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LOGO
PHILIP MORRIS COMPANIES INC.
FORM 10-K
ANNUAL REPORT TO THE SECURITIES AND EXCHANGE COMMISSION
FOR THE YEAR ENDED DECEMBER 31, 1994
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[X]
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 [FEE REQUIRED] FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994
OR
[_]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [NO FEE REQUIRED] FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 1-8940
PHILIP MORRIS COMPANIES INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
VIRGINIA 13-3260245
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
120 PARK AVENUE, NEW YORK, N.Y. 10017
(ADDRESS OF PRINCIPAL EXECUTIVE (ZIP CODE)
OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 212-880-5000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
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Common Stock, $1 par value New York Stock Exchange
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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
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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 definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]
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At February 1, 1995, the aggregate market value of the shares of Common Stock
held by non-affiliates of the registrant was approximately $51.2 billion. At
such date, there were 851,995,058 shares of the registrant's Common Stock
outstanding.
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's annual report to stockholders for the year ended
December 31, 1994 are incorporated in Item 1 of Part I, Part II and Part IV
hereof and made a part hereof. The registrant's definitive proxy statement in
connection with its annual meeting of stockholders to be held on April 27,
1995, to be filed with the Securities and Exchange Commission, is incorporated
in Part III hereof and made a part hereof.
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
(A) GENERAL DEVELOPMENT OF BUSINESS
GENERAL
Philip Morris Companies Inc. is a holding company whose principal wholly-
owned subsidiaries, Philip Morris Incorporated, Philip Morris International
Inc., Kraft Foods, Inc. and Miller Brewing Company, are engaged primarily in
the manufacture and sale of various consumer products. A wholly-owned
subsidiary of the Company, Philip Morris Capital Corporation, engages in
various financing and investment activities. As used herein, unless the context
indicates otherwise, the term "Company" means Philip Morris Companies Inc. and
its subsidiaries. The Company is the largest consumer packaged goods company in
the world.*
Philip Morris Incorporated ("Philip Morris U.S.A.") and its subsidiaries and
affiliates are engaged primarily in the manufacture and sale of cigarettes.
Philip Morris U.S.A. is the largest cigarette company in the United States.
Philip Morris International Inc. ("Philip Morris International") is a holding
company whose subsidiaries and affiliates and their licensees are engaged
primarily in the manufacture and sale of tobacco products (mainly cigarettes);
certain Latin American subsidiaries and affiliates manufacture and sell a wide
variety of food products. A subsidiary of Philip Morris International is the
leading United States exporter of cigarettes. Marlboro, the principal cigarette
brand of these companies, has been the world's largest selling cigarette brand
since 1972.
The Company's food subsidiary, Kraft Foods, Inc. ("Kraft"), is the largest
processor and marketer of retail packaged foods in the United States and also
sells food ingredients. A wide variety of grocery, coffee, cheese,
confectionery and processed meat products are manufactured and marketed by
Kraft in Europe, Canada and the Asia/Pacific region.
Miller Brewing Company ("Miller") is the second largest brewing company in
the United States.
SOURCE OF FUNDS -- DIVIDENDS
Because the Company is a holding company, its principal source of funds is
dividends from its subsidiaries. The Company's principal wholly-owned
subsidiaries currently are not limited by long-term debt or other agreements in
their ability to pay cash dividends or make other distributions with respect to
their common stock.
(B) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
In 1994, the Company's significant industry segments were tobacco products
(principally cigarettes), food products, beer, and financial services and real
estate. Operating revenues, operating profit (together with a reconciliation to
operating income) and identifiable assets attributable to each such segment for
each of the last three years are set forth in note 11 to the Company's
consolidated financial statements and are incorporated herein by reference to
the Company's annual report to stockholders for the year ended December 31,
1994.
In 1994 and 1993, operating profit from tobacco products was approximately
62% of the Company's total operating profit, with Philip Morris U.S.A. and
Philip Morris International contributing 33% and 29%, respectively, in each
year. Food products, beer, and financial services and real estate accounted for
approximately 32%, 4% and 2%, respectively, of the Company's total operating
profit in 1994 (33%, 2% and 3%, respectively, in 1993).
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* References to the Company's competitive ranking in its various businesses are
based on sales data or, in the case of cigarettes and beer, shipments, unless
otherwise indicated.
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During 1993, the Company provided $741 million for the costs of restructuring
its worldwide operations. In addition, the Company adopted, effective January
1, 1993, Statement of Financial Accounting Standards ("SFAS") No. 112, which
resulted in additional operating expense of $29 million in 1993. Excluding the
impacts of the restructuring and SFAS No. 112, the percentages of total
operating profit from tobacco, food, beer, and financial services and real
estate operations were approximately 59%, 34%, 4% and 3%, respectively, in
1993.
(C) NARRATIVE DESCRIPTION OF BUSINESS
TOBACCO PRODUCTS
Philip Morris U.S.A. is responsible for the manufacture, marketing and sale
of cigarettes in the United States (including military sales); subsidiaries and
affiliates of Philip Morris International and their licensees are responsible
for the manufacture, marketing and sale of tobacco products outside the United
States; and a subsidiary of Philip Morris International is responsible for
tobacco product exports from the United States.
The tobacco industry continues to be subject to health concerns, litigation,
legislation, governmental regulation, including tax increases, and privately
imposed smoking restrictions, any or all of which could have an adverse impact
on the Company.
Domestic Tobacco Products
Philip Morris U.S.A. is the largest tobacco company in the United States,
with total cigarette shipments of 219.4 billion units in 1994 (an increase of
12.7% from 1993), accounting for 44.8% of the cigarette industry's total
estimated shipments (an increase of 2.6 share points from 1993). The industry's
estimated cigarette shipments in the United States increased by 6.2% in 1994 as
compared to 1993, following a decrease of 9% in 1993 from 1992 (which decrease
was partially the result of increased distributor buying in 1992 in
anticipation of higher cigarette prices and the January 1, 1993 increase in the
federal excise tax). The following table sets forth the industry's estimated
cigarette shipments in the United States, Philip Morris U.S.A.'s shipments and
its share of industry shipments (excluding in all cases export and overseas
military shipments):
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PHILIP MORRIS
YEARS ENDED PHILIP MORRIS U.S.A. SHARE
DECEMBER 31 INDUSTRY* U.S.A. OF INDUSTRY*
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(IN BILLIONS OF UNITS) (%)
<S> <C> <C> <C>
1994................................. 489.6 219.4 44.8
1993................................. 461.2 194.7 42.2
1992................................. 506.9 214.3 42.3
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Philip Morris U.S.A.'s major premium brands are Marlboro, Benson & Hedges,
Merit, Virginia Slims and Parliament; its principal discount brands are Basic
and Cambridge. All of its brands are marketed to satisfy differing preferences
of adult smokers. Philip Morris U.S.A. has been the leading cigarette company
in the United States market since 1983.* Marlboro is the largest selling brand
in the United States with shipments of 137.7 billion units in 1994 (up 27% from
1993, primarily the result of the strategy implemented by Philip Morris U.S.A.
in 1993, as discussed below), with 28.1% of the United States market (23.5% in
1993).
During the first half of 1993, domestic cigarette industry volume continued
to shift from the full price (premium) segment to the discount segment which
consists of "generic" and lower-priced cigarettes that have a lower profit
margin than premium brands. In April 1993, Philip Morris U.S.A. announced its
decision to institute, in the second quarter of 1993, an extensive promotional
program to reduce the average retail price of Marlboro cigarettes, a major
shift in pricing strategy designed to restore lost market share and improve
long-term profitability. In August 1993, Philip Morris U.S.A. lowered the price
of its premium brands and raised the price of its discount brands in further
response to the highly price sensitive market environment. These changes
produced lower profit margins but higher volume. As a result of these strategic
initiatives, retail sales data compiled by Nielsen Marketing Research indicate
that Marlboro's market share rose from 22% in March 1993 to 30% in December
1994. In addition, such retail sales data indicate that the shift to
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* Source: The Maxwell Consumer Report (issued by Wheat, First Securities,
Inc.).
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the discount segment reversed in the second half of 1993. The shift back to the
premium segment continued in 1994 (69.9% retail share of the industry in
December 1994 compared with 67.6% in December 1993 and 62% in March 1993),
although the rate of the shift to the premium segment began to slow in the
latter part of 1994. These developments, and their impact on the Company's
financial results, are more fully discussed in Management's Discussion and
Analysis of Financial Condition and Results of Operations (the "MD&A"),
incorporated herein by reference to the Company's annual report to stockholders
for the year ended December 31, 1994.
The discount segment of the industry had been growing markedly prior to the
third quarter of 1993 and constituted 36.8% of United States industry shipments
in 1993, up from 30.2% in 1992. However, after reaching a high of 40.7% of the
market in the second quarter of 1993, the discount segment decreased to 32.5%
of industry shipments in December 1994, primarily as a result of the industry-
wide lower prices on premium brands and higher prices on discount brands.
Philip Morris U.S.A. accounted for 26.5% of the smaller discount segment in
1994, down from 29.4% in 1993 (reflecting a decrease in shipments of 15.2% in
1994), primarily the result of the changed product mix.
Philip Morris U.S.A. cannot predict whether, and there can be no assurance
that, the increases in Philip Morris U.S.A.'s shipments, shipment share or
retail market share discussed above will continue or the shift in domestic
cigarette industry volume from discount brands to premium brands will continue.
International Tobacco Products
Philip Morris International's total cigarette shipments in 1994 were
approximately 536 billion units (an increase of 16.6% from 1993), approximately
10.8% of the world cigarette market (excluding the United States). Philip
Morris International estimates that world cigarette industry unit sales
(excluding the United States) were approximately 5 trillion units in 1994,
which represents a compounded annual increase of approximately 1% over the last
five years. Philip Morris International also estimates that the American blend
segment of the world market has increased at a higher compounded annual rate
over the last five years, approximately 4%. The American blend segment
accounted for 98% of shipments by Philip Morris International and its
affiliates in 1994. Unit sales of Philip Morris International's principal
brand, Marlboro, increased 8.3% in 1994 over 1993 to 260 billion units, 5.2% of
the world cigarette market (excluding the United States).
Subsidiaries and affiliates of Philip Morris International and their
licensees have cigarette market shares of at least 15% -- and in a number of
instances substantially more than 15% -- in more than 30 markets, including
Argentina, Australia, Belgium, the Canary Islands, the Czech Republic, Finland,
France, Germany, Hong Kong, Italy, Kuwait, the Netherlands, the Philippines,
Singapore, Spain and Switzerland. Philip Morris International's leading
international brands are Marlboro, L&M, Bond Street, Philip Morris, Lark,
Chesterfield, Merit, Parliament and Virginia Slims.
A subsidiary of Philip Morris International is the leading United States
exporter of cigarettes. It exported 133.6 billion units in 1994, an increase of
16.7% from 1993. These exports constituted 25% of Philip Morris International's
total shipments.
Cigarette prices in many international markets are government-controlled, and
this, as well as excise and other tax increases, higher costs, government price
restraints and local regulations regarding import quotas and other matters,
have restricted, and may continue to restrict, the sales and operating income
of Philip Morris International in a number of markets.
In 1994, Philip Morris International acquired a tobacco company in the
Ukraine, agreed to build a new cigarette factory in Kazakhstan, started
construction of a leaf processing facility in Malaysia and entered into a
contract for the manufacture of a new export brand in China.
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Taxes, Legislation, Regulation and Other Matters Regarding Tobacco and Smoking
Currently, the federal excise tax on cigarettes is $12 per thousand ($.24 per
pack). During 1994, increases in the excise tax ranging from $.45 to $1.75 per
pack were proposed. Legislation in the United States Senate and House of
Representatives contained identical provisions which would have resulted in an
increase of $.45 per pack over a five-year period. Congress adjourned in 1994
without taking action on the proposals. It is impossible to predict whether
Congress in 1995 will consider excise tax increases. In general, excise taxes,
sales taxes and other taxes levied by various states, counties and
municipalities affecting cigarettes have been increasing gradually. These taxes
vary considerably and, when combined with the current federal excise tax, may
be as high as $1.08 per pack.
In the opinion of Philip Morris U.S.A., past increases in the federal excise
taxes and the other taxes discussed above have had an adverse impact on sales
of cigarettes. Future increases could result in volume declines for the
domestic cigarette industry, including Philip Morris U.S.A., and might cause
shifts from the premium segment to the discount segment.
Reports with respect to the alleged harmful physical effects of cigarette
smoking have been publicized for many years and the sale, promotion and use of
cigarettes continues to be subject to increasing governmental regulation. As a
result, the tobacco industry is subject to increased governmental restrictions,
both in the United States and abroad, decreasing social acceptance of smoking,
increased pressure from anti-smoking groups and substantial increases in
federal and state taxes. In the opinion of Philip Morris U.S.A., these
developments have had, and continue to have, an adverse effect upon tobacco
industry sales. Since 1964, the Surgeon General of the United States and the
Secretary of Health and Human Services have released a number of reports which
purport to link cigarette smoking with a broad range of health hazards,
including various types of cancer, coronary heart disease and chronic lung
disease, and recommend various governmental measures to reduce the incidence of
smoking. The 1990 and 1992 reports focus upon the purported addictive nature of
cigarettes, the purported effects of smoking cessation, the decrease in smoking
in the United States and the economic and regulatory aspects of smoking in the
Western Hemisphere. The most recent report, released in February 1994, focuses
upon cigarette smoking by adolescents, particularly the purported addictive
nature of cigarette smoking in adolescence.
The Comprehensive Smoking Education Act (the "Smoking Education Act"),
enacted in 1984, requires cigarette manufacturers and importers to include the
following warning statements in rotating sequence on cigarette packages and in
advertisements: SURGEON GENERAL'S WARNING: Smoking Causes Lung Cancer, Heart
Disease, Emphysema, And May Complicate Pregnancy; SURGEON GENERAL'S WARNING:
Quitting Smoking Now Greatly Reduces Serious Risks to Your Health; SURGEON
GENERAL'S WARNING: Smoking By Pregnant Women May Result in Fetal Injury,
Premature Birth, And Low Birth Weight; and SURGEON GENERAL'S WARNING: Cigarette
Smoke Contains Carbon Monoxide. The Smoking Education Act also covers the size
and format of warnings on cigarette packages and in cigarette advertising, and
prescribes a modified version of the warnings for outdoor billboard
advertisements. In addition to the warning statements, cigarette advertising in
the United States must disclose the average "tar" and nicotine deliveries of
the advertised brand or variety. Cigarette manufacturers and importers are also
required to provide annually to the Secretary of Health and Human Services a
list of ingredients added to tobacco in the manufacture of cigarettes, and the
Secretary is directed to report to Congress concerning the health effects, if
any, of such ingredients. Most of the cigarettes sold by the Company's
subsidiaries, affiliates and their licensees are sold in countries where
warning statement requirements for cigarette packages have been adopted. In
countries where such statements are not legally required, the Company places
the U.S. Surgeon General's warnings on all of its cigarette packages.
Studies with respect to the alleged health risk to nonsmokers of diluted and
modified cigarette smoke, often referred to as environmental tobacco smoke
("ETS"), have received significant publicity. In 1986, the Surgeon General of
the United States and the National Academy of Sciences reported that nonsmokers
were at increased risk of lung cancer and respiratory illness due to ETS. In
1991, the U.S. Occupational Safety and Health Administration ("OSHA") issued a
Request for Information concerning the quality of indoor
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air, including information regarding ETS. In April 1994, OSHA issued a proposed
rule which could, inter alia, ultimately ban smoking in the workplace. Hearings
on this proposed rule have begun and are continuing. In January 1993, the
United States Environmental Protection Agency (the "EPA") issued a report
concluding, among other things, that ETS is a human lung carcinogen and that
ETS increases certain health risks for young children. In June 1993, Philip
Morris U.S.A. joined five other representatives of the tobacco manufacturing
and related industries in a lawsuit against the EPA seeking a declaration that
the EPA does not have the authority to regulate ETS, and that, in view of the
available scientific evidence and the EPA's failure to follow its own
guidelines in making the determination, the EPA's final risk assessment be
declared arbitrary and capricious. The EPA report, as well as adverse publicity
on ETS, have resulted in the enactment of legislation and privately imposed
limitations that restrict or ban cigarette smoking in certain public places and
some places of employment.
Another federal statute established the Interagency Committee on Cigarette
and Little Cigar Fire Safety to direct the work of a Technical Study Group
created by the same statute and to make policy recommendations to Congress. The
Technical Study Group, which consisted of representatives of designated
government agencies, the tobacco and furniture industries and various other
organizations, studied the feasibility and consequences of developing
cigarettes and little cigars that would have a minimum propensity to ignite
upholstered furniture or mattresses. Based on this research, the Interagency
Committee submitted its final technical report to Congress in December 1987,
which contained the conclusion of the Technical Study Group that it is
technically feasible and may be commercially feasible to develop cigarettes
that will have a significantly reduced propensity to ignite upholstered
furniture and mattresses. Legislation in August 1990 provided for further
research under the direction of the Consumer Product Safety Commission (the
"CPSC"), with advice from a new scientific committee, the Technical Advisory
Group. The CPSC reported to Congress in August 1993 that it is practicable to
develop a performance standard for cigarette ignition propensity, but that "it
is unclear that such a standard will effectively address the number of
cigarette-related fires."
Television and radio advertising of cigarettes is prohibited in the United
States and prohibited or restricted in many other countries. Enactments by
regulatory agencies and other governmental authorities have restricted or
prohibited smoking areas aboard certain common carriers, in certain public
places and in some places of employment. Smoking is currently banned on all
commercial airline flights, regardless of duration, within and between the 48
contiguous states, the District of Columbia, the U.S. Virgin Islands and Puerto
Rico and within Alaska and Hawaii, and on all commercial flights to or from
Alaska and Hawaii scheduled for less than six hours. In addition, certain
United States airlines have banned smoking on international flights and various
foreign airlines have banned smoking on certain flights.
In February 1994, the United States Food and Drug Administration (the "FDA"),
in a letter to an anti-smoking group, stated that it may be possible for the
FDA to regulate cigarettes under the drug provisions of the Food, Drug, and
Cosmetic Act. The FDA stated that such jurisdiction would arise if it found
that manufacturers intend that their products contain nicotine to satisfy an
alleged addiction on the part of some of their customers. The FDA stated that
any regulation would need to be based upon a record establishing such intent.
The letter indicated that regulation of cigarettes under the Food, Drug, and
Cosmetic Act could ultimately result in the removal from the market of products
containing nicotine at levels that cause or satisfy addiction. While Philip
Morris U.S.A. does not believe that cigarettes are addictive, denies the
allegation that its products are intended to satisfy an alleged addiction and
does not believe that the FDA has the legal authority to regulate its cigarette
brands, it cannot predict the ultimate outcome of the FDA's efforts.
Legislation and other governmental action is proposed periodically at the
federal, state and local levels. During 1994, members of Congress and the
Administration proposed measures which would ban or severely restrict smoking
in workplaces and in buildings with public access, require additional health
warning and product content information on packaging and in advertising,
eliminate the tax deductibility of a portion of the cost of tobacco advertising
and authorize the FDA to regulate tobacco as a drug (see above). Moreover,
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in recent years various Congressional committees or subcommittees have approved
legislation which would subject cigarettes to various regulations under the
Department of Health and Human Services or regulation under the Consumer
Products Safety Act, would establish anti-smoking educational campaigns or
anti-smoking programs or provide additional funding for governmental
antismoking activities, would further restrict the advertising of cigarettes,
including requiring additional warnings on packages and in advertising, would
provide that the Federal Cigarette and Labeling Act and the Smoking Education
Act could not be used as a defense against liability under state statutory or
common law, would allow state and local governments to restrict the sale and
distribution of cigarettes and further restrict certain advertising of
cigarettes and would increase, in various ways, the cost of manufacturing
cigarettes. Numerous other legislative and regulatory measures have also been
proposed at the federal, state and local levels.
It is not possible to determine what, if any, governmental legislation or
regulations will be adopted relating to cigarettes or smoking. However, if any
or all of the foregoing were to be implemented, Philip Morris U.S.A.'s volume,
operating revenues and operating income could be adversely impacted, in amounts
which cannot be determined.
A number of foreign countries have also taken steps to restrict or prohibit
cigarette advertising and promotion, to increase taxes on cigarettes and to
discourage cigarette smoking. In some cases, such restrictions are more onerous
than those in the United States. For example, advertising and promotion of
cigarettes has been banned or severely restricted for a number of years in
Australia, Canada, Finland, France, Italy, Singapore and a number of other
countries.
Litigation Involving the Tobacco Industry
There is litigation pending against the leading United States cigarette
manufacturers and others seeking compensatory and, in some cases, punitive
damages for cancer and other health effects alleged to have resulted from
cigarette smoking or exposure to cigarette smoking. As of December 31, 1994,
there were 66 and as of February 15, 1995, 64 such actions pending against the
leading United States cigarette manufacturers and others; 47 such cases were
pending as of December 31, 1993. Philip Morris U.S.A. was a defendant in 40
actions pending as of December 31, 1994 and 39 such actions pending as of
February 15, 1995; there were 22 such cases as of December 31, 1993.
Note 15 to the Company's consolidated financial statements, which are
incorporated herein by reference to the Company's annual report to stockholders
for the year ended December 31, 1994, describes smoking and health cases
pending against Philip Morris U.S.A. and, in certain instances, the Company, as
of January 23, 1995, the date of the Report of Independent Accountants with
respect to such financial statements. Item 3 herein describes certain
developments in the smoking and health litigation since January 23, 1995.
Further reference is made to such note 15 and Item 3.
Each of the Company and Philip Morris U.S.A. believes, and each has been so
advised by counsel, that it has a number of valid defenses to all smoking and
health cases pending against it, including, but not limited to, those defenses
based on preemption under the United States Supreme Court decision discussed in
note 15. In addition, in each such case naming the Company as a defendant, the
Company has sought and obtained or is seeking dismissal on the grounds that it
is not a proper party to such action. All such cases are, and will continue to
be, vigorously defended. It is not possible to predict the outcome of this
litigation. Litigation is subject to many uncertainties, and it is possible
that some of these actions could be decided unfavorably. An unfavorable outcome
of a pending action could encourage the commencement of additional similar
litigation.
Philip Morris U.S.A. has been advised that there is a grand jury
investigation being conducted by the U.S. Attorney for the Eastern District of
New York which is looking into possible violations of criminal law in
connection with activities relating to the Council for Tobacco Research - USA,
Inc., of which Philip Morris U.S.A. is a sponsor. The outcome of this
investigation cannot be predicted.
Philip Morris U.S.A. has received a Civil Investigative Demand from the
Antitrust Division of the United States Department of Justice in an
investigation of possible joint activity among United States
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manufacturers in the production and sale of cigarettes, including possible
joint activity to limit new product development. The outcome of this
investigation cannot be predicted.
Distribution, Competition and Raw Materials
Philip Morris U.S.A. sells its tobacco products principally to wholesalers
(including distributors), large retail organizations, including chain stores,
vending machine operators and the armed services. Subsidiaries and affiliates
of Philip Morris International and their licensees market cigarettes and other
tobacco products worldwide, directly or through export sales organizations and
other entities with which they have contractual arrangements.
The market for tobacco products is highly competitive, characterized by brand
recognition and loyalty, with product quality, price, marketing and packaging
constituting the significant methods of competition. Promotional activities
include, in certain instances, allowances, the use of incentive items, price
reductions and other discounts. This highly competitive market, and Philip
Morris U.S.A.'s 1993 initiatives therein, are more fully described in "Tobacco
Products -- Domestic Tobacco Products" above and in the MD&A. The tobacco
products of the Company's subsidiaries, affiliates and their licensees are
extensively advertised and promoted through various media, although television
and radio advertising of cigarettes is prohibited in the United States and is
prohibited or restricted in many other countries.
Philip Morris U.S.A. and Philip Morris International's subsidiaries and
affiliates and their licensees purchase domestic burley and flue cured leaf
tobaccos of various grades and types each year, primarily at domestic auction.
In addition, oriental tobacco and certain other tobaccos are purchased outside
the United States. The tobacco is then graded, cleaned, stemmed and redried
prior to its storage for aging up to three years. Large quantities of leaf
tobacco inventory are maintained to support cigarette manufacturing
requirements. Tobacco is an agricultural commodity subject to United States
government controls, including the tobacco price support (subject to
Congressional review) and production adjustment programs administered by the
United States Department of Agriculture (the "USDA"), either of which can
substantially affect market prices. Philip Morris U.S.A. and Philip Morris
International believe there is an adequate supply of tobacco in the world
market to satisfy their current production requirements.
As of January 1, 1994, legislation became effective requiring, subject to
financial penalties, the use of at least 75% American-grown tobacco, which is
more expensive than imported tobacco, in cigarettes manufactured in the United
States. A provision of the Uruguay Round Amendments Act, enacted in December
1994, replaced this requirement with a tariff-rate quota system that would
allow a specified quantity of tobacco to be imported at current tariff levels,
with additional quantities subject to a significantly higher duty. The United
States is currently negotiating quota levels with foreign countries who are
traditional exporters of tobacco to the United States. Due to the high content
of American-grown tobacco used in Philip Morris U.S.A.'s products and those
exported by subsidiaries of Philip Morris International, the domestic purchase
requirement has not had, and the new tariff-rate quota system is not expected
to have, a material adverse effect on the results of operations of Philip
Morris U.S.A. or Philip Morris International.
FOOD PRODUCTS
Kraft's reporting and management structure currently comprises thirteen
business divisions (including Kraft Canada) and Kraft Foods International.
In 1994, Kraft sold The All American Gourmet Company, which produced frozen
meals and side dishes, and entered into an agreement to sell its Kraft
Foodservice distribution business. The sale of Kraft Foodservice, which closed
early in 1995, will lower Kraft's operating revenues by approximately $3.5
billion but is not expected to have a material effect on Kraft's results of
operations.
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North America
Kraft's principal products include ready-to-eat cereals, coffee and other
beverages, dinners, desserts, bakery products, cheese and cheese products,
vegetable oil-based products, such as salad dressings, margarine and related
products, barbecue sauce, confections, cultured dairy products, frozen pizza,
meat and poultry products and packaged pasta dinners. Kraft is the largest
packaged food company in the United States, marketing such products as
processed meat and poultry products, coffee, cheese and cheese products, and
salad dressings. Its principal brands include Kraft, Velveeta, Cracker Barrel
and Rondele cheese and cheese products, Miracle Whip salad dressing,
Philadelphia Brand cream cheese, Cheez Whiz cheese spread, Kraft and Seven Seas
pourable dressings, Parkay margarine, Kraft and Bull's-Eye barbecue sauces, Di
Giorno pastas, sauces and cheeses, Light n' Lively, Knudsen and Breakstone's
cultured dairy products, Tombstone and Jack's frozen pizzas, Oscar Mayer
luncheon meats, hot dogs, bacon, ham and other meat products, Louis Rich
luncheon meats, poultry franks, turkey bacon and other poultry products,
Lunchables lunch combinations, Claussen pickles, Maxwell House, Yuban, Sanka,
Brim and Maxim coffees, General Foods International Coffees, Jell-O desserts,
Post and Nabisco ready-to-eat cereals, Log Cabin syrups, Kool-Aid, Tang,
Crystal Light, Country Time and Capri Sun beverages, Entenmann's and
Freihofer's bakery products, including the Entenmann's fat free and cholesterol
free bakery line, Oroweat specialty breads, Minute rice, Stove Top stuffing
mix, Shake'n Bake coatings, Good Seasons salad dressing mixes, Lender's frozen
bagels and Cool Whip toppings.
Kraft's Food Ingredients Division manufactures certain private label products
as well as a variety of industrial food products for sale to other food
processors, which products include edible oils, shortenings, whey products,
nondairy creamers, confection products, cheese flavorings, seasonings and
cheese analogs.
Kraft Canada is responsible for manufacturing and marketing packaged grocery,
coffee and cheese products. Major brand names include Kraft, Miracle Whip,
Philadelphia Brand, Jell-O, Post, Kool-Aid, Baker's, Tang, Shake'n Bake, Cool
Whip, P'tit Quebec, Maxwell House, Nabob and Magic Moments.
International
Kraft Foods International is responsible for manufacturing and marketing a
wide variety of coffee, confectionery, cheese, packaged grocery and processed
meat products in Europe and the Asia/Pacific region. Approximately 93% of Kraft
Food International's sales are made in Europe. International brands include a
wide variety of the products sold by Kraft, as well as Milka, Tobler,
Toblerone, Suchard, Sugus, Freia, Marabou, Daim, Estrella, Callard & Bowser,
Terry's, Splendid and Cote d'Or confections, Carte Noire, Gevalia, Grand'Mere,
Kenco, HAG, Jacobs Cafe, Jacobs Kronung, Jacques Vabre, Night & Day and Saimaza
coffees, Negroni and Simmenthal meats, Miracoli pasta dinners, Dairylea process
cheese, Vegemite spread and Hollywood chewing gum.
In Latin America, certain subsidiaries and affiliates of Philip Morris
International manufacture and market a wide variety of food products, including
Kibon ice cream, Q-Refres-Ko powdered soft drinks and a number of the products
sold by Kraft.
Distribution, Competition and Raw Materials
Kraft's products are generally sold to supermarket chains, wholesalers, club
stores, mass merchandisers, distributors, individual stores and other retail
food outlets. Products are distributed through distribution centers, satellite
warehouses, company-operated and public cold storage facilities, depots and
other facilities. Selling efforts are assisted by national and regional
advertising on television and radio and in magazines and newspapers, as well as
by sales promotions, product displays, trade incentives, informative material
offered to customers and other promotional activities. The products of Kraft
Food Ingredients are sold to food processors, foodservice operators and
distributors and retail food stores.
Products of Kraft Foods International are sold primarily through sales
offices and agents abroad. European regional distribution is coordinated from
its headquarters offices located in Zurich, Switzerland
8
<PAGE>
and through facilities located throughout Europe. The Asia/Pacific area
operations are headquartered in Hong Kong. Kraft operations outside of the
United States and Canada are directed from the Kraft Foods International
headquarters in Rye Brook, New York. Advertising is tailored by product and
country to reach targeted audiences.
Kraft is subject to highly competitive conditions in virtually all aspects of
its business. Competitors include large national and international companies
and numerous local and regional companies. Its food products also compete with
generic products and private label products of food retailers, wholesalers and
cooperatives. Kraft competes primarily on the basis of product quality,
service, marketing, advertising and price.
Kraft is a major purchaser of milk, cheese, green coffee beans, poultry, meat
cuts, wheat, cocoa, rice, eggs, shortening, vegetable oil, aspartame, flour,
fruits and berries, sugar, corn syrup, herbs and spices and tomato products.
Kraft continuously monitors worldwide supply and cost trends of these
commodities to enable it to take appropriate action to obtain ingredients
needed for production.
Kraft purchases all of its milk requirements and a substantial portion of its
cheddar cheese requirements from independent sources, principally from
cooperatives and individual producers. The prices for United States milk
purchases are substantially influenced by the floor prices established by the
milk price support program administered by the USDA. The prices paid for cheese
in the United States are based upon or substantially influenced by weekly
quotations on the National Cheese Exchange in Green Bay, Wisconsin.
The most significant cost item in coffee products is green coffee beans,
which are purchased on world markets. Green coffee bean prices are affected by
the quality and availability of supply, trade agreements among producing and
consuming nations, the unilateral policies of the producing nations, changes in
the value of the United States dollar in relation to certain other currencies
and consumer demand for coffee products.
The purchase price of poultry and meat cuts is the major factor in the cost
of Kraft's meat products. Poultry and meat prices are cyclical, affected by
market supply and demand. Meats for Oscar Mayer processed products are provided
primarily by full lot quantity purchases.
Kraft is also a major user of packaging materials purchased from many
suppliers.
The prices paid for raw materials used in food products generally reflect
external factors, among which weather conditions and commodity market
activities are significant. Although the prices of the principal raw materials
required by Kraft can be expected to fluctuate as a result of government
actions and/or market forces (which would directly affect the cost of products
and value of inventories), Kraft believes such raw materials generally to be in
adequate supply and available from numerous sources.
Regulation
Almost all of Kraft's United States food products (and packaging materials
therefor) are subject to regulations administered by the FDA, or, with respect
to products containing meat and poultry, the USDA. Among other things, the FDA
enforces statutory prohibitions against misbranded and adulterated foods,
establishes ingredients and/or manufacturing procedures for certain standard
foods, establishes standards of identity for food, determines the safety of
food substances and establishes labelling standards for food products. FDA
regulations may, in certain instances, affect the ability of Kraft's United
States operating units to develop and market new products and to utilize
technological innovations in the processing of existing products. The Nutrition
Labelling and Education Act of 1991 (the "NLEA") mandates nutrition labelling
on a majority of the food products packaged for sale in the United States. In
January 1993, the FDA adopted rules and regulations under the NLEA, including
rules requiring extensive re-labelling of virtually all of Kraft's products.
Similar rules and regulations were adopted by the USDA to cover meat and
poultry
9
<PAGE>
products. All such regulations were effective in August 1994. Compliance with
the new requirements did not have a material adverse impact on Kraft's results
of operations.
In addition, various states regulate the business of Kraft's United States
operating units by licensing dairy plants, enforcing federal and state
standards of identity for food, grading food products, inspecting plants,
regulating certain trade practices in connection with the sale of dairy
products and imposing their own labelling requirements on food products.
The prices paid for grade-A raw milk in the United States are controlled in
most areas by Federal Milk Marketing Orders or state regulatory agencies. Such
orders and agencies establish basic minimum prices, with adjustments based upon
usage and geographic location. In some areas, prices for raw milk also include
additional premiums charged by suppliers. In addition, the USDA sets a support
price, which serves as a floor for the price at which the Commodity Credit
Corporation (the "CCC"), an arm of the USDA, will purchase cheese, butter and
milk powder. From time to time, Kraft (as well as other cheese producers) sells
excess cheese production to the CCC.
Almost all of the activities of Kraft Foods International and Kraft Canada
are subject to the same kinds of regulation as Kraft's United States
businesses. Each of the operations and locations of these units is subject to
local and national and, in some cases, international (such as the European
Community) regulatory provisions. The rules and regulations relate to
labelling, packaging, food content, pricing, marketing and advertising and
related areas.
BEER
Products
Miller's brands include Miller Lite and Lite Ice, which together form the
Lite franchise; Miller Genuine Draft, MGD Light, Icehouse and Red Dog in the
premium segment; Lowenbrau, brewed and sold in the United States under a
license agreement with Lowenbrau Munchen AG; the Miller High Life family in the
near-premium segment, which includes Miller High Life, Miller High Life Light
and Miller High Life Ice; Miller Reserve Amber Ale and Miller Reserve Velvet
Stout in the specialty segment; Meister Brau, Milwaukee's Best and Magnum Malt
Liquor in the below-premium segment; Sharp's non-alcohol brew; and the
Leinenkugel brands from the Jacob Leinenkugel Brewing Co. Miller also owns and
operates Molson Breweries U.S.A. Inc., the second largest beer importer in the
United States with more than 20 brands from six countries, including the Molson
brands from Molson Breweries of Canada and Foster's Lager. Shipment volume for
Miller, including imports, exports and non-alcohol brew, increased 2.8% in 1994
compared to 1993. The increase resulted principally from performance by
Miller's major ice brands -- Lite Ice, Icehouse and Molson Ice -- as well as
Red Dog, which was launched nationwide in the fourth quarter. Miller's premium
beer shipments increased by 7.6%, although shipments of Miller Lite and Miller
Genuine Draft declined. Shipments of Miller's budget brands also were down,
reflecting a shift to premium brands. Premium brands now account for over 80%
of Miller's shipment volume.
The following table sets forth, based on shipments, the industry's sales of
beer and brewed non-alcohol beverages as estimated by Miller, Miller's unit
sales and its estimated share of industry sales:
<TABLE>
<CAPTION>
YEARS ENDED MILLER'S SHARE
DECEMBER 31 INDUSTRY MILLER OF INDUSTRY
----------- ------------- ------------ --------------
(IN THOUSANDS OF BARRELS) (%)
<S> <C> <C> <C>
1994............................. 199,083 45,243 22.7
1993............................. 198,019 44,024 22.2
1992............................. 197,255 42,221 21.4
</TABLE>
Distribution, Competition and Raw Materials
Beer products are distributed primarily through independent beer wholesalers.
The United States malt beverage industry is highly competitive, with the
principal methods of competition being product quality,
10
<PAGE>
price, distribution, marketing and advertising. Miller engages in a wide
variety of advertising and sales promotion activities. Barley, hops, corn and
water represent the principal ingredients used in manufacturing Miller's beer
products and are generally available in the market. The production process,
which includes fermentation and aging periods, is conducted throughout the year
and at any one time Miller has on hand only a small quantity of finished
products. Containers (bottles, cans and kegs) for beer products are purchased
from various suppliers.
Regulation
The Alcoholic Beverage Labeling Act of 1988 requires all alcoholic beverages
manufactured for sale in the United States to include the following warning
statement on containers: GOVERNMENT WARNING: (1) According to the Surgeon
General, women should not drink alcoholic beverages during pregnancy because of
the risk of birth defects; (2) Consumption of alcoholic beverages impairs your
ability to drive a car or operate machinery and may cause health problems. The
statute empowers the Bureau of Alcohol, Tobacco and Firearms (the "BATF") to
promulgate regulations to prescribe the size and format of the warning. The
BATF has published a notice in the Federal Register seeking information which
will enable the BATF to report to Congress as to whether the wording of the
warning statement should be amended. In addition, various legislative and
regulatory proposals to prohibit or restrict the advertising and marketing of
alcoholic beverages are being considered. Such warning statement requirements
and any restrictions on advertising and marketing, if enacted, could have an
adverse impact on Miller's sales, but it is not possible to predict their long-
term effects or whether such additional restrictions will be enacted.
The federal excise tax is 32 cents per package of six 12-ounce containers.
Excise taxes, sales taxes and other taxes affecting beer are also levied by
various states, counties and municipalities. In the opinion of Miller,
increases in excise taxes have had, and could continue to have, an adverse
effect on sales.
FINANCIAL SERVICES AND REAL ESTATE
Philip Morris Capital Corporation ("PMCC") invests in leveraged and single-
investor leases and other tax-oriented financing transactions and third-party
financial instruments and also engages in various financing activities for
customers and suppliers of the Company's other subsidiaries. Total assets
decreased to $5.2 billion at year-end 1994 as compared to $5.7 billion at year-
end 1993, reflecting among other things the sale of the majority ($719 million)
of its marketable securities portfolio in 1994, with $475 million of the
proceeds therefrom being paid as a dividend to the Company.
Mission Viejo Company ("Mission Viejo"), a wholly-owned subsidiary of PMCC,
is engaged principally in land planning, development and sales in Southern
California and in the Denver, Colorado area.
OTHER MATTERS
Customers
None of the Company's business segments is dependent upon a single customer
or a few customers, the loss of which would have a material adverse effect on
the Company's results of operations.
Employees
At December 31, 1994, the Company employed approximately 165,000 people
worldwide. Kraft Foodservice, sold in February 1995, had approximately 9,000
employees at December 31, 1994.
Trademarks
Trademarks are of material importance to all three of the Company's consumer
products businesses and are protected by registration or otherwise in the
United States and most other markets where the related products are sold.
11
<PAGE>
Environmental Regulation
The Company and its subsidiaries are subject to various federal, state and
local laws and regulations and involved in proceedings thereunder concerning
the discharge of materials into the environment or otherwise related to
environmental protection, including the Clean Air Act, the Clean Water Act, the
Resource Conservation and Recovery Act and the Comprehensive Environmental
Response, Compensation and Liability Act (commonly known as "Superfund"). In
1994, subsidiaries (or former subsidiaries) of the Company were parties to
approximately 184 proceedings involving potential liability under Superfund and
for other environmental project clean-up costs. The Company and its
subsidiaries expect to continue to make capital and other expenditures in
connection with environmental laws and regulations. Compliance with such laws
and regulations, including the payment of any monetary sanctions resulting from
governmental proceedings, and the making of such expenditures are not expected
to have a material adverse effect on the Company's results of operations,
capital expenditures or competitive position.
(D) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT
SALES
The amounts of operating revenues, operating profit and identifiable assets
attributable to each of the Company's geographic regions and the amount of
export sales from the United States for each of the last three fiscal years are
set forth in note 11 to the Company's consolidated financial statements
incorporated herein by reference to the Company's annual report to stockholders
for the year ended December 31, 1994.
Kraft, Miller and subsidiaries of Philip Morris International export coffee
products, grocery products, cheese, processed meats, beer, tobacco and tobacco
related products. In 1994, the value of all exports from the United States by
these subsidiaries amounted to approximately $5.4 billion.
ITEM 2. DESCRIPTION OF PROPERTY.
TOBACCO PRODUCTS
Philip Morris U.S.A. owns nine tobacco manufacturing and processing
facilities -- six in the Richmond, Virginia area, two in Louisville, Kentucky
and one in Cabarrus County, North Carolina. Philip Morris U.S.A. owns or leases
other premises and facilities, including an operations center, a research and
development facility and various administrative facilities in Richmond and an
engineering center in York County, Virginia. Subsidiaries and affiliates of
Philip Morris International own or lease cigarette or component manufacturing
facilities in 27 countries outside the United States.
FOOD PRODUCTS
The Company's subsidiaries have 92 manufacturing and processing facilities,
582 distribution centers and depots and 156 various other facilities in the
United States, as well as 126 foreign manufacturing and processing facilities
in 31 countries and various distribution and other facilities outside the
United States. All significant plants and properties used for production of
food products are owned, although the majority of the domestic distribution
centers and depots are leased.
BEER
Miller currently owns and operates seven breweries, located in Milwaukee,
Wisconsin; Fort Worth, Texas; Eden, North Carolina; Albany, Georgia; Irwindale,
California; Trenton, Ohio; and Chippewa Falls, Wisconsin. Miller owns four
distributorships and owns or leases warehouses in several locations. During
1994, Miller closed its Fulton, New York brewery and sold two distributorships,
its glass-making plant and its can and bottle carrier facility and, in January
1995, sold its malting facility.
GENERAL
The plants and properties owned and operated by the Company's subsidiaries
are maintained in good condition and are believed to be suitable and adequate
for present needs. In the fourth quarter of 1993, the
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<PAGE>
Company provided for the costs of restructuring its worldwide operations. The
charge related primarily to the downsizing or closure of approximately 40
manufacturing and other facilities. Writedowns of such facilities included in
the restructuring charge were $429 million, of which $141 million, $211 million
and $77 million related to tobacco, food and beer facilities, respectively.
During 1994, the Company downsized or closed 21 manufacturing or other
facilities.
ITEM 3. LEGAL PROCEEDINGS.
Reference is made to "Tobacco Products -- Litigation Involving the Tobacco
Industry" under Item 1 and to note 15 to the Company's consolidated financial
statements incorporated herein by reference to the Company's annual report to
stockholders for the year ended December 31, 1994 for a description of certain
legal proceedings relating to smoking and health, to the above-referenced note
15 for a description of certain pending purported shareholder class actions and
to "Environmental Regulation" under Item 1 for a description of certain
proceedings relating to environmental compliance.
Note 15 describes an action filed in the United States District Court for the
Eastern District of Louisiana, in March 1994, in which plaintiffs made certain
allegations against the leading United States cigarette manufacturers and
others, including the Company, and sought certification of a class action. On
February 17, 1995, the court conditionally certified the class for certain
issues, including fraud, breach of warranty, intentional tort, negligence,
strict liability, consumer protection and punitive damages. However, the court
declined to certify a class on the issues of injury in fact, causation,
reliance, compensatory damages, the availability of certain affirmative
defenses and on plaintiffs' claim for medical monitoring. Defendants, including
the Company, will seek an appeal to the United States Court of Appeals for the
Fifth Circuit.
Another matter described in note 15 involves a statute enacted by the Florida
legislature in May 1994, the constitutionality of which is being challenged by
Philip Morris U.S.A. and others in an action filed in Florida State Court in
June 1994. On February 19, 1995, Philip Morris U.S.A. and one other party
petitioned the Supreme Court of Florida to prohibit two purported state
agencies from filing and maintaining an action against the tobacco industry
under the statute. On February 21, 1995, an action against the tobacco industry
was filed under the statute. Philip Morris U.S.A. and the other petitioner are
awaiting a decision on their February 19, 1995 petition.
Another matter described in note 15 concerns an action filed by the Attorney
General of Mississippi in May 1994 in Mississippi State Court against the
leading United States cigarette manufacturers and others, including the
Company, seeking the reimbursement of Medicaid and other expenditures which
plaintiffs claim were made by the State to treat smoking-related injuries. In
October 1994, the defendants, including Philip Morris U.S.A., moved for
judgment on the pleadings. On February 20, 1995, defendants' motion was denied
by the court. Further, plaintiffs' motion to strike certain of defendants'
affirmative defenses was granted. Defendants are considering several possible
appellate alternatives.
Management is unable to make a meaningful estimate of the amount or range of
loss that could result from an unfavorable outcome of all pending litigation.
It is possible that the Company's results of operations or cash flows in a
particular quarterly or annual period or its financial position could be
materially affected by an ultimate unfavorable outcome of certain pending
litigation. Management believes, however, that the ultimate outcome of all
pending litigation should not have a material adverse effect on the Company's
financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
----------------
13
<PAGE>
EXECUTIVE OFFICERS OF THE COMPANY
The following are the executive officers of the Company as of March 1, 1995:
<TABLE>
<CAPTION>
NAME OFFICE AGE
---- ------ ---
<S> <C> <C>
Geoffrey C. Bible....... Chairman of the Board and Chief Executive Officer 57
Murray H. Bring......... Executive Vice President, External Affairs, and General
Counsel 60
James M. Kilts.......... Executive Vice President, Worldwide Foods 47
Hans G. Storr........... Executive Vice President and Chief Financial Officer;
Chairman and Chief Executive Officer of PMCC 63
Lawrence A. Gates....... Senior Vice President, Human Resources and Administration 57
Marc S. Goldberg........ Senior Vice President, Planning and Worldwide Tobacco
Operations 51
Bruce S. Brown.......... Vice President, Taxes 55
Katherine P. Clark...... Vice President and Controller 46
G. Penn Holsenbeck...... Vice President, Associate General Counsel and Secretary 48
George R. Lewis......... Vice President and Treasurer 53
William I. Campbell..... Chairman of Philip Morris U.S.A. 50
John N. MacDonough...... Chairman and Chief Executive Officer of Miller 51
James J. Morgan......... President and Chief Executive Officer of Philip Morris
U.S.A. 52
William H. Webb......... President and Chief Executive Officer of Philip Morris
International 55
</TABLE>
All of the above-mentioned officers, with the exception of Messrs. Holsenbeck
and MacDonough, have been employed by the Company in various capacities during
the past five years. Mr. Holsenbeck was elected to his current position with
the Company in January 1995. Previously, Mr. Holsenbeck held various positions
with Bethlehem Steel Corporation, including Secretary and Deputy General
Counsel from 1992 to January 1995, Assistant General Counsel from 1985 to 1992,
and Assistant Secretary from 1983 to 1992. Mr. MacDonough was Vice President,
Brand Management of Anheuser-Busch, Inc. from 1989 to 1990, Executive Vice
President, Marketing of Anheuser-Busch International, Inc. from 1991 until
September 1992, when he became President and Chief Operating Officer of Miller.
He assumed his current position in September 1993.
14
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANTS' COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The information called for by this Item is hereby incorporated by reference
to the paragraphs captioned "Quarterly Financial Data (Unaudited)" and "Short-
Term Borrowings and Borrowing Arrangements" on pages 45 and 34, respectively,
of the Company's annual report to stockholders for the year ended December 31,
1994 and made a part hereof.
Note 7 to the Company's consolidated financial statements, which are
incorporated by reference to pages 28-46 of the Company's annual report to
stockholders for the year ended December 31, 1994 and made a part hereof,
contains a discussion of the Company's common stock purchase rights. Each share
of the Company's outstanding common stock has one related purchase right. The
Company's Board of Directors voted on March 1, 1995 to redeem these purchase
rights on April 10, 1995 by payment of the redemption price of $.01 per right
to holders of record of the Company's common stock on March 15, 1995.
ITEM 6. SELECTED FINANCIAL DATA.
The information called for by this Item is hereby incorporated by reference
to the information appearing under the caption "Selected Financial Data" on
page 26 of the Company's annual report to stockholders for the year ended
December 31, 1994 and made a part hereof.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The information called for by this Item is hereby incorporated by reference
to the paragraphs captioned "Management's Discussion and Analysis of Financial
Condition and Results of Operations" on pages 19-25 of the Company's annual
report to stockholders for the year ended December 31, 1994 and made a part
hereof.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information called for by this Item is hereby incorporated by reference
to the Company's annual report to stockholders for the year ended December 31,
1994 as set forth under the caption "Quarterly Financial Data (Unaudited)" on
page 45 and in the Index to Consolidated Financial Statements and Schedules
(see Item 14) and made a part hereof.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
ITEM 11. EXECUTIVE COMPENSATION.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Except for the information relating to the executive officers of the Company
set forth in Part I of this Report, the information called for by Items 10, 11,
12 and 13 is hereby incorporated by reference to the Company's definitive proxy
statement in connection with its annual meeting of stockholders to be held on
April 27, 1995, to be filed with the Securities and Exchange Commission and
made a part hereof.
15
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) Index to Consolidated Financial Statements and Schedules
<TABLE>
<CAPTION>
REFERENCE
-----------------------------
FORM 10-K ANNUAL REPORT
ANNUAL REPORT TO STOCKHOLDERS
PAGE PAGE
------------- ---------------
<S> <C> <C>
Data incorporated by reference to the
Company's annual report to stockholders for
the year ended December 31, 1994:
Consolidated Balance Sheets at December 31,
1994 and 1993 -- 28-29
Consolidated Statements of Earnings for the
years ended December 31, 1994, 1993 and
1992....................................... -- 30
Consolidated Statements of Stockholders' Eq-
uity for the years ended December 31, 1994,
1993 and 1992.............................. -- 32
Consolidated Statements of Cash Flows for
the years ended December 31, 1994, 1993 and
1992....................................... -- 30-31
Notes to Consolidated Financial Statements.. -- 33-45
Report of Independent Accountants........... -- 46
Data submitted herewith:
Report of Independent Accountants........... S-1 --
Financial Statement Schedules:
VIII -- Valuation and Qualifying Accounts... S-2 --
</TABLE>
Schedules other than those listed above have been omitted either because such
schedules are not required or are not applicable.
(b) Reports on Form 8-K: No Current Reports on Form 8-K were filed during the
last quarter of the period for which this Report is filed. Subsequent to the
last quarter of the period for which this Report is filed, the Company filed
its Current Report on Form 8-K dated January 26, 1995.
(c) The following exhibits are filed as part of this Report (Exhibit Nos.
10.3-10.25 are management contracts, compensatory plans or arrangements):
<TABLE>
<S> <C>
1.1. Form of Underwriting Agreement, including form of terms agreement. (1)
1.2. Form of First Amendment to Selling Agency Agreement. (1)
3.1. Restated Articles of Incorporation of the Company. (2)
3.2. By-Laws, as amended, of the Company. (3)
4.1. Plan of Exchange and Articles of Incorporation. (4)
4.8. Indenture dated as of August 1, 1990 between the Company and Chemical Bank,
Trustee. (5)
4.9. First Supplemental Indenture dated as of February 1, 1991 to Indenture dat-
ed as of August 1, 1990 between the Company and Chemical Bank, Trustee. (6)
4.10. Second Supplemental Indenture dated as of January 21, 1992 to Indenture
dated as of August 1, 1990 between the Company and Chemical Bank, Trustee.
(7)
4.11. 5-Year Loan and Guaranty Agreement dated as of December 17, 1993 among the
Company, the Banks named therein and Citibank, N.A., as Agent. (1)
4.12. 364-Day Loan and Guaranty Agreement, dated as of December 16, 1994, among
the Company, the Banks named therein and Citibank, N.A., as Agent.
4.13. Rights Agreement, dated as of October 25, 1989, between the Company and
First Chicago Trust Company of New York.
4.14. Notice of Redemption of Common Share Purchase Rights, dated March 13, 1995.
10.3. Financial Counseling Program of Philip Morris Incorporated and the Company.
(8)
10.4. Philip Morris Benefit Equalization Plan, as amended. (8)
10.5. Amendments, as of October 25, 1989, to the Philip Morris Benefit Equaliza-
tion Plan, as amended.
</TABLE>
16
<PAGE>
<TABLE>
<S> <C>
10.6. Automobile Policy of Philip Morris Incorporated and the Company. (8)
10.8. Pension Plan for Directors of the Company, effective July 1, 1989, as
amended. (2)
10.9. 1982 Stock Option Plan, as amended. (8)
10.10. The Philip Morris 1987 Long Term Incentive Plan, as amended. (9)
10.12. Form of Executive Master Trust between the Company, Chemical Bank and Handy
Associates.
10.13. Agreement, dated October 12, 1987, between the Company and Murray H. Bring,
as amended. (1)
10.14. Agreement, dated November 1, 1989, between the Company and Murray H. Bring.
10.15. Agreement, dated March 8, 1989, between the Company and James M. Kilts.
10.17. Deferred Incentive Payment Agreement between the Company and Michael A.
Miles, dated March 8, 1989.
10.18. Amendment, dated November 1, 1989, to the Deferred Incentive Payment Agree-
ment between the Company and Michael A. Miles, dated March 8, 1989.
10.19. Agreement, dated November 1, 1989, between the Company and Michael A.
Miles.
10.20. Form of Employment Agreement between the Company and its executive offi-
cers.
10.22. Supplemental Management Employees' Retirement Plan of the Company, as
amended. (9)
10.23. The Philip Morris 1992 Incentive Compensation and Stock Option Plan. (10)
10.24. 1992 Compensation Plan for Non-Employee Directors, as amended. (11)
10.25. Settlement Agreement and Release, dated as of June 17, 1994, between the
Company and Michael A. Miles. (12)
12. Statements re computation of ratios. (13)
13. Pages 19-46 of the Company's annual report to stockholders for the year
ended December 31, 1994, but only to the extent set forth in Items 1, 5, 6,
7, 8 and 14 hereof. With the exception of the aforementioned information
incorporated by reference in this Annual Report on Form 10-K, the Company's
annual report to stockholders for the year ended December 31, 1994 is not
to be deemed "filed" as part of this Report.
21. Subsidiaries of the Company.
23. Consent of independent accountants.
24. Powers of attorney.
</TABLE>
- --------
(1) Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1993.
(2) Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1989.
(3) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1994.
(4) Incorporated by reference to the Company's Registration Statement on Form
S-14 (No. 2-96149) dated March 1, 1985.
(5) Incorporated by reference to the Company's Registration Statement on Form
S-3 (No. 33-36450) dated August 22, 1990.
(6) Incorporated by reference to the Company's Registration Statement on Form
S-3 (No. 33-39059) dated February 21, 1991.
(7) Incorporated by reference to the Company's Registration Statement on Form
S-3 (No. 33-45210) dated January 22, 1992.
(8) Incorporated by reference to the Company's Registration Statement on Form
8-B (No. 1-8940) dated July 1, 1985.
(9) Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1990.
(10) Incorporated by reference to the Company's Proxy Statement in connection
with its annual meeting of stockholders held on April 23, 1992, filed on
March 12, 1992.
(11) Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1992.
(12) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1994.
(13) Incorporated by reference to the Company's Current Report on Form 8-K
dated January 26, 1995.
17
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
Philip Morris Companies Inc.
/s/ Geoffrey C. Bible
Date: March 10, 1995 By:_________________________________
(Geoffrey C. Bible,
Chairman of the Board)
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
REGISTRANT AND IN THE CAPACITIES AND ON THE DATE INDICATED:
SIGNATURE TITLE DATE
/s/ Geoffrey C. Bible
____________________________________ Director, Chairman March 10, 1995
of the Board and
(Geoffrey C. Bible) Chief Executive
Officer
/s/ Hans G. Storr
____________________________________ Director, March 10, 1995
Executive Vice
(Hans G. Storr) President and
Chief Financial
Officer
/s/ Katherine P. Clark
____________________________________ Vice President and March 10, 1995
Controller
(Katherine P. Clark)
*Elizabeth E. Bailey, Murray H.
Bring, Harold Brown, William H.
Donaldson, Paul W. Douglas, Jane
Evans, Robert E. R. Huntley, Hamish
Maxwell, Rupert Murdoch, John D.
Nichols, Richard D. Parsons, Roger
S. Penske, John S. Reed, Stephen M.
Wolf, Directors
/s/ Hans G. Storr March 10, 1995
*By_________________________________
(Hans G. Storr
Attorney-in-fact)
18
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
Our report on our audits of the consolidated financial statements of Philip
Morris Companies Inc., which includes an explanatory paragraph related to
litigation pending against the Company, has been incorporated by reference in
this Form 10-K from the 1994 annual report to stockholders of Philip Morris
Companies Inc. and appears on page 46 therein. In connection with our audits of
such financial statements, we have also audited the related financial statement
schedule listed in the index in Item 14(a) on page 16 of this Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
Coopers & Lybrand L.L.P.
New York, New York
January 23, 1995
S-1
<PAGE>
PHILIP MORRIS COMPANIES INC. AND SUBSIDIARIES
SCHEDULE VIII -- VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(IN MILLIONS)
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E
------ ---------- --------------------- ---------- ----------
ADDITIONS
---------------------
(1) (2)
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COSTS AND OTHER END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
----------- ---------- ---------- ---------- ---------- ----------
(a) (b)
<S> <C> <C> <C> <C> <C>
1994:
Consumer Products:
Allowance for dis-
counts............... $ 18 $538 $ -- $541 $ 15
Allowance for doubtful
accounts............. 153 38 8 31 168
Allowance for returned
goods................ 4 100 -- 100 4
---- ---- ---- ---- ----
$175 $676 $ 8 $672 $187
==== ==== ==== ==== ====
Financial Services and
Real Estate:
Provision for losses.. $ 94 $ 10 $ -- $ -- $104
==== ==== ==== ==== ====
1993:
Consumer Products:
Allowance for dis-
counts............... $ 23 $572 $ -- $577 $ 18
Allowance for doubtful
accounts............. 157 35 2 41 153
Allowance for returned
goods................ 7 134 -- 137 4
---- ---- ---- ---- ----
$187 $741 $ 2 $755 $175
==== ==== ==== ==== ====
Financial Services and
Real Estate:
Provision for losses.. $ 94 $ -- $ -- $ -- $ 94
==== ==== ==== ==== ====
1992:
Consumer Products:
Allowance for dis-
counts............... $ 23 $585 $ -- $585 $ 23
Allowance for doubtful
accounts............. 133 40 26 42 157
Allowance for returned
goods................ 6 55 -- 54 7
---- ---- ---- ---- ----
$162 $680 $ 26 $681 $187
==== ==== ==== ==== ====
Financial Services and
Real Estate:
Provision for losses.. $ 81 $ 13 $ -- $ -- $ 94
==== ==== ==== ==== ====
</TABLE>
- --------
Notes:
(a) Related to acquisitions and currency translations.
(b) Represents charges for which allowances were created.
S-2
<PAGE>
EXHIBIT 4.12
[CONFORMED COPY]
U.S. $4,000,000,000
364-DAY LOAN AND GUARANTY AGREEMENT
Dated as of December 16, 1994
among
PHILIP MORRIS COMPANIES INC.
and
THE BANKS NAMED HEREIN
and
CITIBANK, N.A.
as Agent
--------
<PAGE>
TABLE OF CONTENTS
Section Page
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
1.01. Certain Defined Terms......................................... 1
1.02. Additional Definitions....................................... 12
1.03. Computation of Time Periods.................................. 12
1.04. Accounting Terms............................................. 13
ARTICLE II
AMOUNTS AND TERMS OF THE ADVANCES
2.01. The A Advances................................................ 13
2.02. Making the A Advances......................................... 13
2.03. The B Advances................................................ 16
2.04. Fees.......................................................... 19
2.05. Reduction of the Commitments.................................. 20
2.06. Repayment of A Advances....................................... 21
2.07. Interest on A Advances........................................ 21
2.08. Additional Interest on Eurodollar Rate Advances............... 22
2.09. Interest Rate Determination................................... 22
2.10. Prepayment of A Advances...................................... 22
2.11. Increased Costs............................................... 23
2.12. Payments and Computations..................................... 24
2.13. Taxes......................................................... 26
2.14. Sharing of Payments, Etc...................................... 27
2.15. Evidence of Debt.............................................. 28
ARTICLE III
CONDITIONS OF LENDING
3.01. Condition Precedent to Initial Advances....................... 28
3.02. Conditions Precedent to Each A Borrowing...................... 29
3.03. Condition Precedent to Certain A Borrowings................... 30
<PAGE>
ii
Section Page
3.04. Conditions Precedent to Each B Borrowing...................... 30
3.05. Conditions Precedent to Effectiveness of this Agreement....... 31
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
4.01. Representations and Warranties of PM Companies................ 31
ARTICLE V
COVENANTS OF PM COMPANIES
5.01. Affirmative Covenants......................................... 33
5.02. Negative Covenants............................................ 35
ARTICLE VI
EVENTS OF DEFAULT
6.01. Events of Default............................................. 36
ARTICLE VII
THE AGENT
7.01. Authorization and Action...................................... 39
7.02. Agent's Reliance, Etc......................................... 39
7.03. Citibank and Affiliates....................................... 40
7.04. Lender Credit Decision........................................ 40
7.05. Indemnification............................................... 41
7.06. Successor Agent............................................... 41
<PAGE>
iii
Section Page
ARTICLE VIII
GUARANTY
8.01. Guaranty...................................................... 42
8.02. Guaranty Absolute............................................. 42
8.03. Waivers....................................................... 42
8.04. Payments Free and Clear of Taxes, Etc......................... 43
8.05. No Waiver; Remedies........................................... 44
8.06. Continuing Guaranty........................................... 44
ARTICLE IX
SUBSIDIARY BORROWER
9.01. Subsidiary Borrower........................................... 45
ARTICLE X
MISCELLANEOUS
10.01. Amendments, Etc.............................................. 46
10.02. Notices, Etc................................................. 47
10.03. No Waiver; Remedies.......................................... 47
10.04. Costs, Expenses and Taxes.................................... 47
10.05. Right of Set-off............................................. 48
10.06. Binding Effect............................................... 49
10.07. Assignments and Participations............................... 49
10.08. Governing Law................................................ 52
10.09. Execution in Counterparts.................................... 52
Schedule I List of Applicable Lending Offices
Exhibit A Form of B Note
Exhibit B-1 Notice of A Borrowing
<PAGE>
iv
Section Page
Exhibit B-2 Notice of B Borrowing
Exhibit C Assignment and Acceptance
Exhibit D Form of Opinion of Counsel for Philip Morris Companies Inc.
Exhibit E Form of Opinion of Special Counsel for the Agent
Exhibit F Notice of Acceptance
<PAGE>
364-DAY LOAN AND GUARANTY AGREEMENT
Dated as of December 16, 1994
PHILIP MORRIS COMPANIES INC., a Virginia corporation ("PM
Companies"), the banks (the "Banks") listed on the signature pages hereof, and
CITIBANK, N.A. ("Citibank"), as agent (the "Agent") for the Lenders hereunder,
agree as follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.01. Certain Defined Terms. As used in this
---------------------
Agreement, the following terms shall have the following meanings (such meanings
to be equally applicable to both the singular and plural forms of the terms
defined):
"A Advance" means an advance by a Lender to a Borrower as part
---------
of an A Borrowing by such Borrower consisting of A Advances of the same Type
from each of the Lenders pursuant to Section 2.01 and refers to a Base Rate
Advance, an Adjusted CD Rate Advance or a Eurodollar Rate Advance, each of
which shall be a Type of A Advance.
"A Borrowing" means a borrowing consisting of simultaneous A
-----------
Advances of the same Type from each of the Lenders to a Borrower pursuant to
Section 2.01.
"Adjusted CD Rate" means, for the Interest Period for each
----------------
Adjusted CD Rate Advance comprising part of the same A Borrowing, an interest
rate per annum equal to the sum of:
(a) the rate per annum obtained by dividing (i) the rate of
interest determined by the Agent to be the average (rounded upward to the
nearest whole multiple of 1/100 of 1% per annum, if such average is not
such a multiple) of the consensus bid rate determined by each of the
Reference Banks for the bid rates per annum, at 9:00 A.M. (New York City
time) (or as soon thereafter as practicable) on the first day of such
Interest Period, of New York certificate of deposit dealers of recognized
standing selected by such Reference Bank for the purchase at face value
of certificates of deposit of such Reference Bank in an amount
approximately equal to such Reference Bank's Adjusted CD Rate Advance
comprising part of such A Borrowing and with a maturity equal to such
Interest Period, by (ii) a percentage equal to 100% minus the Adjusted CD
Rate Reserve Percentage (as defined below) for such Interest Period, plus
<PAGE>
2
(b) the Assessment Rate (as defined below) for such Interest
Period.
The "Adjusted CD Rate Reserve Percentage" for the Interest
-----------------------------------
Period for each Adjusted CD Rate Advance comprising part of the same A
Borrowing means the reserve percentage applicable on the first day of such
Interest Period under regulations issued from time to time by the Board of
Governors of the Federal Reserve System (or any successor) for determining the
maximum reserve requirement (including, but not limited to, any emergency,
supplemental or other marginal reserve requirement) for a member bank of the
Federal Reserve System in New York City with deposits exceeding one billion
dollars with respect to liabilities consisting of or including (among other
liabilities) U.S. dollar nonpersonal time deposits in the United States with a
maturity equal to such Interest Period. The "Assessment Rate" for the
---------------
Interest Period for such Adjusted CD Rate Advance comprising part of the same A
Borrowing means the annual assessment rate estimated by the Agent on the first
day of such Interest Period for determining the then current annual assessment
payable by Citibank to the Federal Deposit Insurance Corporation (or any
successor) for insuring U.S. dollar deposits of Citibank in the United States.
The Adjusted CD Rate for the Interest Period for each Adjusted CD Rate Advance
comprising part of the same A Borrowing shall be determined by the Agent on the
basis of applicable rates furnished to and received by the Agent from the
Reference Banks on the first day of such Interest Period, subject,
-------
however, to the provisions of Section 2.09.
- -------
"Adjusted CD Rate Advance" means an A Advance which bears
------------------------
interest as provided in Section 2.07(b).
"Advance" means an A Advance or a B Advance.
-------
"Applicable Facility Fee Rate" means for any period a
----------------------------
percentage per annum equal to the percentage set forth below determined by
reference to the higher of (i) the rating of PM Companies' long-term senior
unsecured Debt from Standard & Poor's Corporation and (ii) the rating of PM
Companies' long-term senior unsecured Debt from Moody's Investors Service, in
each case in effect from time to time during such period:
<PAGE>
3
Long-Term Applicable
Senior Unsecured Facility
Debt Rating Fee Rate
---------------- ----------
A- and A3 (or higher) 0.0650%
BBB and Baa2 or higher,
but lower than A- and A3 0.1250%
Lower than BBB and Baa2 0.1500%;
provided that if no rating is available on any date of determination from
- --------
Moody's Investors Service and Standard & Poor's Corporation or any other
nationally recognized statistical rating organization designated by PM
Companies and approved in writing by the Majority Lenders, the Applicable
Facility Fee Rate shall be 0.1500%.
"Applicable Interest Rate Margin" means for any Interest Period
-------------------------------
a percentage per annum equal to the percentage set forth below determined by
reference to the higher of (i) the rating of PM Companies' long-term senior
unsecured Debt from Standard & Poor's Corporation and (ii) the rating of PM
Companies' long-term senior unsecured Debt from Moody's Investors Service, in
each case from time to time during such Interest Period:
Long-Term Applicable
Senior Unsecured Interest Rate
Debt Rating Margin
---------------- -------------
A- and A3 (or higher) 0.1850%
BBB and Baa2 or higher,
but lower than A- and A3 0.2500%
Lower than BBB and Baa2 0.4750%;
provided that if no rating is available on any date of determination from
- --------
Moody's Investors Service and Standard & Poor's Corporation or any other
nationally recognized statistical rating organization designated by PM
Companies and approved in writing by the Majority Lenders, the Applicable
Interest Rate Margin shall be 0.4750%.
"Applicable Lending Office" means, with respect to each Lender,
-------------------------
such Lender's Domestic Lending Office in the case of a Base Rate Advance, such
Lender's CD Lending Office in the case of an Adjusted CD Rate Advance, and such
Lender's
<PAGE>
4
Eurodollar Lending Office in the case of a Eurodollar Rate Advance and, in the
case of a B Advance, the office of such Lender notified by such Lender to the
Agent with respect to such B Advance.
"Applicable Usage Fee Rate" means for any period a percentage
-------------------------
per annum equal to 0.1250%.
"Asset Disposition" means any sale, lease, transfer, spin-off
-----------------
or other disposition ("Disposition") to any Person (including any shareholder
of PM Companies), voluntarily or involuntarily, of any of the Tobacco Assets
(whether now owned or hereafter acquired) of PM Companies and its directly and
indirectly owned subsidiaries, provided that "Asset Disposition" shall
-----------------
not mean (i) any Disposition of Tobacco Assets to PM Companies or any
subsidiary directly or indirectly wholly-owned by PM Companies, (ii) any sale
and lease-back of Tobacco Assets which, together with all such sale and
lease-back transactions occurring from and after September 30, 1994, does not
exceed an aggregate amount equal to $500,000,000, provided that the lease term
related to such sale and lease-back transaction has a duration approximately
equal to the useful life of such Tobacco Assets, (iii) any Disposition of
Tobacco Assets in the ordinary course of business and (iv) any Disposition
which, together with all such other Dispositions (excluding all Dispositions
described in clauses (i), (ii) and (iii) of this definition) occurring from and
after September 30, 1994, does not exceed an aggregate amount equal to
$1,100,000,000 net after-tax proceeds calculated in accordance with the
provisions of Section 2.05(b).
"Assignment and Acceptance" means an assignment and acceptance
-------------------------
entered into by a Lender and an Eligible Assignee, and accepted by the Agent,
in substantially the form of Exhibit C hereto.
"B Advance" means an advance by a Lender to a Borrower as part
---------
of a B Borrowing by such Borrower resulting from the auction bidding procedure
described in Section 2.03(a).
"B Borrowing" means a borrowing consisting of simultaneous B
-----------
Advances to a Borrower from each of the Lenders whose offer to make one or more
B Advances as part of such borrowing has been accepted by such Borrower under
the auction bidding procedure described in Section 2.03(a).
"B Note" means a promissory note of a Borrower payable to the
------
order of any Lender, in substantially the form of Exhibit A hereto, evidencing
the indebtedness of such Borrower to such Lender resulting from a B Advance to
such Borrower, together with, if such Borrower is a subsidiary of PM Companies,
a guaranty of the Guarantor endorsed thereon, substantially in the form of
Exhibit A hereto.
<PAGE>
5
"B Reduction" has the meaning assigned to that term in Section
-----------
2.01.
"Base Rate" means, for any Interest Period or any other period,
---------
a fluctuating interest rate per annum as shall be in effect from time to time
which rate per annum shall at all times be equal to the highest of:
(a) The rate of interest announced publicly by Citibank in New
York, New York, from time to time, as Citibank's base rate;
(b) 1/2 of one percent per annum above the latest three-week
moving average of secondary market morning offering rates in the United
States for three-month certificates of deposit of major United States
money market banks, such three-week moving average being determined
weekly on each Monday (or if such day is not a Business Day, on the next
succeeding Business Day) for the three-week period ending on the previous
Friday by Citibank on the basis of such rates reported by certificate of
deposit dealers to and published by the Federal Reserve Bank of New York
or, if such publication shall be suspended or terminated, on the basis of
quotations for such rates received by Citibank from three New York
certificate of deposit dealers of recognized standing selected by
Citibank, in either case adjusted to the nearest 1/4 of one percent or,
if there is no nearest 1/4 of one percent, to the next higher 1/4 of one
percent; or
(c) for any day 1/2 of one percent per annum above the Federal
Funds Rate.
"Base Rate Advance" means an A Advance which bears interest as
-----------------
provided in Section 2.07(a).
"Borrower" means PM Companies or any subsidiary of PM Companies
--------
with respect to which a Notice of Acceptance has been given, and whenever in
this Agreement the term "Borrower" is used in the singular, it shall refer to
the appropriate Borrower, or to all Borrowers, as the context may require.
"Borrowing" means an A Borrowing or a B Borrowing.
---------
"Business Day" means a day of the year on which banks are not
------------
required or authorized to close in New York City and, if the applicable
Business Day relates to any Eurodollar Rate Advance, on which dealings are
carried on in the London interbank market.
"CD Lending Office" means, with respect to any Lender, the
-----------------
office of such Lender specified as its "CD Lending Office" opposite its name on
Schedule I hereto or in the Assignment and Acceptance pursuant to which it
became a Lender (or, if no such office is
<PAGE>
6
specified, its Domestic Lending Office) or such other office of such Lender as
such Lender may from time to time specify to PM Companies and the Agent.
"Commitment" has the meaning specified in Section 2.01.
----------
"Consolidated Tangible Assets" means all assets properly
----------------------------
appearing on a consolidated balance sheet of PM Companies and its subsidiaries
after deducting goodwill, trademarks, patents, other like intangibles, and the
minority interests of other Persons in such subsidiaries, all as determined in
accordance with generally accepted accounting principles, except that if there
has been a material change in an accounting principle as compared to that
applied in the preparation of the financial statements of PM Companies and its
subsidiaries as at and for the nine months ended September 30, 1994, then such
new accounting principle shall not be used in the determination of Consolidated
Tangible Assets. A material change in an accounting principle is one that in
the year of its adoption changes Consolidated Tangible Assets at such year-end
by more than 10%.
"Debt" means (i) indebtedness for borrowed money or for the
----
deferred purchase price of property or services, or obligations evidenced by
bonds, debentures, notes or similar instruments, (ii) obligations as lessee
under leases which shall have been or should be, in accordance with generally
accepted accounting principles, recorded as capital leases, and (iii)
obligations under direct or indirect guaranties in respect of, and obligations
(contingent or otherwise) to purchase or otherwise acquire, or otherwise to
assure a creditor against loss in respect of, indebtedness or obligations of
others of the kinds referred to in clause (i) or (ii) above.
"Domestic Lending Office" means, with respect to any Lender,
-----------------------
the office of such Lender specified as its "Domestic Lending Office" opposite
its name on Schedule I hereto or in the Assignment and Acceptance pursuant to
which it became a Lender or such other office of such Lender as such Lender may
from time to time specify to PM Companies and the Agent.
"Eligible Assignee" means (i) a commercial bank organized under
-----------------
the laws of the United States, or any State thereof, and having total assets in
excess of $5,000,000,000; (ii) a commercial bank organized under the laws of
any other country which is a member of the OECD, or a political subdivision of
any such country, and having total assets in excess of $5,000,000,000, provided
that such bank is acting through a branch or agency located in the country in
which it is organized or another country which is also a member of the OECD or
the Cayman Islands; (iii) the central bank of any country which is a member of
the OECD; (iv) a commercial finance company or finance subsidiary of a
corporation organized under the laws of the United States, or any State
thereof, and having total assets in excess of $3,000,000,000; (v) an insurance
company organized under the laws of the United States, or
<PAGE>
7
any State thereof, and having total assets in excess of $5,000,000,000; (vi)
any Bank; and (vii) an affiliate of any Lender.
"ERISA" means the Employee Retirement Income Security Act of
-----
1974, as amended from time to time and the regulations promulgated and the
rulings issued thereunder.
"ERISA Affiliate" means any Person who for purposes of Title IV
---------------
of ERISA is a member of any Borrower's or PM Companies' controlled group, or
under common control with such Borrower or PM Companies, within the meaning of
Section 414 of the Internal Revenue Code of 1986, as amended from time to time.
"ERISA Event" means (i) the occurrence with respect to a Plan
-----------
of a Reportable Event, within the meaning of Section 4043 of ERISA, unless the
30-day notice requirement with respect thereto has been waived by the PBGC;
(ii) the provision by the administrator of any Plan of a notice of intent to
terminate such Plan, pursuant to Section 4041(a)(2) of ERISA (including any
such notice with respect to a plan amendment referred to in Section 4041(e) of
ERISA); (iii) the cessation of operations at a facility of any Borrower or PM
Companies or any of their ERISA Affiliates in the circumstances described in
Section 4068(f) of ERISA; (iv) the withdrawal by any Borrower or PM Companies
or any of their ERISA Affiliates from a Multiple Employer Plan during a plan
year for which it was a substantial employer, as defined in Section 4001(a)(2)
of ERISA; (v) the conditions set forth in Section 302(f)(1)(A) and (B) of ERISA
to the creation of a lien upon property or rights to property of any Borrower
or PM Companies or any of their ERISA Affiliates for failure to make a required
payment to a Plan are satisfied; (vi) the adoption of an amendment to a Plan
requiring the provision of security to such Plan, pursuant to Section 307 of
ERISA; or (vii) the occurrence of any event or condition described in Section
4042 of ERISA that constitutes grounds for the termination of, or the
appointment of a trustee to administer, a Plan.
"Eurocurrency Liabilities" has the meaning assigned to that
------------------------
term in Regulation D of the Board of Governors of the Federal Reserve System,
as in effect from time to time.
"Eurodollar Lending Office" means, with respect to any Lender,
-------------------------
the office of such Lender specified as its "Eurodollar Lending Office" opposite
its name on Schedule I hereto or in the Assignment and Acceptance pursuant to
which it became a Lender (or, if no such office is specified, its Domestic
Lending Office) or such other office of such Lender as such Lender may from
time to time specify to PM Companies and the Agent.
"Eurodollar Rate" means, for the Interest Period for each
---------------
Eurodollar Rate Advance comprising part of the same A Borrowing, an interest
rate per annum equal to the
<PAGE>
8
average (rounded upward to the nearest whole multiple of 1/16 of 1% per annum,
if such average is not such a multiple) of the rate per annum at which deposits
in U.S. dollars are offered by the principal office of each of the Reference
Banks in London, England to prime banks in the London interbank market at 11:00
A.M. (London time) two Business Days before the first day of such Interest
Period in an amount approximately equal to such Reference Bank's Eurodollar
Rate Advance comprising part of such A Borrowing and for a period equal to such
Interest Period. The Eurodollar Rate for the Interest Period for each
Eurodollar Rate Advance comprising part of the same A Borrowing shall be
determined by the Agent on the basis of applicable rates furnished to and
received by the Agent from the Reference Banks two Business Days before the
first day of such Interest Period, subject, however, to the provisions
------- -------
of Section 2.09.
"Eurodollar Rate Advance" means an A Advance which bears
-----------------------
interest as provided in Section 2.07(c).
"Eurodollar Rate Reserve Percentage" of any Lender for the
----------------------------------
Interest Period for any Eurodollar Rate Advance means the reserve percentage
applicable during such Interest Period (or if more than one such percentage
shall be so applicable, the daily average of such percentages for those days in
such Interest Period during which any such percentage shall be so applicable)
under regulations issued from time to time by the Board of Governors of the
Federal Reserve System (or any successor) for determining the reserve
requirement (including, without limitation, any emergency, supplemental or
other marginal reserve requirement) for such Lender with respect to liabilities
or assets consisting of or including Eurocurrency Liabilities having a term
equal to such Interest Period.
"Events of Default" has the meaning specified in Section 6.01.
-----------------
"Federal Bankruptcy Code" means the Bankruptcy Reform Act of
-----------------------
1978, as amended from time to time.
"Federal Funds Rate" means, for any period, a fluctuating
------------------
interest rate per annum equal for each day during such period to the weighted
average of the rates on overnight Federal funds transactions with members of
the Federal Reserve System arranged by Federal funds brokers, as published for
such day (or, if such day is not a Business Day, for the next preceding
Business Day) by the Federal Reserve Bank of New York, or, if such rate is not
so published for any day which is a Business Day, the average of the quotations
for such day on such transactions received by the Agent from three Federal
funds brokers of recognized standing selected by it.
"Fixed Charges" means, for any accounting period, the sum of
-------------
(i) interest, whether expensed or capitalized, in respect of any Debt
outstanding during such period, plus (ii) amortization of debt expense and
discount or premium relating to any Debt outstanding
<PAGE>
9
during such period, whether expensed or capitalized, plus (iii) such portion of
rental expense as can be demonstrated to be representative of the interest
factor in the particular case, all as to be applicable to continuing operations
and determined in accordance with generally accepted accounting principles,
except that if there has been a material change in an accounting principle as
compared to that applied in the preparation of the financial statements of PM
Companies as at and for the nine months ended September 30, 1994, then such new
accounting principle shall not be used in the determination of Fixed Charges.
A material change in an accounting principle is one that, in the year of its
adoption, changes Net Income Before Tax or Fixed Charges for any quarter in
such year by more than 10%.
"Guarantor" means PM Companies.
---------
"Guaranty" has the meaning specified in Section 8.01.
--------
"Insufficiency" means, with respect to any Plan, the amount of
-------------
"unfunded benefit liabilities" (as defined in Section 4001(a)(18) of ERISA), if
any, for such Plan.
"Interest Period" means, for each A Advance comprising part of
---------------
the same A Borrowing, the period commencing on the date of such A Advance and
ending on the last day of the period selected by PM Companies pursuant to the
provisions below. The duration of each such Interest Period shall be (a) in
the case of an Adjusted CD Rate Advance, 30, 60, 90 or 180 days, (b) in the
case of a Base Rate Advance, 1, 2, 3 or 6 months and (c) in the case of a
Eurodollar Rate Advance, 1, 2, 3 or 6 months, in each case as PM Companies may,
upon notice received by the Agent not later than 12:00 Noon (New York City
time) on the third Business Day with respect to a Eurodollar Rate Advance, on
the second Business Day with respect to an Adjusted CD Rate Advance and on the
Business Day with respect to a Base Rate Advance, prior to the first day of
such Interest Period, select; provided, however, that:
-------- -------
(i) the duration of any Interest Period which commences before
the Termination Date and would otherwise end after the Termination Date
shall end on the Termination Date;
(ii) Interest Periods commencing on the same date for A Advances
comprising part of the same A Borrowing shall be of the same duration;
and
(iii) whenever the last day of any Interest Period would otherwise
occur on a day other than a Business Day, the last day of such Interest
Period shall be extended to occur on the next succeeding Business Day,
provided, in the case of any Interest Period for a Eurodollar Rate
--------
Advance, that if such extension would cause the last day of such Interest
Period to occur in the next following calendar month, the last day of
such Interest Period shall occur on the next preceding Business Day.
<PAGE>
10
"Lenders" means the Banks listed on the signature pages hereof
-------
and each Eligible Assignee that shall become a party hereto pursuant to Section
10.07.
"Major Plan" means, at any time, a Plan with an Insufficiency
----------
of $10,000,000 or more.
"Major Subsidiary" means any subsidiary (a) more than 50% of
----------------
the voting securities of which is owned directly or indirectly by PM Companies,
(b) which is organized and existing under, or has its principal place of
business in, the United States or any political subdivision thereof, Canada or
any political subdivision thereof, any country which is a member of the
European Economic Community on the date hereof (other than Greece, Portugal or
Spain) or any political subdivision thereof, Sweden, Switzerland, Norway or
Australia or any of their respective political subdivisions, and (c) which has
at any time total assets (after intercompany eliminations) exceeding
$500,000,000. Notwithstanding the foregoing, Mission Viejo Company (a
California corporation) and any of its subsidiaries engaged in the business of
community development, commercial real estate development, real estate
investment or related activities shall not be a Major Subsidiary.
"Majority Lenders" means at any time Lenders holding at least
----------------
66-2/3% of the aggregate unpaid principal amount of the A Advances then
outstanding, or, if no such principal amount is then outstanding, Lenders
having at least 66-2/3% of the Commitments (provided that, for purposes hereof,
neither PM Companies or any Borrower, nor any of their respective affiliates,
if a Lender, shall be included in (i) the Lenders holding such amount of the A
Advances or having such amount of the Commitments or (ii) determining the
aggregate unpaid principal amount of the A Advances or the total Commitments).
"Multiemployer Plan" means a "multiemployer plan" as defined in
------------------
Section 4001(a)(3) of ERISA to which any Borrower or PM Companies or any ERISA
Affiliate is making or accruing an obligation to make contributions, or has
within any of the preceding five plan years made or accrued an obligation to
make contributions, such plan being maintained pursuant to one or more
collective bargaining agreements.
"Multiple Employer Plan" means a single employer plan, as
----------------------
defined in Section 4001(a)(15) of ERISA, that (i) is maintained for employees
of any Borrower or PM Companies or any ERISA Affiliate and at least one Person
other than any Borrower or PM Companies and its ERISA Affiliates or (ii) was so
maintained and in respect of which any Borrower or PM Companies or any ERISA
Affiliate could have liability under Section 4064 or 4069 of ERISA in the event
such plan has been or were to be terminated.
"Net Income Before Tax" means, for any accounting period,
---------------------
income or loss from continuing operations for such period, as determined in
accordance with generally accepted accounting principles, plus total federal,
state and foreign income taxes which have
<PAGE>
11
been included in the determination of income or loss from continuing operations
for such period in accordance with generally accepted accounting principles and
amounts which, in the determination of income or loss from continuing
operations for such period, have been deducted for the items referred to in the
definition of Fixed Charges in this Section, except that if there has been a
material change in an accounting principle as compared to that applied in the
preparation of the financial statements of PM Companies as at and for the nine
months ended September 30, 1994, then such new accounting principle shall not
be used in the determination of Net Income Before Tax. A material change in an
accounting principle is one that, in the year of its adoption, changes Net
Income Before Tax or Fixed Charges for any quarter in such year by more than
10%.
"1993 Loan Agreement" has the meaning specified in Section
-------------------
3.05(a).
"Notice of A Borrowing" has the meaning specified in Section
---------------------
2.02(a).
"Notice of Acceptance" has the meaning specified in Section
--------------------
9.01(a).
"Notice of B Borrowing" has the meaning assigned to that term
---------------------
in Section 2.03(a).
"Notice of Borrowing" means either a Notice of A Borrowing or a
-------------------
Notice of B Borrowing.
"Obligations" has the meaning specified in Section 8.01.
-----------
"OECD" means the Organization for Economic Cooperation and
----
Development.
"Other Taxes" has the meaning specified in Section 2.13(b).
-----------
"PBGC" means the Pension Benefit Guaranty Corporation or any
----
successor corporation thereto.
"Person" means an individual, partnership, corporation
------
(including a business trust), joint stock company, trust, unincorporated
association, joint venture or other entity, or a government or any political
subdivision or agency thereof.
"Philip Morris" means Philip Morris Incorporated, a Virginia
-------------
corporation wholly-owned by PM Companies.
"Plan" means a Single Employer Plan or a Multiple Employer
----
Plan.
<PAGE>
12
"Reference Banks" means Citibank, Mellon Bank N.A., Barclays
---------------
Bank PLC and Dresdner Bank AG.
"Register" has the meaning specified in Section 10.07(c).
--------
"Significant Plan" means a Plan whose assets have a current
----------------
value in excess of $100,000,000.
"Single Employer Plan" means a single employer plan, as defined
--------------------
in Section 4001(a)(15) of ERISA, that (i) is maintained for employees of any
Borrower, PM Companies or an ERISA Affiliate and no Person other than such
Borrower or PM Companies or any of their ERISA Affiliates or (ii) was so
maintained and in respect of which any Borrower or PM Companies or an ERISA
Affiliate could have liability under Section 4069 of ERISA in the event such
plan has been or were to be terminated.
"Termination Date" means December 15, 1995, or the earlier date
----------------
of termination in whole of the Commitments pursuant to Section 2.05 or Section
6.01.
"Tobacco Assets" means all assets consisting of tobacco and
--------------
tobacco related assets, including, without limitation, all tobacco inventory,
aging warehouses, cigarette manufacturing facilities, distribution warehouses,
trademarks, tradenames and know-how and which relate to the domestic and
United States export business of PM Companies and its subsidiaries.
"Type" means, with reference to an A Advance, an Adjusted CD
----
Rate Advance, a Base Rate Advance or a Eurodollar Rate Advance.
"Withdrawal Liability" shall have the meaning given such term
--------------------
under Part I of Subtitle E of Title IV of ERISA.
SECTION 1.02. Additional Definitions. For purposes of this
----------------------
Agreement, "subsidiary" means, with respect to any Person, any corporation of
which more than 50% of the outstanding capital stock having voting power to
elect a majority of the Board of Directors of such corporation (irrespective of
whether or not at the time capital stock of any other class or classes of such
corporation shall or might have voting power upon the occurrence of any
contingency) is at the time directly or indirectly owned by such Person, by
such Person and one or more other subsidiaries, or by one or more other
subsidiaries.
SECTION 1.03. Computation of Time Periods. In this Agreement
---------------------------
in the computation of periods of time from a specified date to a later
specified date, the word "from" means "from and including" and the words "to"
and "until" each means "to but excluding".
<PAGE>
13
SECTION 1.04. Accounting Terms. All accounting terms not
----------------
specifically defined herein shall be construed in accordance with generally
accepted accounting principles, except that if there has been a material change
in an accounting principle, including the accounting for post-employment
benefits as prescribed by Statement of Financial Accounting Standards No. 112,
affecting the definition of an accounting term as compared to that applied in
the preparation of the financial statements of PM Companies as at and for the
nine months ended September 30, 1994, then such new accounting principle shall
not be used in the determination of the amount associated with that accounting
term. A material change in an accounting principle is one that, in the year of
its adoption, changes the amount associated with the relevant accounting term
for such year by more than 10%.
ARTICLE II
AMOUNTS AND TERMS OF THE ADVANCES
---------------------------------
SECTION 2.01. The A Advances. Each Lender severally agrees,
--------------
on the terms and conditions hereinafter set forth, to make A Advances to any
Borrower from time to time on any Business Day during the period from the date
hereof until the Termination Date in an aggregate amount for all of the
Borrowers not to exceed at any time outstanding the amount set opposite such
Lender's name on the signature pages hereof or, if such Lender has entered into
one or more Assignments and Acceptances, set forth for such Lender in the
Register maintained by the Agent pursuant to Section 10.07(c), as such amount
may be reduced pursuant to Section 2.05 (such Lender's "Commitment"),
provided that the aggregate amount of the Commitments of the Lenders shall
- --------
be deemed to be used from time to time to the extent of the aggregate amount of
the B Advances then outstanding and such deemed use of the aggregate amount of
the Commitments shall be applied to the Lenders ratably according to their
respective Commitments (each such deemed use of the aggregate amount of the
Commitments being a "B Reduction"). Each A Borrowing shall be in an aggregate
amount not less than $50,000,000 and shall consist of A Advances of the same
Type made to the same Borrower on the same day by the Lenders ratably according
to their respective Commitments and one or more A Borrowings may be made on the
same day. Within the limits of each Lender's Commitment, the Borrowers may
borrow, repay pursuant to Section 2.06, prepay pursuant to Section 2.10(b), and
reborrow under this Section 2.01.
SECTION 2.02. Making the A Advances. (a) Each A Borrowing
---------------------
shall be made on notice, given not later than 12:00 Noon (New York City time)
on the third Business Day prior to the date of the proposed A Borrowing in the
case of Eurodollar Rate Advances, on the second Business Day prior to the date
of the proposed A Borrowing in the case of Adjusted CD Rate Advances, and on
the Business Day prior to the date of the proposed A Borrowing in the case of
Base Rate Advances, by PM Companies to the Agent, which shall give to each
Lender prompt notice thereof by telex or cable. Each such notice of an
<PAGE>
14
A Borrowing (a "Notice of A Borrowing") shall be by telex or cable, confirmed
immediately in writing, in substantially the form of Exhibit B-1 hereto,
specifying therein the requested (i) date of such A Borrowing, (ii) Type of A
Advances comprising such A Borrowing, (iii) aggregate amount of such A
Borrowing, (iv) Interest Period for each such A Advance, and (v) name of the
Borrower. In the case of a proposed A Borrowing comprised of Adjusted CD Rate
Advances or Eurodollar Rate Advances, the Agent shall promptly notify each
Lender of the applicable interest rate under Section 2.07(b) or (c). Each
Lender shall, before 11:00 A.M. (New York City time) on the date of such A
Borrowing, make available for the account of its Applicable Lending Office to
the Agent at its address referred to in Section 10.02, in same day funds, such
Lender's ratable portion of such A Borrowing. After the Agent's receipt of
such funds and upon fulfillment of the applicable conditions set forth in
Article III, the Agent will make such funds available to the applicable
Borrower at the Agent's aforesaid address.
(b) Anything in subsection (a) above to the contrary
notwithstanding,
(i) if any Lender shall, at least one Business Day before the
date of any requested A Borrowing, notify the Agent that the introduction
of or any change in or in the interpretation of any law or regulation
makes it unlawful, or that any central bank or other governmental
authority asserts that it is unlawful, for such Lender or its Eurodollar
Lending Office to perform its obligations hereunder to make Eurodollar
Rate Advances or to fund or maintain Eurodollar Rate Advances hereunder,
the right of PM Companies to select Eurodollar Rate Advances for such A
Borrowing or any subsequent A Borrowing shall be suspended until such
Lender shall notify the Agent that the circumstances causing such
suspension no longer exist, and each A Advance comprising such requested
A Borrowing shall be a Base Rate Advance. Each Lender agrees that it
shall notify the Agent and PM Companies of any such introduction, change,
interpretation or assertion referred to above promptly after such Lender
becomes aware of the occurrence thereof;
(ii) if less than two Reference Banks furnish timely information
to the Agent for determining the Adjusted CD Rate for Adjusted CD Rate
Advances, or the Eurodollar Rate for Eurodollar Rate Advances, comprising
any requested A Borrowing, the right of any Borrower to select Adjusted
CD Rate Advances or Eurodollar Rate Advances, as the case may be, for
such A Borrowing or any subsequent A Borrowing shall be suspended until
the Agent shall notify PM Companies and the Lenders that the
circumstances causing such suspension no longer exist, and each A Advance
comprising such A Borrowing shall be a Base Rate Advance; and
(iii) if the Majority Lenders shall, at least one Business Day
before the date of any requested A Borrowing, notify the Agent that the
Eurodollar Rate for
<PAGE>
15
Eurodollar Rate Advances comprising such A Borrowing will not adequately
reflect the cost to such Majority Lenders of making or funding their
respective Eurodollar Rate Advances for such A Borrowing, the right of PM
Companies to select Eurodollar Rate Advances for such A Borrowing or any
subsequent A Borrowing shall be suspended until the Agent, after its
receipt of notice from such Majority Lenders that the circumstances
causing such suspension no longer exist, shall notify PM Companies and
the Lenders to such effect, and each A Advance comprising such A
Borrowing shall be a Base Rate Advance.
(c) Each Notice of A Borrowing shall be irrevocable and binding
on PM Companies and, if the Borrower named therein is not PM Companies, such
Borrower. In the case of any A Borrowing which the related Notice of A
Borrowing specifies is to be comprised of Adjusted CD Rate Advances or
Eurodollar Rate Advances, PM Companies and, if the Borrower named therein is
not PM Companies, such Borrower severally agree to indemnify each Lender
against any loss, cost or expense incurred by such Lender as a result of any
failure to fulfill on or before the date specified in such Notice of A
Borrowing for such A Borrowing the applicable conditions set forth in Article
III, including, without limitation, any loss (including loss of anticipated
profits), cost or expense incurred by reason of the liquidation or reemployment
of deposits or other funds acquired by such Lender to fund the Advance to be
made by such Lender as part of such A Borrowing when such A Advance, as a
result of such failure, is not made on such date.
(d) Unless the Agent shall have received notice from a Lender
prior to the date of any A Borrowing that such Lender will not make available
to the Agent such Lender's ratable portion of such A Borrowing, the Agent may
assume that such Lender has made such portion available to the Agent on the
date of such A Borrowing in accordance with subsection (a) of this Section 2.02
and the Agent may, in reliance upon such assumption, make available to the
Borrower thereof on such date a corresponding amount. If and to the extent
that such Lender shall not have so made such ratable portion available to the
Agent, such Lender and such Borrower severally agree to repay to the Agent
forthwith on demand such corresponding amount together with interest thereon,
for each day from the date such amount is made available to such Borrower until
the date such amount is repaid to the Agent, at (i) in the case of such
Borrower, the interest rate applicable at the time to the A Advances comprising
such A Borrowing and (ii) in the case of such Lender, the Federal Funds Rate.
If such Lender shall repay to the Agent such corresponding amount, such amount
so repaid shall constitute such Lender's A Advance as part of such A Borrowing
for purposes of this Agreement.
(e) The failure of any Lender to make the A Advance to be made by
it as part of any A Borrowing shall not relieve any other Lender of its
obligation, if any, hereunder to make its A Advance on the date of such A
Borrowing, but no Lender shall be
<PAGE>
16
responsible for the failure of any other Lender to make the A Advance to be
made by such other Lender on the date of any A Borrowing.
SECTION 2.03. The B Advances. (a) Each Lender severally
--------------
agrees that any Borrower may make B Borrowings under this Section 2.03 from
time to time on any Business Day during the period from the date hereof until
the date occurring 7 days prior to the Termination Date in the manner set forth
below; provided that, following the making of each B Borrowing the
--------
aggregate amount of the Advances then outstanding shall not exceed the
aggregate amount of the Commitments of the Lenders (computed without regard to
any B Reduction).
(i) PM Companies may request a B Borrowing under this Section
2.03 by delivering to the Agent, by telex or cable, confirmed immediately
in writing, a notice of a B Borrowing (a "Notice of B Borrowing"), in
substantially the form of Exhibit B-2 hereto, specifying the name of the
Borrower, the date and aggregate amount of the proposed B Borrowing, the
maturity date for repayment of each B Advance to be made as part of such
B Borrowing (which maturity date, in the case of a Notice of B Borrowing
delivered pursuant to clause (A) of this paragraph (i), may not be
earlier than the date occurring 7 days after the date of such B Borrowing
or later than the date occurring 180 days after the date of such B
Borrowing and, in the case of a Notice of B Borrowing delivered pursuant
to clause (B) of this paragraph (i), may not be earlier than the date
occurring 14 days after the date of such B Borrowing or later than the
date occurring 180 days after the date of such B Borrowing, and in no
event may the maturity date for any B Borrowing be later than the
Termination Date), the interest payment date or dates relating thereto,
the interest rate basis on which the Lenders may make offers to make B
Advances to such Borrower (which basis may be a fixed or floating rate)
and any other terms to be applicable to such B Borrowing, not later than
10:00 A.M. (New York City time) (A) at least two Business Days prior to
the date of the proposed B Borrowing, if PM Companies shall specify in
the Notice of B Borrowing that the rates of interest to be offered by the
Lenders shall be fixed rates per annum and (B) at least four Business
Days prior to the date of the proposed B Borrowing, if PM Companies shall
instead specify in the Notice of B Borrowing the basis to be used by the
Lenders in determining the rates of interest to be offered by them. The
Agent shall in turn promptly notify each Lender of each request for a B
Borrowing received by it by sending such Lender a copy of the related
Notice of B Borrowing.
(ii) Each Lender may, if, in its sole discretion, it elects to do
so, irrevocably offer to make one or more B Advances to the Borrower
named in any such Notice of B Borrowing as part of the proposed B
Borrowing at a rate or rates of interest specified by such Lender in its
sole discretion, by notifying the Agent (which shall give prompt notice
thereof to the Borrower), before 10:00 A.M. (New York
<PAGE>
17
City time) (A) on the Business Day prior to the date of such proposed B
Borrowing, in the case of a Notice of B Borrowing delivered pursuant to
clause (A) of paragraph (i) above, and (B) three Business Days before the
date of such proposed B Borrowing, in the case of a Notice of B Borrowing
delivered pursuant to clause (B) of paragraph (i) above, of the minimum
amount and maximum amount of each B Advance which such Lender would be
willing to make as part of such proposed B Borrowing (which amounts may,
subject to the proviso to the first sentence of this Section 2.03(a),
exceed such Lender's Commitment), the rate or rates of interest therefor
and such Lender's Applicable Lending Office with respect to such B
Advance; provided that if the Agent in its capacity as a Lender
--------
shall, in its sole discretion, elect to make any such offer, it shall
notify the Borrower of such offer before 9:00 A.M. (New York City time)
on the Business Day prior to the date of such proposed B Borrowing, in
the case referred to in clause (A) of this paragraph (ii), and three
Business Days before the date of such proposed B Borrowing, in the case
referred to in clause (B) of this paragraph (ii). If any Lender shall
elect not to make such an offer, such Lender shall so notify the Agent
before 10:00 A.M. (New York City time) on the Business Day prior to the
date of such proposed B Borrowing, in the case of a Notice of B Borrowing
delivered pursuant to clause (A) of paragraph (i) above, and three
Business Days before the date of such proposed B Borrowing, in the case
of a Notice of B Borrowing delivered pursuant to clause (B) of paragraph
(i) above, and such Lender shall not be obligated to, and shall not, make
any B Advance as part of such B Borrowing; provided that the failure
--------
of any Lender to give such notice shall not cause such Lender to be
obligated to make any B Advance as part of such proposed B Borrowing.
(iii) The Borrower named in any such Notice of B Borrowing shall,
in turn, (A) before 12:00 Noon (New York City time) on the Business Day
prior to the date of such proposed B Borrowing, in the case of a Notice
of B Borrowing delivered pursuant to clause (A) of paragraph (i) above
and (B) before 12:00 Noon (New York City time) three Business Days before
the date of such proposed B Borrowing, in the case of a Notice of B
Borrowing delivered pursuant to clause (B) of paragraph (i) above, either
(A) cancel such B Borrowing by giving the Agent notice to
that effect, or
(B) accept one or more of the offers made by any Lender or
Lenders pursuant to paragraph (ii) above by giving notice to the
Agent of the amount of each B Advance (which amount shall be equal
to or greater than the minimum amount, and equal to or less than
the maximum amount, notified to such Borrower by the Agent on
behalf of such Lender for such B Advance pursuant to paragraph (ii)
above) to be made by each Lender as part of such
<PAGE>
18
B Borrowing, and reject any remaining offers made by Lenders
pursuant to paragraph (ii) above by giving the Agent notice to that
effect.
The acceptance of offers by such Borrower pursuant to this clause (B)
shall be on the basis of ascending rates of interest contained in the
offers made by Lenders pursuant to paragraph (ii) above; provided
--------
that, in the event that two or more of such offers contain the same rate
of interest for a greater aggregate principal amount than the amount
specified in such Notice of B Borrowing less the aggregate principal
amount of all such offers containing lower rates of interest that have
been accepted by such Borrower pursuant to this clause (B), such Borrower
shall have sole discretion (subject to any minimum and maximum amount
specified in any such offer) to accept one or more of the offers at such
rate of interest and to reject any remaining offers at such rate of
interest.
(iv) If the Borrower named in any such Notice of B Borrowing
notifies the Agent that such B Borrowing is cancelled pursuant to
paragraph (iii)(A) above, the Agent shall give prompt notice thereof to
the Lenders and such B Borrowing shall not be made.
(v) If the Borrower named in any such Notice of B Borrowing
accepts one or more of the offers made by any Lender or Lenders pursuant
to paragraph (iii)(B) above, the Agent shall in turn promptly notify (A)
each Lender which has made an offer as described in paragraph (ii) above,
of the date and aggregate amount of such B Borrowing and whether or not
any offer or offers made by such Lender pursuant to paragraph (ii) above
have been accepted by such Borrower, (B) each Lender that is to make a B
Advance as part of such B Borrowing, of the amount of each B Advance to
be made by such Lender as part of such B Borrowing, and (C) each Lender
that is to make a B Advance as part of such B Borrowing, upon receipt,
that the Agent has received forms of documents appearing to fulfill the
applicable conditions set forth in Article III. Each Lender that is to
make a B Advance as part of such B Borrowing shall, before 12:00 Noon
(New York City time) on the date of such B Borrowing specified in the
notice received from the Agent pursuant to clause (A) of the preceding
sentence or any later time when such Lender shall have received notice
from the Agent pursuant to clause (C) of the preceding sentence, make
available for the account of its Applicable Lending Office to the Agent
at its address set forth in Section 10.02 such Lender's portion of such B
Borrowing, in same day funds. Upon fulfillment of the applicable
conditions set forth in Article III and after receipt by the Agent of
such funds, the Agent will make such funds available to such Borrower as
soon as practicable on such date at the Agent's aforesaid address.
Promptly after each B Borrowing the Agent will notify each Lender of the
amount of the B Borrowing, the consequent B Reduction and the dates upon
which such B Reduction commenced and will terminate.
<PAGE>
19
(b) Each B Borrowing shall be in an aggregate amount not less
than $100,000,000 or an integral multiple of $1,000,000 in excess thereof and,
following the making of each B Borrowing, the Borrower thereof shall be in
compliance with the limitation set forth in the proviso to the first sentence
of subsection (a) above.
(c) Within the limits and on the conditions set forth in this
Section 2.03, each Borrower may from time to time borrow under this Section
2.03, repay or prepay pursuant to subsection (d) below, and reborrow under this
Section 2.03, provided that a B Borrowing shall not be made within three
--------
Business Days of the date of any other B Borrowing.
(d) Each Borrower shall repay to the Agent for the account of
each Lender which has made a B Advance to such Borrower, or each other holder
of a B Note, on the maturity date of each B Advance made to it (such maturity
date being that specified for repayment of such B Advance in the related Notice
of B Borrowing delivered pursuant to subsection (a)(i) above or as provided in
the B Note evidencing such B Advance) the then unpaid principal amount of such
B Advance. No Borrower shall have the right to prepay any principal amount of
any B Advance unless, and then only on the terms, specified by PM Companies for
such B Advance in the related Notice of B Borrowing delivered pursuant to
subsection (a)(i) above and provided in the B Note evidencing such B Advance.
(e) Each Borrower shall pay interest on the unpaid principal
amount of each B Advance made to it from the date of such B Advance to the date
the principal amount of such B Advance is repaid in full, at the rate of
interest for such B Advance specified by the Lender making such B Advance in
its notice with respect thereto delivered pursuant to subsection (a)(ii) above,
payable on the interest payment date or dates specified by PM Companies for
such B Advance in the related Notice of B Borrowing delivered pursuant to
subsection (a)(i) above, as provided in the B Note evidencing such B Advance.
(f) The indebtedness of each Borrower resulting from each B
Advance made to such Borrower as part of a B Borrowing shall be evidenced by a
separate B Note of such Borrower payable to the order of the Lender making such
B Advance.
(g) Any notice given to any party under this Section 2.03 shall
be in writing, or may be by telephone or telex, in each case confirmed
immediately in writing.
SECTION 2.04. Fees. (a) PM Companies agrees to pay to each
----
Lender a facility fee on the principal amount of such Lender's Commitment
(whether or not unused and without giving effect to any B Reduction) from the
date hereof in the case of each Bank (unless otherwise agreed to by PM
Companies with such Bank) and from the effective date specified in the
Assignment and Acceptance pursuant to which it became a Lender in the case of
each other Lender until the Termination Date at the Applicable Facility Fee
Rate, in each
<PAGE>
20
case payable on the last day of each March, June, September and December until
the Termination Date and on the Termination Date.
(b) For any period in which the aggregate principal amount of
Advances exceeds an amount equal to 50% of the total Commitments, PM Companies
agrees to pay to each Lender a usage fee on the excess of (i) the average daily
aggregate amount of Advances made by such Lender outstanding during such period
over (ii) 50% of such Lender's Commitment at the Applicable Usage Fee Rate, in
each case payable in arrears on the last day of each March, June, September and
December occurring during such period and on the Termination Date, if
applicable.
(c) PM Companies agrees to pay to the Agent the agency fee,
arrangement fee and competitive bid fee in the amounts and at the times set
forth in the engagement letter dated November __, 1994 from the Agent to PM
Companies, as amended from time to time.
SECTION 2.05. Reduction of the Commitments. (a) PM Companies
----------------------------
shall have the right, upon five Business Days' notice to the Agent, to
terminate in whole or reduce ratably in part the unused portions of the
respective Commitments of the Lenders, provided that the aggregate amount
--------
of the Commitments of the Lenders shall not be reduced to an amount which is
less than the aggregate principal amount of the B Advances then outstanding and
provided further that each partial reduction shall be in the aggregate
- -------- -------
amount of at least $50,000,000.
(b) In the event that there shall be an Asset Disposition, the
respective Commitments of the Lenders shall be reduced ratably by an aggregate
amount equal to 100% of the net after-tax proceeds of such Asset Disposition.
For the purpose of this subsection (b) any net after-tax non-cash proceeds or
spin-off shall be valued at (i) the greater of (x) the book value and (y) the
fair market value (as determined in good faith by the Board of Directors of PM
Companies) of the assets subject to such Asset Disposition, less (ii) the cash
proceeds, if any, received as a result of such Asset Disposition. In the event
that the purchase price of assets subject to an Asset Disposition is subject to
adjustment, as a result of which PM Companies reasonably believes that the
proceeds ultimately to be received therefrom will be reduced, then until such
time as such adjustment is finalized, for purposes of this subsection (b) the
"net after-tax proceeds" shall include only the amount of those proceeds
actually received by PM Companies or any affiliate of PM Companies, less an
adjustment reserve in an amount reasonably determined by PM Companies to be
equivalent to such adjustment therein. As soon as such adjustment is
finalized, any further reduction in the Commitments shall be made as above
provided in this subsection (b). Any reduction pursuant to this subsection (b)
shall be effective on a date selected by PM Companies but in any event no later
than the last day of the calendar quarter during which the Asset Disposition
occurs; provided that any reduction which would be in amount less than
--------
$50,000,000 shall not be made but shall be included in the calculation of
<PAGE>
21
the subsequent reduction or reductions provided for in this subsection (b)
until the aggregate amount of any such subsequent reduction shall be at least
equal to $50,000,000, and such reduction shall then be made as above provided
in this subsection (b).
SECTION 2.06. Repayment of A Advances. Each Borrower shall
-----------------------
repay the principal amount of each A Advance made to it by each Lender on the
last day of the Interest Period for such A Advance.
SECTION 2.07. Interest on A Advances. Each Borrower shall pay
----------------------
interest on the unpaid principal amount of each A Advance made to it by each
Lender from the date of such A Advance until such principal amount shall be
paid in full, at the following rates per annum:
(a) Base Rate Advances. If such A Advance is a Base Rate
------------------
Advance, a rate per annum equal at all times to the Base Rate in effect
from time to time, payable monthly on the 20th day of each month, and on
the date such Base Rate Advance shall be paid in full; provided that
--------
any amount of principal which is not paid when due (whether at stated
maturity, by acceleration or otherwise) shall bear interest, from the
date on which such amount is due until such amount is paid in full,
payable on demand, at a rate per annum equal at all times to 1% per annum
plus the Base Rate in effect from time to time.
(b) Adjusted CD Rate Advances. If such A Advance is an
-------------------------
Adjusted CD Rate Advance, a rate per annum equal at all times during the
Interest Period for such A Advance to the sum of the Adjusted CD Rate for
such Interest Period plus the Applicable Interest Rate Margin, payable on
the last day of such Interest Period and, if such Interest Period has a
duration of 180 days, on the 90th day of such Interest Period;
provided that any amount of principal which is not paid when due
--------
(whether at stated maturity, by acceleration or otherwise) shall bear
interest, from the date on which such amount is due until such amount is
paid in full, payable on demand, at a rate per annum equal at all times
to 1% per annum plus the Base Rate in effect from time to time.
(c) Eurodollar Rate Advances. If such A Advance is a
------------------------
Eurodollar Rate Advance, a rate per annum equal at all times during the
Interest Period for such A Advance to the sum of the Eurodollar Rate for
such Interest Period plus the Applicable Interest Rate Margin, payable on
the last day of such Interest Period and, if such Interest Period has a
duration of six months, on the last day of the third month of such
Interest Period; provided that any amount of principal which is not
--------
paid when due (whether at stated maturity, by acceleration or otherwise)
shall bear interest, from the date on which such amount is due until such
amount is paid in full, payable on
<PAGE>
22
demand, at a rate per annum equal at all times to 1% per annum plus the
Base Rate in effect from time to time.
SECTION 2.08. Additional Interest on Eurodollar Rate Advances.
-----------------------------------------------
Each Borrower shall pay to each Lender, so long as such Lender shall be
required under regulations of the Board of Governors of the Federal Reserve
System to maintain reserves with respect to liabilities or assets consisting of
or including Eurocurrency Liabilities, additional interest on the unpaid
principal amount of each Eurodollar Rate Advance of such Lender to such
Borrower, from the date of such Advance until such principal amount is paid in
full, at an interest rate per annum equal at all times to the remainder
obtained by subtracting (i) the Eurodollar Rate for the Interest Period for
such Advance from (ii) the rate obtained by dividing such Eurodollar Rate by a
percentage equal to 100% minus the Eurodollar Rate Reserve Percentage of such
Lender for such Interest Period, payable on each date on which interest is
payable on such Advance. Such additional interest shall be determined by such
Lender and notified to PM Companies through the Agent.
SECTION 2.09. Interest Rate Determination. (a) Each Reference
---------------------------
Bank agrees to furnish to the Agent timely information for the purpose of
determining each Adjusted CD Rate or Eurodollar Rate, as applicable. If any
one or more of the Reference Banks shall not furnish such timely information to
the Agent for the purpose of determining any such interest rate, the Agent
shall determine such interest rate on the basis of timely information furnished
by the remaining Reference Banks.
(b) The Agent shall give prompt notice to PM Companies and the
Lenders of the applicable interest rate determined by the Agent for purposes of
Section 2.07(a), (b) or (c), and the applicable rate, if any, furnished by each
Reference Bank for the purpose of determining the applicable interest rate
under Section 2.07(b) or (c).
SECTION 2.10. Prepayment of A Advances. (a) No Borrower
------------------------
shall have the right to prepay any principal amount of any A Advances other
than as provided in subsection (b) below.
(b) Any Borrower may, upon at least four Business Days' notice to
the Agent stating the proposed date and aggregate principal amount of the
prepayment, and if such notice is given such Borrower shall, prepay the
outstanding principal amounts of A Advances comprising part of the same A
Borrowing in whole or ratably in part, together with accrued interest to the
date of such prepayment on the principal amount prepaid; provided,
--------
however, that (i) each partial prepayment shall be in an aggregate
- -------
principal amount not less than $50,000,000 and (ii) in the event of any such
prepayment of an Adjusted CD Rate Advance or a Eurodollar Rate Advance, such
Borrower shall be obligated to reimburse the Lenders in respect thereof
pursuant to Section 10.04(b) hereof.
<PAGE>
23
(c) If any Lender shall notify the Agent of any introduction,
change, interpretation or assertion referred to in Section 2.02(b)(i), or shall
claim payment of increased costs pursuant to Section 2.11(a) or (c) or payment
of any additional amounts payable pursuant to Section 2.13, PM Companies may,
upon at least five Business Days' notice to the Agent stating that the
Borrowers intend to repay the A Advances made by such Lender and terminate such
Lender's Commitment, and if such notice is given the Borrowers shall forthwith,
on the date specified in such notice, prepay in full all A Advances made by
such Lender with accrued interest thereon to the date of such prepayment and
all other amounts payable to such Lender by PM Companies and the other
Borrowers hereunder (including, without limitation, any amounts payable
pursuant to Section 10.04(b)), and upon such notice from PM Companies the
Commitment of such Lender to make further A Advances, and the obligation of PM
Companies to pay facility fees to such Lender, shall terminate.
(d) In the event that there shall be a reduction of the
Commitments pursuant to Section 2.05(b), the Borrowers shall on the date of
such reduction (or as soon thereafter as the Borrowers can do so without
incurring liability to any Lender pursuant to Section 10.04(b)) repay or prepay
ratably A Advances made as part of the same A Borrowings (together with
interest accrued thereon to such date) to the extent necessary so that the
aggregate principal amount of outstanding A Advances made by each Lender shall
not exceed such Lender's Commitment, as reduced on such date.
SECTION 2.11. Increased Costs. (a) If, due to either (i) the
---------------
introduction of or any change (other than any change by way of imposition or
increase of reserve requirements, in the case of Adjusted CD Rate Advances,
included in the Adjusted CD Rate Reserve Percentage or, in the case of
Eurodollar Rate Advances, included in the Eurodollar Rate Reserve Percentage)
in or in the interpretation of any law or regulation or (ii) the compliance
with any guideline or request from any central bank or other governmental
authority (whether or not having the force of law), there shall be any increase
in the cost to any Lender of agreeing to make or making, funding or maintaining
Adjusted CD Rate Advances or Eurodollar Rate Advances, then the Borrower of the
affected Advances shall from time to time, upon demand by such Lender (with a
copy of such demand to the Agent), pay to the Agent for the account of such
Lender additional amounts sufficient to compensate such Lender for such
increased cost, provided that before making any such demand, such Lender
--------
shall designate a different Applicable Lending Office if such designation will
avoid the need for, or reduce the amount of, such increased cost and will not,
in the reasonable judgment of such Lender, be otherwise disadvantageous to such
Lender. A certificate as to the amount of such increased cost, submitted to PM
Companies, such Borrower and the Agent by such Lender, shall be conclusive and
binding for all purposes, absent manifest error.
<PAGE>
24
(b) If, in the case of any Adjusted CD Rate Advance, the
Assessment Rate for the Interest Period for such Adjusted CD Rate Advance shall
be less than the annual assessment for such Interest Period actually paid by
such Lender to the Federal Deposit Insurance Corporation (or any successor) for
insuring U.S. dollar deposits of such Lender in the United States, then the
Borrower of the affected Advance shall, upon demand of such Lender (with a copy
of such demand to the Agent), pay to the Agent for the account of such Lender
additional amounts sufficient to compensate such Lender for such increased
assessment. A certificate as to the amounts of such increased assessment,
submitted to PM Companies, such Borrower and the Agent by such Lender, shall be
conclusive and binding for all purposes, absent manifest error.
(c) In the event that after the date hereof the implementation of
or any change in any law or regulation, or any guideline or directive (whether
or not having the force of law) or the interpretation or administration thereof
by any central bank or other authority charged with the administration thereof,
imposes, modifies or deems applicable any capital adequacy or similar
requirement (including, without limitation, a request or requirement which
affects the manner in which any Lender allocates capital resources to its
commitments, including its obligations hereunder) and as a result thereof, in
the sole opinion of such Lender, the rate of return on such Lender's capital as
a consequence of its obligations hereunder is reduced to a level below that
which such Lender could have achieved but for such circumstances, but reduced
to the extent that Borrowings are outstanding from time to time, then in each
such case upon demand from time to time PM Companies shall pay to such Lender
such additional amount or amounts as shall compensate such Lender for such
reduction in rate of return, provided that, in the case of each Lender,
--------
such additional amount or amounts shall not exceed 0.15 of 1% per annum on such
Lender's Commitment. A certificate of such Lender as to any such additional
amount or amounts shall be conclusive and binding for all purposes, absent
manifest error. Except as provided below, in determining any such amount or
amounts each Lender may use any reasonable averaging and attribution methods.
Notwithstanding the foregoing, each Lender shall take all reasonable actions to
avoid the imposition of, or reduce the amounts of, such increased costs,
provided that such actions, in the reasonable judgment of such Lender, will not
be otherwise disadvantageous to such Lender, and, to the extent possible, each
Lender will calculate such increased costs based upon the capital requirements
for its commitment hereunder and not upon the average or general capital
requirements imposed upon such Lender.
SECTION 2.12. Payments and Computations. (a) PM Companies
-------------------------
and each Borrower shall make each payment hereunder not later than 11:00 A.M.
(New York City time) on the day when due in U.S. dollars to the Agent at its
address referred to in Section 10.02 in same day funds. The Agent will
promptly thereafter cause to be distributed like funds relating to the payment
of principal or interest or fees ratably (other than amounts payable pursuant
to Section 2.02(c), 2.03, 2.08, 2.10(b)(ii) or (c), 2.11, 2.13 or 10.04(b)) to
the Lenders for the account of their respective Applicable Lending Offices, and
like funds
<PAGE>
25
relating to the payment of any other amount payable to any Lender to such
Lender for the account of its Applicable Lending Office, in each case to be
applied in accordance with the terms of this Agreement. Upon its acceptance of
an Assignment and Acceptance and recording of the information contained therein
in the Register pursuant to Section 10.07(d), from and after the effective date
specified in such Assignment and Acceptance, the Agent shall make all payments
hereunder and under the B Notes in respect of the interest assigned thereby to
the Lender assignee thereunder, and the parties to such Assignment and
Acceptance shall make all appropriate adjustments in such payments for periods
prior to such effective date directly between themselves.
(b) Each Borrower hereby authorizes each Lender, if and to the
extent payment owed to such Lender is not made to the Agent for the account of
such Lender when due hereunder, to charge from time to time against any or all
of such Borrower's accounts with such Lender any amount so due.
(c) All computations of interest based on the Base Rate shall be
made by the Agent on the basis of a year of 365 or 366 days, as the case may
be, and all computations of interest based on the Adjusted CD Rate, the
Eurodollar Rate or the Federal Funds Rate and of fees shall be made by the
Agent, and all computations of interest pursuant to Section 2.08 shall be made
by a Lender, on the basis of a year of 360 days, in each case for the actual
number of days (including the first day but excluding the last day) occurring
in the period for which such interest or fees are payable. Each determination
by the Agent (or, in the case of Section 2.08, by a Lender) of an interest rate
hereunder shall be conclusive and binding for all purposes, absent manifest
error.
(d) Whenever any payment hereunder shall be stated to be due on a
day other than a Business Day, such payment shall be made on the next
succeeding Business Day, and such extension of time shall in such case be
included in the computation of payment of interest or fees, as the case may be;
provided, however, if such extension would cause payment of interest on
- -------- -------
or principal of Eurodollar Rate Advances to be made in the next following
calendar month, such payment shall be made on the next preceding Business Day.
(e) Unless the Agent shall have received notice from any Borrower
prior to the date on which any payment is due from such Borrower to the Lenders
hereunder that such Borrower will not make such payment in full, the Agent may
assume that such Borrower has made such payment in full to the Agent on such
date and the Agent may, in reliance upon such assumption, cause to be
distributed to each Lender on such date an amount equal to the amount then due
such Lender. If and to the extent that such Borrower shall not have so made
such payment in full to the Agent, each Lender shall repay to the Agent
forthwith on demand such amount distributed to such Lender together with
interest thereon, for each day from the date such amount is distributed to such
Lender until the date such Lender repays such amount to the Agent, at the
Federal Funds Rate.
<PAGE>
26
SECTION 2.13. Taxes. (a) Any and all payments by each
-----
Borrower and PM Companies hereunder shall be made, in accordance with Section
2.12, free and clear of and without deductions for any and all present or
future taxes, levies, imposts, deductions, charges or withholdings, and all
liabilities with respect thereto, excluding, (i) in the case of each Lender
---------
and the Agent, taxes imposed on its income, and franchise taxes imposed on it,
by the jurisdiction under the laws of which such Lender or the Agent (as the
case may be) is organized or any political subdivision thereof, (ii) in the
case of each Lender, taxes imposed on its income, and franchise taxes imposed
on it, by the jurisdiction of such Lender's Applicable Lending Office or any
political subdivision thereof, and (iii) in the case of each Lender and the
Agent, taxes imposed by the United States by means of withholding tax if and to
the extent that such taxes shall be in effect and shall be applicable on the
date hereof, to payments to be made to such Lender's Applicable Lending Office
or to the Agent (all such non-excluded taxes, levies, imposts, deductions,
charges, withholdings and liabilities being hereinafter referred to as
"Taxes"). If any Borrower or PM Companies shall be required by law to deduct
any Taxes from or in respect of any sum payable hereunder to any Lender or the
Agent, (A) the sum payable shall be increased as may be necessary so that after
making all required deductions (including deductions applicable to additional
sums payable under this Section 2.13) such Lender or the Agent (as the case may
be) receives an amount equal to the sum it would have received had no such
deductions been made, (B) such Borrower and PM Companies shall make such
deductions and (C) such Borrower and PM Companies shall pay the full amount
deducted to the relevant taxation authority or other authority in accordance
with applicable law.
(b) In addition, each Borrower and PM Companies agrees to pay any
present or future stamp or documentary taxes or any other excise or property
taxes, charges or similar levies which arise from any payment made hereunder or
from the execution, delivery or registration of, or otherwise with respect to,
this Agreement (hereinafter referred to as "Other Taxes").
(c) Each Borrower and PM Companies will indemnify each Lender and
the Agent for the full amount of Taxes or Other Taxes (including, without
limitation, any Taxes or Other Taxes imposed by any jurisdiction on amounts
payable under this Section 2.13) paid by such Lender or the Agent (as the case
may be) and any liability (including penalties, interest and expenses) arising
therefrom or with respect thereto, whether or not such Taxes or Other Taxes
were correctly or legally asserted. This indemnification shall be made within
30 days from the date such Lender or the Agent (as the case may be) makes
written demand therefor.
(d) Within 30 days after the date of any payment of Taxes, each
Borrower and PM Companies will furnish to the Agent, at its address referred to
in Section 10.02, the original or a certified copy of a receipt evidencing
payment thereof by such Borrower or PM Companies.
<PAGE>
27
(e) Without prejudice to the survival of any other agreement of
any Borrower or PM Companies hereunder, the agreements and obligations of each
Borrower and PM Companies contained in this Section 2.13 shall survive the
payment in full of principal and interest hereunder.
(f) Prior to the date of the initial Borrowing hereunder, and
from time to time thereafter if requested by any Borrower, PM Companies or the
Agent, each Lender organized under the laws of a jurisdiction outside the
United States shall provide the Agent, PM Companies and such Borrower with the
forms prescribed by the Internal Revenue Service of the United States
certifying such Lender's exemption from United States withholding taxes with
respect to all payments to be made to such Lender hereunder. Unless the
Borrower, PM Companies and the Agent have received forms or other documents
satisfactory to them indicating that payments hereunder are not subject to
United States withholding tax or are subject to such tax at a rate reduced by
an applicable tax treaty, such Borrower, PM Companies or the Agent shall
withhold taxes from such payments at the applicable statutory rate in the case
of payments to or for any Lender organized under the laws of a jurisdiction
outside the United States.
(g) Any Lender claiming any additional amounts payable pursuant
to this Section 2.13 shall use its best efforts (consistent with its internal
policy and legal and regulatory restrictions) to change the jurisdiction of its
Applicable Lending Office so as to eliminate the amount of any such costs or
additional amounts which may thereafter accrue; provided that no such
--------
change shall be made if, in the reasonable judgment of such Lender, such change
would be disadvantageous to such Lender.
SECTION 2.14. Sharing of Payments, Etc. If any Lender shall
------------------------
obtain any payment (whether voluntary, involuntary, through the exercise of any
right of set-off, or otherwise) on account of the A Advances made by it (other
than pursuant to Section 2.02(c), 2.08, 2.10(b)(ii) or (c), 2.11, 2.13 or
10.04(b)) in excess of its ratable share of payments on account of the A
Advances obtained by all the Lenders, such Lender shall forthwith purchase from
the other Lenders such participations in the A Advances made by them as shall
be necessary to cause such purchasing Lender to share the excess payment
ratably with each of them; provided, however, that if all or any
-------- -------
portion of such excess payment is thereafter recovered from such purchasing
Lender, such purchase from each Lender shall be rescinded and such Lender shall
repay to the purchasing Lender the purchase price to the extent of such
recovery together with an amount equal to such Lender's ratable share
(according to the proportion of (i) the amount of such Lender's required
repayment to (ii) the total amount so recovered from the purchasing Lender) of
any interest or other amount paid or payable by the purchasing Lender in
respect of the total amount so recovered. Each Borrower agrees that any Lender
so purchasing a participation from another Lender pursuant to this Section 2.14
may, to the fullest extent permitted by law, exercise all its rights of payment
<PAGE>
28
(including the right of set-off) with respect to such participation as fully as
if such Lender were the direct creditor of such Borrower in the amount of such
participation.
SECTION 2.15. Evidence of Debt. (a) Each Lender shall
----------------
maintain in accordance with its usual practice an account or accounts
evidencing the indebtedness of each Borrower to such Lender resulting from each
A Advance made to such Borrower owing to such Lender from time to time,
including the amounts of principal thereof and interest thereon payable and
paid to such Lender from time to time hereunder.
(b) The Register maintained by the Agent pursuant to Section
10.07(c) shall include a control account, and a subsidiary account for each
Lender, in which accounts (taken together) shall be recorded (i) the date and
amount of each A Borrowing made hereunder, the Type of Advances comprising such
Borrowing and the Interest Period applicable thereto, (ii) the terms of each
Assignment and Acceptance delivered to and accepted by it, (iii) the amount of
any principal or interest due and payable or to become due and payable from
each Borrower to each Lender hereunder, and (iv) the amount of any sum received
by the Agent from such Borrower hereunder and each Lender's share thereof.
(c) The entries made in the Register shall be conclusive and
binding for all purposes, absent manifest error.
ARTICLE III
CONDITIONS OF LENDING
SECTION 3.01. Condition Precedent to Initial Advances. The
---------------------------------------
obligation of each Lender to make an Advance on the occasion of the initial
Borrowing by each Borrower is subject to the condition precedent that the Agent
shall have received on or before the day of such initial Borrowing the
following, each dated such day, in form and substance satisfactory to the Agent
and in sufficient copies for each Lender:
(a) Certified copies of the resolutions of each of the Board of
Directors of such Borrower and (unless PM Companies is the Borrower) the
Guarantor approving this Agreement, and of all documents evidencing other
necessary corporate action and governmental approvals, if any, on behalf
of such company or companies with respect to this Agreement.
(b) A certificate of the Secretary or an Assistant Secretary of
each of such Borrower and (unless PM Companies is the Borrower) the
Guarantor certifying the names and true signatures of the officers of
such company or companies authorized to
<PAGE>
29
sign this Agreement and the other documents to be delivered on behalf of
such company or companies hereunder.
(c) A favorable opinion of Hunton & Williams, counsel for PM
Companies, substantially in the form of Exhibit D hereto and as to such
other matters as any Lender through the Agent may reasonably request.
(d) A favorable opinion of Shearman & Sterling, special counsel
for the Agent, substantially in the form of Exhibit E hereto.
(e) A certificate of the chief financial officer of PM Companies
certifying that as of September 30, 1994 (i) the aggregate amount of
Debt, payment of which is secured by any lien, security interest or other
charge or encumbrance referred to in clause (iii) of Section 5.02(a)
hereof, does not exceed $400,000,000 and (ii) the aggregate amount of
Debt included in clause (i) of this subsection (e), payment of which is
secured by any lien, security interest or other charge or encumbrance
referred to in clause (iv) of Section 5.02(a), does not exceed
$200,000,000.
SECTION 3.02. Conditions Precedent to Each A Borrowing. The
----------------------------------------
obligation of each Lender to make an A Advance on the occasion of each A
Borrowing (including the initial A Borrowing) shall be subject to the further
conditions precedent that on the date of such A Borrowing, before and after
giving effect thereto and to the application of the proceeds therefrom (a) the
following statements shall be true (and each of the giving of the applicable
Notice of A Borrowing and the acceptance by the Borrower named therein of the
proceeds of such A Borrowing shall constitute a representation and warranty by
such Borrower and (unless PM Companies is the Borrower) the Guarantor that on
the date of such A Borrowing, before and after giving effect thereto and to the
application of the proceeds therefrom, such statements are true):
(i) The representations and warranties contained in Section 4.01
(excluding those contained in subsections (e) and (f) thereof) are
correct on and as of the date of such Borrowing as though made on and as
of such date;
(ii) No event has occurred and is continuing, or would result from
such A Borrowing, which constitutes an Event of Default; and
(iii) If such A Borrowing is in an aggregate principal amount equal
to or greater than $500,000,000 and is being made in connection with any
purchase of shares of such Borrower's or the Guarantor's capital stock or
the capital stock of any other Person, or any purchase of all or
substantially all of the assets of any Person (whether in one transaction
or a series of transactions) or any transaction of the type
<PAGE>
30
referred to in Section 5.02(b), the statements in (i) and (ii) above
shall also be true on a pro forma basis as if such transaction or
purchase shall have been completed;
and (b) the Agent shall have received such other approvals, opinions or
documents as any Lender through the Agent may reasonably request.
SECTION 3.03. Condition Precedent to Certain A Borrowings.
-------------------------------------------
The obligation of each Lender to make that portion of an A Advance on the
occasion of any A Borrowing (including the initial A Borrowing) which would
increase the aggregate outstanding amount of A Advances owing to such Lender
over the aggregate amount of such A Advances outstanding immediately prior to
the making of such A Advance shall be subject to the further condition
precedent that on the date of such A Borrowing, before and after giving effect
thereto and to the application of the proceeds therefrom, the following
statement shall be true (and each of the giving of the applicable Notice of A
Borrowing and the acceptance by the Borrower named therein of the proceeds of
such A Borrowing shall constitute a representation and warranty by such
Borrower and (unless PM Companies is the Borrower) the Guarantor that on the
date of such A Borrowing, before and after giving effect thereto and to the
application of the proceeds therefrom, such statement is true): no event has
occurred and is continuing, or would result from such A Borrowing, which would
constitute an Event of Default but for the requirement that notice be given or
time elapse or both.
SECTION 3.04. Conditions Precedent to Each B Borrowing. The
----------------------------------------
obligation of each Lender which is to make a B Advance on the occasion of a B
Borrowing (including the initial B Borrowing) to make such B Advance as part of
such B Borrowing is subject to the conditions precedent that (i) at least two
Business Days before the date of such B Borrowing in the case of a B Borrowing
under subsection (a)(i)(A) of Section 2.03 and at least four Business Days
before the date of such B Borrowing in the case of a B Borrowing under
subsection (a)(i)(B) of Section 2.03, the Agent shall have received the written
confirmatory Notice of B Borrowing with respect thereto, (ii) on or before the
date of such B Borrowing, but prior to such B Borrowing, the Agent shall have
received a B Note of the Borrower thereof payable to the order of such Lender
for each of the one or more B Advances to be made by such Lender as part of
such B Borrowing, in a principal amount equal to the principal amount to be
evidenced thereby and otherwise on such terms as were agreed to for such B
Advance by such Borrower and such Lender in accordance with Section 2.03, and
(iii) on the date of such B Borrowing, before and after giving effect thereto
and to the application of the proceeds therefrom, the following statements
shall be true (and each of the giving of the applicable Notice of B Borrowing
and the acceptance by such Borrower of the proceeds of such B Borrowing shall
constitute a representation and warranty by such Borrower and (unless PM
Companies is the Borrower) the Guarantor that on the date of such B Borrowing,
before and after giving effect thereto and to the application of the proceeds
therefrom, such statements are true):
<PAGE>
31
(a) The representations and warranties contained in Section 4.01
are correct on and as of the date of such B Borrowing as though made on
and as of such date; and
(b) No event has occurred and is continuing, or would result from
such B Borrowing, which constitutes an Event of Default or which would
constitute an Event of Default but for the requirement that notice be
given or time elapse or both.
SECTION 3.05. Condition Precedent to Effectiveness of this
--------------------------------------------
Agreement. This Agreement shall not become effective until:
- ---------
(a) the termination of the $4,000,000,000 364-Day Loan and
Guaranty Agreement dated as of December 17, 1993 (the "1993 Loan
Agreement") among PM Companies, the banks named therein and Citibank, as
agent; and
(b) PM Companies and its subsidiaries shall have satisfied all of
their respective obligations under the 1993 Loan Agreement including,
without limitation, the payment of all fees under such agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.01. Representations and Warranties of PM Companies.
----------------------------------------------
PM Companies represents and warrants as follows:
(a) It is a corporation duly organized, validly existing and in
good standing under the laws of Virginia.
(b) The execution, delivery and performance of this Agreement and
the B Notes (including the guaranties hereunder and under the B Notes)
are within its corporate powers, have been duly authorized by all
necessary corporate action, and do not contravene (i) its charter or
by-laws or (ii) any law, rule, regulation or order of any court or
governmental agency or any contractual restriction binding on or
affecting it.
(c) No authorization or approval or other action by, and no
notice to or filing with, any governmental authority or regulatory body
is required for the due execution, delivery and performance by it of this
Agreement or the B Notes (including the guaranties hereunder and under
the B Notes).
<PAGE>
32
(d) This Agreement (including the guaranty hereunder) is, and
each of the B Notes (including the guaranties under the B Notes) when
delivered hereunder will be, a legal, valid and binding obligation of PM
Companies enforceable against PM Companies in accordance with its terms,
subject to the effect of any applicable bankruptcy, insolvency,
reorganization, moratorium or similar law affecting creditors' rights
generally and to the effect of general principles of equity (regardless
of whether such enforceability is considered in a proceeding in equity or
at law).
(e) The consolidated balance sheet of PM Companies and its
consolidated subsidiaries as at September 30, 1994 and the consolidated
statements of earnings of PM Companies and its consolidated subsidiaries
for the nine months then ended (as set forth in PM Companies's quarterly
report on Form 10-Q for the quarter ended September 30, 1994, including
the notes to the financial statements contained therein) fairly present,
subject to year-end audit adjustments, the consolidated financial
condition of PM Companies and its consolidated subsidiaries as at such
date and the consolidated results of the operations of PM Companies and
its consolidated subsidiaries for the period ended on such date, all in
accordance with generally accepted accounting principles consistently
applied, and since September 30, 1994, there has been no material adverse
change in such condition or operations.
(f) There is no pending or threatened action or proceeding
affecting it or any of its subsidiaries before any court, governmental
agency or arbitrator, which may materially adversely affect the financial
condition or operations of PM Companies and its subsidiaries taken as a
whole or which purports to affect the legality, validity or
enforceability of this Agreement (including the guaranties hereunder and
under the B Notes).
(g) It owns directly or indirectly 100% of the capital stock of
each other Borrower and 100% of the capital stock of Philip Morris.
(h) No ERISA Event (other than a reportable event described in
Section 2615.23 of Title 29 of the Code of Federal Regulations) has
occurred nor is any ERISA Event reasonably expected to occur with respect
to any Major Plan, or any Significant Plan.
(i) Schedule B (Actuarial Information) to the most recently
completed annual report (Form 5500 Series) with respect to each Plan
which is a Major Plan or a Significant Plan, copies of which have been
filed with the Internal Revenue Service and furnished to each Bank, is
complete and accurate and fairly presents the funding status of such
Plan, and since the date of such Schedule B there has been no material
adverse change in such funding status; provided that no change in the
--------
funding status of any such Plan shall be deemed to be materially adverse
from that disclosed on such
<PAGE>
33
Schedule B unless there is an Insufficiency which, when aggregated with
the Insufficiency of each other Plan, exceeds $100,000,000.
(j) Neither any Borrower nor PM Companies nor any of their ERISA
Affiliates has incurred or reasonably expects to incur any Withdrawal
Liability under ERISA to any Multiemployer Plan requiring payments to
such Multiemployer Plan in an annual amount which, when aggregated
together with all other payments required to be made to Multiemployer
Plans as a result of Withdrawal Liabilities incurred or reasonably
expected to be incurred by the Borrowers, PM Companies and their ERISA
Affiliates, exceeds $25,000,000.
ARTICLE V
COVENANTS OF PM COMPANIES
SECTION 5.01. Affirmative Covenants. So long as any Advance
---------------------
shall remain unpaid or any Lender shall have any Commitment hereunder, PM
Companies will, unless the Majority Lenders shall otherwise consent in writing:
(a) Compliance with Laws, Etc. Comply, and cause each Major
-------------------------
Subsidiary to comply, in all material respects with all applicable laws,
rules, regulations and orders (such compliance to include, without
limitation, paying before the same become delinquent all taxes,
assessments and governmental charges imposed upon it or upon its property
except to the extent contested in good faith), noncompliance with which
would materially adversely affect its business or credit.
(b) Maintenance of Ratio of Net Income Before Tax to Fixed
------------------------------------------------------
Charges. Maintain a ratio of aggregate consolidated Net Income Before
-------
Tax for the four most recent fiscal quarters for which consolidated
statements of earnings have been delivered pursuant to Section 5.01(c)(i)
or (ii) hereof to consolidated Fixed Charges for such four most recent
fiscal quarters of not less than 2.5 to 1.0.
(c) Reporting Requirements. Furnish to the Lenders:
----------------------
(i) as soon as available and in any event within 60 days
after the end of each of the first three quarters of each fiscal
year of PM Companies, a consolidated balance sheet of PM Companies
and its consolidated subsidiaries as of the end of such quarter and
consolidated statements of earnings of PM Companies and its
consolidated subsidiaries for the period commencing at the end of
the previous fiscal year and ending with the end of such quarter,
certified by the chief financial officer of PM Companies;
<PAGE>
34
(ii) as soon as available and in any event within 90 days
after the end of each fiscal year of PM Companies, a copy of the
financial statements for such year for PM Companies and its
consolidated subsidiaries, audited by Coopers & Lybrand (or other
independent accountants which, as of the date of this Agreement,
are one of the "big six" accounting firms);
(iii) as soon as possible and in any event within five days
after the occurrence of each Event of Default and each event which,
with the giving of notice or lapse of time, or both, would
constitute an Event of Default, continuing on the date of such
statement, a statement of the chief financial officer of PM
Companies setting forth details of such Event of Default or event
and the action which PM Companies has taken and proposes to take
with respect thereto;
(iv) promptly after the sending or filing thereof, copies
of all reports which PM Companies sends to any of its shareholders,
and copies of all periodic reports on Forms 10-K, 10-Q and 8-K (or
any successor forms adopted by the Securities and Exchange
Commission) which PM Companies files with the Securities and
Exchange Commission;
(v) as soon as possible and in any event (A) within 30 days
after any Borrower or PM Companies or any of their ERISA Affiliates
knows or has reason to know that any ERISA Event described in clause
(i) of the definition of ERISA Event (other than a Reportable Event
described in Section 2615.23 of Title 29 of the Code of Federal
Regulations) with respect to any Major Plan or any Significant Plan
has occurred and (B) within 10 days after any Borrower or PM
Companies or any of their ERISA Affiliates knows or has reason to
know that any other ERISA Event with respect to any Major Plan or
any Significant Plan has occurred, a statement of the chief
financial officer of PM Companies describing such ERISA Event and
the action, if any, which such Borrower or PM Companies or such
ERISA Affiliate proposes to take with respect thereto;
(vi) promptly and in any event within two Business Days
after receipt thereof by any Borrower or PM Companies or any of
their ERISA Affiliates from the PBGC, copies of each notice
received by such Borrower or PM Companies or any such ERISA
Affiliate of the PBGC's intention to terminate any Plan or to have
a trustee appointed to administer any Plan;
(vii) promptly and in any event within 30 days after the
filing thereof with the Internal Revenue Service, copies of each
Schedule B (Actuarial
<PAGE>
35
Information) to the annual report (Form 5500 Series) with respect
to each Major Plan and each Significant Plan;
(viii) promptly and in any event within five Business Days
after receipt thereof by any Borrower or PM Companies or any of
their ERISA Affiliates from a Multiemployer Plan sponsor, a copy of
each notice received by such Borrower or PM Companies or any of
their ERISA Affiliates concerning the imposition of Withdrawal
Liability where the aggregate annual payments for such Withdrawal
Liability exceeds $10,000,000;
(ix) promptly and in any event within 60 days after the
date on which a Plan which is not a Major Plan or a Significant Plan
on the date hereof becomes a Major Plan or Significant Plan, copies
of each Schedule B (Actuarial Information) to the most recent Annual
Report (Form 5500 Series) filed with the Internal Revenue Service
with respect to such Plan, together with a statement of the chief
financial officer of PM Companies describing any material adverse
change in the funding status of such Plan since the date of such
Schedule B; and
(x) such other information respecting the condition or
operations, financial or otherwise, of PM Companies or any Major
Subsidiary as any Lender through the Agent may from time to time
reasonably request.
SECTION 5.02. Negative Covenants. So long as any Advance
------------------
shall remain unpaid or any Lender shall have any Commitment hereunder, PM
Companies will not, without the written consent of the Majority Lenders:
(a) Liens, Etc. Create or suffer to exist, or permit any
----------
Major Subsidiary to create or suffer to exist, any lien, security
interest or other charge or encumbrance, or any other type of
preferential arrangement, upon or with respect to any of its properties,
whether now owned or hereafter acquired, or assign, or permit any Major
Subsidiary to assign, any right to receive income, in each case to secure
or provide for the payment of any Debt of any Person, other than (i)
purchase money liens or purchase money security interests upon or in any
property acquired or held by it or any Major Subsidiary in the ordinary
course of business to secure the purchase price of such property or to
secure indebtedness incurred solely for the purpose of financing the
acquisition of such property, (ii) liens or security interests existing
on such property at the time of its acquisition (other than any such lien
or security interest created in contemplation of such acquisition), (iii)
liens or security interests existing on the date hereof securing Debt,
(iv) liens or security interests on property financed through the
issuance of industrial revenue bonds in favor of the holders of such
bonds or any agent or trustee therefor, (v) liens or security interests
existing on property of
<PAGE>
36
any Person acquired by it or any Major Subsidiary, (vi) liens or security
interests securing Debt in an aggregate amount not in excess of 5% of PM
Companies' Consolidated Tangible Assets, or (vii) liens or security
interests upon or with respect to "margin stock" as that term is defined
in Regulation U issued by the Board of Governors of the Federal Reserve
System.
(b) Mergers, Etc. Merge or consolidate with or into, or
------------
convey, transfer, lease or otherwise dispose of (whether in one
transaction or in a series of transactions) all or substantially all of
its assets (whether now owned or hereafter acquired) to, or acquire all
or substantially all of the assets of, any Person, or permit any
subsidiary directly or indirectly owned by it to do so, unless,
immediately after giving effect thereto, no Event of Default or event
which, with the giving of notice or lapse of time, or both, would
constitute an Event of Default would exist and, in the case of any merger
or consolidation to which it is a party, it is the surviving corporation
and, in the case of any merger or consolidation to which a Borrower other
than PM Companies is a party, the corporation formed by such
consolidation or into which such Borrower shall be merged shall be a
corporation organized and existing under the laws of the United States of
America or any State thereof, or the District of Columbia, and shall
assume such Borrower's obligations under this Agreement by the execution
and delivery of an instrument in form and substance satisfactory to the
Majority Lenders and a Notice of Acceptance.
(c) Compliance with ERISA. Permit to exist any occurrence of
---------------------
any Reportable Event (as defined in Title IV of ERISA), or any other
event or condition, which presents a material risk of termination by the
PBGC of any Major Plan.
(d) Maintenance of Ownership of Philip Morris. Sell or
-----------------------------------------
otherwise dispose of any shares of capital stock of Philip Morris.
ARTICLE VI
EVENTS OF DEFAULT
SECTION 6.01. Events of Default. If any of the following
-----------------
events ("Events of Default") shall occur and be continuing:
(a) Any Borrower or PM Companies shall fail to pay any principal
of, or interest on, any Advance, or PM Companies shall fail to pay any
fees payable under Section 2.04, when the same become due and payable; or
<PAGE>
37
(b) Any representation or warranty made or deemed to have been
made by any Borrower or PM Companies herein or by any Borrower or PM
Companies (or any of their respective officers) in connection with this
Agreement shall prove to have been incorrect in any material respect when
made or deemed to have been made; or
(c) Any Borrower or PM Companies shall fail to perform or observe
(i) any term, covenant or agreement contained in Section 5.01(b) or 5.02,
or (ii) any other term, covenant or agreement contained in this Agreement
on its part to be performed or observed if such failure shall remain
unremedied for 10 days after written notice thereof shall have been given
to PM Companies by the Agent or any Lender; or
(d) Any Borrower or PM Companies or any Major Subsidiary shall
fail to pay any principal of or premium or interest on any Debt which is
outstanding in a principal amount of at least $50,000,000 in the
aggregate (but excluding Debt arising under this Agreement) of such
Borrower or PM Companies or such Major Subsidiary (as the case may be),
when the same becomes due and payable (whether by scheduled maturity,
required prepayment, acceleration, demand or otherwise), and such failure
shall continue after the applicable grace period, if any, specified in
the agreement or instrument relating to such Debt unless adequate
provision for any such payment has been made in form and substance
satisfactory to the Majority Lenders; or any other event shall occur or
condition shall exist under any agreement or instrument relating to any
such Debt which is outstanding in a principal amount of at least
$100,000,000 in the aggregate and shall continue after the applicable
grace period, if any, specified in such agreement or instrument, if the
effect of such event or condition is to accelerate, or to permit the
acceleration of, the maturity of such Debt (other than any such Debt owed
to a Lender or an affiliate of a Lender if such event or condition shall
relate solely to a restriction on margin stock, as that term is defined
in Regulation U issued by the Board of Governors of the Federal Reserve
System) unless adequate provision for the payment of such Debt has been
made in form and substance satisfactory to the Majority Lenders; or any
Debt of any Borrower or PM Companies or any Major Subsidiary which is
outstanding in a principal amount of at least $50,000,000 in the
aggregate (but excluding Debt arising under this Agreement) shall be
declared to be due and payable, or required to be prepaid (other than by
a scheduled required prepayment), redeemed, purchased or defeased, or an
offer to prepay, redeem, purchase or defease such Debt shall be required
to be made, in each case prior to the stated maturity thereof unless
adequate provision for the payment of such Debt has been made in form and
substance satisfactory to the Majority Lenders; or
(e) Any Borrower or PM Companies or any Major Subsidiary shall
generally not pay its debts as such debts become due, or shall admit in
writing its
<PAGE>
38
inability to pay its debts generally, or shall make a general assignment
for the benefit of creditors; or any proceeding shall be instituted by or
against any Borrower or PM Companies or any Major Subsidiary seeking to
adjudicate it a bankrupt or insolvent, or seeking liquidation, winding
up, reorganization, arrangement, adjustment, protection, relief, or
composition of it or its debts under any law relating to bankruptcy,
insolvency or reorganization or relief of debtors, or seeking the entry
of an order for relief or the appointment of a receiver, trustee, or
other similar official for it or for any substantial part of its
property, and, in the case of any such proceeding instituted against it
(but not instituted by it), either such proceeding shall remain
undismissed or unstayed for a period of 45 days or any of the actions
sought in such proceeding (including, without limitation, the entry of an
order for relief against it or the appointment of a receiver, trustee,
custodian or other similar official for it or for any substantial part of
its property) shall occur; or any Borrower or PM Companies or any Major
Subsidiary shall take any corporate action to authorize any of the
actions set forth above in this subsection (e); or
(f) Any judgment or order for the payment of money in excess of
$50,000,000 shall be rendered against any Borrower or PM Companies or any
Major Subsidiary and either (i) enforcement proceedings shall have been
commenced by any creditor upon such judgment or order or (ii) there shall
be any period of 10 consecutive days during which a stay of enforcement
of such judgment or order, by reason of a pending appeal or otherwise,
shall not be in effect; or
(g) Any ERISA Event with respect to Plan (a "Subject ERISA
Event") shall have occurred, and, 30 days after notice thereof shall have
been given to PM Companies by any Lender, (i) such Subject ERISA Event
(if correctible) shall not have been corrected and (ii) the Insufficiency
of any such Plan, when aggregated with the Insufficiencies (determined as
of the date of the Subject ERISA Event) of all other Plans, if any, which
were Plans on or after the date hereof and with respect to which an ERISA
Event has occurred, exceeds $100,000,000; or
(h) Any Borrower or PM Companies or any of their ERISA Affiliates
shall have made a complete or partial withdrawal from a Multiemployer
Plan and the plan sponsor of such Multiemployer Plan shall have notified
such withdrawing employer that such employer has incurred a Withdrawal
Liability in an annual amount which, when aggregated together with all
other payments required to be made to Multiemployer Plans whose plan
sponsors have notified such Borrower, PM Companies or any of their ERISA
Affiliates that a Withdrawal Liability has been incurred by such
Borrower, PM Companies or any of their ERISA Affiliates under such
Multiemployer Plans, exceeds $25,000,000; or
<PAGE>
39
(i) The guaranty provided by PM Companies under Article VIII
hereof or any guaranty endorsed by PM Companies on any B Note after
delivery thereof under Section 3.04 shall for any reason cease to be
valid and binding on PM Companies or PM Companies shall so state in
writing;
then, and in any such event, the Agent (i) shall at the request, or may with
the consent, of the Majority Lenders, by notice to PM Companies and the
Borrowers, declare the obligation of each Lender to make Advances to be
terminated, whereupon the same shall forthwith terminate, and (ii) shall at the
request, or may with the consent, of the Majority Lenders, by notice to PM
Companies and the Borrowers, declare all the Advances then outstanding, all
interest thereon and all other amounts payable under this Agreement to be
forthwith due and payable, whereupon the Advances then outstanding, all such
interest and all such amounts shall become and be forthwith due and payable,
without presentment, demand, protest or further notice of any kind, all of
which are hereby expressly waived by the Borrowers; provided, however,
-------- -------
that in the event of an actual or deemed entry of an order for relief with
respect to any Borrower, PM Companies or any Major Subsidiary under the Federal
Bankruptcy Code, (A) the obligation of each Lender to make Advances shall
automatically be terminated and (B) the Advances then outstanding, all such
interest and all such amounts shall automatically become and be due and
payable, without presentment, demand, protest or any notice of any kind, all of
which are hereby expressly waived by the Borrowers.
ARTICLE VII
THE AGENT
SECTION 7.01. Authorization and Action. Each Lender hereby
------------------------
appoints and authorizes the Agent to take such action as agent on its behalf
and to exercise such powers under this Agreement as are delegated to the Agent
by the terms hereof, together with such powers as are reasonably incidental
thereto. As to any matters not expressly provided for by this Agreement
(including, without limitation, enforcement or collection of the Debt resulting
from the Advances), the Agent shall not be required to exercise any discretion
or take any action, but shall be required to act or to refrain from acting (and
shall be fully protected in so acting or refraining from acting) upon the
instructions of the Majority Lenders, and such instructions shall be binding
upon all Lenders; provided, however, that the Agent shall not
-------- -------
be required to take any action which exposes the Agent to personal liability or
which is contrary to this Agreement or applicable law. The Agent agrees to
give to each Lender prompt notice of each notice given to it by PM Companies or
any Borrower pursuant to the terms of this Agreement.
SECTION 7.02. Agent's Reliance, Etc. Neither the Agent nor
---------------------
any of its directors, officers, agents or employees shall be liable for any
action taken or omitted to be
<PAGE>
40
taken by it or them under or in connection with this Agreement, except for its
or their own gross negligence or wilful misconduct. Without limitation of the
generality of the foregoing, the Agent: (i) may treat the Lender that made any
Advance as the holder of the Debt resulting therefrom until the Agent receives
and accepts an Assignment and Acceptance entered into by such Lender, as
assignor, and an Eligible Assignee, as assignee, as provided in Section 10.07;
(ii) may consult with legal counsel (including counsel for the Borrowers and PM
Companies), independent accountants and other experts selected by it and shall
not be liable for any action taken or omitted to be taken in good faith by it
in accordance with the advice of such counsel, accountants or experts; (iii)
makes no warranty or representation to any Lender and shall not be responsible
to any Lender for any statements, warranties or representations made in or in
connection with this Agreement; (iv) shall not have any duty to ascertain or to
inquire as to the performance or observance of any of the terms, covenants or
conditions of this Agreement on the part of any Borrower or PM Companies or to
inspect the property (including the books and records) of any Borrower or PM
Companies; (v) shall not be responsible to any Lender for the due execution,
legality, validity, enforceability, genuineness, sufficiency or value of this
Agreement or any other instrument or document furnished pursuant hereto; and
(vi) shall incur no liability under or in respect of this Agreement by acting
upon any notice, consent, certificate or, other instrument or writing (which
may be by telegram, cable or telex) believed by it to be genuine and signed or
sent by the proper party or parties.
SECTION 7.03. Citibank and Affiliates. With respect to any
-----------------------
Commitment of, or any Advance made by, Citibank or any of its affiliates,
Citibank shall have the same rights and powers under this Agreement as any
other Lender and may exercise the same as though it were not the Agent; and the
term "Lender" or "Lenders" shall, unless otherwise expressly indicated, include
Citibank in its individual capacity. Citibank and its affiliates may accept
deposits from, lend money to, act as trustee under indentures of, and generally
engage in any kind of business with, any Borrower, PM Companies, any of their
respective subsidiaries and any Person who may do business with or own
securities of any Borrower or PM Companies or any such subsidiary, all as if
Citibank were not the Agent and without any duty to account therefor to the
Lenders.
SECTION 7.04. Lender Credit Decision. Each Lender
----------------------
acknowledges that it has, independently and without reliance upon the Agent or
any other Lender and based on the financial statements referred to in Section
4.01 and such other documents and information as it has deemed appropriate,
made its own credit analysis, and decision to enter into this Agreement. Each
Lender also acknowledges that it will, independently and without reliance upon
the Agent or any other Lender and based on such documents and information as it
shall deem appropriate at the time, continue to make its own credit decisions
in taking or not taking action under this Agreement.
<PAGE>
41
SECTION 7.05. Indemnification. The Lenders agree to indemnify
---------------
the Agent (to the extent not reimbursed by PM Companies or any Borrower),
ratably according to the respective principal amounts of Advances then owing to
each of them (or if no such Advances are at the time outstanding or if any such
Advances are then owing to Persons which are not Lenders, ratably according to
the respective amounts of their Commitments), from and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements of any kind or nature whatsoever which
may be imposed on, incurred by, or asserted against the Agent in any way
relating to or arising out of this Agreement or any action taken or omitted by
the Agent under this Agreement, provided that no Lender shall be liable for
--------
any portion of such liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements resulting from the
Agent's gross negligence or wilful misconduct. Without limitation of the
foregoing, each Lender agrees to reimburse the Agent promptly upon demand for
its ratable share of any out-of-pocket expenses (including counsel fees and
expenses) incurred by the Agent in connection with the preparation, execution,
delivery, administration, modification, amendment or enforcement (whether
through negotiations, legal proceedings or otherwise) of, or legal advice in
respect of rights or responsibilities under, this Agreement, to the extent that
the Agent is not reimbursed for such expenses by PM Companies or any Borrower.
SECTION 7.06. Successor Agent. The Agent may resign at any
---------------
time by giving written notice thereof to the Lenders and PM Companies and may
be removed at any time with or without cause by the Majority Lenders. Upon any
such resignation or removal, the Majority Lenders shall have the right to
appoint a successor Agent. If no successor Agent shall have been so appointed
by the Majority Lenders, and shall have accepted such appointment, within 30
days after the retiring Agent's giving of notice of resignation or the Majority
Lenders' removal of the retiring Agent, then the retiring Agent may, on behalf
of the Lenders, appoint a successor Agent, which shall be a Lender having and
acting through a New York office, or a commercial bank organized under the laws
of the United States of America or of any State thereof and having a combined
capital and surplus of at least $500,000,000 which is not a Lender. Upon the
acceptance of any appointment as Agent hereunder by a successor Agent, such
successor Agent shall thereupon succeed to and become vested with all the
rights, powers, privileges and duties of the retiring Agent, and the retiring
Agent shall be discharged from its duties and obligations under this Agreement.
After any retiring Agent's resignation or removal hereunder as Agent, the
provisions of this Article VII shall inure to its benefit as to any actions
taken or omitted to be taken by it while it was Agent under this Agreement.
<PAGE>
42
ARTICLE VIII
GUARANTY
SECTION 8.01. Guaranty. The Guarantor hereby unconditionally
--------
and irrevocably guarantees (the undertaking of the Guarantor contained in this
Article VIII being the "Guaranty") the punctual payment when due, whether at
stated maturity, by acceleration or otherwise, of all obligations of each
Borrower now or hereafter existing under this Agreement (other than such
obligations under Section 2.03(d) and (e) which are covered by the guaranty
under the B Notes), whether for principal, interest, fees, expenses or
otherwise (such obligations being the "Obligations"), and any and all expenses
(including counsel fees and expenses) incurred by the Agent or the Lenders in
enforcing any rights under the Guaranty.
SECTION 8.02. Guaranty Absolute. The Guarantor guarantees
-----------------
that the Obligations will be paid strictly in accordance with the terms of this
Agreement, regardless of any law, regulation or order now or hereafter in
effect in any jurisdiction affecting any of such terms or the rights of the
Agent or the Lenders with respect thereto. The liability
of the Guarantor under this Guaranty shall be absolute and unconditional
irrespective of:
(i) any lack of validity, enforceability or genuineness of any
provision of this Agreement or any other agreement or instrument relating
thereto;
(ii) any change in the time, manner or place of payment of, or in
any other term of, all or any of the Obligations, or any other amendment
or waiver of or any consent to departure from this Agreement;
(iii) any exchange, release or non-perfection of any collateral, or
any release or amendment or waiver of or consent to departure from any
other guaranty, for all or any of the Obligations; or
(iv) any other circumstance which might otherwise constitute a
defense available to, or a discharge of, a Borrower or the Guarantor.
This Guaranty shall continue to be effective or be reinstated, as the case may
be, if at any time any payment of any of the Obligations is rescinded or must
otherwise be returned by the Agent or any Lender upon the insolvency,
bankruptcy or reorganization of a Borrower or otherwise, all as though such
payment had not been made.
SECTION 8.03. Waivers. (a) The Guarantor hereby waives
-------
promptness, diligence, notice of acceptance and any other notice with respect
to any of the Obligations and this Guaranty and any requirement that the Agent
or any Lender protect, secure, perfect
<PAGE>
43
or insure any security interest or lien or any property subject thereto or
exhaust any right or take any action against a Borrower or any other Person or
any collateral.
(b) The Guarantor hereby irrevocably waives any claims or other
rights that it may now or hereafter acquire against any Borrower that arise
from the existence, payment, performance or enforcement of the Guarantor's
obligations under this Guaranty or this Agreement, including, without
limitation, any right of subrogation, reimbursement, exoneration, contribution
or indemnification and any right to participate in any claim or remedy of the
Agent or any Lender against such Borrower or any collateral, whether or not
such claim, remedy or right arises in equity or under contract, statute or
common law, including, without limitation, the right to take or receive from
such Borrower, directly or indirectly, in cash or other property or by set-off
or in any other manner, payment or security on account of such claim, remedy or
right. If any amount shall be paid to the Guarantor in violation of the
preceding sentence at any time prior to the later of the cash payment in full
of the Obligations and all other amounts payable under this Guaranty and the
Termination Date, such amount shall be held in trust for the benefit of the
Agent and the Lenders and shall forthwith be paid to the Agent to be credited
and applied to the Obligations and all other amounts payable under this
Guaranty, whether matured or unmatured, in accordance with the terms of this
Agreement and this Guaranty, or to be held as collateral for any Obligations or
other amounts payable under this Guaranty thereafter arising. The Guarantor
acknowledges that it will receive direct and indirect benefits from the
financing arrangements contemplated by this Agreement and this Guaranty and
that the waiver set forth in this subsection is knowingly made in contemplation
of such benefits.
SECTION 8.04. Payments Free and Clear of Taxes, Etc. (a) Any
-------------------------------------
and all payments made by the Guarantor hereunder shall be made in accordance
with Section 2.12 (concerning payments) of this Agreement free and clear of and
without deduction for any and all present or future Taxes. If the Guarantor
shall be required by law to deduct any Taxes from or in respect of any sum
payable hereunder to any Lender or the Agent, (i) the sum payable shall be
increased as may be necessary so that after making all required deductions
(including deductions applicable to additional sums payable under this Section)
such Lender or the Agent (as the case may be) receives an amount equal to the
sum it would have received had no such deductions been made, (ii) the Guarantor
shall make such deductions and (iii) the Guarantor shall pay the full amount
deducted to the relevant taxation authority or other authority in accordance
with applicable law.
(b) In addition, the Guarantor agrees to pay any present or
future Other Taxes which arise from any payment made under this Guaranty or
from the execution, delivery or registration of, or otherwise with respect to,
this Guaranty.
(c) The Guarantor will indemnify each Lender and the Agent for
the full amount of Taxes or Other Taxes (including, without limitation, any
Taxes or Other Taxes
<PAGE>
44
imposed by any jurisdiction on amounts payable under this Section) paid by such
Lender or the Agent (as the case may be) and any liability (including
penalties, interest and expenses) arising therefrom or with respect thereto,
whether or not such Taxes or Other Taxes were correctly or legally asserted.
This indemnification shall be made within 30 days from the date such Lender or
the Agent (as the case may be) makes written demand therefor.
(d) Within 30 days after the date of any payment of Taxes, the
Guarantor will furnish to the Agent, at its address referred to in Section
10.02, the original or a certified copy of a receipt evidencing payment
thereof.
(e) Without prejudice to the survival of any other agreement of
the Guarantor hereunder, the agreements and obligations of the Guarantor
contained in this Section 8.04 shall survive the payment in full of the
principal of and interest on the Advances.
(f) Unless in accordance with Section 2.13(f) a Borrower, PM
Companies and the Agent have received forms and other documents satisfactory to
them indicating that payments hereunder are not subject to United States
withholding tax or are subject to such tax at a rate reduced by an applicable
tax treaty, the Guarantor or the Agent shall withhold taxes from such payments
at the applicable statutory rate in the case of payments to or for any Lender
organized under the laws of a jurisdiction outside the United States.
SECTION 8.05. No Waiver; Remedies. No failure on the part of
-------------------
the Agent or any Lender to exercise, and no delay in exercising, any right
hereunder shall operate as a waiver thereof; nor shall any single or partial
exercise of any right hereunder, preclude any other or further exercise thereof
or the exercise of any other right. The remedies herein provided are
cumulative and not exclusive of any remedies provided by law.
SECTION 8.06. Continuing Guaranty. This Guaranty is a
-------------------
continuing guaranty and shall (i) remain in full force and effect until payment
in full (after the Termination Date) of the Obligations and all other amounts
payable under this Guaranty, (ii) be binding upon the Guarantor, its successors
and assigns, and (iii) inure to the benefit of and be enforceable by the
Lenders, the Agents and their respective successors, transferees and assigns.
<PAGE>
45
ARTICLE IX
SUBSIDIARY BORROWER
SECTION 9.01. Subsidiary Borrower. Any domestic or foreign
-------------------
subsidiary of the Guarantor shall have the right to become a "Borrower"
hereunder, and to borrow any unused Commitments under this Agreement subject to
the terms and conditions hereof applicable to a Borrower and to the following
additional conditions:
(a) PM Companies shall deliver a notice in the form of Exhibit F
hereto (a "Notice of Acceptance") signed by such subsidiary and
countersigned by the Guarantor to the Agent stating that such subsidiary
desires to become a "Borrower" under this Agreement and agrees to be
bound by the terms hereof. From the time of receipt of such Notice of
Acceptance by the Agent, such subsidiary shall be a "Borrower" hereunder
with all of the rights and obligations of a Borrower hereunder. No
Notice of Acceptance relating to a subsidiary may be revoked as to
amounts owed by such subsidiary to the Lenders under this Agreement or
when a Notice of Borrowing naming such subsidiary has been given by PM
Companies and is effective.
(b) Each Notice of Acceptance shall be accompanied by an opinion
of counsel for PM Companies to the effect of clause (iv) below and shall
contain the following representations and warranties with respect to such
subsidiary:
(i) The subsidiary is a corporation duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation.
(ii) The execution, delivery and performance by the
subsidiary of any B Notes executed and delivered and to be executed
and delivered by it, this Agreement and such Notice of Acceptance
are within the subsidiary's corporate powers, have been duly
authorized by all necessary corporate action, and do not contravene
(i) the subsidiary's charter or by-laws or (ii) any law, rule,
regulation or order of any court or governmental agency or any
contractual restriction binding on or affecting the subsidiary.
(iii) No authorization or approval or other action by, and no
notice to or filing with, any governmental authority or regulatory
body is required for the due execution, delivery and performance by
the subsidiary of any B Notes executed and delivered and to be
executed and delivered by it, this Agreement or such Notice of
Acceptance.
(iv) This Agreement is, and any B Notes of such subsidiary
when delivered under this Agreement will be, the legal, valid and
binding obligation
<PAGE>
46
of the subsidiary enforceable against the subsidiary in accordance
with their respective terms, subject to the effect of any
applicable bankruptcy, insolvency, reorganization, moratorium or
similar law affecting creditors rights generally and to the effect
of general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
(v) There is no pending or threatened action or proceeding
affecting the subsidiary or any of its subsidiaries before any
court, governmental agency or arbitrator which purports to affect
the legality, validity or enforceability of this Agreement or any B
Note.
(vi) PM Companies owns directly or indirectly 100% of the
capital stock of the subsidiary.
(c) For the purposes of Sections 3.02, 3.03 and 3.04, each of the
representations and warranties in the foregoing Section 9.01(b) shall be
deemed to be a representation and warranty contained in Section 4.01.
ARTICLE X
MISCELLANEOUS
SECTION 10.01. Amendments, Etc. No amendment or waiver of any
---------------
provision of this Agreement, nor consent to any departure by any Borrower or
the Guarantor therefrom, shall in any event be effective unless the same shall
be in writing and signed by the Majority Lenders, and then such waiver or
consent shall be effective only in the specific instance and for the specific
purpose for which given; provided, however, that no amendment, waiver
-------- -------
or consent shall, unless in writing and signed by all the Lenders, do any of
the following: (a) waive any of the conditions specified in Section 3.01, 3.02
(if and to the extent that the Borrowing which is the subject of such waiver
would involve an increase in the aggregate outstanding amount of Advances over
the aggregate amount of Advances outstanding immediately prior to such
Borrowing) or 3.03, (b) increase the Commitments of the Lenders or subject the
Lenders to any additional obligations, (c) reduce the principal of, or interest
on, the A Advances or any fees or other amounts payable hereunder, (d) postpone
any date fixed for any payment of principal of, or interest on, the A Advances
or any fees or other amounts payable hereunder, (e) change the percentage of
the Commitments or of the aggregate unpaid principal amount of A Advances, or
the number of Lenders which shall be required for the Lenders or any of them to
take any action hereunder, (f) release the Guarantor from any of its
obligations under Article VIII or (g) amend this Section 10.01; provided
--------
further that no waiver of the conditions specified in Section 3.04 in
- -------
connection with any B Borrowing shall be effective unless consented to by all
Lenders making B Advances as
<PAGE>
47
part of such B Borrowing; and provided further that no amendment,
-------- -------
waiver or consent shall, unless in writing and signed by the Agent in addition
to the Lenders required above to take such action, affect the rights or duties
of the Agent under this Agreement or any A Advance.
SECTION 10.02. Notices, Etc. Except as provided in Section
------------
2.03(a) or (g), all notices and other communications provided for hereunder
shall be in writing (including telegraphic, telecopy, telex or cable
communication) and mailed, telegraphed, telecopied, telexed, cabled or
delivered, if to any Borrower, at its address at c/o Philip Morris Companies
Inc., 120 Park Avenue, New York, New York 10017, Attention: Treasurer; if to
the Guarantor, at its address at 120 Park Avenue, New York, New York 10017,
Attention: Secretary; if to any Bank, at its Domestic Lending Office specified
opposite its name on Schedule I hereto; if to any other Lender, at its Domestic
Lending Office specified in the Assignment and Acceptance pursuant to which it
became a Lender; and if to the Agent, at its address at One Court Square, Long
Island City, New York, 11120, Attention: John Sahr; or, as to each party, at
such other address as shall be designated by such party in a written notice to
PM Companies or the Agent and, in the case of any such notice by any Borrower,
PM Companies or the Agent, to each other party hereto. All such notices and
communications shall, when mailed, telegraphed, telecopied, telexed or cabled,
be effective when deposited in the mails, delivered to the telegraph company,
transmitted by telecopier, confirmed by telex answerback or delivered to the
cable company, respectively, except that notices and communications to the
Agent pursuant to Article II or VII shall not be effective until received by
the Agent.
SECTION 10.03. No Waiver; Remedies. No failure on the part of
-------------------
any Lender or the Agent to exercise, and no delay in exercising, any right
hereunder shall operate as a waiver thereof; nor shall any single or partial
exercise of any such right preclude any other or further exercise thereof or
the exercise of any other right. The remedies herein provided are cumulative
and not exclusive of any remedies provided by law.
SECTION 10.04. Costs, Expenses and Taxes. (a) PM Companies
-------------------------
agrees to pay on demand all costs and expenses in connection with the
preparation, execution, delivery, administration (excluding any cost or
expenses for administration related to the Agent's overhead), modification and
amendment of this Agreement and the other documents to be delivered hereunder,
including, without limitation, the reasonable fees and out-of-pocket expenses
of counsel for the Agent with respect thereto and with respect to advising the
Agent as to its rights and responsibilities under this Agreement, and all costs
and expenses of the Lenders and the Agent, if any (including, without
limitation, reasonable counsel fees and expenses of the Lenders and the Agent),
in connection with the enforcement (whether through negotiations, legal
proceedings or otherwise) of this Agreement and the other documents to be
delivered hereunder.
<PAGE>
48
(b) If any payment of principal of any Adjusted CD Rate Advance
or Eurodollar Rate Advance is made other than on the last day of the Interest
Period for such Advance, as a result of a payment pursuant to Section 2.10,
acceleration of the maturity of the Advances pursuant to Section 6.01, an
assignment made as a result of a demand by PM Companies pursuant to Section
10.07(a) or for any other reason, PM Companies shall, upon demand by any Lender
(with a copy of such demand to the Agent), pay to the Agent for the account of
such Lender any amounts required to compensate such Lender for any additional
losses, costs or expenses which it may reasonably incur as a result of such
payment, including, without limitation, any loss (including loss of anticipated
profits), cost or expense incurred by reason of the liquidation or reemployment
of deposits or other funds acquired by any Lender to fund or maintain such
Advance. Without prejudice to the survival of any other agreement of any
Borrower or PM Companies hereunder, the agreements and obligations of each
Borrower and PM Companies contained in Section 2.02(c), 2.08, 2.10(b)(ii) or
(c), 2.11 or this Section 10.04(b) shall survive the payment in full of
principal and interest hereunder.
(c) Each Borrower and the Guarantor jointly and severally agree
to indemnify and hold harmless the Agent and each Lender and each of their
respective affiliates, control persons, directors, officers, employees,
attorneys and agents (each, an "Indemnified Party") from and against any and
all claims, damages, losses, liabilities and expenses (including, without
limitation, reasonable fees and disbursements of counsel) which may be incurred
by or asserted against any Indemnified Party, in each case in connection with
or arising out of, or in connection with the preparation for or defense of, any
investigation, litigation, or proceeding (i) related to any transaction or
proposed transaction (whether or not consummated) in which any proceeds of any
Borrowing are applied or proposed to be applied, directly or indirectly, by any
Borrower, whether or not such Indemnified Party is a party to such transaction
or (ii) related to any Borrower's or the Guarantor's entering into this
Agreement, or to any actions or omissions of any Borrower or the Guarantor, any
of their respective subsidiaries or affiliates or any of its or their
respective officers, directors, employees or agents in connection therewith, in
each case whether or not an Indemnified Party is a party thereto and whether or
not such investigation, litigation or proceeding is brought by the Guarantor or
any Borrower or any other Person; provided, however, that neither any
-------- -------
Borrower nor the Guarantor shall be required to indemnify any such Indemnified
Party from or against any portion of such claims, damages, losses, liabilities
or expenses that is found in a final, non-appealable judgment by a court of
competent jurisdiction to have resulted from the gross negligence or wilful
misconduct of such Indemnified Party.
SECTION 10.05. Right of Set-off. Upon (i) the occurrence and
----------------
during the continuance of any Event of Default and (ii) the making of the
request or the granting of the consent specified by Section 6.01 to authorize
the Agent to declare the Advances due and payable pursuant to the provisions of
Section 6.01, each Lender is hereby authorized at any
<PAGE>
49
time and from time to time, to the fullest extent permitted by law, to set off
and apply any and all deposits (general or special, time or demand, provisional
or final) at any time held and other indebtedness at any time owing by such
Lender to or for the credit or the account of any Borrower or the Guarantor
against any and all of the obligations of such Borrower or the Guarantor now or
hereafter existing under this Agreement, irrespective of whether or not such
Lender shall have made any demand under this Agreement and although such
obligations may be unmatured. Each Lender agrees promptly to notify the
appropriate Borrower or the Guarantor, as the case may be, after any such
setoff and application made by such Lender, provided that the failure to
--------
give such notice shall not affect the validity of such set-off and application.
The rights of each Lender under this Section are in addition to other rights and
remedies (including, without limitation, other rights of set-off) which such
Lender may have.
SECTION 10.06. Binding Effect. This Agreement shall become
--------------
effective when it shall have been executed by PM Companies and the Agent and
when the Agent shall have been notified by each Bank that such Bank has
executed it and thereafter shall be binding upon and inure to the benefit of
each Borrower, the Guarantor, the Agent and each Lender and their respective
successors and assigns, except that neither any Borrower nor the Guarantor
shall have the right to assign its rights hereunder or any interest herein
without prior written consent of the Lenders.
SECTION 10.07. Assignments and Participations. (a) Each
------------------------------
Lender may and, if demanded by PM Companies upon at least 5 Business Days'
notice to such Lender and the Agent, will assign to one or more banks or other
entities all or a portion of its rights and obligations under this Agreement
(including, without limitation, all or a portion of its Commitment and the A
Advances owing to it); provided, however, that (i) each such assignment
-------- -------
shall be of a constant, and not a varying, percentage of all of the assigning
Lender's rights and obligations under this Agreement (other than, except in the
case of an assignment made as a result of a demand by PM Companies pursuant to
this Section 10.07(a), any B Advances owing to such Bank or any B Notes held by
it), (ii) the amount of the Commitment of the assigning Lender being assigned
pursuant to each such assignment (determined as of the date of the Assignment
and Acceptance with respect to such assignment) shall in no event be less than
$25,000,000 and shall be an integral multiple of $1,000,000, (iii) each such
assignment shall be to an Eligible Assignee, (iv) each such assignment made as
a result of a demand by PM Companies pursuant to this Section 10.07(a) shall be
arranged by PM Companies after consultation with the Agent and shall be either
an assignment of all of the rights and obligations of the assigning Lender
under this Agreement or an assignment of a portion of such rights and
obligations made concurrently with another such assignment or other such
assignments which together cover all of the rights and obligations of the
assigning Lender under this Agreement, (v) no Lender shall be obligated to make
any such assignment as a result of a demand by PM Companies pursuant to this
Section 10.07(a) unless and until such Lender shall have received one or more
payments
<PAGE>
50
from either the Borrowers to which it has outstanding Advances or one or more
Eligible Assignees in an aggregate amount at least equal to the aggregate
outstanding principal amount of the Advances owing to such Lender, together
with accrued interest thereon to the date of payment of such principal amount
and all other amounts payable to such Lender under this Agreement and (vi) the
parties to each such assignment shall execute and deliver to the Agent, for its
acceptance and recording in the Register, an Assignment and Acceptance,
together with a processing and recordation fee of $3,000, provided that, if
--------
such assignment is made as a result of a demand by PM Companies under this
Section 10.07(a), PM Companies shall pay or cause to be paid such $3,000 fee;
provided further that nothing in this Section 10.07 shall prevent or
- -------- -------
prohibit any Lender from pledging its Advances hereunder or any B Notes held by
it to a Federal Reserve Bank in support of borrowings by such Lender from such
Federal Reserve Bank. Upon such execution, delivery, acceptance and recording,
from and after the effective date specified in each Assignment and Acceptance,
(x) the assignee thereunder shall be a party hereto and, to the extent that
rights and obligations hereunder have been assigned to it pursuant to such
Assignment and Acceptance, have the rights and obligations of a Lender
hereunder and (y) the Lender assignor thereunder shall, to the extent that
rights and obligations hereunder have been assigned by it pursuant to such
Assignment and Acceptance, relinquish its rights (other than those provided
under Section 10.04) and be released from its obligations under this Agreement
(and, in the case of an Assignment and Acceptance covering all or the remaining
portion of an assigning Lender's rights and obligations under this Agreement,
such Lender shall cease to be a party hereto).
(b) By executing and delivering an Assignment and Acceptance, the
Lender assignor thereunder and the assignee thereunder confirm to and agree
with each other and the other parties hereto as follows: (i) other than as
provided in such Assignment and Acceptance, such assigning Lender makes no
representation or warranty and assumes no responsibility with respect to any
statements, warranties or representations made in or in connection with this
Agreement or the execution, legality, validity, enforceability, genuineness,
sufficiency or value of this Agreement or any other instrument or document
furnished pursuant hereto; (ii) such assigning Lender makes no representation
or warranty and assumes no responsibility with respect to the financial
condition of any Borrower or PM Companies or the performance or observance by
any Borrower or PM Companies of any of their respective obligations under this
Agreement or any other instrument or document furnished pursuant hereto; (iii)
such assignee confirms that it has received a copy of this Agreement, together
with copies of the financial statements referred to in Section 4.01 and such
other documents and information as it has deemed appropriate to make its own
credit analysis and decision to enter into such Assignment and Acceptance; (iv)
such assignee will, independently and without reliance upon the Agent, such
assigning Lender or any other Lender and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit decisions in taking or not taking action under this Agreement; (v) such
assignee confirms that it is an Eligible Assignee; (vi) such assignee
<PAGE>
51
appoints and authorizes the Agent to take such action as agent on its behalf
and to exercise such powers under this Agreement as are delegated to the Agent
by the terms hereof, together with such powers as are reasonably incidental
thereto; and (vii) such assignee agrees that it will perform in accordance with
their terms all of the obligations which by the terms of this Agreement are
required to be performed by it as a Lender.
(c) The Agent shall maintain at its address referred to in
Section 10.02 a copy of each Assignment and Acceptance delivered to and
accepted by it and a register for the recordation of the names and addresses of
the Lenders and the Commitment of, and principal amount of the Advances owing
to, each Lender from time to time (the "Register"). The entries in the
Register shall be conclusive and binding for all purposes, absent manifest
error, and PM Companies, the Borrowers, the Agent and the Lenders may treat
each Person whose name is recorded in the Register as a Lender hereunder for
all purposes of this Agreement. The Register shall be available for inspection
by PM Companies or any Lender at any reasonable time and from time to time upon
reasonable prior notice.
(d) Upon its receipt of an Assignment and Acceptance executed by
an assigning Lender and an assignee representing that it is an Eligible
Assignee, the Agent shall, if such Assignment and Acceptance has been completed
and is in substantially the form of Exhibit C hereto, (i) accept such
Assignment and Acceptance, (ii) record the information contained therein in the
Register and (iii) give prompt notice thereof to PM Companies.
(e) Each Lender may sell participations to one or more banks or
other entities in or to all or a portion of its rights and obligations under
this Agreement (including, without limitation, all or a portion of its
Commitment and the Advances owing to it and any B Note or Notes held by it);
provided, however, that (i) such Lender's obligations under this
- -------- -------
Agreement (including, without limitation, its Commitment to PM Companies
hereunder) shall remain unchanged, (ii) such Lender shall remain solely
responsible to the other parties hereto for the performance of such
obligations, (iii) such Lender shall remain the holder of any such B Note for
all purposes of this Agreement, and (iv) PM Companies, the other Borrowers, the
Agent and the other Lenders shall continue to deal solely and directly with
such Lender in connection with such Lender's rights and obligations under this
Agreement.
(f) Any Lender may, in connection with any assignment or
participation or proposed assignment or participation pursuant to this Section
10.07, disclose to the assignee or participant or proposed assignee or
participant, any information relating to PM Companies or any Borrower furnished
to such Lender by or on behalf of PM Companies or any Borrower; provided
--------
that, prior to any such disclosure, the assignee or participant or proposed
assignee or participant shall agree to preserve the confidentiality of any
confidential information relating to PM Companies received by it from such
Lender.
<PAGE>
52
SECTION 10.08. Governing Law. This Agreement and any B Notes
-------------
shall be governed by, and construed in accordance with, the laws of the State
of New York.
SECTION 10.09. Execution in Counterparts. This Agreement may
-------------------------
be executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed shall be deemed to be an
original and all of which taken together shall constitute one and the same
agreement. Delivery of an executed counterpart of a signature page to this
Agreement by telecopier shall be effective as delivery of a manually executed
counterpart of this Agreement.
<PAGE>
53
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed by their respective officers thereunto duly authorized, as of
the date first above written.
PHILIP MORRIS COMPANIES INC.
By: /s/ George R. Lewis
--------------------------------
Vice President and
Treasurer
CITIBANK, N.A., as Agent
By: /s/ W. Dwight Raiford
---------------------------------
Vice President
<PAGE>
54
THE BANKS
---------
Commitment:
- ----------
U.S. $200,000,000.00 CITIBANK, N.A.
By: /s/ W. Dwight Raiford
--------------------------------
Vice President
U.S. $166,666,666.67 CHEMICAL BANK
By: /s/ Neil R. Boylan
--------------------------------
Vice President
U.S. $166,666,666.67 CREDIT SUISSE
By: /s/ Michael C. Mast
--------------------------------
Vice President
By: /s/ J. Hamilton Crawford
--------------------------------
Associate
U.S. $151,666,666.66 BANK OF AMERICA NT & SA
By: /s/ Ambrish D. Thanawala
--------------------------------
Vice President
U.S. $150,000,000.00 MORGAN GUARANTY TRUST
COMPANY OF NEW YORK
By: /s/ Adam J. Silver
--------------------------------
Associate
<PAGE>
55
U.S. $146,666,666.67 UNION BANK OF SWITZERLAND
By: /s/ James P. Kelleher
--------------------------------
Assistant Treasurer
By: /s/ Peter B. Yearly
--------------------------------
Vice President
U.S. $143,333,333.33 DEUTSCHE BANK AG NEW YORK
BRANCH AND/OR CAYMAN
ISLAND BRANCHES
By: /s/ Ross A. Howard
--------------------------------
Assistant Vice President
By: /s/ Rolf-Peter Mikolayczyk
--------------------------------
Director
U.S. $133,333,333.33 ABN AMRO BANK NV, NEW YORK
BRANCH
By: /s/ William J. Van Nostrand
--------------------------------
Vice President
By: /s/ John F. Lacey
--------------------------------
Senior Vice President
U.S. $133,333,333.33 SOCIETE GENERALE
By: /s/ Paul Dalle Molle
--------------------------------
Vice President
<PAGE>
56
U.S. $115,000,000.00 THE DAI-ICHI KANGYO BANK,
LTD. - NEW YORK BRANCH
By: /s/ Timothy White
--------------------------------
Vice President
U.S. $113,333,333.33 DRESDNER BANK AG NEW YORK
AND GRAND CAYMAN BRANCHES
By: /s/ J. Michael Leffler
--------------------------------
First Vice President
By: /s/ Ernest Fung
--------------------------------
Vice President
U.S. $106,666,666.67 NATIONSBANK OF NORTH
CAROLINA, N.A.
By: /s/ Sally L. Hazard
--------------------------------
Senior Vice President
U.S. $100,000,000.00 THE SUMITOMO BANK, LIMITED
By: /s/ Y. Kawamura
--------------------------------
Joint General Manager
U.S. $ 93,333,333.33 BAYERISCHE HYPOTHEKEN - UND
WECHSEL-BANK, NEW YORK
BRANCH
By: /s/ John Quigley
--------------------------------
Vice President
By: /s/ Steven Atwell
--------------------------------
Vice President
<PAGE>
57
U.S. $ 93,333,333.33 SANWA BANK LIMITED
By: /s/ Stephen C. Small
--------------------------------
Vice President
U.S. $ 83,333,333.33 THE FUJI BANK, LIMITED,
NEW YORK BRANCH
By: /s/ Gina M. Kearns
--------------------------------
Vice President
U.S. $ 80,000,000.00 CREDIT LYONNAIS
CAYMAN ISLAND BRANCH
By: /s/ Michael Moretti
--------------------------------
Authorized Signature
CREDIT LYONNAIS
NEW YORK BRANCH
By: /s/ Michael Moretti
--------------------------------
Vice President
U.S. $ 75,000,000.00 THE BANK OF TOKYO TRUST CO.
By: /s/ Neal Hoffson
--------------------------------
Vice President
<PAGE>
58
U.S. $ 70,000,000.00 SWISS BANK CORPORATION,
NEW YORK AND CAYMAN
ISLANDS BRANCHES
By: /s/ Nicolas T. Erni
--------------------------------
Associate Director
Credit Risk Management
By: /s/ Stephan Marti
--------------------------------
Director
Merchant Banking
U.S. $ 62,333,333.33 BANQUE NATIONALE DE PARIS
NEW YORK BRANCH
By: /s/ Robert S. Taylor, Jr.
--------------------------------
Senior Vice President
By: /s/ Richard Pace
--------------------------------
Assistant Vice President
BANQUE NATIONALE DE PARIS
GEORGETOWN BRANCH
By: /s/ Robert S. Taylor, Jr.
--------------------------------
Senior Vice President
By: /s/ Richard Pace
--------------------------------
Assistant Vice President
U.S. $ 58,333,333.33 MIDLAND BANK PLC
By: /s/ Fiora Mallevays
--------------------------------
Corporate Banking Manager
<PAGE>
59
U.S. $ 53,333,333.33 THE BANK OF NEW YORK
By: /s/ Howard F. Bascom
--------------------------------
Vice President
U.S. $ 45,000,000.00 MELLON BANK N.A.
By: /s/ Caroline R. Walsh
--------------------------------
Banking Officer
U.S. $ 45,000,000.00 THE TORONTO-DOMINION BANK
By: /s/ Neva E. Nesbitt
--------------------------------
Manager Credit Administration
U.S. $ 41,666,666.67 BAYERISCHE LANDESBANK
GIROZENTRALE, CAYMAN ISLANDS
BRANCH
By: /s/ Wilfried Freudenberger
--------------------------------
Executive Vice President
ans General Manager
By: /s/ Peter Obermann
--------------------------------
First Vice President
Manager Lending Division
U.S. $ 41,666,666.67 DG BANK
DEUTSCHE GENOSSENSCHAFTSBANK,
CAYMAN ISLAND BRANCH
By: /s/ Robert B. Herber
--------------------------------
Vice President
By: /s/ Wolfgang Bollmann
--------------------------------
Senior Vice President
<PAGE>
60
U.S. $ 41,666,666.67 ISTITUTO BANCARIO SAN
PAOLO DI TORINO S.P.A.
By: /s/ W. Jones
--------------------------------
Vice President
By: /s/ Ettore Viazzo
--------------------------------
Vice President
U.S. $ 41,666,666.67 THE SAKURA BANK, LTD.
By: /s/ Masahiro Nakajo
--------------------------------
Senior Vice President &
Manager
U.S. $ 40,000,000.00 NATIONAL AUSTRALIA BANK
LIMITED
By: /s/ Robert S. Emerson
--------------------------------
Vice President
U.S. $ 38,333,333.33 BANQUE PARIBAS
By: /s/ Mary T. Finnegan
--------------------------------
Vice President
By: /s/ Marjorie Stern
--------------------------------
Associate
U.S. $ 38,333,333.33 CIBC INC.
By: /s/ E. Lindsay Gordon
--------------------------------
Vice President
<PAGE>
61
U.S. $ 38,333,333.33 NORDDEUTSCHE LANDESBANK
GIROZENTRALE NEW YORK
BRANCH AND/OR CAYMAN ISLAND
BRANCH
By: /s/ Stephen K. Hunter
--------------------------------
Senior Vice President
By: /s/ Stephanie Hoevermann
--------------------------------
Vice President
U.S. $ 38,333,333.33 RABOBANK NEDERLAND, NEW YORK
BRANCH
By: /s/ Johannes F. Breukhoven
--------------------------------
Vice President
By: /s/ Ian Reece
--------------------------------
Vice President & Manager
U.S. $ 38,333,333.33 ROYAL BANK OF CANADA
By: /s/ David A. Barsalou
--------------------------------
Senior Manager
U.S. $ 38,333,333.33 WACHOVIA BANK OF GEORGIA,
N.A.
By: /s/ Linda M. Harris
--------------------------------
Senior Vice President
<PAGE>
62
U.S. $ 36,666,666.71 THE CHASE MANHATTAN BANK,
N.A.
By: /s/ Richard A. Bonomo
--------------------------------
Vice President
U.S. $ 35,000,000.00 THE BANK OF NOVA SCOTIA
By: /s/ Terry K. Fryett
--------------------------------
Vice President
U.S. $ 33,333,333.33 BANCA DI ROMA
By: /s/ Ralph L. Riehle
--------------------------------
First Vice President
By: /s/ Marco Tonelli
--------------------------------
Vice President
U.S. $ 33,333,333.33 BANK BRUSSELS LAMBERT,
NEW YORK BRANCH
By: /s/ Eric Hollanders
--------------------------------
Senior Vice President
Credit Department
By: /s/ Eileen Stekeur
--------------------------------
Assistant Vice President
<PAGE>
63
U.S. $ 33,333,333.33 FIRST INTERSTATE BANK OF
CALIFORNIA
By: /s/ Peter G. Olson
--------------------------------
Senior Vice President
By: /s/ Wendy V.C. Purcell
--------------------------------
Assistant Vice President
U.S. $ 33,333,333.33 THE FIRST NATIONAL BANK OF
CHICAGO
By: /s/ Randall C. Faust
--------------------------------
Assistant Vice President
U.S. $ 33,333,333.33 LLOYDS BANK PLC.
By: /s/ Windsor R. Davies
--------------------------------
Vice President & Manager
By: /s/ David Brealey
--------------------------------
Assistant Vice President
U.S. $ 33,333,333.33 THE MITSUBISHI BANK, LIMITED
NEW YORK BRANCH
By: /s/ Paula Mueller
--------------------------------
Vice President
<PAGE>
64
U.S. $ 33,333,333.33 THE TOKAI BANK, LIMITED
NEW YORK BRANCH
By: /s/ Masaharu Muto
--------------------------------
Deputy General Manager
U.S. $ 33,333,333.33 TRUST COMPANY BANK
By: /s/ Craig W. Farnsworth
--------------------------------
Vice President
U.S. $ 33,333,333.33 THE YASUDA TRUST AND
BANKING COMPANY, LIMITED
NEW YORK BRANCH
By: /s/ Rohn Laudenschlager
--------------------------------
Senior Vice President
U.S. $ 26,666,666.67 THE DAIWA BANK, LIMITED
By: /s/ Masafumi Asai
--------------------------------
Vice President
U.S. $ 26,666,666.67 DEN DANSKE BANK AKTIESELSKAB
CAYMAN ISLANDS BRANCH
By: /s/ Peter Hargraves
--------------------------------
Vice President
By: /s/ Bent V. Christensen
--------------------------------
Vice President
<PAGE>
65
U.S. $ 26,666,666.67 THE INDUSTRIAL BANK OF
JAPAN, LIMITED, NEW YORK
BRANCH
By: /s/ Takeshi Kawano
--------------------------------
Vice President
U.S. $ 25,000,000.00 BANCA NAZIONALE DEL LAVORO
S.P.A. - NEW YORK BRANCH
By: /s/ Guiliano Violetta
--------------------------------
First Vice President
By: /s/ Giulio Giovine
--------------------------------
Vice President
U.S. $ 25,000,000.00 BANCO POPULARE DI MILANO,
NEW YORK BRANCH
By: /s/ Anthony Franco
--------------------------------
Executive Vice President &
General Manager
By: /s/ Esperanza Quintero
--------------------------------
Vice President
U.S. $ 25,000,000.00 THE HOKKAIDO TAKUSHOKU BANK, LTD.
By: /s/ Hitoshi Sato
--------------------------------
Senior Vice President & Manager
U.S. $ 25,000,000.00 SHAWMUT BANK
By: /s/ H. Frazier Caner
--------------------------------
Vice President
<PAGE>
66
U.S. $ 21,666,666.67 THE FIRST NATIONAL BANK OF
BOSTON
By: /s/ Cindy Chen
--------------------------------
Director
U.S. $ 20,000,000.00 CARIPLO - CASSA DI
RISPARMIO DELLE PROVINCIE
LOMBARDE S.P.A.
By: /s/ Charles W. Kennedy
--------------------------------
Vice President
By: /s/ Guiseppe Zanotti-Fregonara
--------------------------------
Senior Vice President
U.S. $ 20,000,000.00 COMPAGNIE FINANCIERE DE CIC
ET DE L'UNION EUROPEENNE
By: /s/ Sean Mounier
--------------------------------
Vice President
By: /s/ Marcus Edward
--------------------------------
Vice President
U.S. $ 20,000,000.00 INTERNATIONALE NEDERLANDEN
BANK N.V., DUBLIN BRANCH
By: /s/ Peter Nabney
--------------------------------
General Manager
By: /s/ Enda Allen
--------------------------------
Manager
<PAGE>
67
U.S. $ 17,333,333.33 BANK OF HAWAII
By: /s/ Alison J. Sierens
--------------------------------
Corporate Banking Officer
U.S. $ 16,666,666.67 BANCA COMMERCIALE
ITALIANA-NEW YORK BRANCH
By: /s/ Sarah Lee Kim
--------------------------------
Assistant Vice President
By: /s/ Charles P. Dougherty
--------------------------------
Vice President
U.S. $ 16,666,666.67 BANCO SANTANDER, NEW YORK
BRANCH
By: /s/ Robert E. Schlegel
--------------------------------
Vice President
By: /s/ G. K. Greathouse
--------------------------------
Vice President
U.S. $ 16,666,666.67 BANK OF MONTREAL
By: /s/ Thruston W. Pettus
--------------------------------
Director
U.S. $ 16,666,666.67 BANKERS TRUST COMPANY
By: /s/ Katherine A. Judge
--------------------------------
Vice President
U.S. $ 16,666,666.67 FIRST BANK NATIONAL
ASSOCIATION
By: /s/ Mark R. Olmon
--------------------------------
Vice President
<PAGE>
68
U.S. $ 16,666,666.67 FIRST FIDELITY BANK, N.A.
NEW JERSEY
By: /s/ Susan J. Dimmick
--------------------------------
Vice President
U.S. $ 16,666,666.67 FIRST UNION NATIONAL BANK OF
NORTH CAROLINA
By: /s/ Allison Zullicofer
--------------------------------
Vice President
U.S. $ 16,666,666.67 GENERALE BANK, NEW YORK
BRANCH
By: /s/ Alain Verschueren
--------------------------------
Senior Vice President
By: /s/ Eddie Matthews
--------------------------------
Senior Vice President
U.S. $ 16,666,666.67 THE LONG-TERM CREDIT BANK
OF JAPAN, LIMITED, NEW YORK
BRANCH
By: /s/ Hiroshi Sasaki
--------------------------------
Deputy General Manager
U.S. $ 16,666,666.67 THE MITSUBISHI TRUST AND
BANKING CORPORATION,
LOS ANGELES AGENCY
By: /s/ Takashi Sugita
--------------------------------
Senior Vice President & Chief
Manager
<PAGE>
69
U.S. $ 16,666,666.67 WESTDEUTSCHE LANDESBANK
GIROZENTRALE, NEW YORK
AND CAYMAN ISLANDS
BRANCHES
By: /s/ Salvatore Battinelli
--------------------------------
Vice President
By: /s/ August G. Kumbier
--------------------------------
Managing Director
U.S. $ 13,333,333.33 BANCO BILBAO VIZCAYA, S.A.
By: /s/ John Carreras
--------------------------------
Vice President
U.S. $ 11,666,666.67 THE MITSUI TRUST AND BANKING
COMPANY LIMITED
By: /s/ Shigeru Tsujimoto
--------------------------------
Vice President & Manager
U.S. $ 11,111,111.11 THE SUMITOMO TRUST & BANKING
CO., LTD., LOS ANGELES AGENCY
By: /s/ Masayuki Imanaka
--------------------------------
Senior Manager
<PAGE>
70
U.S. $ 11,111,111.11 SVENSKA HANDELSBANKEN
By: /s/ Guy Rudberg
--------------------------------
Senior Vice President
By: /s/ Kjell Arvidsson
--------------------------------
Vice President
U.S. $ 11,111,111.10 THE ROYAL BANK OF SCOTLAND PLC
By: /s/ David Dougan
--------------------------------
Vice President
U.S. $ 10,000,000.00 MONTE DEI PASCHI DI SIENA, NEW
YORK BRANCH
By: /s/ Serge M. Sondak
--------------------------------
First Vice President &
Deputy General Manager
By: /s/ Brian R. Landy
--------------------------------
Vice President
U.S. $ 8,333,333.33 BANCO ESPANOL DE CREDITO S.A.,
NEW YORK BRANCH
By: /s/ Fernando Artaza
--------------------------------
General Manager
By: /s/ Juan Galan
--------------------------------
Senior Vice President
U.S. $ 8,333,333.33 BANCO EXTERIOR DE ESPANA
By: /s/ Louis de Lara
--------------------------------
Senior Vice President
<PAGE>
71
U.S. $ 8,333,333.33 CREDIT COMMERCIAL DE FRANCE
By: /s/ Steven Broad
--------------------------------
Vice President
By: /s/ Kathryn M. Hudson
--------------------------------
Vice President
U.S. $ 8,333,333.33 FLEET BANK
By: /s/ Patrick McAuliffe
--------------------------------
Group Senior Vice President
Corporate Banking
U.S. $ 8,333,333.33 THE NORTHERN TRUST COMPANY
By: /s/ Michael L. Bryan
--------------------------------
Vice President
U.S. $ 8,333,333.33 THE TOYO TRUST & BANKING CO.,
LTD.
By: /s/ Hiroyoki Fukuro
--------------------------------
Vice President
U.S. $ 8,000,000.00 CRESTAR BANK
By: /s/ Keith A. Hubbard
--------------------------------
Senior Vice President
U.S. $ 6,666,666.67 STATE STREET BANK & TRUST CO.
By: /s/ F. Andrew Beise
--------------------------------
Vice President
<PAGE>
72
U.S. $ 3,666,666.67 CENTRAL FIDELITY NATIONAL BANK
By: /s/ Harry A. Turton, Jr.
--------------------------------
Vice President
U.S. $ 3,666,666.67 M&I MARSHALL & ILSLEY BANK
By: /s/ Philip M. McGoohan
--------------------------------
Vice President
U.S. $ 3,333,333.33 FIRSTAR BANK MILWAUKEE, N.A.
By: /s/ Robert A. Flosbach
--------------------------------
Vice President
<PAGE>
EXHIBIT A
FORM OF B NOTE
$________________ Dated: _________ , 19__
FOR VALUE RECEIVED, the undersigned, [Name of Borrower] (the
"Borrower"), HEREBY PROMISES TO PAY to the order of [Name of Lender] (the
"Lender"), on , 19 the principal amount of
--------------------
Dollars ($ ).
------------------------
The Borrower promises to pay interest on the unpaid principal
amount thereof from the date hereof until such principal amount is repaid in
full, at the interest rate and payable on the interest payment date or dates
provided below:
Interest Rate: % per annum (calculated on the basis of a
----
year of 360 days for the actual number of days elapsed).
Interest Payment Date or Dates:
--------------------------------- .
Both principal and interest are payable in lawful money of the
United States of America to Citibank, N.A. for the account of the Lender at the
office of Citibank, N.A. at One Court Square, Long Island City, New York 11120,
United States of America, in same day funds, free and clear of and without any
deduction, with respect to the payee named above, for any and all present and
future taxes, levies, imposts, deductions, charges or withholdings, and all
liabilities with respect thereto, excluding any taxes imposed by the United
---------
States by means of withholding tax if and to the extent that such taxes shall
be in effect and shall be applicable, on the date hereof, to payments to be
made by the Borrower hereon.
This Promissory Note is one of the B Notes referred to in, and is
entitled to the benefits of, the 364-Day Loan and Guaranty Agreement dated as
of December 16, 1994 (the "364-Day Agreement") among PM Companies, the Lender
and certain other lenders parties thereto, and Citibank, N.A., as Agent for the
Lender and such other lenders. The 364-Day Agreement, among other things,
contains provisions for acceleration of the maturity hereof upon the happening
of certain stated events.
The Borrower hereby waives presentment, demand, protest and notice
of any kind. No failure to exercise, and no delay in exercising, any rights
hereunder on the part of the holder hereof shall operate as a waiver of such
rights.
<PAGE>
2
This Promissory Note shall be governed by, and construed in
accordance with, the laws of the State of New York, United States.
[Name of Borrower]
By:
------------------------------
Title:
<PAGE>
3
GUARANTY
(Only for B Notes issues by a Borrower other than
PM Companies)
SECTION 1. Guaranty. The undersigned, PHILIP MORRIS COMPANIES
--------
INC., a Virginia corporation (the "Guarantor"), hereby unconditionally and
irrevocably guarantees the punctual payment when due of all obligations of the
Borrower under the above Promissory Note (the "Note") (such obligations being
the "Obligations"), and any and all expenses (including counsel fees and
expenses) incurred by the holder of the Note in enforcing any rights under the
Note or this Guaranty.
SECTION 2. Guaranty Absolute. The Guarantor guarantees that
-----------------
the Obligations will be paid strictly in accordance with the terms of the Note,
regardless of any law, rule, regulation or order now or hereafter in effect in
any jurisdiction affecting any of such terms or the rights of the holder of the
Note with respect thereto. The liability of the Guarantor under this Guaranty
shall be absolute and unconditional irrespective of (i) any law of validity,
enforceability or genuineness of the Note or any other agreement or instrument
relating thereto; (ii) any change in the time, manner or place of payment of,
or in any other term of, all or any of the Obligations, or any other amendment
or waiver of or any consent to departure from the Note; (iii) any exchange,
release or non-perfection of any collateral, or any release or amendment or
waiver of or consent to departure from any other guaranty, for all or any of
the Obligations; or (iv) any other circumstance which might otherwise
constitute a defense available to, or a discharge of, the Borrower or a
guarantor.
This Guaranty shall continue to be effective or be reinstated, as
the case may be, if at any time any payment of any of the Obligations is
rescinded or must otherwise be returned by the Lender upon the insolvency,
bankruptcy or reorganization of the Borrower or otherwise, all as though such
payment has not been made.
SECTION 3. Waiver. (a) The Guarantor hereby waives
------
promptness, diligence, notice of acceptance and any other notice with respect
to any of the Obligations and this Guaranty and any requirement that the holder
of the Note protect, secure, perfect or insure any security interest or lien or
any property subject thereto or exhaust any right of take any action against
the Borrower or any other person or entity or any collateral.
(b) The Guarantor hereby irrevocably waives any claims or other
rights that it may now or hereafter acquire against the Borrower that arise
from the existence, payment, performance or enforcement of the Guarantor's
obligations under this Guaranty or this Note; including, without limitation,
the right to take or receive from the Borrower, directly or indirectly, in cash
or other property or by set-off or in any other manner, payment or security on
account of such claim, remedy or right. If any amount shall be paid
<PAGE>
4
to the Guarantor in violation of the preceding sentence at any time prior to
the cash payment in full of the Obligations, such amount shall be held in trust
for the benefit of the holder of this Note and shall forthwith be paid to the
holder of this Note to be credited and applied to the Obligations and all other
amounts payable under this Guaranty, whether matured or unmatured, in
accordance with the terms of this Note and this Guaranty, or to be held as
collateral for any Obligations or other amounts payable under this Guaranty
thereafter arising. The Guarantor acknowledges that it will receive direct and
indirect benefits from the financing arrangements contemplated by this Note and
this Guaranty and that the waiver set forth in this subsection is knowingly
made in contemplation of such benefits.
SECTION 4. Payments Free and Clear of Taxes, Etc. Any and all
-------------------------------------
payments made by the Guarantor hereunder to the payee named in the Note shall
be made in accordance with the Note free and clear of and without deduction for
any and all present or future taxes, levies, imposts, deductions, charges or
withholdings, and all liabilities with respect thereto, excluding taxes
---------
imposed by the United States by means of withholding tax if and to the extent
that such taxes shall be in effect and shall be applicable, on the date hereof,
to payments to be made by the Guarantor herein.
SECTION 5. No Waiver. No failure to exercise, and no delay in
---------
exercising, any right hereunder on the part of the holder of the Note shall
operate as a waiver of such rights; nor shall any single or partial exercise of
any right hereunder, preclude any other or further exercise thereof or the
exercise of any other right. The remedies herein provided are cumulative and
not exclusive of any remedies provided by law.
SECTION 6. Continuous Guaranty; Transfer of Note. This
-------------------------------------
Guaranty is a continuing guaranty and shall (i) remain in full force and effect
until payment in full of the Obligations and all other amounts payable under
this Guaranty, (ii) be binding upon the Guarantor, its successors and assigns,
and (iii) inure to the benefit of and be enforceable by the Lender and its
successors, transferees and assigns. Without limiting the generality of the
foregoing clause (iii), the Lender may assign or otherwise transfer the Note to
any other person or entity, and such other person or entity shall thereupon
become vested with all the rights in respect thereof granted to the Lender
herein or otherwise.
This Guaranty shall be governed by, and construed in accordance
with, the laws of the State of New York, United States.
IN WITNESS WHEREOF, the Guarantor has caused this Guaranty to be
executed by its officer thereunto duly authorized on the date first above
written.
PHILIP MORRIS COMPANIES, INC.
By:
------------------------------
Title:
<PAGE>
EXHIBIT B-1
NOTICE OF A BORROWING
Citibank, N.A., as Agent
for the Lenders parties
to the 364-Day Agreement
referred to below
One Court Square
Long Island City, New York 11120
[Date]
Attention:
Gentlemen:
The undersigned, Philip Morris Companies Inc., refers to the
364-Day Loan and Guaranty Agreement, dated as of December 16, 1994 (the
"364-Day Agreement", the terms defined therein being used herein as therein
defined), among Philip Morris Companies Inc., certain lenders parties thereto
and Citibank, N.A., as Agent for said Lenders, and hereby gives you notice,
irrevocably, pursuant to Section 2.02 of the 364-Day Agreement that the
undersigned hereby requests an A Borrowing under the 364-Day Agreement, and in
that connection sets forth below the information relating to such A Borrowing
(the "Proposed A Borrowing") as required by Section 2.02(a) of the 364-Day
Agreement:
(i) The Business Day of the Proposed A Borrowing is ,
------------
199_.
(ii) The Type of A Advances comprising the Proposed A Borrowing is
[Adjusted CD Rate Advances] [Base Rate Advances] [Eurodollar Rate
Advances].
(iii) The aggregate amount of the Proposed A Borrowing is $ .
--------
(iv) The Interest Period for each A Advance made as part of the
Proposed A Borrowing is [ days] [ month[s]].
------ ------
(v) The name of the Borrower is .
-----------------
<PAGE>
2
The undersigned hereby certifies that the following statements will
be true on the date of the Proposed A Borrowing, before and after giving effect
thereto and to the application of the proceeds therefrom: (a) the
representations and warranties contained in Section 4.01 of the 364-Day
Agreement (excluding those contained in subsections (e) and (f) thereof) and,
if the Borrower is a subsidiary of PM Companies, Section 9.01(b) of the 364-Day
Agreement are correct on and as of such date as though made on and as of such
date, (b) no event has occurred and is continuing, or would result from the
Proposed A Borrowing, which constitutes an Event of Default or would constitute
an Event of Default but for the requirement that notice be given or time elapse
or both, (c) if such Proposed A Borrowing is in an aggregate principal amount
equal to or greater than $500,000,000 and is being made in connection with any
purchase of shares of the Borrower's or the Guarantor's capital stock or the
capital stock of any other Person, or any purchase of all or substantially all
of the assets of any Person (whether in one transaction or a series of
transactions) or any transaction of the type referred to in Section 5.02(b) of
the 364-Day Agreement, the statements in (a) and (b) above will be true and
correct after giving effect to such transaction or purchase, and (d) the
aggregate principal amount of the Proposed A Borrowing and all other Borrowings
to be made on the same day under the 364-Day Agreement is within the applicable
unused Commitments of the Lenders.
Very truly yours,
PHILIP MORRIS COMPANIES, INC.
By:
------------------------------
Title:
<PAGE>
EXHIBIT B-2
FORM OF NOTICE OF B BORROWING
Citibank, N.A., as Agent
for the Lenders parties
to the 364-Day Agreement
referred to below
One Court Square
Long Island City, New York 11120
Attention:
Gentlemen:
The undersigned, Philip Morris Companies Inc., refers to the
364-Day Loan and Guaranty Agreement, dated as of December 16, 1994 (the
"364-Day Agreement"; the terms defined therein being used herein as therein
defined), among PM Companies, certain lenders parties thereto (the "Lenders")
and Citibank, N.A., as Agent for the Lenders, and hereby gives you notice
pursuant to Section 2.03 of the 364-Day Agreement that the undersigned hereby
requests a B Borrowing under the 364-Day Agreement, and in that connection sets
forth the terms on which such B Borrowing (the "Proposed B Borrowing") is
requested to be made:
(A) Date of B Borrowing
----------------------
(B) Amount of B Borrowing
----------------------
(C) Maturity Date
----------------------
(D) Interest Rate Basis
----------------------
(E) Interest Payment Date(s)
----------------------
(F) Name of Borrower
----------------------
The undersigned hereby certifies that the following statements will
be true on the date of the Proposed B Borrowing, before and after giving effect
thereto and to the application of the proceeds therefrom: (a) the
representations and warranties contained in Section 4.01 of the 364-Day
Agreement and, if the Borrower is a subsidiary of PM Companies, Section 9.01(b)
of the 364-Day Agreement are correct on and as of such date as though made on
and as of such date, (b) no event has occurred and is continuing, or would
result from the Proposed B Borrowing, which constitutes an Event of Default or
would constitute an Event of Default but for the requirement that notice be
given or time elapse or both, and (c) the aggregate principal amount of the
Proposed B Borrowing and all other Borrowings to be made on the same day under
the 364-Day Agreement is within the applicable unused Commitments of the
Lenders.
<PAGE>
2
The undersigned hereby confirms that you are to make the Proposed B
Borrowing available to us in accordance with Section 2.03(a)(v) of the 364-Day
Agreement by crediting the amount of the Proposed B Borrowing to [be provided].
Dated: __________________, 19__
Very truly yours,
PHILIP MORRIS COMPANIES INC.
By:
------------------------------
Title:
<PAGE>
EXHIBIT C
ASSIGNMENT AND ACCEPTANCE
Dated _________, 199_
Reference is made to the 364-Day Loan and Guaranty Agreement dated
as of December 16, 1994 (the "364-Day Agreement") among Philip Morris Companies
Inc., a Virginia corporation, the Lenders (as defined in the 364-Day Agreement)
and Citibank, N.A., as Agent for the Lenders (the "Agent"). Terms defined in
the 364-Day Agreement are used herein with the same meaning.
(the "Assignor") and
------------------------ --------------------
(the "Assignee") agree as follows:
1. The Assignor hereby sells and assigns to the Assignee, and
the Assignee hereby purchases and assumes from the Assignor, the
percentage interest specified on Schedule 1 hereto in and to all (other
than any B Advances owing to the Assignor or any B Notes held by it) of
the Assignor's rights and objections under the 364-Day Agreement as of
the date hereof (after giving effect to any other assignments thereof
made prior to the date hereof, whether or not such assignments have
become effective, but without giving effect to any other assignments
thereof also made on the date hereof), including, without limitation,
such percentage interest in the Assignor's Commitment and the A Advances
owing to the Assignor.
2. The Assignor (i) represents and warrants that as of the date
hereof its Commitment (after giving effect to other assignments thereof
made prior to the date hereof, whether or not such assignments have
become effective, but without giving effect to any other assignments
thereof also made on the date hereof) is in the dollar amount specified
as the Assignor's Commitment on Schedule 1 hereto and the aggregate
outstanding principal amount of Advances owing to it (after giving effect
to any other assignments thereof made prior to the date hereof, whether
or not such assignments have become effective, but without giving effect
to any other assignments thereof also made on the date hereof) is in the
dollar amount specified as the aggregate outstanding principal amount of
Advances owing to the Assignor on Schedule 1 hereto; (ii) represents and
warrants that it is the legal and beneficial owner of the interest being
assigned by it hereunder and that such interest is free and clear of any
adverse claim; (iii) makes no representation or warranty and assumes no
responsibility with respect to any statements, warranties or
representations made in or in connection with the 364-Day Agreement or
the execution, legality, validity, enforceability, genuineness,
sufficiency or value of the 364-Day Agreement or any other instrument or
document furnished pursuant thereto; and (iv) makes no representation or
warranty and assumes no responsibility with respect to the financial
<PAGE>
2
condition of PM Companies or any Borrower or the performance or
observance by PM Companies or any Borrower of any of their obligations
under the 364-Day Agreement or any other instrument or document furnished
pursuant thereto.
3. The Assignee (i) confirms that it has received a copy of the
364-Day Agreement, together with copies of the financial statements
referred to in Section 4.01 thereof and such other documents and
information as it has deemed appropriate to make its own credit analysis
and decision to enter into this Agreement and Acceptance; (ii) agrees
that it will, independently and without reliance upon the Agent, the
Assignor or any other Lender and based on such documents and information
as it shall deem appropriate at the time, continue to make its own credit
decisions in taking or not taking action under the 364-Day Agreement;
(iii) confirms that it is an Eligible Assignee; (iv) appoints and
authorizes the Agent to take such action as agent on its behalf and to
exercise such powers under the 364-Day Agreement as are delegated to the
Agent by the terms thereof, together with such powers as are reasonably
incidental thereto; (v) agrees that it will perform in accordance with
their terms all of the obligations which by the terms of the 364-Day
Agreement are required to be performed by it as a Lender; [and] (vi)
specifies as its CD Lending Office, Domestic Lending Office (and address
for notices) and Eurodollar Lending Office the offices set forth beneath
its name on the signature pages hereof [and (vii) attaches the forms
prescribed by the Internal Revenue Service of the United States
certifying as to the Assignee's status for purposes of determining
exemption from United States withholding taxes with respect to all
payments to be made to the Assignee under the 364-Day Agreement or such
other documents as are necessary to indicate that all such payments are
subject to such rates at a rate reduced by an applicable tax treaty].*
4. Following the execution of this Assignment and Acceptance by
the Assignor and the Assignee, it will be delivered to the Agent for
acceptance and recording by the Agent. The effective date for this
Assignment and Acceptance shall be the date of acceptance thereof by the
Agent, unless otherwise specified on Schedule 1 hereto (the "Effective
Date").
5. Upon such acceptance and recording by the Agent, as of the
Effective Date, (i) the Assignee shall be a party to the 364-Day
Agreement and, to the extent provided in this Assignment and Acceptance,
have the rights and obligations of a Lender thereunder and (ii) the
Assignor shall, to the extent provided in this Assignment and Acceptance,
relinquish its rights and be released from its obligations under the
364-Day Agreement.
- ----------
* If the Assignee is organized under the laws of a jurisdiction outside the
United States.
<PAGE>
3
6. Upon such acceptance and recording by the Agent, from and
after the Effective Date, the Agent shall make all payments under the
364-Day Agreement in respect of the interest assigned hereby (including,
without limitation, all payments of principal, interest and fees with
respect thereto) to the Assignee. The Assignor and the Assignee shall
make all appropriate adjustments in payments under the 364-Day Agreement
for periods prior to the Effective Date directly between themselves.
7. This Assignment and Acceptance shall be governed by, and
construed in accordance with, the laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have caused this Assignment
and Acceptance to be executed by their respective officers thereunto duly
authorized, as of the date first above written, such execution being made on
Schedule 1 hereto.
<PAGE>
Schedule I
to
Assignment and Acceptance
Dated ___________ 19__
Section 1.
- ---------
Percentage Interest %
-----------
Section 2.
- ---------
Assignor's Commitment: $
---------
Aggregate Outstanding Principal
Amount of Advances owing to the Assignor: $
---------
Section 3.
- ---------
Effective Date*: , 19
------------------- __
[NAME OF ASSIGNOR]
By:
------------------------------
Title:
[NAME OF ASSIGNEE]
By:
------------------------------
Title:
CD Lending Office:
[Address]
- ----------
* This date should be no earlier than the date of acceptance by the Agent.
<PAGE>
2
Domestic Lending Office
(and address for notices):
[Address]
Eurodollar Lending Office:
[Address]
Accepted this day
---------
of , 19
----------------- --
CITIBANK, N.A.
By:
------------------------
Title:
<PAGE>
EXHIBIT D
[Form of Opinion of Counsel for Philip Morris Companies Inc.]
[Date of initial Borrowing]
To each of the Lenders parties
to the 364-Day Loan and Guaranty
Agreement dated as of
December 16, 1994 among
Philip Morris Companies Inc.,
said Lenders and Citibank, N.A.,
as Agent, and to Citibank, N.A.,
as Agent
Philip Morris Companies Inc.
----------------------------
Gentlemen:
This opinion is furnished to you pursuant to Section 3.01(c) of the
364-Day Loan and Guaranty Agreement dated as of December 16, 1994 (the "364-Day
Agreement") among Philip Morris Companies Inc. ("PM Companies"), the Lenders
parties thereto and Citibank, N.A., as Agent for said Lenders. Unless
otherwise defined herein, terms defined in the 364-Day Agreement are used
herein as therein defined.
We have acted as counsel for PM Companies and its subsidiaries
[, including (the "Borrower"),] in connection with the
-------------------
preparation, execution and delivery of, and the initial Borrowing made under,
the 364-Day Agreement.
In that connection we have examined:
(1) The 364-Day Agreement.
(2) The documents furnished by PM Companies [and the Borrower]
pursuant to Article III of the 364-Day Agreement.
(3) The [Articles] [Certificate] of Incorporation of PM Companies
[and the Borrower] and all amendments thereto (the "Charter[s]").
(4) The by-laws of PM Companies [and the Borrower] and all
amendments thereto (the "By-laws").
<PAGE>
2
We have also examined the originals, or copies certified to our satisfaction,
of such corporate records of PM Companies [and the Borrower], certificates of
public officials and of officers of PM Companies [and the Borrower], and
agreements, instruments and documents, as we have deemed necessary as a basis
for the opinions hereinafter expressed. As to questions of fact material to
such opinions, we have, when relevant facts were not independently established
by us, relied upon certificates of PM Companies [and the Borrower] or their
[respective] officers or of public officials. We have assumed the due
execution and delivery, pursuant to due authorization, of the 364-Day Agreement
by the Lenders parties thereto and the Agent.
Based upon the foregoing and upon such investigation as we have
deemed necessary, we are of the following opinion:
1. PM Companies is a corporation duly organized, validly
existing and in good standing under the laws of Virginia. [The Borrower
is a corporation duly organized, validly existing and in good standing
under the laws of .]
------------------
2. The execution, delivery and performance by PM Companies of
the 364-Day Agreement [and the B Notes] are within PM Companies'
corporate powers[*] have been duly authorized by all necessary corporate
action, and do not contravene (i) the Charter[s] or the By-laws or (ii)
any law, rule or regulation applicable to PM Companies [or the Borrower]
(including, without limitation, Regulation X of the Federal Reserve
Board) or (iii) to the best of our knowledge, any contractual or legal
restriction binding on or affecting PM Companies [or the Borrower]. The
B Notes have been duly executed and delivered on behalf of [PM Companies]
[the Borrower] [,] [and] the 364-Day Agreement [has] [and the guaranties
endorsed on the B Notes have] been duly executed and delivered on behalf
of PM Companies [and the Notice of Acceptance of the Borrower has been
duly executed and delivered on behalf of the Borrower].
3. No authorization, approval, or other action by, and no notice
to or filing with, any governmental authority or regulatory body is
required for the due execution, delivery and performance by PM Companies
of the 364-Day Agreement [or the B Notes] [or the guaranties endorsed on
the B Notes] [or by the Borrower of its Notice of Acceptance or the B
Notes to be executed and delivered on its behalf].
- ---------
* If a subsidiary is the Borrower, "The execution, delivery and performance
by PM Companies of the 364-Day Agreement [and the guaranties endorsed on
the B Notes], and by the Borrower of its Notice of Acceptance [and the B
Notes], are within PM Companies' and the Borrower's corporate powers".
<PAGE>
3
4. The 364-Day Agreement is the legal, valid and binding
obligation of PM Companies enforceable against PM Companies in accordance
with its terms. [The B Notes issued on the date hereof [and the
guaranties endorsed thereon] are the legal, valid and binding obligations
of [PM Companies] [the Borrower] [the Borrower and PM Companies,
respectively,] enforceable against [PM Companies] [the Borrower] [the
Borrower and PM Companies, respectively,] in accordance with their
respective terms.]
5. Except as disclosed in the Form 10-K of Philip Morris for the
fiscal year ended December 31, 1993, there is, to the best of our
knowledge, no pending or threatened action or proceeding against PM
Companies [or the Borrower] or any of [its] [their] subsidiaries before
any court, governmental agency or arbitrator which is likely to have a
material adverse effect upon the financial condition or operations of PM
Companies and its subsidiaries taken as a whole.
6. PM Companies directly or indirectly owns 100% of the capital
stock of [the Borrower and of] Philip Morris.
The opinions set forth above are subject to the following qualifications:
(a) Our opinion in paragraph 4 above is subject to the effect of
any applicable bankruptcy, insolvency, reorganization, moratorium or
similar law affecting creditors' rights generally.
(b) Our opinion in paragraph 4 above is subject to the effect of
general principles of equity (regardless of whether such enforceability
is considered in a proceeding in equity or at law).
Very truly yours,
<PAGE>
EXHIBIT E
[Form of Opinion of Special Counsel for the Agent]
[Date of initial Borrowing]
To the Banks listed on
Exhibit A hereto and
to Citibank, N.A.,
as Agent
Philip Morris Companies Inc.
----------------------------
Gentlemen:
We have acted as special New York counsel to Citibank, N.A., acting
for itself and as Agent, in connection with the preparation, execution and
delivery of, and the initial Borrowing made under, the 364-Day Loan and
Guaranty Agreement dated as of December 16, 1994 (the "364-Day Agreement")
among Philip Morris Companies Inc. and each of you. Unless otherwise defined
herein, terms defined in the 364-Day Agreement are used herein as therein
defined.
In that connection, we have examined the following documents:
(1) A counterpart of the 364-Day Agreement, executed by each of
the parties thereto.
(2) The documents furnished pursuant to Article III of the
364-Day Agreement and listed on Exhibit B hereto, including the opinion
of Hunton & Williams, counsel for PM Companies and its subsidiaries.
In our examination of the documents referred to above, we have assumed the
authenticity of all such documents submitted to us as originals, the
genuineness of all signatures, the due authority of the parties executing such
documents, and the conformity to the originals of all such documents submitted
to us as copies. We have also assumed that each of the Banks parties to the
364-Day Agreement and the Agent has duly executed and delivered, with all
necessary power and authority (corporate and otherwise), the 364-Day Agreement.
To the extent that our opinions expressed below involve conclusions
as to the matters set forth in paragraphs 1, 2, 3 and 6 of the above-mentioned
opinion of Hunton & Williams, we have assumed without independent investigation
the correctness of the matters set forth in such paragraphs, our opinion being
subject to the assumptions, qualifications and limitations set forth in such
opinion of Hunton & Williams with respect thereto.
<PAGE>
2
Based upon the foregoing examination of documents and assumptions
and upon such other investigation as we have deemed necessary, we are of the
following opinion:
1. The 364-Day Agreement is, and the guaranties endorsed on the
B Notes when delivered under the Loan Agreement will be, the legal, valid
and binding obligation of PM Companies enforceable against PM Companies
in accordance with its terms.
2. The B Notes of [PM Companies] [ ] (the
----------
"Borrower"), if any, issued on the date hereof are the legal, valid and
binding obligations of [PM Companies] [the Borrower] enforceable against
[PM Companies] [the Borrower] in accordance with their respective terms.
3. The opinion of Hunton & Williams, counsel for PM Companies
and its subsidiaries, and the other documents referred to in item (2)
above are substantially responsive to the requirements of the 364-Day
Agreement.
Our opinions in paragraphs 1 and 2 above are subject to the following
qualifications:
(a) Our opinions in paragraphs 1 and 2 above are subject to the
effect of general principles of equity including (without limitation)
concepts of materiality, reasonableness, good faith and fair dealing
(regardless of whether considered in a proceeding in equity or at law).
Further, pursuant to such equitable principles, (i) Section 8.02 of the
364-Day Agreement, which Section provides that the Guarantor's liability
thereunder shall not be affected by changes in or amendments to the
364-Day Agreement, and (ii) Section 2 of the guaranty endorsed on the B
Notes, which Section provides that the Guarantor's liability thereunder
shall not be affected by changes in or amendments to the B Notes, might
be enforceable only to the extent that such changes or amendments were
not so material as to constitute a new contract among the parties.
(b) Our opinions in paragraphs 1 and 2 above are also subject to
the effect of any applicable bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting creditors' rights generally.
(c) Our opinions expressed above are limited to the law of the
State of New York and the Federal law of the United States, and we do not
express any opinion herein concerning any other law. Without limiting
the generality of the foregoing, we express no opinion as to the effect
of the law of any jurisdiction other
<PAGE>
3
than the State of New York wherein any Lender may be located or wherein
enforcement of the 364-Day Agreement or the B Notes may be sought which
limits the rates of interest legally chargeable or collectible.
Very truly yours,
SHEARMAN & STERLING
<PAGE>
EXHIBIT A
to the Opinion dated , 199
----------------- _
of Shearman & Sterling
Banks
-----
<PAGE>
EXHIBIT B
to the Opinion dated , 199_
-----------------
of Shearman & Sterling
Documents
---------
<PAGE>
EXHIBIT F
NOTICE OF ACCEPTANCE
Dated ___________, 199_
The undersigned, _______________________, a _____________________
corporation and a subsidiary of PM Companies (as defined below) (the
"Subsidiary"), hereby:
1. Confirms that this Notice of Acceptance is being delivered
pursuant to Section 9.01 of that certain 364-Day Loan and Guaranty
Agreement dated as of December 16, 1994 (the "364-Day Agreement", terms
defined therein being used herein with the same meaning), among Philip
Morris Companies Inc. ("PM Companies"), the lenders parties thereto (the
"Lenders") and Citibank, N.A., as agent for the Lenders (the "Agent").
2. States that the Subsidiary desires to become a "Borrower"
under the Agreement and agrees to be bound by the terms and provisions of
the 364-Day Agreement as a "Borrower" thereunder.
3. Represents and warrants as follows:
(a) The Subsidiary is a corporation duly organized, validly
existing and in good standing under the laws of ___________________.
(b) The execution, delivery and performance by the
Subsidiary of the B Notes, if any, executed and delivered and to be
executed and delivered by it, the 364-Day Agreement and this Notice
of Acceptance are within the Subsidiary's corporate powers, have
been duly authorized by all necessary corporate action, and do not
contravene (i) the Subsidiary's charter or by-laws or (ii) any law,
rule, regulation or order of any court or governmental agency or
any contractual restriction binding on or affecting the Subsidiary.
(c) No authorization or approval or other action by, and no
notice to or filing with, any governmental authority or regulatory
body is required for the due execution, delivery and performance by
the Subsidiary of the B Notes executed and delivered and to be
executed and delivered by it, the 364-Day Agreement or this Notice
of Acceptance.
(d) The 364-Day Agreement is, and the B Notes of such
Subsidiary if delivered under the 364-Day Agreement will be, the
legal, valid and binding obligations of the Subsidiary enforceable
against the Subsidiary in accordance with their terms, subject to
the effect of any applicable bankruptcy,
<PAGE>
2
insolvency, reorganization, moratorium or similar law affecting
creditors' rights generally and to the effect of general principles
of equity (regardless of whether such enforceability is considered
in a proceeding in equity or at law).
(e) There is no pending or threatened action or proceeding
affecting the Subsidiary or any of its subsidiaries before any
court, governmental agency or arbitrator which purports to affect
the legality, validity or enforceability of the 364-Day Agreement
or any Note.
(f) PM Companies owns directly or indirectly 100% of the
capital stock of the Subsidiary.
4. Delivers with this Notice of Acceptance an opinion of counsel
for PM Companies, pursuant to Section 9.01(b) of the Agreement, in the
form of Schedule 1 hereto.
[(Name of Borrower)]
------------------------------
By:
------------------------------
Title:
The undersigned, as Guarantor under the Agreement, hereby confirms
and agrees to the foregoing Notice of Acceptance pursuant to Section 9.01(a) of
the Agreement.
PHILIP MORRIS COMPANIES INC.
By:
------------------------------
Title:
<PAGE>
Schedule 1
to
Notice of Acceptance
[OPINION OF COUNSEL FOR PM COMPANIES]
[Date of Notice of Acceptance]
To each of the Lenders parties
to the 364-Day Loan and Guaranty
Agreement dated as of December 16,
1994 among Philip Morris Companies
Inc., said Lenders and Citibank, N.A.,
as Agent, and to Citibank, N.A., as
Agent
Philip Morris Companies Inc.
----------------------------
Gentlemen:
This opinion is furnished to you pursuant to Section 9.01(b) of the
364-Day Loan and Guaranty Agreement, dated as of December 16, 1994 (the
"364-Day Agreement"), among Philip Morris Companies Inc. ("PM Companies"), the
Lenders parties thereto and Citibank, N.A., as Agent for said Lenders. Unless
otherwise defined herein, terms defined in the 364-Day Agreement are used
herein as therein defined.
We have acted as counsel for PM Companies and its subsidiary,
___________________ (the "Subsidiary"), in connection with the preparation,
execution and delivery of the Notice of Acceptance by the Subsidiary delivered
pursuant to Section 9.01 of the 364-Day Agreement.
In that connection, we have examined the 364-Day Agreement, the B
Notes, if any, to be executed and delivered by the Subsidiary and such other
agreements, instruments and documents as we have deemed necessary as a basis
for the opinion expressed below. As to questions of fact material to such
opinion, we have, when relevant facts were not independently established by us,
relied upon certificates of PM Companies and the Subsidiary or their respective
officers or of public officials. We have assumed the due execution and
<PAGE>
2
delivery, pursuant to due authorization, of the 364-Day Agreement by the
Lenders parties thereto and the Agent.
Based upon the foregoing and upon such investigation as we have
deemed necessary, we are of the opinion that the 364-Day Agreement is, and the
B Notes of the Subsidiary if delivered under the 364-Day Agreement will be, the
legal, valid and binding obligations of the Subsidiary enforceable against the
Subsidiary in accordance with their respective terms, subject to the effect of
any applicable bankruptcy, insolvency, reorganization, moratorium or similar
law affecting creditors' rights generally and to the effect of general
principles of equity, including (without limitation) concepts of materiality,
reasonableness, good faith and fair dealing (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
Very truly yours,
<PAGE>
EXHIBIT 4.13
RIGHTS AGREEMENT
----------------
This Agreement, dated as of October 25, 1989 (the
''Agreement''), between PHILIP MORRIS COMPANIES INC., a Vir-
ginia corporation (the ''Company''), and First Chicago Trust
Company of New York, a New York banking corporation (the
''Rights Agent''), provides as follows:
W I T N E S S E T H
- - - - - - - - - -
WHEREAS, on October 25, 1989 (the ''Rights Dividend
Declaration Date''), the Board of Directors of the Company
authorized and declared a dividend distribution of one Right
(as hereinafter defined) for each share of Common Stock (as
hereinafter defined) of the Company outstanding at the close
of business on November 8, 1989 (the ''Record Date''), and has
authorized the issuance of one Right (as such number may
hereinafter be adjusted pursuant to the provisions of this
Agreement) for each share of Common Stock of the Company
issued between the Record Date and the earlier of the Dis-
tribution Date and the Expiration Date (as such terms are
hereinafter defined) (unless the Board of Directors provides
to the contrary before or at the time of issuance of such
Common Stock) and as may be required or permitted pursuant
to Section 3(c) hereof, each Right initially representing
the right to purchase one share of Common Stock of the Com-
<PAGE>
pany, upon the terms and subject to the conditions herein-
after set forth (the ''Rights'');
NOW, THEREFORE, in consideration of the premises
and the mutual agreements herein set forth, the parties
hereby agree as follows:
Section 1. Certain Definitions. For purposes of
-------------------
this Agreement, the following terms have the meanings indi-
cated:
(a) ''Acquiring Person'' shall mean any Person (as
hereinafter defined) who or which, together with all Affil-
iates and Associates (as hereinafter defined) of such
Person, shall at any time become the Beneficial Owner (as
hereinafter defined) of 10% or more of the shares of Common
Stock of the Company then outstanding, but shall not include
(i) the Company, (ii) any Subsidiary (as hereinafter
defined) of the Company, (iii) any employee benefit plan of
the Company or of any Subsidiary of the Company, or (iv) any
Person organized, appointed or established by the Company or
any Subsidiary of the Company pursuant to the terms of, or
holding Common Stock for, any such employee benefit plan.
Notwithstanding the foregoing, no Person shall become an
''Acquiring Person'' as the result of an acquisition of Common
Stock by the Company which, by reducing the number of shares
outstanding, increases the proportionate number of shares
beneficially owned by such Person to 10% or more of the
-2-
<PAGE>
shares of Common Stock of the Company then outstanding; pro-
----
vided, however, that if a Person shall become the Beneficial
- ----- -------
Owner of 10% or more of the Common Stock of the Company then
outstanding by reason of share purchases by the Company and
shall, after such share purchases by the Company, become the
Beneficial Owner of any additional Common Stock of the Com-
pany, then such Person shall be deemed to be an ''Acquiring
Person''.
(b) ''Act'' shall mean the Securities Act of 1933,
as amended.
(c) ''Affiliate'' and ''Associate'' shall have the
respective meanings ascribed to such terms in Rule 12b-2 of
the General Rules and Regulations under the Exchange Act (as
hereinafter defined), as in effect on the date hereof.
(d) A Person shall be deemed the ''Beneficial
Owner'' of, and shall be deemed to ''beneficially own,'' any
securities:
(i) that such Person or any of such Person's Affil-
iates or Associates owns, directly or indirectly;
(ii) that such Person or any of such Person's Affil-
iates or Associates, directly or indirectly, has the
right to acquire (whether such right is exercisable
immediately or only after the passage of time or upon
satisfaction of any condition) pursuant to any agree-
-3-
<PAGE>
ment, arrangement or understanding (whether or not in
writing) (other than customary agreements with and
between underwriters and selling group members
with respect to a bona fide public offering of
securities), or upon the exercise of conversion
rights, exchange rights, rights (other than these
Rights), warrants or options, or otherwise;
provided, however, that a Person shall not be
-------- -------
deemed to be the ''Beneficial Owner'' of, or to ''bene-
ficially own,'' securities tendered pursuant to a
tender or exchange offer made by or on behalf of
such Person or any of such Person's Affiliates or
Associates until such tendered securities are
accepted for purchase or exchange;
(iii) that such Person or any of such Person's Affil-
iates or Associates, directly or indirectly, has the
right to vote, including pursuant to any agreement,
arrangement or understanding (whether or not in writ-
ing); provided, however, that a Person shall not be
-------- -------
deemed the ''Beneficial Owner'' of, or to ''beneficially
own,'' any security under this subparagraph (iii) as a
result of an agreement, arrangement or understanding to
vote such security if such agreement, arrangement or
understanding: (A) arises solely from a revocable proxy
or consent given in response to a public proxy or con-
sent solicitation made pursuant to, and in accordance
with, the applicable provisions of the General Rules and
-4-
<PAGE>
Regulations under the Exchange Act, and (B) is not also
then reportable by such Person on Schedule 13D under the
Exchange Act (or any comparable or successor report); or
(iv) that are beneficially owned, directly or indi-
rectly, by any other Person (or any Affiliate or Associ-
ate thereof) with which such Person (or any of such
Person's Affiliates or Associates) has any agreement,
arrangement or understanding (whether or not in writing)
(other than customary agreements with and between under-
writers and selling group members with respect to a bona
fide public offering of securities), for the purpose of
acquiring, holding, voting (except pursuant to a revo-
cable proxy or consent to the extent contemplated by the
proviso to subparagraph (iii) of this paragraph (d)) or
disposing of any securities of the Company;
provided, however, that notwithstanding any provision of
- -------- -------
this Section 1(d), in no case shall an officer or director
of the Company or any Subsidiary of the Company be deemed
(x) the beneficial owner of any securities beneficially
owned by another officer or director of the Company or any
Subsidiary of the Company solely by reason of actions under-
taken by such persons in their capacity as officers or
directors of the Company or any Subsidiary of the Company;
or (y) the beneficial owner of securities held of record by
the trustee of any employee benefit plan of the Company or
-5-
<PAGE>
any Subsidiary of the Company for the benefit of any em-
ployee of the Company or any Subsidiary of the Company,
other than for the officer or director, by reason of any
influence that such officer or director may have over the
voting of the securities held in the plan or otherwise.
Notwithstanding anything in this definition of Beneficial
Ownership to the contrary, the phrase ''then outstanding,''
when used with reference to a Person's Beneficial Ownership
of securities of the Company, shall mean the number of such
securities then issued and outstanding together with the
number of such unissued securities which such Person is
deemed to beneficially own hereunder.
(e) ''Business Day'' shall mean any day other than a
Saturday, Sunday or a day on which banking institutions in
the State of New York are authorized or obligated by law or
executive order to close.
(f) ''Close of business'' on any given date shall
mean 5:00 P.M., New York City time, on such date; provided,
--------
however, that if such date is not a Business Day it shall
- -------
mean 5:00 P.M., New York City time, on the next succeeding
Business Day.
(g) ''Common Stock'' shall mean the common stock, $1
par value, of the Company, except that ''Common Stock'' when
used with reference to any Other Person (as defined in Sec-
-6-
<PAGE>
tion 13(a) hereof) shall mean the capital stock (or other
equity interest) of such Person with the greatest voting
power (or the greatest power to control and direct the
management) of such other Person or, if such other Person is
a Subsidiary of another Person, the Person or Persons which
ultimately control such first-mentioned Person.
(h) ''Distribution Date'' shall mean the earlier of
(i) the close of business on the tenth day after the Stock
Acquisition Date (as hereinafter defined) (or, if the tenth
day after the Stock Acquisition Date occurs before the Rec-
ord Date, the close of business on the Record Date), or (ii)
the close of business on the tenth business day (or such
later date as may be determined by action of the Board of
Directors prior to such time as any Person becomes an Ac-
quiring Person) after the earlier of the date that any
Person (other than the Company, any Subsidiary of the Com-
pany, any employee benefit plan of the Company or of any
Subsidiary of the Company, or any Person organized, ap-
pointed or established by the Company or any Subsidiary of
the Company pursuant to the terms of, or holding Common
Stock for, any such employee benefit plan) first commences a
tender or exchange offer or first publicly announces an in-
tention to commence a tender or exchange offer, if, in any
such case, upon consummation thereof, such Person would
become an Acquiring Person (including any such date which is
after the date of this Agreement and prior to the issuance
of the Rights).
-7-
<PAGE>
(i) ''Exchange Act'' shall mean the Securities Ex-
change Act of 1934, as amended.
(j) ''Exchange Date'' shall mean the time at which
Rights are exchanged for shares of Common Stock or other
securities as provided in Section 24 hereof.
(k) ''Expiration Date'' shall mean the earlier of
(i) the close of business on the Final Expiration Date, (ii)
the time at which the Rights are redeemed as provided in
Section 23 hereof or (iii) the Exchange Date.
(l) ''Final Expiration Date'' shall mean October 25,
1999.
(m) ''Person'' shall mean any individual, firm, cor-
poration, partnership or other entity and shall include any
successor (by merger or otherwise) of such entity.
(n) ''Purchase Price'' shall have the meaning set
forth in Section 7(b) hereof.
(o) ''Right'' shall mean the right to purchase one
share of Common Stock upon the terms and subject to the con-
ditions and adjustments set forth herein.
(p) ''Section 11(a)(ii) Event'' shall mean the event
described in Section 11(a)(ii) hereof.
-8-
<PAGE>
(q) ''Section 13 Event'' shall mean any event
described in clause (w), (x), (y) or (z) of Section 13(a)
hereof.
(r) ''Stock Acquisition Date'' shall mean the first
date of public announcement (which, for purposes of this
definition, shall include, without limitation, a report
filed pursuant to Section 13(d) under the Exchange Act) by
the Company or an Acquiring Person that an Acquiring Person
has become such.
(s) ''Subsidiary'' shall mean, with reference to a
particular Person, any other Person of which an amount of
voting securities sufficient to elect a majority of the
directors or Persons having similar authority of such other
Person is beneficially owned, directly or indirectly, by the
particular Person, or otherwise controlled by the particular
Person.
(t) ''Triggering Event'' shall mean any Section
11(a)(ii) Event or any Section 13 Event.
Section 2. Appointment of Rights Agent. The Com-
---------------------------
pany hereby appoints the Rights Agent to act as agent for
the Company and the holders of the Rights (who, in accor-
dance with Section 3 hereof, but subject to Section 7(e)
hereof, shall prior to the Distribution Date also be holders
of Common Stock) in accordance with the terms and conditions
-9-
<PAGE>
hereof, and the Rights Agent hereby accepts such appoint-
ment. The Company may from time to time appoint such Co-
Rights Agents as it may deem necessary or desirable.
Section 3. Issue of Rights Certificates.
----------------------------
(a) Until the Distribution Date and subject to the
provisions of Sections 7(e) and 11(a)(ii) hereof, (x) the
Rights shall be evidenced (subject to the provisions of
paragraphs (b), (c) and (d) of this Section 3) by the cer-
tificates for the Common Stock registered in the names of
the holders of the Common Stock (which certificates for Com-
mon Stock shall be deemed also to be certificates for
Rights) and not by separate certificates, and (y) the Rights
shall be transferable only in connection with the transfer
of the underlying shares of Common Stock (including a trans-
fer to the Company). As soon as practicable after the Dis-
tribution Date, the Company shall prepare and execute, the
Rights Agent shall countersign, and, subject to the provi-
sions of Sections 7(e) and 11(a)(ii) hereof, the Rights
Agent shall send by first-class, insured, postage prepaid
mail, to each such record holder of the Rights as of the
close of business on the Distribution Date, at the address
of such holder shown on the records of the Company, one or
more rights certificates, in substantially the form of Ex-
hibit A hereto (the ''Rights Certificates''), evidencing such
number of Rights owned by such holder. In the event that an
-10-
<PAGE>
adjustment in the number of Rights per share of Common Stock
has been made pursuant to this Agreement, at the time of
distribution of the Rights Certificates, the Company shall
make the necessary and appropriate rounding adjustments (in
accordance with Section 14(a) hereof) so that Rights Certif-
icates representing only whole numbers of Rights are dis-
tributed and cash is paid in lieu of any fractional Rights.
As of and after the Distribution Date, the Rights shall be
evidenced solely by such Rights Certificates.
(b) As promptly as practicable following the Rec-
ord Date, the Company shall send a copy of a Summary of
Rights, in substantially the form attached hereto as Exhibit
B (the ''Summary of Rights''), by first-class, postage prepaid
mail, to each record holder of the Common Stock as of the
close of business on the Record Date, at the address of such
holder shown on the records of the Company. With respect to
certificates for the Common Stock outstanding as of the Rec-
ord Date, until the Distribution Date, subject to the provi-
sions of Section 7(e), the Rights shall be evidenced by such
certificates for the Common Stock and the registered holders
of such Common Stock shall also be the registered holders of
the associated Rights. Until the earlier of the Distribu-
tion Date or the Expiration Date, the transfer of any cer-
tificates representing shares of Common Stock in respect of
which Rights have been issued shall also constitute, subject
to the provisions of Section 7(e) hereof, the transfer of
the Rights associated with such shares of Common Stock.
-11-
<PAGE>
(c) Unless the Board of Directors by resolution
adopted at or before the time of issuance of any shares of
Common Stock specifies to the contrary, Rights shall be is-
sued in respect of all shares of Common Stock that are is-
sued after the Record Date but prior to the earlier of the
Distribution Date or the Expiration Date (other than shares
issued upon exercise or exchange of the Rights), subject to
Sections 7(e) and 11(a)(ii) hereof. In addition, subject to
Sections 7(e) and 11(a)(ii) hereof, in connection with the
issuance of shares of Common Stock on or following the Dis-
tribution Date and prior to the Expiration Date, the Company
(x) shall, with respect to shares of Common Stock so issued
upon the exercise, conversion or exchange of options, war-
rants, securities, notes or debentures issued by the Company
prior to the Distribution Date (other than shares issued
upon exercise or exchange of the Rights), and (y) may, in
any other case, if deemed necessary or appropriate by the
Board of Directors of the Company, issue Rights Certificates
representing the appropriate number of Rights in connection
with such issuance; provided, however, that, in the case of
-------- -------
either clause (x) or (y), (i) no such Rights Certificate
shall be issued if, and to the extent that, the Company
shall be advised by counsel that such issuance would create
a significant risk of material adverse tax consequences to
the Company or the Person to whom such Rights Certificate
would be issued, and (ii) no such Rights Certificate shall
-12-
<PAGE>
be issued if, and to the extent that, appropriate adjustment
(giving effect to the provisions of Sections 11(a)(ii) and
13 hereof) shall otherwise have been made in lieu of the
issuance thereof. Subject to the provisions of Section 7(e)
hereof, certificates representing both shares of Common
Stock and Rights issued after the Record Date but prior to
the earlier of the Distribution Date or the Expiration Date,
and certificates representing shares of Common Stock out-
standing on the Record Date that are delivered upon transfer
or exchange of such Common Stock shall bear the following
legend:
This certificate also evidences and
entitles the holder hereof to certain
Rights as set forth in the Rights Agree-
ment between Philip Morris Companies Inc.
(the ''Company'') and First Chicago Trust
Company of New York (the ''Rights Agent'')
dated as of October 25, 1989 (the ''Rights
Agreement''), the terms of which are here-
by incorporated herein by reference and a
copy of which is on file at the principal
offices of the Company. Under certain
circumstances, as set forth in the Rights
Agreement, such Rights will be evidenced
by separate certificates and will no
longer be evidenced by this certificate.
The Company will mail to the holder of
this certificate a copy of the Rights
Agreement, as in effect on the date of
mailing, without charge promptly after
receipt of a written request therefor.
Under no circumstances shall the Rights
evidenced by this certificate be trans-
ferred, directly or indirectly, (i) to
any Person who is, or as a result of such
transfer would be, the Beneficial Owner
of 10% or more of the Rights (including
Rights that are null and void pursuant to
Section 11(a)(ii) of the Rights Agree-
ment), or (ii) to any Affiliate or Asso-
-13-
<PAGE>
ciate of any such Person (as such
terms are defined in the Rights
Agreement). Any purported or
attempted transfer of a Right in
violation of the foregoing pro-
visions shall be without effect
without any further action on the
part of the Company or the Rights
Agent, and any Right that has been
the subject of any such purported or
attempted transfer shall for
purposes of this Agreement and the
Rights Certificate be deemed to be
held beneficially by the Person who
attempted to make such purported or
attempted transfer and, thereafter,
shall continue to be exercisable by
such Person or, in the case of a
transfer not prohibited by the
Rights Agreement, such Person's
transferee, pursuant to the Rights
Agreement. As set forth in the
Rights Agreement, Rights that are or
were beneficially owned by any
Person who is or was an Acquiring
Person (as defined in the Rights
Agreement) (or by any Affiliate or
Associate of an Acquiring Person) at
or after the time such Person (or
any Affiliate or Associate thereof)
became an Acquiring Person shall
become null and void.
With respect to such certificates containing the
foregoing legend, until the earlier of (i) the Distribution Date or
(ii) the Expiration Date, subject to the provisions of Sec-
tion 7(e) hereof, the Rights associated with the Common
Stock represented by such certificates shall be evidenced by
such certificates alone and registered holders of Common
Stock shall also be the registered holders of the associated
Rights, and the transfer of any of such certificates shall
also constitute the transfer of the Rights associated with
the Common Stock represented by such certificates. In the
event that the Company purchases or acquires any shares of
-14-
<PAGE>
Common Stock after the Record Date but prior to the Distri-
bution Date, any Rights associated with such shares of Com-
mon Stock shall be deemed cancelled and retired so that the
Company shall not be entitled to exercise any Rights associ-
ated with the shares of Common Stock which are no longer
outstanding.
(d) With respect to certificates evidencing Common
Stock transferred to any Person to whom transfer of the
associated Right(s) was prohibited by the transfer restric-
tions contained in Section 7(e), such certificates shall
bear the following legend:
This certificate neither evidences nor
entitles the holder hereof to any Rights
pursuant to the Rights Agreement between
Philip Morris Companies Inc. and First
Chicago Trust Company of New York as of
October 25, 1989.
Section 4. Form of Rights Certificates.
---------------------------
(a) The Rights Certificates (and the forms of
election to purchase and of assignment to be printed on the
reverse thereof) shall each be substantially in the form set
forth in Exhibit A hereto and may have such marks of identi-
fication or designation and such legends, summaries or
endorsements printed thereon as the Company may deem appro-
priate and as are not inconsistent with the provisions of
this Agreement, or as may be required to comply with any
applicable law or with any rule or regulation made pursuant
-15-
<PAGE>
thereto or with any rule or regulation of any stock exchange
on which the Rights may from time to time be listed, or to
conform to usage. Subject to the provisions of Sections 11
and 22 hereof, the Rights Certificates, whenever distrib-
uted, shall be dated as of the Record Date (or in the case
of Rights issued with respect to Common Stock issued by the
Company after the Record Date, as of the date of issuance of
such Common Stock), and on their face shall entitle the
holders thereof to purchase such number of shares of Common
Stock as shall be set forth therein at the price set forth
therein (such exercise price per share of Common Stock,
being hereinafter referred to as the ''Purchase Price''), but
the amount and type of securities purchasable upon the exer-
cise of each Right and the Purchase Price thereof shall be
subject to adjustment as provided herein.
(b) The Company shall notify the Rights Agent,
and, if such notification is given orally, the Company shall
confirm promptly the same in writing, at such time as the
Company has notice that any Person has become an Acquiring
Person or an Affiliate or Associate of an Acquiring Person.
Section 5. Countersignature and Registration.
---------------------------------
(a) The Rights Certificates shall be executed on
behalf of the Company by its Chairman of the Board, any Vice
Chairman, its President or any Vice President, either manu-
ally or by facsimile signature, and shall have affixed
-16-
<PAGE>
thereto the Company's seal or a facsimile thereof which
shall be attested by the Secretary or an Assistant Secretary
of the Company, either manually or by facsimile signature.
The Rights Certificates shall be countersigned by an autho-
rized signatory of the Rights Agent but it shall not be
necessary for the same signatory to countersign all of the
Rights Certificates issued hereunder. The Rights Certifi-
cates shall be manually countersigned by the Rights Agent
and shall not be valid for the purpose unless so counter-
signed. In case any officer of the Company who shall have
signed any of the Rights Certificates shall cease to be such
officer of the Company before countersignature by the Rights
Agent and issuance and delivery by the Company, such Rights
Certificates, nevertheless, may be countersigned by the
Rights Agent and issued and delivered by the Company with
the same force and effect as though the person who signed
such Rights Certificates had not ceased to be such officer
of the Company; and any Rights Certificates may be signed on
behalf of the Company by any person who, at the actual date
of the execution of such Rights Certificate, shall be a
proper officer of the Company to sign such Rights Certifi-
cate, although at the date of the execution of this Agree-
ment any such person was not such an officer.
(b) Following any purported or attempted transfer
of Rights in violation of the transfer restrictions set
forth in Section 7(e) hereof, and until the creation of
-17-
<PAGE>
separate books for registration and transfer of Rights Cer-
tificates pursuant to the following sentence, the Rights
Agent will keep or cause to be kept interim books for regis-
tration and transfer of Rights that were the subject of such
purported or attempted transfer showing the names and
addresses of the Person or Persons who attempted to make
such purported or attempted transfer, the number of Rights
continued to be exercisable by such Person or Persons, and
any subsequent transfer of Rights by such Person or Persons
on a ''when issued'' basis that is not prohibited by the
transfer restrictions contained in Section 7(e). Following
the Distribution Date, the Rights Agent will keep or cause
to be kept, at its principal office or offices designated as
the appropriate place for surrender of Rights Certificates
upon exercise or transfer, books for registration and trans-
fer of the Rights Certificates issued hereunder. Such books
shall show the names and addresses of the respective holders
of the Rights Certificates, the number of Rights evidenced
on its face by each of the Rights Certificates and the date
of each of the Rights Certificates.
Section 6. Transfer, Split Up, Combination and
-----------------------------------
Exchange of Rights Certificates; Mutilated, Destroyed, Lost
- -----------------------------------------------------------
or Stolen Rights Certificates.
- -----------------------------
(a) Subject to the provisions of Sections 7(e) and
14 hereof, at any time after the close of business on the
Distribution Date, and prior to the close of business on the
-18-
<PAGE>
Expiration Date, any Rights Certificate or Certificates
(other than Rights Certificates representing Rights that
have become void pursuant to Section 11(a)(ii) hereof or
that have been exchanged pursuant to Section 24 hereof) may
be transferred, split up, combined or exchanged for another
Rights Certificate or Certificates, entitling the registered
holder to purchase a like number of shares of Common Stock
(or other securities, as the case may be) as the Rights
Certificate or Certificates surrendered then entitle such
holder (or former holder in the case of a transfer) to pur-
chase. Any registered holder desiring to transfer, split
up, combine or exchange any Rights Certificate or Certifi-
cates shall make such request in writing delivered to the
Rights Agent, and shall surrender the Rights Certificate or
Certificates to be transferred, split up, combined or
exchanged at the principal office or offices of the Rights
Agent designated for such purpose. Neither the Rights Agent
nor the Company shall be obligated to take any action what-
soever with respect to the transfer of any such surrendered
Rights Certificate or with respect to the issuance of any
Rights Certificate pursuant to Section 3 hereof until the
registered holder shall have completed and signed the
certificate contained in the form of assignment on the
reverse side of such Rights Certificate, in the case of a
transfer, and/or shall have provided such additional evi-
dence of the identity of the Beneficial Owner (or former
-19-
<PAGE>
Beneficial Owner), and the transferee or Affiliates or Asso-
ciates thereof as the Company shall reasonably request.
Subject to the first sentence of this Section 6 and subject
to Sections 7(e), 11(a)(ii) and 14 hereof, the Rights Agent
shall countersign and deliver to the Person entitled thereto
a Rights Certificate or Rights Certificates, as the case may
be, as so requested. The Company may require payment from
the holder of the Rights of a sum sufficient to cover any
tax or governmental charge that may be imposed in connection
with any transfer, split up, combination or exchange of
Rights Certificates.
(b) Subject to Sections 7(e) and 11(a)(ii) hereof,
upon receipt by the Company and the Rights Agent of evidence
reasonably satisfactory to them of the loss, theft, destruc-
tion or mutilation of a Rights Certificate, and, in case of
loss, theft or destruction, of indemnity or security reason-
ably satisfactory to them, and reimbursement to the Company
and the Rights Agent of all reasonable expenses incidental
thereto, and upon surrender to the Rights Agent and cancel-
lation of the Rights Certificate if mutilated, the Company
will execute and deliver a new Rights Certificate of like
tenor to the Rights Agent for countersignature and delivery
to the registered owner in lieu of the Rights Certificate so
lost, stolen, destroyed or mutilated.
-20-
<PAGE>
Section 7. Exercise of Rights; Purchase Price;
-----------------------------------
Expiration Date of Rights; Restriction on Transfer of Rights.
- ------------------------------------------------------------
(a) Subject to Section 7(e) hereof, the registered
holder of any Rights Certificate may exercise the Rights
evidenced thereby (except as otherwise provided herein
including, without limitation, the restrictions on exercisa-
bility set forth in Section 11(a)(ii), Section 23 and Sec-
tion 24 hereof) in whole or in part at any time after the
Distribution Date upon surrender of the Rights Certificate,
with the form of election to purchase and the certificate on
the reverse side thereof duly executed, to the Rights Agent
at the principal office or offices of the Rights Agent des-
ignated for such purpose, together with payment of the
aggregate Purchase Price with respect to the total number of
shares of Common Stock (or other securities, as the case may
be) as to which surrendered Rights are then being exercised,
at or prior to the Expiration Date.
(b) The Purchase Price for each one share of Com-
mon Stock pursuant to the exercise of a Right shall ini-
tially be $150 and shall be subject to adjustment from time
to time as provided in Section 11 and Section 13 hereof and
shall be payable in accordance with paragraph (c) below.
(c) Upon receipt of a Rights Certificate repre-
senting valid and exercisable Rights, with the form of elec-
tion to purchase and the certificate duly executed, accompa-
-21-
<PAGE>
nied by payment, with respect to each Right so exercised, of
the Purchase Price for the securities to be purchased as set
forth below and an amount equal to any applicable transfer
tax, the Rights Agent shall, subject to Section 20(k)
hereof, thereupon promptly, (i) requisition from any trans-
fer agent of the shares of Common Stock (or make available,
if the Rights Agent is the transfer agent for such shares)
certificates for the total number of shares of Common Stock
to be purchased and the Company hereby irrevocably autho-
rizes its transfer agent and any successor transfer agent to
comply with all such requests, (ii) requisition from the
Company the amount of cash, if any, to be paid in lieu of
fractional shares in accordance with Section 14 hereof,
(iii) after receipt of such certificates or depositary
receipts, cause the same to be delivered to or upon the
order of the registered holder of such Rights Certificate,
registered in such name or names as may be designated by
such holder, and (iv) after receipt thereof, deliver such
cash, if any, to or upon the order of the registered holder
of such Rights Certificate. The payment of the Purchase
Price (as such amount may be adjusted pursuant to this
Agreement) may be made in cash or by check or bank draft
payable to the order of the Company. In the event that the
Company is obligated to issue other securities of the Com-
pany, the Company will make all arrangements necessary so
that such other securities are available for distribution by
the Rights Agent, if and when appropriate.
-22-
<PAGE>
(d) In case the registered holder of any Rights
Certificate shall exercise less than all the Rights evi-
denced thereby, subject to Sections 7(e), 11(a)(ii) and 14
hereof, a new Rights Certificate evidencing Rights equiva-
lent to the Rights remaining unexercised shall be issued by
the Rights Agent and delivered to, or upon the order of, the
registered holder of such Rights Certificate, registered in
such name or names as may be designated by such holder.
(e) For purposes of this Section 7(e), a Person (a
''Related Person'') shall be deemed to be the ''Beneficial
Owner'' of, and to ''beneficially own,'' any Rights which such
Related Person is the ''Beneficial Owner'' of, or ''benefi-
cially owns'' as a result of the definition in Section 1(d)
hereof, and any Rights that (x) are beneficially owned by
any other Person (A) with which such Related Person (or any
of such Related Person's Affiliates or Associates) has any
agreement, arrangement or understanding (whether or not in
writing), directly or indirectly, with respect to the exer-
cise or non-exercise of, or the taking of any action or non-
action with respect to, any right, power or privilege or
economic benefit incident to the ownership of such Rights or
the securities obtainable upon exercise thereof or (B) who
has agreed, arranged or otherwise committed (whether or not
in writing) directly or indirectly, to exercise or not to
exercise, or to take any other action or non-action with
respect to, any right, power or privilege or economic bene-
-23-
<PAGE>
fit incident to the ownership of such Rights or the securi-
ties obtainable upon exercise thereof on behalf of, for the
benefit of, at the request of or as a result of any
inducement by, such Related Person (or any of such Related
Person's Affiliates or Associates) or (y) are beneficially
owned or otherwise held by any Person, directly or indirect-
ly, as a result of, or in connection with, any action con-
templated by clause (x) above or (z) were beneficially owned
by such Related Person at any time after such Related Person
became an Acquiring Person. Notwithstanding anything in
this Agreement to the contrary, Rights, including, without
limitation, Rights evidenced by certificates for Common
Stock, shall not at any time be transferable, directly or
indirectly, (i) to any Person who is, or as a result of such
transfer would be, the Beneficial Owner of 10% or more of
the Rights (including any Rights that are null and void pur-
suant to Section 11(a)(ii) hereof), or (ii) to any Affiliate
or Associate of a Person referred to in the foregoing sub-
paragraph (i); provided, however, that the foregoing shall
-------- -------
not prevent any transfer to the Company, any Subsidiary of
the Company, any employee benefit plan of the Company or of
any Subsidiary of the Company, or any Person organized, ap-
pointed or established by the Company or any Subsidiary of
the Company pursuant to the terms of, or holding Common
Stock for, any such employee benefit plan. Notwithstanding
anything in this Agreement to the contrary, any purported or
-24-
<PAGE>
attempted transfer of a Right in violation of the foregoing
provisions shall be without effect without any further
action on the part of the Company or the Rights Agent, and
any Right that has been the subject of any such purported or
attempted transfer shall for purposes of this Agreement and
the Rights Certificate be deemed to be held beneficially by
the Person who attempted to make such purported or attempted
transfer and, thereafter, shall (subject to Section
11(a)(ii)) continue to be exercisable by such Person or, in
case of a transfer not prohibited by the Agreement, such
Person's transferee, for shares of Common Stock (or other
securities, as the case may be) pursuant to this Agreement.
The Company may require (or cause the Rights Agent or any
transfer agent of the Company to require) any Person who
would otherwise receive Rights Certificates pursuant to Sec-
tion 3 hereof or who submits a Rights Certificate for trans-
fer on the registry books or for exchange pursuant to Sec-
tion 24 hereof or to exercise the Rights represented thereby
to establish to the reasonable satisfaction of the Company
that such Rights have not been the subject of any purported
transfer in violation of the provisions of this Section 7(e)
and that such Rights are not null and void pursuant to Sec-
tion 11(a)(ii) of this Agreement. The Company shall use all
reasonable efforts to ensure that the provisions of this
Section 7(e), Section 11(a)(ii) and Section 24 are complied
with, but shall have no liability to any holder of Rights
-25-
<PAGE>
Certificates or any other Person as a result of its failure
to ascertain that a Person is a Beneficial Owner of 10% or
more of the Rights or to ascertain the identity of such
Person's Affiliate or Associate. The foregoing restrictions
on transferability of Rights shall not affect the transfer-
ability of Common Stock associated with such Rights.
(f) Notwithstanding anything in this Agreement to
the contrary, neither the Rights Agent nor the Company shall
be obligated to undertake any action with respect to a
registered holder upon the occurrence of any purported exer-
cise as set forth in this Section 7 unless such registered
holder shall have (i) completed and signed the certificate
contained in the form of election to purchase set forth on
the reverse side of the Rights Certificate surrendered for
such exercise and (ii) provided such additional evidence of
the identity of the Beneficial Owner (or former Beneficial
Owner) or Affiliates or Associates thereof as the Company
shall request.
Section 8. Cancellation and Destruction of Rights
--------------------------------------
Certificates. All Rights Certificates surrendered for the
- ------------
purpose of exercise, transfer, split up, combination or ex-
change shall, if surrendered to the Company or any of its
agents, be delivered to the Rights Agent for cancellation or
in cancelled form, or, if surrendered to the Rights Agent,
shall be cancelled by it, and no Rights Certificates shall
-26-
<PAGE>
be issued in lieu thereof except as expressly permitted by
any of the provisions of this Agreement. The Company shall
deliver to the Rights Agent for cancellation and retirement,
and the Rights Agent shall so cancel and retire, any other
Rights Certificate purchased or acquired by the Company
otherwise than upon the exercise thereof. The Rights Agent
shall deliver all cancelled Rights Certificates to the Com-
pany, or shall, at the written request of the Company,
destroy such cancelled Rights Certificates, and in such case
shall deliver a certificate of destruction thereof to the
Company.
Section 9. Reservation and Availability of Common
--------------------------------------
Stock.
- -----
(a) The Company covenants and agrees that it will
cause to be reserved and kept available out of its autho-
rized and unissued shares of Common Stock, the number of
shares of Common Stock that will be sufficient from time to
time to permit the exercise in full of all outstanding
Rights.
(b) As long as the shares of Common Stock (or any
other securities) issuable and deliverable upon the exercise
of the Rights may be listed on any national securities ex-
change, the Company shall use its best efforts to cause,
from and after such time as the Rights become exercisable,
all shares reserved for such issuance to be listed on such
exchange upon official notice of issuance.
-27-
<PAGE>
(c) The Company shall use its best efforts to (i)
file, as soon as practicable following the first occurrence
of a Section 11(a)(ii) Event, or as soon as is required by
law following the Distribution Date, as the case may be, a
registration statement under the Act, with respect to the
securities purchasable upon exercise of the Rights on an
appropriate form, (ii) cause such registration statement to
become effective as soon as practicable after such filing,
and (iii) cause such registration statement to remain effec-
tive (with a prospectus at all times meeting the require-
ments of the Act) until the earlier of (A) the date as of
which the Rights are no longer exercisable for such securi-
ties, and (B) the date of the expiration of the Rights. The
Company will also take such action as may be appropriate
under, or to ensure compliance with, the securities or ''blue
sky'' laws of the various states in connection with the exer-
cisability of the Rights.
(d) The Company covenants and agrees that it will
take all such action as may be necessary to ensure that all
shares of Common Stock (or other securities, as the case may
be) delivered upon exercise or exchange of Rights shall, at
the time of delivery of the certificates for such shares
(subject to payment of the Purchase Price or surrender of
Rights Certificates, as the case may be), be duly autho-
rized, validly issued, fully paid and nonassessable, and
free of preemptive rights.
-28-
<PAGE>
(e) The Company further covenants and agrees that
it will pay when due and payable any and all federal and
state transfer taxes and charges that may be payable in re-
spect of the issuance or delivery of the Rights Certificates
and of any certificates for shares of Common Stock (or other
securities, as the case may be) upon the exercise of
Rights. The Company shall not, however, be required to pay
any transfer tax that may be payable in respect of any
transfer or delivery of Rights Certificates to a Person
other than, or the issuance or delivery of a number of
shares of Common Stock (or other securities, as the case may
be) in respect of a name other than that of, the registered
holder of the Rights Certificates evidencing Rights surren-
dered for exercise or to issue or deliver any certificates
for a number of shares of Common Stock (or other securities,
as the case may be) in a name other than that of the regis-
tered holder upon the exercise of any Rights until such tax
shall have been paid (any such tax being payable by the
holder of such Rights Certificate at the time of surrender)
or until it has been established to the Company's satisfac-
tion that no such tax is due.
Section 10. Common Stock Record Date. Each person
------------------------
in whose name any certificate for a number of shares of Com-
mon Stock is issued upon the exercise of Rights shall for
all purposes be deemed to have become the holder of record
of such shares of Common Stock represented thereby on, and
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<PAGE>
such certificate shall be dated, the date upon which the
Rights Certificate evidencing such Rights was duly surren-
dered and payment of the Purchase Price (and all applicable
transfer taxes) was made; provided, however, that if the
-------- -------
date of such surrender and payment is a date upon which the
Common Stock transfer books of the Company are closed, such
Person shall be deemed to have become the record holder of
such shares (fractional or otherwise) on, and such certifi-
cate shall be dated, the next succeeding Business Day on
which the Common Stock transfer books of the Company are
open. Prior to the exercise of the Rights evidenced there-
by, the holder of a Rights Certificate shall not be entitled
to any rights of a stockholder of the Company with respect
to shares for which the Rights shall be exercisable, includ-
ing, without limitation, the right to vote or to receive
dividends or other distributions, and shall not be entitled
to receive any notice of any proceedings of the Company,
except as provided herein.
Section 11. Adjustment of Purchase Price, Number
------------------------------------
and Kind of Shares or Number of Rights. The Purchase Price,
- --------------------------------------
and the number and kind of shares covered by each Right and
the number of Rights outstanding are subject to adjustment
from time to time as provided in this Section 11.
(a) (i) In the event the Company shall at any
time after the date of this Agreement (A) declare a div-
-30-
<PAGE>
idend on the Common Stock payable in shares of
Common Stock, (B) subdivide the outstanding Common
Stock, (C) combine the outstanding Common Stock
into a smaller number of shares, or (D) issue any
shares of its capital stock in a reclassification
of the Common Stock (including any such
reclassification in connection with a con-
solidation or merger in which the Company is the
continuing or surviving corporation), except as
otherwise provided in this Section 11(a), the
Purchase Price in effect at the time of the record
date for such dividend or of the effective date of
such subdivision, combination or reclassification,
and the number and kind of shares of Common Stock
or capital stock, as the case may be, issuable on
such date, shall be proportionately adjusted so
that the holder of any Right exercised after such
time shall be entitled to receive, upon payment of
the Purchase Price then in effect, the aggregate
number and kind of shares of Common Stock or
capital stock, as the case may be, that, if such
Right had been exercised immediately prior to such
date and at a time when the Common Stock transfer
books of the Company were open, he would have owned
upon such exercise and been entitled to receive by
virtue of such dividend, subdivision, combination
or reclassification.
(ii) Subject to Section 24 hereof, in the event
that any Person shall become an Acquiring Person, then
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<PAGE>
each holder of a Right (except as provided below
and after giving effect to the transfer
restrictions contained in Section 7(e) hereof)
shall thereafter have the right to receive, upon
exercise thereof at a price equal to the then
current Purchase Price multiplied by the number of
shares of Common Stock for which a Right would
otherwise then be exercisable, in accordance with
the terms of this Agreement, such number of shares
of Common Stock of the Company as shall equal the
result obtained by (1) multiplying the then current
Purchase Price by the number of shares of Common
Stock for which a Right would otherwise then be
exercisable and dividing that product by (2) 50% of
the current per share market price of the Common
Stock (determined pursuant to Section 11(d) hereof)
on the earliest date of occurrence of a Section
11(a)(ii) Event. Notwithstanding the foregoing and
anything in this Agreement to the contrary, from
and after the occurrence of any Section 11(a)(ii)
Event, any Rights that are or were beneficially
owned by any Person who is or was an Acquiring
Person (or by any Affiliate or Associate of an
Acquiring Person) on or after the time such Person
(or any Affiliate or Associate thereof) became an
Acquiring Person shall be null and void without
any further action, and thereafter may not be exer-
cised by any Person (including any subsequent
transferee or transferees) for shares or fractions
of shares of
-32-
<PAGE>
Common Stock or other securities pursuant to
any provision hereof and shall no longer
confer any rights upon any Person. No Rights
Certificate shall be issued pursuant to
Section 3 that represents Rights beneficially
owned by an Acquiring Person whose Rights are
void pursuant to the preceding sentence or
any Associate or Affiliate thereof; no Rights
Certificate shall be issued at any time upon
the transfer of any Rights to an Acquiring
Person whose Rights are void pursuant to the
preceding sentence or any Associate or
Affiliate thereof or to any nominee of such
Acquiring Person, Associate or Affiliate; and
any Rights Certificate representing Rights
which have become null and void pursuant to
this Section 11(a)(ii) which are delivered to
the Rights Agent for transfer shall be
cancelled.
In the event that there shall not be sufficient
shares of Common Stock of the Company authorized but un-
issued or unreserved for issuance to permit the exercise in
full of the Rights in accordance with the foregoing subpara-
graph (ii), the Company shall take all such action as may be
necessary to authorize additional shares of Common Stock of
the Company for issuance upon exercise of the Rights.
(b) In case the Company shall fix a record date
for the issuance of rights, options or warrants to all
holders of Common Stock shares entitling them (for a period
-33-
<PAGE>
expiring within 45 calendar days after such record date) to
subscribe for or purchase Common Stock or securities con-
vertible into Common Stock at a price per share of Common
Stock (or having a conversion price per share, if a security
convertible into shares of Common Stock) less than the then
current per share market price of the Common Stock (as
defined in Section 11(d)) on such record date, the Purchase
Price to be in effect after such record date shall be deter-
mined by multiplying the Purchase Price in effect imme-
diately prior to such record date by a fraction, the numera-
tor of which shall be the number of shares of Common Stock
outstanding on such record date plus the number of shares of
Common Stock which the aggregate offering price of the total
number of shares of Common Stock so to be offered (and/or
the aggregate initial conversion price of the convertible
securities so to be offered) would purchase at such current
market price and the denominator of which shall be the num-
ber of shares of Common Stock outstanding on such record
date plus the number of additional shares of Common Stock to
be offered for subscription or purchase (or into which the
convertible securities so to be offered are initially con-
vertible). In case such subscription price may be paid in a
consideration part or all of which shall be in a form other
than cash, the value of such consideration shall be as
determined in good faith by the Board of Directors of the
Company, whose determination shall be described in a state-
-34-
<PAGE>
ment filed with the Rights Agent. Shares of Common Stock
owned by or held for the account of the Company shall not be
deemed outstanding for the purpose of any such computation.
Such adjustment shall be made successively whenever such a
record date is fixed; and in the event that such rights,
options or warrants are not so issued, the Purchase Price
shall be adjusted to be the Purchase Price which would then
be in effect if such record date had not been fixed.
(c) In case the Company shall fix a record date
for the making of a distribution to all holders of the Com-
mon Stock (including any such distribution made in connec-
tion with a consolidation or merger in which the Company is
the continuing or surviving corporation) of evidences of
indebtedness or assets (other than a regular quarterly cash
dividend of the Company in compliance with Section 13.1-653
of the Virginia Stock Corporation Act or a dividend payable
in shares of Common Stock) or subscription rights or war-
rants (excluding those referred to in Section 11(b) hereof),
the Purchase Price to be in effect after such record date
shall be determined by multiplying the Purchase Price in
effect immediately prior to such record date by a fraction,
the numerator of which shall be the then current per share
market price of the Common Stock on such record date, less
the fair market value (as determined in good faith by the
Board of Directors of the Company, whose determination shall
be described in a statement filed with the Rights Agent) of
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<PAGE>
the portion of the assets or evidences of indebtedness so to
be distributed or of such subscription rights or warrants
applicable to one share of Common Stock and the denominator
of which shall be such current per share market price of the
Common Stock. Such adjustments shall be made successively
whenever such a record date is fixed; and in the event that
such distribution is not so made, the Purchase Price shall
again be adjusted to be the Purchase Price which would then
be in effect if such record date had not been fixed.
(d) For the purpose of any computation hereunder,
the ''current market price'' per share of any security other
than the Rights on any date shall be deemed to be the aver-
age of the daily closing prices per share of such security
for the 30 consecutive Trading Days (as such term is herein-
after defined) immediately prior to such date; provided,
--------
however, that in the event that the current market price per
share of such security is determined during a period follow-
ing the announcement by the issuer of such security of (A) a
dividend or distribution on such security payable in shares
of such security or securities convertible into shares of
such security (other than the Rights), or (B) any subdivi-
sion, combination or reclassification of such security, and
prior to the expiration of the requisite 30 Trading Day
period after the ex-dividend date for such dividend or dis-
tribution, or the record date for such subdivision, combina-
tion or reclassification, then, and in each such case, the
-36-
<PAGE>
''current market price'' shall be properly adjusted to take
into account ex-dividend trading. The closing price for
each day shall be the last sale price, regular way, or, in
case no such sale takes place on such day, the average of
the closing bid and asked prices, regular way, in either
case as reported in the principal consolidated transaction
reporting system with respect to securities listed or admit-
ted to trading on the New York Stock Exchange or, if the
shares of such security are not listed or admitted to
trading on the New York Stock Exchange, as reported in the
principal consolidated transaction reporting system with
respect to securities listed on the principal national secu-
rities exchange on which the shares of such security are
listed or admitted to trading or, if the shares of such
security are not listed or admitted to trading on any
national securities exchange, the last quoted price or, if
not so quoted, the average of the high bid and low asked
prices in the over-the-counter market, as reported by the
National Association of Securities Dealers, Inc. Automated
Quotation System (''NASDAQ'') or such other system then in
use, or, if on any such date the shares of such security are
not quoted by any such organization, the average of the
closing bid and asked prices as furnished by a professional
market maker making a market in such security selected by
the Board of Directors of the Company. The term ''Trading
Day'' shall mean a day on which the principal national secu-
-37-
<PAGE>
rities exchange on which the shares of such security are
listed or admitted to trading is open for the transaction of
business or, if the shares of such security are not listed
or admitted to trading on any national securities exchange,
a Business Day. If on any such date no market maker is
making a market in such security, the fair value of such
shares on such date as determined in good faith by the Board
of Directors of the Company shall be used. If such security
is not publicly held or not so listed or traded or if no
professional market maker is making a market in such securi-
ty, ''current market price'' per share shall mean the fair
value per share as determined in good faith by the Board of
Directors of the Company, whose determination shall be
described in a statement filed with the Rights Agent and
shall be conclusive for all purposes.
(e) Anything herein to the contrary notwithstand-
ing, no adjustment in the Purchase Price shall be required
unless such adjustment would require an increase or decrease
of at least one percent (1%) in the Purchase Price; pro-
---
vided, however, that any adjustments which by reason of this
- -----
Section 11(e) are not required to be made shall be carried
forward and taken into account in any subsequent adjust-
ment. All calculations under this Section 11 shall be made
to the nearest cent or to the nearest one hundredth of a
share of Common Stock or other share. Notwithstanding the
first sentence of this Section 11(e), any adjustment
-38-
<PAGE>
required by this Section 11 shall be made no later than the
earlier of (i) three (3) years from the date of the transac-
tion that mandates such adjustment, or (ii) the Expiration
Date.
(f) If as a result of an adjustment made pursuant
to Section 11(a) or 13 hereof, the holder of any Right
thereafter exercised shall become entitled to receive any
shares of capital stock other than Common Stock, thereafter
the number of such other shares so receivable upon exercise
of any Right and if required, the Purchase Price thereof
shall be subject to adjustment from time to time in a manner
and on terms as nearly equivalent as practicable to the pro-
visions with respect to the Common Stock contained in Sec-
tion 11(a), (b), (c), (e), (g), (h), (i), (j) and (l), and
the provisions of Sections 7, 9, 10, 13 and 14 hereof with
respect to the Common Stock shall apply on like terms to any
such other shares.
(g) All Rights originally issued by the Company
subsequent to any adjustment made to the Purchase Price
hereunder shall evidence the right to purchase, at the
adjusted Purchase Price, the number of shares of Common
Stock purchasable from time to time hereunder upon exercise
of the Rights, all subject to further adjustment as provided
herein.
-39-
<PAGE>
(h) The Company may elect on or after the date of
any adjustment of the Purchase Price to adjust the number of
Rights, in lieu of any adjustment in the number of shares of
Common Stock purchasable upon the exercise of a Right. Each
of the Rights outstanding after the adjustment in the number
of Rights shall be exercisable for the number of shares of
Common Stock for which a Right was exercisable immediately
prior to such adjustment. Each Right held of record prior
to such adjustment of the number of Rights shall become that
number of Rights (calculated to the nearest one one-
hundredth) obtained by dividing the Purchase Price in effect
immediately prior to adjustment of the Purchase Price by the
Purchase Price in effect immediately after adjustment of the
Purchase Price. The Company shall make a public announce-
ment of its election to adjust the number of Rights, indi-
cating the record date for the adjustment, and, if known at
the time, the amount of the adjustment to be made. This
record date may be the date on which the Purchase Price is
adjusted or any day thereafter, but, if the Rights Certifi-
cates have been issued, shall be at least ten days later
than the date of the public announcement. If Rights Certif-
icates have been issued, upon each adjustment of the number
of Rights pursuant to this Section 11(h), the Company shall,
as promptly as practicable, cause to be distributed to
holders of record of Rights Certificates on such record date
Rights Certificates evidencing, subject to Section 14
-40-
<PAGE>
hereof, the additional Rights to which such holders shall be
entitled as a result of such adjustment, or, at the option
of the Company, shall cause to be distributed to such
holders of record in substitution and replacement for the
Rights Certificates held by such holders prior to the date
of adjustment, and upon surrender thereof, if required by
the Company, new Rights Certificates evidencing all the
Rights to which such holders shall be entitled after such
adjustment. Rights Certificates so to be distributed shall
be issued, executed and countersigned in the manner provided
for herein (and may bear, at the option of the Company, the
adjusted Purchase Price) and shall be registered in the
names of the holders of record of Rights Certificates on the
record date specified in the public announcement. Unless
the Company shall have exercised its election as provided in
this Section 11(h), upon each adjustment of the Purchase
Price as a result of the calculations made in Section 11(b)
and (c), each Right outstanding immediately prior to the
making of such adjustment shall thereafter evidence the
right to purchase, at the adjusted Purchase Price, that num-
ber of shares of Common Stock (calculated to the nearest one
hundredth of a share) obtained by (i) multiplying (x) the
number of shares of Common Stock covered by a Right imme-
diately prior to this adjustment by (y) the Purchase Price
in effect immediately prior to such adjustment and (ii)
dividing the product so obtained by the Purchase Price in
-41-
<PAGE>
effect immediately after such adjustment of the Purchase
Price.
(i) Irrespective of any adjustment or change in
the Purchase Price or the number of shares of Common Stock
issuable upon the exercise of the Rights, the Rights Certif-
icates theretofore and thereafter issued may continue to
express the Purchase Price per share and the number of
shares that were expressed in the initial Rights Certifi-
cates issued hereunder.
(j) Before taking any action that would cause an
adjustment reducing the Purchase Price below the then par
value, if any, of the number of shares of Common Stock or
other securities of the Company issuable upon exercise of
the Rights, the Company shall take any corporate action that
may, in the opinion of its counsel, be necessary in order
that the Company may validly and legally issue fully paid
and nonassessable shares of Common Stock at such adjusted
Purchase Price.
(k) In any case in which this Section 11 shall
require that an adjustment be made effective as of a record
date for a specified event, the Company may elect to defer
until the occurrence of such event the issuance to the
holder of any Right exercised after such record date the
number of shares of Common Stock and other capital stock or
securities of the Company, if any, issuable upon such exer-
-42-
<PAGE>
cise over and above the number of shares of Common Stock and
other capital stock or securities of the Company, if any,
issuable upon such exercise before giving effect to such
adjustment; provided, however, that the Company shall
--------
deliver to such holder a due bill or other appropriate
instrument evidencing such holder's right to receive such
additional shares (fractional or otherwise) or securities
upon the occurrence of the event requiring such adjustment.
(l) Anything in this Section 11 to the contrary
notwithstanding, the Company shall be entitled to make such
reductions in the Purchase Price, in addition to those ad-
justments expressly required by this Section 11, as and to
the extent that the Board of Directors of the Company shall
determine in its good faith business judgment to be advis-
able in order that any (i) consolidation or subdivision of
the Common Stock, (ii) issuance wholly for cash of any
shares of Common Stock at less than the current market
price, (iii) issuance wholly for cash or shares of Common
Stock or securities that by their terms are convertible into
or exchangeable for shares of Common Stock, (iv) stock divi-
dends of Common Stock on the Common Stock or (v) issuance of
rights, options or warrants referred to in Section 11(b)
shall not be taxable to such stockholders.
(m) The Company covenants and agrees that, after
the time at which any Person shall become an Acquiring
-43-
<PAGE>
Person, the Company will not (if the Rights shall then be
outstanding) take (or permit any Affiliate or Associate of
the Company to take) any action which would diminish or
otherwise eliminate the benefits intended to be afforded by
the Rights.
Section 12. Certificates of Adjusted Purchase
---------------------------------
Price or Number of Shares. Whenever an adjustment is made
- -------------------------
as provided in Section 11 or Section 13 hereof, the Company
shall (a) promptly prepare a certificate setting forth such
adjustment and a brief statement of the facts accounting for
such adjustment, (b) promptly file with the Rights Agent,
and with each transfer agent for the Common Stock, a copy of
such certificate, and (c) mail a brief summary thereof to
each holder of a Rights Certificate (or, if prior to the
Distribution Date, to each holder of a certificate repre-
senting shares of Common Stock) in accordance with Section
25 hereof. The Rights Agent shall be fully protected in
relying on any such certificate and on any adjustment there-
in contained.
Section 13. Consolidation, Merger or Sale or
--------------------------------
Transfer of Assets or Earning Power.
- -----------------------------------
(a) In the event that, after the first to occur of
the Stock Acquisition Date or the Distribution Date,
directly or indirectly, (w) the Company shall consolidate
with, or merge with and into, any other Person, and the Com-
-44-
<PAGE>
pany shall not be the continuing or surviving corporation of
such consolidation or merger, (x) any Person shall merge
with and into the Company and the Company shall be the con-
tinuing or surviving corporation of such merger and, in con-
nection with such merger, all or part of the outstanding
shares of Common Stock shall remain outstanding or be
changed into or exchanged for stock or other securities of
any other Person (or the Company) or cash or any other prop-
erty, (y) the Company shall be a party to a statutory share
exchange with any other Person, or (z) the Company shall
sell or otherwise transfer (or one or more of its Subsid-
iaries shall sell or otherwise transfer), in one or more
transactions, assets or earning power aggregating more than
50% of the assets or earning power of the Company and its
Subsidiaries (taken as a whole) to any Person or Persons,
then, and in each such case, proper provision shall be made
so that: (i) each holder of a Right, except as provided
below and after giving effect to the transfer restrictions
contained in Section 7(e) hereof, shall thereafter have the
right to receive, upon the exercise thereof at the then cur-
rent Purchase Price multiplied by the number of shares of
Common Stock for which a Right would otherwise then be exer-
cisable, in accordance with the terms of this Agreement,
such number of validly authorized and issued, fully paid,
nonassessable and freely tradeable shares of Common Stock of
such other Person (including the Company as successor there-
-45-
<PAGE>
to or as the surviving corporation) (the ''Other Person''),
not subject to any liens, encumbrances, rights of first re-
fusal or other adverse claims, as shall be equal to the
result obtained by (1) multiplying the then current Purchase
Price by the number of shares of Common Stock for which a
Right would otherwise then be exercisable and dividing that
product by (2) 50% of the current market price (determined
pursuant to Section 11(d) hereof) per share of the Common
Stock of such Other Person on the date of consummation of
such Section 13 Event; and (ii) such Other Person shall
thereafter be liable for, and shall assume, by virtue of
such Section 13 Event, all the obligations and duties of the
Company pursuant to this Agreement; (iii) the term ''Company''
shall thereafter be deemed to refer to such Other Person;
and (iv) such Other Person shall take such steps (including,
but not limited to, the reservation of a sufficient number
of shares of its Common Stock) in connection with the con-
summation of any such transaction as may be necessary to
ensure that the provisions hereof shall thereafter be appli-
cable, as nearly as reasonably may be, in relation to its
shares of Common Stock thereafter deliverable upon the exer-
cise of the Rights. The Company shall not enter into, or
otherwise engage in, any transaction which would constitute
a Section 13 Event if at the time of such transaction there
are any rights, warrants, instruments or securities out-
standing or any agreements or arrangements which, as a
-46-
<PAGE>
result of the consummation of such transaction, would elimi-
nate or otherwise diminish the benefits intended to be
afforded by the Rights.
(b) The Company shall not consummate any such con-
solidation, merger, statutory share exchange, sale or trans-
fer unless the Other Person shall have a sufficient number
of authorized shares of its Common Stock that have not been
issued or reserved for issuance to permit the exercise in
full of the Rights in accordance with this Section 13 and
unless prior thereto the Company and such Other Person shall
have executed and delivered to the Rights Agent a supple-
mental agreement providing for the terms set forth in para-
graph (a) of this Section 13 and further providing that, as
soon as practicable after the date of any consolidation,
merger, statutory share exchange or sale of assets mentioned
in paragraph (a) of this Section 13, the Other Person will
(i) prepare and file a registration statement un-
der the Act with respect to the Rights and the securi-
ties purchasable upon exercise of the Rights on an
appropriate form, and will use its best efforts to cause
such registration statement to (A) become effective as
soon as practicable after such filing and (B) remain
effective (with a prospectus at all times meeting the
requirements of the Act) until the Expiration Date; and
-47-
<PAGE>
(ii) deliver to holders of the Rights historical
financial statements for the Other Person and each of
its Affiliates that comply in all respects with the
requirements for registration on Form 10 under the Ex-
change Act.
The provisions of this Section 13 shall similarly apply to
successive mergers or consolidations or statutory share ex-
changes or sales or other transfers.
Section 14. Fractional Rights and Fractional
--------------------------------
Shares.
- ------
(a) The Company shall not be required to issue
fractions of Rights or to distribute Rights Certificates
that evidence fractional Rights. In lieu of such fractional
Rights, there shall be paid to the registered holders of the
Rights Certificates with regard to which such fractional
Rights would otherwise be issuable, an amount in cash equal
to the same fraction of the current market value of a whole
Right. For purposes of this Section 14(a), the current mar-
ket value of a whole Right shall be the closing price of the
Rights for the Trading Day immediately prior to the date on
which such fractional Rights would have been otherwise issu-
able. The closing price of the Rights for any day shall be
the last sale price, regular way, or, in case no such sale
takes place on such day, the average of the closing bid and
asked prices, regular way, in either case as reported in the
-48-
<PAGE>
principal consolidated transaction reporting system with
respect to securities listed or admitted to trading on the
New York Stock Exchange or, if the Rights are not listed or
admitted to trading on the New York Stock Exchange, as
reported in the principal consolidated transaction reporting
system with respect to securities listed on the principal
national securities exchange on which the Rights are listed
or admitted to trading, or if the Rights are not listed or
admitted to trading on any national securities exchange, the
last quoted price, or, if not so quoted, the average of the
high bid and low asked prices in the over-the-counter mar-
ket, as reported by NASDAQ or such other system then in use
or, if on any such date the Rights are not quoted by any
such organization, the average of the closing bid and asked
prices as furnished by a professional market maker making a
market in the Rights selected by the Board of Directors of
the Company. If on any such date no such market maker is
making a market in the Rights, the fair value of the Rights
on such date as determined in good faith by the Board of
Directors of the Company shall be used.
(b) The Company shall not be required to issue
fractions of shares of Common Stock upon exercise of the
Rights or to distribute certificates that evidence frac-
tional shares of Common Stock. In lieu of fractional shares
of Common Stock, the Company may pay to the registered
holders of Rights Certificates at the time such Rights are
-49-
<PAGE>
exercised as herein provided an amount in cash equal to the
same fraction of the current market value of one share of
Common Stock. For purposes of this Section 14(b), the cur-
rent market value of one share of Common Stock shall be the
closing price of a share of Common Stock (as determined pur-
suant to Section 11(d) hereof) for the Trading Day imme-
diately prior to the date of such exercise.
(c) The holder of a Right by the acceptance of the
Right expressly waives his right to receive any fractional
Right or any fractional shares upon exercise of a Right,
except as permitted by this Section 14.
Section 15. Rights of Action. All rights of
----------------
action in respect of this Agreement are vested in the
respective registered holders of the Rights Certificates
(and, subject to Section 7(e), prior to the Distribution
Date, the registered holders of the Common Stock in respect
of which Rights have been issued); and any registered holder
of any Rights Certificate (or, prior to the Distribution
Date, subject to Section 7(e), of such Common Stock), with-
out the consent of the Rights Agent or of the holder of any
other Rights Certificate (or, prior to the Distribution
Date, subject to Section 7(e), of such Common Stock), may,
in his own behalf and for his own benefit, enforce, and may
institute and maintain any suit, action or proceeding
against the Company to enforce, or otherwise act in respect
-50-
<PAGE>
of, his right to exercise the Rights evidenced by such
Rights Certificate in the manner provided in such Rights
Certificate and in this Agreement. Without limiting the
foregoing or any remedies available to the holders of
Rights, it is specifically acknowledged that the holders of
Rights would not have an adequate remedy at law for any
breach of this Agreement and shall be entitled to specific
performance of the obligations hereunder and injunctive
relief against actual or threatened violations of the obli-
gations hereunder of any Person subject to this Agreement.
Section 16. Agreement of Rights Holders. Every
---------------------------
holder of a Right by accepting the same consents and agrees
with the Company and the Rights Agent and with every other
holder of a Right that:
(a) prior to the Distribution Date and except as
provided in Section 7(e), the Rights will be transferable
only in connection with the transfer of Common Stock;
(b) after the Distribution Date and except as pro-
vided in Section 7(e), the Rights Certificates are transfer-
able only on the registry books of the Rights Agent if sur-
rendered at the principal office or offices of the Rights
Agent designated for such purposes, duly endorsed or accom-
panied by a proper instrument of transfer and with the
appropriate forms and certificates fully executed;
-51-
<PAGE>
(c) any restriction on transfer imposed by this
Agreement with respect to the Rights is valid and enforce-
able against the holder and any transferee of the holder in
accordance with Section 13.1-649 of the Virginia Stock Cor-
poration Act;
(d) subject to Sections 6(a), 7(e) and 7(f)
hereof, (i) the Company and the Rights Agent may deem and
treat the person in whose name a Rights Certificate (or,
prior to the Distribution Date, the associated Common Stock
certificate) is registered as the absolute owner thereof and
of the Rights evidenced thereby (notwithstanding any
notations of ownership or writing on the Rights Certificate
or the associated Common Stock certificate made by anyone
other than the Company or the Rights Agent) for all purposes
whatsoever, and (ii) neither the Company nor the Rights
Agent shall be required to be affected by any notice to the
contrary; and
(e) notwithstanding anything in this Agreement to
the contrary, neither the Company nor the Rights Agent shall
have any liability to any holder of a Right or other Person
as a result of the Company's or the Rights Agent's inability
to perform any of its respective obligations under this
Agreement by reason of any preliminary or permanent injunc-
tion or other order, decree or ruling issued by a court of
competent jurisdiction provided, however, the Company and
--------
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<PAGE>
the Rights Agent must each use its respective best efforts
to have any such order, decree or ruling lifted or otherwise
overturned as soon as possible.
Section 17. Rights Certificate Holder Not Deemed a
--------------------------------------
Stockholder.
- -----------
No holder, as such, of any Rights Certificate shall
be entitled to vote, receive dividends or be deemed for any
purpose the holder of the number of shares of Common Stock
or any other securities of the Company that may at any time
be issuable on the exercise of the Rights represented there-
by, nor shall anything contained herein or in any Rights
Certificate be construed to confer upon the holder of any
Rights Certificate, as such, any of the rights of a stock-
holder of the Company or any right to vote for the election
of directors or upon any matter submitted to stockholders at
any meeting thereof, or to give or withhold consent to any
corporate action, or to receive notice of meetings or other
actions affecting stockholders (except as provided in Sec-
tion 24 hereof), or to receive dividends or subscription
rights, or otherwise, until the Right or Rights evidenced by
such Rights Certificate shall have been exercised in accor-
dance with the provisions hereof.
Section 18. Concerning the Rights Agent.
---------------------------
(a) The Company agrees to pay to the Rights Agent
reasonable compensation for all services rendered by it
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<PAGE>
hereunder and, from time to time, on demand of the Rights
Agent, its reasonable expenses and counsel fees and dis-
bursements incurred in the administration and execution of
this Agreement and the exercise and performance of its
duties hereunder. The Company also agrees to indemnify the
Rights Agent for, and to hold it harmless against, any loss,
liability, or expense incurred without negligence, bad faith
or willful misconduct on the part of the Rights Agent, for
anything done or omitted by the Rights Agent in connection
with the acceptance and administration of this Agreement,
including, the costs and expenses of defending against any
claim of liability in the premises.
(b) The Rights Agent shall be protected and shall
incur no liability for or in respect of any action taken,
suffered or omitted by it in connection with its administra-
tion of this Agreement in reliance upon any Rights Certifi-
cate or certificate for Common Stock or for other securities
of the Company, instrument of assignment or transfer, power
of attorney, endorsement, affidavit, letter, notice, direc-
tion, instruction, consent, certificate, statement, or other
paper or document believed by it to be genuine and to be
signed, executed and, where necessary, verified or acknowl-
edged, by the proper Person or Persons.
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<PAGE>
Section 19. Merger or Consolidation or Change of
------------------------------------
Name of Rights Agent.
- --------------------
(a) Any corporation into which the Rights Agent or
any successor Rights Agent may be merged or with which it
may be consolidated, or any corporation resulting from any
merger or consolidation to which the Rights Agent or any
successor Rights Agent shall be a party, or any corporation
succeeding to the corporate trust business of the Rights
Agent or any successor Rights Agent, shall be the successor
to the Rights Agent under this Agreement without the execu-
tion or filing of any paper or any further act on the part
of any of the parties hereto; provided, however, that such
--------
corporation would be eligible for appointment as a successor
Rights Agent under the provisions of Section 21 hereof. In
case at the time such successor Rights Agent shall succeed
to the agency created by this Agreement, any of the Rights
Certificates shall have been countersigned but not deliv-
ered, any such successor Rights Agent may adopt the counter-
signature of a predecessor Rights Agent and deliver such
Rights Certificates so countersigned; and in case at that
time any of the Rights Certificates shall not have been
countersigned, any successor Rights Agent may countersign
such Rights Certificates either in the name of the predeces-
sor or in the name of the successor Rights Agent; and in all
such cases such Rights Certificates shall have the full
force provided in the Rights Certificates and in this Agree-
ment.
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<PAGE>
(b) In case at any time the name of the Rights
Agent shall be changed and at such time any of the Rights
Certificates shall have been countersigned but not deliv-
ered, the Rights Agent may adopt the countersignature under
its prior name and deliver Rights Certificates so counter-
signed; and in case at that time any of the Rights Certifi-
cates shall not have been countersigned, the Rights Agent
may countersign such Rights Certificates either in its prior
name or in its changed name; and in all such cases such
Rights Certificates shall have the full force provided in
the Rights Certificates and in this Agreement.
Section 20. Duties of Rights Agent. The Rights
----------------------
Agent undertakes the duties and obligations imposed by this
Agreement upon the following terms and conditions, by all of
which the Company and the holders of Rights Certificates, by
their acceptance thereof, shall be bound:
(a) The Rights Agent may consult with legal coun-
sel (who may be legal counsel for the Company), and the
opinion of such counsel shall be full and complete autho-
rization and protection to the Rights Agent as to any action
taken or omitted by it in good faith and in accordance with
such opinion.
(b) Whenever in the performance of its duties un-
der this Agreement the Rights Agent shall deem it necessary
or desirable that any fact or matter (including, without
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<PAGE>
limitation, the identity of any Acquiring Person and the
determination of ''current market price'') be proved or estab-
lished by the Company prior to taking or suffering any
action hereunder, such fact or matter (unless other evidence
in respect thereof be herein specifically prescribed) may be
deemed to be conclusively proved and established by a
certificate signed by the Chairman of the Board, any Vice
Chairman, the President, any Vice President, the Treasurer,
any Assistant Treasurer, the Secretary or any Assistant
Secretary of the Company and delivered to the Rights Agent;
and such certificate shall be full authorization to the
Rights Agent for any action taken or suffered in good faith
by it under the provisions of this Agreement in reliance
upon such certificate.
(c) The Rights Agent shall be liable hereunder
only for its own negligence, bad faith or willful misconduct.
(d) The Rights Agent shall not be liable for or by
reason of any of the statements of fact or recitals con-
tained in this Agreement or in the Rights Certificates or be
required to verify the same (except as to its countersigna-
ture on such Rights Certificates), but all such statements
and recitals are and shall be deemed to have been made by
the Company only.
(e) The Rights Agent shall not be under any re-
sponsibility in respect of the validity of this Agreement or
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<PAGE>
the execution and delivery hereof (except the due execution
hereof by the Rights Agent) or in respect of the validity or
execution of any Rights Certificate (except its countersig-
nature thereof); nor shall it be responsible for any breach
by the Company of any covenant or condition contained in
this Agreement or in any Rights Certificate; nor shall it be
responsible for any adjustment required under the provisions
of Section 11 or Section 13 hereof or responsible for the
manner, method or amount of any such adjustment or the
ascertaining of the existence of facts that would require
any such adjustment (except with respect to the exercise of
Rights evidenced by Rights Certificates after actual notice
of any such adjustment); nor shall it by any act hereunder
be deemed to make any representation or warranty as to the
authorization or reservation of any shares of Common Stock
to be issued pursuant to this Agreement or any Rights
Certificate or as to whether any shares of Common Stock
will, when so issued, be duly authorized, validly issued,
fully paid and nonassessable.
(f) The Company agrees that it will perform, exe-
cute, acknowledge and deliver or cause to be performed, exe-
cuted, acknowledged and delivered all such further and other
acts, instruments and assurances as may reasonably be
required by the Rights Agent for the carrying out or per-
forming by the Rights Agent of the provisions of this Agree-
ment.
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<PAGE>
(g) The Rights Agent is hereby authorized and
directed to accept instructions with respect to the perfor-
mance of its duties hereunder from the Chairman of the
Board, any Vice Chairman, the President, any Vice President,
the Secretary, any Assistant Secretary, the Treasurer or any
Assistant Treasurer of the Company, and to apply to such
officers for advice or instructions in connection with its
duties, and it shall not be liable for any action taken or
suffered to be taken by it in good faith in accordance with
instructions of any such officer. At any time the Rights
Agent may apply to the Company for written instructions with
respect to any matter arising in connection with the Rights
Agent's duties and obligations arising under this Agree-
ment. Such application by the Rights Agent for written
instructions from the Company may, at the option of the
Rights Agent, set forth in writing any action proposed to be
taken or omitted by the Rights Agent with respect to its
duties or obligations under this Agreement and the date on
and/or after which such action shall be taken and the Rights
Agent shall not be liable for any action taken or omitted in
accordance with a proposal included in any such application
on or after the date specified therein (which date shall be
not less than one business day after the Company receives
such application, without the Company's consent) unless,
prior to taking or initiating any such action, the Rights
Agent has received written instructions in response to such
application specifying the action to be taken or omitted.
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<PAGE>
(h) The Rights Agent and any shareholder, direc-
tor, officer or employee of the Rights Agent may buy, sell
or deal in any of the Rights or other securities of the Com-
pany or become pecuniarily interested in any transaction in
which the Company may be interested, or contract with or
lend money to the Company or otherwise act as fully and
freely as though it were not Rights Agent under this Agree-
ment. Nothing herein shall preclude the Rights Agent from
acting in any other capacity for the Company.
(i) The Rights Agent may execute and exercise any
of the rights or powers hereby vested in it or perform any
duty hereunder either itself or by or through its attorneys
or agents, and the Rights Agent shall not be answerable or
accountable for any act, default, neglect or misconduct of
any such attorneys or agents or for any loss to the Company
resulting from any such act, default, neglect or misconduct;
provided, however, reasonable care was exercised in the
- --------
selection and continued employment thereof.
(j) No provision of this Agreement shall require
the Rights Agent to expend or risk its own funds or other-
wise incur any financial liability in the performance of any
of its duties hereunder or in the exercise of its rights if
there shall be reasonable grounds for believing that repay-
ment of such funds or adequate indemnification against such
risk or liability is not reasonably assured to it.
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<PAGE>
(k) If, with respect to any Rights Certificate
surrendered to the Rights Agent for exercise or transfer,
the certificate attached to the form of assignment or form
of election to purchase, as the case may be, has either not
been completed or indicates an affirmative response to any
clause thereof, the Rights Agent shall not take any further
action with respect to such requested exercise of transfer
without first consulting with the Company.
Section 21. Change of Rights Agent. The Rights
----------------------
Agent or any successor Rights Agent may resign and be dis-
charged from its duties under this Agreement upon 30 days'
notice in writing mailed to the Company, and to each trans-
fer agent of the Common Stock, by registered or certified
mail. The Company may remove the Rights Agent or any suc-
cessor Rights Agent upon 30 days' notice in writing, mailed
to the Rights Agent or successor Rights Agent, as the case
may be, and to each transfer agent of Common Stock, by
registered or certified mail, and to the holders of the
Rights Certificates by first-class mail. If the Rights
Agent shall resign or be removed or shall otherwise become
incapable of acting, the Company shall appoint a successor
to the Rights Agent. If the Company shall fail to make such
appointment within a period of 30 days after giving notice
of such removal or after it has been notified in writing of
such resignation or incapacity by the resigning or incapaci-
tated Rights Agent or by the holder of a Rights Certificate
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<PAGE>
(who shall, with such notice, submit his Rights Certificate
for inspection by the Company), then any registered holder
of any Rights Certificate may apply to any court of compe-
tent jurisdiction for the appointment of a new Rights
Agent. Any successor Rights Agent, whether appointed by the
Company or by such a court, shall be a corporation organized
and doing business under the laws of the United States or of
the State of New York or of the Commonwealth of Virginia (or
of any other state of the United States so long as such cor-
poration is authorized to do business as a banking institu-
tion in the State of New York or the Commonwealth of Vir-
ginia), in good standing, having a principal office in the
State of New York or the Commonwealth of Virginia, that is
authorized under such laws to exercise corporate trust pow-
ers and is subject to supervision or examination by federal
or state authority and that has (or that is an affiliate or
a Subsidiary of a Person that has) at the time of its
appointment as Rights Agent a combined capital and surplus
of at least $100,000,000. After appointment, the successor
Rights Agent shall be vested with the same powers, rights,
duties and responsibilities as if it had been originally
named as Rights Agent without further act or deed; but the
predecessor Rights Agent shall deliver and transfer to the
successor Rights Agent any property at the time held by it
hereunder, and execute and deliver any further assurance,
conveyance, act or deed necessary for the purpose. Not
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<PAGE>
later than the effective date of any such appointment, the
Company shall file notice thereof in writing with the prede-
cessor Rights Agent and each transfer agent of the Common
Stock, and mail a notice thereof in writing to the regis-
tered holders of the Rights Certificates. Failure to give
any notice provided for in this Section 21, however, or any
defect therein, shall not affect the legality or validity of
the resignation or removal of the Rights Agent or the
appointment of the successor Rights Agent, as the case may
be.
Section 22. Issuance of New Rights Certificates.
-----------------------------------
Notwithstanding any of the provisions of this Agreement or
of the Rights to the contrary, the Company may, at its
option, issue new Rights Certificates evidencing Rights in
such form as may be approved by its Board of Directors to
reflect any adjustment or change in the Purchase Price and
the number or kind or class of shares or other securities
purchasable under the Rights Certificates made in accordance
with the provisions of this Agreement.
Section 23. Redemption and Termination.
--------------------------
(a) The Rights may be redeemed by action of the
Board of Directors pursuant to paragraph (b) of this Section
23 and shall not be redeemed in any other manner.
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<PAGE>
(b) The Board of Directors of the Company may, at
its option, at any time prior to such time as any Person
becomes an Acquiring Person, redeem all but not less than
all the then outstanding Rights at a redemption price of
$.01 per Right, appropriately adjusted to reflect any stock
split, stock dividend or similar transaction occurring after
the date hereof (such redemption price being hereinafter
referred to as the ''Redemption Price''). The redemption of
the Rights by the Board of Directors may be made effective
at such time on such basis and with such conditions as the
Board of Directors in its sole discretion may establish.
(c) Immediately upon the action of the Board of
Directors of the Company ordering the redemption of the
Rights pursuant to paragraph (b) of this Section 23 and
without any further action and without any notice, the right
to exercise the Rights will terminate and the only right
thereafter of the holders of Rights shall be to receive the
Redemption Price. The Company shall promptly give public
notice of any such redemption; provided, however, that the
-------- -------
failure to give, or any defect in, any such notice shall not
affect the validity of such redemption. Within 10 days
after such action of the Board of Directors ordering the
redemption of the Rights pursuant to paragraph (b) the Com-
pany shall mail a notice of redemption to all the holders of
the then outstanding Rights at their last addresses as they
appear upon the registry books of the Rights Agent or, sub-
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<PAGE>
ject to Section 7(e), prior to the Distribution Date, on the
registry books of the transfer agent for the shares of Com-
mon Stock. Any notice which is mailed in the manner herein
provided shall be deemed given, whether or not the holder
receives the notice. Each such notice of redemption will
state the method by which the payment of the Redemption
Price will be made. The Company shall not, and shall not
cause any of its Affiliates or Associates to, redeem,
acquire or purchase for value any Rights at any time in any
manner other than that specifically set forth in this Sec-
tion 23 or in Section 24 hereof, and other than in connec-
tion with the purchase of shares of Common Stock prior the
Distribution Date.
Section 24. Exchange.
--------
(a) The Company may, by action of its Board of
Directors, at its option, at any time after any Person
becomes an Acquiring Person exchange all or part of the then
outstanding and exercisable Rights (which shall not include
Rights that have become void pursuant to the provisions of
Section 11(a)(ii) hereof) for shares of Common Stock at an
exchange ratio of one share of Common Stock per Right,
appropriately adjusted to reflect any stock split, stock
dividend or similar transaction occurring after the date
hereof (such exchange ratio being hereinafter referred to as
the ''Exchange Ratio''). Notwithstanding the foregoing, the
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<PAGE>
Board of Directors shall not be empowered to effect such
exchange at any time after any Person (other than the Com-
pany, any Subsidiary of the Company, any employee benefit
plan of the Company or any such Subsidiary, or any Person or
entity organized, appointed or established by the Company or
by any Subsidiary of the Company pursuant to the terms of,
or holding shares of Common Stock of the Company for, any
such employee benefit plan), together with all Affiliates
and Associates of such Person, becomes the Beneficial Owner
of 50% or more of the shares of Common Stock then outstand-
ing.
(b) Immediately upon the action of the Board of
Directors of the Company ordering the exchange of the Rights
pursuant to subsection (a) of this Section 24 and without
any further action and without any notice, the right to
exercise the Rights will terminate and the only right there-
after of a holder of such Rights shall be to receive that
number of shares of Common Stock equal to the number of
Rights held by such holder multiplied by the Exchange
Ratio. The Company shall promptly give public notice of any
such exchange; provided, however, that the failure to give,
-------- -------
or any defect in, such notice shall not affect the validity
of such exchange. The Company promptly shall mail a notice
of any such exchange to all of the holders of such Rights at
their last addresses as they appear upon the registry books
of the Rights Agent. Any notice which is mailed in the man-
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<PAGE>
ner herein provided shall be deemed given, whether or not
the holder receives the notice. Each such notice of the
exchange will state the method by which the exchange of the
Common Stock for Rights will be effected and, in the event
of any partial exchange, the number of Rights which will be
exchanged. Any partial exchange shall be effected pro rata
based on the number of Rights (other than Rights which have
become void pursuant to the provisions of Section 11(a)(ii)
hereof) held by each holder of Rights.
(c) In the event that there shall not be suffi-
cient shares of Common Stock issued but not outstanding or
authorized but unissued to permit the exchange in full of
such Rights in accordance with this Section 24, the Company
shall take all such action as may be necessary to authorize
additional shares of Common Stock for issuance upon exchange
of the Rights.
(d) The Company shall not be required to issue
fractions of shares of Common Stock or to distribute certif-
icates that evidence fractional shares of Common Stock. In
lieu of such fractional shares of Common Stock, there shall
be paid to the registered holders of the Right Certificates
with regard to which such fractional shares of Common Stock
would otherwise be issuable, an amount in cash equal to the
same fraction of the current market value of a whole share
of Common Stock. For the purposes of this subsection (e),
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<PAGE>
the current market value of a whole share of Common Stock
shall be the closing price of a share of Common Stock (as
determined pursuant to Section 11(d) hereof) for the Trading
Day immediately prior to the Exchange Date.
Section 25. Notice of Certain Events.
------------------------
(a) In case the Company shall propose, at any
time, (i) to pay any dividend payable in stock of any class
to the holders of Common Stock or to make any other distri-
bution to the holders of Common Stock (other than a regular
quarterly cash dividend of the Company in compliance with
Section 13.1-653 of the Virginia Stock Corporation Act), or
(ii) to offer to the holders of Common Stock rights or war-
rants to subscribe for or to purchase any additional shares
of Common Stock or shares of stock of any class or any other
securities, rights or options, or (iii) to effect any
reclassification of its Common Stock (other than a reclassi-
fication involving only the subdivision of outstanding
shares of Common Stock), or (iv) to effect any consolidation
or merger into or with any other Person, or to effect a
statutory share exchange with any Person or to effect any
sale or other transfer (or to permit one or more of its
Subsidiaries to effect any sale or other transfer), in one
or more transactions, of more than 50% of the assets or
earning power of the Company and its Subsidiaries (taken as
a whole) to any other Person or Persons, or (v) to effect
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<PAGE>
the liquidation, dissolution or winding up of the Company,
then, in each such case, the Company shall give to each
holder of a Rights Certificate, to the extent feasible and
in accordance with Section 26 hereof, a notice of such pro-
posed action, which shall specify the record date for the
purposes of such stock dividend, distribution of rights or
warrants, or the date on which such reclassification, con-
solidation, merger, statutory share exchange, sale, trans-
fer, liquidation, dissolution, or winding up is to take
place and the date of participation therein by the holders
of the shares of Common Stock, if any such date is to be
fixed, and such notice shall be so given in the case of any
action covered by clause (i) or (ii) above at least 10 days
prior to the record date for determining holders of the
shares of Common Stock for purposes of such action, and in
the case of any such other action, at least 10 days prior to
the date of the taking of such proposed action or the date
of participation therein by the holders of the shares of
Common Stock, whichever shall be the earlier.
(b) In case the event set forth in Section
11(a)(ii) hereof shall occur, then, in any such case, (i)
the Company shall as soon as practicable thereafter give to
each holder of a Rights Certificate, to the extent feasible
and in accordance with Section 26 hereof, a notice of the
occurrence of such event, which shall specify the event and
the consequences of the event to holders of Rights under
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<PAGE>
Section 11(a)(ii) hereof, and (ii) all references in the
preceding paragraph to Common Stock shall be deemed there-
after to refer, if appropriate, not only to Common Stock,
but also to Common Stock or other securities.
Section 26. Notices. Notices or demands autho-
-------
rized by this Agreement to be given or made by the Rights
Agent or by the holder of any Rights Certificate to or on
the Company shall be sufficiently given or made if sent by
first-class mail, postage prepaid, addressed (until another
address is filed in writing with the Rights Agent) as fol-
lows:
Philip Morris Companies Inc.
120 Park Avenue
New York, New York 10017
Attention: Secretary
Subject to the provisions of Section 21, any notice or
demand authorized by this Agreement to be given or made by
the Company or by the holder of any Rights Certificate to or
on the Rights Agent shall be sufficiently given or made if
sent by first-class mail, postage prepaid, addressed (until
another address is filed in writing with the Company) as
follows:
First Chicago Trust Company of New York
30 West Broadway
New York, New York 10007
Attention: Tenders and Exchange
Administration
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<PAGE>
Notices or demands authorized by this Agreement to be given
or made by the Company or the Rights Agent to the holder of
any Rights Certificate (or, if prior to the Distribution
Date, subject to Section 7(e), to the holder of certificates
representing shares of Common Stock) shall be sufficiently
given or made if sent by first-class mail, postage prepaid,
addressed to such holder at the address of such holder as
shown on the registry books of the Company.
Section 27. Supplements and Amendments. The Com-
--------------------------
pany may from time to time supplement or amend this Agree-
ment without the approval of any holders of Rights Certifi-
cates in order to cure any ambiguity, to correct or
supplement any provision contained herein which may be
defective or inconsistent with any other provisions herein,
or to make any other provisions with respect to the Rights
which the Company may deem necessary or desirable, any such
supplement or amendment to be evidenced by a writing signed
by the Company and the Rights Agent; provided, however, that
-------- -------
from and after such time as any Person becomes an Acquiring
Person, this Agreement shall not be amended in any manner
which would adversely affect the interests of the holders of
Rights.
Section 28. Successors. All the covenants and
----------
provisions of this Agreement by or for the benefit of the
Company or the Rights Agent shall bind and inure to the ben-
efit of their respective successors and assigns hereunder.
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<PAGE>
Section 29. Benefits of this Agreement. Nothing
--------------------------
in this Agreement shall be construed to give to any Person
other than the Company, the Rights Agent and the registered
holders of the Rights Certificates (and, prior to the Dis-
tribution Date, subject to Section 7(e) hereof, registered
holders of the Common Stock) any legal or equitable right,
remedy or claim under this Agreement; but this Agreement
shall be for the sole and exclusive benefit of the Company,
the Rights Agent and the registered holders of the Rights
Certificates (and, prior to the Distribution Date, subject
to Section 7(e) hereof, registered holders of the Common
Stock).
Section 30. Severability. If any term, provision,
------------
covenant or restriction of this Agreement is held by a court
of competent jurisdiction or other authority to be invalid,
void or unenforceable, the remainder of the terms, provi-
sions, covenants and restrictions of this Agreement shall
remain in full force and effect and shall in no way be
affected, impaired or invalidated.
Section 31. Governing Law. This Agreement, each
-------------
Right and each Rights Certificate issued hereunder shall be
deemed to be a contract made under the laws of the Common-
wealth of Virginia and for all purposes shall be governed by
and construed in accordance with the laws of such Common-
wealth applicable to contracts made and to be performed
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<PAGE>
entirely within such Commonwealth; provided, however, that
-------- -------
Sections 18, 19, 20 and 21 of this Agreement shall be deemed
to be a contract made under the laws of the State of New
York and for all purposes shall be governed by and construed
in accordance with the laws of such State applicable to con-
tracts made and to be performed entirely within such State.
Section 32. Counterparts. This Agreement may be
------------
executed in any number of counterparts and each of such
counterparts shall for all purposes be deemed to be an orig-
inal, and all such counterparts shall together constitute
but one and the same instrument.
Section 33. Descriptive Headings. Descriptive
--------------------
headings of the several Sections of this Agreement are in-
serted for convenience only and shall not control or affect
the meaning or construction of any of the provisions hereof.
IN WITNESS WHEREOF, the parties hereto have caused
this Agreement to be duly executed, all as of the day and
year first above written.
PHILIP MORRIS COMPANIES INC.
By: /s/ Donald Fried
Name: Donald Fried
Title: Vice President, Associate
General Counsel and
Secretary
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<PAGE>
FIRST CHICAGO TRUST COMPANY
OF NEW YORK
By: /s/ Lorne H. Price
Name: Lorne H. Price
Title: President
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<PAGE>
Exhibit A
---------
(Form of Rights Certificate)
Certificate No. R- Rights
----
NOT EXERCISABLE AFTER OCTOBER 25, 1999, OR EARLIER IF RE-
DEEMED OR EXCHANGED BY THE COMPANY. THE RIGHTS ARE SUBJECT
TO REDEMPTION, AT THE OPTION OF THE COMPANY, AT $.01 PER
RIGHT AND TO EXCHANGE ON THE TERMS SET FORTH IN THE RIGHTS
AGREEMENT. THIS RIGHTS CERTIFICATE AND THE RIGHTS EVIDENCED
BY THIS RIGHTS CERTIFICATE MAY NOT BE TRANSFERRED, DIRECTLY
OR INDIRECTLY, (A) TO ANY PERSON WHO IS, OR AS A RESULT OF
SUCH TRANSFER WOULD BE, THE BENEFICIAL OWNER OF 10% OR MORE
OF THE RIGHTS (INCLUDING ANY RIGHTS THAT HAVE BECOME NULL
AND VOID PURSUANT TO SECTION 11(a)(ii) OF THE RIGHTS AGREE-
MENT) OR (B) TO ANY AFFILIATE OR ASSOCIATE OF ANY SUCH
PERSON (AS SUCH TERMS ARE DEFINED IN THE RIGHTS AGREEMENT)
(EXCEPT AS SET FORTH THEREIN) AND ANY SUCH PURPORTED TRANS-
FER SHALL BE WITHOUT EFFECT. ANY RIGHT THAT HAS BEEN THE
SUBJECT OF ANY SUCH PURPORTED OR ATTEMPTED TRANSFER SHALL BE
DEEMED TO BE BENEFICIALLY HELD BY THE PERSON WHO ATTEMPTED
TO MAKE SUCH PURPORTED OR ATTEMPTED TRANSFER AND SHALL CON-
TINUE TO BE EXERCISABLE BY SUCH PERSON OR A PERMITTED TRANS-
FEREE. (THE RIGHTS REPRESENTED BY THIS RIGHTS CERTIFICATE
ARE OR WERE BENEFICIALLY OWNED BY AN ACQUIRING PERSON (AS
DEFINED IN THE RIGHTS AGREEMENT) (OR AN AFFILIATE OR ASSOCI-
ATE THEREOF) AT OR AFTER THE TIME SUCH PERSON (OR AN AFFILI-
ATE OR ASSOCIATE THEREOF) BECAME AN ACQUIRING PERSON. THIS
RIGHTS CERTIFICATE AND THE RIGHTS REPRESENTED HEREBY ARE
NULL AND VOID.)*
- -------
*The bracketed language shall be inserted only if appli-
cable.
<PAGE>
Rights Certificate
This certifies that
-----------------------------------,
or registered assigns, is the registered owner of the number
of Rights set forth above, each of which entitles the owner
thereof, subject to the terms, provisions and conditions of
the Rights Agreement, dated as of October 25, 1989 (the
''Rights Agreement''), between Philip Morris Companies Inc., a
Virginia corporation (the ''Company''), and First Chicago
Trust Company of New York, a national banking association
(the ''Rights Agent''), to purchase from the Company at any
time prior to 5:00 P.M. (New York time) on October 25, 1999
at the office or offices of the Rights Agent designated for
such purpose, or its successors as Rights Agent, one fully
paid, nonassessable share of Common Stock (the ''Common
Stock'') of the Company, at a purchase price of $150 per
share of Common Stock (the ''Purchase Price''), upon presenta-
tion and surrender of this Rights Certificate with the Form
of Election to Purchase and related Certificate duly exe-
cuted. (All capitalized terms not defined herein shall have
the meaning set forth in the Rights Agreement.) The Pur-
chase Price shall be paid in cash. The number of Rights
evidenced by this Rights Certificate (and the number of
shares which may be purchased upon exercise thereof) set
forth above, and the Purchase Price per share set forth
above, are the number and Purchase Price as of November 8,
1989, based on the Common Stock as constituted at such date.
-2-
<PAGE>
As provided in the Rights Agreement, the Purchase
Price and the number and kind of shares of Common Stock or
other securities that may be purchased upon the exercise of
the Rights evidenced by this Rights Certificate are subject
to modification and adjustment upon the happening of certain
events, including Triggering Events.
This Rights Certificate is subject to all of the
terms, provisions and conditions of the Rights Agreement,
which terms, provisions and conditions are hereby incorpo-
rated herein by reference and made a part hereof and to
which Rights Agreement reference is hereby made for a full
description of the rights, limitations of rights, obliga-
tions, duties and immunities hereunder of the Rights Agent,
the Company and the holders of the Rights Certificates.
Under no circumstances may this Rights Certificate or any of
the Rights represented by this Certificate be transferred,
directly or indirectly, to any of the following (the ''Re-
stricted Transferees'') (i) to any Person who is, or as a
result of such transfer would be, the beneficial owner of
10% or more of the Rights (including Rights that have become
null and void pursuant to Section 11(a)(ii) of the Rights
Agreement), or (ii) to any Affiliate or Associate of any
such Person; provided, however, that the foregoing shall not
-------- -------
prevent any transfer to the Company, any Subsidiary of the
Company, any employee benefit plan of the Company or of any
-3-
<PAGE>
Subsidiary of the Company, or any Person organized, ap-
pointed or established by the Company or any Subsidiary of
the Company pursuant to the terms of, or holding Common
Stock for, any such employee benefit plan. Any attempt to
transfer Rights to such Person will be without effect. Any
Right that has been the subject of any such purported trans-
fer shall be deemed to be held beneficially by the Person
who attempted to make such transfer and, thereafter, shall
continue to be exercisable by such Person, or in the case of
a transfer not prohibited by the Agreement, such Person's
transferee, for shares of Common Stock or other securities.
As specified in Section 11(a)(ii) of the Rights Agreement,
Rights that are or were owned by an Acquiring Person (or an
Affiliate or Associate thereof) at or after the time such
Person (or an Affiliate or Associate thereof) became an Ac-
quiring Person shall be null and void and no longer exercis-
able by any Person (including any subsequent transferee or
transferees). Copies of the Rights Agreement are on file at
the above-mentioned office of the Rights Agent and are also
available upon written request to the Rights Agent or the
Secretary of the Company.
Subject to the restrictions on transfer set forth
in Section 7(e) of the Rights Agreement, this Rights Certif-
icate, with or without other Rights Certificates, upon sur-
render at the principal office or offices of the Rights
-4-
<PAGE>
Agent designated for such purpose, may be exchanged for an-
other Rights Certificate or Rights Certificates of like
tenor and date evidencing Rights entitling the holder to
purchase a like aggregate number of shares of Common Stock
as the Rights evidenced by the Rights Certificate or Rights
Certificates surrendered shall have entitled such holder to
purchase. Subject to the restrictions on transfer set forth
in Section 7(e) of the Rights Agreement, if this Rights
Certificate shall be exercised in part, the holder shall be
entitled to receive upon surrender hereof another Rights
Certificate or Rights Certificates for the number of whole
Rights not exercised.
Subject to the provisions of the Rights Agreement,
the Rights evidenced by this Certificate may be redeemed by
the Company at its option at a redemption price of $.01 per
Right or may be exchanged in whole or in part for shares of
Common Stock.
No fractional shares of Common Stock will be issued
upon the exercise of any Right or Rights evidenced hereby,
but in lieu thereof a cash payment will be made, as provided
in the Rights Agreement.
No holder of this Rights Certificate shall be enti-
tled to vote or receive dividends or be deemed for any pur-
pose the holder of shares of Common Stock or of any other
-5-
<PAGE>
securities of the Company that may at any time be issuable
on the exercise hereof, nor shall anything contained in the
Rights Agreement or herein be construed to confer upon the
holder hereof, as such, any of the rights of a shareholder
of the Company or any right to vote for the election of
directors or upon any matter submitted to shareholders at
any meeting thereof, or to give or withhold consent to any
corporate action, or to receive notice of meetings or other
actions affecting shareholders (except as provided in the
Rights Agreement), or to receive dividends or subscription
rights, or otherwise, until the Right or Rights evidenced by
this Rights Certificate shall have been exercised as pro-
vided in the Rights Agreement.
This Rights Certificate shall not be valid or
obligatory for any purpose until it shall have been counter-
signed by the Rights Agent.
-6-
<PAGE>
WITNESS the facsimile signature of the proper offi-
cers of the Company and its corporate seal.
Dated as of , 19
------------ --
ATTEST: PHILIP MORRIS COMPANIES INC.
- ------------------------ By:
-----------------------
Secretary Title: ----------------
Countersigned:
- ------------------------
By
---------------------
Authorized Signature
-7-
<PAGE>
(Form of Reverse Side of Rights Certificate)
FORM OF ASSIGNMENT
- ------------------
(To be executed by the registered holder if such
holder desires to transfer the Rights Certificate.)
FOR VALUE RECEIVED hereby sells,
------------------------
assigns and transfers unto
------------------------------
- ---------------------------------------------------------
(Please print name and address of transferee)
- ---------------------------------------------------------
this Rights Certificate, together with all right, title and
interest therein, and does hereby irrevocably constitute and
appoint Attorney, to transfer the
--------------------------
within Rights Certificate on the books of the within-named
Company, with full power of substitution.
Dated: 19
------------, --
-----------------------
Signature
Signature Guaranteed:
Signatures must be guaranteed by a member firm of a
registered national securities exchange, a member of the
National Association of Securities Dealers, Inc., or a com-
mercial bank or trust company having an office or correspon-
dent in the United States.
- ---------------------------------------------------------
-8-
<PAGE>
Certificate
-----------
The undersigned hereby certifies by checking the
appropriate boxes that:
(1) this Rights Certificate ( ) is ( ) is not
being sold, assigned or transferred by or on behalf of a
Person who is or was an Acquiring Person or an Affiliate
or Associate of any such Acquiring Person (as such terms
are defined pursuant to the Rights Agreement);
(2) after due inquiry and to the best knowledge of
the undersigned, it ( ) did ( ) did not acquire the
Rights evidenced by this Rights Certificate from any
Person who is or was an Acquiring Person or an Affiliate
or Associate of an Acquiring Person;
(3) this Rights Certificate ( ) is ( ) is not
being sold, assigned or transferred by or on behalf of a
Person who is or was a Restricted Transferee or an
Affiliate or Associate of a Restricted Transferee;
(4) after due inquiry and to the best knowledge of
the undersigned, it ( ) did ( ) did not acquire the
Rights evidenced by this Rights Certificate from any
-9-
<PAGE>
Person who is or was a Restricted Transferee or any
Affiliate or Associate of a Restricted Transferee.
Dated: , 19
----------- -- ---------------------
Signature
Signature Guaranteed:
NOTICE
------
The signature to the foregoing Assignment and
Certificate must correspond to the name as written upon the
face of this Rights Certificate in every particular, without
alteration or enlargement or any change whatsoever.
-10-
<PAGE>
FORM OF ELECTION TO PURCHASE
----------------------------
(To be executed if holder desires to exercise
Rights represented by the Rights Certificate.)
To: PHILIP MORRIS COMPANIES INC.
The undersigned hereby irrevocably elects to exer-
cise Rights represented by this Rights Certifi-
---------
cate to purchase the shares of Common Stock issuable upon
the exercise of the Rights (or such other securities of the
Company or of any other person that may be issuable upon the
exercise of the Rights) and requests that certificates for
such shares be issued in the name of and delivered to:
Please insert social security or other identifying number
- -----------------------------------------------------------------------
(Please print name and address)
- -----------------------------------------------------------------------
If such number of Rights shall not be all the
Rights evidenced by this Rights Certificate, a new Rights
Certificate for the balance of such Rights shall be regis-
tered in the name of and delivered to:
-11-
<PAGE>
Please insert social security or other identifying number
- -----------------------------------------------------------------------
(Please print name and address)
- -----------------------------------------------------------------------
Date: , 19
---------- --
-----------------------
Signature
Signature Guaranteed:
Signatures must be guaranteed by a member firm of a
registered national securities exchange, a member of the
National Association of Securities Dealers, Inc., or a com-
mercial bank or trust company having an office or correspon-
dent in the United States.
-12-
<PAGE>
Certificate
-----------
The undersigned hereby certifies by checking the
appropriate boxes that:
(1) the Rights evidenced by this Rights Certifi-
cate ( ) are ( ) are not being exercised by or on behalf
of a Person who is or was an Acquiring Person or an
Affiliate or Associate of any such Acquiring Person (as
such terms are defined pursuant to the Rights Agreement);
(2) after due inquiry and to the best knowledge of
the undersigned, it ( ) did ( ) did not acquire the
Rights evidenced by this Rights Certificate from any
Person who is or was an Acquiring Person or an Affiliate
or Associate of an Acquiring Person;
(3) the Rights evidenced by this Rights Certifi-
cate ( ) are ( ) are not being exercised by or on
behalf of a Person who is or was a Restricted Transferee
or an Affiliate or Associate of a Restricted Transferee;
(4) after due inquiry and to the best knowledge of
the undersigned, it ( ) did ( ) did not acquire the
Rights evidenced by this Rights Certificate from any
-13-
<PAGE>
Person who is or was a Restricted Transferee or an
Affiliate or Associate of a Restricted Transferee.
Dated: 19
-----------, -- -------------------
Signature
Signature Guaranteed:
NOTICE
------
The signature to the foregoing Election to Purchase
and Certificate must correspond to the name as written upon
the face of this Rights Certificate in every particular,
without alteration or enlargement or any change whatsoever.
In the event the certifications set forth above in
the Form of Assignment or the Form of Election to Purchase,
as the case may be, are not completed, the Company and the
Rights Agent will deem the beneficial owner of the Rights
evidenced by this Right Certificate to be an Acquiring
Person, a Restricted Transferee or an Affiliate or Associate
thereof (as defined in the Rights Agreement), as the case
may be, and such Assignment or Election to Purchase will not
be honored.
-14-
<PAGE>
Exhibit B
---------
Summary of Rights to
--------------------
Purchase Common Stock
---------------------
On October 25, 1989, the Board of Directors of
Philip Morris Companies Inc. (the ''Company'') declared a div-
idend distribution of one common stock purchase right (a ''Right'')
for each outstanding share of common stock, par value $1 per
share (the ''Common Stock''), of the Company. The dividend is
payable on November 8, l989 to holders of record of Common Stock at
the close of business on such date (the ''Record Date'').
Each Right entitles the registered holder to purchase from the Company
one share of Common Stock at a price of $150 per share of
Common Stock (the ''Purchase Price''), subject to adjustment.
The description and terms of the Rights are set forth in a
Rights Agreement (the ''Rights Agreement''), dated as of Octo-
ber 25, 1989, between the Company and First Chicago
Trust Company of New York, as Rights Agent (the ''Rights
Agent'').
Rights will also be issued with respect to shares of Common
Stock issued after the Record Date but prior to the Distribution
Date (as defined below), unless the Board of Directors de-
termines otherwise at the time of issuance, and, under cer-
tain circumstances, Rights will also be issued with respect to
shares of Common Stock issued after the Distribution Date.
Until the earlier of (i) 10 days following a public
announcement that a person or group of affiliated or associ-
ated persons has acquired beneficial ownership of 10% or
more of the outstanding shares of Common Stock (an ''Ac-
quiring Person'') or (ii) 10 business days (or such later
date as may be determined by action of the Board of Direc-
tors prior to such time as any Person becomes an Acquiring
Person) following the commencement of, or announcement of an
intention to make, a tender offer or exchange offer the con-
summation of which would result in a person becoming an Ac-
quiring Person (the earlier of such dates being called the
''Distribution Date''), except as provided in the following
paragraph for Rights attempted to be transferred to persons
who would thereby hold l0% or more of the Rights (A) the
Rights will be evidenced by the Common Stock certificates
and will be transferred with and only with such Common Stock
certificates, (B) new Common Stock certificates issued
after the Record Date (except as set forth in the Rights
Agreement) will contain a notation incorporating the Rights
Agreement
<PAGE>
by reference and (C) the surrender for transfer of
any Common Stock certificates will also constitute the
transfer of the Rights associated with the Common Stock
represented by such certificates. As soon as practicable
following the Distribution Date and except as provided in
the following paragraph, separate certificates evidencing
the Rights (''Rights Certificates'') will be mailed to holders
of record of the Common Stock as of the close of business on
the Distribution Date and thereafter such separate Rights
Certificates alone will evidence the Rights.
Rights may not be transferred, directly or indi-
rectly, (i) to any person who is, or, as a result of the
transfer would be, the beneficial owner of l0% or more of
the Rights (including Rights that are null and void as
described below), or (ii) to any affiliate or associate of
any such person; provided, however, that the foregoing shall
-------- -------
not prevent any transfer to the Company, any subsidiary of
the Company, any employee benefit plan of the Company or of
any subsidiary of the Company, or any person organized, ap-
pointed or established by the Company or any subsidiary of
the Company pursuant to the terms of, or holding Common
Stock for, any such employee benefit plan. Any Right that
is the subject of a purported transfer to any such person
will be deemed to be held beneficially by the person who
purported to make such transfer and shall continue to be
exercisable by such person. On October 25, 1989, the Board
of Directors amended the By-Laws of the Company to impose the
restrictions which are referred to herein on the transferability
of the Rights.
The Rights are not exercisable until the Distribu-
tion Date. The Rights will expire on October 25, 1999 (the
''Final Expiration Date'') unless the Rights are earlier re-
deemed or exchanged by the Company, in each case, as
described below.
The Purchase Price payable, and the number of
shares of Common Stock or other securities issuable, upon
exercise of the Rights are subject to adjustment from time
to time to prevent dilution (i) in the event of a stock div-
idend on, or a subdivision, combination or reclassification
of, the Common Stock, (ii) upon the grant to holders of the
Common Stock of certain rights or warrants to subscribe for
or purchase Common Stock at a price, or securities convert-
ible into Common Stock with a conversion price, less than
the then current market price of the Common Stock or (iii)
upon the distribution to holders of the Common Stock of evi-
dences of indebtedness or assets (excluding regular quarterly
cash dividends paid in compliance with the Virginia
-2-
<PAGE>
Stock Corporation Act or dividends payable in Common
Stock) or of subscription rights or warrants (other than
those referred to above).
In the event that after the first to occur of the
Distribution Date or the date of the first public announce-
ment that an Acquiring Person has become such, the Company
engages in a merger, consolidation or statutory share exchange
or 50% or more of its consolidated assets or earning power are
sold, proper provision will be made so that each holder of a
Right will thereafter have the right to receive, upon the exercise
thereof at the then current exercise price of the Right, that number
of shares of common stock of the acquiring company which at the
time of such transaction will have a market value of two
times the exercise price of the Right. In the event that
any person becomes an Acquiring Person, each holder of a
Right, other than Rights that are or were beneficially owned
by the Acquiring Person (or an affiliate or associate
thereof) at or after the time such Acquiring Person (or
affiliate or associate thereof) became such (which Rights will
thereafter be void), will thereafter have the right to
receive upon exercise that number of shares of Common Stock
having a market value of two times the exercise price of the
Right.
With certain exceptions, no adjustment in the Pur-
chase Price will be required until cumulative adjustments
require an adjustment of at least 1% in such Purchase
Price. No fractional shares of Common Stock will be issued
and, in lieu thereof, an adjustment in cash will be made
based on the market price of the Common Stock on the last
trading day prior to the date of exercise.
At any time prior to the time at which there is an
Acquiring Person, the Board of Directors of the Company may
redeem the Rights in whole, but not in part, at a price of
$.01 per Right (the ''Redemption Price''). The redemption of
the Rights may be made effective at such time, on such basis,
and with such conditions as the Board of Directors in its
sole discretion may establish. Immediately upon the action of
the Board of Directors of the Company ordering the redemption
of the Rights, the right to exercise the Rights will terminate
and the only right of the holders of Rights will be to receive
the Redemption Price.
At any time after a person becomes an Acquiring
Person and prior to the acquisition by a person or group of
50% or more of the outstanding Common Stock, the Board of
Directors of the Company may exchange the Rights (other than
Rights owned by such person or group which Rights have
-3-
<PAGE>
become void), in whole or in part, at an exchange ratio
of one share of Common Stock per Right (subject to
adjustment). Immediately upon the action of the Board of
Directors of the Company ordering exchange of the Rights,
the right to exercise the Rights will terminate and the
only right of the holders of Rights will be to receive
Common Stock upon the exchange.
The terms of the Rights may be amended by the Board
of Directors of the Company without the consent of the
holders of the Rights; provided, however, that from and
-------- -------
after such time as any person becomes an Acquiring Person,
the Rights Agreement may not be amended in any manner which
would adversely affect the interests of holders of the
Rights.
Until a Right is exercised, the holder thereof, as
such, will have no rights as a shareholder of the Company,
including, without limitation, the right to vote or to
receive dividends.
A copy of the Rights Agreement has been filed with
the Securities and Exchange Commission as an Exhibit to a
Registration Statement on Form 8-A. A copy of the Rights
Agreement is available free of charge from the Company.
This summary description of the Rights does not purport to
be complete and is qualified in its entirety by reference to
the Rights Agreement, which is hereby incorporated herein by
reference.
-4-
<PAGE>
EXHIBIT 4.14
LOGO
PHILIP MORRIS
March 13, 1995
NOTICE OF REDEMPTION OF COMMON SHARE PURCHASE RIGHTS
To our Stockholders:
Notice is hereby given pursuant to Section 23(c) of the amended Rights Agree-
ment (the "Rights Agreement"), dated as of October 25, 1989, between Philip
Morris Companies Inc. (the "Company") and First Chicago Trust Company of New
York (the "Rights Agent"), of the redemption on April 10, 1995 (the "Redemption
Date") of all outstanding Rights to purchase shares of the Company's Common
Stock under the Rights Agreement (the "Rights").
Prior to the Record Date (as defined below), each share of the Company's Common
Stock has one related Right. From and after March 1, 1995, the holders of
Rights have no rights with respect thereto, other than to receive the redemp-
tion price of $.01 per Right (the "Redemption Price").
The Redemption Price will be paid on the Redemption Date to holders of record
of Common Stock on March 15, 1995 (the "Record Date"). Payment will be effected
by adding the Redemption Price to the regular dividend on the Common Stock of
$.825 per share payable on the Redemption Date to holders of record on the Rec-
ord Date so that on the Redemption Date a total of $.835 will be payable with
respect to each share of Common Stock.
If you are a participant in the Company's Dividend Reinvestment Plan, on the
Redemption Date, the Rights Agent will, with respect to each share of Common
Stock in your Dividend Reinvestment Plan Account on the Record Date, credit
your account with the Redemption Price as well as the regular quarterly divi-
dend on the Common Stock (less any withholding tax). The funds credited to your
account will be used to purchase additional shares of Common Stock. Partici-
pants in the Company's defined contribution plans with accounts invested in
Common Stock will be treated in the same manner.
The Rights are evidenced by the certificate(s) representing your shares of Com-
mon Stock. Since the Rights are not evidenced by separate certificates, no sur-
render of any document or other action on your part is necessary. The redemp-
tion of the Rights does not diminish or otherwise affect the number of shares
of Common Stock held by you.
The Company has been advised by counsel that payment of the Redemption Price
should be taxable to each holder of Rights as a dividend under Section 301 of
the Internal Revenue Code, and the Company intends to treat payment of the Re-
demption Price as a dividend for purposes of reporting to the Internal Revenue
Service the amount of dividends paid to each shareholder during 1995. In addi-
tion, payment of the Redemption Price will be subject to any applicable with-
holding tax in the same manner as regular dividends on Common Stock. You should
consult your own tax adviser as to the particular tax consequences to you of
the redemption, including tax reporting requirements, the applicability of
state, local and other tax laws and possible changes in tax laws.
<PAGE>
EXHIBIT 10.5
The Philip Morris Benefit Equalization Plan (the ''Plan'') is hereby
amended in the following respects, effective as of October 25, 1989:
Amend Article VI so that it reads in its entirety as follows:
ARTICLE VI
CHANGE OF CONTROL PROVISIONS
A. In the event of a Change of Control, each Employee shall be fully
vested in his Benefit Equalization Allowance and any other benefits accrued
through the date of the Change of Control (''Accrued Benefits''). Each
Employee (or his Beneficiary) shall, upon the Change of Control, be entitled
to a lump sum in cash, payable within 30 days of the Change of Control,
equal to the actuarial equivalent of his Accrued Benefits, determined using
actuarial assumptions no less favorable than those used under the
Supplemental Management Employees' Retirement Plan immediately prior to the
Change of Control.
B. Definition of Change of Control.
''Change of Control'' shall mean the happening of any of the following
events:
(1) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of
1934, as amended (the ''Exchange Act'')) (a ''Person'') of beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the Exchange
Act) of 20% or more of either (i) the then outstanding shares of common
stock of the Company (the ''Outstanding Company Common Stock'') or (ii) the
combined voting power of the then outstanding voting securities of the
Company entitled to vote generally in the election of directors (the
''Outstanding Company Voting Securities''); provided, however, that the
following acquisitions shall not constitute a Change of Control: (i) any
acquisition directly from the Company,
<PAGE>
-2-
(ii) any acquisition by the Company, (iii) any acquisition by any employee
benefit plan (or related trust) sponsored or maintained by the Company or any
corporation controlled by the Company or (iv) any acquisition by any
corporation pursuant to a transaction described in clauses (i), (ii) and
(iii) of paragraph (3) of this Section B; or
(2) Individuals who, as of the date hereof, constitute the Board
(the ''Incumbent Board'') cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual becoming a
director subsequent to the date hereof whose election, or nomination for
election by the Company's shareholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the Incumbent Board,
but excluding, for this purpose, any such individual whose initial assumption
of office occurs as a result of an actual or threatened election contest
with respect to the election or removal of directors or other actual or
threatened solicitation of proxies or consents by or on behalf of a Person
other than the Board; or
(3) Approval by the shareholders of the Company of a
reorganization, merger, share exchange or consolidation (a ''Business
Combination''), in each case, unless, following such Business Combination,
(i) all or substantially all of the individuals and entities who were the
beneficial owners, respectively, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities immediately prior to such Business
Combination beneficially own, directly or indirectly, more than 80% of,
respectively, the then outstanding shares of common stock and the combined
voting power of the then outstanding voting securities entitled to vote
generally in the election of directors, as the case may be, of the
corporation resulting from such Business Combination (including, without
limitation, a corporation which as a result of such transaction owns the
Company through one or more subsidiaries) in substantially the same
proportions as their ownership, immediately prior to such Business
Combination of the Outstanding Company Common Stock and Outstanding Company
Voting
<PAGE>
-3-
Securities, as the case may be, (ii) no Person (excluding any employee
benefit plan (or related trust) of the Company or such corporation resulting
from such Business Combination) beneficially owns, directly or indirectly,
20% or more of, respectively, the then outstanding shares of common stock of
the corporation resulting from such Business Combination or the combined
voting power of the then outstanding voting securities of such corporation
except to the extent that such ownership existed prior to the Business
Combination and (iii) at least a majority of the members of the board of
directors of the corporation resulting from such Business Combination were
members of the Incumbent Board at the time of the execution of the initial
agreement, or of the action of the Board, providing for such Business
Combination; or
(4) Approval by the shareholders of the Company of (i) a complete
liquidation or dissolution of the Company or (ii) the sale or other
disposition of all or substantially all of the assets of the Company, other
than to a corporation, with respect to which following such sale or other
disposition, (A) more than 80% of, respectively, the then outstanding shares
of common stock of such corporation and the combined voting power of the then
outstanding voting securities of such corporation entitled to vote generally
in the election of directors is then beneficially owned, directly or
indirectly, by all or substantially all of the individuals and entities who
were the beneficial owners, respectively, of the Outstanding Company Common
Stock and Outstanding Company Voting Securities immediately prior to such
sale or other disposition in substantially the same proportion as their
ownership, immediately prior to such sale or other disposition, of the
Outstanding Company Common Stock and Outstanding Company Voting Securities,
as the case may be, (B) less than 20% of, respectively, the then outstanding
shares of common stock of such corporation and the combined voting power of
the then outstanding voting securities of such corporation entitled to vote
generally in the election of directors is then beneficially owned, directly
or indirectly, by any Person (excluding any employee benefit plan (or related
trust) of the Company or such corporation), except to the extent that such
Person owned 20% or more of the Outstanding Company Common Stock or
Outstanding Company Voting Securities prior to
<PAGE>
-4-
the sale or disposition and (C) at least a majority of the members of the
board of directors of such corporation were members of the Incumbent Board at
the time of the execution of the initial agreement, or of the action of the
Board, providing for such sale or other disposition of assets of the Company
or were elected, appointed or nominated by the Board.
<PAGE>
EXHIBIT 10.12
PHILIP MORRIS COMPANIES INC.
EXECUTIVE MASTER TRUST
This Trust Agreement made as of this day of , 1989, by
----- ----------
and between Philip Morris Companies Inc., a Virginia corporation (the
''Company''), (the ''Trustee'') and as
--------------- -------------------
advisor to the Trust (the ''Consulting Firm''). This Trust Agreement provides
for the establishment of a trust to be known as the Philip Morris Companies
Inc. Executive Master Trust (hereinafter called the ''Trust'') to provide a
source for certain payments required to be made under the plans listed on
Exhibits A and B as amended from time to time (the ''Plans'') between the
Company and certain of its key management personnel (the ''Participants'').
WITNESSETH:
WHEREAS, the Company wishes to establish the Trust and in connection with
such establishment to make the Initial Contribution (as defined in Section
1(a)); and
WHEREAS, on or prior to the occurrence of a Potential Change of Control
(as defined in Section 3(b)), the Company wishes to make cash contributions
in addition to the Initial Contribution or to obtain, in lieu of such
additional contributions, the Letter of Credit (as defined in Section
<PAGE>
2(b) below) (such additional contributions and/or such Letter of Credit are
referred to herein as the ''Additional Contributions'' and, together with the
Initial Contributions, collectively as ''Contributions'') to the Trust in
anticipation of the occurrence of a Change of Control of the Company; and
WHEREAS, prior to the occurrence of a Change of Control (as defined in
Section 3(a)), the Company intends that the Trust Assets (as defined in
Section 1(c) below) shall be subject to the claims of the Company's creditors
in the event the Company becomes Insolvent (as defined in Section 5(a)); and
WHEREAS, upon and after the occurrence of a Change of Control, the
Company intends that the Trust Assets shall be segregated within the Trust by
the Trustee in accordance with Section 6 and shall no longer be subject to
the claims of the Company's creditors in the event the Company becomes
Insolvent; and
WHEREAS, the Company intends that the Trust shall remain in existence
until all the Trust Assets shall have been distributed to the Participants or
reverted to the Company, all in accordance with the provisions of this Trust
Agreement;
NOW, THEREFORE, in consideration of the mutual undertakings of the
parties and other good and valuable
-2-
<PAGE>
consideration, the parties hereto do hereby establish the Trust and agree
that the Trust shall be comprised, held and disposed of as follows:
Section 1 Trust Fund
---------------------
(a) Subject to the claims of its creditors as set forth in Section 5, the
Company hereby deposits with the Trustee in trust One Hundred Dollars
($100.00) (the ''Initial Contribution'') which shall become the initial
principal of the Trust to be held, invested and disposed of by the
Trustee as provided in this Trust Agreement. The Trustee shall have no
obligation to invest the Initial Contribution in an interest-bearing account.
(b) Prior to the occurrence of a Change of Control, the Trust is intended
to be a grantor trust, within the meaning of Section 671 of the Internal
Revenue Code of 1986, as amended (the ''Code''), and shall be construed
accordingly. The purpose of the Trust is to assure, if the Plans are
terminated after a Change of Control or if the Company fails or refuses to
make payments pursuant to the terms of the Plans after a Change of Control,
that the Company's obligation to make lump sum payments to the Participants
pursuant to each of the Plans is fulfilled. The Trust is not designed or
intended to qualify under Section 401(a) of the Code.
-3-
<PAGE>
(c) The principal of the Trust, and any earnings thereon (such principal,
together with any earnings thereon and other increases thereof, reduced by any
losses and distributions from the Trust and any other reductions thereof, is
sometimes referred to herein as the ''Trust Assets''), shall be held separate
and apart from other funds of the Company and shall be used exclusively for
the uses and purposes herein set forth. The Participants shall not have any
preferred claim on, or any beneficial ownership interest in, any of the Trust
Assets prior to the time such Trust Assets are paid to the Participants
pursuant to the terms of this Trust Agreement, and all rights created under
the Plans and this Trust Agreement shall be mere unsecured contractual rights
of the Participants against the Company.
(d) Except as otherwise provided in this Agreement, the Trustee
shall have full discretion in and sole responsibility for investment,
management and control of the Trust Assets, provided, however,
-------- -------
that the Trustee may not invest in any securities of the Company, including,
without limitation, securities which are as to the Company, ''employer
securities'' as such term is defined in Section 407 of the Employee Retirement
Income Security Act of 1974, as amended. Without limiting such discretion, the
Company requests, but does not direct, that the Trustee, based upon the nature
of this Trust, only make short-term investments in obligations which are
supported by the full faith and credit of the
-4-
<PAGE>
United States of America with a stated maturity of six months or less from the
date of purchase by the Trustee.
(e) The Consulting Firm shall be the advisor to the Trust on those matters
set forth and described in this Trust Agreement and on any other matters
agreed to by the parties. Except for records dealing solely with the Trust
Assets and the Investment thereof, which records shall be maintained by the
Trustee, the Consulting Firm shall maintain all the Plan Participant records
contemplated by this Agreement, including the maintenance of the separate
account of each Participant under this Agreement and the maintenance of
Participants' Plan interests. The Consulting Firm shall also prepare and
distribute Participants' statements and shall be responsible for information
with respect to payments to Participants and their beneficiaries. Prior to
a Change of Control, the Company may select a successor firm of compensation
or retirement plan consultants or certified public accountants as the
Consulting Firm and after a Change of Control, the Trustee may, but need
not, select a successor firm of compensation or retirement plan consultants
or certified public accountants as the Consulting Firm. If the Trustee does
select a successor Consulting Firm, the Company shall reimburse the Trustee
for its expenses incurred in making such selection, if any. The replaced
Consulting Firm hereunder shall thereupon deliver to the successor Consulting
Firm all records and documents in its possession as may be reasonably required
to enable the successor Consulting Firm to properly carry out its duties
hereunder.
(f) Upon qualification of a successor Consulting Firm and such successor
Consulting Firm commencing to act as such, all rights and privileges under
this Trust Agreement theretofore vested in such predecessor Consulting Firm
shall vest in the successor Consulting Firm. It is not intended that the
Consulting Firm act in a fiduciary capacity under the Plans or the Trust. Any
appointment of a successor Consulting Firm shall become effective upon such
firm's qualification and commencing to act hereunder.
-5-
<PAGE>
Section 2 Contributions
------------------------
(a) The Company may make such Contributions to the Trust as the Board of
Directors of the Company deems appropriate from time to time. The Trustee
shall be responsible only for contributions actually received by it hereunder
and the Trustee shall have no duty or responsibility with respect to the
timing, amounts and sufficiency of the contributions made by the Company or to
be made by the Company hereunder.
(b) As soon as practicable following a Potential Change of Control (as
defined in Section 3(b)), the Consulting Firm shall calculate the maximum
aggregate amount required under each Plan to satisfy the liability to all
Participants who may be entitled to payments under the Plans and shall
calculate an estimate of the expenses reasonably likely to be incurred by the
Trust during the six year period from the date of calculation until the
termination of the Trust including the Trustee's fees. The aggregate of such
amounts for all the Plans plus such additional amount as the Consulting Firm
reasonably determines to be necessary to pay the anticipated expenses of the
Trust including the Trustee's fees is hereinafter referred to as the ''Maximum
Amount Payable''. The Consulting Firm shall promptly furnish such calculation
to the Company and the Company shall have the obligation to make Additional
Contributions to the Trust, and shall make Additional Contributions to the
Trust, within three business days of the receipt of such calculation, in an
amount equal to the excess (the ''Excess''), if any, of the Maximum Amount
Payable over the then fair market value of the Trust Assets. The Additional
Contributions may be made by the Company in cash or the Company may obtain for
the benefit
-6-
<PAGE>
of the Trustee an irrevocable and unconditional letter of credit (the ''Letter
of Credit'') issued by one or more banks, each having a credit rating from
Moody's Investor Services, Inc. or Standard & Poors Corporation on its longer
term unsecured debt obligations in one of the agencies' two highest
categories (an ''Acceptable Bank'') sufficient for the Trustee to draw down an
amount equal to the Excess (or the portion thereof with respect to which the
Company has not made Additional Contributions in cash to the Trust). The
Letter of Credit may be issued by any Acceptable Bank acting as Trustee under
this Trust Agreement. The Letter of Credit shall have a term of at least three
years or, if it has a shorter term, shall provide that the Trustee may draw
down on it if it is not (i) extended until the date at least five days after
the date on which the Trust may permissibly terminate under Section 11 or (ii)
replaced by a letter of credit, issued by an Acceptable Bank, with a term
extending until the date specified in (i) above, in amount at least equal to
the amount of the Letter of Credit (each such extended letter of credit and
any replacement letter of credit shall be a Letter of Credit for all purposes
of this Trust Agreement). If at any time following a Change of Control, a
valuation of the Trust Assets occurs pursuant to this Trust Agreement and it
is determined by the Consulting Firm that an Excess shall exist, the Company
shall within three days of notice thereof either contribute in cash such
-7-
<PAGE>
amount to the Trust as is necessary to eliminate the Excess or increase the
Letter of Credit in the amount of such Excess and in the absence of such
contribution or increase the Trustee shall fully draw down all Letters of
Credit in its possession.
(c) Anything contained herein in Section 2(b) to the contrary
notwithstanding, if following a Potential Change of Control (as defined in
Section 3(b)), a Change of Control shall not have occurred within nine months
after such Potential Change of Control and the Board of Directors adopts a
resolution to the effect that, for purposes of this Trust Agreement, a Change
of Control is not imminent, any Additional Contributions made to the Trust
pursuant to Section 2(b), together with any earnings thereon, shall be
promptly returned by the Trustee to the Company upon receipt by the Trustee
of a written direction from the Company specifying the amount to be returned
thereto (or, if the Company does not provide such direction, it shall no
longer have the obligation to maintain the Letter of Credit). However, the
obligation of the Company to make Additional Contributions under Section 2(b)
in the event that another Potential Change of Control occurs shall not be
diminished.
(d) The Company shall make all required Contributions to the Trust in
cash or by delivery of the Letter of Credit. All Contributions so received
(including any cash received on the draw down of the Letter of Credit),
together with the income therefrom and any increment thereon, shall be
-8-
<PAGE>
held, managed and invested by the Trustee prior to a Change of Control as a
single unallocated commingled Trust pursuant to the terms of this Trust
without distinction between principal and income. Upon receipt by the Trustee
of a written notice from the Company that there has been a Change of Control,
the Trustee shall establish a separate account (the ''Account'') for each
Participant reflecting the portion of the Trust Assets required to pay the
amounts which would be due and owing each Participant under the Plans as
directed in writing by the Consulting Firm. Any future contributions to the
Trust together with the income therefrom and any increment thereon shall be
allocated to the separate Account of each Participant as directed in writing
by the Consulting Firm. Within sixty days following the close of each
calendar year after a Change of Control has occurred, the Trustee shall
provide the Company and the Consulting Firm with a written statement of the
Account of each Participant.
Section 3 Change of Control
----------------------------
(a) For purposes of this Trust Agreement, a ''Change of Control'' shall
mean:
(1) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of
1934, as amended (the ''Exchange Act'')) (a ''Person'') of beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the Exchange
Act) of 20% or more of either (i) the then outstanding shares of common stock
of the Company (the ''Outstanding Company Common Stock'') or (ii) the combined
voting power of the then
-9-
<PAGE>
outstanding voting securities of the Company entitled to vote generally in the
election of directors (the ''Outstanding Company Voting Securities'');
provided, however, that the following acquisitions shall not constitute a
Change of Control: (i) any acquisition directly from the Company, (ii) any
acquisition by the Company, (iii) any acquisition by any employee benefit plan
(or related trust) sponsored or maintained by the Company or any corporation
controlled by the Company or (iv) any acquisition by any corporation pursuant
to a transaction described in clauses (i), (ii) and (iii) of paragraph (3) of
this subsection (a) of this Section 3; or
(2) Individuals who, as of the date hereof, constitute the Board (the
''Incumbent Board'') cease for any reason to constitute at least a majority of
the Board; provided, however, that any individual becoming a director
subsequent to the date hereof whose election, or nomination for election by
the Company's shareholders, was approved by a vote of at least a majority of
the directors then comprising the Incumbent Board shall be considered as
though such individual were a member of the Incumbent Board, but excluding,
for this purpose, any such individual whose initial assumption of office
occurs as a result of an actual or threatened election contest with respect to
the election or removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other than the
Board; or
-10-
<PAGE>
(3) Approval by the shareholders of the Company of a reorganization,
merger, share exchange or consolidation (a ''Business Combination''), in each
case, unless, following such Business Combination, (i) all or substantially
all of the individuals and entities who were the beneficial owners,
respectively, of the Outstanding Company Common Stock and Outstanding Company
Voting Securities immediately prior to such Business Combination beneficially
own, directly or indirectly, more than 80% of, respectively, the then
outstanding shares of common stock and the combined voting power of the then
outstanding voting securities entitled to vote generally in the election of
directors, as the case may be, of the corporation resulting from such Business
Combination (including, without limitation, a corporation which as a result of
such transaction owns the Company through one or more subsidiaries) in
substantially the same proportions as their ownership, immediately prior to
such Business Combination of the Outstanding Company Common Stock and
Outstanding Company Voting Securities, as the case may be, (ii) no Person
(excluding any employee benefit plan (or related trust) of the Company or such
corporation resulting from such Business Combination) beneficially owns,
directly or indirectly, 20% or more of, respectively, the then outstanding
shares of common stock of the corporation resulting from such Business
Combination or the combined voting power of the then outstanding voting
-11-
<PAGE>
securities of such corporation except to the extent that such ownership
existed prior to the Business Combination and (iii) at least a majority of the
members of the board of directors of the corporation resulting from such
Business Combination were members of the Incumbent Board at the time of the
execution of the initial agreement, or of the action of the Board, providing
for such Business Combination; or
(4) Approval by the shareholders of the Company of (i) a complete
liquidation or dissolution of the Company or (ii) the sale or other
disposition of all or substantially all of the assets of the Company, other
than to a corporation, with respect to which following such sale or other
disposition, (A) more than 80% of, respectively, the then outstanding shares
of common stock of such corporation and the combined voting power of the then
outstanding voting securities of such corporation entitled to vote generally
in the election of directors is then beneficially owned, directly or
indirectly, by all or substantially all of the individuals and entities who
were the beneficial owners, respectively, of the Outstanding Company Common
Stock and Outstanding Company Voting Securities immediately prior to such sale
or other disposition in substantially the same proportion as their ownership,
immediately prior to such sale or other disposition, of the Outstanding
Company Common Stock and Outstanding Company Voting Securities, as the case
may be, (B) less than 20% of, respectively, the then outstanding
-12-
<PAGE>
shares of common stock of such corporation and the combined voting power of
the then outstanding voting securities of such corporation entitled to vote
generally in the election of directors is then beneficially owned, directly or
indirectly, by any Person (excluding any employee benefit plan (or related
trust) of the Company or such corporation), except to the extent that such
Person owned 20% or more of the Outstanding Company Common Stock or
Outstanding Company Voting Securities prior to the sale or disposition and (C)
at least a majority of the members of the board of directors of such
corporation were members of the Incumbent Board at the time of the execution
of the initial agreement, or of the action of the Board, providing for such
sale or other disposition of assets of the Company or were elected, appointed
or nominated by the Board.
(b) For purposes of this Trust Agreement, a Potential Change of Control
shall be deemed to have occurred if (i) any third person commences a tender or
exchange offer (other than a tender or exchange offer which, if consummated,
would not result in a Change of Control) for twenty percent or more of the
Company's Outstanding Common Stock or Outstanding Voting Securities; (ii) the
Company enters into an agreement, the consummation of which would result in
the occurrence of a Change of Control; (iii) any person (including the
Company) publicly announces an intention to take or to consider taking actions
which if consummated would
-13-
<PAGE>
constitute a Change of Control; or (iv) as a result of other circumstances,
including circumstances similar or related to the foregoing, the Board of
Directors adopts a resolution to the effect that, for purposes of this Trust
Agreement, a Potential Change of Control exists. The Trustee shall have
no responsibility for determining whether or not a Change of Control or
Potential Change of Control has occurred and the Trustee shall be entitled to
rely conclusively upon the accuracy of any notice it receives from the Company
with respect thereto.
(c) The Company shall have a duty to inform the Trustee whenever a Change
of Control or Potential Change of Control has occurred. If any two
Participants notify the Trustee in writing that a Change of Control has
occurred then, unless prior to making any payments hereunder, the Trustee
receives written notice from the Company that, in the opinion of independent
legal counsel to the Company (which opinion may be based on representations of
fact as long as counsel does not know that such representations are untrue)
such a Change of Control has not occurred, a Change of Control will be deemed
to have occurred for purposes of this Trust Agreement.
Section 4 Accounting by the Trustee and Consulting Firm
-------------------------------------------------------
(a) The Trustee shall keep accurate and detailed records of all
investments, receipts, disbursements, and all other transactions required to
be done, including such specific records as shall be agreed upon in writing
between the Company and the Trustee. Within sixty days following the close of
each calendar year and within sixty days after the removal or resignation of
the Trustee, the Trustee shall deliver to the Company and the Consulting Firm
a written statement of its administration of the Trust during such year or
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<PAGE>
during the period from the close of the last preceding year to the date of
such removal or resignation, setting forth all investments, receipts,
disbursements and other transactions effected by it, including a description
of all securities and investments purchased and sold with the cost or net
proceeds of such purchases or sales (accrued interest paid or receivable being
shown separately), showing all cash, securities and other property held in the
Trust at the end of such year or as of the date of such removal or
resignation, as the case may be, and the book and fair market value of any
such asset. The Consulting Firm shall send a copy of such written account to
each Participant at the address provided by the Company or such other address
as furnished by the Participant.
(b) As soon as practicable following a Potential Change of Control of the
Company and on a monthly basis thereafter, the Consulting Firm shall furnish
to the Trustee such information as is necessary so that the Trustee may
establish and maintain the Account for each Participant and sub-accounts with
respect to each Plan applicable to the Participant reflecting the lump sum
amounts which would be due to the Participant pursuant to each such Plan
applicable to such Participant assuming such amounts were immediately due and
payable (the aggregate of such lump sum amounts due to a Participant are
hereinafter referred to as the ''Lump Sum Payment'').
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<PAGE>
(c) The Company shall furnish the Consulting Firm with copies of each
Plan and any and all amendments thereto. The Company will promptly provide
the Consulting Firm with any and all information the Consulting Firm
reasonably requests or the Company believes would be useful to the Consulting
Firm in order to enable the Consulting Firm to determine at any time and from
time to time the amount of any payment which would be due to each Participant
and will promptly update such information as and if it changes. The Company
will use its best efforts to cause each Participant to provide the Consulting
Firm with all information that it may reasonably request in order to
determine the amount of any payments due to the Participant. The Trustee
shall notify the Company of any payment made from the Trust to the Participant
or the Participant's beneficiaries pursuant to the directions of the
Consulting Firm and the Company shall notify the Consulting Firm of any other
payment required pursuant to the terms of a Plan so that the Trustee may
debit the Participant's Account and adjust the Maximum Amount Payable in each
case as directed in writing by the Consulting Firm.
(d) All accounts, books and records maintained pursuant to this Section 4
shall be opened to inspection and audit at all reasonable times by the Company
and on an annual basis, after receipt of the written statement described in the
next sentence, by the Participants; provided, however, that no Participant
-------- -------
shall have access to information about another
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<PAGE>
Participant unless the Trustee has received a written direction from the
Company to permit this for purposes of a Participant's performing his duties
as an employee of the Company in the normal course.
(e) The fair market value of the Trust Assets shall be determined by the
Trustee whenever required pursuant to this Trust Agreement and whenever it
receives written notice from the Company or the Consulting Firm that a Plan
has been terminated or deemed terminated hereunder, but in any event not less
than quarterly. The Trustee may base such determination upon such sources of
information as it may deem reliable including, but not limited to,
information reported in (i) newspapers of general circulation, (ii) standard
financial periodicals or publications, (iii) statistical and valuation
services, (iv) the records of securities exchanges or brokerage firms deemed
by the Trustee to be reliable, or any combination thereof. The Trustee shall
promptly inform the Consulting Firm of any such valuation.
Section 5 Trust Assets Subject to Claims of Creditors
------------------------------------------------------
Prior to Change of Control
--------------------------
(a) The Company shall be considered ''Insolvent'' for purposes of this
Trust Agreement if (i) the Company is unable to pay its debts as they mature,
or (ii) the Company is subject to a pending proceeding as a debtor under the
United States Bankruptcy Code or any similar law of any state.
(b) Prior to a Change of Control, the Trust Assets shall be subject to
claims of general creditors of the
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<PAGE>
Company as hereinafter set forth, and if at any time while the Trust is still
in existence the Company becomes Insolvent, the Trustee shall upon written
notice thereof from the Company suspend the payment of all benefits hereunder
and shall thereafter hold the Trust Assets in suspense until it receives a
court order directing the disposition thereof; provided, however, the Trustee
may deduct or continue to deduct its fees and expenses and other expenses of
the Trust, including taxes and the Consulting Firm's fees and expenses,
pending the receipt of such court order. The Board and the chief executive
officer of the Company shall have the duty to inform the Trustee of the
Company's Insolvency. In addition, if a person claiming to be a creditor of
the Company (which person the Trustee considers to be reliable and
responsible) alleges in writing to the Trustee that the Company has become
Insolvent, the Trustee shall also be required to suspend benefit payments
pursuant to the foregoing.
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<PAGE>
The Trustee shall have no duty to inquire whether the Company is Insolvent.
If after an event of Insolvency, the Company subsequently becomes solvent
without the entry of a court order concerning the disposition of the Trust
Assets, the Company shall by written notice so inform the Trustee and the
Trustee shall thereupon resume all its duties and responsibilities under this
Agreement without regard for this Section 5 unless and until the Company
again becomes Insolvent. Nothing in this Trust Agreement shall in any way
diminish any rights of a Participant to pursue his rights as a general
creditor of the Company with respect to the Plans or otherwise.
(c) Upon a Change of Control, no Trust Assets shall be subject to claims
of any creditors of the Company.
Section 6 Establishment of Subtrusts Upon Change of Control
------------------------------------------------------------
(a) Upon receipt by the Trustee of a written notice as provided herein
that a Change of Control has occurred, all amounts contributed to the Trust,
together with any earnings thereon, shall promptly be transferred to, and
segregated within, two separate subtrusts under the Trust as described below
(hereinafter individually referred to as ''Subtrust A'' and ''Subtrust B''
and collectively as the
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<PAGE>
''Subtrusts''). Amounts held in the Subtrusts shall not be subject to the
claims of the Company's creditors in the event the Company becomes Insolvent.
Amounts payable by the Trustee from the Subtrusts shall be governed by the
provisions of Section 7.
(b) The amount that the Trustee shall transfer to, and segregate within,
Subtrust A shall be equal to the aggregate liability to all Participants under
the Plans listed on Exhibit A, as certified to the Trustee in writing by the
Consulting Firm. The Participant's interest in his Account attributable to
Subtrust A shall be fully vested and nonforfeitable as of the date of the
Change of Control.
(c) The amount that the Trustee shall transfer to, and segregate within,
Subtrust B shall be equal to the aggregate liability to all Participants under
the Plans listed on Exhibit B assuming such liability to be immediately due
and payable, as certified to the Trustee in writing by the Consulting Firm.
The Participant's interest in his Account attributable to Subtrust B shall
become fully vested and nonforfeitable upon the occurrence of the events set
forth in Section 7(c).
Section 7 Payments to the Participants Upon Change of Control
--------------------------------------------------------------
(a) Upon the creation of the Subtrusts under Section 6 upon a Change of
Control, the Trustee shall allocate Trust Assets in the Subtrusts among the
Accounts of Participants as directed by the Consulting Firm in writing
pursuant to its
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<PAGE>
calculation of Lump Sum Payments under Section 4(b) (the ''Last Valuation'');
provided, however, that if the aggregate of the Lump Sum Payments so
- -------- -------
determined by the Consulting Firm for all the Participants exceeds the then
fair market value of the Trust Assets, then the Trustee shall first allocate
the Trust Assets to Subtrust A to the fullest extent possible prior to
allocating Trust Assets to Subtrust B. The amount then allocated to Subtrust B
shall be equal to the product of (a) the aggregate of the Lump Sum Payments
with respect to Subtrust B assuming such payments to be immediately due and
payable multiplied by (b) a fraction (i) the numerator of which is the then
fair market value of Trust Assets immediately after the allocation to Subtrust
A and (ii) the denominator of which is the aggregate of the Lump Sum Payments
with respect to Subtrust B assuming such payments to be immediately due and
payable.
(b) Promptly following receipt by the Trustee of a written notice as
provided herein that a Change of Control has occurred, the Trustee shall pay
each Participant a lump sum payment of the portion of such Participant's
Account attributable to the Participant's interest in Subtrust A, such
interest having become fully vested and nonforfeitable in the Participant as
of the date of the Change of Control. The Consulting Firm shall, within five
business days of a Change of Control, provide the Trustee with an updated
calculation of the portion of the Lump Sum Payment due each Participant under
Subtrust A as of the Change of Control (the ''Change of
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<PAGE>
Control Valuation''). If the Change of Control Valuation for any participant
exceeds the Last Valuation for such Participant, the Consulting Firm shall
direct the Trustee in writing to immediately make a lump sum payment in cash
to such Participant equal to such excess.
(c) The portion of the Participant's Account attributable to Subtrust B
shall be paid to the Participant within five business days of the Trustee's
receipt of a written notice from the Consulting Firm that the Participant's
interest in such Plans has become fully vested and nonforfeitable. For
purposes of the immediately preceding sentence and subject to the provisions
of subsection (d), the interest of each Participant in Subtrust B equal to the
portion of such Participant's Account necessary to provide payments which have
become due under the terms of the Plans listed on Exhibit B shall become fully
vested and nonforfeitable upon the occurrence of all of the following events:
(i) The Participant has become entitled to
payments from the Company pursuant to
Sections 6 or 9 of the Employment Agree-
ment executed between the Company and the
Participant as of the day of
--------
, 1989.
----------------
(ii) The refusal or failure of the Company to
make payments pursuant to the terms of
the Plans listed on Exhibit B during the
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<PAGE>
five business day period following writ-
ten demand therefor. If the Company
terminates any Plan applicable to a
Participant, such termination shall be
deemed to be a refusal or failure to make
payment pursuant to the preceding
sentence.
(iii) The Participant has furnished the Consult-
ing Firm with a ''Notice of Qualification''
(as defined below).
If the Company makes payment to the Participant in accordance with any of the
Plans listed on Exhibit B in an amount which is less than the Participant's
entire interest in Subtrust B, the Participant shall only become vested and
nonforfeitable in that portion of his Account in Subtrust B which, after
taking into account the Company's payment, would satisfy the remaining
liability to the Participant under such Plans.
(d) Anything to the contrary notwithstanding, the portion of each
Participant's Account in Subtrust B which has not become vested upon the
expiration of the three year period following a Change of Control shall be
forfeited and the Participant shall thereafter cease to have an interest in
the Trust. The Trustee shall hold the Trust Assets which the Consulting Firm
has notified it in writing as being attributable to such forfeitures in an
unallocated account until (i) such assets are re-allocated to any Participant
whose Account
-23-
<PAGE>
was insufficient to pay the amount directed to be paid by the Consulting
Firm or (ii) the Trust is terminated pursuant to Section 11 at which time
all unallocated amounts shall be paid to the Company.
(e) For the purposes of this Trust Agreement, a ''Notice of
Qualification'' shall be a written statement by the Participant or, if
applicable, the Participant's beneficiary or beneficiaries, that states that
pursuant to the terms of the Plan applicable to such Participant or pursuant
to which the Participant is a participant, the Participant or the
Participant's beneficiary or beneficiaries is entitled to payment thereunder
and that the Company has not made such payment during the five business day
period following written demand therefor.
(f) The Consulting Firm shall be under no duty to make inquiry as to
whether the Participant or the Participant's beneficiary or beneficiaries
submitting a Notice of Qualification is in fact entitled to any payment from a
Plan or whether a written demand for payment was in fact given to the Company.
If the Consulting Firm in its sole discretion determines to investigate any
Notice of Qualification, such investigation shall not extend beyond the date
which is three days after the date it receives such Notice. Anything contained
herein to the contrary notwithstanding, in the event that following a Change
of
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<PAGE>
Control (i) the Consulting Firm receives a Notice of Qualification which in
its sole discretion it determines to accept without investigation or after
any such investigation, or (ii) the Consulting Firm determines, in its sole
discretion, that the Company has breached its obligation to make a payment to
a Participant under any of the Plans, the Consulting Firm shall direct the
Trustee to pay, and the Trustee shall pay, the amount the Consulting Firm
determines that such Participant is entitled to.
(g) Anything in this Trust Agreement to the contrary notwithstanding, all
payments pursuant to this Section 7 shall be made solely upon the direction
of the Consulting Firm with or without the direction of the Company and
despite any direction to the contrary by the Company.
(h) If the Trust Assets are not sufficient to make all payments to the
Participants required to be made pursuant to the terms of the Plans as
determined by the Consulting Firm, the Company shall pay to each Participant
the balance of each such payment as it falls due. If such payments are not
made by the Company, and the Trust later contains sufficient Trust Assets to
make such payments and the interest referred to below, at the written
direction of the Consulting Firm, they shall be made from the Trust Assets,
together with interest at a rate equal to the higher of (i) the rate
determined pursuant to Section 1274(d) of the Code and (ii) the Federal Funds
Rate. ''Federal Funds Rate'' means, for any
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<PAGE>
day, the rate per annum equal to the weighted average of the
rates on overnight Federal funds transactions with members of
the Federal Reserve System arranged by Federal funds brokers
on such day, as published by the Federal Reserve Bank of New
York on the domestic business day next succeeding such day,
Section 8 Responsibility of Trustee and the Consulting Firm
------------------------------------------------------------
(a) The Trustee shall act with the care, skill, prudence and diligence
under the circumstances then prevailing that a prudent man acting in a like
capacity and familiar with such matters would use in the conduct of an
enterprise of a like character and with like aims; provided, however,
-------- -------
that the Trustee shall incur no liability to anyone and shall be indemnified
and held harmless by the Company for any action taken pursuant to a
direction, request, or approval given by the Company, the Consulting Firm or
any Participant contemplated by and complying with the terms of this Trust
Agreement. The Trustee shall discharge its responsibility for the investment,
management and control of the Trust Assets solely pursuant to the terms of
this Trust Agreement.
(b) Neither the Trustee nor the Consulting Firm
shall be required to undertake or to defend any litigation
arising in connection with this Trust Agreement, unless it be
first indemnified by the Company against its prospective
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<PAGE>
costs, expenses and liability including counsel fees, and the Company hereby
agrees to indemnify the Trustee and the Consulting Firm for such costs,
expenses, and liability including counsel fees. The Company agrees to
indemnify the Trustee and the Consulting Firm for any and all costs, and
expenses (including counsel fees) and shall hold the Trustee and the
Consulting Firm harmless from any liability which may arise in connection
with any disputes or litigation in connection with the Trust.
(c) The Trustee and the Consulting Firm may consult with legal counsel
(who may also be counsel for the Trustee or the Consulting Firm generally)
with respect to any of its duties or obligations hereunder, and shall be
fully protected in acting or refraining from acting in accordance with the
advice of such counsel and the Trustee may pay their expenses and
compensation from the Trust Assets to the extent not paid by the Company.
(d) The Trustee may hire agents, accountants, and financial consultants
and the Trustee may pay their expenses and compensation from the Trust Assets
to the extent not paid by the Company.
(e) The Trustee is authorized and empowered:
(i) To purchase, hold, sell, invest and
reinvest the assets of the Trust, together with income
therefrom;
(ii) To hold, manage and control all property
at any time forming part of the assets of the Trust;
(iii) To sell, convey, transfer, exchange and
otherwise dispose of the assets of the Trust from time to
time in such manner, for such consideration and upon such
terms and conditions as it shall determine;
(iv) To make payments from the Trust as
provided hereunder; and
(v) To exercise all the further rights, pow-
ers, options and privileges granted, provided for or vested
in trustees generally under applicable Federal or State of
Virginia law, as amended from time to time, it being intended
that, except as herein otherwise provided, the powers
conferred upon the Trustee herein shall not be construed as
being in limitation of any authority conferred by law, but
shall be construed as in addition thereto.
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<PAGE>
(f) The Trustee in any and all events is
authorized and empowered to do all other acts necessary or
desirable for the proper administration of the assets of the
Trust, as though the absolute owner thereof, including, but
not limited to, authorization and power:
(i) To cause any property of the Trust to be
issued, held or registered in the individual name of the
Trustee, or in the name of its nominee, or in such form that
title will pass by delivery, provided, the records of the
Trustee shall indicate the true ownership of such property;
(ii) To employ such agents and counsel as may be reasonably necessary in
managing and protecting the Trust Assets and to pay them reasonable
compensation from the Trust Assets to the extent not paid by the Company;
(iii) To settle, compromise or abandon all claims and demands from other
than the Participants or the Company in favor of or against the assets of the
Trust; provided, however, that the Trustee shall not be required to take any
such action unless it shall have been indemnified by the Company against
liability or expenses it might thereby incur; and
(iv) To prepare and file all tax and
informational returns relating to the Trust.
Section 9 Compensation and Expenses of Trustee and Consulting Firm
-------------------------------------------------------------------
The Trustee and the Consulting Firm shall each be
entitled to receive such reasonable compensation for their
services as shall be agreed upon by the Company and the
Trustee or the Consulting Firm, as the case may be. The
Trustee and the Consulting Firm shall each also be entitled
to receive their reasonable expenses incurred with respect to
the administration of the Trust, including counsel fees and
fees incurred by the Trustee and the Consulting Firm pursuant
to Sections 8(c) and 8(d) of this Trust Agreement. Such
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<PAGE>
compensation and expenses shall be payable by the Company and if not so paid,
shall be paid by the Trustee from the Trust Assets. In the event any Trust
Assets are used or required pursuant to the preceding sentence to pay
compensation and expenses to the Trustee or Consulting Firm, the Company
shall promptly contribute to the Trust any such amount and in the absence of
such payment, the Trustee may draw down the entire amount of the Letter of
Credit held by the Trust.
Section 10 Resignation and Replacement of Trustee
--------------------------------------------------
(a) The Trustee may resign at any time during the term of this Trust by
delivering to the Company and the Consulting Firm a written notice of the
proposed resignation. If such proposed resignation occurs after a Change of
Control or a Potential Change of Control, the Consulting Firm shall deliver a
copy of any such notice to each Participant and beneficiary at the address
supplied by the Company. Such resignation shall take effect upon the earlier
of (i) 60 days from the date of delivery of such notice to the Company or
(ii) the appointment of a successor Trustee. If, within 60 days of the
delivery of the Trustee's written notice of resignation, a successor Trustee
shall not have been appointed, the Trustee may apply to any court of
competent jurisdiction for the appointment of a successor Trustee.
(b) In the event that the Trustee notifies the Company of its intention
to resign, in accordance with the foregoing provisions of this Section 10,
the Company shall appoint a successor Trustee which shall be a bank or trust
company. The Trustee hereunder shall thereupon deliver to the successor
Trustee all property of this Trust, together
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<PAGE>
with such records and documents as may be reasonably required
to enable the successor Trustee to properly administer the
Trust, reserving such funds as it reasonably deems necessary
to cover its unpaid bills and expenses.
(c) Upon appointment of a successor Trustee, all
right, title and interest of the resigning Trustee in the
Trust Assets and all rights and privileges under this Trust
Agreement theretofore vested in such resigning Trustee shall
vest in the successor Trustee where applicable, and thereupon
all future liability of said resigning Trustee shall
terminate; provided, however, that the Trustee shall execute,
acknowledge and deliver all documents and written instruments
which are necessary to transfer and convey the right, title
and interest in the Trust Assets, and all rights and
privileges to the successor Trustee.
(d) Nothing in this Trust Agreement shall be
interpreted as depriving the Trustee or the Company of the
right to have a judicial settlement of the Trustee's ac-
counts, and upon any proceeding for a judicial settlement of
the Trustee's accounts or for instructions the only necessary
parties thereto will be the Trustee and the Company.
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<PAGE>
Section 11 Amendment or Termination
------------------------------------
(a) Prior to the time any Additional Contribution is made or required to
be made (or, after the time all Additional Contributions have been returned to
the Company in accordance with Section 2(c)) this Trust Agreement may be
amended to any extent (including amendments to Exhibits A and B) by a written
instrument executed by the Trustee, the Company and the Consulting Firm. After
the time any Additional Contribution is made or required to be made pursuant
to the terms hereof or after the Company has determined that a Change of
Control has occurred, this Trust Agreement may not be amended in any manner
which is adverse to any Participant (or beneficiary or beneficiaries if
applicable) unless the signed written consent to such amendment is obtained
from such Participant (or beneficiary or beneficiaries if applicable).
(b) This Trust shall be revocable by the Company prior to the time any
Additional Contribution is made or required to be made pursuant to the terms
hereof by the Company to the Trust and may be terminated by the Company prior
thereto (or, after the time all Additional Contributions have been returned to
the Company in accordance with Section 2(c)). After the Company has determined
that a Change of Control has occurred, the Trust shall be irrevocable and
shall not be terminated until the receipt by the Trustee of a certification
from the Consulting Firm that (i) all liabilities under all the Plans
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<PAGE>
have been satisfied or (ii) it has received a written instrument executed by
each Participant (or beneficiary or beneficiaries if applicable) who
remains entitled to payments pursuant to the Plans consenting to the
termination of the Trust prior to the satisfaction of all liabilities;
provided that, if the Company or the Consulting Firm notifies the Trustee in
writing that any payment made from the Trust or to be made pursuant to any of
the Plans is being contested or litigated, the Trust shall remain in effect
until such contest, litigation or dispute is resolved.
(c) Prior to the determination by the Consulting Firm that all
liabilities under all the Plans have been satisfied, neither the Company nor
the Trustee may take any action with respect to the Trust which may have an
adverse effect on the ability of the Trustee to make payments to Participants
hereunder including, but not limited to, merging the Trust, transferring
Trust Assets from the Trust other than to Participants, terminating the Trust
or increasing the number of Participants in the Trust.
(d) After the termination of the Trust pursuant to
Section 11(b), the Trustee shall as soon as practicable, but
in any event within ninety days of the date of such termina-
tion, transfer to the Company in cash the value of the Trust
Assets.
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<PAGE>
Section 12 Protection of the Trustee and the Consulting Firm
-------------------------------------------------------------
The Company agrees, to the extent permitted by applicable law, to
indemnify the Trustee and the Consulting Firm, as applicable, and hold them
harmless from and against any claim or liability that may be asserted against
them by reason of their
(a) taking or refraining from taking any action under this Trust
Agreement, including, without limiting the generality of the foregoing, any
claim brought against the Trustee or the Consulting Firm by the Company, in
any case, otherwise than on account of the Trustee's or the Consulting
Firm's own gross negligence or willful misconduct;
(b) relying upon a certification of an authorized representative of the
Company or the Consulting Firm with respect to any instruction, direction or
approval of the Company or the Consulting Firm until a subsequent
certification is filed with the Trustee;
(c) acting upon any instrument, certificate, or paper believed by them to
be genuine and to be signed or presented by the proper person or persons, and
neither the Trustee nor the Consulting Firm shall be under any duty to make
any investigation or inquiry as to any statement contained in any such
writing but may accept the
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<PAGE>
same as conclusive evidence of the Trust and accuracy of the
statements therein contained;
(d) making distributions in accordance with the
terms of this Trust Agreement and information or
directions furnished to the Trustee by the Consulting Firm
or the Company. All persons dealing with the Trustee are
released from inquiry into the decision or authority of
the Trustee and from seeing to the application of any
monies, securities or other property paid or delivered to
the Trustee.
Section 13 Communications
--------------------------
(a) Communications to the Company shall be ad-
dressed to the Company at:
Phillip Morris Companies Inc.
l20 Park Avenue
New York, New York 10017
(b) Communications to the Trustee shall be ad-
dressed to it at:
[Address]
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<PAGE>
(c) Communications to the Consulting Firm shall be
addressed to it at:
[Address]
Section 14 Severability and Alienation
---------------------------------------
(a) Any provision of this Trust Agreement
prohibited by law shall be ineffective to the extent of any
such prohibition without invalidating or in any other way
limiting the remaining provisions hereof.
(b) The rights, benefits and payments of a
Participant payable from the Trust Assets may not be
anticipated, assigned (either at law or in equity), alienated
or subject to attachment, garnishment, levy, execution or
other legal or equitable process except as required by law.
Any attempt by a Participant to anticipate, alienate, assign,
sell, transfer, pledge, encumber or charge the same shall be
void. The Trust Assets shall not in any manner be subject to
the debts, contracts, liabilities, engagements or torts of
any Participant and payments hereunder shall not be
considered an asset of the Participant in the event of his
insolvency or bankruptcy.
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<PAGE>
Section 15 Governing Law
-------------------------
This Trust Agreement shall be governed by and
construed in accordance with the laws of the State of
Virginia, without reference to principles of conflicts of
law.
Section 16 Miscellaneous
-------------------------
(a) The Trustee shall not be either individually or severally liable for
any taxes of any kind levied or assessed under the existing or future laws
against the Trust Assets. The Trustee shall withhold from each payment to any
Participant or beneficiary any Federal, state or local withholding taxes
which are from time to time required to be deducted under applicable laws, as
directed by the Consulting Firm and pay over such amounts to the Consulting
Firm for its payment to the applicable taxing authorities. To the extent that
any taxes are payable by the Trust to any Federal, state or local taxing
authorities on account of earnings on Trust Assets, the Company shall pay
such taxes.
(b) Expenses and fees of the Company for the
administration of this Trust and services in relation thereto
for actuarial, legal and accounting and other similar
expenses, including any costs with respect to the creation of
the Trust, shall be paid by the Company and, if not so paid
may be paid by the Trustee from the Trust Assets.
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<PAGE>
(c) Participation in this Trust shall not give any
Participant any right to be retained as an employee of the
Company nor any rights other than those specifically enumer-
ated herein.
(d) Any payment to any Participant or his
beneficiary in accordance with the provisions of this Trust
shall, to the extent thereof, be in full satisfaction of all
claims against the Trustee and the Company under the Plans.
Nothing in this Trust shall relieve the Company of its
liability to pay benefits under the Plans except to the
extent such liabilities are met through the use of the Trust
Assets.
(e) Headings in this Trust Agreement are inserted
for convenience of reference only and are not to be
considered in the construction of the provisions hereof.
(f) This Trust Agreement may be executed in
several counterparts, each of which shall be deemed an
original, and said counterparts shall constitute but one and
the same instrument, which may be sufficiently evidenced by
any one counterpart.
(g) This Trust Agreement shall inure to the
benefit of, and be binding upon, the parties hereto and their
successors and assigns.
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<PAGE>
(h) As used in this Trust Agreement, the masculine
gender shall include the feminine and neuter genders.
(i) Any action of the Company pursuant to this
Trust Agreement, including all orders, requests, data, direc-
tions, instructions and other related information shall be in
writing signed on behalf of the Company by an officer or
named designee of the Company.
(j) In the event that a Participant and his
beneficiary shall both be deceased prior to the time payment
is due the Participant or his beneficiary, then payment shall
be made if due to the estate of the deceased Participant.
All references to beneficiary herein shall be deemed to be
the Participant's surviving spouse.
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<PAGE>
IN WITNESS WHEREOF, the Company, the Trustee and
the Consulting Firm have executed this Agreement as of the
date first above written.
PHILIP MORRIS COMPANIES INC.
By:
-----------------------------------
Name:
Title:
[TRUSTEE]
By:
-----------------------------------
Name:
Title:
[CONSULTING FIRM]
By:
-----------------------------------
Name:
Title:
-39-
<PAGE>
Exhibit A
---------
-40-
<PAGE>
Exhibit B
---------
-41-
<PAGE>
EXHIBIT 10.14
EMPLOYMENT AGREEMENT
--------------------
AGREEMENT by and between Philip Morris Companies Inc., a Virginia
corporation (the ''Company'') and Murray H. Bring (the ''Executive''), dated
as of the day of , 1989.
------ ----------------
The Board of Directors of the Company (the ''Board''), has determined
that it is in the best interests of the Company and its shareholders to assure
that the Company will have the continued dedication of the Executive,
notwithstanding the possibility, threat or occurrence of a Change of Control
(as defined below) of the Company. The Board believes it is imperative to
diminish the inevitable distraction of the Executive by virtue of the personal
uncertainties and risks created by a pending or threatened Change of Control
and to encourage the Executive's full attention and dedication to the Company
currently and in the event of any threatened or pending Change of Control, and
to provide the Executive with compensation and benefits arrangements upon a
Change of Control which ensure that the compensation and benefits expectations
of the Executive will be satisfied and which are competitive with those of
other corporations. Therefore, in order to accomplish these objectives, the
Board has caused the Company to enter into this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Certain Definitions. (a) The ''Effective Date'' shall mean the first
-------------------
date during the Change of Control Period (as defined in Section 1(b)) on which
a Change of Control (as defined in Section 2) occurs. Anything in this
Agreement to the contrary notwithstanding, if a Change of Control occurs and
if the Executive's employment with the Company is terminated or the Executive
ceases to be Senior Vice President and General Counsel of the Company prior to
the date on which the Change of Control occurs, and if it is reasonably
demonstrated by the Executive that such termination of employment or cessation
of status as Senior Vice President and General Counsel (i) was at the request
of a third party who has taken steps reasonably calculated to effect a Change
of Control or (ii) otherwise arose in connection with or anticipation of a
Change of Control (an event described in (i) or (ii) above being hereinafter
referred to as a ''Potential Change of Control''), then for all purposes
of this Agreement the ''Effective Date'' shall mean the date immediately prior
to the date of such termination of employment or cessation of status as Senior
Vice President and General Counsel.
<PAGE>
(b) The ''Change of Control Period'' shall mean the period commencing on
the date hereof and ending on the earliest to occur of (x) any date prior to
the Effective Date on which the Executive ceases to hold the position of
Senior Vice President and General Counsel of the Company, (y) the third
anniversary of the date hereof, and (z) the Executive's normal retirement
date (the ''Normal Retirement Date'') under the Philip Morris Salaried
Employees' Retirement Plan (the ''Retirement Plan''); provided, however,
that commencing on the date one year after the date hereof, and on each
annual anniversary of such date (such date and each annual anniversary
thereof shall be hereinafter referred to as the ''Renewal Date''), unless
previously terminated, the Change of Control Period shall be automatically
extended so as to terminate three years from such Renewal Date, unless at
least 60 days prior to the Renewal Date the Company shall give notice to the
Executive that the Change of Control Period shall not be so extended.
2. Change of Control. For the purpose of this Agreement, a ''Change of
-----------------
Control'' shall mean:
(a) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of
1934, as amended (the ''Exchange Act'')) (a ''Person'') of beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the Exchange
Act) of 20% or more of either (i) the then outstanding shares of common stock
of the Company (the ''Outstanding Company Common Stock'') or (ii) the combined
voting power of the then outstanding voting securities of the Company entitled
to vote generally in the election of directors (the ''Outstanding Company
Voting Securities''); provided, however, that the following acquisitions shall
not constitute a Change of Control: (i) any acquisition directly from the
Company, (ii) any acquisition by the Company, (iii) any acquisition by any
employee benefit plan (or related trust) sponsored or maintained by the
Company or any corporation controlled by the Company or (iv) any acquisition
by any corporation pursuant to a transaction which complies with clauses (i),
(ii) and (iii) of subsection (c) of this Section 2; or
(b) Individuals who, as of the date hereof, constitute the Board (the
''Incumbent Board'') cease for any reason to constitute at least a majority of
the Board; provided, however, that any individual becoming a director
subsequent to the date hereof whose election, or nomination for election by
the Company's shareholders, was approved by a vote of at least a majority of
the directors then comprising the Incumbent Board shall be considered as
though such
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<PAGE>
individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office occurs as a
result of an actual or threatened election contest with respect to the
election or removal of directors or other actual or threatened solicitation
of proxies or consents by or on behalf of a Person other than the Board; or
(c) Approval by the shareholders of the Company of a reorganization,
merger, share exchange or consolidation (a ''Business Combination''), in each
case, unless, following such Business Combination, (i) all or substantially
all of the individuals and entities who were the beneficial owners,
respectively, of the Outstanding Company Common Stock and Outstanding
Company Voting Securities immediately prior to such Business Combination
beneficially own, directly or indirectly, more than 80% of, respectively,
the then outstanding shares of common stock and the combined voting power of
the then outstanding voting securities entitled to vote generally in the
election of directors, as the case may be, of the corporation resulting from
such Business Combination (including, without limitation, a corporation
which as a result of such transaction owns the Company through one or more
subsidiaries) in substantially the same proportions as their ownership,
immediately prior to such Business Combination of the Outstanding Company
Common Stock and Outstanding Company Voting Securities, as the case may be,
(ii) no Person (excluding any employee benefit plan (or related trust) of
the Company or such corporation resulting from such Business Combination)
beneficially owns, directly or indirectly, 20% or more of, respectively, the
then outstanding shares of common stock of the corporation resulting from
such Business Combination or the combined voting power of the then
outstanding voting securities of such corporation except to the extent that
such ownership existed prior to the Business Combination and (iii) at least
a majority of the members of the board of directors of the corporation
resulting from such Business Combination were members of the Incumbent Board
at the time of the execution of the initial agreement, or of the action of
the Board, providing for such Business Combination; or
(d) Approval by the shareholders of the Company of (i) a complete
liquidation or dissolution of the Company or (ii) the sale or other
disposition of all or substantially all of the assets of the Company, other
than to a corporation, with respect to which following such sale or other
disposition, (A) more than 80% of, respectively, the then outstanding shares
of common stock of such corporation and the combined voting power of the
then outstanding voting securities of such corporation entitled to vote
generally in the election of directors is then beneficially owned,
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<PAGE>
directly or indirectly, by all or substantially all of the individuals and
entities who were the beneficial owners, respectively, of the Outstanding
Company Common Stock and Outstanding Company Voting Securities immediately
prior to such sale or other disposition in substantially the
same proportion as their ownership, immediately prior to such sale or other
disposition, of the Outstanding Company Common Stock and Outstanding Company
Voting Securities, as the case may be, (B) less than 20% of, respectively,
the then outstanding shares of common stock of such corporation and the
combined voting power of the then outstanding voting securities of such
corporation entitled to vote generally in the election of directors is then
beneficially owned, directly or indirectly, by any Person (excluding any
employee benefit plan (or related trust) of the Company or such
corporation), except to the extent that such Person owned 20% or more of the
Outstanding Company Common Stock or Outstanding Company Voting Securities
prior to the sale or disposition and (C) at least a majority of the members
of the board of directors of such corporation were members of the Incumbent
Board at the time of the execution of the initial agreement, or of the
action of the Board, providing for such sale or other disposition of assets
of the Company or were elected, appointed or nominated by the Board.
3. Employment Period. The Company hereby agrees to continue the
-----------------
Executive in its employ, and the Executive hereby agrees to remain in the
employ of the Company subject to the terms and conditions of this Agreement,
for the period commencing on the Effective Date and ending on the earlier
to occur of (x) the third anniversary of such date, and (y) the Executive's
Normal Retirement Date (the ''Employment Period'').
4. Terms of Employment. (a) Position and Duties. (i) During the
------------------- -------------------
Employment Period, (A) the Executive's position (including status, offices,
titles and reporting requirements), authority, duties and responsibilities
shall be at least commensurate in all material respects with the most
significant of those held, exercised and assigned at any time during the
120-day period immediately preceding the Effective Date and (B) the
Executive's services shall be performed at the location where the Executive
was employed immediately preceding the Effective Date or any office or
location less than 35 miles from such location.
(ii) During the Employment Period, and excluding any periods of
vacation and sick leave to which the Executive is entitled, the Executive
agrees to devote reasonable attention and time during normal business hours
to the business and affairs of the Company and, to the extent necessary to
discharge the responsibilities assigned to the Executive hereunder, to use
the Executive's reasonable best
-4-
<PAGE>
efforts to perform faithfully and efficiently such
responsibilities. During the Employment Period it shall not
be a violation of this Agreement for the Executive to (A)
serve on corporate, civic or charitable boards or committees,
(B) deliver lectures, fulfill speaking engagements or teach
at educational institutions and (C) manage personal invest-
ments, so long as such activities do not significantly
interfere with the performance of the Executive's
responsibilities as an employee of the Company in accordance
with this Agreement. It is expressly understood and agreed
that to the extent that any such activities have been
conducted by the Executive prior to the Effective Date, the
continued conduct of such activities (or the conduct of
activities similar in nature and scope thereto) subsequent to
the Effective Date shall not thereafter be deemed to
interfere with the performance of the Executive's
responsibilities to the Company.
(b) Compensation. (i) Pro Rata Performance Award. Within 30 days after
------------ --------------------------
the Effective Date, the Executive shall be entitled to a lump sum cash
payment equal to the pro rata Long Term Performance Award he would have
received pursuant to Section 11(a)(4) of the Company's 1987 Long Term
Incentive Plan (the ''LTIP'') had the Executive been eligible to receive an
award pursuant to such section of the LTIP without regard to Section 10(b)
of the LTIP.
(ii) Base Salary. During the Employment Period, the Executive shall
-----------
receive an annual base salary (''Annual Base Salary''), which shall be paid
at a monthly rate, at least equal to twelve times the highest monthly base
salary paid or payable, including any base salary which has been earned but
deferred, to the Executive by the Company and its affiliated companies in
respect of the twelve-month period immediately preceding the month in which
the Effective Date occurs. During the Employment Period, the Annual Base
Salary shall be reviewed no more than 12 months after the last salary
increase awarded to the Executive prior to the Effective Date and thereafter
at least annually and shall be first increased no more than 12 months after
the last salary increase awarded to the Executive prior to the Effective
Date and thereafter at least annually by the highest of (x) 7%, (y) the
average increase (excluding promotional increases) in base salary awarded to
the Executive for each of the three full fiscal years (annualized in the
case of any fiscal year consisting of less than twelve full months or during
which the Executive was employed for less than twelve months) prior to the
Effective Date, and (z) the percentage increase (excluding promotional
increases) in base salary generally awarded to peer executives of the
Company and its affiliated companies for the year of determination. Any
increase in Annual Base Salary shall not serve to limit or reduce any
-5-
<PAGE>
other obligation to the Executive under this Agreement. An-
nual Base Salary shall not be reduced after any such increase
and the term Annual Base Salary as utilized in this Agreement
shall refer to Annual Base Salary as so increased. As used
in this Agreement, the term ''affiliated companies'' shall
include any company controlled by, controlling or under com-
mon control with the Company.
(iii) Annual Bonus. In addition to Annual
------------
Base Salary, the Executive shall be awarded, for each fiscal year ending
during the Employment Period, an annual bonus (the ''Annual Bonus''), in cash
at least equal to the higher of (x) the average of the three highest bonuses
paid or payable, including any bonus or portion thereof which has been earned
but deferred, to the Executive by the Company and its affiliated companies in
respect of the five fiscal years (or such shorter period during which the
Executive has been employed by the Company) immediately preceding the fiscal
year in which the Effective Date occurs (annualized for any fiscal year
during such period consisting of less than twelve full months or with respect
to which the Executive has been employed by the Company for less than twelve
full months) and (y) the bonus paid or payable (annualized as described
above), including any bonus or portion thereof which has been earned but
deferred, to the Executive by the Company and its affiliated companies in
respect of the most recently completed fiscal year prior to the Effective
Date (such higher amount being referred to as the ''Recent Annual Bonus'').
Each such Annual Bonus shall be paid no later than the end of the third month
of the fiscal year next following the fiscal year for which the Annual Bonus
is awarded, unless the Executive shall elect to defer the receipt of such
Annual Bonus.
(iv) Retirement Benefits. (A) The Executive shall accrue for
-------------------
purposes of the Retirement Plan two years of accredited
service for each year of service to age 60, and three years of accredited
service for each year of service from age 60 to age 65 (''Presumptive
Accredited Service''). Commencing at age 60, the Executive shall be entitled
to a full retirement benefit equal to the greater of $150,000 per year or the
amount that would be payable under the Retirement Plan, calculated in
accordance with the accredited service deemed accrued under this Section
4(b)(iv)(A), payable upon his retirement for the remainder of his life only,
regardless of whether his years of accredited service or other entitlements
so warrant; provided, however, that the Executive shall be entitled
-------- -------
to such retirement benefit prior to age 60 if the
Company shall terminate the Executive's employment without Cause or if the
Executive terminates his employment for Good Reason during the Employment
Period and upon such termination, whether prior to or after reaching age 60,
the Executive shall be deemed to have accredited service under the Retirement
Plan equal to the sum of his Presumptive
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<PAGE>
Accredited Service and his years of service with the law firm of Arnold &
Porter. In the event of a termination by the Company without cause or the
Executive with Good Reason, the actuarial equivalent of the retirement
benefit provided for pursuant to this Section 4(b)(iv)(A) shall, to the extent
it exceeds amounts payable under the Retirement Plan, be paid to the
Executive in a lump sum in cash within 30 days of the Date of Termination.
Notwithstanding the foregoing, if the Executive shall voluntarily leave the
employ of the Company without Good Reason or his employment is terminated for
Cause prior to reaching age 60, the Executive shall be entitled to a
retirement benefit in an amount equal to the greater of $50,000 per year, or
the amount that would be payable under the Retirement Plan calculated
according to the Presumptive Accredited Service which has accrued pursuant to
the provisions of this Section 4(b)(iv). Notwithstanding the foregoing, the
retirement benefit hereunder shall be offset by the annual retirement benefit
provided to the Executive under the Retirement Plan. To the extent that the
retirement benefit hereunder exceeds that which may be provided under the
terms of the Retirement Plan, such amount shall be paid from the Philip
Morris Companies Inc. Executive Master Trust. In the event that the Executive
becomes eligible for a retirement benefit before 120 months of actual service
have accrued, the ''five-year average compensation'' referred to in the
Retirement Plan will be calculated on the basis of the Executive's highest
compensation during 60 consecutive months of accredited service, or if there
are less than 60 consecutive months of accredited service, then on the basis
of compensation during as many months of accredited service as have been
accrued. Notwithstanding anything to the contrary in this Agreement or the
employment agreement between the Company and the Executive dated October 12,
1987 (the ''Prior Agreement''), the provisions of this Section 4(b)(iv)(A)
shall survive the termination or expiration of the Employment Period or
termination of this Agreement.
(B) In addition to the retirement benefits described above, during the
Employment Period, the Executive shall be entitled to participate in all
other retirement plans, practices, policies and programs applicable
generally to other peer executives of the Company and its affiliated
companies, but in no event shall such plans, practices, policies and
programs provide the Executive with retirement benefit opportunities less
favorable, in the aggregate, than the most favorable of those provided by
the Company and its affiliated companies for the Executive under such plans,
practices, policies and programs as in effect at any time during the 120-day
period immediately preceding the Effective Date to other peer executives of
the Company and its affiliated companies.
(v) Incentive and Savings Plans. During the Employment Period, the
---------------------------
Executive shall be entitled to
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<PAGE>
participate in all incentive and savings plans, practices, policies and
programs applicable generally to other peer executives of the Company and
its affiliated companies, but in no event shall such plans, practices,
policies and programs provide the Executive with incentive opportunities
(measured with respect to both regular and special incentive opportunities,
to the extent, if any, that such distinction is applicable), and savings
opportunities, in each case, less favorable, in the aggregate, than the most
favorable of those provided by the Company and its affiliated companies for
the Executive under such plans, practices, policies and programs as in effect
at any time during the 120-day period immediately preceding the Effective
Date or if more favorable to the Executive, those provided generally at any
time after the Effective Date to other peer executives of the Company and
its affiliated companies.
(vi) Welfare Benefit Plans. During the Employment Period, the Executive
---------------------
and/or the Executive's family, as the case may be, shall be eligible for
participation in and shall receive all benefits under welfare benefit plans,
practices, policies and programs provided by the Company and its affiliated
companies (including, without limitation, medical, prescription, dental,
disability, salary continuance, employee life, group life, accidental death
and travel accident insurance plans and programs) to the extent applicable
generally to other peer executives of the Company and its affiliated
companies, but in no event shall such plans, practices, policies and
programs provide the Executive with benefits which are less favorable, in
the aggregate, than the most favorable of such plans, practices, policies
and programs in effect for the Executive at any time during the 120-day
period immediately preceding the Effective Date or, if more favorable to the
Executive, those provided generally at any time after the Effective Date to
other peer executives of the Company and its affiliated companies.
(vii) Expenses. During the Employment Period, the Executive shall be
--------
entitled to receive prompt reimbursement for all reasonable expenses
incurred by the Executive in accordance with the most favorable policies,
practices and procedures of the Company and its affiliated companies in
effect for the Executive at any time during the 120-day period immediately
preceding the Effective Date or, if more favorable to the Executive, as in
effect generally at any time thereafter with respect to other peer
executives of the Company and its affiliated companies.
(viii) Fringe Benefits. During the Employment Period, the Executive
---------------
shall be entitled to fringe benefits, including, without limitation, tax
and financial planning services, payment of club dues and, relocation
expenses as
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<PAGE>
provided by Section 6 of the Prior Agreement, and, if applicable, use of an
automobile and payment of related expenses, in accordance with the most
favorable plans, practices, programs and policies of the Company and its
affiliated companies in effect for the Executive at any time during the
120-day period immediately preceding the Effective Date or, if more favorable
to the Executive, as in effect generally at any time thereafter with respect
to other peer executives of the Company and its affiliated companies.
(ix) Office and Support Staff. During the Employment Period, the
------------------------
Executive shall be entitled to an office or offices of a size and with
furnishings and other appointments, and to exclusive personal secretarial
and other assistance, at least equal to the most favorable of the foregoing
provided to the Executive by the Company and its affiliated companies at any
time during the 120-day period immediately preceding the Effective Date or,
if more favorable to the Executive, as provided generally at any time
thereafter with respect to other peer executives of the Company and its
affiliated companies.
(x) Vacation. During the Employment Period, the Executive shall be
--------
entitled to paid vacation in accordance with the most favorable plans,
policies, programs and practices of the Company and its affiliated companies
as in effect for the Executive at any time during the 120-day period
immediately preceding the Effective Date or, if more favorable to the
Executive, as in effect generally at any time thereafter with respect to
other peer executives of the Company and its affiliated companies.
(xi) For all purposes of this Agreement, to the extent that any plan,
policy, program, practice or arrangement described in this Section 4 or any
other provision of the Agreement requires a period of accredited service
before a specified benefit accrues, the Company will provide the Executive
the equivalent of such accredited service, if he is eligible for such
benefit in every respect other than the required period of accredited
service.
5. Termination of Employment. (a) Death or Disability. The Executive's
------------------------- -------------------
employment shall terminate automatically upon the Executive's death during
the Employment Period. If the Company determines in good faith that the
Disability of the Executive has occurred during the Employment Period
(pursuant to the definition of Disability set forth below), it may give to
the Executive written notice in accordance with Section 12(b) of this
Agreement of its intention to terminate the Executive's employment. In such
event, the Executive's employment with the Company shall terminate effective
on the 30th day after receipt of such notice by the Executive (the
''Disability Effective Date''), provided that, within the 30 days after such
receipt, the Executive shall not have returned to full-time performance of
the Executive's duties. For purposes of this Agreement, ''Disability'' shall
mean the absence of the Executive from the Executive's duties with the
Company on a full-time basis for 180 consecutive business days as a result
of incapacity due to mental or physical illness which is determined to be
total and permanent by a physician selected by the Company or its
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<PAGE>
insurers and acceptable to the Executive or the Executive's legal
representative (such agreement as to acceptability not to be withheld
unreasonably).
(b) Cause. The Company may terminate the
-----
Executive's employment during the Employment Period for Cause. For the sole
and exclusive purposes of this Agreement, ''Cause'' shall mean:
(i) the willful and continued failure of the Executive to perform
substantially the Executive's duties with the Company or one of its affiliates
(other than any such failure resulting from incapacity due to physical or
mental illness), after a written demand for substantial performance is
delivered to the Executive by the Board or the Chief Executive Officer of the
Company which specifically identifies the manner in which the Board or Chief
Executive Officer believes that the Executive has not substantially performed
the Executive's duties, or
(ii) the willful engaging by the Executive in illegal conduct or gross
misconduct which is materially and demonstrably injurious to the Company.
For purposes of this provision, no act or failure to act, on the part of the
Executive, shall be considered ''willful'' unless it is done, or omitted to be
done, by the Executive in bad faith or without reasonable belief that the
Executive's action or omission was in the best interests of the Company. Any
act, or failure to act, based upon authority given pursuant to a resolution
duly adopted by the Board or upon the instructions of the Chief Executive
Officer or a senior officer of the Company or based upon the advice of counsel
for the Company shall be conclusively presumed to be done, or omitted to be
done, by the Executive in good faith and in the best interests of the Company.
The cessation of employment of the Executive shall not be deemed to be for
Cause unless and until there shall have been delivered to the Executive a copy
of a resolution duly adopted by the affirmative vote of not less than
three-quarters of the entire membership of the Board at meeting of the Board
called and held for such purpose (after reasonable notice is provided to the
Executive and the Executive is given an opportunity, together with counsel, to
be heard before the Board), finding that, in the good faith opinion of the
Board, the Executive is guilty of the conduct described in subparagraph (i) or
(ii) above, and specifying the particulars thereof in detail.
(c) Good Reason. The Executive's employment may be
-----------
terminated by the Executive for Good Reason. For the sole and exclusive
purposes of this Agreement, ''Good Reason'' shall mean:
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<PAGE>
(i) the assignment to the Executive of any duties inconsistent in any
respect with the Executive's position (including status, offices, titles and
reporting requirements), authority, duties or responsibilities as
contemplated by Section 4(a) of this Agreement, or any other action by the
Company which results in a diminution in such position, authority, duties or
responsibilities, excluding for this purpose an isolated, insubstantial and
inadvertent action not taken in bad faith and which is remedied by the
Company promptly after receipt of notice thereof given by the Executive;
(ii) any failure by the Company to comply with any of the provisions of
Section 4(b) of this Agreement, other than an isolated, insubstantial and
inadvertent failure not occurring in bad faith and which is remedied by the
Company promptly after receipt of notice thereof given by the Executive;
(iii) the Company's requiring the Executive to be based at any office or
location other than as provided in Section 4(a)(i)(B) hereof or the Company's
requiring the Executive to travel on Company business to a substantially
greater extent than required immediately prior to the Effective Date;
(iv) any purported termination by the Company of the Executive's
employment otherwise than as expressly permitted by this Agreement; or
(v) any failure by the Company to comply with and satisfy Section 11(c)
of this Agreement.
For purposes of this Section 5(c), any good faith determination of ''Good
Reason'' made by the Executive shall be conclusive. Anything in this
Agreement to the contrary notwithstanding, a termination by the Executive for
any reason during the 30-day period immediately following the first
anniversary of the Effective Date shall be deemed to be a termination for
Good Reason for all purposes of this Agreement.
(d) Notice of Termination. Any termination by the Company for Cause,
---------------------
or by the Executive for Good Reason, shall be communicated by Notice of
Termination to the other party hereto given in accordance with Section 12(b)
of this Agreement. For purposes of this Agreement, a ''Notice of
Termination'' means a written notice which (i) indicates the specific
termination provision in this Agreement relied upon, (ii) to the extent
applicable, sets forth in reasonable detail the facts and circumstances
claimed to provide a basis for
-11-
<PAGE>
termination of the Executive's employment under the provision so indicated
and (iii) if the Date of Termination (as defined below) is other than the
date of receipt of such notice, specifies the termination date (which date
shall be not more than thirty days after the giving of such notice). The
failure by the Executive or the Company to set forth in the Notice of
Termination any fact or circumstance which contributes to a showing of Good
Reason or Cause shall not waive any right of the Executive or the Company,
respectively, hereunder or preclude the Executive or the Company,
respectively, from asserting such fact or circumstance in enforcing the
Executive's or the Company's rights hereunder.
(e) Date of Termination. ''Date of Termination'' means (i) if the
-------------------
Executive's employment is terminated by the Company for Cause, or by
the Executive for Good Reason, the date of receipt of the Notice
of Termination or any later date specified therein, as the case may be, (ii)
if the Executive's employment is terminated by the Company other than for
Cause or Disability, the Date of Termination shall be the date on which the
Company notifies the Executive of such termination and (iii) if the
Executive's employment is terminated by reason of death or Disability, the
Date of Termination shall be the date of death of the Executive or the
Disability Effective Date, as the case may be.
6. Obligations of the Company upon Termination. (a) Good Reason;
------------------------------------------- ------------
Other Than for Cause, Death or Disability. If, during the
- -----------------------------------------
Employment Period, the Company shall terminate the Executive's employment
other than for Cause or Disability or the Executive shall terminate
employment for Good Reason, in addition to the benefits provided for in
Section 4(b)(iv):
(i) the Company shall pay to the Executive in a lump sum in cash within
30 days after the Date of Termination the aggregate of the following amounts:
A. the sum of (1) the Executive's Annual Base Salary through the
Date of Termination to the extent not theretofore paid, (2) the product of
(x) the higher of (I) the Recent Annual Bonus and (II) the Annual Bonus paid
or payable, including any bonus or portion thereof which has been earned but
deferred (and annualized for any fiscal year consisting of less than twelve
full months or during which the Executive was employed for less than twelve
full months), for the most recently completed fiscal year during the
Employment Period, if any (such higher amount being referred to as the
''Highest Annual Bonus'') and (y) a fraction, the numerator of which is the
number of days in the current fiscal year through the Date of Termination,
and the denominator
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<PAGE>
of which is 365 and (3) any compensation previously deferred by the Executive
(together with any accrued interest or earnings thereon) and any accrued
vacation pay, in each case to the extent not theretofore paid (the sum of the
amounts described in clauses (1), (2), and (3) shall be hereinafter referred
to as the ''Accrued Obligations''); and
B. the amount equal to the product of (1) two and one-half and (2) the
sum of (x) the Executive's Annual Base Salary and (y) the Highest Annual
Bonus and (3) a fraction, the numerator of which is the number of full months
from the Date of Termination until the Executive's Normal Retirement Date but
which shall be no greater than thirty (30), and the denominator of which is
thirty (30); and
C. an amount equal to the difference between (a) the actuarial
equivalent of the benefit (utilizing actuarial assumptions no less favorable
to the Executive than those in effect under the Retirement Plan immediately
prior to the Effective Date, except as specified below with respect to
increases in base salary and annual bonus) under the Retirement Plan and any
excess or supplemental retirement plan in which the Executive participates
(together, the ''SERP'') which the Executive would receive if the Executive's
employment continued for two and one-half years after the Date of Termination
assuming for this purpose that all accrued benefits are fully vested, and,
assuming that (1) the Executive's base salary increased on an annualized
basis during the two and one-half year period by the amount required by
Section 4(b)(ii) (in the case of Section 4(b)(ii)(z) based on increases
(excluding promotional increases) in base salary for the most recently
completed fiscal year prior to the Date of Termination) had the Executive
remained employed, and (2) the Executive's annual bonus (annualized for any
fiscal year consisting of less than twelve full months or during which the
Executive was employed for less than twelve full months) in each of the two
and one-half years (on an annualized basis) bears the same proportion to the
Executive's base salary in such year or fraction thereof as it did for the
last full year prior to the Date of Termination, and (b) the actuarial
equivalent of the Executive's actual benefit (paid or payable), if any,
under the Retirement Plan and the SERP as of the Date of Termination;
-13-
<PAGE>
(ii) for two and one-half years after the Executive's Date of
Termination, or such longer period as may be provided by Section 6(a)(iii)
with respect to the benefits covered thereby or by the terms of the
appropriate plan, program, practice or policy, the Company shall continue
benefits to the Executive and/or the Executive's family at least equal to
those which would have been provided to them in accordance with the plans,
programs, practices and policies described in Section 4(b)(vi) and Section
4(b)(viii) of this Agreement if the Executive's employment had not been
terminated in accordance with the most favorable plans, practices, programs
or policies of the Company and its affiliated companies applicable generally
to other peer executives and their families during the 120-day period
immediately preceding the Effective Date or, if more favorable to the
Executive, as in effect generally at any time thereafter with respect to
other peer executives of the Company and its affiliated companies and their
families, provided, however, that if the Executive becomes reemployed with
another employer and is eligible to receive medical or other welfare benefits
under another employer provided plan, the medical and other welfare benefits
described herein shall be secondary to those provided under such other plan
during such applicable period of eligibility. For purposes of determining
eligibility (but not the time of commencement of benefits) of the Executive
for retiree benefits pursuant to such plans, practices, programs and
policies, the Executive shall be considered to have remained employed until
two and one-half years after the Date of Termination and to have retired on
the last day of such period;
(iii) if two and one-half years after the Executive's Date of
Termination, the Executive would be at least 55 years old and eligible for
retirement benefits (including, without limitation, early retirement
benefits) under the Retirement Plan (assuming continuous service with the
Company during such two and one-half year period), the Company shall
continue lifetime medical, dental and life insurance benefits (including
supplemental benefits) to the Executive and/or the Executive's family at
least equal to those that would have been provided to them in accordance
with the plans, programs and policies described in Section 4(b)(vi) of this
Agreement (except the Company's business travel accident plans) if the
Executive's employment had not been terminated, if and as in effect at any
time during the 120-day period immediately preceding the Effective Date with
respect too other peer executives and their families or, if more favorable to
the Executive, as in effect at any time thereafter with respect to other peer
executives and
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<PAGE>
their families; provided, however, that, in the event that the Executive
becomes reemployed with another employer, whether or not such employer is
related to the Company or any of its affiliates, and is eligible to receive
medical or other welfare benefits under any employer-sponsored plan, the
medical and other welfare benefits described herein shall be the secondary
coverage for such applicable period of eligibility;
(iv) the Company shall, at its sole expense as incurred, provide the
Executive with outplacement services the scope and provider of which shall be
selected by the Executive in his sole discretion; and
(v) to the extent not theretofore paid or provided, the Company shall
timely pay or provide to the Executive any other amounts or benefits required
to be paid or provided or which the Executive is eligible to receive under
any plan, program, policy or practice or contract or agreement of the Company
and its affiliated companies, including, without limitation, amounts payable
under Section 4(b)(i) and Section 4(b)(iv)(A) (such other amounts and
benefits shall be hereinafter referred to as the ''Other Benefits'').
(b) Death. If the Executive's employment is terminated by reason
-----
of the Executive's death during the Employment Period, this Agreement
shall terminate without further obligations to the Executive's legal
representatives under this Agreement, other than for payment of Accrued
Obligations and the timely payment or provision of Other Benefits. Accrued
Obligations shall be paid to the Executive's estate or beneficiary, as
applicable, in a lump sum in cash within 30 days of the Date of Termination.
With respect to the provision of Other Benefits, the term Other Benefits as
utilized in this Section 6(b) shall include, without limitation, and the
Executive's estate and/or beneficiaries shall be entitled to receive,
benefits at least equal to the most favorable benefits provided by the
Company and affiliated companies to the estates and beneficiaries of peer
executives of the Company and such affiliated companies under such plans,
programs, practices and policies relating to death benefits, if any, as in
effect with respect to other peer executives and their beneficiaries at any
time during the 120-day period immediately preceding the Effective Date or,
if more favorable to the Executive's estate and/or the Executive's
beneficiaries, as in effect on the date of the Executive's death with respect
to other peer executives of the Company and its affiliated companies and their
beneficiaries.
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<PAGE>
(c) Disability. If the Executive's employment is
----------
terminated by reason of the Executive's Disability during the Employment
Period, this Agreement shall terminate without further obligations to the
Executive, other than for payment of Accrued Obligations and the timely
payment or provision of Other Benefits. Accrued Obligations shall be paid to
the Executive in a lump sum in cash within 30 days of the Date of
Termination. With respect to the provision of Other Benefits, the term Other
Benefits as utilized in this Section 6(c) shall include, and the Executive
shall be entitled after the Disability Effective Date to receive, disability
and other benefits at least equal to the most favorable of those generally
provided by the Company and its affiliated companies to disabled executives
and/or their families in accordance with such plans, programs, practices and
policies relating to disability, if any, as in effect generally with respect
to other peer executives and their families at any time during the 120-day
period immediately preceding the Effective Date or, if more favorable to the
Executive and/or the Executive's family, as in effect at any time thereafter
generally with respect to other peer executives of the Company and its
affiliated companies and their families.
(d) Cause; Other than for Good Reason. If the
---------------------------------
Executive's employment shall be terminated for Cause during the Employment
Period, this Agreement shall terminate without further obligations to the
Executive other than the obligation to pay to the Executive (x) his Annual
Base Salary through the Date of Termination, (y) the amount of any
compensation previously deferred by the Executive, and (z) Other Benefits, in
each case to the extent theretofore unpaid. If the Executive voluntarily
terminates employment during the Employment Period, excluding a termination
for Good Reason, this Agreement shall terminate without further obligations to
the Executive, other than for Accrued Obligations and the timely payment or
provision of Other Benefits. In such case, all Accrued Obligations shall be
paid to the Executive in a lump sum in cash within 30 days of the Date of
Termination.
7. Non-exclusivity of Rights. Nothing in this
-------------------------
Agreement shall prevent or limit the Executive's continuing or future
participation in any plan, program, policy or practice provided by the Company
or any of its affiliated companies and for which the Executive may qualify, nor
shall anything herein limit or otherwise affect such rights as the Executive
may have under any contract or agreement with the Company or any of its
affiliated companies. Amounts which are vested benefits or which the Executive
is otherwise entitled to receive under any plan, policy, practice or program of
or any contract or agreement with the Company or any of its affiliated
companies at or subsequent to the Date
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<PAGE>
of Termination shall be payable in accordance with such plan, policy,
practice or program or contract or agreement except as explicitly modified by
this Agreement.
8. Full Settlement. The Company's obligation to make the
---------------
payments provided for in this Agreement and otherwise to perform its
obligations hereunder shall not be affected by any set-off, counterclaim,
recoupment, defense or other claim, right or action which the Company may
have against the Executive or others. In no event shall the Executive be
obligated to seek other employment or take any other action by way of
mitigation of the amounts payable to the Executive under any of the
provisions of this Agreement and such amounts shall not be reduced whether or
not the Executive obtains other employment. The Company agrees to pay as
incurred, to the full extent permitted by law, all legal fees and expenses
which the Executive may reasonably incur as a result of any contest
(regardless of the outcome thereof) by the Company, the Executive or others
of the validity or enforceability of, or liability under, any provision of
this Agreement or any guarantee of performance thereof (including as a result
of any contest by the Executive about the amount of any payment pursuant to
this Agreement), plus in each case interest on any delayed payment at the
applicable Federal rate provided for in Section 7872(f)(2)(A) of the Internal
Revenue Code of 1986, as amended (the ''Code'').
9. Certain Additional Payments by the Company.
------------------------------------------
(a) Anything in this Agreement to the contrary notwithstanding, in the
event it shall be determined that any payment or distribution by the Company
to or for the benefit of the Executive (whether paid or payable or
distributed or distributable pursuant to the terms of this Agreement or
otherwise, but determined without regard to any additional payments required
under this Section 9) (a ''Payment'') would be subject to the excise tax
imposed by Section 4999 of the Code or any interest or penalties are incurred
by the Executive with respect to such excise tax (such excise tax, together
with any such interest and penalties, are hereinafter collectively referred
to as the ''Excise Tax''), then the Executive shall be entitled to receive an
additional payment (a ''Gross-Up Payment'') in an amount such that after
payment by the Executive of all taxes (including any interest or penalties
imposed with respect to such taxes), including, without limitation, any
income taxes (and any interest and penalties imposed with respect thereto)
and Excise Tax imposed upon the Gross-Up Payment, the Executive retains an
amount of the Gross-Up Payment equal to the Excise Tax imposed upon the
Payments.
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<PAGE>
(b) Subject to the provisions of Section 9(c), all determinations
required to be made under this Section 9, including whether and when a
Gross-Up Payment is required and the amount of such Gross-Up Payment and the
assumptions to be utilized in arriving at such determination, shall be made by
Coopers & Lybrand or such other certified public accounting firm as may be
designated by the Executive (the ''Accounting Firm'') which shall provide
detailed supporting calculations both to the Company and the Executive within
15 business days of the receipt of notice from the Executive that there has
been a Payment, or such earlier time as is requested by the Company. In the
event that the Accounting Firm is serving as accountant or auditor for the
individual, entity or group effecting the Change of Control, the Executive
shall appoint another nationally recognized accounting firm to make the
determinations required hereunder (which accounting firm shall then be
referred to as the Accounting Firm hereunder). All fees and expenses of the
Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as
determined pursuant to this Section 9, shall be paid by the Company to the
Executive within five days of the receipt of the Accounting Firm's
determination. If the Accounting Firm determines that no Excise Tax is payable
by the Executive, it shall furnish the Executive with a written opinion that
failure to report the Excise Tax on the Executive's applicable federal income
tax return would not result in the imposition of a negligence or similar
penalty. Any determination by the Accounting Firm shall be binding upon the
Company and the Executive. As a result of the uncertainty in the application
of Section 4999 of the Code at the time of the initial determination by the
Accounting Firm hereunder, it is possible that Gross-Up Payments which will
not have been made by the Company should have been made (''Underpayment''),
consistent with the calculations required to be made hereunder. In the event
that the Company exhausts its remedies pursuant to Section 9(c) and the
Executive thereafter is required to make a payment of any Excise Tax, the
Accounting Firm shall determine the amount of the Underpayment that has
occurred and any such Underpayment shall be promptly paid by the Company to or
for the benefit of the Executive.
(c) The Executive shall notify the Company in writing of any claim by
the Internal Revenue Service that, if successful, would require the payment
by the Company of the Gross-Up Payment. Such notification shall be given as
soon as practicable but no later than ten business days after the Executive
is informed in writing of such claim and shall apprise the Company of the
nature of such claim and the date on which such claim is requested to be
paid. The Executive shall not pay such claim prior to the expiration of the
30-day period following the date on which it gives such
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<PAGE>
notice to the Company (or such shorter period ending on the date that any
payment of taxes with respect to such claim is due). If the Company notifies
the Executive in writing prior to the expiration of such period that it
desires to contest such claim, the Executive shall:
(i) give the Company any information reasonably requested by the
Company relating to such claim,
(ii) take such action in connection with contesting such claim as the
Company shall reasonably request in writing from time to time, including,
without limitation, accepting legal representation with respect to such claim
by an attorney reasonably selected by the Company,
(iii) cooperate with the Company in good faith in order effectively to
contest such claim, and
(iv) permit the Company to participate in any proceedings relating to
such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation
and payment of costs and expenses. Without limitation on the foregoing
provisions of this Section 9(c), the Company shall control all proceedings
taken in connection with such contest and, at its sole option, may pursue or
forgo any and all administrative appeals, proceedings, hearings and
conferences with the taxing authority in respect of such claim and may, at
its sole option, either direct the Executive to pay the tax claimed and sue
for a refund or contest the claim in any permissible manner, and the
Executive agrees to prosecute such contest to a determination before any
administrative tribunal, in a court of initial jurisdiction and in one or
more appellate courts, as the Company shall determine; provided, however,
that if the Company directs the Executive to pay such claim and sue for a
refund, the Company shall advance the amount of such payment to the
Executive, on an interest-free basis and shall indemnify and hold the
Executive harmless, on an after-tax basis, from any Excise Tax or income tax
(including interest or penalties with respect thereto) imposed with respect
to such advance or with respect to any imputed income with respect to such
advance; and further provided that any extension of the statute of
limitations relating to payment of taxes for the taxable year of the
Executive with respect to which such contested amount is claimed to be due is
limited solely to such contested amount. Furthermore, the Company's
-19-
<PAGE>
control of the contest shall be limited to issues with respect to which a
Gross-Up Payment would be payable hereunder and the Executive shall be
entitled to settle or contest, as the case may be, any other issue raised by
the Internal Revenue Service or any other taxing authority.
(d) If, after the receipt by the Executive of an amount advanced by the
Company pursuant to Section 9(c), the Executive becomes entitled to receive
any refund with respect to such claim, the Executive shall (subject to the
Company's complying with the requirements of Section 9(c)) promptly pay to
the Company the amount of such refund (together with any interest paid or
credited thereon after taxes applicable thereto). If, after the receipt by
the Executive of an amount advanced by the Company pursuant to Section 9(c),
a determination is made that the Executive shall not be entitled to any
refund with respect to such claim and the Company does not notify the
Executive in writing of its intent to contest such denial of refund prior to
the expiration of 30 days after such determination, then such advance shall
be forgiven and shall not be required to be repaid and the amount of such
advance shall offset, to the extent thereof, the amount of Gross-Up Payment
required to be paid.
10. Confidential Information. The Executive shall hold in a
------------------------
fiduciary capacity for the benefit of the Company all secret or confidential
information, knowledge or data relating to the Company or any of its
affiliated companies, and their respective businesses, which shall have been
obtained by the Executive during the Executive's employment by the Company or
any of its affiliated companies and which shall not be or become public
knowledge (other than by acts by the Executive or representatives of the
Executive in violation of this Agreement). After termination of the
Executive's employment with the Company, the Executive shall not, without the
prior written consent of the Company or as may otherwise be required by law
or legal process, communicate or divulge any such information, knowledge or
data to anyone other than the Company and those designated by it. In no event
shall an asserted violation of the provisions of this Section 10 constitute a
basis for deferring or withholding any amounts otherwise payable to the
Executive under this Agreement.
11. Successors. (a) This Agreement is personal to the Executive and
----------
without the prior written consent of the Company shall not be assignable by
the Executive otherwise than by will or the laws of descent and distribution.
This Agreement shall inure to the benefit of and be enforceable by the
Executive's legal representatives.
-20-
<PAGE>
(b) This Agreement shall inure to the benefit of and be binding upon the
Company and its successors and assigns.
(c) The Company will require any successor (whether direct or indirect,
by purchase, merger, consolidation or otherwise) to all or substantially all
of the business and/or assets of the Company to assume expressly and agree to
perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession had taken
place. As used in this Agreement, ''Company'' shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Agreement by operation of
law, or otherwise.
12. Miscellaneous. (a) This Agreement shall be governed
-------------
by and construed in accordance with the laws of the Commonwealth of Virginia,
without reference to principles of conflict of laws. The captions of this
Agreement are not part of the provisions hereof and shall have no force or
effect. This Agreement may not be amended or modified otherwise than by a
written agreement executed by the parties hereto or their respective
successors and legal representatives.
(b) All notices and other communications hereunder shall be in writing
and shall be given by hand delivery to the other party or by registered or
certified mail, return receipt requested, postage prepaid, addressed as
follows:
If to the Executive:
-------------------
If to the Company:
-----------------
Philip Morris Companies Inc.
120 Park Avenue
New York, N.Y. 10017
Attention: General Counsel
or to such other address as either party shall have furnished to the other
in writing in accordance herewith. Notice and communications shall be
effective when actually received by the addressee.
-21-
<PAGE>
(c) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
(d) The Company may withhold from any amounts payable under this
Agreement such Federal, state, local or foreign taxes as shall be required to
be withheld pursuant to any applicable law or regulation.
(e) The Executive's or the Company's failure to insist upon strict
compliance with any provision hereof or any other provision of this Agreement
or the failure to assert any right the Executive or the Company may have
hereunder, including, without limitation, the right of the Executive to
terminate employment for Good Reason pursuant to Section 5(c)(i)-(v) of this
Agreement, shall not be deemed to be a waiver of such provision or right or
any other provision or right of this Agreement.
(f) The Executive and the Company acknowledge that, except as may
otherwise be provided under any other written agreement between the Executive
and the Company, the employment of the Executive by the Company is ''at
will'' and, prior to the Effective Date, may be terminated by either the
Executive or the Company at any time. Moreover, if prior to the Effective
Date, (i) the Executive's employment with the Company terminates or (ii) the
Executive ceases to be Senior Vice President and General Counsel of the
Company, except, in each case in connection with a Potential Change of
Control then the Executive shall have no further rights under this Agreement.
From and after the Effective Date this Agreement shall supersede any other
agreement between the parties with respect to the subject matter hereof,
including, without limitation, the Prior Agreement. The Company agrees that
notwithstanding the provisions of Section 4(f) of the Prior Agreement, any
obligation of the Executive pursuant to Section 5 of the Prior Agreement
shall terminate on the Effective Date.
-22-
<PAGE>
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand
and, pursuant to the authorization from its Board of Directors, the Company has
caused these presents to be executed in its name on its behalf, all as of the
day and year first above written.
---------------------
MURRAY H. BRING
PHILIP MORRIS COMPANIES INC.
By
--------------------
-23-
<PAGE>
EXHIBIT 10.15
March 8, 1989
Mr. James M. Kilts
871 Woodstream Court
Lake Forest, IL 60045
Dear Jim:
On behalf of Philip Morris Companies Inc., I would like to thank you for your
efforts in connection with the integration of the management of our food
operations. Your continued participation in this integration is essential to
enable us to build an effective food operations management team that will assure
future growth and continued success. The purpose of this letter is to confirm
our recent understandings regarding your Deferred Incentive Payment.
In recognition of your importance to management of the food operations, we have
agreed that you will be paid a Deferred Incentive Payment designed to provide
you with a special incentive to remain with us during the integration of Kraft
and General Foods. Your Deferred Incentive Payment award will be computed and
paid to you at the time and in the form described in Appendix A.
If your employment terminates for any reason (including death), you will be
entitled, subject to the following provisions, to the amount of any Deferred
Incentive Payment, including any interest, dividends and appreciation thereon,
and also entitled to any unpaid compensation. Generally, any payment to which
you are entitled on termination of employment will be paid to you within 30 days
of your date of termination. However, if you retire or otherwise voluntarily
terminate employment prior to February 15, 1991, your Deferred Incentive Payment
will be paid in accordance with Appendix A. If your employment is terminated
prior to February 15, 1991, for any reason you will not be entitled to other
payments under any severance plan or policy.
Although our discussions have focused on your employment during the next two
years, we recognize the need to provide a level of continuing financial
assurance after the expiration of the
<PAGE>
two-year business integration period. In the event your employment is
involuntarily terminated without cause after February 15, 1991, you will receive
an amount equal to the greater of (1) the sum of your annual base salary at the
rate in effect at the time your employment is terminated and the annual
incentive payment (excluding amounts attributable to the Deferred Incentive
Payment) which you received for the most recent calendar year for which the
computation of such award has been made at the time of your termination of
employment, or (2) the amount to which you would be entitled under the terms of
the normal severance plans or policies of Philip Morris Companies Inc. or its
subsidiaries then applicable to you.
Whenever your employment terminates, you and your family will be covered by
lifetime medical, dental and life insurance benefits on terms at least as
favorable as those currently available to other peer executives retiring from
service with Kraft, Inc., but not less favorable than those available to you and
your family, in the aggregate, under the medical, dental and life insurance
plans of Kraft, Inc. as of December 1, 1988 (for this purpose the Kraft, Inc.
life insurance plan for active employees shall be applicable until age 65 and
thereafter the Kraft, Inc. life insurance plan for retired employees shall be
applicable). If you are reemployed and are eligible to receive any medical or
dental benefits under your new employer's plans, the medical and dental plans of
Philip Morris Companies Inc. or its subsidiaries will only provide secondary
coverage to you and your family during such applicable period of eligibility
under the new employer's plans.
This letter is intended to summarize our previous understanding relating to your
employment with Philip Morris Companies Inc. and its subsidiaries. It replaces
any prior employment agreements you had with Kraft or Philip Morris Companies
Inc. or its subsidiaries, and any such agreements are to be of no effect.
However, nothing in this letter precludes you from participating in any
compensation plan, benefit plan or other executive benefit which is generally
available to similarly situated executives of Kraft, Inc. or its successors and
which has not been expressly addressed by this letter. Nothing in this letter
replaces or otherwise changes the obligations of Philip Morris Companies Inc.
under its indemnification agreement with you dated December 16, 1988.
The payments referred to in this letter are obligations of your employer.
Philip Morris Companies Inc. will cause your employer to comply with the terms
of this letter and to assume its obligations and will also serve as a guarantor
with respect to the payments. In the event of any merger, reorganization or
similar event, Philip Morris Companies Inc. will cause any successor entity to
assume the obligations evidenced by this letter. In addition, if payment of any
of the amounts provided for in Appendix A subjects you to federal excise tax, on
those amounts or any other amounts you have received, you will receive
additional
- 2 -
<PAGE>
payments sufficient to place you in the position that would have existed had no
such excise tax been payable.
If this letter accurately describes the matters set forth above, please sign the
enclosed copy of this letter and Appendix A which should be returned to us, and
will then constitute our entire agreement on this subject.
Sincerely,
PHILIP MORRIS COMPANIES INC.
By /s/ Richard L. Snyder
----------------------------
Richard L. Snyder
Senior Vice President, Human
Resources and Administration
Agreed to this 12th day of
----
March , 1989
- -------------------------
By /s/ James M. Kilts
---------------------------------
James M. Kilts
Senior Vice President
Strategy & Development
- 3 -
<PAGE>
APPENDIX A
DEFERRED INCENTIVE PAYMENT
--------------------------
On the terms and conditions set forth in the attached letter agreement and this
Appendix, your employer and Philip Morris Companies Inc. promise to make the
Deferred Incentive Payment as follows:
(a) A "shadow stock account" will be credited as of February 15, 1989,
with 10,946 shadow shares. Each shadow share will have a value equal
------
to that of one share of the common stock of Philip Morris Companies
Inc.
(b) When dividends are paid on the common stock, additional shadow shares
will be credited to the account in an amount determined by multiplying
the number of shadow shares by the dividend per share paid on the
common stock and dividing this product by the closing price of the
common stock on the New York Stock Exchange on the date the dividend
is paid.
(c) The number and value of shadow shares will be appropriately adjusted
in the event of any stock dividend, stock split, subdivision or
combination of shares, reclassification or conversion of stock in the
event of a merger or consolidation, or similar event with respect to
the common stock so that the aggregate value of shadow shares credited
will be at least as great immediately after as immediately before any
such event. In the event of any dissolution or liquidation of Philip
Morris Companies Inc., or if trading in the common stock on the New
York Stock Exchange ceases for five or more consecutive days during
which such Exchange is open for trading, then regardless of any other
provision of this Appendix you will receive an immediate cash payment
of an amount equal to the value of the shadow stock account computed
on the basis of the average closing prices for the common stock on the
New York Stock Exchange on the last five days on which such stock was
traded.
(d) The number of shadow shares shall also be adjusted in the following
circumstances:
(i) In the event that on or before February 15, 1991, you die,
become disabled for six consecutive months, have your employment
involuntarily terminated, or take normal or employer approved
early retirement, the number of shadow shares credited to your
shadow stock account will be increased by the amount, if any,
necessary to bring the aggregate value of the shadow shares
credited, determined as of the date of any such event, to the
amount determined by crediting $1,094,535 with interest from
----------
December 6,
<PAGE>
1988 to the date of such event at a rate equal to (A) the annual
rate on 12 month obligations of the United States Treasury on
February 15, 1989 for the portion of the period prior to February
15, 1990, and (B) the annual rate on such obligations on February
15, 1990 (applied to the balance of both principal and interest
on that date) for any portion of the period on or after February
15, 1990.
(ii) If you continue your employment with Philip Morris Companies Inc.
or any of its subsidiaries until February 15, 1991, the number of
shadow shares credited to your shadow stock account shall be
increased in the amount, if any, necessary to bring the aggregate
value of the shadow shares credited to your account on February
15, 1991 to the amount determined by crediting the dollar amount
specified in (i) above with interest at the rates and in the
manner described therein to February 15, 1991.
For purposes of this Appendix, other than for purposes of the last sentence of
paragraph (c), the value of each shadow share will be the closing price of a
share of the common stock on the most recent New York Stock Exchange trading day
preceding the date of the determination of value.
(e) The amount of the Deferred Incentive Payment payable to you will be
determined by multiplying the number of shadow shares credited to you
on the most recent New York Stock Exchange trading day preceding
payment by the closing price of the common stock on such day. Such
amount shall be paid to you in cash, or at the discretion of Philip
Morris Companies Inc. in shares of common stock equal in number to
your shadow shares, at the time you select by initialing one of the
following alternative payment schedules:
[_] The Deferred Incentive Payment will be paid within 30 days after
the earliest to occur of your death, disability for six
consecutive months, or other termination of employment; except in
the event of your voluntary termination of employment for reasons
other than normal or employer approved early retirement, the
Deferred Incentive Payment will be paid no earlier than February
15, 1991.
OR
[_] The Deferred Incentive Payment will be paid within 30 days after
the earliest to occur of your death, disability for six
consecutive months, other termination of employment, or February
--------
16, 1991; except in the event of your voluntary termination of
--------
employment for reasons other than normal or employer
<PAGE>
approved early retirement, the Deferred Incentive Payment will be
paid no earlier than February 15, 1991.
Your entitlement to the Deferred Incentive Payment does not constitute an
interest in specific assets of your employer or Philip Morris Companies Inc.
Your status with respect to such payment shall be that of an unsecured general
creditor.
The Deferred Incentive Payment may not be assigned or otherwise transferred by
you (other than by your will or by operation of law in the event of your death)
prior to the date you actually receive such payment or payments.
PHILIP MORRIS COMPANIES INC.
By /s/ Richard L. Snyder
---------------------------------
Richard L. Snyder
Senior Vice President, Human
Resources and Administration
Agreed to this 12th day of
----
March , 1989
- -----------------------
By /s/ James M. Kilts
------------------------------------
James M. Kilts
Senior Vice President
Strategy & Development
<PAGE>
EXHIBIT 10.17
March 8, 1989
Mr. Michael A. Miles
1350 Lake Road
Lake Forest, IL 60045
Dear Mike:
On behalf of Philip Morris Companies Inc., I would like to thank you for your
efforts in connection with the integration of the management of our food
operations. Your continued participation in this integration is essential to
enable us to build an effective food operations management team that will assure
future growth and continued success. The purpose of this letter is to confirm
our recent understandings regarding your Deferred Incentive Payment.
In recognition of your importance to management of the food operations, we have
agreed that you will be paid a Deferred Incentive Payment designed to provide
you with a special incentive to remain with us during the integration of Kraft
and General Foods. Your Deferred Incentive Payment award will be computed and
paid to you at the time and in the form described in Appendix A.
If your employment terminates for any reason (including death), you will be
entitled, subject to the following provisions, to the amount of any Deferred
Incentive Payment, including any interest, dividends and appreciation thereon,
and also entitled to any unpaid compensation. Generally, any payment to which
you are entitled on termination of employment will be paid to you within 30 days
of your date of termination. However, if you retire or otherwise voluntarily
terminate employment prior to February 15, 1991, your Deferred Incentive Payment
will be paid in accordance with Appendix A. If your employment is terminated
prior to February 15, 1991, for any reason you will not be entitled to other
payments under any severance plan or policy.
Although our discussions have focused on your employment during the next two
years, we recognize the need to provide a level of continuing financial
assurance after the expiration of the
<PAGE>
two-year business integration period. In the event your employment is
involuntarily terminated without cause after February 15, 1991, you will receive
an amount equal to the greater of (1) the sum of your annual base salary at the
rate in effect at the time your employment is terminated and the annual
incentive payment (excluding amounts attributable to the Deferred Incentive
Payment) which you received for the most recent calendar year for which the
computation of such award has been made at the time of your termination of
employment, or (2) the amount to which you would be entitled under the terms of
the normal severance plans or policies of Philip Morris Companies Inc. or its
subsidiaries then applicable to you.
Whenever your employment terminates, you and your family will be covered by
lifetime medical, dental and life insurance benefits on terms at least as
favorable as those currently available to other peer executives retiring from
service with Kraft, Inc., but not less favorable than those available to you and
your family, in the aggregate, under the medical, dental and life insurance
plans of Kraft, Inc. as of December 1, 1988 (for this purpose the Kraft, Inc.
life insurance plan for active employees shall be applicable until age 65 and
thereafter the Kraft, Inc. life insurance plan for retired employees shall be
applicable). If you are reemployed and are eligible to receive any medical or
dental benefits under your new employer's plans, the medical and dental plans of
Philip Morris Companies Inc. or its subsidiaries will only provide secondary
coverage to you and your family during such applicable period of eligibility
under the new employer's plans.
This letter is intended to summarize our previous understanding relating to your
employment with Philip Morris Companies Inc. and its subsidiaries. It replaces
any prior employment agreements you had with Kraft or Philip Morris Companies
Inc. or its subsidiaries, and any such agreements are to be of no effect.
However, nothing in this letter precludes you from participating in any
compensation plan, benefit plan or other executive benefit which is generally
available to similarly situated executives of Kraft Inc. or its successors and
which has not been expressly addressed by this letter. Nothing in this letter
replaces or otherwise changes the obligations of Philip Morris Companies Inc.
under its indemnification agreement with you dated December 16, 1988.
The payments referred to in this letter are obligations of your employer.
Philip Morris Companies Inc. will cause your employer to comply with the terms
of this letter and to assume its obligations and will also serve as a guarantor
with respect to the payments. In the event of any merger, reorganization or
similar event, Philip Morris Companies Inc. will cause any successor entity to
assume the obligations evidenced by this letter. In addition, if payment of any
of the amounts provided for in Appendix A subjects you to federal excise tax, on
those amounts or any other amounts you have received, you will receive
additional
- 2 -
<PAGE>
payments sufficient to place you in the position that would have existed had no
such excise tax been payable.
If this letter accurately describes the matters set forth above, please sign the
enclosed copy of this letter and Appendix A which should be returned to us, and
will then constitute our entire agreement on this subject.
Sincerely,
PHILIP MORRIS COMPANIES INC.
By /s/ Richard L. Snyder
----------------------------
Richard L. Snyder
Senior Vice President, Human
Resources and Administration
Agreed to this 10 day of
----
March , 1989
- -------------------------
By /s/ Michael A. Miles
---------------------------------
Michael A. Miles
President & COO,
Kraft General Foods
- 3 -
<PAGE>
APPENDIX A
DEFERRED INCENTIVE PAYMENT
--------------------------
On the terms and conditions set forth in the attached letter agreement and this
Appendix, your employer and Philip Morris Companies Inc. promise to make the
Deferred Incentive Payment as follows:
(a) A "shadow stock account" will be credited as of February 15, 1989,
with 27,257 shadow shares. Each shadow share will have a value equal
------
to that of one share of the common stock of Philip Morris Companies
Inc.
(b) When dividends are paid on the common stock, additional shadow shares
will be credited to the account in an amount determined by multiplying
the number of shadow shares by the dividend per share paid on the
common stock and dividing this product by the closing price of the
common stock on the New York Stock Exchange on the date the dividend
is paid.
(c) The number and value of shadow shares will be appropriately adjusted
in the event of any stock dividend, stock split, subdivision or
combination of shares, reclassification or conversion of stock in the
event of a merger or consolidation, or similar event with respect to
the common stock so that the aggregate value of shadow shares credited
will be at least as great immediately after as immediately before any
such event. In the event of any dissolution or liquidation of Philip
Morris Companies Inc., or if trading in the common stock on the New
York Stock Exchange ceases for five or more consecutive days during
which such Exchange is open for trading, then regardless of any other
provision of this Appendix you will receive an immediate cash payment
of an amount equal to the value of the shadow stock account computed
on the basis of the average closing prices for the common stock on the
New York Stock Exchange on the last five days on which such stock was
traded.
(d) The number of shadow shares shall also be adjusted in the following
circumstances:
(i) In the event that on or before February 15, 1991, you die,
become disabled for six consecutive months, have your employment
involuntarily terminated, or take normal or employer approved
early retirement, the number of shadow shares credited to your
shadow stock account will be increased by the amount, if any,
necessary to bring the aggregate value of the shadow shares
credited, determined as of the date of any such event, to the
amount determined by crediting $2,725,623 with interest from
----------
December 6,
<PAGE>
1988 to the date of such event at a rate equal to (A) the annual
rate on 12 month obligations of the United States Treasury on
February 15, 1989 for the portion of the period prior to February
15, 1990, and (B) the annual rate on such obligations on February
15, 1990 (applied to the balance of both principal and interest
on that date) for any portion of the period on or after February
15, 1990.
(ii) If you continue your employment with Philip Morris Companies Inc.
or any of its subsidiaries until February 15, 1991, the number of
shadow shares credited to your shadow stock account shall be
increased in the amount, if any, necessary to bring the aggregate
value of the shadow shares credited to your account on February
15, 1991 to the amount determined by crediting the dollar amount
specified in (i) above with interest at the rates and in the
manner described therein to February 15, 1991.
For purposes of this Appendix, other than for purposes of the last sentence of
paragraph (c), the value of each shadow share will be the closing price of a
share of the common stock on the most recent New York Stock Exchange trading day
preceding the date of the determination of value.
(e) The amount of the Deferred Incentive Payment payable to you will be
determined by multiplying the number of shadow shares credited to you
on the most recent New York Stock Exchange trading day preceding
payment by the closing price of the common stock on such day. Such
amount shall be paid to you in cash, or at the discretion of Philip
Morris Companies Inc. in shares of common stock equal in number to
your shadow shares, at the time you select by initialing one of the
following alternative payment schedules:
The Deferred Incentive Payment will be paid within 30 days after
the earliest to occur of your death, disability for six
consecutive months, or other termination of employment; except in
the event of your voluntary termination of employment for reasons
other than normal or employer approved early retirement, the
Deferred Incentive Payment will be paid no earlier than February
15, 1991.
OR
The Deferred Incentive Payment will be paid within 30 days after
the earliest to occur of your death, disability for six
consecutive months, other termination of employment, or February
--------
16, 1991; except in the event of your voluntary termination of
--------
employment for reasons other than normal or employer
<PAGE>
approved early retirement, the Deferred Incentive Payment will be
paid no earlier than February 15, 1991.
Your entitlement to the Deferred Incentive Payment does not constitute an
interest in specific assets of your employer or Philip Morris Companies Inc.
Your status with respect to such payment shall be that of an unsecured general
creditor.
The Deferred Incentive Payment may not be assigned or otherwise transferred by
you (other than by your will or by operation of law in the event of your death)
prior to the date you actually receive such payment or payments.
PHILIP MORRIS COMPANIES INC.
By /s/ Richard L. Snyder
---------------------------------
Richard L. Snyder
Senior Vice President, Human
Resources and Administration
Agreed to this 10 day of
----
March , 1989
- -----------------------
By /s/ Michael A. Miles
------------------------------------
Michael A. Miles
President & COO,
Kraft General Foods
<PAGE>
EXHIBIT 10.18
The Deferred Incentive Payment Agreement between Philip Morris Companies
Inc. and (the ''Agreement'')
------------------------------------------------
is hereby amended in the following respects, effective as of ,
----------
1989:
(1) Amend the last sentence of the third paragraph of the Agreement so
that it reads in its entirety as follows:
If your employment is terminated prior to February 15, 1991, for any
reason you will not be entitled to other payments under any severance plan
or policy other than payments and other benefits under the Philip Morris
Companies Inc. Separation Plan or pursuant to the terms of the employment
agreement between you and Philip Morris Companies Inc. dated , 1989.
---------
(2) By adding at the end of the third paragraph of the Agreement the
following:
Notwithstanding the foregoing, upon a Change of Control of Philip Morris
Companies Inc. (the ''Company''), the full amount of your Deferred Incentive
Payment award shall be paid to you in a lump sum in cash within 30 days of
the Change of Control. A Change of Control shall mean any of the following
events:
(a) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of
1934, as amended (the ''Exchange Act'')) (a ''Person'') of beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the Exchange
Act) of 20% or more of either (i) the then outstanding shares of common stock
of the Company (the ''Outstanding Company Common Stock'') or (ii) the
combined voting power of the then outstanding voting securities of the
Company entitled to vote generally in the election of directors (the
''Outstanding Company Voting Securities''); provided, however, that the
following acquisitions shall not constitute a Change of Control: (i) any
acquisition directly from the Company, (ii) any acquisition by the Company,
(iii) any acquisition by any employee benefit plan (or related trust)
sponsored or maintained by the Company or any corporation controlled by the
Company or (iv) any acquisition by any corporation pursuant to a transaction
described in clauses (i), (ii) and (iii) of subsection (c) below; or
(b) Individuals who, as of the date hereof, constitute the Board (the
''Incumbent Board'') cease for any reason to constitute at least a majority
of the Board; provided, however, that any individual becoming a director
subsequent to the date hereof whose election, or nomination for election by
the Company's
<PAGE>
shareholders, was approved by a vote of at least a majority of the directors
then comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office occurs as a
result of an actual or threatened election contest with respect to the
election or removal of directors or other actual or threatened solicitation
of proxies or consents by or on behalf of a Person other than the Board; or
(c) Approval by the shareholders of the Company of a reorganization,
merger, share exchange or consolidation (a ''Business Combination''), in each
case, unless, following such Business Combination, (i) all or substantially
all of the individuals and entities who were the beneficial owners,
respectively, of the Outstanding Company Common Stock and Outstanding Company
Voting Securities immediately prior to such Business Combination beneficially
own, directly or indirectly, more than 80% of, respectively, the then
outstanding shares of common stock and the combined voting power of the then
outstanding voting securities entitled to vote generally in the election of
directors, as the case may be, of the corporation resulting from such
Business Combination (including, without limitation, a corporation which as a
result of such transaction owns the Company through one or more subsidiaries)
in substantially the same proportions as their ownership, immediately prior
to such Business Combination of the Outstanding Company Common Stock and
Outstanding Company Voting Securities, as the case may be, (ii) no Person
(excluding any employee benefit plan (or related trust) of the Company or
such corporation resulting from such Business Combination) beneficially owns,
directly or indirectly, 20% or more of, respectively, the then outstanding
shares of common stock of the corporation resulting from such Business
Combination or the combined voting power of the then outstanding voting
securities of such corporation except to the extent that such ownership
existed prior to the Business Combination and (iii) at least a majority of
the members of the board of directors of the corporation resulting from such
Business Combination were members of the Incumbent Board at the time of the
execution of the initial agreement, or of the action of the Board, providing
for such Business Combination; or
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<PAGE>
(d) Approval by the shareholders of the Company of (i) a complete
liquidation or dissolution of the Company or (ii) the sale or other
disposition of all or substantially all of the assets of the Company, other
than to a corporation, with respect to which following such sale or other
disposition, (A) more than 80% of, respectively, the then outstanding shares
of common stock of such corporation and the combined voting power of the then
outstanding voting securities of such corporation entitled to vote generally
in the election of directors is then beneficially owned, directly or
indirectly, by all or substantially all of the individuals and entities who
were the beneficial owners, respectively, of the Outstanding Company Common
Stock and Outstanding Company Voting Securities immediately prior to such
sale or other disposition in substantially the same proportion as their
ownership, immediately prior to such sale or other disposition, of the
Outstanding Company Common Stock and Outstanding Company Voting Securities,
as the case may be, (B) less than 20% of, respectively, the then outstanding
shares of common stock of such corporation and the combined voting power of
the then outstanding voting securities of such corporation entitled to vote
generally in the election of directors is then beneficially owned, directly
or indirectly, by any Person (excluding any employee benefit plan (or related
trust) of the Company or such corporation), except to the extent that such
Person owned 20% or more of the Outstanding Company Common Stock or
Outstanding Company Voting Securities prior to the sale or disposition and
(C) at least a majority of the members of the board of directors of such
corporation were members of the Incumbent Board at the time of the execution
of the initial agreement, or of the action of the Board, providing for such
sale or other disposition of assets of the Company or were elected, appointed
or nominated by the Board.
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<PAGE>
EXHIBIT 10.19
EMPLOYMENT AGREEMENT
--------------------
AGREEMENT by and between Philip Morris Companies Inc., a Virginia
corporation (the ''Company'') and (the ''Executive''),
--------------------
dated as of the day of , 1989.
---- --------
The Board of Directors of the Company (the ''Board''), has determined that
it is in the best interests of the Company and its shareholders to assure that
the Company will have the continued dedication of the Executive, notwithstand-
ing the possibility, threat or occurrence of a Change of Control (as defined
below) of the Company. The Board believes it is imperative to diminish the
inevitable distraction of the Executive by virtue of the personal
uncertainties and risks created by a pending or threatened Change of Control
and to encourage the Executive's full attention and dedication to the Company
currently and in the event of any threatened or pending Change of Control, and
to provide the Executive with compensation and benefits arrangements upon a
Change of Control which ensure that the compensation and benefits expectations
of the Executive will be satisfied and which are competitive with those of
other corporations. Therefore, in order to accomplish these objectives, the
Board has caused the Company to enter into this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Certain Definitions. (a) The ''Effective Date'' shall mean the first
-------------------
date during the Change of Control Period (as defined in Section 1(b)) on which
a Change of Control (as
<PAGE>
defined in Section 2) occurs. Anything in this Agreement to
the contrary notwithstanding, if a Change of Control occurs
and if the Executive's employment with the Company is
terminated or the Executive ceases to be [state position] of
the Company prior to the date on which the Change of Control
occurs, and if it is reasonably demonstrated by the Executive
that such termination of employment or cessation of status as
[state position] (i) was at the request of a third party who
has taken steps reasonably calculated to effect a Change of
Control or (ii) otherwise arose in connection with or
anticipation of a Change of Control (an event described in
(i) or (ii) above being hereinafter referred to as a
''Potential Change of Control''), then for all purposes of this
Agreement the ''Effective Date'' shall mean the date im-
mediately prior to the date of such termination of employment
or cessation of status as [state position].
(b) The ''Change of Control Period'' shall mean the
period commencing on the date hereof and ending on the
earliest to occur of (x) any date prior to the Effective Date
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<PAGE>
on which the Executive ceases to hold the position of [state
position] of the Company, (y) the third anniversary of the
date hereof, and (z) the Executive's normal retirement date
(the ''Normal Retirement Date'') under the Philip Morris
Salaried Employees' Retirement Plan (the ''Retirement Plan'');
provided, however, that commencing on the date one year after
the date hereof, and on each annual anniversary of such date
(such date and each annual anniversary thereof shall be
hereinafter referred to as the ''Renewal Date''), unless
previously terminated, the Change of Control Period shall be
automatically extended so as to terminate three years from
such Renewal Date, unless at least 60 days prior to the
Renewal Date the Company shall give notice to the Executive
that the Change of Control Period shall not be so extended.
2. Change of Control. For the purpose of this
-----------------
Agreement, a ''Change of Control'' shall mean:
(a) The acquisition by any individual, entity or
group (within the meaning of Section 13(d)(3) or 14(d)(2) of
the Securities Exchange Act of 1934, as amended (the
''Exchange Act'')) (a ''Person'') of beneficial ownership (within
the meaning of Rule 13d-3 promulgated under the Exchange Act)
of 20% or more of either (i) the then outstanding shares of
common stock of the Company (the ''Outstanding Company Common
Stock'') or (ii) the combined voting power of the then
outstanding voting securities of the Company entitled to vote
generally in the election of directors (the ''Outstanding
Company Voting Securities''); provided, however, that the fol-
lowing acquisitions shall not constitute a Change of Control:
(i) any acquisition directly from the Company, (ii) any
acquisition by the Company, (iii) any acquisition by any
employee benefit plan (or related trust) sponsored or
-3-
<PAGE>
maintained by the Company or any corporation controlled by
the Company or (iv) any acquisition by any corporation pursu-
ant to a transaction which complies with clauses (i), (ii)
and (iii) of subsection (c) of this Section 2; or
(b) Individuals who, as of the date hereof,
constitute the Board (the ''Incumbent Board'') cease for any
reason to constitute at least a majority of the Board;
provided, however, that any individual becoming a director
subsequent to the date hereof whose election, or nomination
for election by the Company's shareholders, was approved by a
vote of at least a majority of the directors then comprising
the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but exclud-
ing, for this purpose, any such individual whose initial as-
sumption of office occurs as a result of an actual or
threatened election contest with respect to the election or
-4-
<PAGE>
removal of directors or other actual or threatened solicita-
tion of proxies or consents by or on behalf of a Person other
than the Board; or
(c) Approval by the shareholders of the Company of
a reorganization, merger, share exchange or consolidation (a
''Business Combination''), in each case, unless, following such
Business Combination, (i) all or substantially all of the
individuals and entities who were the beneficial owners,
respectively, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities immediately prior to
such Business Combination beneficially own, directly or
indirectly, more than 80% of, respectively, the then
outstanding shares of common stock and the combined voting
power of the then outstanding voting securities entitled to
vote generally in the election of directors, as the case may
be, of the corporation resulting from such Business Combina-
tion (including, without limitation, a corporation which as a
result of such transaction owns the Company through one or
more subsidiaries) in substantially the same proportions as
their ownership, immediately prior to such Business Combina-
tion of the Outstanding Company Common Stock and Outstanding
Company Voting Securities, as the case may be, (ii) no Person
(excluding any employee benefit plan (or related trust) of
the Company or such corporation resulting from such Business
Combination) beneficially owns, directly or indirectly, 20%
or more of, respectively, the then outstanding shares of com-
mon stock of the corporation resulting from such Business
Combination or the combined voting power of the then
outstanding voting securities of such corporation except to
the extent that such ownership existed prior to the Business
Combination and (iii) at least a majority of the members of
the board of directors of the corporation resulting from such
Business Combination were members of the Incumbent Board at
the time of the execution of the initial agreement, or of the
-5-
<PAGE>
action of the Board, providing for such Business Combination;
or
(d) Approval by the shareholders of the Company of
(i) a complete liquidation or dissolution of the Company or
(ii) the sale or other disposition of all or substantially
all of the assets of the Company, other than to a corpora-
tion, with respect to which following such sale or other
disposition, (A) more than 80% of, respectively, the then
outstanding shares of common stock of such corporation and
the combined voting power of the then outstanding voting
securities of such corporation entitled to vote generally in
the election of directors is then beneficially owned,
directly or indirectly, by all or substantially all of the
individuals and entities who were the beneficial owners,
respectively, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities immediately prior to
-6-
<PAGE>
such sale or other disposition in substantially the same
proportion as their ownership, immediately prior to such sale
or other disposition, of the Outstanding Company Common Stock
and Outstanding Company Voting Securities, as the case may
be, (B) less than 20% of, respectively, the then outstanding
shares of common stock of such corporation and the combined
voting power of the then outstanding voting securities of
such corporation entitled to vote generally in the election
of directors is then beneficially owned, directly or
indirectly, by any Person (excluding any employee benefit
plan (or related trust) of the Company or such corporation),
except to the extent that such Person owned 20% or more of
the Outstanding Company Common Stock or Outstanding Company
Voting Securities prior to the sale or disposition and (C) at
least a majority of the members of the board of directors of
such corporation were members of the Incumbent Board at the
time of the execution of the initial agreement, or of the ac-
tion of the Board, providing for such sale or other disposi-
tion of assets of the Company or were elected, appointed or
nominated by the Board.
3. Employment Period. The Company hereby agrees to
-----------------
continue the Executive in its employ, and the Executive
hereby agrees to remain in the employ of the Company subject
to the terms and conditions of this Agreement, for the period
commencing on the Effective Date and ending on the earlier to
occur of (x) the third anniversary of such date and (y) the
Executive's Normal Retirement Date (the ''Employment Period'').
4. Terms of Employment. (a) Position and Duties.
------------------- -------------------
(i) During the Employment Period, (A) the Executive's posi-
tion (including status, offices, titles and reporting
requirements), authority, duties and responsibilities shall
be at least commensurate in all material respects with the
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<PAGE>
most significant of those held, exercised and assigned at any
time during the 120-day period immediately preceding the Ef-
fective Date and (B) the Executive's services shall be
performed at the location where the Executive was employed
immediately preceding the Effective Date or any office or
location less than 35 miles from such location.
(ii) During the Employment Period, and exclud-
ing any periods of vacation and sick leave to which the
Executive is entitled, the Executive agrees to devote reason-
able attention and time during normal business hours to the
business and affairs of the Company and, to the extent neces-
sary to discharge the responsibilities assigned to the
Executive hereunder, to use the Executive's reasonable best
efforts to perform faithfully and efficiently such
responsibilities. During the Employment Period it shall not
be a violation of this Agreement for the Executive to (A)
serve on corporate, civic or charitable boards or committees,
-8-
<PAGE>
(B) deliver lectures, fulfill speaking engagements or teach
at educational institutions and (C) manage personal invest-
ments, so long as such activities do not significantly
interfere with the performance of the Executive's
responsibilities as an employee of the Company in accordance
with this Agreement. It is expressly understood and agreed
that to the extent that any such activities have been
conducted by the Executive prior to the Effective Date, the
continued conduct of such activities (or the conduct of
activities similar in nature and scope thereto) subsequent to
the Effective Date shall not thereafter be deemed to
interfere with the performance of the Executive's
responsibilities to the Company.
(b) Compensation. (i) Pro Rata Performance Award.
------------ --------------------------
Within 30 days after the Effective Date, the Executive shall
be entitled to a lump sum cash payment equal to the pro rata
Long Term Performance Award he would have received pursuant
to Section 11(a)(4) of the Company's 1987 Long Term Incentive
Plan (the ''LTIP'') had the Executive been eligible to receive
an award pursuant to such section of the LTIP without regard
to Section 10(b) of the LTIP.
(ii) Base Salary. During the Employment
-----------
Period, the Executive shall receive an annual base salary
(''Annual Base Salary''), which shall be paid at a monthly
rate, at least equal to twelve times the highest monthly base
salary paid or payable, including any base salary which has
been earned but deferred, to the Executive by the Company and
its affiliated companies in respect of the twelve-month
period immediately preceding the month in which the Effective
Date occurs. During the Employment Period, the Annual Base
Salary shall be reviewed no more than 12 months after the
-9-
<PAGE>
last salary increase awarded to the Executive prior to the
Effective Date and thereafter at least annually and shall be
first increased no more than 12 months after the last salary
increase awarded to the Executive prior to the Effective Date
and thereafter at least annually by the highest of (x) 7%,
(y) the average increase (excluding promotional increases) in
base salary awarded to the Executive for each of the three
full fiscal years (annualized in the case of any fiscal year
consisting of less than twelve full months or during which
the Executive was employed for less than twelve months) prior
to the Effective Date, and (z) the percentage increase
(excluding promotional increases) in base salary generally
awarded to peer executives of the Company and its affiliated
companies for the year of determination. Any increase in
Annual Base Salary shall not serve to limit or reduce any
other obligation to the Executive under this Agreement. An-
nual Base Salary shall not be reduced after any such increase
and the term Annual Base Salary as utilized in this Agreement
shall refer to Annual Base Salary as so increased. As used
-10-
<PAGE>
in this Agreement, the term ''affiliated companies'' shall
include any company controlled by, controlling or under com-
mon control with the Company.
(iii) Annual Bonus. In addition to Annual
------------
Base Salary, the Executive shall be awarded, for each fiscal
year ending during the Employment Period, an annual bonus
(the ''Annual Bonus''), in cash at least equal to the higher of
(x) the average of the three highest bonuses paid or payable,
including any bonus or portion thereof which has been earned
but deferred, to the Executive by the Company and its af-
filiated companies in respect of the five fiscal years im-
mediately preceding the fiscal year in which the Effective
Date occurs (annualized for any fiscal year during such
period consisting of less than twelve full months or with
respect to which the Executive has been employed by the
Company for less than twelve full months) and (y) the bonus
paid or payable (annualized as described above), including
any bonus or portion thereof which has been earned but
deferred, to the Executive by the Company and its affiliated
companies in respect of the most recently completed fiscal
year prior to the Effective Date (such higher amount being
referred to as the ''Recent Annual Bonus''). Each such Annual
Bonus shall be paid no later than the end of the third month
of the fiscal year next following the fiscal year for which
the Annual Bonus is awarded, unless the Executive shall elect
to defer the receipt of such Annual Bonus.
(iv) Incentive, Savings and Retirement Plans.
---------------------------------------
During the Employment Period, the Executive shall be entitled
to participate in all incentive, savings and retirement
plans, practices, policies and programs applicable generally
to other peer executives of the Company and its affiliated
companies, but in no event shall such plans, practices,
-11-
<PAGE>
policies and programs provide the Executive with incentive
opportunities (measured with respect to both regular and
special incentive opportunities, to the extent, if any, that
such distinction is applicable), savings opportunities and
retirement benefit opportunities, in each case, less favor-
able, in the aggregate, than the most favorable of those
provided by the Company and its affiliated companies for the
Executive under such plans, practices, policies and programs
as in effect at any time during the 120-day period im-
mediately preceding the Effective Date or if more favorable
to the Executive, those provided generally at any time after
the Effective Date to other peer executives of the Company
and its affiliated companies.
(v) Welfare Benefit Plans. During the Employ-
---------------------
ment Period, the Executive and/or the Executive's family, as
the case may be, shall be eligible for participation in and
shall receive all benefits under welfare benefit plans,
-12-
<PAGE>
practices, policies and programs provided by the Company and
its affiliated companies (including, without limitation,
medical, prescription, dental, disability, salary
continuance, employee life, group life, accidental death and
travel accident insurance plans and programs) to the extent
applicable generally to other peer executives of the Company
and its affiliated companies, but in no event shall such
plans, practices, policies and programs provide the Executive
with benefits which are less favorable, in the aggregate,
than the most favorable of such plans, practices, policies
and programs in effect for the Executive at any time during
the 120-day period immediately preceding the Effective Date
or, if more favorable to the Executive, those provided gener-
ally at any time after the Effective Date to other peer
executives of the Company and its affiliated companies.
(vi) Expenses. During the Employment Period,
--------
the Executive shall be entitled to receive prompt reimburse-
ment for all reasonable expenses incurred by the Executive in
accordance with the most favorable policies, practices and
procedures of the Company and its affiliated companies in
effect for the Executive at any time during the 120-day
period immediately preceding the Effective Date or, if more
favorable to the Executive, as in effect generally at any
time thereafter with respect to other peer executives of the
Company and its affiliated companies.
(vii) Fringe Benefits. During the Employment
---------------
Period, the Executive shall be entitled to fringe benefits,
including, without limitation, tax and financial planning
services, payment of club dues, and, if applicable, use of an
automobile and payment of related expenses, in accordance
with the most favorable plans, practices, programs and
policies of the Company and its affiliated companies in ef-
fect for the Executive at any time during the 120-day period
-13-
<PAGE>
immediately preceding the Effective Date or, if more favor-
able to the Executive, as in effect generally at any time
thereafter with respect to other peer executives of the
Company and its affiliated companies.
(viii) Office and Support Staff. During the
------------------------
Employment Period, the Executive shall be entitled to an of-
fice or offices of a size and with furnishings and other ap-
pointments, and to exclusive personal secretarial and other
assistance, at least equal to the most favorable of the
foregoing provided to the Executive by the Company and its
affiliated companies at any time during the 120-day period
immediately preceding the Effective Date or, if more favor-
able to the Executive, as provided generally at any time
thereafter with respect to other peer executives of the
Company and its affiliated companies.
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<PAGE>
(ix) Vacation. During the Employment Period,
--------
the Executive shall be entitled to paid vacation in ac-
cordance with the most favorable plans, policies, programs
and practices of the Company and its affiliated companies as
in effect for the Executive at any time during the 120-day
period immediately preceding the Effective Date or, if more
favorable to the Executive, as in effect generally at any
time thereafter with respect to other peer executives of the
Company and its affiliated companies.
5. Termination of Employment. (a) Death or Dis-
------------------------- ------------
ability. The Executive's employment shall terminate
- -------
automatically upon the Executive's death during the Employ-
ment Period. If the Company determines in good faith that
the Disability of the Executive has occurred during the
Employment Period (pursuant to the definition of Disability
set forth below), it may give to the Executive written notice
in accordance with Section 12(b) of this Agreement of its
intention to terminate the Executive's employment. In such
event, the Executive's employment with the Company shall
terminate effective on the 30th day after receipt of such
notice by the Executive (the ''Disability Effective Date''),
provided that, within the 30 days after such receipt, the
Executive shall not have returned to full-time performance of
the Executive's duties. For purposes of this Agreement,
''Disability'' shall mean the absence of the Executive from the
Executive's duties with the Company on a full-time basis for
180 consecutive business days as a result of incapacity due
to mental or physical illness which is determined to be total
and permanent by a physician selected by the Company or its
insurers and acceptable to the Executive or the Executive's
legal representative (such agreement as to acceptability not
to be withheld unreasonably).
(b) Cause. The Company may terminate the
-----
-15-
<PAGE>
Executive's employment during the Employment Period for
Cause. For the sole and exclusive purposes of this Agree-
ment, ''Cause'' shall mean:
(i) the willful and continued failure of the
Executive to perform substantially the Executive's duties
with the Company or one of its affiliates (other than any
such failure resulting from incapacity due to physical or
mental illness), after a written demand for substantial
performance is delivered to the Executive by the Board or
the Chief Executive Officer of the Company which
specifically identifies the manner in which the Board or
Chief Executive Officer believes that the Executive has
not substantially performed the Executive's duties, or
-16-
<PAGE>
(ii) the willful engaging by the Executive in il-
legal conduct or gross misconduct which is materially and
demonstrably injurious to the Company.
For purposes of this provision, no act or failure to act, on
the part of the Executive, shall be considered ''willful'' un-
less it is done, or omitted to be done, by the Executive in
bad faith or without reasonable belief that the Executive's
action or omission was in the best interests of the Company.
Any act, or failure to act, based upon authority given pursu-
ant to a resolution duly adopted by the Board or upon the
instructions of the Chief Executive Officer or a senior of-
ficer of the Company or based upon the advice of counsel for
the Company shall be conclusively presumed to be done, or
omitted to be done, by the Executive in good faith and in the
best interests of the Company. The cessation of employment
of the Executive shall not be deemed to be for Cause unless
and until there shall have been delivered to the Executive a
copy of a resolution duly adopted by the affirmative vote of
not less than three-quarters of the entire membership of the
Board at a meeting of the Board called and held for such
purpose (after reasonable notice is provided to the Executive
and the Executive is given an opportunity, together with
counsel, to be heard before the Board), finding that, in the
good faith opinion of the Board, the Executive is guilty of
the conduct described in subparagraph (i) or (ii) above, and
specifying the particulars thereof in detail.
(c) Good Reason. The Executive's employment may be
-----------
terminated by the Executive for Good Reason. For the sole
and exclusive purposes of this Agreement, ''Good Reason'' shall
mean:
(i) the assignment to the Executive of any duties
inconsistent in any respect with the Executive's position
-17-
<PAGE>
(including status, offices, titles and reporting require-
ments), authority, duties or responsibilities as
contemplated by Section 4(a) of this Agreement, or any
other action by the Company which results in a diminution
in such position, authority, duties or responsibilities,
excluding for this purpose an isolated, insubstantial and
inadvertent action not taken in bad faith and which is
remedied by the Company promptly after receipt of notice
thereof given by the Executive;
(ii) any failure by the Company to comply with any
of the provisions of Section 4(b) of this Agreement,
other than an isolated, insubstantial and inadvertent
failure not occurring in bad faith and which is remedied
by the Company promptly after receipt of notice thereof
given by the Executive;
-18-
<PAGE>
(iii) the Company's requiring the Executive to be
based at any office or location other than as provided in
Section 4(a)(i)(B) hereof or the Company's requiring the
Executive to travel on Company business to a
substantially greater extent than required immediately
prior to the Effective Date;
(iv) any purported termination by the Company of
the Executive's employment otherwise than as expressly
permitted by this Agreement; or
(v) any failure by the Company to comply with and
satisfy Section 11(c) of this Agreement.
For purposes of this Section 5(c), any good faith determina-
tion of ''Good Reason'' made by the Executive shall be
conclusive. Anything in this Agreement to the contrary
notwithstanding, a termination by the Executive for any
reason during the 30-day period immediately following the
first anniversary of the Effective Date shall be deemed to be
a termination for Good Reason for all purposes of this Agree-
ment.
(d) Notice of Termination. Any termination by the
---------------------
Company for Cause, or by the Executive for Good Reason, shall
be communicated by Notice of Termination to the other party
hereto given in accordance with Section 12(b) of this Agree-
ment. For purposes of this Agreement, a ''Notice of Termina-
tion'' means a written notice which (i) indicates the specific
termination provision in this Agreement relied upon, (ii) to
the extent applicable, sets forth in reasonable detail the
facts and circumstances claimed to provide a basis for
termination of the Executive's employment under the provision
so indicated and (iii) if the Date of Termination (as defined
below) is other than the date of receipt of such notice,
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<PAGE>
specifies the termination date (which date shall be not more
than thirty days after the giving of such notice). The
failure by the Executive or the Company to set forth in the
Notice of Termination any fact or circumstance which
contributes to a showing of Good Reason or Cause shall not
waive any right of the Executive or the Company,
respectively, hereunder or preclude the Executive or the
Company, respectively, from asserting such fact or
circumstance in enforcing the Executive's or the Company's
rights hereunder.
(e) Date of Termination. ''Date of Termination''
-------------------
means (i) if the Executive's employment is terminated by the
Company for Cause, or by the Executive for Good Reason, the
date of receipt of the Notice of Termination or any later
date specified therein, as the case may be, (ii) if the
Executive's employment is terminated by the Company other
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<PAGE>
than for Cause or Disability, the Date of Termination shall
be the date on which the Company notifies the Executive of
such termination and (iii) if the Executive's employment is
terminated by reason of death or Disability, the Date of
Termination shall be the date of death of the Executive or
the Disability Effective Date, as the case may be.
6. Obligations of the Company upon Termination.
-------------------------------------------
(a) Good Reason; Other Than for Cause, Death or Disability.
------------------------------------------------------
If, during the Employment Period, the Company shall terminate
the Executive's employment other than for Cause or Disability
or the Executive shall terminate employment for Good Reason:
(i) the Company shall pay to the Executive in a
lump sum in cash within 30 days after the Date of
Termination the aggregate of the following amounts:
A. the sum of (1) the Executive's Annual Base
Salary through the Date of Termination to the extent
not theretofore paid, (2) the product of (x) the
higher of (I) the Recent Annual Bonus and (II) the
Annual Bonus paid or payable, including any bonus or
portion thereof which has been earned but deferred
(and annualized for any fiscal year consisting of
less than twelve full months or during which the
Executive was employed for less than twelve full
months), for the most recently completed fiscal year
during the Employment Period, if any (such higher
amount being referred to as the ''Highest Annual
Bonus'') and (y) a fraction, the numerator of which
is the number of days in the current fiscal year
through the Date of Termination, and the denominator
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<PAGE>
of which is 365 and (3) any compensation previously
deferred by the Executive (together with any accrued
interest or earnings thereon) and any accrued vaca-
tion pay, in each case to the extent not theretofore
paid (the sum of the amounts described in clauses
(1), (2), and (3) shall be hereinafter referred to
as the ''Accrued Obligations''); and
B. the amount equal to the product of (1) two
and one-half and (2) the sum of (x) the Executive's
Annual Base Salary and (y) the Highest Annual Bonus
and (3) a fraction, the numerator of which is the
number of full months from the Date of Termination
until the Executive's Normal Retirement Date but
which shall be no greater than thirty (30), and the
denominator of which is thirty (30); and
C. an amount equal to the difference between
(a) the actuarial equivalent of the benefit (utiliz-
ing actuarial assumptions no less favorable to the
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<PAGE>
Executive than those in effect under the Retirement
Plan (as defined below) immediately prior to the
Effective Date, except as specified below with
respect to increases in base salary and annual
bonus) under the Retirement Plan and any excess or
supplemental retirement plan in which the Executive
participates (together, the ''SERP'') which the
Executive would receive if the Executive's employ-
ment continued for two and one-half years after the
Date of Termination assuming for this purpose that
all accrued benefits are fully vested, and, assuming
that (1) the Executive's base salary increased on an
annualized basis during the two and one-half year
period by the amount required by Section 4(b)(ii)
(in the case of Section 4(b)(ii)(z) based on
increases (excluding promotional increases) in base
salary for the most recently completed fiscal year
prior to the Date of Termination) had the Executive
remained employed, and (2) the Executive's annual
bonus (annualized for any fiscal year consisting of
less than twelve full months or during which the
Executive was employed for less than twelve full
months) in each of the two and one-half years (on an
annualized basis) bears the same proportion to the
Executive's base salary in such year or fraction
thereof as it did for the last full year prior to
the Date of Termination, and (b) the actuarial
equivalent of the Executive's actual benefit (paid
or payable), if any, under the Retirement Plan and
the SERP as of the Date of Termination;
(ii) for two and one-half years after the
Executive's Date of Termination, or such longer period as
may be provided by Section 6(a)(iii) with respect to the
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<PAGE>
benefits covered thereby or by the terms of the appropri-
ate plan, program, practice or policy, the Company shall
continue benefits to the Executive and/or the Executive's
family at least equal to those which would have been
provided to them in accordance with the plans, programs,
practices and policies described in Section 4(b)(v) and
Section 4(b)(vii) of this Agreement if the Executive's
employment had not been terminated in accordance with the
most favorable plans, practices, programs or policies of
the Company and its affiliated companies applicable
generally to other peer executives and their families
during the 120-day period immediately preceding the Ef-
fective Date or, if more favorable to the Executive, as
in effect generally at any time thereafter with respect
to other peer executives of the Company and its af-
filiated companies and their families, provided, however,
that if the Executive becomes reemployed with another
employer and is eligible to receive medical or other
-24-
<PAGE>
welfare benefits under another employer provided plan,
the medical and other welfare benefits described herein
shall be secondary to those provided under such other
plan during such applicable period of eligibility. For
purposes of determining eligibility (but not the time of
commencement of benefits) of the Executive for retiree
benefits pursuant to such plans, practices, programs and
policies, the Executive shall be considered to have
remained employed until two and one-half years after the
Date of Termination and to have retired on the last day
of such period;
(iii) if two and one-half years after the Executive's
Date of Termination, the Executive would be at least 55
years old and eligible for retirement benefits (includ-
ing, without limitation, early retirement benefits) under
the Retirement Plan (assuming continuous service with the
Company during such two and one-half year period), the
Company shall continue lifetime medical, dental and life
insurance benefits (including supplemental benefits) to
the Executive and/or the Executive's family at least
equal to those that would have been provided to them in
accordance with the plans, programs and policies
described in Section 4(b)(v) of this Agreement (except
the Company's business travel accident plans) if the
Executive's employment had not been terminated, if and as
in effect at any time during the 120-day period im-
mediately preceding the Effective Date with respect to
other peer executives and their families or, if more
favorable to the Executive, as in effect at any time
thereafter with respect to other peer executives and
their families; provided, however, that, in the event
that the Executive becomes reemployed with another
employer, whether or not such employer is related to the
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<PAGE>
Corporation or any of its affiliates, and is eligible to
receive medical or other welfare benefits under any
employer-sponsored plan, the medical and other welfare
benefits described herein shall be the secondary coverage
for such applicable period of eligibility;
(iv) the Company shall, at its sole expense as
incurred, provide the Executive with outplacement
services the scope and provider of which shall be
selected by the Executive in his sole discretion; and
(v) to the extent not theretofore paid or provided,
the Company shall timely pay or provide to the Executive
any other amounts or benefits required to be paid or
provided or which the Executive is eligible to receive
under any plan, program, policy or practice or contract
or agreement of the Company and its affiliated companies,
including, without limitation, any amounts payable
-26-
<PAGE>
pursuant to Section 4(b)(i) (such other amounts and
benefits shall be hereinafter referred to as the ''Other
Benefits'').
(b) Death. If the Executive's employment is
-----
terminated by reason of the Executive's death during the
Employment Period, this Agreement shall terminate without
further obligations to the Executive's legal representatives
under this Agreement, other than for payment of Accrued
Obligations and the timely payment or provision of Other
Benefits. Accrued Obligations shall be paid to the
Executive's estate or beneficiary, as applicable, in a lump
sum in cash within 30 days of the Date of Termination. With
respect to the provision of Other Benefits, the term Other
Benefits as utilized in this Section 6(b) shall include,
without limitation, and the Executive's estate and/or
beneficiaries shall be entitled to receive, benefits at least
equal to the most favorable benefits provided by the Company
and affiliated companies to the estates and beneficiaries of
peer executives of the Company and such affiliated companies
under such plans, programs, practices and policies relating
to death benefits, if any, as in effect with respect to other
peer executives and their beneficiaries at any time during
the 120-day period immediately preceding the Effective Date
or, if more favorable to the Executive's estate and/or the
Executive's beneficiaries, as in effect on the date of the
Executive's death with respect to other peer executives of
the Company and its affiliated companies and their
beneficiaries.
(c) Disability. If the Executive's employment is
----------
terminated by reason of the Executive's Disability during the
Employment Period, this Agreement shall terminate without
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<PAGE>
further obligations to the Executive, other than for payment
of Accrued Obligations and the timely payment or provision of
Other Benefits. Accrued Obligations shall be paid to the
Executive in a lump sum in cash within 30 days of the Date of
Termination. With respect to the provision of Other
Benefits, the term Other Benefits as utilized in this Section
6(c) shall include, and the Executive shall be entitled after
the Disability Effective Date to receive, disability and
other benefits at least equal to the most favorable of those
generally provided by the Company and its affiliated
companies to disabled executives and/or their families in
accordance with such plans, programs, practices and policies
relating to disability, if any, as in effect generally with
respect to other peer executives and their families at any
time during the 120-day period immediately preceding the Ef-
fective Date or, if more favorable to the Executive and/or
the Executive's family, as in effect at any time thereafter
generally with respect to other peer executives of the
Company and its affiliated companies and their families.
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<PAGE>
(d) Cause; Other than for Good Reason. If the
---------------------------------
Executive's employment shall be terminated for Cause during
the Employment Period, this Agreement shall terminate without
further obligations to the Executive other than the obliga-
tion to pay to the Executive (x) his Annual Base Salary
through the Date of Termination, (y) the amount of any
compensation previously deferred by the Executive, and (z)
Other Benefits, in each case to the extent theretofore
unpaid. If the Executive voluntarily terminates employment
during the Employment Period, excluding a termination for
Good Reason, this Agreement shall terminate without further
obligations to the Executive, other than for Accrued Obliga-
tions and the timely payment or provision of Other Benefits.
In such case, all Accrued Obligations shall be paid to the
Executive in a lump sum in cash within 30 days of the Date of
Termination.
7. Non-exclusivity of Rights. Nothing in this
-------------------------
Agreement shall prevent or limit the Executive's continuing
or future participation in any plan, program, policy or
practice provided by the Company or any of its affiliated
companies and for which the Executive may qualify, nor shall
anything herein limit or otherwise affect such rights as the
Executive may have under any contract or agreement with the
Company or any of its affiliated companies. Amounts which
are vested benefits or which the Executive is otherwise
entitled to receive under any plan, policy, practice or
program of or any contract or agreement with the Company or
any of its affiliated companies at or subsequent to the Date
of Termination shall be payable in accordance with such plan,
policy, practice or program or contract or agreement except
as explicitly modified by this Agreement.
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<PAGE>
8. Full Settlement. The Company's obligation to
---------------
make the payments provided for in this Agreement and
otherwise to perform its obligations hereunder shall not be
affected by any set-off, counterclaim, recoupment, defense or
other claim, right or action which the Company may have
against the Executive or others. In no event shall the
Executive be obligated to seek other employment or take any
other action by way of mitigation of the amounts payable to
the Executive under any of the provisions of this Agreement
and such amounts shall not be reduced whether or not the
Executive obtains other employment. The Company agrees to
pay as incurred, to the full extent permitted by law, all
legal fees and expenses which the Executive may reasonably
incur as a result of any contest (regardless of the outcome
thereof) by the Company, the Executive or others of the
validity or enforceability of, or liability under, any provi-
sion of this Agreement or any guarantee of performance
thereof (including as a result of any contest by the
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<PAGE>
Executive about the amount of any payment pursuant to this
Agreement), plus in each case interest on any delayed payment
at the applicable Federal rate provided for in Section
7872(f)(2)(A) of the Internal Revenue Code of 1986, as
amended (the ''Code'').
9. Certain Additional Payments by the Company.
------------------------------------------
(a) Anything in this Agreement to the contrary
notwithstanding, in the event it shall be determined that any
payment or distribution by the Company to or for the benefit
of the Executive (whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or
otherwise, but determined without regard to any additional
payments required under this Section 9) (a ''Payment'') would
be subject to the excise tax imposed by Section 4999 of the
Code or any interest or penalties are incurred by the
Executive with respect to such excise tax (such excise tax,
together with any such interest and penalties, are
hereinafter collectively referred to as the ''Excise Tax''),
then the Executive shall be entitled to receive an additional
payment (a ''Gross-Up Payment'') in an amount such that after
payment by the Executive of all taxes (including any interest
or penalties imposed with respect to such taxes), including,
without limitation, any income taxes (and any interest and
penalties imposed with respect thereto) and Excise Tax
imposed upon the Gross-Up Payment, the Executive retains an
amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Payments.
(b) Subject to the provisions of Section 9(c), all
determinations required to be made under this Section 9,
including whether and when a Gross-Up Payment is required and
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<PAGE>
the amount of such Gross-Up Payment and the assumptions to be
utilized in arriving at such determination, shall be made by
Coopers & Lybrand or such other certified public accounting
firm as may be designated by the Executive (the ''Accounting
Firm'') which shall provide detailed supporting calculations
both to the Company and the Executive within 15 business days
of the receipt of notice from the Executive that there has
been a Payment, or such earlier time as is requested by the
Company. In the event that the Accounting Firm is serving as
accountant or auditor for the individual, entity or group ef-
fecting the Change of Control, the Executive shall appoint
another nationally recognized accounting firm to make the
determinations required hereunder (which accounting firm
shall then be referred to as the Accounting Firm hereunder).
All fees and expenses of the Accounting Firm shall be borne
solely by the Company. Any Gross-Up Payment, as determined
pursuant to this Section 9, shall be paid by the Company to
the Executive within five days of the receipt of the Account-
ing Firm's determination. If the Accounting Firm determines
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<PAGE>
that no Excise Tax is payable by the Executive, it shall
furnish the Executive with a written opinion that failure to
report the Excise Tax on the Executive's applicable federal
income tax return would not result in the imposition of a
negligence or similar penalty. Any determination by the Ac-
counting Firm shall be binding upon the Company and the
Executive. As a result of the uncertainty in the application
of Section 4999 of the Code at the time of the initial
determination by the Accounting Firm hereunder, it is pos-
sible that Gross-Up Payments which will not have been made by
the Company should have been made (''Underpayment''),
consistent with the calculations required to be made
hereunder. In the event that the Company exhausts its
remedies pursuant to Section 9(c) and the Executive
thereafter is required to make a payment of any Excise Tax,
the Accounting Firm shall determine the amount of the
Underpayment that has occurred and any such Underpayment
shall be promptly paid by the Company to or for the benefit
of the Executive.
(c) The Executive shall notify the Company in writ-
ing of any claim by the Internal Revenue Service that, if
successful, would require the payment by the Company of the
Gross-Up Payment. Such notification shall be given as soon
as practicable but no later than ten business days after the
Executive is informed in writing of such claim and shall ap-
prise the Company of the nature of such claim and the date on
which such claim is requested to be paid. The Executive
shall not pay such claim prior to the expiration of the
30-day period following the date on which it gives such
notice to the Company (or such shorter period ending on the
date that any payment of taxes with respect to such claim is
due). If the Company notifies the Executive in writing prior
to the expiration of such period that it desires to contest
such claim, the Executive shall:
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<PAGE>
(i) give the Company any information reasonably
requested by the Company relating to such claim,
(ii) take such action in connection with contesting
such claim as the Company shall reasonably request in
writing from time to time, including, without limitation,
accepting legal representation with respect to such claim
by an attorney reasonably selected by the Company,
(iii) cooperate with the Company in good faith in
order effectively to contest such claim, and
(iv) permit the Company to participate in any
proceedings relating to such claim;
-34-
<PAGE>
provided, however, that the Company shall bear and pay
directly all costs and expenses (including additional inter-
est and penalties) incurred in connection with such contest
and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including
interest and penalties with respect thereto) imposed as a
result of such representation and payment of costs and
expenses. Without limitation on the foregoing provisions of
this Section 9(c), the Company shall control all proceedings
taken in connection with such contest and, at its sole op-
tion, may pursue or forgo any and all administrative appeals,
proceedings, hearings and conferences with the taxing author-
ity in respect of such claim and may, at its sole option,
either direct the Executive to pay the tax claimed and sue
for a refund or contest the claim in any permissible manner,
and the Executive agrees to prosecute such contest to a
determination before any administrative tribunal, in a court
of initial jurisdiction and in one or more appellate courts,
as the Company shall determine; provided, however, that if
the Company directs the Executive to pay such claim and sue
for a refund, the Company shall advance the amount of such
payment to the Executive, on an interest-free basis and shall
indemnify and hold the Executive harmless, on an after-tax
basis, from any Excise Tax or income tax (including interest
or penalties with respect thereto) imposed with respect to
such advance or with respect to any imputed income with
respect to such advance; and further provided that any exten-
sion of the statute of limitations relating to payment of
taxes for the taxable year of the Executive with respect to
which such contested amount is claimed to be due is limited
solely to such contested amount. Furthermore, the Company's
control of the contest shall be limited to issues with
respect to which a Gross-Up Payment would be payable
hereunder and the Executive shall be entitled to settle or
contest, as the case may be, any other issue raised by the
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<PAGE>
Internal Revenue Service or any other taxing authority.
(d) If, after the receipt by the Executive of an
amount advanced by the Company pursuant to Section 9(c), the
Executive becomes entitled to receive any refund with respect
to such claim, the Executive shall (subject to the Company's
complying with the requirements of Section 9(c)) promptly pay
to the Company the amount of such refund (together with any
interest paid or credited thereon after taxes applicable
thereto). If, after the receipt by the Executive of an
amount advanced by the Company pursuant to Section 9(c), a
determination is made that the Executive shall not be
entitled to any refund with respect to such claim and the
Company does not notify the Executive in writing of its
intent to contest such denial of refund prior to the expira-
tion of 30 days after such determination, then such advance
shall be forgiven and shall not be required to be repaid and
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<PAGE>
the amount of such advance shall offset, to the extent
thereof, the amount of Gross-Up Payment required to be paid.
10. Confidential Information. The Executive shall
------------------------
hold in a fiduciary capacity for the benefit of the Company
all secret or confidential information, knowledge or data
relating to the Company or any of its affiliated companies,
and their respective businesses, which shall have been
obtained by the Executive during the Executive's employment
by the Company or any of its affiliated companies and which
shall not be or become public knowledge (other than by acts
by the Executive or representatives of the Executive in
violation of this Agreement). After termination of the
Executive's employment with the Company, the Executive shall
not, without the prior written consent of the Company or as
may otherwise be required by law or legal process, com-
municate or divulge any such information, knowledge or data
to anyone other than the Company and those designated by it.
In no event shall an asserted violation of the provisions of
this Section 10 constitute a basis for deferring or withhold-
ing any amounts otherwise payable to the Executive under this
Agreement.
11. Successors. (a) This Agreement is personal to
----------
the Executive and without the prior written consent of the
Company shall not be assignable by the Executive otherwise
than by will or the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable by
the Executive's legal representatives.
(b) This Agreement shall inure to the benefit of
and be binding upon the Company and its successors and as-
signs.
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<PAGE>
(c) The Company will require any successor (whether
direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or
assets of the Company to assume expressly and agree to
perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no
such succession had taken place. As used in this Agreement,
''Company'' shall mean the Company as hereinbefore defined and
any successor to its business and/or assets as aforesaid
which assumes and agrees to perform this Agreement by
operation of law, or otherwise.
12. Miscellaneous. (a) This Agreement shall be
-------------
governed by and construed in accordance with the laws of the
Commonwealth of Virginia, without reference to principles of
conflict of laws. The captions of this Agreement are not
part of the provisions hereof and shall have no force or ef-
fect. This Agreement may not be amended or modified
-38-
<PAGE>
otherwise than by a written agreement executed by the parties
hereto or their respective successors and legal representa-
tives.
(b) All notices and other communications hereunder
shall be in writing and shall be given by hand delivery to
the other party or by registered or certified mail, return
receipt requested, postage prepaid, addressed as follows:
If to the Executive:
-------------------
If to the Company:
-----------------
Philip Morris Companies Inc.
120 Park Avenue
New York, N.Y. 10017
Attention: General Counsel
or to such other address as either party shall have furnished
to the other in writing in accordance herewith. Notice and
communications shall be effective when actually received by
the addressee.
(c) The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or
enforceability of any other provision of this Agreement.
(d) The Company may withhold from any amounts pay-
able under this Agreement such Federal, state, local or
foreign taxes as shall be required to be withheld pursuant to
-39-
<PAGE>
any applicable law or regulation.
(e) The Executive's or the Company's failure to
insist upon strict compliance with any provision hereof or
any other provision of this Agreement or the failure to as-
sert any right the Executive or the Company may have
hereunder, including, without limitation, the right of the
Executive to terminate employment for Good Reason pursuant to
Section 5(c)(i)-(v) of this Agreement, shall not be deemed to
be a waiver of such provision or right or any other provision
or right of this Agreement.
(f) The Executive and the Company acknowledge that,
except as may otherwise be provided under any other written
agreement between the Executive and the Company, the employ-
ment of the Executive by the Company is ''at will'' and, prior
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<PAGE>
to the Effective Date, may be terminated by either the Executive or the
Company at any time. Moreover, if prior to the Effective Date, (i) the
Executive's employment with the Company terminates or (ii) the Executive
ceases to be [state position] of the Company, except, in each case in
connection with a Potential Change of Control then the Executive shall have
no further rights under this Agreement. From and after the Effective Date
this Agreement shall supersede any other agreement between the parties with
respect to the subject matter hereof other than the Deferred Incentive
Payment Agreement between the Company and the Executive dated , 1989
-----
(the ''DIPA'') which shall remain in full force and effect, including,
without limitation, with respect to the provision of lifetime medical,
dental and life insurance benefits to the extent such benefits are more
favorable than those provided by Section 6(a)(ii) and (iii). For purposes of
the DIPA, with respect to an involuntary termination of the Executive's
employment without cause (within the meaning of the DIPA) after February 15,
1991, this Agreement shall be considered to be a ''normal severance plan'' of
the Company.
IN WITNESS WHEREOF, the Executive has hereunto set
the Executive's hand and, pursuant to the authorization from
its Board of Directors, the Company has caused these presents
to be executed in its name on its behalf, all as of the day
and year first above written.
-----------------------------
[Executive]
PHILIP MORRIS COMPANIES INC.
By
--------------------------
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<PAGE>
EXHIBIT 10.20
EMPLOYMENT AGREEMENT
--------------------
AGREEMENT by and between Philip Morris Companies Inc., a Virginia
corporation (the ''Company'') and (the ''Executive''),
--------------------
dated as of the day of , 1989.
---- --------
The Board of Directors of the Company (the ''Board''), has determined that
it is in the best interests of the Company and its shareholders to assure that
the Company will have the continued dedication of the Executive, notwithstand-
ing the possibility, threat or occurrence of a Change of Control (as defined
below) of the Company. The Board believes it is imperative to diminish the
inevitable distraction of the Executive by virtue of the personal
uncertainties and risks created by a pending or threatened Change of Control
and to encourage the Executive's full attention and dedication to the Company
currently and in the event of any threatened or pending Change of Control, and
to provide the Executive with compensation and benefits arrangements upon a
Change of Control which ensure that the compensation and benefits expectations
of the Executive will be satisfied and which are competitive with those of
other corporations. Therefore, in order to accomplish these objectives, the
Board has caused the Company to enter into this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Certain Definitions. (a) The ''Effective Date'' shall mean the first
-------------------
date during the Change of Control Period (as defined in Section 1(b)) on which
a Change of Control (as
<PAGE>
defined in Section 2) occurs. Anything in this Agreement to
the contrary notwithstanding, if a Change of Control occurs
and if the Executive's employment with the Company is
terminated or the Executive ceases to be [state position] of
the Company prior to the date on which the Change of Control
occurs, and if it is reasonably demonstrated by the Executive
that such termination of employment or cessation of status as
[state position] (i) was at the request of a third party who
has taken steps reasonably calculated to effect a Change of
Control or (ii) otherwise arose in connection with or
anticipation of a Change of Control (an event described in
(i) or (ii) above being hereinafter referred to as a
''Potential Change of Control''), then for all purposes of this
Agreement the ''Effective Date'' shall mean the date im-
mediately prior to the date of such termination of employment
or cessation of status as [state position].
(b) The ''Change of Control Period'' shall mean the
period commencing on the date hereof and ending on the
earliest to occur of (x) any date prior to the Effective Date
-2-
<PAGE>
on which the Executive ceases to hold the position of [state
position] of the Company, (y) the third anniversary of the
date hereof, and (z) the Executive's normal retirement date
(the ''Normal Retirement Date'') under the Philip Morris
Salaried Employees' Retirement Plan (the ''Retirement Plan'');
provided, however, that commencing on the date one year after
the date hereof, and on each annual anniversary of such date
(such date and each annual anniversary thereof shall be
hereinafter referred to as the ''Renewal Date''), unless
previously terminated, the Change of Control Period shall be
automatically extended so as to terminate three years from
such Renewal Date, unless at least 60 days prior to the
Renewal Date the Company shall give notice to the Executive
that the Change of Control Period shall not be so extended.
2. Change of Control. For the purpose of this
-----------------
Agreement, a ''Change of Control'' shall mean:
(a) The acquisition by any individual, entity or
group (within the meaning of Section 13(d)(3) or 14(d)(2) of
the Securities Exchange Act of 1934, as amended (the
''Exchange Act'')) (a ''Person'') of beneficial ownership (within
the meaning of Rule 13d-3 promulgated under the Exchange Act)
of 20% or more of either (i) the then outstanding shares of
common stock of the Company (the ''Outstanding Company Common
Stock'') or (ii) the combined voting power of the then
outstanding voting securities of the Company entitled to vote
generally in the election of directors (the ''Outstanding
Company Voting Securities''); provided, however, that the fol-
lowing acquisitions shall not constitute a Change of Control:
(i) any acquisition directly from the Company, (ii) any
acquisition by the Company, (iii) any acquisition by any
employee benefit plan (or related trust) sponsored or
-3-
<PAGE>
maintained by the Company or any corporation controlled by
the Company or (iv) any acquisition by any corporation pursu-
ant to a transaction which complies with clauses (i), (ii)
and (iii) of subsection (c) of this Section 2; or
(b) Individuals who, as of the date hereof,
constitute the Board (the ''Incumbent Board'') cease for any
reason to constitute at least a majority of the Board;
provided, however, that any individual becoming a director
subsequent to the date hereof whose election, or nomination
for election by the Company's shareholders, was approved by a
vote of at least a majority of the directors then comprising
the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but exclud-
ing, for this purpose, any such individual whose initial as-
sumption of office occurs as a result of an actual or
threatened election contest with respect to the election or
-4-
<PAGE>
removal of directors or other actual or threatened solicita-
tion of proxies or consents by or on behalf of a Person other
than the Board; or
(c) Approval by the shareholders of the Company of
a reorganization, merger, share exchange or consolidation (a
''Business Combination''), in each case, unless, following such
Business Combination, (i) all or substantially all of the
individuals and entities who were the beneficial owners,
respectively, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities immediately prior to
such Business Combination beneficially own, directly or
indirectly, more than 80% of, respectively, the then
outstanding shares of common stock and the combined voting
power of the then outstanding voting securities entitled to
vote generally in the election of directors, as the case may
be, of the corporation resulting from such Business Combina-
tion (including, without limitation, a corporation which as a
result of such transaction owns the Company through one or
more subsidiaries) in substantially the same proportions as
their ownership, immediately prior to such Business Combina-
tion of the Outstanding Company Common Stock and Outstanding
Company Voting Securities, as the case may be, (ii) no Person
(excluding any employee benefit plan (or related trust) of
the Company or such corporation resulting from such Business
Combination) beneficially owns, directly or indirectly, 20%
or more of, respectively, the then outstanding shares of com-
mon stock of the corporation resulting from such Business
Combination or the combined voting power of the then
outstanding voting securities of such corporation except to
the extent that such ownership existed prior to the Business
Combination and (iii) at least a majority of the members of
the board of directors of the corporation resulting from such
Business Combination were members of the Incumbent Board at
the time of the execution of the initial agreement, or of the
-5-
<PAGE>
action of the Board, providing for such Business Combination;
or
(d) Approval by the shareholders of the Company of
(i) a complete liquidation or dissolution of the Company or
(ii) the sale or other disposition of all or substantially
all of the assets of the Company, other than to a corpora-
tion, with respect to which following such sale or other
disposition, (A) more than 80% of, respectively, the then
outstanding shares of common stock of such corporation and
the combined voting power of the then outstanding voting
securities of such corporation entitled to vote generally in
the election of directors is then beneficially owned,
directly or indirectly, by all or substantially all of the
individuals and entities who were the beneficial owners,
respectively, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities immediately prior to
-6-
<PAGE>
such sale or other disposition in substantially the same
proportion as their ownership, immediately prior to such sale
or other disposition, of the Outstanding Company Common Stock
and Outstanding Company Voting Securities, as the case may
be, (B) less than 20% of, respectively, the then outstanding
shares of common stock of such corporation and the combined
voting power of the then outstanding voting securities of
such corporation entitled to vote generally in the election
of directors is then beneficially owned, directly or
indirectly, by any Person (excluding any employee benefit
plan (or related trust) of the Company or such corporation),
except to the extent that such Person owned 20% or more of
the Outstanding Company Common Stock or Outstanding Company
Voting Securities prior to the sale or disposition and (C) at
least a majority of the members of the board of directors of
such corporation were members of the Incumbent Board at the
time of the execution of the initial agreement, or of the ac-
tion of the Board, providing for such sale or other disposi-
tion of assets of the Company or were elected, appointed or
nominated by the Board.
3. Employment Period. The Company hereby agrees to
-----------------
continue the Executive in its employ, and the Executive
hereby agrees to remain in the employ of the Company subject
to the terms and conditions of this Agreement, for the period
commencing on the Effective Date and ending on the earlier to
occur of (x) the third anniversary of such date and (y) the
Executive's Normal Retirement Date (the ''Employment Period'').
4. Terms of Employment. (a) Position and Duties.
------------------- -------------------
(i) During the Employment Period, (A) the Executive's posi-
tion (including status, offices, titles and reporting
requirements), authority, duties and responsibilities shall
be at least commensurate in all material respects with the
-7-
<PAGE>
most significant of those held, exercised and assigned at any
time during the 120-day period immediately preceding the Ef-
fective Date and (B) the Executive's services shall be
performed at the location where the Executive was employed
immediately preceding the Effective Date or any office or
location less than 35 miles from such location.
(ii) During the Employment Period, and exclud-
ing any periods of vacation and sick leave to which the
Executive is entitled, the Executive agrees to devote reason-
able attention and time during normal business hours to the
business and affairs of the Company and, to the extent neces-
sary to discharge the responsibilities assigned to the
Executive hereunder, to use the Executive's reasonable best
efforts to perform faithfully and efficiently such
responsibilities. During the Employment Period it shall not
be a violation of this Agreement for the Executive to (A)
serve on corporate, civic or charitable boards or committees,
-8-
<PAGE>
(B) deliver lectures, fulfill speaking engagements or teach
at educational institutions and (C) manage personal invest-
ments, so long as such activities do not significantly
interfere with the performance of the Executive's
responsibilities as an employee of the Company in accordance
with this Agreement. It is expressly understood and agreed
that to the extent that any such activities have been
conducted by the Executive prior to the Effective Date, the
continued conduct of such activities (or the conduct of
activities similar in nature and scope thereto) subsequent to
the Effective Date shall not thereafter be deemed to
interfere with the performance of the Executive's
responsibilities to the Company.
(b) Compensation. (i) Pro Rata Performance Award.
------------ --------------------------
Within 30 days after the Effective Date, the Executive shall
be entitled to a lump sum cash payment equal to the pro rata
Long Term Performance Award he would have received pursuant
to Section 11(a)(4) of the Company's 1987 Long Term Incentive
Plan (the ''LTIP'') had the Executive been eligible to receive
an award pursuant to such section of the LTIP without regard
to Section 10(b) of the LTIP.
(ii) Base Salary. During the Employment
-----------
Period, the Executive shall receive an annual base salary
(''Annual Base Salary''), which shall be paid at a monthly
rate, at least equal to twelve times the highest monthly base
salary paid or payable, including any base salary which has
been earned but deferred, to the Executive by the Company and
its affiliated companies in respect of the twelve-month
period immediately preceding the month in which the Effective
Date occurs. During the Employment Period, the Annual Base
Salary shall be reviewed no more than 12 months after the
-9-
<PAGE>
last salary increase awarded to the Executive prior to the
Effective Date and thereafter at least annually and shall be
first increased no more than 12 months after the last salary
increase awarded to the Executive prior to the Effective Date
and thereafter at least annually by the highest of (x) 7%,
(y) the average increase (excluding promotional increases) in
base salary awarded to the Executive for each of the three
full fiscal years (annualized in the case of any fiscal year
consisting of less than twelve full months or during which
the Executive was employed for less than twelve months) prior
to the Effective Date, and (z) the percentage increase
(excluding promotional increases) in base salary generally
awarded to peer executives of the Company and its affiliated
companies for the year of determination. Any increase in
Annual Base Salary shall not serve to limit or reduce any
other obligation to the Executive under this Agreement. An-
nual Base Salary shall not be reduced after any such increase
and the term Annual Base Salary as utilized in this Agreement
shall refer to Annual Base Salary as so increased. As used
-10-
<PAGE>
in this Agreement, the term ''affiliated companies'' shall
include any company controlled by, controlling or under com-
mon control with the Company.
(iii) Annual Bonus. In addition to Annual
------------
Base Salary, the Executive shall be awarded, for each fiscal
year ending during the Employment Period, an annual bonus
(the ''Annual Bonus''), in cash at least equal to the higher of
(x) the average of the three highest bonuses paid or payable,
including any bonus or portion thereof which has been earned
but deferred, to the Executive by the Company and its af-
filiated companies in respect of the five fiscal years im-
mediately preceding the fiscal year in which the Effective
Date occurs (annualized for any fiscal year during such
period consisting of less than twelve full months or with
respect to which the Executive has been employed by the
Company for less than twelve full months) and (y) the bonus
paid or payable (annualized as described above), including
any bonus or portion thereof which has been earned but
deferred, to the Executive by the Company and its affiliated
companies in respect of the most recently completed fiscal
year prior to the Effective Date (such higher amount being
referred to as the ''Recent Annual Bonus''). Each such Annual
Bonus shall be paid no later than the end of the third month
of the fiscal year next following the fiscal year for which
the Annual Bonus is awarded, unless the Executive shall elect
to defer the receipt of such Annual Bonus.
(iv) Incentive, Savings and Retirement Plans.
---------------------------------------
During the Employment Period, the Executive shall be entitled
to participate in all incentive, savings and retirement
plans, practices, policies and programs applicable generally
to other peer executives of the Company and its affiliated
companies, but in no event shall such plans, practices,
-11-
<PAGE>
policies and programs provide the Executive with incentive
opportunities (measured with respect to both regular and
special incentive opportunities, to the extent, if any, that
such distinction is applicable), savings opportunities and
retirement benefit opportunities, in each case, less favor-
able, in the aggregate, than the most favorable of those
provided by the Company and its affiliated companies for the
Executive under such plans, practices, policies and programs
as in effect at any time during the 120-day period im-
mediately preceding the Effective Date or if more favorable
to the Executive, those provided generally at any time after
the Effective Date to other peer executives of the Company
and its affiliated companies.
(v) Welfare Benefit Plans. During the Employ-
---------------------
ment Period, the Executive and/or the Executive's family, as
the case may be, shall be eligible for participation in and
shall receive all benefits under welfare benefit plans,
-12-
<PAGE>
practices, policies and programs provided by the Company and
its affiliated companies (including, without limitation,
medical, prescription, dental, disability, salary
continuance, employee life, group life, accidental death and
travel accident insurance plans and programs) to the extent
applicable generally to other peer executives of the Company
and its affiliated companies, but in no event shall such
plans, practices, policies and programs provide the Executive
with benefits which are less favorable, in the aggregate,
than the most favorable of such plans, practices, policies
and programs in effect for the Executive at any time during
the 120-day period immediately preceding the Effective Date
or, if more favorable to the Executive, those provided gener-
ally at any time after the Effective Date to other peer
executives of the Company and its affiliated companies.
(vi) Expenses. During the Employment Period,
--------
the Executive shall be entitled to receive prompt reimburse-
ment for all reasonable expenses incurred by the Executive in
accordance with the most favorable policies, practices and
procedures of the Company and its affiliated companies in
effect for the Executive at any time during the 120-day
period immediately preceding the Effective Date or, if more
favorable to the Executive, as in effect generally at any
time thereafter with respect to other peer executives of the
Company and its affiliated companies.
(vii) Fringe Benefits. During the Employment
---------------
Period, the Executive shall be entitled to fringe benefits,
including, without limitation, tax and financial planning
services, payment of club dues, and, if applicable, use of an
automobile and payment of related expenses, in accordance
with the most favorable plans, practices, programs and
policies of the Company and its affiliated companies in ef-
fect for the Executive at any time during the 120-day period
-13-
<PAGE>
immediately preceding the Effective Date or, if more favor-
able to the Executive, as in effect generally at any time
thereafter with respect to other peer executives of the
Company and its affiliated companies.
(viii) Office and Support Staff. During the
------------------------
Employment Period, the Executive shall be entitled to an of-
fice or offices of a size and with furnishings and other ap-
pointments, and to exclusive personal secretarial and other
assistance, at least equal to the most favorable of the
foregoing provided to the Executive by the Company and its
affiliated companies at any time during the 120-day period
immediately preceding the Effective Date or, if more favor-
able to the Executive, as provided generally at any time
thereafter with respect to other peer executives of the
Company and its affiliated companies.
-14-
<PAGE>
(ix) Vacation. During the Employment Period,
--------
the Executive shall be entitled to paid vacation in ac-
cordance with the most favorable plans, policies, programs
and practices of the Company and its affiliated companies as
in effect for the Executive at any time during the 120-day
period immediately preceding the Effective Date or, if more
favorable to the Executive, as in effect generally at any
time thereafter with respect to other peer executives of the
Company and its affiliated companies.
5. Termination of Employment. (a) Death or Dis-
------------------------- ------------
ability. The Executive's employment shall terminate
- -------
automatically upon the Executive's death during the Employ-
ment Period. If the Company determines in good faith that
the Disability of the Executive has occurred during the
Employment Period (pursuant to the definition of Disability
set forth below), it may give to the Executive written notice
in accordance with Section 12(b) of this Agreement of its
intention to terminate the Executive's employment. In such
event, the Executive's employment with the Company shall
terminate effective on the 30th day after receipt of such
notice by the Executive (the ''Disability Effective Date''),
provided that, within the 30 days after such receipt, the
Executive shall not have returned to full-time performance of
the Executive's duties. For purposes of this Agreement,
''Disability'' shall mean the absence of the Executive from the
Executive's duties with the Company on a full-time basis for
180 consecutive business days as a result of incapacity due
to mental or physical illness which is determined to be total
and permanent by a physician selected by the Company or its
insurers and acceptable to the Executive or the Executive's
legal representative (such agreement as to acceptability not
to be withheld unreasonably).
(b) Cause. The Company may terminate the
-----
-15-
<PAGE>
Executive's employment during the Employment Period for
Cause. For the sole and exclusive purposes of this Agree-
ment, ''Cause'' shall mean:
(i) the willful and continued failure of the
Executive to perform substantially the Executive's duties
with the Company or one of its affiliates (other than any
such failure resulting from incapacity due to physical or
mental illness), after a written demand for substantial
performance is delivered to the Executive by the Board or
the Chief Executive Officer of the Company which
specifically identifies the manner in which the Board or
Chief Executive Officer believes that the Executive has
not substantially performed the Executive's duties, or
-16-
<PAGE>
(ii) the willful engaging by the Executive in il-
legal conduct or gross misconduct which is materially and
demonstrably injurious to the Company.
For purposes of this provision, no act or failure to act, on
the part of the Executive, shall be considered ''willful'' un-
less it is done, or omitted to be done, by the Executive in
bad faith or without reasonable belief that the Executive's
action or omission was in the best interests of the Company.
Any act, or failure to act, based upon authority given pursu-
ant to a resolution duly adopted by the Board or upon the
instructions of the Chief Executive Officer or a senior of-
ficer of the Company or based upon the advice of counsel for
the Company shall be conclusively presumed to be done, or
omitted to be done, by the Executive in good faith and in the
best interests of the Company. The cessation of employment
of the Executive shall not be deemed to be for Cause unless
and until there shall have been delivered to the Executive a
copy of a resolution duly adopted by the affirmative vote of
not less than three-quarters of the entire membership of the
Board at a meeting of the Board called and held for such
purpose (after reasonable notice is provided to the Executive
and the Executive is given an opportunity, together with
counsel, to be heard before the Board), finding that, in the
good faith opinion of the Board, the Executive is guilty of
the conduct described in subparagraph (i) or (ii) above, and
specifying the particulars thereof in detail.
(c) Good Reason. The Executive's employment may be
-----------
terminated by the Executive for Good Reason. For the sole
and exclusive purposes of this Agreement, ''Good Reason'' shall
mean:
(i) the assignment to the Executive of any duties
inconsistent in any respect with the Executive's position
-17-
<PAGE>
(including status, offices, titles and reporting require-
ments), authority, duties or responsibilities as
contemplated by Section 4(a) of this Agreement, or any
other action by the Company which results in a diminution
in such position, authority, duties or responsibilities,
excluding for this purpose an isolated, insubstantial and
inadvertent action not taken in bad faith and which is
remedied by the Company promptly after receipt of notice
thereof given by the Executive;
(ii) any failure by the Company to comply with any
of the provisions of Section 4(b) of this Agreement,
other than an isolated, insubstantial and inadvertent
failure not occurring in bad faith and which is remedied
by the Company promptly after receipt of notice thereof
given by the Executive;
-18-
<PAGE>
(iii) the Company's requiring the Executive to be
based at any office or location other than as provided in
Section 4(a)(i)(B) hereof or the Company's requiring the
Executive to travel on Company business to a
substantially greater extent than required immediately
prior to the Effective Date;
(iv) any purported termination by the Company of
the Executive's employment otherwise than as expressly
permitted by this Agreement; or
(v) any failure by the Company to comply with and
satisfy Section 11(c) of this Agreement.
For purposes of this Section 5(c), any good faith determina-
tion of ''Good Reason'' made by the Executive shall be
conclusive. Anything in this Agreement to the contrary
notwithstanding, a termination by the Executive for any
reason during the 30-day period immediately following the
first anniversary of the Effective Date shall be deemed to be
a termination for Good Reason for all purposes of this Agree-
ment.
(d) Notice of Termination. Any termination by the
---------------------
Company for Cause, or by the Executive for Good Reason, shall
be communicated by Notice of Termination to the other party
hereto given in accordance with Section 12(b) of this Agree-
ment. For purposes of this Agreement, a ''Notice of Termina-
tion'' means a written notice which (i) indicates the specific
termination provision in this Agreement relied upon, (ii) to
the extent applicable, sets forth in reasonable detail the
facts and circumstances claimed to provide a basis for
termination of the Executive's employment under the provision
so indicated and (iii) if the Date of Termination (as defined
below) is other than the date of receipt of such notice,
-19-
<PAGE>
specifies the termination date (which date shall be not more
than thirty days after the giving of such notice). The
failure by the Executive or the Company to set forth in the
Notice of Termination any fact or circumstance which
contributes to a showing of Good Reason or Cause shall not
waive any right of the Executive or the Company,
respectively, hereunder or preclude the Executive or the
Company, respectively, from asserting such fact or
circumstance in enforcing the Executive's or the Company's
rights hereunder.
(e) Date of Termination. ''Date of Termination''
-------------------
means (i) if the Executive's employment is terminated by the
Company for Cause, or by the Executive for Good Reason, the
date of receipt of the Notice of Termination or any later
date specified therein, as the case may be, (ii) if the
Executive's employment is terminated by the Company other
-20-
<PAGE>
than for Cause or Disability, the Date of Termination shall
be the date on which the Company notifies the Executive of
such termination and (iii) if the Executive's employment is
terminated by reason of death or Disability, the Date of
Termination shall be the date of death of the Executive or
the Disability Effective Date, as the case may be.
6. Obligations of the Company upon Termination.
-------------------------------------------
(a) Good Reason; Other Than for Cause, Death or Disability.
------------------------------------------------------
If, during the Employment Period, the Company shall terminate
the Executive's employment other than for Cause or Disability
or the Executive shall terminate employment for Good Reason:
(i) the Company shall pay to the Executive in a
lump sum in cash within 30 days after the Date of
Termination the aggregate of the following amounts:
A. the sum of (1) the Executive's Annual Base
Salary through the Date of Termination to the extent
not theretofore paid, (2) the product of (x) the
higher of (I) the Recent Annual Bonus and (II) the
Annual Bonus paid or payable, including any bonus or
portion thereof which has been earned but deferred
(and annualized for any fiscal year consisting of
less than twelve full months or during which the
Executive was employed for less than twelve full
months), for the most recently completed fiscal year
during the Employment Period, if any (such higher
amount being referred to as the ''Highest Annual
Bonus'') and (y) a fraction, the numerator of which
is the number of days in the current fiscal year
through the Date of Termination, and the denominator
-21-
<PAGE>
of which is 365 and (3) any compensation previously
deferred by the Executive (together with any accrued
interest or earnings thereon) and any accrued vaca-
tion pay, in each case to the extent not theretofore
paid (the sum of the amounts described in clauses
(1), (2), and (3) shall be hereinafter referred to
as the ''Accrued Obligations''); and
B. the amount equal to the product of (1) two
and one-half and (2) the sum of (x) the Executive's
Annual Base Salary and (y) the Highest Annual Bonus
and (3) a fraction, the numerator of which is the
number of full months from the Date of Termination
until the Executive's Normal Retirement Date but
which shall be no greater than thirty (30), and the
denominator of which is thirty (30); and
C. an amount equal to the difference between
(a) the actuarial equivalent of the benefit (utiliz-
ing actuarial assumptions no less favorable to the
-22-
<PAGE>
Executive than those in effect under the Retirement
Plan (as defined below) immediately prior to the
Effective Date, except as specified below with
respect to increases in base salary and annual
bonus) under the Retirement Plan and any excess or
supplemental retirement plan in which the Executive
participates (together, the ''SERP'') which the
Executive would receive if the Executive's employ-
ment continued for two and one-half years after the
Date of Termination assuming for this purpose that
all accrued benefits are fully vested, and, assuming
that (1) the Executive's base salary increased on an
annualized basis during the two and one-half year
period by the amount required by Section 4(b)(ii)
(in the case of Section 4(b)(ii)(z) based on
increases (excluding promotional increases) in base
salary for the most recently completed fiscal year
prior to the Date of Termination) had the Executive
remained employed, and (2) the Executive's annual
bonus (annualized for any fiscal year consisting of
less than twelve full months or during which the
Executive was employed for less than twelve full
months) in each of the two and one-half years (on an
annualized basis) bears the same proportion to the
Executive's base salary in such year or fraction
thereof as it did for the last full year prior to
the Date of Termination, and (b) the actuarial
equivalent of the Executive's actual benefit (paid
or payable), if any, under the Retirement Plan and
the SERP as of the Date of Termination;
(ii) for two and one-half years after the
Executive's Date of Termination, or such longer period as
may be provided by Section 6(a)(iii) with respect to the
-23-
<PAGE>
benefits covered thereby or by the terms of the appropri-
ate plan, program, practice or policy, the Company shall
continue benefits to the Executive and/or the Executive's
family at least equal to those which would have been
provided to them in accordance with the plans, programs,
practices and policies described in Section 4(b)(v) and
Section 4(b)(vii) of this Agreement if the Executive's
employment had not been terminated in accordance with the
most favorable plans, practices, programs or policies of
the Company and its affiliated companies applicable
generally to other peer executives and their families
during the 120-day period immediately preceding the Ef-
fective Date or, if more favorable to the Executive, as
in effect generally at any time thereafter with respect
to other peer executives of the Company and its af-
filiated companies and their families, provided, however,
that if the Executive becomes reemployed with another
employer and is eligible to receive medical or other
-24-
<PAGE>
welfare benefits under another employer provided plan,
the medical and other welfare benefits described herein
shall be secondary to those provided under such other
plan during such applicable period of eligibility. For
purposes of determining eligibility (but not the time of
commencement of benefits) of the Executive for retiree
benefits pursuant to such plans, practices, programs and
policies, the Executive shall be considered to have
remained employed until two and one-half years after the
Date of Termination and to have retired on the last day
of such period;
(iii) if two and one-half years after the Executive's
Date of Termination, the Executive would be at least 55
years old and eligible for retirement benefits (includ-
ing, without limitation, early retirement benefits) under
the Retirement Plan (assuming continuous service with the
Company during such two and one-half year period), the
Company shall continue lifetime medical, dental and life
insurance benefits (including supplemental benefits) to
the Executive and/or the Executive's family at least
equal to those that would have been provided to them in
accordance with the plans, programs and policies
described in Section 4(b)(v) of this Agreement (except
the Company's business travel accident plans) if the
Executive's employment had not been terminated, if and as
in effect at any time during the 120-day period im-
mediately preceding the Effective Date with respect to
other peer executives and their families or, if more
favorable to the Executive, as in effect at any time
thereafter with respect to other peer executives and
their families; provided, however, that, in the event
that the Executive becomes reemployed with another
employer, whether or not such employer is related to the
-25-
<PAGE>
Corporation or any of its affiliates, and is eligible to
receive medical or other welfare benefits under any
employer-sponsored plan, the medical and other welfare
benefits described herein shall be the secondary coverage
for such applicable period of eligibility;
(iv) the Company shall, at its sole expense as
incurred, provide the Executive with outplacement
services the scope and provider of which shall be
selected by the Executive in his sole discretion; and
(v) to the extent not theretofore paid or provided,
the Company shall timely pay or provide to the Executive
any other amounts or benefits required to be paid or
provided or which the Executive is eligible to receive
under any plan, program, policy or practice or contract
or agreement of the Company and its affiliated companies,
including, without limitation, any amounts payable
-26-
<PAGE>
pursuant to Section 4(b)(i) (such other amounts and
benefits shall be hereinafter referred to as the ''Other
Benefits'').
(b) Death. If the Executive's employment is
-----
terminated by reason of the Executive's death during the
Employment Period, this Agreement shall terminate without
further obligations to the Executive's legal representatives
under this Agreement, other than for payment of Accrued
Obligations and the timely payment or provision of Other
Benefits. Accrued Obligations shall be paid to the
Executive's estate or beneficiary, as applicable, in a lump
sum in cash within 30 days of the Date of Termination. With
respect to the provision of Other Benefits, the term Other
Benefits as utilized in this Section 6(b) shall include,
without limitation, and the Executive's estate and/or
beneficiaries shall be entitled to receive, benefits at least
equal to the most favorable benefits provided by the Company
and affiliated companies to the estates and beneficiaries of
peer executives of the Company and such affiliated companies
under such plans, programs, practices and policies relating
to death benefits, if any, as in effect with respect to other
peer executives and their beneficiaries at any time during
the 120-day period immediately preceding the Effective Date
or, if more favorable to the Executive's estate and/or the
Executive's beneficiaries, as in effect on the date of the
Executive's death with respect to other peer executives of
the Company and its affiliated companies and their
beneficiaries.
(c) Disability. If the Executive's employment is
----------
terminated by reason of the Executive's Disability during the
Employment Period, this Agreement shall terminate without
-27-
<PAGE>
further obligations to the Executive, other than for payment
of Accrued Obligations and the timely payment or provision of
Other Benefits. Accrued Obligations shall be paid to the
Executive in a lump sum in cash within 30 days of the Date of
Termination. With respect to the provision of Other
Benefits, the term Other Benefits as utilized in this Section
6(c) shall include, and the Executive shall be entitled after
the Disability Effective Date to receive, disability and
other benefits at least equal to the most favorable of those
generally provided by the Company and its affiliated
companies to disabled executives and/or their families in
accordance with such plans, programs, practices and policies
relating to disability, if any, as in effect generally with
respect to other peer executives and their families at any
time during the 120-day period immediately preceding the Ef-
fective Date or, if more favorable to the Executive and/or
the Executive's family, as in effect at any time thereafter
generally with respect to other peer executives of the
Company and its affiliated companies and their families.
-28-
<PAGE>
(d) Cause; Other than for Good Reason. If the
---------------------------------
Executive's employment shall be terminated for Cause during
the Employment Period, this Agreement shall terminate without
further obligations to the Executive other than the obliga-
tion to pay to the Executive (x) his Annual Base Salary
through the Date of Termination, (y) the amount of any
compensation previously deferred by the Executive, and (z)
Other Benefits, in each case to the extent theretofore
unpaid. If the Executive voluntarily terminates employment
during the Employment Period, excluding a termination for
Good Reason, this Agreement shall terminate without further
obligations to the Executive, other than for Accrued Obliga-
tions and the timely payment or provision of Other Benefits.
In such case, all Accrued Obligations shall be paid to the
Executive in a lump sum in cash within 30 days of the Date of
Termination.
7. Non-exclusivity of Rights. Nothing in this
-------------------------
Agreement shall prevent or limit the Executive's continuing
or future participation in any plan, program, policy or
practice provided by the Company or any of its affiliated
companies and for which the Executive may qualify, nor shall
anything herein limit or otherwise affect such rights as the
Executive may have under any contract or agreement with the
Company or any of its affiliated companies. Amounts which
are vested benefits or which the Executive is otherwise
entitled to receive under any plan, policy, practice or
program of or any contract or agreement with the Company or
any of its affiliated companies at or subsequent to the Date
of Termination shall be payable in accordance with such plan,
policy, practice or program or contract or agreement except
as explicitly modified by this Agreement.
-29-
<PAGE>
8. Full Settlement. The Company's obligation to
---------------
make the payments provided for in this Agreement and
otherwise to perform its obligations hereunder shall not be
affected by any set-off, counterclaim, recoupment, defense or
other claim, right or action which the Company may have
against the Executive or others. In no event shall the
Executive be obligated to seek other employment or take any
other action by way of mitigation of the amounts payable to
the Executive under any of the provisions of this Agreement
and such amounts shall not be reduced whether or not the
Executive obtains other employment. The Company agrees to
pay as incurred, to the full extent permitted by law, all
legal fees and expenses which the Executive may reasonably
incur as a result of any contest (regardless of the outcome
thereof) by the Company, the Executive or others of the
validity or enforceability of, or liability under, any provi-
sion of this Agreement or any guarantee of performance
thereof (including as a result of any contest by the
-30-
<PAGE>
Executive about the amount of any payment pursuant to this
Agreement), plus in each case interest on any delayed payment
at the applicable Federal rate provided for in Section
7872(f)(2)(A) of the Internal Revenue Code of 1986, as
amended (the ''Code'').
9. Certain Additional Payments by the Company.
------------------------------------------
(a) Anything in this Agreement to the contrary
notwithstanding, in the event it shall be determined that any
payment or distribution by the Company to or for the benefit
of the Executive (whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or
otherwise, but determined without regard to any additional
payments required under this Section 9) (a ''Payment'') would
be subject to the excise tax imposed by Section 4999 of the
Code or any interest or penalties are incurred by the
Executive with respect to such excise tax (such excise tax,
together with any such interest and penalties, are
hereinafter collectively referred to as the ''Excise Tax''),
then the Executive shall be entitled to receive an additional
payment (a ''Gross-Up Payment'') in an amount such that after
payment by the Executive of all taxes (including any interest
or penalties imposed with respect to such taxes), including,
without limitation, any income taxes (and any interest and
penalties imposed with respect thereto) and Excise Tax
imposed upon the Gross-Up Payment, the Executive retains an
amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Payments.
(b) Subject to the provisions of Section 9(c), all
determinations required to be made under this Section 9,
including whether and when a Gross-Up Payment is required and
-31-
<PAGE>
the amount of such Gross-Up Payment and the assumptions to be
utilized in arriving at such determination, shall be made by
Coopers & Lybrand or such other certified public accounting
firm as may be designated by the Executive (the ''Accounting
Firm'') which shall provide detailed supporting calculations
both to the Company and the Executive within 15 business days
of the receipt of notice from the Executive that there has
been a Payment, or such earlier time as is requested by the
Company. In the event that the Accounting Firm is serving as
accountant or auditor for the individual, entity or group ef-
fecting the Change of Control, the Executive shall appoint
another nationally recognized accounting firm to make the
determinations required hereunder (which accounting firm
shall then be referred to as the Accounting Firm hereunder).
All fees and expenses of the Accounting Firm shall be borne
solely by the Company. Any Gross-Up Payment, as determined
pursuant to this Section 9, shall be paid by the Company to
the Executive within five days of the receipt of the Account-
ing Firm's determination. If the Accounting Firm determines
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<PAGE>
that no Excise Tax is payable by the Executive, it shall
furnish the Executive with a written opinion that failure to
report the Excise Tax on the Executive's applicable federal
income tax return would not result in the imposition of a
negligence or similar penalty. Any determination by the Ac-
counting Firm shall be binding upon the Company and the
Executive. As a result of the uncertainty in the application
of Section 4999 of the Code at the time of the initial
determination by the Accounting Firm hereunder, it is pos-
sible that Gross-Up Payments which will not have been made by
the Company should have been made (''Underpayment''),
consistent with the calculations required to be made
hereunder. In the event that the Company exhausts its
remedies pursuant to Section 9(c) and the Executive
thereafter is required to make a payment of any Excise Tax,
the Accounting Firm shall determine the amount of the
Underpayment that has occurred and any such Underpayment
shall be promptly paid by the Company to or for the benefit
of the Executive.
(c) The Executive shall notify the Company in writ-
ing of any claim by the Internal Revenue Service that, if
successful, would require the payment by the Company of the
Gross-Up Payment. Such notification shall be given as soon
as practicable but no later than ten business days after the
Executive is informed in writing of such claim and shall ap-
prise the Company of the nature of such claim and the date on
which such claim is requested to be paid. The Executive
shall not pay such claim prior to the expiration of the
30-day period following the date on which it gives such
notice to the Company (or such shorter period ending on the
date that any payment of taxes with respect to such claim is
due). If the Company notifies the Executive in writing prior
to the expiration of such period that it desires to contest
such claim, the Executive shall:
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<PAGE>
(i) give the Company any information reasonably
requested by the Company relating to such claim,
(ii) take such action in connection with contesting
such claim as the Company shall reasonably request in
writing from time to time, including, without limitation,
accepting legal representation with respect to such claim
by an attorney reasonably selected by the Company,
(iii) cooperate with the Company in good faith in
order effectively to contest such claim, and
(iv) permit the Company to participate in any
proceedings relating to such claim;
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<PAGE>
provided, however, that the Company shall bear and pay
directly all costs and expenses (including additional inter-
est and penalties) incurred in connection with such contest
and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including
interest and penalties with respect thereto) imposed as a
result of such representation and payment of costs and
expenses. Without limitation on the foregoing provisions of
this Section 9(c), the Company shall control all proceedings
taken in connection with such contest and, at its sole op-
tion, may pursue or forgo any and all administrative appeals,
proceedings, hearings and conferences with the taxing author-
ity in respect of such claim and may, at its sole option,
either direct the Executive to pay the tax claimed and sue
for a refund or contest the claim in any permissible manner,
and the Executive agrees to prosecute such contest to a
determination before any administrative tribunal, in a court
of initial jurisdiction and in one or more appellate courts,
as the Company shall determine; provided, however, that if
the Company directs the Executive to pay such claim and sue
for a refund, the Company shall advance the amount of such
payment to the Executive, on an interest-free basis and shall
indemnify and hold the Executive harmless, on an after-tax
basis, from any Excise Tax or income tax (including interest
or penalties with respect thereto) imposed with respect to
such advance or with respect to any imputed income with
respect to such advance; and further provided that any exten-
sion of the statute of limitations relating to payment of
taxes for the taxable year of the Executive with respect to
which such contested amount is claimed to be due is limited
solely to such contested amount. Furthermore, the Company's
control of the contest shall be limited to issues with
respect to which a Gross-Up Payment would be payable
hereunder and the Executive shall be entitled to settle or
contest, as the case may be, any other issue raised by the
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<PAGE>
Internal Revenue Service or any other taxing authority.
(d) If, after the receipt by the Executive of an
amount advanced by the Company pursuant to Section 9(c), the
Executive becomes entitled to receive any refund with respect
to such claim, the Executive shall (subject to the Company's
complying with the requirements of Section 9(c)) promptly pay
to the Company the amount of such refund (together with any
interest paid or credited thereon after taxes applicable
thereto). If, after the receipt by the Executive of an
amount advanced by the Company pursuant to Section 9(c), a
determination is made that the Executive shall not be
entitled to any refund with respect to such claim and the
Company does not notify the Executive in writing of its
intent to contest such denial of refund prior to the expira-
tion of 30 days after such determination, then such advance
shall be forgiven and shall not be required to be repaid and
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<PAGE>
the amount of such advance shall offset, to the extent
thereof, the amount of Gross-Up Payment required to be paid.
10. Confidential Information. The Executive shall
------------------------
hold in a fiduciary capacity for the benefit of the Company
all secret or confidential information, knowledge or data
relating to the Company or any of its affiliated companies,
and their respective businesses, which shall have been
obtained by the Executive during the Executive's employment
by the Company or any of its affiliated companies and which
shall not be or become public knowledge (other than by acts
by the Executive or representatives of the Executive in
violation of this Agreement). After termination of the
Executive's employment with the Company, the Executive shall
not, without the prior written consent of the Company or as
may otherwise be required by law or legal process, com-
municate or divulge any such information, knowledge or data
to anyone other than the Company and those designated by it.
In no event shall an asserted violation of the provisions of
this Section 10 constitute a basis for deferring or withhold-
ing any amounts otherwise payable to the Executive under this
Agreement.
11. Successors. (a) This Agreement is personal to
----------
the Executive and without the prior written consent of the
Company shall not be assignable by the Executive otherwise
than by will or the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable by
the Executive's legal representatives.
(b) This Agreement shall inure to the benefit of
and be binding upon the Company and its successors and as-
signs.
-37-
<PAGE>
(c) The Company will require any successor (whether
direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or
assets of the Company to assume expressly and agree to
perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no
such succession had taken place. As used in this Agreement,
''Company'' shall mean the Company as hereinbefore defined and
any successor to its business and/or assets as aforesaid
which assumes and agrees to perform this Agreement by
operation of law, or otherwise.
12. Miscellaneous. (a) This Agreement shall be
-------------
governed by and construed in accordance with the laws of the
Commonwealth of Virginia, without reference to principles of
conflict of laws. The captions of this Agreement are not
part of the provisions hereof and shall have no force or ef-
fect. This Agreement may not be amended or modified
-38-
<PAGE>
otherwise than by a written agreement executed by the parties
hereto or their respective successors and legal representa-
tives.
(b) All notices and other communications hereunder
shall be in writing and shall be given by hand delivery to
the other party or by registered or certified mail, return
receipt requested, postage prepaid, addressed as follows:
If to the Executive:
-------------------
If to the Company:
-----------------
Philip Morris Companies Inc.
120 Park Avenue
New York, N.Y. 10017
Attention: General Counsel
or to such other address as either party shall have furnished
to the other in writing in accordance herewith. Notice and
communications shall be effective when actually received by
the addressee.
(c) The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or
enforceability of any other provision of this Agreement.
(d) The Company may withhold from any amounts pay-
able under this Agreement such Federal, state, local or
foreign taxes as shall be required to be withheld pursuant to
-39-
<PAGE>
any applicable law or regulation.
(e) The Executive's or the Company's failure to
insist upon strict compliance with any provision hereof or
any other provision of this Agreement or the failure to as-
sert any right the Executive or the Company may have
hereunder, including, without limitation, the right of the
Executive to terminate employment for Good Reason pursuant to
Section 5(c)(i)-(v) of this Agreement, shall not be deemed to
be a waiver of such provision or right or any other provision
or right of this Agreement.
(f) The Executive and the Company acknowledge that,
except as may otherwise be provided under any other written
agreement between the Executive and the Company, the employ-
ment of the Executive by the Company is ''at will'' and, prior
-40-
<PAGE>
to the Effective Date, may be terminated by either the
Executive or the Company at any time. Moreover, if prior to
the Effective Date, (i) the Executive's employment with the
Company terminates or (ii) the Executive ceases to be [state
position] of the Company, except, in each case in connection
with a Potential Change of Control then the Executive shall
have no further rights under this Agreement. From and after
the Effective Date this Agreement shall supersede any other
agreement between the parties with respect to the subject
matter hereof.
IN WITNESS WHEREOF, the Executive has hereunto set
the Executive's hand and, pursuant to the authorization from
its Board of Directors, the Company has caused these presents
to be executed in its name on its behalf, all as of the day
and year first above written.
-----------------------------
[Executive]
PHILIP MORRIS COMPANIES INC.
By
--------------------------
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<PAGE>
EXHIBIT 13
OUR
STRENGTH
IS IN OUR
NUMBERS
FINANCIAL CONTENTS
19 Management's Discussion and
Analysis of Financial Condition
and Results of Operations
26 Selected Financial Data--
Fifteen-Year Review
28 Consolidated Balance Sheets
30 Consolidated Statements of Earnings
30 Consolidated Statements of
Cash Flows
32 Consolidated Statements of
Stockholders' Equity
33 Notes to Consolidated Financial
Statements
46 Report of Independent Accountants
46 Company Report on Financial
Statements
. Annual dividend rate up 26.9%
. $6 billion, 3-year share repurchase program authorized
. Earnings per share up 19.0%
. Consumer products debt to equity ratio down to 1.17 from 1.41
. Marlboro retail market share at 28.6%, up 3.7 share points
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
CONSOLIDATED OPERATING RESULTS--OPERATING REVENUES
(in millions) 1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Tobacco $28,671 $25,973 $25,677
Food 31,669 30,372 29,048
Beer 4,297 4,154 3,976
Financial services and
real estate 488 402 430
------- ------- -------
Total $65,125 $60,901 $59,131
======= ======= =======
<CAPTION>
CONSOLIDATED OPERATING RESULTS--OPERATING INCOME
(in millions) 1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Tobacco $ 6,162 $ 4,910 $ 7,193
Food 3,108 2,608 2,769
Beer 413 215 258
Financial services and
real estate 208 249 219
------- ------- -------
Operating profit 9,891 7,982 10,439
Unallocated corporate
expenses (442) (395) (380)
------- ------- -------
Total $ 9,449 $ 7,587 $10,059
======= ======= =======
</TABLE>
1994 Compared with 1993
Operating revenues for 1994 increased $4.2 billion (6.9%) over 1993.
Operating profit, as defined for segment reporting purposes (operating income
excluding unallocated corporate expenses), increased $1.9 billion (23.9%),
reflecting increases in all consumer products business segments, the 1993
restructuring charge (discussed below) and the 1993 domestic tobacco business
strategy (discussed below). Excluding the 1993 restructuring charge, operating
profit increased $1.2 billion (13.4%) over 1993.
Interest and other debt expense, net, decreased $158 million (11.4%) in 1994,
due primarily to lower average outstanding debt during the year, partially
offset by higher interest rates on debt.
Earnings before cumulative effect of accounting change increased in 1994 by
$1.2 billion (32.4%), due to increased operating profit ($1.9 billion) and lower
interest and other debt expense, net ($158 million), partially offset by a
higher income tax provision ($863 million). Excluding the 1993 restructuring
charge, earnings before cumulative effect of accounting change increased 17.4%
over 1993.
Earnings per share before cumulative effect of accounting change increased in
1994 by 34.2%, due to an increase in earnings of 32.4% to $4.7 billion and fewer
shares outstanding. Excluding the 1993 restructuring charge, earnings per share
before cumulative effect of accounting change increased 19.0% over 1993. As a
result of the Company's share repurchase programs, the weighted average number
of shares outstanding decreased to 867 million in 1994 from 878 million in 1993.
1993 Compared with 1992
Operating revenues for 1993 increased $1.8 billion (3.0%). As a result of
the restructuring charge (discussed below) and the 1993 domestic tobacco
business strategies (discussed below),
LOGO - BENSON & HEDGES
19
<PAGE>
operating profit decreased $2.5 billion (23.5%). Excluding domestic tobacco
and the restructuring charge, operating profit increased 12.6% over 1992.
Interest and other debt expense, net, decreased $60 million (4.1%) in 1993,
due primarily to lower interest rates and higher interest income, partially
offset by higher average outstanding debt during the year.
A new federal income tax law became effective January 1, 1993. As a result,
1993 earnings per share reflected a $.05 per share reduction to reflect the
higher tax rate.
Earnings before cumulative effect of accounting change decreased in 1993 by
$1.4 billion (27.8%), due to decreased operating profit ($2.5 billion),
partially offset by lower interest and other debt expense, net ($60 million) and
a lower income tax provision ($1.0 billion).
Net earnings and earnings per share for 1993 were as follows:
<TABLE>
<CAPTION>
Net
Earnings Earnings E.P.S. %
(in millions) per Share Decrease
------------- --------- --------
<S> <C> <C> <C>
Net earnings excluding
restructuring and
SFAS No. 112 $4,043 $4.60 (15.6)%
SFAS No. 112--
incremental charge (18) (.02)
------ -----
Net earnings--ongoing
basis 4,025 4.58
Restructuring provision (457) (.52)
------ -----
3,568 4.06
SFAS No. 112--
cumulative adjustment (477) (.54)
------ -----
Net earnings--as reported $3,091 $3.52 (35.4)%
====== ===== ======
</TABLE>
Earnings per share for 1993, excluding the impact of restructuring and the
adoption of Statement of Financial Accounting Standards ("SFAS") No. 112,
decreased 15.6% from 1992, due to a decrease in earnings of 18.1% to $4.0
billion, partially offset by fewer shares outstanding. As a result of the
Company's share repurchase program, the weighted average number of shares
outstanding decreased to 878 million in 1993 from 906 million in 1992.
1993 Restructuring
In the fourth quarter of 1993, the Company provided for the restructuring of its
worldwide operations to significantly reduce its cost structure and improve its
future growth, profitability and cash flow. The charge related primarily to the
downsizing or closure of approximately 40 manufacturing and other facilities.
This restructuring charge reduced 1993 earnings before income taxes, net
earnings and earnings per share by $741 million, $457 million and $.52,
respectively. Included in this charge were asset write-downs of $429 million,
with the remainder of the charge representing anticipated cash expenditures to
be funded with cash provided by operating activities. As part of the
restructuring, the Company intends to reduce its workforce by approximately 8%,
or 14,000 positions by 1996. It is estimated that the SFAS No. 112 reserve will
be sufficient to provide for costs associated with the workforce reduction
contemplated by the restructuring. Savings from the planned actions are being
used for both business-building initiatives and profit improvement.
During 1994, the Company expended approximately $100 million in connection
with the 1993 restructuring program. Originally, the Company had estimated that
the restructuring would result in approximately $600 million of annual after-tax
savings by 1997. Due to higher worldwide demand of cigarettes, some
restructuring savings are expected to be delayed. The revised planned savings by
1997 are now estimated at $500 million.
<TABLE>
<CAPTION>
OPERATING RESULTS BY BUSINESS SEGMENT
TOBACCO--OPERATING REVENUES
(in millions) 1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Domestic tobacco (PM Inc.) $11,110 $10,227 $12,010
International tobacco 17,561 15,746 13,667
------- ------- -------
Total $28,671 $25,973 $25,677
======= ======= =======
<CAPTION>
TOBACCO--OPERATING PROFIT
(in millions) 1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Domestic tobacco (PM Inc.) $3,302 $2,808 $5,185
International tobacco 2,877 2,360 2,018
Amortization of goodwill (17) (13) (10)
Restructuring charges (245)
------ ------ ------
Total $6,162 $4,910 $7,193
====== ====== ======
</TABLE>
Business Environment
The tobacco industry, including PM Inc., has faced a number of issues which
have affected volume, operating revenues and operating profit. In 1994, these
developments intensified and new issues emerged. These included proposed
federal regulatory controls, actual and proposed excise tax increases, federal,
state and local governmental and private restrictions on smoking (including
additional restrictions imposed by airlines), new and proposed restrictions on
tobacco manufacturing, marketing, advertising and sales, increased assertions
of adverse health effects associated with both smoking and exposure to tobacco
smoke (and legislation or other governmental action seeking to ascribe to the
industry responsibility and liability therefor), the diminishing social
acceptance of smoking and the commencement of private plaintiff class action
litigation as well as actions by states seeking Medicaid reimbursement. See the
Report of Independent Accountants and Note 15 to the Consolidated Financial
Statements regarding litigation in which the Company and/or PM Inc. are
defendants.
Currently, the federal excise tax on cigarettes is $12 per thousand ($.24 per
pack). During 1994, the legislative health care debate produced numerous
proposals for increasing the federal excise tax on tobacco, ranging from
increases of $.45 to $1.75 per pack. Legislation in the Senate and in the House
of Representatives contained provisions which were identical and which, if
enacted, would have resulted in an increase of $.45 per pack, to be phased in
over a five-year period commencing August 1, 1995. Congress adjourned without
taking action on these proposals. It is anticipated that higher excise taxes, if
implemented, could result in volume declines for PM Inc. and the cigarette
industry and might cause shifts between the premium and discount segments.
LOGO - ENTENMANN'S
20
<PAGE>
Legislation or other governmental action is proposed periodically that not
only would increase excise taxes but also would curtail further the
advertisement and use of tobacco products. During 1994, members of Congress and
the Administration proposed measures which, if adopted, would ban or severely
restrict smoking in workplaces and in buildings permitting public access,
require substantial additional health warning and product content information on
cigarette packages and in advertising, eliminate the tax deductibility of a
portion of the cost of tobacco advertising and authorize the United States Food
and Drug Administration to regulate tobacco as an addictive drug.
It is not possible to determine what, if any, governmental legislation or
regulations will be adopted relating to cigarettes or to smoking. However, any
or all of the foregoing, if implemented, could have adverse impact on PM Inc.'s
volume, operating revenues and operating profit, the amounts of which cannot be
determined. In addition, there is litigation pending against the Company and PM
Inc. which is discussed in detail in Note 15 to the Consolidated Financial
Statements. The Company's position with regard to this litigation is set forth
therein.
Domestic Tobacco Pricing Strategy Adopted in 1993
During the second quarter of 1993, PM Inc. responded to the increasingly price-
sensitive domestic tobacco market by implementing an extensive promotional
program to reduce the average retail price of Marlboro cigarettes. This action,
which represented a major shift in its domestic tobacco pricing strategy, was
intended to restore lost market share and improve long-term profitability. The
market share results of the Marlboro brand price promotion exceeded
expectations. Accordingly, during the third quarter of 1993, PM Inc. announced
certain actions designed to continue its share recovery strategy. Specifically,
PM Inc. created a two-category pricing structure for its tobacco brands, premium
and discount. In the premium segment, PM Inc. converted its Marlboro retail
price promotion into an equivalent wholesale list price reduction that applied
to all its other premium brands as well. In the discount segment, PM Inc. raised
the net list price of its deep discount products. Its other discount brands are
being offered at the same net list price. These strategies effectively narrowed
the price gap between PM Inc.'s premium cigarette brands and competitors'
discount products. These strategies thus far have proven successful, with PM
Inc. recording share and volume gains for Marlboro and its other premium brands
since lowering prices.
1994 Compared with 1993
Domestic tobacco. During 1994, domestic cigarette industry volume (based on
shipments) continued to shift from the discount segment to the more profitable
premium segment. The premium and discount segments accounted for approximately
67% and 33%, respectively, of the domestic cigarette industry in 1994, compared
with 63% and 37%, respectively, in 1993.
PM Inc.'s domestic volume (based on shipments) was 219.4 billion units in
1994, an increase of 12.7%, reflecting the continued success of PM Inc.'s new
pricing strategy and its marketing and promotional programs. This compared with
an industry increase of 6.2%. PM Inc.'s market share for 1994 was 44.8%, an
increase of 2.6 share points from 1993. In the premium segment, volume in PM
Inc.'s brands increased 22.3% in 1994, compared with a 13.3% increase for the
industry, resulting in a category share gain of 3.9 share points to 53.6%. The
Marlboro family's volume was up 29.3 billion units (27.0%) for a 28.1% share of
the total industry, as compared with a 23.5% share in 1993. In the discount
segment, PM Inc.'s shipments decreased 15.2% to 42.3 billion units in 1994,
compared with an industry decrease of 6.1%, resulting in PM Inc.'s decrease of
2.8 share points in this segment to 26.5%.
Since the implementation of the pricing strategy discussed above, Nielsen
retail sales data, a more accurate reflection of consumer buying habits than
shipment data, indicate PM Inc. and Marlboro 1994 market shares of 46.2% and
28.6%, respectively, as compared with 43.8% and 24.9%, respectively, during
1993, and 41.6% and 22.0%, respectively, at their low point in March 1993.
Additionally, retail share of PM Inc.'s other premium brands, as a group,
climbed to 9.0% during 1994, up from 8.8% during 1993 and 8.3% in August 1993,
when PM Inc. lowered its premium brands' wholesale list prices. (March 1993
retail market shares were restated in the first quarter of 1994 to reflect PM
Inc.'s change to a more representative Nielsen survey of retail outlets.
Previously reported retail market shares for PM Inc. and Marlboro in March 1993
were 41.7% and 22.1%, respectively.)
During 1994, the Company's domestic tobacco operating revenues increased 8.6%,
due primarily to volume increases ($1.3 billion) and favorable product mix ($461
million), partially offset by price decreases ($887 million). Operating profit
in 1994 increased 17.6%, due primarily to volume increases ($802 million),
favorable product mix ($452 million) and lower marketing, administration and
research costs ($245 million), partially offset by price decreases and higher
costs (aggregating $1.0 billion).
International tobacco. Operating revenues in 1994 increased 11.5%, due
primarily to favorable volume/mix ($756 million), higher foreign excise taxes
($752 million), price increases ($260 million) and currency movement ($59
million). Total international unit volume increased 76.2 billion units (16.6%)
to 536.0 billion units. Volume advanced in most markets, including Germany,
Italy, France, Spain, the Netherlands, Belgium, Central and Eastern Europe, the
Middle East, Hong Kong, Japan, Korea, Argentina and Brazil. For the full year,
volume declined in Turkey reflecting reduced consumer purchasing power, but was
higher in the fourth quarter due to a new product launch. The Company's market
share advanced in most of its major international markets, with record shares
achieved in Germany, Italy, France, Spain, the Netherlands, Belgium, Finland,
Japan, Korea, Hong Kong, Singapore, Argentina and Brazil. International volume
continued to grow for Marlboro and the Company's other international brands.
Operating profit increased 21.9%, due primarily to price increases and lower
costs (aggregating $426 million) and volume/mix increases ($351 million),
partially offset by higher marketing expenses ($179 million) and currency
movement ($71 million).
1993 Compared with 1992
Domestic tobacco. During 1993, domestic cigarette industry volume continued to
shift from the premium segment to the discount segment, although the trend began
to reverse in the third quarter of 1993, following the implementation of PM
Inc.'s pricing strategy discussed above. The premium and discount segments for
1993 accounted for approximately 63% and 37%,
LOGO - VELVEETA
21
<PAGE>
respectively, of the domestic cigarette industry, as compared with 70% and
30%, respectively, in 1992.
PM Inc.'s domestic volume was 194.7 billion units, a decrease of 9.1% compared
with an industry decline of 9.0%. PM Inc.'s market share was 42.2%, stable with
1992. In the premium segment, volume in PM Inc.'s brands decreased 16.2%,
compared with a 17.6% decrease for the industry, resulting in a market share
gain of .9% share point to 49.7%. The Marlboro family's volume was down 15.4
billion units (12.4%), accounting for a 23.5% share of the total industry, as
compared with a 24.4% share in 1992. However, PM Inc. believes that much of the
decline in Marlboro and other premium brands was due to wholesale inventory
reductions, compared with prior years when wholesale inventories were maintained
at higher levels in anticipation of price increases. In the discount segment, PM
Inc.'s shipments increased 20.1% to 49.8 billion units, resulting in a gain of
2.3 share points in this segment to 29.4%. The foregoing volume and market share
data are based on shipments. Since the implementation of the strategy announced
on April 2, 1993, and subsequent actions taken by PM Inc., Nielsen retail sales
data, a more accurate reflection of consumer buying habits than shipment data,
indicated a share gain for Marlboro, growing from its low point of 22.0% in
March to 27.4% in December.
In 1993, PM Inc.'s operating revenues decreased 14.8%, due primarily to volume
decreases ($1.1 billion), unfavorable product mix ($530 million) and price
decreases ($517 million, including approximately $200 million to compensate
wholesale and retail distributors for the effects of price decreases on their
inventories), partially offset by an increase in federal excise taxes ($387
million). Operating profit decreased 45.8% from 1992, due primarily to higher
marketing, administration and research costs ($850 million, substantially all of
which related to promotions of Marlboro), volume decreases ($743 million), price
decreases ($517 million) and unfavorable product mix ($452 million), partially
offset by cost decreases ($206 million, including a $105 million favorable
impact from inventory calculations).
International tobacco. Operating revenues in 1993 increased 15.2%, due
primarily to higher foreign excise taxes ($1.0 billion, including those for
previously unconsolidated operations and acquisitions), favorable volume/mix
($663 million), the consolidation of previously unconsolidated operations ($435
million), price increases ($166 million) and the impact of acquisitions ($79
million), partially offset by currency movement ($287 million). Total 1993
international unit volume increased 38.5 billion units (9.2%) to 459.7 billion
units. Volume gains were recorded in most markets including Italy, Germany,
France, Turkey, Central and Eastern Europe, Japan and Argentina. The Company's
market share trends remained positive in all its major international markets.
Marlboro's international volume continued to grow, increasing 3.5% to 240.1
billion units. International tobacco operating profit increased 16.9%, due
primarily to volume/mix increases ($302 million), price increases, net of cost
increases ($155 million), the consolidation of previously unconsolidated
operations ($89 million) and the impact of acquisitions ($22 million),
partially offset by higher marketing expenses ($103 million) and currency
movement ($52 million).
<TABLE>
<CAPTION>
FOOD--OPERATING REVENUES
(in millions) 1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
North American food $21,556 $20,940 $20,325
International food 10,113 9,432 8,723
------- ------- -------
Total $31,669 $30,372 $29,048
======= ======= =======
<CAPTION>
FOOD--OPERATING PROFIT
(in millions) 1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
North American food $2,539 $2,404 $2,194
International food 1,153 1,114 1,083
Amortization of goodwill (584) (553) (508)
Restructuring charges (357)
------ ------ ------
Total $3,108 $2,608 $2,769
====== ====== ======
</TABLE>
Business Environment
The Company has taken several steps to reduce costs and increase
profitability. Effective January 1995, the Company implemented a reorganization
of its North American food business to fully integrate the operations of the
former Kraft USA and General Foods USA. The combined organization, named Kraft
Foods, Inc., is expected to streamline operations and improve speed,
effectiveness and customer response. Similarly, the Company continued to
integrate its European operations into one entity, Kraft Jacobs Suchard.
In addition to the above steps, the Company has sold several domestic
businesses as part of a broad strategy to rebalance its branded food portfolio
for enhanced growth and profitability. These include frozen vegetables and ice
cream businesses in the fourth quarter of 1993 and The All American Gourmet
Company, maker of frozen meals and side dishes, in the fourth quarter of 1994.
In addition, the Company entered into an agreement in the fourth quarter of
1994 to sell its Kraft Foodservice distribution business. The sale closed in
February 1995. The Kraft Foodservice divestiture will lower 1995 operating
revenues by approximately $3.5 billion, net of sales to Kraft Foodservice from
the Company's other North American food businesses. This divestiture will not
have a material effect on the Company's results of operations in 1995, but will
improve the operating profit margin of North American food operations.
The Company is a major purchaser of green coffee beans, poultry, meat cuts,
wheat, cocoa, sugar and hazel nuts. The Company continually monitors worldwide
supply and cost trends of these commodities to enable it to take appropriate
actions to obtain ingredients needed for production. Such actions may, when
deemed prudent, include commodity futures transactions.
Both the North American and International food businesses were affected
during 1994 by higher green coffee bean prices, resulting from frosts in Brazil
in the second quarter. Late in the fourth quarter of 1994, green coffee bean
prices moderated slightly, due primarily to higher Brazilian crop estimates
than originally anticipated.
LOGO - HIGH LIFE
22
<PAGE>
In May 1994, new labeling requirements for food products, issued by the U.S.
Food and Drug Administration, became effective. Compliance with the new
requirements has not had a material adverse impact on North American food
results of operations.
1994 Compared with 1993
In 1994, North American food operating revenues increased 2.9%, due to
volume increases ($807 million) and price increases ($493 million, due
primarily to rising commodity costs), partially offset by the impact of
dispositions, net of acquisitions ($629 million) and currency movement ($85
million). Volume rose from increases in cheese; in cereals and processed meats,
due primarily to new products and line extensions; in frozen pizza, due to
geographic expansion and category growth; and in Kraft Foodservice distribution
and Canadian operations. Volume declined in commodity oil products, dinners and
enhancers (rice products, stuffing mixes and syrups) and coffee (reflecting
category contraction from higher pricing, due to increased green bean costs).
Operating profit in 1994 increased 5.6%, due primarily to volume increases
($307 million) and price increases, net of cost increases ($139 million),
partially offset by higher marketing expenses ($322 million).
Operating revenues in 1994 for International food increased 7.2%, due
primarily to acquisitions ($336 million) as well as commodity driven price
increases. These increases were partially offset by volume decreases ($104
million) and currency movement ($32 million). Coffee volume was unfavorably
impacted by higher retail prices, a result of frosts in Brazil which
substantially increased green bean costs. Confectionery volume increased,
benefiting from successful marketing programs and new product launches. Overall,
cheese and grocery volume was also higher as key brands continued to perform
well in Europe and Asia. Operating profit in 1994 increased 3.5%, due primarily
to acquisitions ($34 million) and price increases, partially offset by higher
marketing, administration and research costs ($89 million, due partly to
geographic expansion), volume decreases ($63 million) and currency movement ($22
million).
1993 Compared with 1992
In 1993, North American food operating revenues increased 3.0%, due primarily to
price increases ($404 million), volume increases ($260 million) and the impact
of acquisitions, net of dispositions ($21 million), partially offset by currency
movement ($88 million). Volume gains were recorded in cereals and frozen pizza,
due primarily to acquisitions, and in cheese, processed meats, bakery, frozen
meals, Kraft Foodservice distribution and Canadian operations. Volume declined
in beverages and in turkey products. Operating profit increased 9.6%, due
primarily to price increases and lower product costs (aggregating $329 million),
volume increases ($33 million) and the impact of acquisitions, net of
dispositions ($16 million), partially offset by higher marketing expenses ($195
million) and currency movement ($13 million).
International food operating revenues in 1993 increased 8.1%, due primarily
to the impact of acquisitions ($1.0 billion), volume increases ($423 million)
and the consolidation of previously unconsolidated subsidiaries ($159 million),
partially offset by currency movement ($884 million). All major core categories
showed volume growth versus the prior year, particularly confectionery, which
benefited from acquisitions, new product introductions and line extensions.
Market share for the core confectionery and coffee businesses continued to show
positive trends. Operating profit increased 2.9%, due primarily to volume
increases ($178 million), acquisitions ($153 million) and lower product costs
($104 million), partially offset by currency movement ($202 million), higher
marketing expenses ($162 million) and 1992 gains on sales of assets ($47
million).
BEER
1994 Compared with 1993
Operating revenues in 1994 increased $143 million (3.4%), due to price/mix
increases ($93 million), the acquisition of Molson Breweries U.S.A. Inc. in the
second quarter of 1993 ($71 million) and volume increases ($61 million),
partially offset by the disposition of distributorships ($82 million). Unit
volume (based on shipments) increased 2.8% reflecting strong growth in premium
brands (7.6%), partially offset by a decrease in budget brands. Premium brand
growth was led by the introductions of ice-brewed products and Red Dog. Miller
Lite volume declined, but volume for the Lite brand family grew, due to the
introduction of Lite Ice. Market share of the U.S. malt beverage industry (based
on shipments) was 22.7% in 1994 compared with 22.2% in 1993. Operating profit,
excluding the $139 million impact of the 1993 restructuring, increased $59
million (16.7%), due primarily to price/mix increases ($75 million), lower costs
due to a reduction in workforce ($38 million) and higher volume ($25 million),
partially offset by higher marketing, administration and research costs ($77
million) and dispositions ($11 million).
1993 Compared with 1992
Operating revenues in 1993 increased 4.5%, due primarily to the acquisition of
Molson Breweries U.S.A. Inc. ($164 million) and shipment volume increases,
excluding Molson brands ($45 million), partially offset by price/mix decreases
($57 million). During the second quarter of 1993, the Company acquired a 20%
equity interest in Molson Breweries in Canada and 100% of Molson Breweries
U.S.A. Unit volume (based on shipments) increased 4.3% to 44.0 million barrels,
up 1.1% excluding Molson brands, compared with U.S. malt beverage industry
shipments, which were up slightly during the year. During 1993, consumer trade-
down patterns were evident in the industry as sales in the premium category
declined. Accordingly, the Company reduced the price of Miller High Life in many
markets during the year. Shipment volume gains were recorded in Miller High
Life, reflecting such price reductions, and in the Miller Genuine Draft brand
family. Shipments of Miller Lite declined, but by a lesser percentage than that
experienced in prior years, reflecting concentrated marketing efforts to slow
its decline. Market share of the U.S. malt beverage industry (based on
shipments) was 22.2% in 1993 compared with 21.4% in 1992. Operating profit,
excluding the $139 million impact of the 1993 restructuring, increased 37.2%,
due primarily to lower product costs ($84 million), a 1992 provision for
workforce reduction programs ($25 million), higher volume, excluding Molson
brands ($19 million) and the impact of acquisitions ($19 million), partially
offset by price/mix decreases ($57 million).
LOGO - BASIC
23
<PAGE>
FINANCIAL SERVICES AND REAL ESTATE
1994 Compared with 1993
Operating revenues from financial services and real estate operations
increased 21.4% and operating profit decreased 16.5% in 1994. Operating
revenues from financial services decreased 7.0%, due primarily to lower finance
asset levels. The Company sold its stock and bond portfolio in the first
quarter of 1994. The majority of the proceeds from the sales were not
reinvested, but used for a $475 million dividend to Philip Morris Companies
Inc. Operating profit from financial services decreased 22.1%, due primarily to
a 1993 adjustment to the Company's leveraged lease portfolio to account for the
new federal income tax rate (see below) and lower 1994 finance asset investment
income. Operating revenues and operating profit from real estate operations
increased from 1993 levels, due primarily to higher residential land sales in
Southern California and Colorado.
1993 Compared with 1992
Operating revenues from financial services and real estate decreased 6.5%
and operating profit increased 13.7% in 1993. Operating revenues from financial
services decreased 5.9%, due primarily to lower average finance assets.
Operating profit from financial services increased 31.1%, due primarily to an
adjustment to the leveraged lease portfolio for the effects of the increase in
the federal income tax rates (due to the nature of leveraged lease accounting,
this increase in operating profit was more than offset in the provision for
income taxes; however, it had no material impact on the Company's net
earnings), lower provision for losses and lower interest expense versus 1992.
Operating revenues and operating profit from real estate operations decreased
from 1992 levels, due primarily to decreased California sales.
FINANCIAL REVIEW
Cash Provided and Used
Net Cash Provided by Operating Activities
In 1994, cash provided by operating activities was $6.9 billion, compared
with $7.0 billion in 1993. The decrease was due primarily to more cash used for
working capital items in 1994 (including approximately $300 million of
expenditures related to the 1993 restructuring program and corresponding
workforce reductions) and payment of interest on zero coupon bonds which
matured in 1994, partially offset by higher earnings.
Free cash flow is a measure of excess cash generated by a company and is
available for debt repayment, share repurchase and acquisitions. The Company
defines free cash flow as cash provided by operating activities less capital
expenditures, dividends paid to stockholders and net investments in finance
assets. In 1994, consolidated free cash flow totaled $3.0 billion, approximating
the 1993 amount.
In 1993, cash provided by operating activities increased $85 million (1.2%) to
$7.0 billion, due primarily to less cash used for working capital items in 1993,
partially offset by lower earnings. Neither the adoption of SFAS No. 112 nor the
provision for restructuring had a material impact on the Company's operating
cash flow in 1993.
Net Cash Used in Investing Activities
Cash used in investing activities of $1.2 billion decreased in 1994 by $3.0
billion (70.7%), reflecting less cash spent for acquisitions in 1994 as compared
with 1993. Capital expenditures were $1.7 billion in 1994, approximately 62% and
31% of which related to food operations and tobacco operations, respectively,
primarily for modernization of manufacturing facilities. Capital expenditures
are estimated to be $1.7 billion in 1995 and a total of $7.5 billion for the
five-year period 1995-1999, of which approximately 55% and 59%, respectively,
are projected for food operations and approximately 36% and 32%, respectively,
are projected for tobacco operations.
In 1994, cash provided by net proceeds from finance assets was $307 million,
as compared with cash used for net investments in finance assets of $70 million
in 1993 and $801 million in 1992.
During 1994, the Company made several strategic international acquisitions in
its tobacco and food operations at a cost of $146 million. Also during 1994, the
Company sold The All American Gourmet Company (frozen dinners business) and
several beer distributorships. The proceeds from the sales of these businesses
and other smaller divestitures aggregated $300 million. In February 1995, the
Company sold its Kraft Foodservice distribution business.
Cash used in investing activities of $4.2 billion increased in 1993 by $1.3
billion (43.4%). The increase reflects a $2.1 billion increase in cash used for
acquisitions, net of dispositions, and a $731 million decrease in cash used for
net investments in finance assets. Capital expenditures were $1.6 billion in
1993, approximately 59% and 33% of which related to food operations and tobacco
operations, respectively, primarily for modernization of manufacturing
facilities.
During 1993, the Company acquired Freia Marabou a.s, a Scandinavian
confectionery company, at a cost of $1.3 billion, a North American ready-to-eat
cold cereals business at a cost of $448 million and The Terry's Group, a United
Kingdom confectionery company, for $295 million. In addition, the Company
acquired a 20% equity interest in Molson Breweries in Canada and 100% of Molson
Breweries U.S.A., at a cost of $320 million. Also, the Company acquired 98% of
Kazakhstan cigarette manufacturer Almaty Tobacco Kombinat from the Government of
the Republic of Kazakhstan at a cost of approximately $300 million. The Company
also increased its investment in food and tobacco operations in other regions of
Central and Eastern Europe.
During 1993, the Company sold its ice cream business, frozen vegetables
business and beer can manufacturing plants. The proceeds from the sales of these
businesses aggregated $498 million.
Net Cash Used in Financing Activities
Debt
The Company's total debt was $16.5 billion at December 31, 1994 and $18.2
billion at December 31, 1993 and 1992.
During 1994, total consumer products debt decreased $1.4 billion. The decrease
represented $1.7 billion of net repayment of long-term debt, partially offset by
$172 million of net issuance of short-term debt. During 1993, total consumer
products debt increased $95 million. The increase represented $1.2 billion of
LOGO - PHILADELPHIA BRAND CREAM CHEESE
24
<PAGE>
net issuance of short-term debt, partially offset by $1.1 billion of net
repayment of long-term borrowings. During 1992, total consumer products debt
increased $980 million. The increase represented $1.7 billion of net issuance
of long-term debt, partially offset by $683 million of net repayment of
short-term borrowings.
Fixed rate debt comprised approximately 81% and 83% of consumer products debt
at December 31, 1994 and 1993, respectively. The average interest rate on total
consumer products debt was approximately 7.7% and 7.6% during 1994 and 1993,
respectively. At December 31, 1994, the average interest rate on total consumer
products debt, including the impact of currency swap agreements discussed below,
was approximately 7.8%.
The Company operates internationally, with manufacturing and sales facilities
in various locations around the world. The Company continually evaluates its
foreign currency exposure (primarily the Swiss franc, Deutsche mark, Swedish
krona, Canadian dollar and Italian lira), based on current market conditions and
business strategies. It acts to manage such exposure, when deemed prudent,
through various hedging transactions. The Company has entered into currency and
related interest rate swap agreements to manage exposure to currency movements.
The aggregate notional principal amounts of these agreements outstanding at
December 31, 1994 and 1993 were $1.6 billion and $1.4 billion, respectively, of
which $1.2 billion related to consumer products debt at December 31, 1994 and
1993.
At December 31, 1994, the Company's credit facilities amounted to
approximately $15.3 billion, of which approximately $15.1 billion were unused.
Included in these facilities is a revolving credit facility for $8 billion
expiring in 1998, which enables the Company to refinance short-term debt on a
long-term basis, and a $4 billion credit facility expiring in December 1995.
These facilities are used to support the Company's commercial paper borrowings
and are available for acquisitions and other corporate purposes. The Company
expects to continue to refinance long-term and short-term debt from time to
time. The nature and amount of the Company's long-term and short-term debt and
the proportionate amount of each can be expected to vary as a result of future
business requirements, market conditions and other factors.
The Company's credit ratings by Moody's at December 31, 1994, 1993 and 1992
were "P-1" in the commercial paper market and "A2" for long-term debt
obligations. The Company's credit ratings by Standard & Poor's at December 31,
1994, 1993 and 1992 were "A-1" in the commercial paper market and "A" for long-
term debt obligations.
Equity and Dividends
During 1994, the Company repurchased 28.8 million shares of its common stock at
an aggregate cost of $1.6 billion. The majority of these purchases were made in
accordance with the Company's May 1992 announcement of its intention to spend up
to $3.0 billion to repurchase common stock in open market transactions. On
August 31, 1994, the Board of Directors authorized a new $6.0 billion three-year
share repurchase program. The new program took effect on October 27, 1994, after
the balance of the previous repurchase program had been used. Through December
31, 1994, cumulative purchases under the new program totaled 7.3 million shares
at a cost of $433 million.
At December 31, 1994, the ratio of consumer products debt to total equity was
1.17, compared with 1.41 at December 31, 1993. The Company's ratio of total debt
to total equity at December 31, 1994 was 1.29 compared with 1.56 at December 31,
1993. The decrease in these ratios primarily reflects lower debt, as well as an
increase in stockholders' equity. The increase in stockholders' equity was due
to net earnings in 1994 and favorable movement in the currency translation
adjustment ($664 million), partially offset by dividends declared ($2.6 billion)
and purchases of common stock.
Dividends paid in 1994 increased 8.6% over 1993, reflecting the increase in
dividends declared, partially offset by fewer shares outstanding. The Board of
Directors increased the Company's quarterly dividend rate 6.2% in February 1994
and 19.6% in August 1994 to an annualized dividend rate of $3.30 per share.
Return on average stockholders' equity was 38.7% in 1994 and 25.6% in 1993.
Excluding the cumulative effect of the adoption of SFAS No. 112, the return on
average stockholders' equity would have been 28.9% in 1993. The increase from
1993 reflects higher earnings, as well as the impact of treasury stock acquired
pursuant to the common stock repurchase programs and dividends declared,
partially offset by favorable movement in the currency translation account.
ADOPTION OF FINANCIAL ACCOUNTING PRONOUNCEMENTS
Effective January 1, 1993, the Company adopted SFAS No. 112, "Employers'
Accounting for Postemployment Benefits." The cumulative effect at January 1,
1993 of adopting SFAS No. 112 reduced 1993 net earnings by $477 million ($.54
per share), net of $297 million of income tax benefits. Adoption of SFAS No.
112 did not materially reduce 1993 earnings before cumulative effect of
accounting change. (See Note 13 to the Consolidated Financial Statements.)
The Company will adopt the following accounting standards, effective January
1, 1995: SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other
Than Pensions," for its non-U.S. employees. Currently the cost of postretirement
benefits for the Company's non-U.S. employees is expensed as incurred; SFAS No.
116, "Accounting for Contributions Received and Contributions Made," requires
that contributions made, including unconditional promises to give, are
recognized as expense in the period the promise is made; Statement of Position
("SOP") 93-7, "Reporting on Advertising Costs," requires that advertising costs
be expensed either as incurred or the first time the advertising takes place,
except for direct-response advertising. Adoption of these standards will not
have a material effect on the Company's financial position or results of
operations.
CONTINGENCIES
See the Report of Independent Accountants and Note 15 to the Consolidated
Financial Statements for discussion of contingencies.
LOGO - KOOL-AID
25
<PAGE>
SELECTED FINANCIAL DATA-FIFTEEN-YEAR REVIEW (in millions of dollars, except per
share data)
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
-------------- ---------- -------------- -------------- ---------
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS:
Operating revenues $ 65,125 $ 60,901 $ 59,131 $ 56,458 $ 51,169
United States export sales 4,942 4,105 3,797 3,061 2,928
Cost of sales 28,351 26,771 26,082 25,612 24,430
Federal excise taxes on products 3,431 3,081 2,879 2,978 2,159
Foreign excise taxes on products 7,918 7,199 6,157 5,416 4,687
Operating income 9,449 7,587 10,059 8,622 7,946
Interest and other debt expense,
net (consumer products) 1,233 1,391 1,451 1,651 1,635
Earnings before income taxes and
cumulative effect of
accounting changes 8,216 6,196 8,608 6,971 6,311
Pretax profit margin 12.6% 10.2% 14.6% 12.3% 12.3%
Provision for income taxes $ 3,491 $ 2,628 $ 3,669 $ 3,044 $ 2,771
Earnings before cumulative
effect of accounting changes 4,725 3,568 4,939 3,927 3,540
Cumulative effect of accounting
changes (477) (921)
Net earnings 4,725 3,091 4,939 3,006 3,540
Earnings per share before
cumulative effect of accounting
changes 5.45 4.06 5.45 4.24 3.83
Per share cumulative effect of
accounting changes (.54) (.99)
Net earnings per share 5.45 3.52 5.45 3.25 3.83
Dividends declared per share 3.03 2.60 2.35 1.91 1.55
Weighted average shares (millions) 867 878 906 925 925
Capital expenditures
(consumer products) $ 1,726 $ 1,592 $ 1,573 $ 1,562 $ 1,355
Depreciation (consumer products) 1,025 1,042 963 938 876
Property, plant and equipment,
net (consumer products) 11,171 10,463 10,530 9,946 9,604
Inventories (consumer products) 7,987 7,358 7,785 7,445 7,153
Total assets 52,649 51,205 50,014 47,384 46,569
Total long-term debt 14,975 15,221 14,583 14,213 16,121
Total debt--consumer products 14,978 16,364 16,269 15,289 17,182
--financial services
and real estate 1,494 1,792 1,934 1,611 1,560
Total deferred income taxes 2,496 2,168 2,248 1,803 2,083
Stockholders' equity 12,786 11,627 12,563 12,512 11,947
Common dividends declared as a
% of net earnings 55.6% 73.8% 43.0% 58.7% 40.5%
Book value per common share $ 14.99 $ 13.26 $ 14.07 $ 13.60 $ 12.90
Market price of common share
--high/low 64-1/2-47-1/4 77-5/8-45 86-5/8-69-1/2 81-3/4-48-1/4 52-36
Closing price of common share
at year-end 57-1/2 55-5/8 77-1/8 80-1/4 51-3/4
Price/earnings ratio at year-end 11 14 14 19 14
Number of common shares
outstanding at year-end (millions) 853 877 893 920 926
Number of employees 165,000 173,000 161,000 166,000 168,000
</TABLE>
See notes to the consolidated financial statements regarding the 1993 adoption
of SFAS No. 112, the 1993 restructuring of the Company's worldwide operations,
the 1991 adoption of SFAS No. 106 and the 1991 restructuring of food operations.
In 1990, the Company acquired Jacobs Suchard AG. Consolidated results of the
Company include the operating results of Jacobs Suchard AG since its
acquisition.
LOGO - MOLSON
26
<PAGE>
<TABLE>
<CAPTION>
1989 1988 1987 1986 1985
- ------------- -------------- -------------- ------------ ----------
<S> <C> <C> <C> <C>
$ 44,080 $ 31,273 $ 27,650 $ 25,542 $ 16,158
2,288 1,863 1,592 1,193 923
21,868 13,565 12,183 11,901 6,709
2,140 2,127 2,085 2,075 2,049
3,608 3,755 3,331 2,653 1,766
6,789 4,397 3,990 3,537 2,664
1,731 670 646 772 311
5,058 3,727 3,344 2,765 2,353
11.5% 11.9% 12.1% 10.8% 14.6%
$ 2,112 $ 1,663 $ 1,502 $ 1,287 $ 1,098
2,946 2,064 1,842 1,478 1,255
273
2,946 2,337 1,842 1,478 1,255
3.18 2.22 1.94 1.55 1.31
.29
3.18 2.51 1.94 1.55 1.31
1.25 1.01 .79 .62 .50
927 932 951 954 959
$ 1,246 $ 1,024 $ 718 $ 678 $ 347
755 608 564 514 367
8,457 8,648 6,582 6,237 5,684
5,751 5,384 4,154 3,836 3,827
38,528 36,960 21,437 19,482 18,712
14,551 16,812 5,983 6,887 8,035
14,887 16,442 6,355 6,889 7,887
1,538 1,504 1,378 1,141 944
1,732 1,559 2,044 1,519 1,233
9,571 7,679 6,823 5,655 4,737
39.3% 40.3% 40.6% 39.9% 38.1%
$ 10.31 $ 8.31 $ 7.21 $ 5.94 $ 4.96
45-1/2-25 25-1/2-20-1/8 31-1/8-18-1/8 19-1/2-11 11-7/8-9
41-5/8 25-1/2 21-3/8 18 11
13 11 11 11 8
929 924 947 951 955
157,000 155,000 113,000 111,000 114,000
<CAPTION>
1984 1983 1982 1981 1980
- ------------- ------------ ------------ ------------ ----------
<S> <C> <C> <C> <C>
$ 14,102 $ 13,256 $ 11,720 $ 10,886 $ 9,822
925 970 978 834 702
5,840 5,665 5,532 5,253 4,675
2,041 1,983 1,180 1,169 1,105
1,635 1,527 1,435 1,411 1,389
1,908 1,840 1,547 1,312 1,144
276 230 244 232 205
1,632 1,610 1,303 1,080 939
11.6% 12.1% 11.1% 9.9% 9.6%
$ 743 $ 706 $ 521 $ 420 $ 390
889 904 782 660 549
889 904 782 660 549
.91 .90 .78 .66 .55
.91 .90 .78 .66 .55
.43 .36 .30 .25 .20
981 1,008 1,005 999 997
$ 298 $ 566 $ 918 $ 1,019 $ 751
341 294 250 211 178
4,014 4,381 4,178 3,583 2,806
2,653 2,599 2,834 2,922 2,499
9,880 9,908 9,756 9,180 7,362
2,239 2,549 3,776 3,499 2,598
2,566 3,054 3,728 3,804 2,800
436 141 83 3 1
907 825 627 455 327
4,093 4,034 3,663 3,234 2,837
46.8% 40.5% 38.6% 37.9% 36.3%
$ 4.21 $ 4.03 $ 3.64 $ 3.22 $ 2.84
10-3/8-7-3/4 9-6-3/4 8-1/2-5-1/2 6-7/8-5-1/4 6-3-5/8
10-1/8 9 7-1/2 6-1/8 5-3/8
11 10 9 9 9
971 1,000 1,007 1,003 998
68,000 68,000 72,000 72,000 72,000
</TABLE>
LOGO - F6
27
<PAGE>
CONSOLIDATED BALANCE SHEETS (in millions of dollars, except per share data)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
at December 31, 1994 1993
------- -------
<S> <C> <C>
ASSETS
CONSUMER PRODUCTS
Cash and cash equivalents $ 184 $ 182
Receivables, net 4,382 3,982
Inventories:
Leaf tobacco 3,029 3,030
Other raw materials 1,943 1,695
Finished product 3,015 2,633
------- -------
7,987 7,358
Other current assets 1,355 1,286
------- -------
Total current assets 13,908 12,808
Property, plant and equipment, at cost:
Land and land improvements 743 709
Buildings and building equipment 4,834 4,600
Machinery and equipment 11,248 10,494
Construction in progress 1,429 1,127
------- -------
18,254 16,930
Less accumulated depreciation 7,083 6,467
------- -------
11,171 10,463
Goodwill and other intangible assets
(less accumulated amortization of
$3,342 and $2,727) 19,744 19,746
Other assets 2,633 2,529
------- -------
TOTAL CONSUMER PRODUCTS ASSETS 47,456 45,546
FINANCIAL SERVICES AND REAL ESTATE
Finance assets, net 4,519 4,869
Real estate held for development and sale 401 489
Other assets 273 301
------- -------
TOTAL FINANCIAL SERVICES AND
REAL ESTATE ASSETS 5,193 5,659
------- -------
TOTAL ASSETS $52,649 $51,205
======= =======
</TABLE>
See notes to consolidated financial statements.
LOGO - TOMBSTONE
28
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1994 1993
------- -------
<S> <C> <C>
LIABILITIES
CONSUMER PRODUCTS
Short-term borrowings $ 181 $ 268
Current portion of long-term debt 712 1,738
Accounts payable 3,789 3,137
Accrued liabilities:
Marketing 2,086 1,619
Taxes, except income taxes 948 860
Employment costs 926 874
Other 2,290 2,618
Income taxes 1,325 1,853
Dividends payable 708 572
------- -------
Total current liabilities 12,965 13,539
Long-term debt 14,085 14,358
Deferred income taxes 385 361
Accrued postretirement health care costs 2,164 2,031
Other liabilities 5,609 4,622
------- -------
TOTAL CONSUMER PRODUCTS LIABILITIES 35,208 34,911
FINANCIAL SERVICES AND REAL ESTATE
Short-term borrowings 604 929
Long-term debt 890 863
Deferred income taxes 3,010 2,706
Other liabilities 151 169
------- -------
TOTAL FINANCIAL SERVICES AND
REAL ESTATE LIABILITIES 4,655 4,667
------- -------
Total liabilities 39,863 39,578
Contingencies (Note 15)
STOCKHOLDERS' EQUITY
Common stock, par value $1.00 per share
(935,320,439 shares issued) 935 935
Earnings reinvested in the business 17,489 15,718
Currency translation adjustments (47) (711)
------- -------
18,377 15,942
Less cost of treasury stock
(82,461,374 and 58,229,749 shares) 5,591 4,315
------- -------
Total stockholders' equity 12,786 11,627
------- -------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $52,649 $51,205
======= =======
</TABLE>
LOGO - COOL WHIP
29
<PAGE>
CONSOLIDATED STATEMENTS OF EARNINGS (in millions of dollars, except per share
data)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
for the years ended December 31, 1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Operating revenues $65,125 $60,901 $59,131
Cost of sales 28,351 26,771 26,082
Excise taxes on products 11,349 10,280 9,036
------- ------- -------
Gross profit 25,425 23,850 24,013
Marketing, administration and research costs 15,372 15,694 13,433
Amortization of goodwill 604 569 521
------- ------- -------
Operating income 9,449 7,587 10,059
Interest and other debt expense, net 1,233 1,391 1,451
------- ------- -------
Earnings before income taxes and
cumulative effect of accounting change 8,216 6,196 8,608
Provision for income taxes 3,491 2,628 3,669
------- ------- -------
Earnings before cumulative effect
of accounting change 4,725 3,568 4,939
Cumulative effect of change in method
of accounting for postemployment benefits
(Note 13) (477)
------- ------- -------
Net earnings $ 4,725 $ 3,091 $ 4,939
======= ======= =======
Per share data:
Earnings before cumulative effect of
accounting change $ 5.45 $4.06 $5.45
Cumulative effect of accounting change (.54)
------- ------- -------
Net earnings $ 5.45 $3.52 $5.45
======= ======= =======
</TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS (in millions of dollars)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
for the years ended December 31, 1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
CASH PROVIDED BY OPERATING ACTIVITIES
Net earnings - CONSUMER PRODUCTS $ 4,591 $ 2,960 $ 4,799
- FINANCIAL SERVICES AND
REAL ESTATE 134 131 140
------- ------- -------
Net earnings 4,725 3,091 4,939
Adjustments to reconcile net earnings
to operating cash flows:
CONSUMER PRODUCTS
Depreciation and amortization 1,722 1,619 1,542
Deferred income tax provision (benefit) 237 (430) 137
Losses (gains) on sales of businesses 19 (46) (162)
Cumulative effect of accounting change 774
Restructuring charge 741
Cash effects of changes, net of the effects
from acquired and divested companies:
Receivables, net (239) 105 (57)
Inventories (387) 396 (304)
Accounts payable 582 700 (421)
Income taxes 194 121 368
Other working capital items (288) (736) 30
Other 180 203 331
</TABLE>
See notes to consolidated financial statements.
LOGO - ICEHOUSE
30
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
for the years ended December 31, 1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
FINANCIAL SERVICES AND REAL ESTATE
Deferred income tax provision $ 376 $ 461 $ 446
(Increase) decrease in real estate receivables (30) 34 68
Decrease (increase) in real estate held for development and sale 86 (2) (22)
Other (82) (64) (13)
------- ------- -------
Net cash provided by operating activities before
interest payment on zero coupon bonds 7,095 6,967 6,882
Interest payment on zero coupon bonds - financial
services and real estate (156)
------- ------- -------
Net cash provided by operating activities 6,939 6,967 6,882
CASH USED IN INVESTING ACTIVITIES
CONSUMER PRODUCTS
Capital expenditures (1,726) (1,592) (1,573)
Purchase of businesses, net of acquired cash (146) (3,161) (727)
Proceeds from sales of businesses 300 553 255
Other 28 49 (98)
FINANCIAL SERVICES AND REAL ESTATE
Investments in finance assets (582) (597) (1,577)
Proceeds from other finance assets 889 527 776
------- ------- -------
Net cash used in investing activities (1,237) (4,221) (2,944)
------- ------- -------
Net cash provided by operating and investing activities 5,702 2,746 3,938
------- ------- -------
CASH USED IN FINANCING ACTIVITIES
CONSUMER PRODUCTS
Net issuance (repayment) of short-term borrowings 172 1,220 (683)
Long-term debt proceeds 97 1,027 3,832
Long-term debt repaid (1,817) (2,154) (2,130)
FINANCIAL SERVICES AND REAL ESTATE
Net (repayment) issuance of short-term borrowings (325) 171 (60)
Long-term debt proceeds 185 585
Long-term debt repaid (44) (290) (208)
Purchase of treasury stock (1,532) (1,218) (2,449)
Dividends paid (2,487) (2,291) (2,028)
Issuance of shares 54 39 115
Other (20) (34)
------- ------- -------
Net cash used in financing activities (5,717) (3,530) (3,026)
Effect of exchange rate changes on cash and cash equivalents 17 (55) (17)
------- ------- -------
Cash and cash equivalents:
Increase (decrease) 2 (839) 895
Balance at beginning of year 182 1,021 126
------- ------- -------
Balance at end of year $ 184 $ 182 $ 1,021
======= ======= =======
Cash paid: Interest - Consumer products $ 1,340 $ 1,391 $ 1,362
======= ======= =======
- Financial services and real estate $ 229 $ 81 $ 70
======= ======= =======
Income taxes $ 2,449 $ 2,092 $ 2,717
======= ======= =======
</TABLE>
See notes to consolidated financial statements.
LOGO - LARK
31
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (in millions of dollars, except
per share data)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Earnings Currency Cost of Total
Common Reinvested in Translation Treasury Stockholders'
Stock the Business Adjustments Stock Equity
------ ------------- ----------- -------- ------------
<S> <C> <C> <C> <C> <C>
Balances, January 1, 1992 $935 $12,038 $ 453 $ (914) $12,512
Net earnings 4,939 4,939
Exercise of stock options and issuance
of other stock awards (5) 200 195
Cash dividends declared
($2.35 per share) (2,125) (2,125)
Currency translation adjustments (487) (487)
Stock purchased (2,509) (2,509)
Stock issued in connection with an acquisition 20 18 38
---- ------- ----- ------- -------
Balances, December 31, 1992 935 14,867 (34) (3,205) 12,563
Net earnings 3,091 3,091
Exercise of stock options and issuance
of other stock awards (51) 108 57
Cash dividends declared
($2.60 per share) (2,280) (2,280)
Currency translation adjustments (677) (677)
Stock purchased (1,218) (1,218)
Net unrealized appreciation on securities 91 91
---- ------- ----- ------- -------
Balances, December 31, 1993 935 15,718 (711) (4,315) 11,627
Net earnings 4,725 4,725
Exercise of stock options and issuance
of other stock awards (217) 324 107
Cash dividends declared
($3.03 per share) (2,623) (2,623)
Currency translation adjustments 664 664
Stock purchased (1,600) (1,600)
Change in unrealized appreciation on securities (114) (114)
---- ------- ----- ------- -------
Balances, December 31, 1994 $935 $17,489 $ (47) $(5,591) $12,786
==== ======= ===== ======= =======
</TABLE>
See notes to consolidated financial statements.
LOGO - MIRACLE WHIP
32
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 1. Summary of Significant Accounting Policies:
- ----------------------------------------------------
Basis of presentation:
The consolidated financial statements include all significant subsidiaries.
Balance sheet accounts are segregated by two broad types of business. Consumer
products assets and liabilities are classified as either current or non-current,
whereas financial services and real estate assets and liabilities are
unclassified, in accordance with respective industry practices.
Cash and cash equivalents:
Cash equivalents include demand deposits with banks and all highly liquid
investments with original maturities of three months or less.
Inventories:
Inventories are stated at the lower of cost or market. The last-in, first-out
("LIFO") method is used to cost substantially all domestic inventories. The cost
of other inventories is determined by the average cost or first-in, first-out
methods. It is a generally recognized industry practice to classify the total
amount of leaf tobacco inventory as a current asset although part of such
inventory, because of the duration of the aging process, ordinarily would not be
utilized within one year.
Advertising costs:
Advertising costs are generally expensed as incurred.
Depreciation and amortization:
Depreciation is recorded by the straight-line method. Substantially all goodwill
and other intangible assets are amortized by the straight-line method,
principally over 40 years.
Derivative financial instruments:
Derivative financial instruments are used by the Company to manage its foreign
currency and interest rate exposures. Realized and unrealized gains and losses
on foreign currency swaps that are effective as hedges of net assets in foreign
subsidiaries are offset against the foreign exchange gains or losses in a
component of stockholders' equity. The interest differential to be paid or
received under the currency and related interest rate swap agreements is
recognized over the life of the related debt and is included in interest and
other debt expense, net. Unrealized gains and losses on forward contracts that
are effective as hedges of existing assets and liabilities are deferred as
adjustments to the carrying amount of those accounts and are recognized in
income as part of those carrying amounts.
Note 2. Acquisitions and Divestitures:
- ---------------------------------------
During the fourth quarter of 1994, the Company sold The All American Gourmet
Company (frozen dinners business). The proceeds from this sale were $170
million. The effect of this disposition, and other smaller acquisitions and
dispositions, were not material to the Company's 1994 results of operations. In
addition, the Company entered into an agreement to sell the distribution
business of Kraft Foodservice in 1995.
During 1993, the Company acquired Freia Marabou a.s, a Scandinavian
confectionery company, at a cost of $1.3 billion, a North American ready-to-eat
cold cereal business at a cost of $448 million and The Terry's Group, a United
Kingdom confectionery company for $295 million. In addition, the Company
acquired a 20% equity interest in Molson Breweries in Canada and 100% of Molson
Breweries U.S.A., at a cost of $320 million. The Company also increased its
investment in tobacco and food operations in Central and Eastern Europe. The
effects of these, and other smaller acquisitions, were not material to the
Company's 1993 results of operations.
During 1993, the Company sold its ice cream business, Birds Eye frozen
vegetables business and beer can manufacturing plants. The proceeds from the
sales of these businesses aggregated $498 million.
During 1992, the Company purchased several businesses at a total cost of $765
million, consisting of cash of $727 million and $38 million in shares of the
Company's common stock. The effects of these acquisitions were not material to
the Company's 1992 results of operations.
Note 3. Restructuring:
- -----------------------
In the fourth quarter of 1993, the Company provided for the costs of
restructuring its worldwide operations. The charge related primarily to the
downsizing or closure of approximately 40 manufacturing and other facilities.
This restructuring charge reduced 1993 earnings before income taxes, net
earnings and earnings per share by $741 million, $457 million and $.52,
respectively.
Note 4. Inventories:
- ---------------------
The cost of approximately 48% of inventories in 1994 and 54% of inventories in
1993 was determined using the LIFO method. The stated LIFO values of inventories
were approximately $870 million and $1.0 billion lower than the current cost of
inventories at December 31, 1994 and 1993, respectively.
LOGO - LENDER'S
33
<PAGE>
Note 5. Short-Term Borrowings and Borrowing Arrangements:
- ----------------------------------------------------------
At December 31, the Company's short-term borrowings and related average interest
rates consisted of the following:
<TABLE>
<CAPTION>
1994 1993
---------------------- ----------------------
Average Average
Amount Year-End Amount Year-End
(in millions) Outstanding Rate Outstanding Rate
----------- -------- ----------- --------
<S> <C> <C> <C> <C>
Consumer products:
Bank loans $ 215 12.0% $ 276 9.3%
Commercial paper 2,505 5.9% 2,288 3.4%
Amount reclassified
as long-term debt (2,539) (2,296)
------- -------
$ 181 $ 268
======= =======
Financial services and
real estate:
Commercial paper $ 604 5.9% $ 929 3.3%
======= ==== ======= ===
</TABLE>
The fair values of the Company's short-term borrowings at December 31, 1994 and
1993, based upon market rates, approximate the amounts disclosed above.
The Company maintains credit facilities with a number of lending institutions,
amounting to approximately $15.3 billion at December 31, 1994. Approximately
$15.1 billion of these facilities were unused at December 31, 1994. These
facilities are used primarily to support the Company's commercial paper
borrowings and are available for acquisitions and other corporate purposes.
The Company's credit facilities include revolving bank credit agreements
totaling $12.0 billion. An agreement for $4.0 billion expires in December 1995,
and an agreement for $8.0 billion expires in 1998 enabling the Company to
refinance short-term debt on a long-term basis. Accordingly, short-term
borrowings intended to be refinanced were reclassified as long-term debt.
Certain of these facilities limit payment of cash dividends and the purchase,
redemption or retirement of common stock and/or require maintenance of a fixed
charges coverage ratio. At December 31, 1994, approximately $4.1 billion of
earnings reinvested in the business was free of such restrictions.
Note 6. Long-Term Debt:
- ------------------------
At December 31, the Company's long-term debt consisted of the following:
<TABLE>
<CAPTION>
(in millions) 1994 1993
------- -------
<S> <C> <C>
Consumer products:
Short-term borrowings, reclassified $ 2,539 $ 2,296
Notes, 4.75% to 9.8% (average effective
rate 8.31%), due through 2004 9,760 11,441
Debentures, 6.0% to 8.5%
(average effective rate 10.95%),
$1.3 billion face amount,
due through 2017 995 973
Foreign currency obligations:
Swiss franc, 4.44% to 7.0%
(average effective rate 6.31%),
due through 2000 942 836
Deutsche mark, 2.75% to 6.0%
(average effective rate 5.76%),
due through 1997 182 176
Other 118 98
Other 261 276
------- -------
14,797 16,096
Less current portion of long-term debt (712) (1,738)
------- -------
$14,085 $14,358
======= =======
Financial services and real estate:
Eurodollar notes, 6.75% and 6.625%
(average rate 6.7%), due 1997 and
1999 $ 400 $ 399
Zero coupon bonds, 13.3% effective rate,
$200 million face amount, due 1994 190
Foreign currency obligations:
Swiss franc, 4.75%, due 1996 123 107
ECU notes, 9.25% and 8.5%, due
1997 and 1998 367 167
------- -------
$ 890 $ 863
======= =======
</TABLE>
Aggregate maturities of long-term debt, excluding short-term borrowings
reclassified as long-term debt, are as follows:
<TABLE>
<CAPTION>
Consumer Financial Services
(in millions) Products and Real Estate
-------- ------------------
<S> <C> <C>
1995 $ 712 $ -
1996 1,886 123
1997 1,847 383
1998 2,000 184
1999 1,530 200
2000-2004 3,898
2005-2009 164
</TABLE>
LOGO - LITE ICE
34
<PAGE>
The revolving credit facility under which the consumer products short-term debt
was reclassified as long-term debt expires in 1998 and any amounts then
outstanding mature.
Based on market quotes, where available, or interest rates currently available
to the Company for issuance of debt with similar terms and remaining maturities,
the aggregate fair value of consumer products and financial services and real
estate long-term debt, including current portion of long-term debt, at December
31, 1994 and 1993 was $15.7 billion and $18.1 billion, respectively.
Note 7. Capital Stock:
- -----------------------
Shares of authorized common stock are 4 billion; issued, treasury and
outstanding were as follows:
<TABLE>
<CAPTION>
Issued Treasury Outstanding
----------- ----------- -----------
<S> <C> <C> <C>
Balances, January 1, 1992 935,320,439 (15,469,198) 919,851,241
Exercise of stock options
and issuance of other
stock awards 5,037,244 5,037,244
Purchased (32,622,855) (32,622,855)
Shares issued in connection
with an acquisition 491,555 491,555
----------- ------------ -----------
Balances, December 31, 1992 935,320,439 (42,563,254) 892,757,185
Exercise of stock options
and issuance of other
stock awards 1,612,405 1,612,405
Purchased (17,278,900) (17,278,900)
----------- ------------ -----------
Balances, December 31, 1993 935,320,439 (58,229,749) 877,090,690
Exercise of stock options
and issuance of other
stock awards 4,569,731 4,569,731
Purchased (28,801,356) (28,801,356)
----------- ------------ -----------
Balances, December 31, 1994 935,320,439 (82,461,374) 852,859,065
=========== =========== ===========
</TABLE>
At December 31, 1994, 48,836,507 shares of common stock were reserved for stock
options and other stock awards under the Company's stock plans and 10,000,000
shares of Serial Preferred Stock, $1.00 par value, were authorized, none of
which have been issued.
In 1989, the Company distributed rights for each outstanding share of its
common stock. The rights are not exercisable and trade automatically with the
common stock until ten days after public announcement that any person has
acquired 10% or more of the Company's common stock or ten business days after
any person announces a tender offer for 10% or more of the Company's common
stock.
When exercisable, unless a person has acquired 10% or more of the Company's
shares, each right entitles the holder to buy from the Company one share of
common stock for the exercise price (currently $150). If the Company is
thereafter involved in a business combination, the rights will entitle holders
to buy shares of the acquiring company having a value of twice the exercise
price. If any person acquires 10% or more of the Company's common stock, the
rights will entitle holders (other than such person) to buy shares of the
Company's common stock having a market value of twice the exercise price.
Following the acquisition by any person of more than 10% but less than 50% of
the Company's shares, the Company may exchange one share of common stock for
each right (other than rights held by such person).
The Company may redeem the rights for $.01 per right before any person
acquires 10% or more of the Company's common stock. The rights expire on October
25, 1999 unless earlier redeemed or exchanged. At December 31, 1994, 984,156,946
shares of common stock were reserved for issuance upon exercise of the rights.
Note 8. Stock Plans:
- ---------------------
Under the Philip Morris 1992 Incentive Compensation and Stock Option Plan, the
Company may grant to eligible employees stock options, stock appreciation
rights, restricted stock and annual incentive and long-term performance cash
awards. Up to 37 million shares of common stock are authorized for grant, of
which no more than 9 million shares may be awarded as restricted stock. Stock
options are granted at an exercise price no less than fair value on the date of
the grant.
At December 31, 1994 and 1993, options under the 1992 plan and previous plans
were exercisable for 27,253,547 shares and 21,723,491 shares, respectively.
Shares available to be granted at December 31, 1994 and 1993 were 20,064,190 and
23,900,470, respectively.
LOGO - CHESTERFIELD
35
<PAGE>
Note 8. Stock Plans (continued)
- --------------------------------
Options activity was as follows for the years ended
<TABLE>
<CAPTION>
December 31,
1994 1993 1992
-------------- ------------- ------------
<S> <C> <C> <C>
Balances, beginning of year 30,035,681 23,802,744 24,284,910
Granted 511,610 8,433,540 5,548,270
Exercised (2,394,089) (1,821,944) (5,872,571)
Cancelled (388,045) (378,659) (157,865)
-------------- ------------- ------------
Balances, end of year 27,765,157 30,035,681 23,802,744
============== ============= ============
Range of exercise prices
at year-end $10.66-$100.00 $8.67-$100.00 $7.26-$69.25
Price range of shares
exercised during
the year $8.67-$49.06 $7.26-$63.69 $6.43-$73.63
Weighted average grant
price per share $69.73 $49.09 $75.63
</TABLE>
From time to time, the Company grants shares of restricted stock to eligible
employees, giving them in most instances all of the rights of stockholders,
except that they may not sell, assign, pledge or otherwise encumber such shares.
During 1994, the Company granted 2,636,940 shares of restricted stock to
eligible U.S. based employees and also issued to eligible non-U.S. employees
rights to receive 1,034,320 like shares. Such shares and rights are subject to
forfeiture if certain employment conditions are not met. No shares of restricted
stock or rights were granted in 1993 or 1992. At December 31, 1994, restrictions
lapse as follows: 1995-41,000 shares; 1996-304,600 shares; 1997-3,267,430
shares; 1998-50,000 shares and 2000 and thereafter-184,000 shares.
The fair value of the 1994 shares and rights at the date of grant ($186
million) is being amortized to expense ratably over the restriction period. At
December 31, 1994 the unamortized balance of $154 million is recorded as a
reduction of earnings reinvested in the business.
Note 9. Earnings per Share:
- ----------------------------
Earnings per common share have been calculated on the weighted average number
of shares of common stock outstanding for each year, which was 867,288,869,
878,120,884 and 906,177,803 for 1994, 1993 and 1992, respectively.
Note 10. Pretax Earnings and Provision for Income Taxes:
- ---------------------------------------------------------
The Company adopted Statement of Financial Accounting Standards ("SFAS") No. 109
effective January 1, 1993. SFAS No. 109 is a modification of SFAS No. 96, which
had been the accounting standard previously followed by the Company. The effect
of adoption of SFAS No. 109 was immaterial to the Company's 1993 financial
position and results of operations.
Pretax earnings and provision for income taxes consisted of the following:
<TABLE>
<CAPTION>
(in millions) 1994 1993 1992
------ ------ ------
<S> <C> <C> <C>
Pretax earnings:
United States $5,781 $4,078 $6,367
Outside United States 2,435 2,118 2,241
------ ------ ------
Total pretax earnings $8,216 $6,196 $8,608
====== ====== ======
Provision for income taxes:
United States federal:
Current $1,540 $1,199 $1,630
Deferred 458 278 514
------ ------ ------
1,998 1,477 2,144
State and local 419 311 464
------ ------ ------
Total United States 2,417 1,788 2,608
------ ------ ------
Outside United States:
Current 919 830 992
Deferred 155 10 69
------ ------ ------
Total outside United States 1,074 840 1,061
------ ------ ------
Total provision for income taxes $3,491 $2,628 $3,669
====== ====== ======
</TABLE>
At December 31, 1994 applicable United States federal income taxes and foreign
withholding taxes have not been provided on approximately $5.1 billion of
accumulated earnings of foreign subsidiaries that are expected to be permanently
reinvested abroad. If these amounts were not considered permanently reinvested,
additional deferred income taxes of approximately $287 million would have been
provided.
The effective income tax rate on pretax earnings differed from the U.S.
federal statutory rate for the following reasons:
<TABLE>
<CAPTION>
1994 1993 1992
----- ----- -----
<S> <C> <C> <C>
Provision computed at U.S. federal
statutory rate 35.0% 35.0% 34.0%
Increases resulting from:
State and local income taxes, net of
federal tax benefit 3.3 3.3 3.6
Rate differences - foreign operations 1.0 0.6 1.9
Goodwill amortization 2.4 3.0 2.0
Other 0.8 0.5 1.1
---- ---- ----
Provision for income taxes 42.5% 42.4% 42.6%
==== ==== ====
</TABLE>
LOGO - LOUIS RICH
36
<PAGE>
The tax effects of temporary differences which gave rise to consumer products
deferred income tax assets and liabilities consisted of the following:
<TABLE>
<CAPTION>
December 31,
(in millions) 1994 1993
------- -------
<S> <C> <C>
Deferred income tax assets:
Accrued postretirement and
postemployment benefits $ 925 $ 995
Accrued liabilities 542 464
Restructuring reserves 315 472
Other 754 445
------- -------
Gross deferred income tax assets 2,536 2,376
Valuation allowance (108) (62)
------- -------
Total deferred income tax assets 2,428 2,314
Deferred income tax liabilities:
Property, plant and equipment (1,691) (1,573)
Prepaid pension costs (223) (203)
------- -------
Total deferred income tax liabilities (1,914) (1,776)
------- -------
Net deferred income tax assets $ 514 $ 538
======= =======
</TABLE>
Financial services and real estate deferred income tax liabilities are
primarily attributable to temporary differences from investments in finance
leases.
Note 11. Segment Reporting:
- ----------------------------
Tobacco, food, beer, and financial services and real estate are the major
segments of the Company's operations. The Company's consolidated operations
outside the United States, which are principally in the tobacco and food
businesses, are organized into geographic regions by segment, with Europe the
most significant. Intersegment transactions are not reported separately since
they are not material.
For purposes of segment reporting, operating profit is operating income
exclusive of certain unallocated corporate expenses. See Note 2 regarding
acquisitions and divestitures and Note 3 regarding restructuring. The 1993
restructuring resulted in a reduction of tobacco, food and beer operating profit
of $245 million, $357 million and $139 million, respectively. Substantially all
goodwill amortization is attributable to the food segment.
Identifiable assets are those assets applicable to the respective industry
segments. Reportable segment data were as follows:
<TABLE>
<CAPTION>
Data by Segment for the years
ended December 31,
(in millions) 1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Operating revenues:
Tobacco $28,671 $25,973 $25,677
Food 31,669 30,372 29,048
Beer 4,297 4,154 3,976
Financial services and real estate 488 402 430
------- ------- -------
Total operating revenues $65,125 $60,901 $59,131
======= ======= =======
Operating profit:
Tobacco $ 6,162 $ 4,910 $ 7,193
Food 3,108 2,608 2,769
Beer 413 215 258
Financial services and real estate 208 249 219
------- ------- -------
Total operating profit 9,891 7,982 10,439
Unallocated corporate expenses 442 395 380
------- ------- -------
Operating income $ 9,449 $ 7,587 $10,059
======= ======= =======
Identifiable assets:
Tobacco $ 9,926 $ 9,523 $ 9,479
Food 34,822 33,253 32,672
Beer 1,706 1,706 1,545
Financial services and real estate 5,193 5,659 5,297
------- ------- -------
51,647 50,141 48,993
Other assets 1,002 1,064 1,021
------- ------- -------
Total assets $52,649 $51,205 $50,014
======= ======= =======
Depreciation expense:
Tobacco $ 360 $ 342 $ 291
Food 539 538 507
Beer 108 140 141
Financial services and real estate 2
Capital additions:
Tobacco $ 529 $ 527 $ 460
Food 1,072 944 947
Beer 121 92 134
</TABLE>
LOGO - COTE D'OR
37
<PAGE>
Note 11. Segment Reporting (continued)
- ---------------------------------------
<TABLE>
<CAPTION>
Data by Geographic Region for the
years ended December 31,
(in millions) 1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Operating revenues:
United States - domestic $35,936 $34,282 $35,304
- export 4,942 4,105 3,797
Europe 19,888 18,304 17,388
Other 4,359 4,210 2,642
------- ------- -------
Total operating revenues $65,125 $60,901 $59,131
======= ======= =======
Operating profit:
United States $ 7,306 $ 5,695 $ 8,146
Europe 1,914 1,689 1,764
Other 671 598 529
------- ------- -------
Total operating profit 9,891 7,982 10,439
Unallocated corporate expenses 442 395 380
------- ------- -------
Operating income $ 9,449 $ 7,587 $10,059
======= ======= =======
Identifiable assets:
United States $33,622 $34,522 $35,187
Europe 14,845 12,766 12,195
Other 3,180 2,853 1,611
------- ------- -------
51,647 50,141 48,993
Other assets 1,002 1,064 1,021
------- ------- -------
Total assets $52,649 $51,205 $50,014
======= ======= =======
</TABLE>
Note 12. Pension Plans:
- ------------------------
The Company and its subsidiaries sponsor noncontributory defined benefit pension
plans covering substantially all U.S. employees. The plans provide retirement
benefits for salaried employees based generally on years of service and
compensation during the last years of employment. Retirement benefits for hourly
employees generally are a flat dollar amount for each year of service. The
Company funds these plans in amounts consistent with the funding requirements of
federal law and regulations.
Pension coverage for employees of the Company's non-U.S. subsidiaries is
provided, to the extent deemed appropriate, through separate plans, many of
which are governed by local statutory requirements. The plans provide pension
benefits that are based primarily on years of service and employees' salaries
near retirement. The Company provides for obligations under such plans by
depositing funds with trustees or purchasing insurance policies. The Company
records liabilities for unfunded foreign plans.
U.S. Plans
Net pension (income) cost consisted of the following:
<TABLE>
<CAPTION>
(in millions) 1994 1993 1992
----- ----- -----
<S> <C> <C> <C>
Service cost - benefits earned
during the year $ 130 $ 151 $ 163
Interest cost on projected benefit
obligation 342 362 359
Loss (return) on assets
- actual 94 (796) (345)
- deferred (loss) gain (605) 314 (119)
Amortization of net gain upon
adoption of SFAS No. 87 (28) (28) (28)
Other cost (income) 49 (47) 16
----- ----- -----
Net pension (income) cost $ (18) $ (44) $ 46
===== ===== =====
</TABLE>
During 1994, 1993 and 1992, the Company sold businesses and instituted early
retirement and workforce reduction programs affecting participants in its
pension plans. Such programs resulted in additional pension expense of $49
million and $16 million in 1994 and 1992, respectively, and curtailment gains of
$47 million in 1993.
The funded status of U.S. plans at December 31 was as follows:
<TABLE>
<CAPTION>
(in millions) 1994 1993
------ ------
<S> <C> <C>
Actuarial present value of accumulated
benefit obligation - vested $3,491 $3,702
- nonvested 270 349
------ ------
3,761 4,051
Benefits attributable to projected salaries 549 588
------ ------
Projected benefit obligation 4,310 4,639
Plan assets at fair value 5,735 6,099
------ ------
Excess of assets over projected
benefit obligation 1,425 1,460
Unamortized net gain upon
adoption of SFAS No. 87 (169) (197)
Unrecognized prior service cost 140 149
Unrecognized net gain from
experience differences (802) (882)
------ ------
Prepaid pension cost $ 594 $ 530
====== ======
</TABLE>
The projected benefit obligation at December 31, 1994, 1993 and 1992 was
determined using an assumed discount rate of 8.5%, 7.5% and 8.0%, respectively,
and assumed compensation increases of 5.0% at December 31, 1994, 4% at December
31, 1993 and 6% and 7% at December 31, 1992. The assumed long-term rate of
return on plan assets was 9% at December 31, 1994, 1993 and 1992. Plan assets
consist principally of common stock and fixed income securities.
LOGO - MILWAUKEE'S BEST
38
<PAGE>
The Company and certain of its subsidiaries sponsor deferred profit-sharing
plans covering certain salaried, nonunion and union employees. Contributions and
costs are determined generally as a percentage of pretax earnings, as defined by
the plans. Certain other subsidiaries of the Company also maintain defined
contribution plans. Amounts charged to expense for defined contribution plans
totaled $191 million, $214 million and $229 million in 1994, 1993 and 1992,
respectively.
Non-U.S. Plans
Net pension cost consisted of the following:
<TABLE>
<CAPTION>
(in millions) 1994 1993 1992
------ ------ ------
<S> <C> <C> C>
Service cost - benefits earned
during the year $ 72 $ 63 $ 59
Interest cost on projected benefit
obligation 136 138 133
Loss (return) on assets
- actual 4 (153) (78)
- deferred (loss) gain (113) 55 (21)
Amortization of net gain upon adoption of
SFAS No. 87 (1) (1) (1)
------ ------ ------
Net pension cost $ 98 $ 102 $ 92
====== ====== ======
</TABLE>
The funded status of the non-U.S. plans at December 31 was as follows:
<TABLE>
<CAPTION>
Assets Exceed Accumulated Benefits
Accumulated Benefits Exceed Assets
-------------------- --------------------
1994 1993 1994 1993
(in millions) ------ ------ ------ ------
<S> <C> <C> <C> <C>
Actuarial present value of
accumulated benefit
obligation - vested $1,046 $ 947 $ 606 $ 520
- nonvested 76 94 63 54
------ ------ ------ ------
1,122 1,041 669 574
Benefits attributable to
projected salaries 316 254 115 109
------ ------ ------ ------
Projected benefit obligation 1,438 1,295 784 683
Plan assets at fair value 1,532 1,408 51 44
------ ------ ------ ------
Plan assets in excess of (less
than) projected benefit
obligation 94 113 (733) (639)
Unamortized net (gain) loss
upon adoption of SFAS No. 87 (13) (14) 6 6
Unrecognized net (gain) loss
from experience differences (30) (12) 7
------ ------ ------ ------
Prepaid (accrued) pension cost $ 81 $ 69 $ (739) $ (626)
====== ====== ====== ======
</TABLE>
The assumptions used in 1994 and 1993 were as follows:
<TABLE>
<CAPTION>
1994 1993
------------- -------------
<S> <C> <C>
Discount rates 5.0% to 13.0% 5.0% to 12.0%
Compensation increases 3.5% to 11.0% 3.5% to 11.0%
Long-term rates of
return on plan assets 5.5% to 12.0% 5.0% to 12.0%
</TABLE>
Plan assets consist primarily of common stock and fixed income securities.
LOGO - MURATTI
39
<PAGE>
Note 13. Postemployment Benefits:
- ----------------------------------
Effective January 1, 1993, the Company adopted SFAS No. 112, "Employers'
Accounting for Postemployment Benefits." This Statement requires the Company to
accrue the costs of postemployment benefits, other than pensions and
postretirement health care benefits, over the working lives of employees. The
Company previously had expensed the cost of these benefits, which are
principally severance and disability, when the related event occurred.
The cumulative effect at January 1, 1993 of adopting SFAS No. 112, which was
calculated on an undiscounted basis, reduced 1993 net earnings by $477 million
($.54 per share), net of $297 million of income tax benefits. Adoption of SFAS
No. 112 did not materially reduce 1993 earnings before cumulative effect of
accounting change.
Note 14. Postretirement Benefits Other Than Pensions:
- ------------------------------------------------------
The Company accrues the estimated cost of retiree benefit payments, other than
pensions, during employees' active service periods as prescribed by SFAS No.
106, "Employers' Accounting for Postretirement Benefits Other Than Pensions,"
for its U.S. retiree benefit plans.
The Company will adopt SFAS No. 106 for its non-U.S. plans in 1995 and
estimates that the effects of adoption will not be significant. The cost of
postretirement health care benefits for the Company's non-U.S. subsidiaries is
expensed as incurred and was not significant for the years ended 1994, 1993 and
1992.
U.S. Plans
The Company and its U.S. subsidiaries provide health care and other benefits to
substantially all retired employees, their covered dependents and beneficiaries.
Generally, employees who have attained age 55 and who have rendered at least 5
to 10 years of service are eligible for these benefits. Certain health care
plans are contributory; other benefit plans are noncontributory.
Net postretirement health care cost consisted of the following:
<TABLE>
<CAPTION>
(in millions) 1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Service cost - benefits earned
during the period $ 57 $ 59 $ 70
Interest cost on accumulated
postretirement benefit obligation 165 159 168
Amortization of unrecognized net loss from
experience differences 6 2
Amortization of unrecognized prior
service cost (15) (16) (6)
Other cost (income) 32 (59)
---- ---- ----
Net postretirement health care cost $245 $143 $234
==== ==== ====
</TABLE>
During 1994 and 1993, the Company sold businesses and instituted early
retirement and workforce reduction programs affecting participants in its
postretirement health care plans. Such programs resulted in additional expense
of $32 million in 1994 and net curtailment and settlement gains of $59 million
in 1993.
The Company's postretirement health care plans currently are not funded. The
status of the plans at December 31 was as follows:
<TABLE>
<CAPTION>
(in millions) 1994 1993
------ ------
<S> <C> <C>
Actuarial present value of accumulated
postretirement benefit obligation:
Retirees $1,148 $1,279
Fully eligible active plan participants 127 182
Other active plan participants 792 644
------ ------
2,067 2,105
Unrecognized net gain (loss) from
experience differences 14 (162)
Unrecognized prior service cost 186 198
------ ------
Accrued postretirement health
care costs $2,267 $2,141
====== ======
</TABLE>
The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligation was 10.0% in 1993, 9.5% in 1994 and 9.0% in
1995, gradually declining to 6.0% by the year 2001 and remaining at that level
thereafter. A one-percentage-point increase in the assumed health care cost
trend rate for each year would increase the accumulated postretirement benefit
obligation as of December 31, 1994 and net postretirement health care cost for
the year then ended by approximately 14% and 13%, respectively.
The accumulated postretirement benefit obligations at December 31, 1994, 1993
and 1992 were determined using assumed discount rates of 8.5%, 7.5% and 8.0%,
respectively.
Note 15. Contingencies:
- ------------------------
There is litigation pending against the leading United States cigarette
manufacturers alleging injury resulting from cigarette smoking or exposure to
cigarette smoking. In this litigation, plaintiffs seek compensatory and, in some
cases, punitive damages. The Company and Philip Morris Incorporated ("PM Inc."),
a wholly-owned subsidiary of the Company, are defendants in some of these cases.
In certain of these cases, individuals seek recovery for personal injuries
allegedly caused by cigarette smoking. Among the defenses raised by defendants
to certain of this litigation is preemption by the Federal Cigarette Labeling
and Advertising Act, as amended (the "Act"). On June 24, 1992, the United States
Supreme Court held that the Act, as enacted in 1965, does not preempt common law
damage claims but that the Act, as amended in 1969, preempts claims arising
after 1969 against cigarette manufacturers "based on failure to warn and the
neutralization of federally mandated warnings to the extent that those claims
rely on omissions or inclusions in advertising or promotions." The Court also
held that the 1969 Act does not preempt claims based on express warranty,
fraudulent misrepresentation or conspiracy. The Court also held that claims for
fraudulent concealment were preempted except
LOGO - CHEEZ WHIZ
40
<PAGE>
Note 15. Contingencies (continued)
- -----------------------------------
"insofar as those claims relied on a duty to disclose...facts through channels
of communication other than advertising or promotion." (The Court did not
consider whether such common law damage claims were valid under state law.) The
Court's decision was announced by a plurality opinion. The effect of the
decision on pending and future cases will be the subject of further proceedings
in the lower federal and state courts. Additional similar litigation could be
encouraged if legislative proposals to eliminate the federal preemption defense,
pending in Congress since 1991, were enacted. It is not possible to predict
whether any such legislation will be enacted.
Certain developments in smoking and health litigation during 1994 are
summarized below.
In March 1994, a Florida state appellate court reversed a lower court ruling
and reinstated plaintiffs' class action allegations in a purported class action
against the leading United States cigarette manufacturers, in which certain
flight attendants, claiming to represent a class of 60,000 individuals, alleged
personal injury caused by exposure to environmental tobacco smoke ("ETS") aboard
aircraft. The appellate court ordered the trial court to hold further hearings
on the class action allegations. The defendants filed a request for review of
this ruling by the full panel of the appellate court. The request was denied. In
October 1994, defendants asked the Florida Supreme Court to review the March
appellate court decision. This request is pending. Concurrently, plaintiffs
served notice of a hearing in the trial court for late November 1994 attempting
to secure class certification. In December 1994, the court granted plaintiffs'
motion for class certification. Defendants are appealing this decision.
In May 1994, an action was filed in a Florida state court against the leading
United States tobacco manufacturers and others by plaintiffs alleging injury and
purporting to represent a class of certain smokers, certain former smokers and
their heirs. Plaintiffs cited the Florida appellate reversal discussed above in
support of their allegations of class action status. Subsequently, the Company
was voluntarily dismissed from this action, which otherwise continues against
the tobacco manufacturers, including PM Inc. In October 1994, the trial court
granted plaintiffs' motion for class certification. The class, as certified,
comprises "all United States citizens and residents and their survivors who
have...suffered, presently suffer, or who have died from diseases and medical
conditions caused by their addiction to cigarettes that contain nicotine."
Defendants have appealed the class certification decision and order to the
Florida Third District Court of Appeal.
In May 1994, the State of Florida enacted a statute which purports to abolish
affirmative defenses in actions brought by the state seeking reimbursement of
Medicaid costs. The statute purports in such actions to adopt a market share
liability theory, to permit the introduction of statistical evidence to prove
causation, and to allow the state not to identify the individual Medicaid
recipients who received the benefits at issue in such action. In June 1994, PM
Inc. and others filed suit in Florida state court challenging the
constitutionality of the statute.
In March 1994, an action was filed in the United States District Court for the
Eastern District of Louisiana against the leading United States cigarette
manufacturers and others, including the Company, seeking certification of a
class action on behalf of all United States residents who allege that they are
addicted, or are the legal survivors of persons who were addicted, to tobacco
products. Plaintiffs allege that the cigarette manufacturers manipulated the
levels of nicotine in their tobacco products to make such products addictive. In
April 1994, a motion for intervention was filed by plaintiffs who have never
smoked but claim injury, on behalf of a purported class, from their exposure to
ETS resulting from the alleged addiction of smokers to tobacco products. This
motion was denied in June 1994. Plaintiffs' motion for class certification was
heard in December 1994. A decision is pending.
In March 1994, two cases were filed in the United States District Court for
the Southern District of California against the leading United States cigarette
manufacturers and others, including the Company, on behalf of a purported class
of persons claiming to be addicted to cigarettes and who have been prescribed
treatment through the nicotine transdermal system (known as the "nicotine
patch"). Plaintiffs asserted violations of the Racketeer Influenced Corrupt
Organizations Act ("RICO") and claimed unspecified actual and treble damages. In
April 1994, the two cases, which are virtually identical, were combined in a
single amended complaint and plaintiffs' counsel agreed to dismiss the separate
second-filed case. In July 1994, defendants filed a motion to dismiss the
complaint on the grounds that the complaint fails to state a claim.
Subsequently, the Company was dismissed from this action by stipulation of the
parties; the action continued against the tobacco manufacturers, including PM
Inc. In September 1994, the United States District Court granted defendants'
motion to dismiss the complaint with prejudice. Plaintiffs have filed a notice
of appeal, which they agreed to dismiss by stipulation of the parties dated
January 13, 1995.
In June 1994, a case was filed in the United States District Court for the
Southern District of California against the leading United States cigarette
manufacturers and others, including the Company, on behalf of a purported class
of persons claiming to be injured as a result of an alleged addiction to
cigarettes or by the alleged exposure to "second-hand" smoke. Plaintiff asserts
causes of action for fraud and deceit, negligent misrepresentation, violation of
consumer protection statutes, breach of express warranty, breach of implied
warranty, intentional infliction of emotional distress, negligence, strict
liability, and nuisance, and also seeks injunctive and declaratory relief. The
complaint has not been served on the Company.
In March 1994, an action was filed in an Alabama state court against the three
leading United States cigarette manufacturers, including PM Inc. Plaintiff,
claiming to represent all smokers who have smoked or are smoking cigarettes
manufactured and sold by defendants in the state of Alabama, seeks compensatory
and punitive damages not to exceed $48,500 per each class member as well as
injunctive relief arising from defendants' alleged failure to disclose additives
used in their cigarettes. In April 1994, defendants removed the case to the
United States District Court for the Northern District of Alabama. The plaintiff
subsequently filed a motion to remand to an Alabama state court. The motion to
remand has not been ruled upon. A motion to stay the proceeding pending a
decision on remand was granted in September 1994.
LOGO - KAFFEE HAG
41
<PAGE>
Note 15. Contingencies (continued)
- -----------------------------------
In May 1994, an action was filed in Mississippi state court against the
leading United States cigarette manufacturers and others, including the Company,
by the Attorney General of Mississippi seeking reimbursement of Medicaid and
other expenditures by the State of Mississippi claimed to have been made to
treat smoking-related diseases. Plaintiff also seeks an injunction barring
defendants from selling or encouraging the sale of cigarettes to minors. In June
1994, defendants removed the case to the United States District Court for the
Southern District of Mississippi. In that same month, plaintiff moved to remand
the case back to state court. Plaintiff's motion was granted on August 17, 1994
and the case remanded to state Chancery Court. In September 1994, the plaintiff
moved to strike defendants' challenges to the sufficiency of the complaint and
the subject matter jurisdiction of the Chancery Court. Also in September 1994,
defendants moved to transfer the case from the Chancery Court to the Circuit
Court. In October 1994, defendants moved for judgment on the pleadings. All
three motions are presently pending. In December 1994, the Governor of the State
of Mississippi filed an amicus brief in support of defendants' motions.
In August 1994, an action was filed in Minnesota state court against the
leading United States cigarette manufacturers and others, including the Company,
by the Attorney General of Minnesota and Blue Cross and Blue Shield of Minnesota
seeking reimbursement of Medicaid and other expenditures by the plaintiffs
claimed to have been made to treat smoking-related diseases. Plaintiffs assert
causes of action of negligent performance of a voluntary undertaking, violation
of Minnesota antitrust laws, violation of consumer protection statutes,
restitution, and conspiracy. In November 1994, defendants moved to prohibit
prosecution of the case based upon the contingent fee arrangement between the
State of Minnesota and counsel for the state and one defendant moved to
disqualify plaintiffs' counsel based upon their prior representation of the
moving defendants. The court denied both motions but also denied plaintiffs'
motion to disqualify defendants' local counsel based upon counsels' prior
representation of various state agencies. A motion to dismiss one defendant for
lack of personal jurisdiction is pending.
In September 1994, an action was filed in West Virginia state court against
the leading United States cigarette manufacturers and others, including the
Company, by the Attorney General of West Virginia seeking reimbursement of
Medicaid and other expenditures by the State of West Virginia claimed to have
been made to treat smoking-related diseases. Plaintiff asserts causes of action
for restitution, public nuisance, negligent performance of a voluntary
undertaking, fraud, conspiracy and concert of action, aiding and abetting,
violation of consumer protection statutes, and violation of the West Virginia
Antitrust Act. Plaintiff also seeks an injunction barring defendants from
selling or encouraging the sale of cigarettes to minors. In December 1994,
defendants filed a motion to dismiss, claiming that the Attorney General did not
have standing to assert certain counts in the complaint, and separate motions to
dismiss the antitrust and fraud counts of the complaint. In addition, the non-
manufacturing defendants, including the Company, have moved to dismiss based
upon the absence of personal jurisdiction.
The Commonwealth of Massachusetts has enacted legislation specifically
authorizing lawsuits similar to that described in the preceding paragraphs.
In April 1993, the Company and several of its officers were named as
defendants in the first of a number of purported shareholder class actions which
have been consolidated in the United States District Court for the Southern
District of New York. These lawsuits allege that the Company violated federal
securities laws by making false and misleading statements concerning the effects
of discount cigarettes on PM Inc.'s premium tobacco business prior to April 2,
1993, the date upon which PM Inc. announced revisions in its marketing and
pricing strategies for its premium and discount brands. In December 1994,
defendants' motion to dismiss, heard by the court in November 1993, was granted
and the case was dismissed. Plaintiffs are expected to appeal this decision.
In April 1994, the Company, PM Inc. and certain officers and directors were
named as defendants in complaints filed as purported class actions in the United
States District Courts in New York, one in the Eastern District and two in the
Southern District. In the Eastern District, plaintiffs allege that defendants
violated the federal securities laws by maintaining artificially high levels of
profitability through an inventory management practice pursuant to which
defendants allegedly shipped more inventory to customers than was necessary to
satisfy market demand. In December 1994, a motion to dismiss by defendants was
denied. Defendants will proceed to file an answer and discovery may proceed. In
the two cases in the Southern District as described above, and in an additional
purported class action filed in September in the Southern District against the
Company and certain of its directors, plaintiffs assert that defendants violated
federal securities laws with statements and omissions regarding the allegedly
addictive qualities of cigarettes. Defendants' motions to dismiss are pending in
the latter cases. In each case, plaintiffs claim to have been misled by
defendants' knowing and intentional failure to disclose material information.
The Company and PM Inc. believe, and have been so advised by counsel handling
the respective cases, that each has a number of valid defenses to all pending
litigation. All cases are, and will continue to be, vigorously defended.
Litigation is subject to many uncertainties, and it is possible that some of
these actions could be decided unfavorably. An unfavorable outcome of a pending
smoking and health case could encourage the commencement of additional similar
litigation. Recently, there have been a number of restrictive regulatory,
adverse political and other developments concerning cigarette smoking and the
tobacco industry, including the commencement of the purported class actions
referred to above. These developments generally receive widespread media
attention. The Company is not able to evaluate the effect of these developing
matters on pending litigation and the possible commencement of additional
litigation.
Management is unable to make a meaningful estimate of the amount or range of
loss that could result from an unfavorable outcome of all pending litigation. It
is possible that the Company's results of operations or cash flows in a
particular quarterly or annual period or its financial position could be
LOGO - MILLER GENUINE DRAFT LIGHT
42
<PAGE>
Note 15. Contingencies (continued)
- -----------------------------------
materially affected by an ultimate unfavorable outcome of certain pending
litigation. Management believes, however, that the ultimate outcome of all
pending litigation should not have a material adverse effect on the Company's
financial position.
In March 1994, the Company and PM Inc. filed an action against American
Broadcasting Companies, Inc. and others alleging injury caused by false and
defamatory statements made by defendants on various nationally televised news
programs. Among the statements giving rise to the action is defendants' claim
that tobacco companies, including PM Inc., artificially "spike" and "fortify"
their cigarettes sold in the United States with additional nicotine. The Company
and PM Inc. seek compensatory and punitive damages totaling $10 billion.
Litigation is subject to many uncertainties and the Company and PM Inc. are
unable to predict the outcome of this matter. Pretrial discovery continues.
Note 16. Additional Information:
- ---------------------------------
<TABLE>
<CAPTION>
(in millions) 1994 1993 1992
------ ------ ------
<S> <C> <C> <C>
Years ended December 31:
Depreciation expense $1,027 $1,042 $ 963
====== ====== ======
Rent expense $ 426 $ 380 $ 348
====== ====== ======
Research and development expense $ 435 $ 421 $ 410
====== ====== ======
Interest and other debt expense, net:
Interest expense $1,288 $1,478 $1,513
Interest income (55) (87) (62)
------ ------ ------
$1,233 $1,391 $1,451
====== ====== ======
Interest expense of financial services
and real estate operations included
in cost of sales $ 78 $ 87 $ 95
====== ====== ======
</TABLE>
Note 17. Financial Services and Real Estate Operations:
- --------------------------------------------------------
Philip Morris Capital Corporation ("PMCC") is a wholly-owned subsidiary of the
Company. PMCC invests in leveraged and single-investor leases and other tax-
oriented financing transactions and third party financial instruments and also
engages in various financing activities for customers and suppliers of the
Company's subsidiaries. Additionally, PMCC is engaged through its wholly-owned
subsidiary, Mission Viejo Company, in land planning, development and sales.
Pursuant to a support agreement, the Company has agreed to retain ownership of
100% of the voting stock of PMCC and make periodic payments to PMCC to the
extent necessary to ensure that earnings available for fixed charges equal at
least 1.25 times its fixed charges. No payments were required in 1994, 1993 or
1992.
Condensed balance sheet data at December 31 follow:
<TABLE>
<CAPTION>
(in millions) 1994 1993
------ ------
<S> <C> <C>
Assets
Finance leases $6,048 $5,314
Other investments 542 1,440
------ ------
6,590 6,754
Less unearned income and allowances 2,067 1,861
------ ------
Finance assets, net 4,523 4,893
Real estate held for development and sale 401 489
Goodwill, net of accumulated amortization 36 37
Other assets 276 284
------ ------
Total assets $5,236 $5,703
====== ======
Liabilities and stockholder's equity
Short-term borrowings $ 604 $ 929
Long-term debt 890 863
Deferred income taxes 3,010 2,706
Other liabilities 151 169
Stockholder's equity 581 1,036
------ ------
Total liabilities
and stockholder's equity $5,236 $5,703
====== ======
</TABLE>
The amounts shown above include receivables and payables with the Company and
its other subsidiaries as follows:
<TABLE>
<CAPTION>
(in millions) 1994 1993
------ ------
<S> <C> <C>
Finance assets, net $ 4 $ 24
Other assets $ 39 $ 20
</TABLE>
These amounts were eliminated in the Company's consolidated balance sheets.
Finance leases consist of a portfolio of investments in transportation, power
generation, manufacturing facilities and real estate. Rentals receivable for
leveraged leases represent unpaid rentals less principal and interest on third-
party nonrecourse debt.
Effective December 31, 1993, PMCC adopted the method of accounting prescribed
by SFAS No. 115, "Accounting for Certain Investments in Debt and Equity
Securities." Under SFAS No. 115, PMCC's investment securities, included in other
investments, are classified as available for sale and are recorded at fair
value, with unrealized gains and losses included as a component of stockholders'
equity.
Other investments also include real estate and commercial receivables, the
total estimated fair values of which, at December 31, 1994 and 1993,
approximated their carrying values. Fair values were estimated by discounting
projected cash flows using the current rates for similar loans to borrowers with
similar credit ratings and maturities.
LOGO - PETER JACKSON
43
<PAGE>
Note 17. Financial Services and Real Estate Operations: (continued)
- --------------------------------------------------------------------
Condensed income statement data follow for the years ended December 31,
<TABLE>
<CAPTION>
(in millions) 1994 1993 1992
----- ----- -----
<S> <C> <C> <C>
Revenues:
Financial services $ 257 $ 276 $ 294
Real estate 236 134 146
----- ----- -----
Total revenues 493 410 440
Expenses:
Financial services 114 105 141
Real estate 190 90 93
----- ----- -----
Total expenses 304 195 234
Equity in earnings of limited
partnership investments 17 8
----- ----- -----
Earnings before income taxes
and cumulative adjustment 206 223 206
Cumulative pretax adjustment
related to leveraged leases 23
----- ----- -----
Earnings before income taxes 206 246 206
Provision for income taxes:
Current year 72 75 66
Cumulative adjustment
related to leveraged leases 40
----- ----- -----
Total provision for income taxes 72 115 66
----- ----- -----
Net earnings $ 134 $ 131 $ 140
===== ===== =====
</TABLE>
During 1993, PMCC's portfolio of leveraged leases was recalculated using a 35%
federal income tax rate, retroactive to January 1, 1993. A cumulative adjustment
was recorded that increased 1993 earnings before income taxes, increased the
provision for income taxes and decreased net earnings by $23 million, $40
million and $17 million, respectively.
Note 18. Financial Instruments:
- --------------------------------
Derivative financial instruments
The Company operates internationally, with manufacturing and sales facilities in
various locations around the world. Derivative financial instruments are used by
the Company for purposes other than trading, principally to reduce exposures to
market risks resulting from fluctuations in interest rates and foreign exchange
rates by creating offsetting exposures. The Company is not a party to leveraged
derivatives.
The Company has foreign currency and related interest rate swap agreements
which were executed to reduce the Company's borrowing costs and serve as hedges
of the Company's net assets in foreign subsidiaries, principally those
denominated in Swiss francs. At December 31, 1994 and 1993, the notional
principal amounts of these agreements were $1.6 billion and $1.4 billion,
respectively. Aggregate maturities at December 31, 1994 were as follows (in
millions): 1996-$350; 1997-$737; 1998-$185 and 1999-$350. The notional amount is
the amount used for the calculation of interest payments which are exchanged
over the life of the swap transaction and is equal to the amount of foreign
currency or dollar principal exchanged at maturity.
Forward exchange contracts are used by the Company to reduce the effect of
fluctuating foreign currencies on short-term foreign currency denominated
intercompany transactions. At December 31, 1994 and 1993, the Company had
forward exchange contracts, with maturities of generally one month, of $1.6
billion and $1.1 billion, respectively.
Credit exposure and credit risk
The Company is exposed to credit loss in the event of nonperformance by
counterparties to the swap agreements. However, such exposure was not material
at December 31, 1994, and the Company does not anticipate nonperformance.
Further, the Company does not have a significant credit exposure to an
individual counterparty.
Fair value
The aggregate fair value, based on market quotes, of the Company's total debt
did not differ materially from its carrying value at December 31, 1994. The
aggregate fair value of the Company's total debt at December 31, 1993 was $19.3
billion as compared to its carrying value of $18.2 billion. The estimated fair
value of financial services and real estate other investments, including real
estate and commercial receivables, approximated their carrying values at
December 31, 1994 and 1993.
The carrying values of the foreign currency and related interest rate swap
agreements and of the forward contracts, which did not differ materially from
their fair values, were not material.
See Notes 5, 6 and 17 for additional disclosures of fair value for short-term
borrowings, long-term debt and financial instruments within the financial
services and real estate operations, respectively.
LOGO - FREIA
44
<PAGE>
Note 19. Quarterly Financial Data (Unaudited):
- -----------------------------------------------
<TABLE>
<CAPTION>
1994 Quarters
----------------------------------
(in millions, except per share data) 1st 2nd 3rd 4th
------- ------- ------- -------
<S> <C> <C> <C> <C>
Operating revenues $15,500 $16,414 $16,710 $16,501
======= ======= ======= =======
Gross profit $ 5,929 $ 6,480 $ 6,579 $ 6,437
======= ======= ======= =======
Net earnings $ 1,171 $ 1,232 $ 1,230 $ 1,092
======= ======= ======= =======
Per share data:
Net earnings $ 1.34 $ 1.42 $ 1.42 $ 1.27
======= ======= ======= =======
Dividends declared $ .69 $ .69 $ .825 $ .825
======= ======= ======= =======
Market price - high $ 61 $55-3/8 $62-3/8 $64-1/2
- low $49-5/8 $47-1/4 $51-3/4 $56-1/8
<CAPTION>
1993 Quarters
----------------------------------
(in millions, except per share data) 1st 2nd 3rd 4th
------- ------- ------- -------
<S> <C> <C> <C> <C>
Operating revenues $15,189 $15,789 $15,209 $14,714
======= ======= ======= =======
Gross profit $ 5,935 $ 6,277 $ 5,926 $ 5,712
======= ======= ======= =======
Earnings before cumulative effect
of accounting change $ 1,214 $ 1,048 $ 967 $ 339
Cumulative effect of change in method
of accounting (477)
------- ------- ------- -------
Net earnings $ 737 $ 1,048 $ 967 $ 339
======= ======= ======= =======
Per share data:
Earnings before cumulative effect
of accounting change $ 1.38 $ 1.19 $ 1.11 $ .38
Cumulative effect of accounting
change (.54)
------- ------- ------- -------
Net earnings $ .84 $ 1.19 $ 1.11 $ .38
======= ======= ======= =======
Dividends declared $ .65 $ .65 $ .65 $ .65
======= ======= ======= =======
Market price - high $77-5/8 $64-3/4 $51-3/8 $59-3/8
- low $60-5/8 $ 45 $45-3/8 $45-1/2
</TABLE>
Effective January 1, 1993, the Company changed its method of accounting for
postemployment benefits. This change in accounting reduced previously reported
net earnings by $4 million in the first quarter, $5 million in the second
quarter ($.01 per share) and $4 million in the third quarter. See Note 13.
During the fourth quarter of 1993, the Company provided $741 million pretax,
$457 million after tax, for the costs of restructuring its worldwide operations.
The pretax charge was included in marketing, administration and research costs.
See Note 3.
------------------------------
The principal stock exchange, on which the Company's common stock (par value $1
per share) is listed, is the New York Stock Exchange. At January 31, 1995 there
were approximately 154,300 holders of record of the Company's common stock.
LOGO - SHAKE 'N BAKE
45
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Board of Directors and Stockholders of
Philip Morris Companies Inc.:
We have audited the accompanying consolidated balance sheets of Philip Morris
Companies Inc. and subsidiaries as of December 31, 1994 and 1993, and the
related consolidated statements of earnings, stockholders' equity and cash flows
for each of the three years in the period ended December 31, 1994. 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 in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Philip Morris
Companies Inc. and subsidiaries at December 31, 1994 and 1993, and the
consolidated 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.
As discussed in Note 15 to the consolidated financial statements, there is
litigation pending against the Company. The ultimate outcome of the litigation
cannot presently be determined. Accordingly, no provision for any liability
that may result upon adjudication has been made in the accompanying financial
statements.
As discussed in Note 13 to the consolidated financial statements, the Company
adopted in 1993 the method of accounting for postemployment benefits prescribed
by Statement of Financial Accounting Standards No. 112.
COOPERS & LYBRAND L.L.P.
New York, New York
January 23, 1995
COMPANY REPORT ON FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The consolidated financial statements and all related financial information
herein are the responsibility of the Compnay. The financial statements, which
include amounts based on judgments, have been prepared in accordance with
generally accepted accounting principles. Other financial information in the
annual report is consistent with that in the financial statements.
The Company maintains a system of internal controls that it believes provides
reasonable assurance that transactions are executed in accordance with
management's authorization and properly recorded, that assets are safeguarded,
and that accountability for assets is maintained. The system of internal
controls is characterized by a control-oriented environment within the Company,
which includes written policies and procedures, careful selection and training
of personnel, and audits by a professional staff of internal auditors.
Coopers & Lybrand L.L.P., independent accountants, have audited and reported
on the Company's consolidated financial statements. Their audits were performed
in accordance with generally accepted auditing standards.
The Audit Committee of the Board of Directors, composed of six non-management
directors, meets periodically with Coopers & Lybrand L.L.P., the Company's
internal auditors and management representatives to review internal accounting
control, auditing and financial reporting matters. Both Coopers & Lybrand
L.L.P. and the internal auditors have unrestricted access to the Audit Committee
and may meet with it without management representatives being present.
LOGO - BOND STREET
46
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE COMPANY
Certain active subsidiaries of the Company and their subsidiaries as of
December 31, 1994 are listed below. The names of certain subsidiaries, which
considered in the aggregate would not constitute a significant subsidiary, have
been omitted. On January 4, 1995, the name of Kraft General Foods, Inc. was
changed to Kraft Foods, Inc. In addition, corresponding changes to the names of
certain of the Company's subsidiaries have been made or will be made.
<TABLE>
<CAPTION>
STATE OR
COUNTRY OF
NAME ORGANIZATION
---- -------------------------
<S> <C>
AB Estrella................................................ Sweden
AB Kraft Jacobs Suchard Lietuva............................ Lithuania
AB Malaco.................................................. Sweden
AB Marabou................................................. Sweden
AB Slotts.................................................. Sweden
AG Chocolat Tobler......................................... Switzerland
Ajinomoto General Foods, Inc. ............................. Japan
Alimentos Kraft de Venezuela, C.A. ........................ Venezuela
A/O Almaty Tobacco Company................................. Kazakhstan
A/O Krasnadortabakprom..................................... Russia
A/O Philip Morris NEVA..................................... Russia
A/S Freia.................................................. Norway
A/S Freia Husholdning...................................... Norway
A/S Maarud................................................. Norway
A/S Malaco................................................. Norway
Beijing Kraft Food Corporation Limited..................... China
Boboli Co. ................................................ Delaware
Bouyea-Fassetts, Inc. ..................................... Delaware
Brains (Food Products) Limited............................. United Kingdom
Branded Restaurant Group, Inc. ............................ Delaware
Burlington Foods, Inc. .................................... Delaware
Cafe GRAND'MERE S.A. ...................................... France
Callard & Bowser-Suchard, Inc. ............................ Delaware
Capri Sun, Inc. ........................................... Delaware
C.A. Tabacalera Nacional................................... Venezuela
Charles Freihofer Baking Company, Inc. .................... New York
Chiffon Corp. ............................................. Delaware
Chocolat Tobler Ltd........................................ United Kingdom
Churny Company, Inc. ...................................... Delaware
Comptoir de la Confiserie & Cie ........................... France
Consolidated Beverage Distributors, Inc. .................. California
Cote d'Or (Netherland) BV.................................. Netherlands
Dart & Kraft Finance N.V. ................................. Netherlands Antilles
Dart & Kraft Financial Services Limited.................... United Kingdom
De La s.r.l. .............................................. Italy
Di Giorno Foods Co. ....................................... Delaware
Egri Dohanygyar kft. ...................................... Hungary
El Gallito Industrial, S.A. ............................... Costa Rica
Entenmann's Frozen Foods, Inc. ............................ Florida
Entenmann's, Inc. ......................................... Delaware
</TABLE>
21-1
<PAGE>
<TABLE>
<CAPTION>
STATE OR
COUNTRY OF
NAME ORGANIZATION
---- -------------------------
<S> <C>
Estrella A/S............................................... Denmark
Estrella Invest AB......................................... Sweden
Fabriques de Tabac Reunies S.A............................. Switzerland
Fastighets AB Sigismund.................................... Sweden
Franklin Baker Company of the Philippines ................. Philippines
Freia Choklad & Konfektyr AB............................... Sweden
Freia Chokolade A/S........................................ Denmark
Freia Marabou Danmark A/S.................................. Denmark
Freia Marabou Suchard A.S.................................. Norway
Freia Marabou Sverige AB................................... Sweden
FTR Holding S.A. .......................................... Switzerland
Gardners Good Foods, Inc. ................................. New Jersey
General Foods Bakery Companies, Inc. ...................... Delaware
General Foods Corporation (Australia) Pty. Ltd. ........... Australia
General Foods Credit Corporation........................... Delaware
General Foods Foreign Sales Corporation.................... U.S. Virgin Islands
General Foods Limited ..................................... United Kingdom
General Foods Manufacturing Corporation of Mexico.......... Delaware
General Foods Pty. Ltd. ................................... Australia
Grant Holdings, Inc. ...................................... Pennsylvania
Grundstucksgemeinschaft Kraft Jacobs Suchard GbR .......... Germany
Guangtong Food Company Ltd................................. China
HAG GF AG.................................................. Germany
Hedmark Froforretningog Brenneri A/S....................... Norway
Heinrich Jessens Chokladefabrik A/S........................ Denmark
Herzjunge-Kasewerk GmbH.................................... Germany
HNB Investment Corp. ...................................... Delaware
Hudson Processing, Inc. ................................... Delaware
IAG Industria Alimentos Gerais............................. Brazil
Ibitu Comercio de Cafe Limitada............................ Brazil
Industrial Quesera Menorquina (Portugal) Produtos
Alimentares LDA........................................... Portugal
International Pet Foods Ltd. .............................. New Zealand
Jack's Frozen Pizza, Inc. ................................. Wisconsin
Jacob Leinenkugel Brewing Company, Inc. ................... Wisconsin
Jacobs Caffe S.p.A. ....................................... Italy
Jacobs Erzeugnisse GmbH.................................... Germany
Jacobs Goldene Tasse Vertriebs GmbH........................ Germany
Jacobs Kaffee Gesellschaft GmbH............................ Austria
Jacobs Suchard Beteiligungs Gesellschaft GmbH ............. Austria
Jacobs Suchard Budapest Ges.m.b.H.......................... Hungary
Jacobs Suchard Cote d'Or Nederland N.V. ................... Belgium
Jacobs Suchard CS spol.s.r.o. ............................. Czech Republic
Jacobs Suchard Dadak A.S. ................................. Czech Republic
Jacobs Suchard do Brasil Alimentos LTDA.................... Brazil
Jacobs Suchard Figaro A.S.................................. Slovak Republic
Jacobs Suchard Finance..................................... Switzerland
Jacobs Suchard Grundst. verwaltung......................... Germany
Jacobs Suchard Pavlides SA................................. Greece
Jacobs Suchard Service GmbH & Co. KG....................... Germany
</TABLE>
21-2
<PAGE>
<TABLE>
<CAPTION>
STATE OR
COUNTRY OF
NAME ORGANIZATION
---- -------------------------
<S> <C>
Jacobs Suchard S.p.A. ...................................... Italy
Jacobs Suchard Tobler SA.................................... Switzerland
Johann Jacobs GmbH.......................................... Germany
Kaffee HAG AG .............................................. Switzerland
Kaffee Handels Gesellschaft G.m.b.H......................... Germany
The Kenco Coffee Company Limited............................ United Kingdom
KFS Holding, Inc. .......................................... Delaware
KGFI Beverages, Inc. ....................................... Delaware
Kharkov Tobacco Factory..................................... Ukraine
Klaipeda Tobacco Factory.................................... Lithuania
Kraft Chorzele.............................................. Poland
Kraft Food Ingredients Corp. ............................... Delaware
Kraft Foodservice Holding Corporation ...................... Delaware
Kraft Foodservice, Inc. .................................... Delaware
Kraft Foods Limited......................................... Australia
Kraft Foods Limited......................................... United Kingdom
Kraft General Foods AB...................................... Sweden
Kraft General Foods A/p.S................................... Denmark
Kraft General Foods (Asia-Pacific) Limited ................. Hong Kong
Kraft General Foods (Australia) Limited..................... Australia
Kraft General Foods Canada Inc. ............................ Canada
Kraft General Foods Europe GmbH............................. Germany
Kraft General Foods France S.A. ............................ France
Kraft General Foods GmbH.................................... Germany
Kraft General Foods Hellas SA............................... Greece
Kraft General Foods Holdings Norway, Inc. .................. Delaware
Kraft General Foods, Inc. .................................. Delaware
Kraft General Foods International, Inc. .................... Delaware
Kraft General Foods International Services, Inc. ........... Delaware
Kraft General Foods Manufacturing Corporation............... Delaware
Kraft General Foods de Mexico, S.A. de C.V. ................ Mexico
Kraft General Foods New Zealand Limited .................... New Zealand
Kraft General Foods Norge AS................................ Norway
Kraft General Foods (Philippines), Inc. .................... Philippines
Kraft General Foods (Puerto Rico), Inc. .................... Puerto Rico
Kraft General Foods S.p.A. ................................. Italy
Kraft General Foods (U.S.A.) Pte. Ltd. ..................... Singapore
Kraft Holdings Limited (United Kingdom)..................... United Kingdom
Kraft, Inc. ................................................ Delaware
Kraft Jacobs Suchard AG..................................... Switzerland
Kraft Jacobs Suchard Berlin & Co. GmbH KG................... Germany
Kraft Jacobs Suchard Bulgaria Ltd. ......................... Bulgaria
Kraft Jacobs Suchard B.V. .................................. Holland
Kraft Jacobs Suchard Coordination Center SA................. Belgium
Kraft Jacobs Suchard Cote D'Or S.A. ........................ Belgium
Kraft Jacobs Suchard Erzeugnisse GmbH & Co. KG.............. Germany
Kraft Jacobs Suchard Export & Industrial Sales GmbH......... Germany
Kraft Jacobs Suchard France S.A. ........................... France
Kraft Jacobs Suchard GmbH................................... Germany
</TABLE>
21-3
<PAGE>
<TABLE>
<CAPTION>
STATE OR
COUNTRY OF
NAME ORGANIZATION
---- -------------------------
<S> <C>
Kraft Jacobs Suchard Holding A/S........................... Denmark
Kraft Jacobs Suchard (Holdings) Limited.................... United Kingdom
Kraft Jacobs Suchard Iberia S.A. .......................... Spain
Kraft Jacobs Suchard Ireland Ltd. ......................... Ireland
Kraft Jacobs Suchard Kaffeeveredelungs GmbH & Co. KG....... Germany
Kraft Jacobs Suchard Laverune SNC.......................... France
Kraft Jacobs Suchard La Vosgienne SNC...................... France
Kraft Jacobs Suchard Limited............................... United Kingdom
Kraft Jacobs Suchard Management & Consulting AG............ Switzerland
Kraft Jacobs Suchard Manufacturing & Co. GmbH KG........... Germany
Kraft Jacobs Suchard (Middle East & Africa) Limited........ United Kingdom
Kraft Jacobs Suchard Polski Sp. z.o.o. .................... Poland
Kraft Jacobs Suchard Reims SNC............................. France
Kraft Jacobs Suchard Romania SA............................ Romania
Kraft Jacobs Suchard Service S.A. ......................... France
Kraft Jacobs Suchard Service AG............................ Switzerland
Kraft Manufacturing GmbH................................... Germany
Kraft Suchard Argentina S.A. .............................. Argentina
Malaco A/S................................................. Denmark
Malaco i Eskilstuna AB..................................... Sweden
Malaco (U.K.) Ltd. ........................................ England
Malmo Lakritsfabrik AB..................................... Sweden
Marabou Belgium N.V. ...................................... Belgium
Marabou GmbH............................................... Germany
Marsa Kraft Jacobs Suchard Sabanci Gida Sanayi Ve Ticaret
A.S. ..................................................... Turkey
Massalin Particulares S.A. ................................ Argentina
Maxpax France SA........................................... France
Maxpax (U.K.) Limited...................................... United Kingdom
MBC Holdings, Inc. ........................................ Wisconsin
Merido Genussmittel GmbH................................... Germany
Miller Brewing Company..................................... Wisconsin
Miller Brewing 1855, Inc................................... Delaware
Mirabell Salzburger Confiserie-und Bisquit mbH............. Austria
Mission Viejo Company...................................... California
N B P Marketing, Inc. ..................................... Delaware
N.V. Kraft Jacobs Suchard S.A. ............................ Belgium
OMFC Service Company....................................... Delaware
Oroweat Bakers Ltd. ....................................... Canada
Oscar Mayer Foods Corporation.............................. Delaware
Oy Estfab AB............................................... Finland
Phenix Leasing Corporation................................. Delaware
Phenix Management Corporation.............................. Delaware
Philip Morris Asia Incorporated............................ Delaware
Philip Morris Belgium S.A. ................................ Belgium
Philip Morris Capital Corporation.......................... Delaware
Philip Morris Corporate Services Inc. ..................... Delaware
Philip Morris Europe S.A. ................................. Delaware
Philip Morris G.m.b.H. .................................... Germany
Philip Morris Holland B.V. ................................ Netherlands
</TABLE>
21-4
<PAGE>
<TABLE>
<CAPTION>
STATE OR
COUNTRY OF
NAME ORGANIZATION
---- -------------------------
<S> <C>
Philip Morris Incorporated................................. Virginia
Philip Morris International Finance Corporation............ Delaware
Philip Morris International Inc. .......................... Delaware
Philip Morris Kabushiki Kaisha............................. Japan
Philip Morris Korea C.H. .................................. Korea
Philip Morris Latin America Inc. .......................... Delaware
Philip Morris Limited...................................... Australia
Philip Morris Management Corp. ............................ New York
Philip Morris Marketing S.A. .............................. Delaware
Philip Morris Products Inc. ............................... Virginia
Philip Morris Sales Inc. .................................. Delaware
PHILSA Philip Morris Sabanci Sigara ve Tutunculuk Sanayi ve
Ticaret, A.S. ............................................ Turkey
PMCC Leasing Corporation................................... Delaware
Philip Morris SA, Phillip Morris Sabanci Pazarlama ve Satis
A.S. ..................................................... Turkey
Porta Pack Corporation..................................... Delaware
Premierfoods Corporation................................... Taiwan
Ridg's Finer Foods, Inc. .................................. Delaware
Riespri S.A. .............................................. Spain
Roskill Cartage and Storage Limited........................ New Zealand
Rye Ventures, Inc. ........................................ New York
S.A. Jacobs Suchard-Cote d'Or N.V. ........................ Belgium
Seven Seas Foods, Inc. .................................... Delaware
SICMA SA................................................... France
Suchard Schokolade GmbH ................................... Austria
Suchard Tobler Vertriebs GmbH.............................. Germany
Suchard Unterstutzungskasse Gesellschaft m.b.H. ........... Austria
Superior AgResource, Inc. ................................. Delaware
Tabacalera Centroamericana S.A. ........................... Guatemala
Tabacalera Costarricense S.A. ............................. Costa Rica
Tabak A.S. ................................................ Czech Republic
Taloca AG.................................................. Switzerland
Taloca Ltda. .............................................. Brazil
Taloca y Cia Ltda. ........................................ Columbia
Terry's Suchard Limited.................................... United Kingdom
Tianmei Food Company, Ltd. ................................ China
Tombstone Pizza Corporation ............................... Delaware
Vict Th. Engwall & Co., Inc. .............................. Delaware
Votesor BV................................................. Netherlands
Zaklady Przemyslu Cukiemiczego "Olza" SA................... Poland
</TABLE>
21-5
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in Post-Effective Amendment
No. 13 to the registration statement of Philip Morris Companies Inc. (the
"Company") on Form S-14 (File No. 2-96149) and in the Company's registration
statements on Form S-3 (File Nos. 33-21033 and 33-49195) and Form S-8 (File Nos.
33-1479, 33-1480, 33-10218, 33-13210, 33-14561, 33-17870, 33-37115, 33-38781,
33-39162, 33-40110 and 33-48781) of our reports, which include an explanatory
paragraph related to litigation pending against the Company, dated January 23,
1995, on our audits of the consolidated financial statements and financial
statement schedule of the Company as of December 31, 1994 and 1993, and for the
years ended December 31, 1994, 1993, and 1992, which reports are included or
incorporated by reference in this Annual Report on Form 10-K.
/s/ Coopers & Lybrand L.L.P.
New York, New York
March 9, 1995
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
Know All Men By These Presents That the undersigned, a Director of Philip
Morris Companies Inc., a Virginia corporation (the "Company"), does hereby
constitute and appoint Geoffrey C. Bible, Hans G. Storr and Murray H. Bring, or
any one or more of them, his/her true and lawful attorney, for him/her and in
his/her name, place and stead, to execute, by manual or facsimile signature,
electronic transmission or otherwise, the Annual Report on Form 10-K of the
Company for the year ended December 31, 1994 and any amendments or supplements
to said Annual Report and to cause the same to be filed with the Securities and
Exchange Commission, together with any exhibits, financial statements and
schedules included or to be incorporated by reference therein, hereby granting
to said attorneys full power and authority to do and perform all and every act
and thing whatsoever requisite or desirable to be done in and about the premises
as fully to all intents and purposes as the undersigned might or could do in
person, hereby ratifying and confirming all acts and things which said attorneys
may do or cause to be done by virtue of these presents.
In Witness Whereof, the undersigned has hereunto set his/her hand and seal
this 1st day of March, 1995.
/s/ Elizabeth E. Bailey
-----------------------------
ELIZABETH E. BAILEY
<PAGE>
POWER OF ATTORNEY
Know All Men By These Presents That the undersigned, a Director of Philip
Morris Companies Inc., a Virginia corporation (the "Company"), does hereby
constitute and appoint Geoffrey C. Bible, Hans G. Storr and Murray H. Bring, or
any one or more of them, his/her true and lawful attorney, for him/her and in
his/her name, place and stead, to execute, by manual or facsimile signature,
electronic transmission or otherwise, the Annual Report on Form 10-K of the
Company for the year ended December 31, 1994 and any amendments or supplements
to said Annual Report and to cause the same to be filed with the Securities and
Exchange Commission, together with any exhibits, financial statements and
schedules included or to be incorporated by reference therein, hereby granting
to said attorneys full power and authority to do and perform all and every act
and thing whatsoever requisite or desirable to be done in and about the premises
as fully to all intents and purposes as the undersigned might or could do in
person, hereby ratifying and confirming all acts and things which said attorneys
may do or cause to be done by virtue of these presents.
In Witness Whereof, the undersigned has hereunto set his/her hand and seal
this 1st day of March, 1995.
/s/ Geoffrey C. Bible
-----------------------
GEOFFREY C. BIBLE
<PAGE>
POWER OF ATTORNEY
Know All Men By These Presents That the undersigned, a Director of Philip
Morris Companies Inc., a Virginia corporation (the "Company"), does hereby
constitute and appoint Geoffrey C. Bible, Hans G. Storr and Murray H. Bring, or
any one or more of them, his/her true and lawful attorney, for him/her and in
his/her name, place and stead, to execute, by manual or facsimile signature,
electronic transmission or otherwise, the Annual Report on Form 10-K of the
Company for the year ended December 31, 1994 and any amendments or supplements
to said Annual Report and to cause the same to be filed with the Securities and
Exchange Commission, together with any exhibits, financial statements and
schedules included or to be incorporated by reference therein, hereby granting
to said attorneys full power and authority to do and perform all and every act
and thing whatsoever requisite or desirable to be done in and about the premises
as fully to all intents and purposes as the undersigned might or could do in
person, hereby ratifying and confirming all acts and things which said attorneys
may do or cause to be done by virtue of these presents.
In Witness Whereof, the undersigned has hereunto set his/her hand and seal
this 1st day of March, 1995.
/s/ Murray H. Bring
-----------------------------
MURRAY H. BRING
<PAGE>
POWER OF ATTORNEY
Know All Men By These Presents That the undersigned, a Director of Philip
Morris Companies Inc., a Virginia corporation (the "Company"), does hereby
constitute and appoint Geoffrey C. Bible, Hans G. Storr and Murray H. Bring, or
any one or more of them, his/her true and lawful attorney, for him/her and in
his/her name, place and stead, to execute, by manual or facsimile signature,
electronic transmission or otherwise, the Annual Report on Form 10-K of the
Company for the year ended December 31, 1994 and any amendments or supplements
to said Annual Report and to cause the same to be filed with the Securities and
Exchange Commission, together with any exhibits, financial statements and
schedules included or to be incorporated by reference therein, hereby granting
to said attorneys full power and authority to do and perform all and every act
and thing whatsoever requisite or desirable to be done in and about the premises
as fully to all intents and purposes as the undersigned might or could do in
person, hereby ratifying and confirming all acts and things which said attorneys
may do or cause to be done by virtue of these presents.
In Witness Whereof, the undersigned has hereunto set his/her hand and seal
this 1st day of March, 1995.
/s/ Harold Brown
-----------------------------
HAROLD BROWN
<PAGE>
POWER OF ATTORNEY
Know All Men By These Presents That the undersigned, a Director of Philip
Morris Companies Inc., a Virginia corporation (the "Company"), does hereby
constitute and appoint Geoffrey C. Bible, Hans G. Storr and Murray H. Bring, or
any one or more of them, his/her true and lawful attorney, for him/her and in
his/her name, place and stead, to execute, by manual or facsimile signature,
electronic transmission or otherwise, the Annual Report on Form 10-K of the
Company for the year ended December 31, 1994 and any amendments or supplements
to said Annual Report and to cause the same to be filed with the Securities and
Exchange Commission, together with any exhibits, financial statements and
schedules included or to be incorporated by reference therein, hereby granting
to said attorneys full power and authority to do and perform all and every act
and thing whatsoever requisite or desirable to be done in and about the premises
as fully to all intents and purposes as the undersigned might or could do in
person, hereby ratifying and confirming all acts and things which said attorneys
may do or cause to be done by virtue of these presents.
In Witness Whereof, the undersigned has hereunto set his/her hand and seal
this 1st day of March, 1995.
/s/ William H. Donaldson
-----------------------------
WILLIAM H. DONALDSON
<PAGE>
POWER OF ATTORNEY
Know All Men By These Presents That the undersigned, a Director of Philip
Morris Companies Inc., a Virginia corporation (the "Company"), does hereby
constitute and appoint Geoffrey C. Bible, Hans G. Storr and Murray H. Bring, or
any one or more of them, his/her true and lawful attorney, for him/her and in
his/her name, place and stead, to execute, by manual or facsimile signature,
electronic transmission or otherwise, the Annual Report on Form 10-K of the
Company for the year ended December 31, 1994 and any amendments or supplements
to said Annual Report and to cause the same to be filed with the Securities and
Exchange Commission, together with any exhibits, financial statements and
schedules included or to be incorporated by reference therein, hereby granting
to said attorneys full power and authority to do and perform all and every act
and thing whatsoever requisite or desirable to be done in and about the premises
as fully to all intents and purposes as the undersigned might or could do in
person, hereby ratifying and confirming all acts and things which said attorneys
may do or cause to be done by virtue of these presents.
In Witness Whereof, the undersigned has hereunto set his/her hand and seal
this 1st day of March, 1995.
/s/ Paul W. Douglas
-----------------------------
PAUL W. DOUGLAS
<PAGE>
POWER OF ATTORNEY
Know All Men By These Presents That the undersigned, a Director of Philip
Morris Companies Inc., a Virginia corporation (the "Company"), does hereby
constitute and appoint Geoffrey C. Bible, Hans G. Storr and Murray H. Bring, or
any one or more of them, his/her true and lawful attorney, for him/her and in
his/her name, place and stead, to execute, by manual or facsimile signature,
electronic transmission or otherwise, the Annual Report on Form 10-K of the
Company for the year ended December 31, 1994 and any amendments or supplements
to said Annual Report and to cause the same to be filed with the Securities and
Exchange Commission, together with any exhibits, financial statements and
schedules included or to be incorporated by reference therein, hereby granting
to said attorneys full power and authority to do and perform all and every act
and thing whatsoever requisite or desirable to be done in and about the premises
as fully to all intents and purposes as the undersigned might or could do in
person, hereby ratifying and confirming all acts and things which said attorneys
may do or cause to be done by virtue of these presents.
In Witness Whereof, the undersigned has hereunto set his/her hand and seal
this 1st day of March, 1995.
/s/ Jane Evans
-----------------------------
JANE EVANS
<PAGE>
POWER OF ATTORNEY
Know All Men By These Presents That the undersigned, a Director of Philip
Morris Companies Inc., a Virginia corporation (the "Company"), does hereby
constitute and appoint Geoffrey C. Bible, Hans G. Storr and Murray H. Bring, or
any one or more of them, his/her true and lawful attorney, for him/her and in
his/her name, place and stead, to execute, by manual or facsimile signature,
electronic transmission or otherwise, the Annual Report on Form 10-K of the
Company for the year ended December 31, 1994 and any amendments or supplements
to said Annual Report and to cause the same to be filed with the Securities and
Exchange Commission, together with any exhibits, financial statements and
schedules included or to be incorporated by reference therein, hereby granting
to said attorneys full power and authority to do and perform all and every act
and thing whatsoever requisite or desirable to be done in and about the premises
as fully to all intents and purposes as the undersigned might or could do in
person, hereby ratifying and confirming all acts and things which said attorneys
may do or cause to be done by virtue of these presents.
In Witness Whereof, the undersigned has hereunto set his/her hand and seal
this 1st day of March, 1995.
/s/ Robert E. R. Huntley
-----------------------------
ROBERT E. R. HUNTLEY
<PAGE>
POWER OF ATTORNEY
Know All Men By These Presents That the undersigned, a Director of Philip
Morris Companies Inc., a Virginia corporation (the "Company"), does hereby
constitute and appoint Geoffrey C. Bible, Hans G. Storr and Murray H. Bring, or
any one or more of them, his/her true and lawful attorney, for him/her and in
his/her name, place and stead, to execute, by manual or facsimile signature,
electronic transmission or otherwise, the Annual Report on Form 10-K of the
Company for the year ended December 31, 1994 and any amendments or supplements
to said Annual Report and to cause the same to be filed with the Securities and
Exchange Commission, together with any exhibits, financial statements and
schedules included or to be incorporated by reference therein, hereby granting
to said attorneys full power and authority to do and perform all and every act
and thing whatsoever requisite or desirable to be done in and about the premises
as fully to all intents and purposes as the undersigned might or could do in
person, hereby ratifying and confirming all acts and things which said attorneys
may do or cause to be done by virtue of these presents.
In Witness Whereof, the undersigned has hereunto set his/her hand and seal
this 1st day of March, 1995.
/s/ Hamish Maxwell
-----------------------------
HAMISH MAXWELL
<PAGE>
POWER OF ATTORNEY
Know All Men By These Presents That the undersigned, a Director of Philip
Morris Companies Inc., a Virginia corporation (the "Company"), does hereby
constitute and appoint Geoffrey C. Bible, Hans G. Storr and Murray H. Bring, or
any one or more of them, his/her true and lawful attorney, for him/her and in
his/her name, place and stead, to execute, by manual or facsimile signature,
electronic transmission or otherwise, the Annual Report on Form 10-K of the
Company for the year ended December 31, 1994 and any amendments or supplements
to said Annual Report and to cause the same to be filed with the Securities and
Exchange Commission, together with any exhibits, financial statements and
schedules included or to be incorporated by reference therein, hereby granting
to said attorneys full power and authority to do and perform all and every act
and thing whatsoever requisite or desirable to be done in and about the premises
as fully to all intents and purposes as the undersigned might or could do in
person, hereby ratifying and confirming all acts and things which said attorneys
may do or cause to be done by virtue of these presents.
In Witness Whereof, the undersigned has hereunto set his/her hand and seal
this 1st day of March, 1995.
/s/ Rupert Murdoch
-----------------------------
RUPERT MURDOCH
<PAGE>
POWER OF ATTORNEY
Know All Men By These Presents That the undersigned, a Director of Philip
Morris Companies Inc., a Virginia corporation (the "Company"), does hereby
constitute and appoint Geoffrey C. Bible, Hans G. Storr and Murray H. Bring, or
any one or more of them, his/her true and lawful attorney, for him/her and in
his/her name, place and stead, to execute, by manual or facsimile signature,
electronic transmission or otherwise, the Annual Report on Form 10-K of the
Company for the year ended December 31, 1994 and any amendments or supplements
to said Annual Report and to cause the same to be filed with the Securities and
Exchange Commission, together with any exhibits, financial statements and
schedules included or to be incorporated by reference therein, hereby granting
to said attorneys full power and authority to do and perform all and every act
and thing whatsoever requisite or desirable to be done in and about the premises
as fully to all intents and purposes as the undersigned might or could do in
person, hereby ratifying and confirming all acts and things which said attorneys
may do or cause to be done by virtue of these presents.
In Witness Whereof, the undersigned has hereunto set his/her hand and seal
this 1st day of March, 1995.
/s/ John D. Nichols
-----------------------------
JOHN D. NICHOLS
<PAGE>
POWER OF ATTORNEY
Know All Men By These Presents That the undersigned, a Director of Philip
Morris Companies Inc., a Virginia corporation (the "Company"), does hereby
constitute and appoint Geoffrey C. Bible, Hans G. Storr and Murray H. Bring, or
any one or more of them, his/her true and lawful attorney, for him/her and in
his/her name, place and stead, to execute, by manual or facsimile signature,
electronic transmission or otherwise, the Annual Report on Form 10-K of the
Company for the year ended December 31, 1994 and any amendments or supplements
to said Annual Report and to cause the same to be filed with the Securities and
Exchange Commission, together with any exhibits, financial statements and
schedules included or to be incorporated by reference therein, hereby granting
to said attorneys full power and authority to do and perform all and every act
and thing whatsoever requisite or desirable to be done in and about the premises
as fully to all intents and purposes as the undersigned might or could do in
person, hereby ratifying and confirming all acts and things which said attorneys
may do or cause to be done by virtue of these presents.
In Witness Whereof, the undersigned has hereunto set his/her hand and seal
this 1st day of March, 1995.
/s/ Richard D. Parsons
-----------------------------
RICHARD D. PARSONS
<PAGE>
POWER OF ATTORNEY
Know All Men By These Presents That the undersigned, a Director of Philip
Morris Companies Inc., a Virginia corporation (the "Company"), does hereby
constitute and appoint Geoffrey C. Bible, Hans G. Storr and Murray H. Bring, or
any one or more of them, his/her true and lawful attorney, for him/her and in
his/her name, place and stead, to execute, by manual or facsimile signature,
electronic transmission or otherwise, the Annual Report on Form 10-K of the
Company for the year ended December 31, 1994 and any amendments or supplements
to said Annual Report and to cause the same to be filed with the Securities and
Exchange Commission, together with any exhibits, financial statements and
schedules included or to be incorporated by reference therein, hereby granting
to said attorneys full power and authority to do and perform all and every act
and thing whatsoever requisite or desirable to be done in and about the premises
as fully to all intents and purposes as the undersigned might or could do in
person, hereby ratifying and confirming all acts and things which said attorneys
may do or cause to be done by virtue of these presents.
In Witness Whereof, the undersigned has hereunto set his/her hand and seal
this 1st day of March, 1995.
/s/ Roger S. Penske
-----------------------------
ROGER S. PENSKE
<PAGE>
POWER OF ATTORNEY
Know All Men By These Presents That the undersigned, a Director of Philip
Morris Companies Inc., a Virginia corporation (the "Company"), does hereby
constitute and appoint Geoffrey C. Bible, Hans G. Storr and Murray H. Bring, or
any one or more of them, his/her true and lawful attorney, for him/her and in
his/her name, place and stead, to execute, by manual or facsimile signature,
electronic transmission or otherwise, the Annual Report on Form 10-K of the
Company for the year ended December 31, 1994 and any amendments or supplements
to said Annual Report and to cause the same to be filed with the Securities and
Exchange Commission, together with any exhibits, financial statements and
schedules included or to be incorporated by reference therein, hereby granting
to said attorneys full power and authority to do and perform all and every act
and thing whatsoever requisite or desirable to be done in and about the premises
as fully to all intents and purposes as the undersigned might or could do in
person, hereby ratifying and confirming all acts and things which said attorneys
may do or cause to be done by virtue of these presents.
In Witness Whereof, the undersigned has hereunto set his/her hand and seal
this 1st day of March, 1995.
/s/ John S. Reed
-----------------------------
JOHN S. REED
<PAGE>
POWER OF ATTORNEY
Know All Men By These Presents That the undersigned, a Director of Philip
Morris Companies Inc., a Virginia corporation (the "Company"), does hereby
constitute and appoint Geoffrey C. Bible, Hans G. Storr and Murray H. Bring, or
any one or more of them, his/her true and lawful attorney, for him/her and in
his/her name, place and stead, to execute, by manual or facsimile signature,
electronic transmission or otherwise, the Annual Report on Form 10-K of the
Company for the year ended December 31, 1994 and any amendments or supplements
to said Annual Report and to cause the same to be filed with the Securities and
Exchange Commission, together with any exhibits, financial statements and
schedules included or to be incorporated by reference therein, hereby granting
to said attorneys full power and authority to do and perform all and every act
and thing whatsoever requisite or desirable to be done in and about the premises
as fully to all intents and purposes as the undersigned might or could do in
person, hereby ratifying and confirming all acts and things which said attorneys
may do or cause to be done by virtue of these presents.
In Witness Whereof, the undersigned has hereunto set his/her hand and seal
this 1st day of March, 1995.
/s/ Hans G. Storr
-----------------------------
HANS G. STORR
<PAGE>
POWER OF ATTORNEY
Know All Men By These Presents That the undersigned, a Director of Philip
Morris Companies Inc., a Virginia corporation (the "Company"), does hereby
constitute and appoint Geoffrey C. Bible, Hans G. Storr and Murray H. Bring, or
any one or more of them, his/her true and lawful attorney, for him/her and in
his/her name, place and stead, to execute, by manual or facsimile signature,
electronic transmission or otherwise, the Annual Report on Form 10-K of the
Company for the year ended December 31, 1994 and any amendments or supplements
to said Annual Report and to cause the same to be filed with the Securities and
Exchange Commission, together with any exhibits, financial statements and
schedules included or to be incorporated by reference therein, hereby granting
to said attorneys full power and authority to do and perform all and every act
and thing whatsoever requisite or desirable to be done in and about the premises
as fully to all intents and purposes as the undersigned might or could do in
person, hereby ratifying and confirming all acts and things which said attorneys
may do or cause to be done by virtue of these presents.
In Witness Whereof, the undersigned has hereunto set his/her hand and seal
this 1st day of March, 1995.
/s/ Stephen M. Wolf
-----------------------------
STEPHEN M. WOLF
