the Manager, from the Company's independent public accountants, containing statements and information of the type ordinarily included in accountants' "comfort letters" to underwriters with respect to the financial statements and certain financial information contained in or incorporated by reference into the Prospectus. 6. COVENANTS OF THE COMPANY. In further consideration of the agreements of the Underwriters contained herein, the Company covenants as follows: (a) To furnish the Manager, without charge, a signed copy of the Registration Statement (including exhibits thereto) and for delivery to each other Underwriter a conformed copy of the Registration Statement (without exhibits thereto) and, during the period mentioned in paragraph (c) below, as many copies of the Prospectus, any documents incorporated by reference therein and any supplements and amendments thereto or to the Registration Statement as the Manager may reasonably request. (b) Prior to the termination of the offering of the Shares pursuant to this Agreement, before amending or supplementing the Registration Statement or the Prospectus with respect to the Shares, to furnish to the Manager a copy of each such proposed amendment or supplement and to file no such proposed amendment or supplement to which the Manager reasonably objects promptly after reasonable notice thereof; PROVIDED, HOWEVER, that the foregoing shall not apply to any of the Company's filings with the Commission required to be filed pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act, copies of which filings the Company will cause to be delivered to the Manager promptly after being transmitted for filing with the Commission. (c) If, during such period after the first date of the public offering of the Shares as in the opinion of counsel for the Underwriters the Prospectus is required by law to be delivered in connection with sales by an Underwriter or dealer, any event shall occur or condition exist as a result of which it is necessary to amend or supplement the Prospectus in order to make the statements therein, in the light of the circumstances when the Prospectus is delivered to a purchaser, not misleading, or if, in the opinion of counsel for the Underwriters or in the opinion of the Company, it is necessary to amend or supplement the Prospectus to comply with law, forthwith to prepare, file with the Commission and furnish, at its own expense, to the Underwriters, and to the dealers (whose names and addresses the Manager will furnish to the Company) to which Shares may have been sold by the Manager on behalf of the Underwriters and to any other dealer upon request, either amendments or -10- 11 supplements to the Prospectus so that the statements in the Prospectus as so amended or supplemented will not, in the light of the circumstances when the Prospectus is delivered to a purchaser, be misleading or so that the Prospectus, as so amended or supplemented, will comply with law. (d) To endeavor to qualify the Shares for offer and sale under the securities or Blue Sky laws of such jurisdictions as the Manager shall reasonably request and to pay all expenses (including fees and disbursements of counsel) in connection with such qualification and in connection with any review of the offering of the Shares by the National Association of Securities Dealers, Inc., PROVIDED that the Company shall not be obligated to so qualify the Shares if such qualification requires it to file any general consent to service of process or to register or qualify as a foreign corporation in any jurisdiction in which it is not so registered or qualified. (e) To make generally available to the Company's security holders and to the Manager as soon as practicable an earning statement covering a twelve-month period beginning on the first day of the first full fiscal quarter after the date of this Agreement, which earning statement shall satisfy the provisions of Section 11(a) of the Securities Act and the rules and regulations of the Commission thereunder. 7. INDEMNIFICATION AND CONTRIBUTION. (a) The Company agrees to indemnify and hold harmless each Underwriter, the Selling Stockholder, the directors of the Selling Stockholder and each person, if any, who controls such Underwriter or the Selling Stockholder within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act from and against any and all losses, claims, damages and liabilities caused by any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement or any amendment thereof, any preliminary prospectus or the Prospectus (as amended or supplemented if the Company shall have furnished any amendments or supplements thereto), or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as such losses, claims, damages or liabilities are caused by any such untrue statement or omission or alleged untrue statement or omission based (i) upon information relating to any Underwriter furnished to the Company in writing by such Underwriter through the Manager expressly for use therein or (ii) upon information relating to the Selling Stockholder furnished to the Company in writing by the Selling Stockholder expressly for use therein; PROVIDED that the foregoing indemnity agreement with respect to any preliminary prospectus shall not inure to the benefit of any Underwriter from -11- 12 whom the person asserting any such losses, claims, damages or liabilities purchased Shares, or any person controlling such Underwriter, if a copy of the Prospectus (as then amended or supplemented if the Company shall have furnished any amendments or supplements thereto) was not sent or given by or on behalf of such Underwriter, to such person, if required by law so to have been delivered, at or prior to the written confirmation of the sale of the Shares to such person, and if the Prospectus (as so amended or supplemented) would have cured the defect giving rise to such losses, claims, damages or liabilities. (b) The Selling Stockholder agrees to indemnify and hold harmless each Underwriter, the Company, the directors of the Company, the officers of the Company who sign the Registration Statement and each person, if any, who controls such Underwriter or the Company within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act to the same extent as the foregoing indemnity from the Company to the Selling Stockholder, but in each case only with reference to such information relating to the Selling Stockholder furnished to the Company by the Selling Stockholder in writing expressly for use in the Registration Statement, any preliminary prospectus, the Prospectus or any amendments or supplements thereto; PROVIDED that the foregoing indemnity agreement with respect to any preliminary prospectus shall not inure to the benefit of any Underwriter from whom the person asserting any such losses, claims, damages or liabilities purchased Shares, or any person controlling such Underwriter, if a copy of the Prospectus (as then amended or supplemented if the Company shall have furnished any amendments or supplements thereto) was not sent or given by or on behalf of such Underwriter, to such person, if required by law so to have been delivered, at or prior to the written confirmation of the sale of the Shares to such person, and if the Prospectus (as so amended or supplemented) would have cured the defect giving rise to such losses, claims, damages or liabilities. (c) Each Underwriter agrees, severally and not jointly, to indemnify and hold harmless the Company and the Selling Stockholder, each of their directors, each of the officers of the Company who signs the Registration Statement and each person, if any, who controls the Company or the Selling Stockholder within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act to the same extent as the foregoing indemnities from the Company and the Selling Stockholder to such Underwriter, but only with reference to information relating to such Underwriter furnished to the Company by such Underwriter in writing through the Manager expressly for use in the Registration Statement, any preliminary prospectus, the Prospectus or any amendments or supplements thereto. -12- 13 (d) In case any proceeding (including any governmental investigation) shall be instituted involving any person in respect of which indemnity may be sought pursuant to either of the three preceding paragraphs, such person (the "indemnified party") shall promptly notify the person against whom such indemnity may be sought (the "indemnifying party") in writing and the indemnifying party, upon request of the indemnified party, shall retain counsel reasonably satisfactory to the indemnified party to represent the indemnified party and any others the indemnifying party may designate in such proceeding and shall pay the fees and disbursements of such counsel related to such proceeding. In any such proceeding, any indemnified party shall have the right to retain its own counsel, but the fees and expenses of such counsel shall be at the expense of such indemnified party unless (i) the indemnifying party and the indemnified party shall have mutually agreed to the retention of such counsel or (ii) the named parties to any such proceeding (including any impleaded parties) include both the indemnifying party and the indemnified party and representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them. It is understood that the indemnifying party shall not, in respect of the legal expenses of any indemnified party in connection with any proceeding or related proceedings in the same jurisdiction, be liable for the fees and expenses of more than one separate firm (in addition to any local counsel) for all such indemnified parties and that all such fees and expenses shall be reimbursed as they are incurred. Such firm acting on behalf of the indemnified parties related to the Company shall be designated in writing by the Company. Such firm acting on behalf of the indemnified parties related to the Selling Stockholder shall be designated in writing by the Selling Stockholder. Such firm acting on behalf of the indemnified parties related to the Manager shall be designated in writing by the Manager. The indemnifying party shall not be liable for any settlement of any proceeding effected without its written consent, but if settled with such consent or if there be a final judgment for the plaintiff, the indemnifying party agrees to indemnify the indemnified party from and against any loss or liability by reason of such settlement or judgment. (e) If the indemnification provided for in paragraphs (a), (b) or (c) of this Section 7 is unavailable to an indemnified party in respect of any losses, claims, damages or liabilities referred to therein, then each indemnifying party under such paragraph, in lieu of indemnifying such indemnified party thereunder, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages or liabilities in such proportion as is appropriate to reflect the relative benefits received by the indemnifying party or parties on the one hand and the relative fault of the indemnifying party or parties on the other hand in connection -13- 14 with the statements or omissions that resulted in such losses, claims, damages or liabilities, as well as any other relevant equitable considerations. The relative benefits received by the Company and the Selling Stockholder on the one hand and the Underwriters on the other hand in connection with the offering of the Shares shall be deemed to be in the same respective proportions as the net proceeds from the offering of such Shares (before deducting expenses) received by the Selling Stockholder and the total underwriting discounts and commissions received by the Underwriters, in each case as set forth in the table on the cover of the Prospectus Supplement, bear to the aggregate public offering price of the Shares. The relative fault of the Company, the Selling Stockholder and the Underwriters shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company, by the Selling Stockholder or by the Underwriters and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Underwriters' respective obligations to contribute pursuant to this Section 7 are several in proportion to the respective number of shares of Common Stock they have purchased hereunder, and not joint. (f) The Company, the Selling Stockholder and the Underwriters agree that it would not be just or equitable if contribution pursuant to this Section 7 were determined by pro rata allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation that does not take account of the equitable considerations referred to in the immediately preceding paragraph. The amount paid or payable by an indemnified party as a result of the losses, claims, damages and liabilities referred to in the immediately preceding paragraph shall be deemed to include, subject to the limitations set forth above, any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 7, no Underwriter shall be required to contribute any amount in excess of the amount by which the total price at which the Shares underwritten by it and distributed to the public were offered to the public exceeds the amount of any damages that such Underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The remedies provided for in this Section 7 are not exclusive and shall not limit any rights or remedies which may otherwise be available to any indemnified party at law or in equity. -14- 15 (g) The indemnity and contribution provisions contained in this Section 7 and the representations and warranties of the Company and the Selling Stockholder contained herein shall remain operative and in full force and effect regardless of (i) any termination of this Agreement, (ii) any investigation made by or on behalf of any Underwriter or any person controlling any Underwriter or by or on behalf of the Company, its directors or officers or any person controlling the Company or by or on behalf of the Selling Stockholder, its directors or any person controlling the Selling Stockholder and (iii) acceptance of and payment for any of the Shares. 8. TERMINATION. This Agreement shall be subject to termination, by notice given by the Manager to the Company and the Selling Stockholder, if (a) after the execution and delivery of the Purchase Agreement and prior to the Closing Date (i) trading in securities generally on the New York Stock Exchange shall have been suspended or materially limited, (ii) trading of any equity securities of the Company on the New York Stock Exchange shall have been suspended, (iii) a general moratorium on commercial banking activities in New York shall have been declared by either Federal or New York State authorities or (iv) there shall have occurred any outbreak or escalation of hostilities or any change in financial markets or any calamity or crisis, which event is material and adverse and (b) in the case of any of the events specified in clauses (a)(i) through (iv), such event, singly or together with any other such event, makes it, in the reasonable judgment of the Manager, impracticable to market the Shares on the terms and in the manner contemplated in the Prospectus. 9. DEFAULTING UNDERWRITERS. If, on the Closing Date, any one or more of the Underwriters shall fail or refuse to purchase Shares that it has or they have agreed to purchase hereunder on such date, and the aggregate number of Shares which such defaulting Underwriter or Underwriters agreed but failed or refused to purchase is not more than one-tenth of the aggregate number of Shares to be purchased on such date, the other Underwriters shall be obligated severally in the proportions that the aggregate number of Shares set forth opposite their respective names in the applicable Purchase Agreement bears to the aggregate number of Shares set forth opposite the names of all such non-defaulting Underwriters, or in such other proportions as the Manager may specify, to purchase the Shares which such defaulting Underwriter or Underwriters agreed but failed or refused to purchase on such date; PROVIDED that in no event shall the number of Shares that any Underwriter has agreed to purchase pursuant to this Agreement be increased pursuant to this Section 9 by an amount in excess of one-ninth of such number of Shares without the written consent of such Underwriter. If, on the Closing Date, any Underwriter or Underwriters shall fail or refuse to purchase Shares and the aggregate number of Shares -15- 16 with respect to which such default occurs is more than one-tenth of the aggregate number of Shares to be purchased on such date, and arrangements satisfactory to the Manager and the Company and the Selling Stockholder for the purchase of such Shares are not made within 36 hours after such default, this Agreement shall terminate without liability on the part of any non-defaulting Underwriter or the Company or the Selling Stockholder. In any such case either the Manager or the Selling Stockholder shall have the right to postpone the Closing Date but in no event for longer than seven days, in order that the required changes, if any, in the Registration Statement and in the Prospectus or in any other documents or arrangements may be effected. Any action taken under this paragraph shall not relieve any defaulting Underwriter from liability in respect of any default of such Underwriter under this Agreement. If this Agreement shall be terminated by the Underwriters, or any of them, because of any failure or refusal on the part of the Company or the Selling Stockholder to comply with the terms or to fulfill any of the conditions of this Agreement, or if for any reason (other than termination due to the preceding paragraph or Section 8 hereof) the Company or the Selling Stockholder shall be unable to perform its obligations under this Agreement, the Company will reimburse the Underwriters or such Underwriters as have so terminated this Agreement with respect to themselves, severally, for all out-of-pocket expenses (including the fees and disbursements of their counsel) reasonably incurred by such Underwriters in connection with this Agreement or the offering of the Shares, PROVIDED that the Company and the Selling Stockholder shall have no further liability to any Underwriter except as provided in Section 7 hereof and with respect to the payment of expenses referred to in paragraph (d) of Section 6 hereof. 10. MISCELLANEOUS. The Purchase Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. This Agreement shall be governed by and construed in accordance with the laws of the State of New York, regardless of the laws that might otherwise govern under applicable New York principles of conflicts of law and except as may otherwise be required by mandatory provisions of law. 11. HEADINGS. The headings of the sections of this Agreement have been inserted for convenience of reference only and shall not be deemed a part of this Agreement. -16- 17 Exhibit A Opinion of Counsel for the Company The opinion of counsel for the Company, to be delivered pursuant to Section 5(d) of the Purchase Agreement, shall be to the effect that: (i) the Company has been duly incorporated, is validly existing as a corporation in good standing under the laws of the State of Delaware, has the corporate power and authority to own its property and to conduct its business as described in the Prospectus and is duly qualified to transact business and is in good standing in each jurisdiction in which the conduct of its business or its ownership or leasing of property requires such qualification, except to the extent that the failure to be so qualified or be in good standing would not have a material adverse effect on the financial condition or results of operations of the Company and its subsidiaries, taken as a whole; (ii) each Principal Operating Subsidiary has been duly incorporated, is validly existing as a corporation in good standing under the laws of the jurisdiction of its incorporation, has the corporate power and authority to own its property and to conduct its business as described in the Prospectus and is duly qualified to transact business and is in good standing in each jurisdiction in which the conduct of its business or its ownership or leasing of property requires such qualification, except to the extent that the failure to be so qualified or be in good standing would not have a material adverse effect on the Company and its subsidiaries, taken as a whole; (iii) (a) The authorized capital stock of the Company conforms as to legal matters to the description thereof contained in the Prospectus; (b) except for 51,750,000 shares of Class A Common Stock of Nabisco, all of the outstanding capital stock of each of the Principal Operating Subsidiaries is owned directly or indirectly by the Company free and clear of any security interest, claim, lien or other encumbrance or preemptive rights; and (c) except for (i) options to acquire common stock of Nabisco granted to certain directors, officers and employees of the Company and Nabisco and (ii) the option granted to RJRN to acquire shares of Class B Common Stock of Nabisco pursuant to the Corporate Agreement between RJRN and Nabisco dated as of January 26, 1995, there are no outstanding rights -17- 18 (including, without limitation, preemptive rights), warrants or options to acquire, or instruments convertible into or exchangeable for, any shares of capital stock or other equity interest in any of the Principal Operating Subsidiaries or any contract, commitment, agreement, understanding or arrangement of any kind relating to the issuance of any such capital stock, any such convertible or exchangeable securities or any such rights, warrants or options. (iv) the Purchase Agreement has been duly authorized, executed and delivered by the Company; (v) the Shares have been duly authorized and are validly issued, fully paid and nonassessable; (vi) the execution and delivery by the Company of, and the performance by the Company of its obligations under, the Purchase Agreement will not contravene any provision of applicable law or the certificate of incorporation or by-laws of the Company or, to the best of such counsel's knowledge, any agreement or other instrument binding upon the Company or any of its subsidiaries or, to the best of such counsel's knowledge, any judgment, order or decree of any governmental body, agency or court having jurisdiction over the Company or any subsidiary, except for such contraventions that would not have a material adverse effect on the financial condition or results of operations of the Company and its subsidiaries taken as a whole, and no consent, approval, authorization or order of or qualification with any governmental body or agency is required for the performance by the Company of its obligations under the Purchase Agreement, except such as have been obtained under the Securities Act and the Exchange Act and except such as may be required by the securities or Blue Sky laws of the various states or other jurisdictions in connection with the offer and sale of the Shares; (vii) the statements in the Prospectus under the caption "Description of Holdings Capital Stock", insofar as such statements constitute summaries of the legal matters or documents referred to therein are accurate in all material respects; (viii) after due inquiry, such counsel does not know of any legal or governmental proceeding pending or threatened to which the Company or any of its subsidiaries is a party or to which any of the properties of the Company or any of its subsidiaries is subject that is required to be described in the Registration Statement or the Prospectus and is not so described or of any statutes, regulations, contracts or other documents that are required to be described in the -18- 19 Registration Statement or the Prospectus or to be filed as exhibits to the Registration Statement that are not described or filed as required; (ix) such counsel (1) is of the opinion that each document, if any, filed pursuant to the Exchange Act and incorporated by reference in the Registration Statement and Prospectus (except for financial statements and schedules and financial and statistical data included therein as to which such counsel need not express any opinion) complied when so filed as to form in all material respects with the Exchange Act and the rules and regulations of the Commission thereunder, (2) has no reason to believe that (except for financial statements and schedules and financial and statistical data as to which such counsel need not express any belief) the Registration Statement, on the date it became effective contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading or that the Prospectus (except as aforesaid), contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements therein in the light of the circumstances under which they were made, not misleading, and (3) is of the opinion that the Registration Statement and Prospectus (except for financial statements and schedules included therein as to which such counsel need not express any opinion) comply as to form in all material respects with the Securities Act and the applicable rules and regulations of the Commission thereunder. In rendering such opinion, such counsel may rely as to certain matters of fact on certificates of officers of the Company and of public officials and with respect to matters of New Jersey law, on a member of the Company's legal staff admitted to practice in the State of New Jersey and may state that such counsel expresses no opinion as to the laws of any jurisdiction other than the State of New York, the federal law of the United States and the Delaware General Corporation Law. The opinion of counsel for the Company (other than an opinion of an officer of the Company) shall be rendered to you at the request of the Company and shall so state therein. With respect to paragraph (ix) above, counsel for the Company may state that such counsel's opinion and belief are based upon such counsel's participation in the preparation of the Registration Statement and Prospectus and any amendments or supplements thereto and documents incorporated therein by reference and review and discussion of the contents thereof, but are without independent check or verification, except as specified. -19- 20 Exhibit B Opinion of Counsel for the Selling Stockholder The opinion of counsel for the Selling Stockholder, to be delivered pursuant to Section 5(e) of the Purchase Agreement, shall be to the effect that: (i) the Selling Stockholder has been duly incorporated, is validly existing as a corporation in good standing under the laws of the State of New Jersey, has the corporate power and authority to own its property and to conduct its business and is duly qualified to transact business and is in good standing in each jurisdiction in which the conduct of its business or its ownership or leasing of property requires such qualification, except to the extent that the failure to be so qualified or be in good standing would not have a material adverse effect on the financial condition or results of operations of the Selling Stockholder and its subsidiaries, taken as a whole; (ii) the Purchase Agreement has been duly authorized, executed and delivered by the Selling Stockholder; (iii) the execution and delivery by the Selling Stockholder of, and the performance by the Selling Stockholder of its obligations under, the Purchase Agreement will not contravene any provision of applicable law or the certificate of incorporation or by-laws of the Selling Stockholder or any agreement or other instrument listed or referred to in Items 4 and 10 of the exhibits to the Selling Stockholder's Annual Report on Form 10-K for the fiscal year ended December 31, 1993 or, to the best of such counsel's knowledge, any judgment, order or decree of any governmental body, agency or court having jurisdiction over the Selling Stockholder or any subsidiary, except for contraventions that would not have a material adverse effect on the financial condition or results of operations of the Selling Stockholder and its subsidiaries taken as a whole, and no consent, approval, authorization or order of or qualification with any governmental body or agency is required for the performance by the Selling Stockholder of its obligations under the Purchase Agreement, except such as have been obtained and except such as may be required by the securities or Blue Sky laws of the -20- 21 various states or other jurisdictions in connection with the offer and sale of the Shares. (iv) Immediately prior to the delivery of the certificates for the Shares at the Closing Date, the Selling Stockholder was the sole registered owner of the Shares and the Selling Stockholder had full power, right and authority to sell the Shares; assuming the Underwriters purchase the Shares in good faith and without notice of any adverse claim, upon delivery by the Selling Stockholder to the Underwriters of certificates for the Shares against payment therefor as provided in the Purchase Agreement, the Underwriters will acquire all of the rights of the Selling Stockholder in the Shares free of any adverse claim. In rendering such opinion, such counsel may rely as to certain matters of fact on certificates of officers of the Selling Stockholder and of public officials and with respect to matters of New Jersey law, on a member of the Selling Stockholder's legal staff or on such counsel as it believes to be reliable as to such matters and may state that such counsel expresses no opinion as to the laws of any jurisdiction other than the State of New York and the federal law of the United States. The opinion of counsel for the Selling Stockholder (other than an opinion of an officer of the Selling Stockholder) shall be rendered to you at the request of the Selling Stockholder and shall so state therein. -21- 22 Exhibit C Opinion of Counsel for the Underwriters The opinion of counsel for the Underwriters, to be delivered pursuant to Section 5(f) of the Purchase Agreement, shall be to the effect that: (i) the Purchase Agreement has been duly authorized, executed and delivered by the Company; (ii) the Shares have been duly authorized and are validly issued, fully paid and nonassessable; (iii) the statements in the Prospectus under the caption "Description of Holdings Capital Stock", insofar as such statements constitute summaries of the legal matters or documents referred to therein, are accurate in all material respects; and (iv) such counsel (1) has no reason to believe that (except for financial statements and schedules as to which such counsel need not express any belief) each part of the Registration Statement, when such part became effective contained, and as of the date such opinion is delivered, contains any untrue statement of a material fact or, when such part became effective, omitted or, as of the date such opinion is delivered, omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading, (2) is of the opinion that the Registration Statement and Prospectus (except for financial statements and schedules and financial and statistical data included therein as to which such counsel need not express any opinion) comply as to form in all material respects with the Securities Act and the applicable rules and regulations of the Commission thereunder and (3) has no reason to believe that (except for financial statements and schedules and financial and statistical data as to which such counsel need not express any belief) the Prospectus as of the date such opinion is delivered contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. With respect to clause (iv) above, such counsel may state that their opinion and belief are based upon their participation in the preparation of the Registration Statement and the Prospectus and any amendments or supplements thereto (other than the documents incorporated by reference) and upon review and discussion of the contents thereof (including -22- 23 documents incorporated by reference) but are without independent check or verification, except as specified. -23- EX-12 16 BORDEN, INC. 10-K405 EXHIBIT (12) 1 EXHIBIT 12 BORDEN, INC. RATIO OF EARNINGS TO FIXED CHARGES ---------------------------------- (In Millions)
For the Year Ended December 31, --------------------------------------------------------------- 1994 1993 1992 1991 1990 ------- ------- ------- ------- ------- (Loss) income from continuing operations $(539.0) $ (56.9) $ (38.7) $ 279.9 $ 291.5 Interest expense 130.7 125.1 116.6 167.0 155.5 Interest portion of rents 26.5 22.0 21.5 22.2 20.9 Taxes on income 69.6 (27.2) 14.2 151.3 168.8 Minority interest in income of consolidated subsidiaries 41.1 40.7 39.7 2.8 2.8 Undistributed income of equity affiliates (1.4) (11.3) (8.7) (17.4) (12.4) Amortization of capitalized interest 4.7 4.6 4.4 4.7 4.3 ------- ------- ------- ------- ------- $(267.8) $ 97.0 $ 149.0 $ 610.5 $ 631.4 ======= ======= ======= ======= ======= Gross interest: Interest expense $ 130.7 $ 125.1 $ 116.6 $ 167.0 $ 155.5 Capitalized interest 0.6 1.2 3.1 9.8 4.5 Interest portion of rents 26.5 22.0 21.5 22.2 20.9 ------- ------- ------- ------- ------- $ 157.8 $ 148.3 $ 141.2 $ 199.0 $ 180.9 ------- ------- ------- ------- ------- Ratio of earnings to fixed charges * ** 1.1:1 3.1:1 3.5:1 ======= ======= ======= ======= ======= * For the year ended December 31, 1994, fixed charges exceeded earnings by $425.6 million. **For the year ended December 31, 1993, fixed charges exceeded earnings by $51.3 million.
EX-22 17 BORDEN, INC. 10-K405 EXHIBIT (22) 1 EXHIBIT 22 Page 1 of 4 BORDEN, INC. SUBSIDIARIES OF REGISTRANT --------------------------
The percentage of State or other voting securities jurisdiction of owned, or other incorporation Subsidiaries of Registrant: basis of control or organization - - --------------------------- ----------------- --------------- Aldor S.p.A. 100 Italy Monder Aliment S.p.A. 100 Italy Alisa, S.A. 95 Colombia BCP Management, Inc. 100 Delaware BDS Two, Inc. 100 Delaware BDS Three, Inc. 100 Delaware BDH One, Inc. 100 Delaware Borden Realty UK Limited 100 United Kingdom Borden, S.A. 100 Panama Broex, S.A. 50 Panama Gallina Blanca, S.A. 50 Spain Borden U.K. Holdings, Ltd. 100 New Jersey Borden U.K. Limited 100 United Kingdom Borden (Bray) Ltd. 100 Ireland Borden Decorative Products Limited 100 United Kingdom Borden Wallcoverings Pension Trustees Limited 100 United Kingdom Crown Wallcoverings-Borden Pension Trustee Ltd. 100 United Kingdom Borden Redevelopment Corp 100 Missouri Borden UK Common Investment Fund Trustees Limited 100 United Kingdom Gregg Foods of Garden Grove, Inc. 100 Delaware Harris Ocean Fresh Company 100 South Carolina International Gourmet Specialties Company 100 New Jersey International Packaging Corporation S.A. 100 Luxembourg C&F Immobilien-Verwaltungs GMBH 100 Germany Cofin Folien Gmbh 100 Germany Cofin Hellas, S.A. 100 Greece Fiap France, S.A. 100 France Interbusco Ltd. 50 United Kingdom Pami Immobiliere, S.A. 100 France JFI, Inc. 100 Illinois
2 EXHIBIT 22 Page 2 of 4 BORDEN, INC. SUBSIDIARIES OF REGISTRANT --------------------------
The percentage of State or other voting securities jurisdiction of owned, or other incorporation Subsidiaries of Registrant: basis of control or organization - - --------------------------- ----------------- --------------- Meadow Gold Dairies Holding Company 100 Delaware Meadow Gold Dairies, Inc. 100 Delaware Merlino's Macaroni, Inc. 100 Washington Orleans Food Company 100 Delaware Pastas Alimenticias La Imperial, S.A. 100 Panama Alimentos Nutritivos S.A. 100 Panama Naxos S.A. 100 Panama Re-Mi Foods, Inc. 100 Delaware Starflake Foods Company, Inc. 100 New York Suministros Generales y Miel Espanola, S.A. 50 Spain Preparados Alimenticios, S.A. 50 Spain Superior Dairies, Inc. 100 Texas Wholesome Dairy, Inc. 100 Texas BDH Two, Inc. 100 Delaware BDS One, Inc. 100 Delaware BFE Corp. 100 Delaware BFI Ltd., L.P. 100 Delaware Borden Australia (Pty.) Ltd. 100 Australia Borden Australia Superannuation (Pty) Limited 100 Australia Borden Belgium, N.V. 100 Belgium Bordex (Belgium) S.A. 100 Belgium Borden Company A/S, The 100 Denmark Cocio Chokolademaelk A/S 100 Denmark Borden Ost A/S 100 Denmark Borden Company Limited, The 100 Canada Borden Company Limited The 100 Ireland Borden Foods Limited 100 Ireland Borden International Packaging Ltd. 70 Ireland Borden Exports Limited 100 Ireland Borden De Costa Rica S.A. 100 Costa Rica Borden Espana, S.A. 100 Spain Borden France, S.A. 100 France Borden Packaging France S.A. 100 France Macaple S.A. 100 France
3 EXHIBIT 22 Page 3 of 4 BORDEN, INC. SUBSIDIARIES OF REGISTRANT --------------------------
The percentage of State or other voting securities jurisdiction of owned, or other incorporation Subsidiaries of Registrant: basis of control or organization - - --------------------------- ------------------ --------------- Borden International (Europe) Ltd. 100 Delaware Borden International, Inc. 100 Delaware Borden International Philippines, Inc. 98 Philippines Borden Japan, Inc. 100 Japan Borden (Nederland), B.V. 100 Netherlands Bordex, B.V. 100 Netherlands Borden Thermoforming, B.V. 100 Netherlands Business Inflight Services B.V. 50 Netherlands Thompack, B.V. 100 Netherlands Borden (NZ) Limited 100 New Zealand Borden (Proprietary) Limited 100 South Africa Babelegi Processing (Pty.) Ltd. 100 South Africa Borden Foods (Pty.) Ltd. 100 South Africa Borden Puerto Rico, Inc. 100 New York Borden Scandanavia A/S 100 Norway Borges, GmbH 100 Germany Compania Casco S.A. Industrial y Comercial 99 Argentina Compania Colombiana de Alimentos Lacteos, S.A. 100 Colombia Compania Internacional de Ventas, S.A. 100 Panama Alba Amazonia S.A. Industrias Quimicas 100 Brazil Alba Nordeste Industrias Quimica Ltda. 100 Brazil The Wenham Corp., S.A. 100 Uruguay Alba Quimica Industria e Comercio Ltda. 100 Brazil Bexley Finance, S.A. 100 Panama Bexley Comercio e Participacao Ltda. 100 Brazil Borden Chemical (M.) Sdn. Bhd. 100 Malaysia Compania Chiricana de Leche, S.A. 96.8 Panama Compania Quimica Borden, S.A. 100 Panama Compania Quimica Borden Ecuatoriana, S.A. 83.3 Ecuador Fabrica de Productos Borden, S.A. 100 Panama F.I.A.P. Fabrica Italiana Articoli Plastici S.p.A 100 Italy Cistefra S.r.l. 100 Italy FIAP Deutschland GmbH 100 Germany FIAP Hellas Ltd. 100 Greece Maite S.p.A. 100 Italy Metur S.r.l. 100 Italy Termofin S.p.a. 100 Italy
4 EXHIBIT 22 Page 4 of 4 BORDEN, INC. SUBSIDIARIES OF REGISTRANT --------------------------
The percentage of State or other voting securities jurisdiction of owned, or other incorporation Subsidiaries of Registrant: basis of control or organization - - --------------------------- ------------------- --------------- Food and Snack Holdings (Singapore) Pte. Ltd. 50 Singapore Borden Foods (Malaysia) Sdn. Bhd. 50 Malaysia Gun Ei Borden International Resin Co. Ltd. 50 Japan Helados Borden, S.A. 100 Panama Hitachi Borden Chemical Products, Inc. 50 Japan Italcolor, S.A. 100 Uruguay Marshland Energy, Inc. 100 New Jersey Nedrob Affiliates, Inc. 100 Delaware One Nedrob, Inc. 100 Delaware Orchard Corporation of Hong Kong, The 100 Hong Kong Productos Borden, Inc. 100 New Jersey Qihe Dairy Corp. Ltd 50 Republic of China Resinite (South Africa) Pty. Ltd. 100 South Africa Snacks Distributors, Inc. 100 New Jersey T.M.I. Associates, L.P. 77.28 Delaware Wilhelm Weber, GmbH 100 Germany Grossbackerei Kamps Gmbh 100 Germany Kamps Backwaren Service Gmbh 100 Germany Grossbackerei Nuschelberg GmbH 100 Germany W. Klemme, GmbH and Co. K.G. 50 Germany Lecker Baecker Gmbh 100 Germany Nur Hier Grossbackerei GmbH 100 Germany Stefansback Backwaren GmbH 100 Germany Weber-FSV Kft 50 Hungary Zeelandia Investerings Partnership 100 New York T. K. Partner, Inc. 100 Delaware Zip Corporation 100 Delaware Zcan Investments Ltd. 100 Canada NOTE: The above subsidiaries have been included in Borden's Consolidated Financial Statements on a consolidated or equity basis as appropriate. The names of certain subsidiaries, active and inactive, included in the Consolidated Financial Statements and of certain other subsidiaries not included therein, are omitted since when considered in the aggregate as a single subsidiary they do not constitute a significant subsidiary.
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