Tender-Offer Statement — Third-Party Tender Offer — Schedule 14D-1
Filing Table of Contents
Document/Exhibit Description Pages Size
1: SC 14D1 Borden Acquisition Corp. 6 48K
2: EX-11.(A)(1) Statement re: Computation of Earnings Per Share 133 731K
3: EX-11.(A)(2) Statement re: Computation of Earnings Per Share 14 69K
4: EX-11.(A)(3) Statement re: Computation of Earnings Per Share 2 20K
5: EX-11.(A)(4) Statement re: Computation of Earnings Per Share 3 24K
6: EX-11.(A)(5) Statement re: Computation of Earnings Per Share 3 23K
7: EX-11.(A)(6) Statement re: Computation of Earnings Per Share 5± 22K
8: EX-11.(A)(7) Statement re: Computation of Earnings Per Share 5 35K
9: EX-11.(A)(8) Statement re: Computation of Earnings Per Share 2 16K
10: EX-11.(C)(1) Statement re: Computation of Earnings Per Share 124 273K
11: EX-11.(C)(2) Statement re: Computation of Earnings Per Share 18 70K
12: EX-11.(C)(3) Statement re: Computation of Earnings Per Share 2 17K
13: EX-11.(C)(4) Statement re: Computation of Earnings Per Share 34 71K
14: EX-11.(G)(1) Statement re: Computation of Earnings Per Share 10 32K
23: EX-11.(G)(10) Statement re: Computation of Earnings Per Share 4 23K
24: EX-11.(G)(11) Statement re: Computation of Earnings Per Share 13 35K
25: EX-11.(G)(12) Statement re: Computation of Earnings Per Share 13 33K
26: EX-11.(G)(13) Statement re: Computation of Earnings Per Share 18 47K
27: EX-11.(G)(14) Statement re: Computation of Earnings Per Share 12 35K
28: EX-11.(G)(15) Statement re: Computation of Earnings Per Share 18 49K
29: EX-11.(G)(16) Statement re: Computation of Earnings Per Share 12 36K
30: EX-11.(G)(17) Statement re: Computation of Earnings Per Share 12 32K
31: EX-11.(G)(18) Statement re: Computation of Earnings Per Share 11 30K
32: EX-11.(G)(19) Statement re: Computation of Earnings Per Share 12 32K
15: EX-11.(G)(2) Statement re: Computation of Earnings Per Share 10 32K
33: EX-11.(G)(20) Statement re: Computation of Earnings Per Share 18 49K
34: EX-11.(G)(21) Statement re: Computation of Earnings Per Share 9 27K
35: EX-11.(G)(22) Statement re: Computation of Earnings Per Share 9 32K
16: EX-11.(G)(3) Statement re: Computation of Earnings Per Share 10 32K
17: EX-11.(G)(4) Statement re: Computation of Earnings Per Share 10 32K
18: EX-11.(G)(5) Statement re: Computation of Earnings Per Share 10 32K
19: EX-11.(G)(6) Statement re: Computation of Earnings Per Share 10 32K
20: EX-11.(G)(7) Statement re: Computation of Earnings Per Share 10 32K
21: EX-11.(G)(8) Statement re: Computation of Earnings Per Share 11 32K
22: EX-11.(G)(9) Statement re: Computation of Earnings Per Share 9 31K
EX-11.(G)(9) — Statement re: Computation of Earnings Per Share
Exhibit Table of Contents
EXHIBIT 11(g)(9)
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
IN AND FOR NEW CASTLE COUNTY
_______________________________________x
ALAN R. KAHN, )
)
Plaintiff, ) C.A. No. 13767
)
v. )
)
KOHLBERG KRAVIS ROBERTS & CO., )
KKR ASSOCIATES, HENRY R. KRAVIS, )
GEORGE R. ROBERTS, PAUL E. RAETHER, )
JAMES H. GREENE, JR., SCOTT M. STUART, )
CLIFTON S. ROBBINS, MICHAEL T. TOKARZ )
and RJR NABISCO HOLDINGS CORP., )
)
Defendants. )
_______________________________________x
COMPLAINT
---------
Plaintiff, by his undersigned attorneys, alleges as follows:
1. Alan R. Kahn is, and has been at all relevant times, the owner of
common stock and depository shares representing 1/4 share of preferred
convertible A of RJR Nabisco Holdings Corp. ("RJR Holdings" or the "Company").
Plaintiff brings this action derivatively on behalf of the Company.
2. The Company is a Delaware corporation with its principal place of
business located at 1301 Avenue of the Americas, New York, New York. It is
engaged in the food and tobacco businesses. Through certain of its
subsidiaries, the Company is one of the largest packaged food companies in the
world. In 1993, its food subsidiaries had revenues of over $7 billion, with
operating income of $624 million.
3. Defendant Kohlberg Kravis Roberts & Co. ("KKR") is a Delaware limited
partnership with its principal place of business located at 9 West 57th Street,
New York, New York.
4. Defendant KKR Associates is a limited partnership with its principal
place of business located at 9 West 57th Street, New York, New York. KKR
Associates is owned or controlled by KKR.
5. KKR Associates is the sole general partner of Whitehall Associates,
L.P. ("Whitehall") and of a second limited partnership that are the owners of
common stock of RJR Holdings. The Company's April 11, 1994 proxy statement (the
"1994 Proxy") reported that, by virtue of its position as general partner, KKR
Associates is the beneficial owner of 566,766,236 shares of RJR Holdings common
stock owned by such limited partnerships, or 48.9% of the Company common shares
outstanding, as of March 29, 1994.
6. Defendants Henry R. Kravis ("Kravis"), George R. Roberts, Paul E.
Raether, James H. Greene, Jr., Clifton S. Robbins ("Robbins"), Scott M. Stuart
and Michael T. Tokarz (the "KKR Directors") are directors of RJR Holdings. In
addition, they are either general partners of both KKR and KKR Associates
(together "KKR"), or limited partners of KKR Associates and executives of KKR.
7. Since KKR's acquisition of an equity interest in the Company in 1989,
it has exercised effective control over the Company and the conduct of its
business. During most of such period, KKR was the beneficial owner of the
Company's common stock. KKR used its majority position to manage the business
and affairs of the
2
Company and to elect the Company's board of directors. After KKR's ownership
position dropped marginally below 50%, the same board of directors remained in
office and KKR continued to exercise control over the business and affairs of
the Company.
8. From 1989 through the year ended December 31, 1993, KKR, pursuant to
an oral understanding, rendered management, consulting and financial services to
the Company for an annual fee of $10 million. In 1994, pursuant to a settlement
agreement approved by this Court in another action (the "Prior Action"), KKR and
the Company entered into a written contract (the "Services Contract"). The
Services Contract provided for the same services as were performed by KKR for
the Company under the oral understanding, but reduced the annual fee from $10
million to $8 million in 1994, $7 million in 1995, $6 million in 1996 and $5
million in 1994 and for each calendar year thereafter. The Services Contract
also provided that KKR may request additional fees in the event that it performs
extraordinary services for the Company.
9. Pursuant to the prior oral understanding and the Services Contract,
KKR was required, for the annual fee, to perform investment banking services for
the Company in connection with the acquisition of businesses in food related
companies, including finding prospective acquisitions. In the event of a major
acquisition, KKR was entitled to receive a fee in excess of the annual fee. In
a deposition taken in connection with the settlement of the Prior Action, a
Company officer testified that KKR had, in fact, rendered services in connection
with mergers and acquisitions under the arrangement for the provision of
services by KKR which preceded the Services Contract. Defendant Robbins, in
another deposition taken in the Prior Action, likewise testified that
3
KKR provided investment banking services to the Company in connection with
acquisitions. Moreover, in a brief submitted in support of the settlement of
the Prior Action, the fees to be paid to KKR under the Services Contract were
justified by reason of KKR's agreement to provide merger and acquisition
services to the Company.
10. With the assistance of KKR and in connection with its duties for which
it received an annual fee of $10 million, the Company made many acquisitions in
the food industry. Thus in 1992, the Company acquired the assets of New York
Style Bagel Chip Company, Inc., the country's leading producer and marketer of
bagel chips and pita chips, Plush Pippin Corporation, a leading regional
supplier of frozen pies to in-store supermarket bakeries, Stella D'oro Biscuit
Co., Inc., which manufactures breadsticks, breakfast biscuits, specialty cakes,
pastries and snacks, the Now & Later confection brand, a fruit chewy taffy
product, Industrias Alimenticias Maguary S.A., the largest producer of packaged
fruit-based beverages in Brazil, and Lance S.A. de C.V., a leading Mexican
biscuit and pasta manufacturer. During 1993, the Company acquired a 50%
interest in both Royal Brands, S.A. in Spain and Royal Brands Portugal ("Royal
Brands") approximately 95% of Cia. Arturo Field y la Estrella Ltda., S.A. in
Peru, and increased its equity interest in a partially owned business in
Venezuela to 100%. In 1994, the Company acquired 71% of Establecimiento Modelo
Terrabusi S.A., Argentina's second largest cookie and cracker business and the
remaining 50% of Royal Brands.
11. On September 11, 1994, KKR, acting on behalf of Whitehall, entered
into an agreement with Borden, Inc. ("Borden") for the acquisition, by a
4
corporation to be formed by Whitehall, of all of Borden's common stock in
exchange for shares of RJR Holdings (the "KKR-Borden Agreement").
12. The acquisition of Borden is within RJR Holdings' line of business.
Like RJR Holdings, Borden is engaged in the prepared foods business. Borden
manufactures and distributes well known brands of dairy products, snacks and
pastas, as well as other products, with a significant portion of its sales and
income from overseas operations. Moreover, RJR Holdings is financially able to
acquire Borden, since under the KKR-Borden Agreement, Borden agreed to be
acquired for RJR Holdings common stock.
13. KKR, by reason of its exercise of control and domination of the
Company's business affairs and the membership of its partners and executives on
the Company's Board, and the KKR Directors, by virtue of their acceptance of
their respective offices, are fiduciaries of the Company and its public
shareholders and owe to them the duty faithfully, loyally, diligently,
prudently, honestly, and carefully to conduct the business of the Company in the
best interest of all shareholders and not to favor their own interest, or the
interests of KKR, over the interests of the Company and its public shareholders.
14. The right to purchase Borden was a corporate opportunity belonging to
the Company. KKR and the KKR Directors were constrained by their legal duty to
the Company and its shareholders to allow the Company to acquire Borden. The
failure of KKR and the KKR Directors to offer the above described corporate
opportunity to the Company constitutes a violation of fiduciary duty.
5
15. By reason of the Services Contract and KKR's fiduciary duty to the
Company resulting therefrom and from KKR's position as the Company's management,
financial and investment adviser since 1989, KKR was required to acquire Borden,
for the Company. KKR's failure to offer Borden to RJR Holdings violated such
contractual and fiduciary duties.
16. Plaintiff has no adequate remedy at law.
DEMAND IS FUTILE
----------------
17. Demand upon the board of directors of RJR Holdings to commence this
action would be futile because:
(a) The KKR Directors constitute seven of the Company's fifteen
directors;
(b) Four of the Company's remaining directors also serve as its
senior executives (the "Officer-Directors"). Directors Charles M. Harper
("Harper") is the Company's chairman and chief executive officer, James W.
Johnston ("Johnston") heads the Company's tobacco business, H. John Greeniaus
("Greeniaus") heads the Company's food business, and Lawrence R. Ricciardi
("Ricciardi") is the Company's president and chief counsel. Such directors
receive enormous amounts of salary and other compensation from the Company. In
1993, Harper received from the Company a salary of $704,615, a bonus of
$1,750,000, other compensation of various kinds totalling nearly $900,000 and
8,750,000 stock options. In that year Ricciardi received a salary of
$557,333, a bonus of $462,000, restricted stock awards ("awards") valued at
$815,625 and other compensation of about $120,000. Greeniaus recieved a salary
of
6
$603,445, a bonus of $557,000, awards valued at $600,000 and other compensation
of over $110,000, and Johnston received a salary of $607,292, a bonus of
$225,000, awards valued at $826,400 and other compensation of nearly $200,000.
Each of Ricciardi, Johnston and Greeniaus also received 500,000 stock options.
Each of such directors owe their positions with the Company to KKR and the KKR
Directors. Harper was selected by Kravis to serve as the Company's chairman and
chief executive officer, and was elected to those positions at Kravis'
insistence. The other Officer-Directors owe their position to KKR and the KKR
Directors directly, or owe their positions directly to Harper, and indirectly to
KKR and the KKR Directors. Moreover, according to the 1994 Proxy, a majority of
the Compensation Committee of the Board are KKR Directors. That committee has
responsibility for all compensation and benefits matters of the Company's
executive officers. Accordingly, each of the Officer-Directors is dependent on
maintaining the goodwill of KKR and the KKR Directors in order to retain their
positions and the compensation and benefits that flow therefrom. As a result,
the Officer-Directors have a substantial direct interest in adhering to the
dictates of KKR and the KKR Directors, and none of the Officer-Directors could
be expected to consider a request to prosecute an action against KKR and the KKR
Directors in an impartial manner;
(c) The remaining four Company directors (the "Other Directors") are
John T. Chain, Jr. ("Chain"), John L. Clendenin ("Clendenin"), John G. Medlin,
Jr. ("Medlin") and Rozanne L. Ridgway ("Ridgway"). By reason of their
membership on other boards of directors and other duties, the Other Directors
are unable to devote the
7
time or attention required to perform their duties as Company directors
properly. Ridgway is co-chair of the Atlantic Council of the United States,
chairperson of the Baltic-American Enterprise Fund and according to the 1994
Proxy, a director of six large publicly held corporations in addition to the
Company. Clendenin is the chairrman and chief executive officer of Bell South
Corporation, the largest of the regional Bell companies and, in market value,
the fifth largest telecommunication company in the world. According to the 1994
Proxy, he also serves on eight other boards of directors, including that of the
New York Stock Exchange. According to the 1994 Proxy, Medlin is the chairman of
Wachovia Corporation and serves on the boards of four other corporations.
According to the 1994 Proxy, Chain is an executive vice president of Burlington
Northern Railroad, and serves as a director of Kemper Corporation and Northrop
Corporation.
(d) By reason of the aforesaid facts, RJR Holdings' board of
directors cannot, in good faith, exercise any independent business judgment as
to whether to approve a resolution authorizing the filing of a suit against the
other defendants on the basis of the claims asserted herein;
(e) Prosecution of this action by RJR Holdings would place control of
this action in the hands of persons inimical to its rights, who could not be
expected to proceed vigorously against themselves; and
(f) The wrongs complained of herein constitute a waste of the
Company's assets which cannot be the product of the exercise of sound business
judgment or ratified by director approval.
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WHEREFORE, plaintiff prays for judgment as follows:
A. Declaring that KKR and the KKR Directors have violated their fiduciary
duties to the Company and its public shareholders by reason of their conduct
described above;
B. Declaring KKR be in breach of the Services Contract and declaring the
Services Contract to be null and void;
C. Requiring the defendants to account to RJR Holdings for the profits to
KKR and the damages suffered by RJR Holdings as a result of the transactions
complained of herein;
D. Allowing plaintiff the cost and expense of this action, including
reasonable attorneys' fees; and
E. Granting such other and further relief as may be just and proper.
Dated: Wilmington, Delaware
September 26, 1994
BIGGS AND BATTAGLIA
By: /s/ Robert D. Goldberg
_________________________
Robert D. Goldberg
1800 Mellon Bank Center
P.O. Box 1489
Wilmington, DE 19899
(302) 655-9677
Attorneys for Plaintiff
Of Counsel:
SILVERMAN, HARNES & HARNES
International Plaza
750 Lexington Avenue
New York, NY 10022
(212) 754-2333
9
Dates Referenced Herein and Documents Incorporated by Reference
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