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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1993
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RJR NABISCO HOLDINGS CORP.
(Exact name of registrant as specified in its charter)
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DELAWARE 1-10215 13-3490602
(State or other (Commission file (I.R.S. Employer Identification
jurisdiction of number) No.)
incorporation or
organization)
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RJR NABISCO, INC.
(Exact name of registrant as specified in its charter)
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DELAWARE 1-6388 56-0950247
(State or other (Commission file (I.R.S. Employer Identification
jurisdiction of number) No.)
incorporation or
organization)
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1301 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019
(212) 258-5600
(Address, including zip code, and telephone number, including area code,
of the principal executive offices of RJR Nabisco Holdings Corp. and RJR
Nabisco, Inc.)
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
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NAME OF EACH NAME OF EACH
EXCHANGE ON EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED TITLE OF EACH CLASS WHICH REGISTERED
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RJR NABISCO HOLDINGS CORP. 7 3/8% Sinking Fund Debentures, Due
Common Stock, par value $.01 per share New York February 1, 2001 New York
$.835 Depositary Shares New York 7 5/8% Notes due September 15, 2003 New York
Series B Depositary Shares New York 8 5/8% Notes due 2002 New York
RJR NABISCO, INC. 8% Notes due 2000 New York
Subordinated Discount Debentures due 9 1/4% Debentures due 2013 New York
May 15, 2001 New York 8 3/4% Notes due 2005 New York
15% Payment-in-Kind Subordinated Debentures due
May 15, 2001 New York SUBSIDIARIES OF THE REGISTRANTS
13 1/2% Subordinated Debentures due May 15, 2001 New York Nabisco, Inc.
10 1/2% Senior Notes due 1998 New York 7 3/4% Sinking Fund Debentures Due May 1, 2001 New York
8.30% Senior Notes due April 15, 1999 New York 7 3/4% Sinking Fund Debentures Due
8.75% Senior Notes due April 15, 2004 New York November 1, 2003 New York
Standard Brands Incorporated
7 3/4% Sinking Fund Debentures, due May 1, 2001 New York
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SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
None
INDICATE BY CHECK MARK WHETHER THE REGISTRANTS (1) HAVE 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
REGISTRANTS WERE REQUIRED TO FILE SUCH REPORTS), AND (2) HAVE BEEN SUBJECT TO
SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO ___
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM
405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE
BEST OF REGISTRANTS' 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. [ ]
THE AGGREGATE MARKET VALUE OF VOTING STOCK HELD BY NON-AFFILIATES OF RJR
NABISCO HOLDINGS CORP. ON JANUARY 31, 1994 WAS APPROXIMATELY $4.9 BILLION.
CERTAIN AFFILIATES OF KKR ASSOCIATES AND DIRECTORS OF RJR NABISCO HOLDINGS CORP.
ARE CONSIDERED AFFILIATES FOR PURPOSES OF THIS CALCULATION BUT SHOULD NOT
NECESSARILY BE DEEMED AFFILIATES FOR ANY OTHER PURPOSE. NONE OF THE VOTING STOCK
OF RJR NABISCO, INC. IS HELD BY ANY NON-AFFILIATE.
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE REGISTRANTS'
CLASSES OF COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE: JANUARY 31, 1994:
RJR NABISCO HOLDINGS CORP.: 1,138,110,712 SHARES OF COMMON STOCK, PAR VALUE,
$.01 PER SHARE
RJR NABISCO, INC.:2,566.07515 SHARES OF COMMON STOCK, PAR VALUE $1,000 PER SHARE
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RJR NABISCO, INC. MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION J(1)(a)
AND (b) OF FORM 10-K AND IS THEREFORE FILING THIS FORM WITH THE REDUCED
DISCLOSURE FORMAT.
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DOCUMENTS INCORPORATED BY REFERENCE
PORTIONS OF THE DEFINITIVE PROXY STATEMENT OF RJR NABISCO HOLDINGS CORP. TO BE
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO REGULATION 14A OF
THE SECURITIES EXCHANGE ACT OF 1934 ON OR PRIOR TO APRIL 30, 1994 ARE
INCORPORATED BY REFERENCE INTO PART III OF THIS REPORT.
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INDEX
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PART I
Item 1. Business....................................................................................... 1
(a) General Development of Business....................................................... 1
(b) Financial Information about Industry Segments......................................... 2
(c) Narrative Description of Business..................................................... 2
Tobacco........................................................................... 2
Food.............................................................................. 8
Other Matters..................................................................... 11
(d) Financial Information about Foreign and Domestic Operations 13
and Export Sales..................................................................
Item 2. Properties..................................................................................... 13
Item 3. Legal Proceedings.............................................................................. 13
Item 4. Submission of Matters to a Vote of Security Holders............................................ 13
Executive Officers of the Registrants.......................................................... 14
PART II
Item 5. Market for Registrants' Common Equity and Related Stockholder Matters.......................... 16
Item 6. Selected Financial Data........................................................................ 17
Item 7. Management's Discussion and Analysis of Financial Condition and 19
Results of Operations........................................................................
Item 8. Financial Statements and Supplementary Data.................................................... 29
Item 9. Changes in and Disagreements with Accountants on Accounting and 29
Financial Disclosure.........................................................................
PART III
Item 10. Directors and Executive Officers of the Registrants............................................ 30
Item 11. Executive Compensation......................................................................... 30
Item 12. Security Ownership of Certain Beneficial Owners and Management................................. 30
Item 13. Certain Relationships and Related Transactions................................................. 30
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K............................... 31
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PART I
ITEM 1. BUSINESS
(a) General Development of Business
RJR Nabisco Holdings Corp. ("Holdings") was organized as a Delaware
corporation in 1988 at the direction of Kohlberg Kravis Roberts & Co., L.P.
("KKR"), a Delaware limited partnership, to effect the acquisition of RJR
Nabisco, Inc. ("RJRN"), which was completed on April 28, 1989 (the
"Acquisition"). As a result of the Acquisition, RJRN became an indirect, wholly
owned subsidiary of Holdings. After a series of holding company mergers
completed on December 17, 1992, RJRN became a direct, wholly owned subsidiary of
Holdings. The business of Holdings is conducted through RJRN. Holdings and RJRN
are referred to herein collectively as the "Registrants".
RJRN's operating subsidiaries comprise one of the largest tobacco and food
companies in the world. In the United States, the tobacco business is conducted
by R. J. Reynolds Tobacco Company ("RJRT"), the second largest manufacturer of
cigarettes, and the packaged food business is conducted by the Nabisco Foods
Group ("NFG"), the largest manufacturer and marketer of cookies and crackers.
Tobacco operations outside the United States are conducted by R. J. Reynolds
Tobacco International, Inc. ("Tobacco International") and food operations
outside the United States and Canada are conducted by Nabisco International,
Inc. ("Nabisco International"). NFG and Nabisco International are sometimes
referred to herein collectively as "Nabisco". Together, RJRT's and Tobacco
International's tobacco products are sold around the world under a variety of
brand names. Nabisco's food products are sold in the United States, Canada,
Latin America and certain other international markets. For financial information
with respect to RJRN's industry segments, lines of business and operations in
various geographic locations, see Item 7, "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and Note 15 to the
consolidated financial statements, and the related notes thereto, of Holdings
and RJRN as of December 31, 1993 and 1992 and for each of the years in the
three-year period ended December 31, 1993 (the "Consolidated Financial
Statements").
RJRN was incorporated in 1970 and can trace its origins back to the
formation of R. J. Reynolds Tobacco Company in 1875. Activities were confined to
the tobacco industry until the 1960's, when diversification led to investments
in transportation, energy and food. With the acquisition of Del Monte
Corporation ("Del Monte") in 1979, RJRN began to concentrate its focus on
consumer products. This strategy led to the acquisition of Nabisco Brands, Inc.
in 1985. RJRN today conducts its tobacco line of business through RJRT and
Tobacco International and its food line of business through NFG and Nabisco
International.
In recent years the Registrants have completed a number of acquisitions
within these lines of business. These included the 1992 acquisitions of (i) the
assets of New York Style Bagel Chip Company, Inc., the country's leading
producer and marketer of bagel chips and pita chips; (ii) Plush Pippin
Corporation, a leading regional supplier of frozen pies to in-store supermarket
bakeries; (iii) Stella D'oro Biscuit Co., Inc., a New York based specialty
bakery ("Stella D'oro") which manufactures breadsticks, breakfast biscuits,
specialty cakes, pastries and snacks; and (iv) the Now & Later confection brand,
a fruit chewy taffy product. In 1992, the Registrants also acquired Industrias
Alimenticias Maguary S.A., Brazil's largest producer and marketer of packaged
fruit-based beverages, Lance S.A. de C.V., one of Mexico's leading biscuit and
pasta manufacturers, and six food and pet food businesses in Mexico in exchange
for Nabisco International's previous minority interest in a joint venture
operating those and other businesses in Mexico. During 1993, Nabisco
International acquired a 50% interest in both Royal Brands, S.A. in Spain and
Royal Brands Portugal, acquired approximately 95% of Cia. Arturo Field y la
Estrella Ltda., S.A. in Peru and increased its equity interest in a partially
owned business in Venezuela to 100%. In addition, Tobacco International acquired
a 52% interest in a cigarette factory in St. Petersburg, Russia in 1992, and
constructed a factory in Turkey and acquired a 70% interest in two cigarette
factories in the Ukraine in 1993.
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On January 4, 1993, the Registrants completed the sale of NFG's
ready-to-eat cold cereal business to Kraft General Foods, Inc. and one of its
affiliates, for an aggregate cash purchase price of approximately $456 million
in cash, prior to post-closing adjustments.
NFG acquired the Knox gelatin brand in January 1994 and has contractual
arrangements pursuant to which it expects to acquire the remaining 50% of Royal
Brands, S.A. and Royal Brands Portugal during 1994.
RJRN will continue to assess its businesses to evaluate their consistency
with strategic objectives. Although RJRN may acquire and/or divest additional
businesses in the future, no decisions have been made with respect to any such
acquisitions or divestitures. The Registrants' credit agreement, dated as of
December 1, 1991, as amended (the "1991 Credit Agreement") and credit agreement,
dated as of April 5, 1993, as amended (the "1993 Credit Agreement", and together
with the 1991 Credit Agreement, the "Credit Agreements"), prohibit the sale of
all or substantially all or any substantial portion of the businesses of certain
subsidiaries of RJRN.
(b) Financial Information about Industry Segments
During 1993, the Registrants' industry segments were tobacco and food.
For information relating to industry segments for the years ended December
31, 1993, 1992 and 1991, see Note 15 to the Consolidated Financial Statements.
(c) Narrative Description of Business
TOBACCO
The tobacco line of business is conducted by RJRT and Tobacco
International, which manufacture, distribute and sell cigarettes. Cigarettes are
manufactured in the United States by RJRT and in over 30 foreign countries and
territories by Tobacco International and subsidiaries or licensees of RJRT and
are sold throughout the United States and in more than 160 markets around the
world. In 1993, approximately 61% of total tobacco segment net sales (after
deducting excise taxes) and approximately 65% of total tobacco segment operating
income (before amortization of trademarks and goodwill and the effects of a
restructuring expense) were attributable to domestic tobacco operations.
DOMESTIC TOBACCO OPERATIONS
The domestic tobacco business is conducted by RJRT, which is the second
largest cigarette manufacturer in the United States. RJRT's largest selling
cigarette brands in the United States include WINSTON, DORAL, SALEM, CAMEL,
MONARCH and BEST VALUE. RJRT's other cigarette brands, including VANTAGE, MORE,
NOW, STERLING, MAGNA and CENTURY, are marketed to meet a variety of smoker
preferences. All RJRT brands are marketed in a variety of styles. Based on data
collected for RJRT by an independent market research firm, RJRT had an overall
share of retail consumer cigarette sales during 1993 of 29.8%, an increase of
approximately one share point from 1992. During 1993, RJRT and the largest
domestic cigarette manufacturer, Philip Morris U.S.A., together sold
approximately 73% of all cigarettes sold in the United States.
A primary long-term objective of RJRT is to increase earnings and cash flow
through selective marketing investments in its key brands and continual
improvements in its cost structure and operating efficiency. Marketing programs
for full-price brands are designed to build brand awareness and add value to the
brands in order to retain current adult smokers and attract adult smokers of
competitive brands. In 1993, these efforts included expansion of continuity and
relationship-building programs such as CAMEL Cash and the WINSTON Winners Club,
and the introduction of line extensions such as CAMEL Special Lights and WINSTON
Select Lights. RJRT believes it is essential to compete in all segments of the
cigarette market, and accordingly offers a range of lower-priced brands
including DORAL, MONARCH and BEST VALUE intended to appeal to more
cost-conscious adult smokers.
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For a discussion on competition in the tobacco business, see "Other
Matters--Competition" in this Item 1 and "1993 Competitive Activity" under Item
7, Management's Discussion and Analysis of Financial Condition and Results of
Operations.
RJRT's domestic manufacturing facilities, consisting principally of
factories and leaf storage facilities, are located in or near Winston-Salem,
North Carolina and are owned by RJRT. Cigarette production is conducted at the
Tobaccoville cigarette manufacturing plant (approximately two million square
feet) and the Whitaker Park cigarette manufacturing complex (approximately one
and one-half million square feet). RJRT believes that its cigarette
manufacturing facilities are among the most technologically advanced in the
United States. RJRT also has significant research and development facilities in
Winston-Salem, North Carolina.
RJRT's cigarettes are sold in the United States primarily to chain stores,
other large retail outlets and through distributors to other retail and
wholesale outlets. Except for McLane Company, Inc., which represented
approximately 10.9% of RJRT's sales, no RJRT customers accounted for more than
10% of sales for 1993. RJRT distributes its cigarettes primarily to public
warehouses located throughout the United States that serve as local distribution
centers for RJRT's customers.
RJRT's products are sold to adult smokers primarily through retail outlets.
RJRT employs a decentralized marketing strategy that permits RJRT's sales force
to be more flexible in responding to local market dynamics by designing
individual in-store programs to fit varying consumption patterns. RJRT utilizes
print media, billboards, point-of-sale displays and other methods of
advertising. Since 1971, television and radio advertising of cigarettes has been
prohibited in the United States.
INTERNATIONAL TOBACCO OPERATIONS
Tobacco International operates in over 160 markets around the world.
Although overall foreign cigarette sales (excluding China, in which production
data indicates an approximate 2% per annum growth rate) have increased at a rate
of only 1% per annum in recent years, Tobacco International believes that the
American Blend segment, in which Tobacco International primarily competes is
growing significantly faster. Although Tobacco International is the second
largest of two international cigarette producers that have significant positions
in the American Blend segment, its share of sales of this segment is
approximately one-third of the share of Philip Morris International Inc., the
largest American Blend producer.
Tobacco International has strong brand presence in Western Europe and is
well established in its other key markets in the Middle East/Africa, Asia and
Canada. Tobacco International is aggressively pursuing development opportunities
in Eastern Europe and the former Soviet Union.
Tobacco International markets over 55 brands of which WINSTON, CAMEL and
SALEM, all American Blend cigarettes, are its international leaders. WINSTON,
Tobacco International's largest selling international brand, has a significant
presence in Puerto Rico and has particular strength in the Western Europe and
Middle East/Africa regions. CAMEL is sold in approximately 135 markets worldwide
and is Tobacco International's second largest selling international brand. SALEM
is the world's largest selling menthol cigarette and has particular strength in
Far East markets. Tobacco International also markets a number of local brands in
various foreign markets. None of Tobacco International's customers accounted for
more than 10% of sales for 1993.
Approximately 30% of Tobacco International's cigarette volume for 1993 was
manufactured by RJRT in the United States for sale in foreign markets. The
remainder was manufactured overseas, principally in owned manufacturing
facilities or by licensees or joint ventures. Tobacco International operates two
tobacco manufacturing facilities in Germany and one located in each of Canada,
Hong Kong, Hungary, Malaysia, Poland, Puerto Rico and Switzerland. Tobacco
International opened a factory in the People's Republic of China in 1988 as a
part of the first cigarette manufacturing joint venture in that country, and in
1993 constructed a factory in Turkey and acquired a 70% interest in two
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cigarette factories in the Ukraine. In addition, in 1992, Tobacco International
acquired a 52% interest in a cigarette factory in St. Petersburg, Russia.
Certain of Tobacco International's foreign operations are subject to local
regulations that set import quotas, restrict financing flexibility and affect
repatriation of earnings or assets. In recent years, certain trade barriers for
cigarettes, particularly in Asia and Eastern Europe, have been liberalized. This
may provide opportunities for all international cigarette manufacturers,
including Tobacco International, to expand operations in such markets; however,
there can be no assurance that the liberalizing trends will be maintained or
extended or that Tobacco International will be successful in pursuing such
opportunities.
RAW MATERIALS
In its domestic production of cigarettes, RJRT primarily uses domestic
burley and flue cured leaf tobaccos purchased at domestic auction. RJRT also
purchases oriental tobaccos, grown primarily in Turkey and Greece, and certain
other non-domestic tobaccos. Tobacco International uses a variety of tobacco
leaf from both United States and international sources. Tobacco leaf is an
agricultural commodity subject in the United States to government production
controls and price supports that can affect market prices substantially. The
tobacco leaf price support program is subject to Congressional review and may be
changed at any time in the future. In addition, Congress enacted legislation
during 1993 (the Omnibus Budget Reconciliation Act of 1993), which stipulates
that, effective January 1, 1994, financial penalties will be assessed against
manufacturers if cigarettes produced in the United States do not contain at
least 75% (by weight) domestically grown flue cured and burley tobaccos.
Currently RJRT expects that compliance with the content regulation will increase
its future raw material costs. RJRT and Tobacco International believe there is a
sufficient supply of tobacco in the worldwide tobacco market to satisfy their
current production requirements.
LEGISLATION AND OTHER MATTERS AFFECTING THE CIGARETTE INDUSTRY
The advertising, sale and use of cigarettes has been under attack by
government and health officials in the United States and in other countries for
many years, principally due to claims that cigarette smoking is harmful to
health. This attack has resulted in a number of substantial restrictions on the
marketing, advertising and use of cigarettes, diminishing social acceptability
of smoking and activities by anti-smoking groups designed to inhibit cigarette
sales, the form and content of cigarette advertising and the testing and
introduction of new cigarette products. Together with manufacturers' price
increases in recent years and substantial increases in state and federal excise
taxes on cigarettes, this has had and will likely continue to have an adverse
effect on cigarette sales.
Cigarettes are subject to substantial excise taxes in the United States and
to similar taxes in many foreign markets. In 1990, Congress enacted legislation
to increase the federal excise tax per pack of 20 cigarettes to 20 cents from 16
cents on January 1, 1991 and provide for an increase in the federal excise tax
on January 1, 1993 to 24 cents. In addition, all states and the District of
Columbia impose excise taxes of levels ranging from a low of 2.5 cents to a high
of 65 cents per pack on cigarettes, and increases in these state excise taxes
could also have an adverse effect on cigarette sales. In 1993, thirteen states
and the District of Columbia enacted excise tax increases ranging from less than
2 cents per pack to 41 cents per pack.
In addition, the Clinton Administration and members of Congress have
introduced bills in Congress that would significantly increase the federal
excise tax on cigarettes, eliminate the deductibility of a portion of the cost
of tobacco advertising, ban smoking in public buildings and workplaces, add
additional health warnings on cigarette packaging and advertising and further
restrict the marketing of tobacco products.
In January 1993, the U.S. Environmental Protection Agency (the "EPA")
released a report on the respiratory effects of environmental tobacco smoke
("ETS") which concludes that ETS is a known
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human lung carcinogen in adults; and in children causes increased respiratory
tract disease and middle ear disorders and increases the severity and frequency
of asthma. RJRT has joined other segments of the tobacco and distribution
industries in a lawsuit against the EPA seeking a determination that the EPA did
not have the statutory authority to regulate ETS, and that, given the current
body of scientific evidence and the EPA's failure to follow its own guidelines
in making the determination, the EPA's classification of ETS was arbitrary and
capricious.
In September 1991, the U.S. Occupational Safety and Health Administration
("OSHA") issued a Request for Information relating to indoor air quality,
including ETS, in occupational settings. OSHA has announced that it will
commence formal rulemaking in 1994. While the Registrants cannot predict the
outcome, some form of regulation of smoking in workplaces may result.
Legislation imposing various restrictions on public smoking has also been
enacted in nineteen states and many local jurisdictions, many employers have
initiated programs restricting or eliminating smoking in the workplace and nine
states have enacted legislation designating a portion of increased cigarette
excise taxes to fund either anti-smoking programs, health care programs or
cancer research. Federal law prohibits smoking on all domestic airline flights
of six hours duration or less and the U.S. Interstate Commerce Commission has
banned smoking on buses transporting passengers inter-state.
A number of foreign countries have also taken steps to discourage cigarette
smoking, to restrict or prohibit cigarette advertising and promotion and to
increase taxes on cigarettes. Such restrictions are, in some cases, more onerous
than restrictions imposed in the United States. In June 1988, Canada enacted a
ban on cigarette advertising, the constitutionality of which is before the
Supreme Court of Canada.
On December 11, 1990, RJRN and other U.S. cigarette manufacturers, through
The Tobacco Institute, announced a tobacco industry initiative to assist
retailers in enforcing minimum age laws on the sale of cigarettes, to support
the enactment of state laws requiring the adult supervision of cigarette vending
machines in places frequented by minors, to seek the uniform establishment of 18
as the minimum age for the purchase of cigarettes in all states, to distribute
informational materials to assist parents in combatting peer pressure on their
children to smoke and to limit voluntarily certain cigarette advertising and
promotional practices. In 1992, the Alcohol, Drug and Mental Health Act was
signed into law. This Act contains a provision, effective January 1, 1994, that
requires states to adopt a minimum age of 18 for purchase of tobacco products to
receive federal funding for mental health and drug abuse programs.
In 1964, the Report of the Advisory Committee to the Surgeon General of the
U.S. Public Health Service concluded that cigarette smoking was a health hazard
of sufficient importance to warrant appropriate remedial action. Since 1966,
federal law has required a warning statement on cigarette packaging. Since 1971,
television and radio advertising of cigarettes has been prohibited in the United
States. Cigarette advertising in other media in the United States is required to
include information with respect to the "tar" and nicotine content of
cigarettes, as well as a warning statement.
During the past three decades, various legislation affecting the cigarette
industry has been enacted. In 1984, Congress enacted the Comprehensive Smoking
Education Act (the "Smoking Education Act"). Among other things, the Smoking
Education Act: (i) establishes an interagency committee on smoking and health
that is charged with carrying out a program to inform the public of any dangers
to human health presented by cigarette smoking; (ii) requires a series of four
new health warnings to be printed on cigarette packages and advertising on a
rotating basis; (iii) increases type size and area of the warning on cigarette
advertisements; and (iv) requires that cigarette manufacturers provide annually,
on a confidential basis, a list of ingredients used in the manufacture of
cigarettes to the Secretary of Health and Human Services. The warnings currently
required on cigarette packages and advertisements (other than billboards) are as
follows: (i) "Surgeon General's Warning: Smoking Causes Lung Cancer, Heart
Disease, Emphysema, And May Complicate Pregnancy"; (ii) "Surgeon General's
Warning: Quitting Smoking Now Greatly Reduces Serious Risks To Your Health";
(iii) "Surgeon General's Warning: Smoking By Pregnant Women May Result in Fetal
Injury, Premature Birth, and
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Low Birth Weight"; and (iv) "Surgeon General's Warning: Cigarette Smoke Contains
Carbon Monoxide." Similar warnings are required on outdoor billboards. In August
1990, the Fire Safe Cigarette Act of 1990 was enacted, which directed the
Consumer Product Safety Commission to conduct and oversee research begun under
direction of the Cigarette and Little Cigar Fire Safety Act of 1984 and to
assess the practicability of developing a performance standard to reduce
cigarette ignition propensity. The Commission presented a final report to
Congress in August 1993 describing the results of the research. The Commission
concluded that while "it is practicable to develop a performance standard to
reduce cigarette ignition propensity, it is unclear that such a standard would
effectively address the number of cigarette-ignited fires." The Commission
further found that additional work would be required before the actual
development of a performance standard. Nevertheless, the Commission reported
that a test method developed by the National Institute of Standards and
Technology was valid and reliable within reasonable limits and could be suitable
for use in a performance standard. Although the Registrants cannot predict
whether further legislation on this subject may be enacted, some form of
regulation of cigarettes based on their propensity to ignite soft furnishings
may result.
Since the initial report in 1964, the Secretary of Health, Education and
Welfare and the Surgeon General have issued a number of other reports which
purport to link cigarette smoking with certain health hazards, including various
types of cancer, coronary heart disease and chronic obstructive lung disease.
These reports have recommended various governmental measures to reduce the
incidence of smoking.
In addition to the foregoing, legislation and regulations potentially
detrimental to the cigarette industry, generally relating to the taxation of
cigarettes and regulation of advertising, labeling, promotion, sale and smoking
of cigarettes, have been proposed from time to time at various levels of the
federal government. Various Congressional committees and subcommittees have
approved legislation in recent years that (i) would subject cigarettes to
regulation in various ways under the U.S. Department of Health and Human
Services, (ii) would subject cigarettes generally to regulation under the
Consumer Products Safety Act, (iii) could increase manufacturers' costs, (iv)
would mandate anti-smoking education campaigns or establish anti-smoking
programs, (v) would provide additional funding for federal and state
anti-smoking activities, (vi) would require a new list of six health warnings on
cigarette packages and advertising, expand the number or required size of the
warnings and restrict the contents of cigarette advertising and promotional
activities, (vii) would provide that neither the provisions of the Federal
Cigarette Labeling and Advertising Act, as amended (the "Cigarette Act"), nor
the Smoking Education Act should be interpreted to relieve any person from
liability under common law or state statutory law and (viii) would permit state
and local governments to restrict the sale and distribution of cigarettes and
the placement of billboard and transit advertising of tobacco products.
It is not possible to determine what additional federal, state or local
legislation or regulations relating to smoking or cigarettes will be enacted or
to predict any resulting effect thereof on RJRT, Tobacco International or the
cigarette industry generally but such legislation or regulations could have an
adverse effect on RJRT, Tobacco International or the cigarette industry
generally.
LITIGATION AFFECTING THE CIGARETTE INDUSTRY
Various legal actions, proceedings and claims are pending or may be
instituted against RJRT or its affiliates or indemnitees, including those
claiming that lung cancer and other diseases have resulted from the use of or
exposure to RJRT's tobacco products. During 1993, 16 new actions were filed or
served against RJRT and/or its affiliates or indemnitees and 18 such actions
were dismissed or otherwise resolved in favor of RJRT and/or its affiliates or
indemnitees without trial. A total of 35 such actions in the United States, one
in Puerto Rico and one against RJRT's Canadian subsidiary were pending on
December 31, 1993. As of February 7, 1994, 35 active cases were pending against
RJRT and/or its affiliates or indemnitees, 33 in the United States, one in
Puerto Rico and one in Canada. Four of the 33 active cases in the United States
involve alleged non-smokers claiming injuries resulting from exposure to
environmental tobacco smoke. One of such cases is currently scheduled for trial
on
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September 5, 1994 and if tried, will be the first such case to reach trial. The
United States cases are in 15 states and are distributed as follows: eight in
Louisiana, eight in Texas, three in Mississippi, two in Indiana, two in New
Jersey and one each in Alabama, Florida, Illinois, Kentucky, Maryland,
Massachusetts, Minnesota, New York, Oregon and West Virginia. Of the 33 active
cases in the United States, 24 are pending in state court and 9 in federal
court. One of the active cases is alleged to be a class action on behalf of a
purported class of 60,000 individuals.
The plaintiffs in these actions seek recovery on a variety of legal
theories, including strict liability in tort, design defect, negligence, breach
of warranty, failure to warn, fraud, misrepresentation and conspiracy. Punitive
damages, often in amounts totalling many millions of dollars, are specifically
pleaded in 20 cases in addition to compensatory and other damages. The defenses
raised by RJRT and/or its affiliates, where applicable, include preemption by
the Cigarette Act of some or all such claims arising after 1969; the lack of any
defect in the product; assumption of the risk; comparative fault; lack of
proximate cause; and statutes of limitations or repose. Juries have found for
plaintiffs in two smoking and health cases, but in one such case, which has been
appealed by both parties, no damages were awarded. The jury awarded $400,000 in
the other case, Cipollone v. Liggett Group, Inc., et al., which award was
overturned on appeal and the case was subsequently dismissed.
On June 24, 1992, the United States Supreme Court in Cipollone held that
claims that tobacco companies failed to adequately warn of the risks of smoking
after 1969 and claims that their advertising and promotional practices
undermined the effect of warnings after that date were preempted by the
Cigarette Act. The Court also held that claims of breach of express warranty,
fraud, misrepresentation and conspiracy were not preempted. The Supreme Court's
decision was announced through a plurality opinion, and further definition of
how Cipollone will apply to other cases must await rulings in those cases.
Certain legislation proposed in recent years in Congress, among other
things, would eliminate any such preemptive effect on common law damage actions
for personal injuries. RJRT is unable to predict whether such legislation will
be enacted, if so, in what form, or whether such legislation would be intended
by Congress to apply retroactively. The Supreme Court's Cipollone decision
itself, or the passage of such legislation, could increase the number of cases
filed against cigarette manufacturers, including RJRT.
RJRT understands that a grand jury investigation being conducted in the
Eastern District of New York is examining possible violations of criminal law in
connection with activities relating to the Council for Tobacco Research-USA,
Inc., of which RJRT is a sponsor. RJRT is unable to predict the outcome of this
investigation.
RJRT recently received a civil investigative demand from the U.S.
Department of Justice requesting broad documentary information from RJRT.
Although the request appears to focus on tobacco industry activities in
connection with product development efforts, it also requests general
information concerning contacts with competitors. RJRT is unable to predict the
outcome of this investigation.
Litigation is subject to many uncertainties, and it is possible that some
of the legal actions, proceedings or claims could be decided against RJRT or its
affiliates or indemnitees. Determinations of liability or adverse rulings
against other cigarette manufacturers that are defendants in similar actions,
even if such rulings are not final, could adversely affect the litigation
against RJRT and its affiliates or indemnitees and increase the number of such
claims. Although it is impossible to predict the outcome of such events or their
effect on RJRT, a significant increase in litigation activities could have an
adverse effect on RJRT. RJRT believes that it has a number of valid defenses to
any such actions, including but not limited to those defenses based on
preemption under the Cipollone decision, and RJRT intends to defend vigorously
all such actions.
7
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FOOD
The food line of business conducted by NFG, which comprises the Nabisco
Biscuit Company, the LifeSavers Division, the Planters Division, the Specialty
Products Company, the Fleischmann's Division, the Food Service Division and
Nabisco Brands Ltd, and by Nabisco International.
Food products are sold under trademarks owned or licensed by Nabisco and
brand recognition is considered essential to their successful marketing. None of
Nabisco's customers accounted for more than 10% of sales for 1993.
NABISCO FOODS GROUP OPERATIONS
Nabisco Biscuit Company. Nabisco Biscuit is the largest manufacturer and
marketer in the United States cookie and cracker industry with the nine top
selling brands, each of which had annual sales of over $100 million in 1993.
Overall, in 1993, Nabisco Biscuit had a 39% share of the domestic cookie
industry sales, more than double the share of its closest competitor, and a 55%
share of the domestic cracker industry sales, more than three times the share of
its closest competitor. Leading Nabisco Biscuit cookie brands include OREO,
CHIPS AHOY! and NEWTONS. Leading Nabisco Biscuit cracker brands include RITZ,
PREMIUM, WHEAT THINS, NABISCO GRAHAMS and TRISCUIT.
OREO and CHIPS AHOY! are the two largest selling cookies in the United
States. OREO, the leading sandwich cookie, is Nabisco Biscuit's largest selling
cookie brand. CHIPS AHOY! is the leader in the chocolate chip cookie segment
with recent line extensions such as CHUNKY CHIPS AHOY! broadening its appeal and
adding incremental sales.
NEWTONS, the oldest Nabisco Biscuit cookie brand, is the third leading
cookie brand in the United States. The introduction of FAT FREE FIG and APPLE
NEWTONS in 1992 and the addition of the FAT FREE CRANBERRY, RASPBERRY and
STRAWBERRY NEWTONS in 1993 has expanded the appeal of NEWTONS and brought
incremental sales to the franchise.
Nabisco Biscuit's cracker division is led by RITZ, the largest selling
cracker brand in the United States, which accounted for 12% of cracker sales in
the United States in 1993. In addition, PREMIUM, the oldest Nabisco Biscuit
cracker brand and the leader in the saltine cracker segment, is joined by WHEAT
THINS, NABISCO GRAHAMS and TRISCUIT to comprise, along with RITZ, the five
largest selling cracker brands in the United States.
In 1991, Nabisco Biscuit introduced MR. PHIPPS PRETZEL CHIPS, the first
such product of its kind. Nabisco Biscuit expanded the MR. PHIPPS franchise with
the introduction of MR. PHIPPS TATER CRISPS in 1992, which deliver salty snack
taste with only half the fat of potato chips, and the introduction of MR. PHIPPS
TORTILLA CRISPS in 1993.
In 1992, Nabisco Biscuit became the leading manufacturer and marketer of no
fat/reduced fat cookies and crackers with the introduction of the SNACKWELL'S
line. In 1993, the SNACKWELL'S brand recorded over $200 million in sales to
become the sixth largest cookie/cracker brand in the United States.
In October 1992, Nabisco Biscuit acquired STELLA D'ORO, a leading producer
of breadsticks, breakfast biscuits, specialty cakes, pastries and snacks. This
line of specialty items gives Nabisco Biscuit an entry to new users and usage
occasions, further broadening NFG's cookie and cracker portfolio.
Nabisco Biscuit's other cookie and cracker brands, which include NUTTER
BUTTER, NILLA WAFERS, BARNUM'S ANIMALS CRACKERS, BETTER CHEDDARS, HARVEST
CRISPS, CHICKEN IN A BISKIT, CHEESE NIPS and NEW YORK STYLE BAGEL and PITA
CHIPS,
8
<PAGE>
compete in consumer niche segments. Many are the first or second largest selling
brands in their respective segments.
Nabisco Biscuit's products are manufactured in 13 Nabisco Biscuit-owned
bakeries and in 16 facilities with which Nabisco Biscuit has production
agreements. These facilities are located throughout the United States. Nabisco
Biscuit is in the process of implementing plans to modernize certain of its
facilities. Nabisco Biscuit also operates a flour mill in Toledo, Ohio, which
supplies 85% of its flour needs.
Nabisco Biscuit's products are sold to major grocery and other large retail
chains through Nabisco Biscuit's direct store delivery system. The system is
supported by a distribution network utilizing ten major distribution warehouses
and 130 shipping branches where shipments are consolidated for delivery to
approximately 111,000 separate delivery points. NFG believes this sophisticated
distribution and delivery system provides it with a significant service
advantage over its competitors.
LifeSavers Division. The LifeSavers Division manufactures and markets hard
roll and bite-size candy and gum primarily for sale in the United States.
LifeSavers' well-known brands include LIFE SAVERS hard roll and bite-size candy,
BREATH SAVERS sugar free mints, BUBBLE YUM bubble gum, CARE*FREE sugarless gum,
NOW & LATER fruit chewy taffy and LIFE SAVERS GUMMI SAVERS fruit chewy candy. On
the basis of the most recent data available, LIFE SAVERS is the largest selling
hard roll candy in the United States, with an approximately 25% share of the
hard roll candy category, BREATH SAVERS is the largest selling sugar free breath
mint in the United States and BUBBLE YUM is the largest selling chunk bubble gum
in the United States. LifeSavers' confectionery products are seasonally
strongest during the third and fourth quarters.
LifeSavers sells its products in the United States primarily to large
retail outlets, chain accounts and to other retail and wholesale outlets. These
include grocery stores, drug/mass merchandisers, convenience stores, and food
service and military suppliers. The products are distributed from 13
distribution centers located throughout the United States. LifeSavers currently
owns and operates three manufacturing facilities for its products, one in
Holland, Michigan, one in Brooklyn, New York and the other in Las Piedras,
Puerto Rico. Sales, for the LifeSavers Division, as well as the Planters,
Specialty Products and Fleischmann's Divisions, are handled through NFG's Sales
and Integrated Logistics group, which utilize both direct sales and broker sales
organizations.
Planters Division. The Planters Division produces and/or markets nuts and
snacks largely for sale in the United States, primarily under the PLANTERS
trademark. On the basis of the most recent data available, PLANTERS nuts are the
clear leader in the packaged nut category, with a market share of more than five
times that of its nearest competitor. Planters' products are commodity oriented
and are seasonally strongest in the fourth quarter.
Planters sells its products in the United States primarily to large retail
outlets, chain accounts and to other retail and wholesale outlets. These include
grocery stores, drug/mass merchandisers, convenience stores, and food service
and military suppliers. The products are distributed from the same 13
distribution centers utilized by the LifeSavers Division. Planters currently
owns and operates three manufacturing facilities for its products, all located
in the United States.
Specialty Products Company. NFG's Specialty Products Company manufacturers
and markets a broad range of food products, with sauces and condiments, pet
snacks, ethnic foods and hot cereals representing the largest categories. Many
of its products are first or second in their product categories. Well-known
brand names include A.1. steak sauces, GREY POUPON mustards, MILK-BONE pet
snacks, ORTEGA Mexican foods and CREAM OF WHEAT hot cereals.
Specialty Products' primary entries in the sauce and condiment segments are
A.1. steak sauces, the leading steak sauces, and GREY POUPON mustards, which
include the leading Dijon mustard.
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Specialty Products also markets REGINA wine vinegar, the leader in its segment
of the vinegar market. A.1., GREY POUPON and REGINA products are manufactured in
one facility.
Specialty Products is the leading manufacturer of pet snacks in the United
States with MILK-BONE dog biscuits. MILK-BONE products include MILK-BONE
ORIGINAL BISCUITS, FLAVOR SNACKS, DOG TREATS, BUTCHER BONES and BUTCHER'S
CHOICE. Pet snacks are produced at a single manufacturing facility.
Specialty Products produces shelf-stable Mexican foods under its ORTEGA
brand name. Specialty Products also participates in the dry mix dessert category
with ROYAL gelatins and puddings and the non-dessert gelatin category with KNOX
unflavored gelatins and has lines of regional products including COLLEGE INN
broths, VERMONT MAID syrup, MY-T-FINE puddings, DAVIS baking powder and BRER
RABBIT molasses and syrup.
NFG, through its Specialty Products Company, is the second largest
manufacturer in the hot cereal category, participating in both the cook-on-stove
and mix-in-bowl segments of the category. The Quaker Oats Company, with over 60%
of the hot cereal category volume sales, is the most significant participant in
the hot cereal category. CREAM OF WHEAT, the leading wheat-based hot cereal, and
CREAM OF RICE, participate in the cook-on-stove segment and at least seven
varieties of INSTANT CREAM OF WHEAT participate in the mix-in-bowl segment. Hot
cereals are manufactured in one facility.
Specialty Products sells its products to retail grocery chains through
independent brokers and to drug/mass merchandisers and other major retail
outlets through a direct salesforce. The products are distributed from the same
13 distribution centers utilized by the LifeSavers Division.
Fleischmann's Division. The Fleischmann's Division manufactures and markets
various margarines and spreads as well as an egg substitute.
Fleischmann's margarine business is the second largest margarine producer
in the United States. Fleischmann's currently participates in all three segments
of the margarine category, with FLEISCHMANN'S in the premium health segment,
BLUE BONNET in the volume segment and MOVE OVER BUTTER in the premium blend
segment. Fleischmann's margarines are currently manufactured in three
facilities. Fleischmann's is also the market leader in the egg substitute
category with EGG BEATERS. Distribution for the Fleischmann's Division is
principally direct from plant to stores.
Food Service Division. The Food Service Division of NFG sells a variety of
specially packaged food products of the other groups of NFG through non-grocery
channels, including cookies, crackers, cereals, sauces and condiments for the
food service and vending machine industry. The Food Service Division is a
leading regional supplier of premium frozen pies to in-store supermarket
bakeries, wholesale clubs and food service accounts through the Plush Pippin
Corporation. The Food Service Division provides NFG with an additional
distribution method for its products.
Nabisco Brands Ltd. Nabisco Brands Ltd conducts NFG's Canadian operations
through a biscuit division, a grocery division and a food service division. The
biscuit division produced nine of the top ten cookies and nine of the top ten
crackers in Canada in 1993. Nabisco Brands Ltd's cookie and cracker brands in
Canada include OREO, CHIPS AHOY!, FUDGEE-O, PEEK FREANS, DAD'S, DAVID, PREMIUM
PLUS, RITZ, TRISCUIT and STONED WHEAT THINS. These products are manufactured in
five bakeries in Canada and are sold through a direct store delivery system,
utilizing 11 sales offices and distribution centers and a combination of public
and private carriers.
Nabisco Brands Ltd's grocery division produces and markets canned fruits
and vegetables, fruit drinks and pet snacks. The grocery division is the leading
canned fruit producer in Canada and is the second largest canned vegetable
producer in Canada. Canned fruits and vegetables and fruit drinks are marketed
under the DEL MONTE trademark, pursuant to a license from Del Monte, and under
the AYLMER trademark. The grocery division also markets MILK-BONE pet snacks and
MAGIC
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baking powder, each leading brands in Canada. Excluding the facility sold in
connection with the sale of Nabisco's ready-to eat cold cereal business, the
division operated six manufacturing facilities in 1993, five of which are
devoted to canned products, principally fruits and vegetables, and one of which
produced pet snacks. The grocery division's products are sold directly to retail
chains and are distributed through six regional warehouses.
Nabisco Brands Ltd's food service division sells a variety of specially
packaged food products including cookies, crackers, canned fruits and vegetables
as well as condiments to non-grocery outlets. The food service division has its
own sales and marketing organization and sources product from Nabisco Brands
Ltd's other divisions.
NABISCO INTERNATIONAL OPERATIONS
Nabisco International is a leading producer of powdered dessert and drink
mixes, biscuits, baking powder and other grocery items, industrial yeast and
bakery ingredients in many of the 17 Latin American countries in which it has
operations. Nabisco International also exports a variety of NFG products to
markets in Europe and Asia from the United States. Nabisco International is one
of the largest multinational packaged food businesses in Latin America.
Nabisco International manufactures and markets yeast, baking powder and
bakery ingredients under the FLEISCHMANN'S and ROYAL brands, biscuits and
crackers under the NABISCO brand, dessert and drink mixes under the ROYAL brand,
processed milk products under the GLORIA brand, and canned fruits and vegetables
under the DEL MONTE brand pursuant to a license from Del Monte. Nabisco
International's largest market is Brazil, where it operates 15 plants. Nabisco
International is the market leader in powdered desserts in most of Latin
America, the yeast category in Brazil, biscuits in Peru, Spain, Venezuela and
Uruguay, and canned vegetables in Venezuela. Nabisco International also
maintains a strong position in the processed milk category in Brazil.
During 1993, Nabisco International significantly increased its presence in
Europe through the acquisition of a 50% interest in each of Royal Brands S.A. in
Spain and Royal Brands Portugal. Nabisco International has contractual
arrangements pursuant to which it expects to acquire the remaining 50% of such
businesses in 1994. Nabisco International's products in Spain now include
biscuits marketed under the ARTIACH and MARBU trademarks, powder dessert mixes
marketed under the ROYAL trademark and various other foods, including canned
meats and juices.
Nabisco International's grocery products are sold to retail outlets through
its own sales forces and independent wholesalers and distributors. Industrial
yeast and bakery products are sold to the bakery trade through Nabisco
International's own sales forces and independent distributors.
RAW MATERIALS
Various agricultural commodities constitute the principal raw materials
used by Nabisco in its food businesses. Other raw materials used by Nabisco are
purchased on the commodities market and through supplier contracts. Prices of
agricultural commodities tend to fluctuate due to various seasonal, climatic and
economic factors, which factors generally also affect Nabisco's competitors.
Nabisco believes that the raw materials for its products are in plentiful
supply and all are readily available from a variety of independent suppliers.
OTHER MATTERS
COMPETITION
Generally, the markets in which RJRN conducts its businesses are highly
competitive, with a number of large participants. Competition is conducted on
the basis of brand recognition, brand loyalty and price. For most of RJRN's
brands substantial advertising and promotional expenditures are
11
<PAGE>
required to maintain or improve a brand's position or to introduce a new brand.
With respect to the tobacco industry, anti-smoking groups have undertaken
activities designed to inhibit cigarette sales, the form and content of
cigarette advertising and the testing and introduction of new cigarette
products.
Because television and radio advertising for cigarettes is prohibited in
the United States and brand loyalty has tended to be higher in the cigarette
industry than in other consumer product industries, established cigarette brands
in the United States have a competitive advantage. RJRT has repositioned or
introduced brands designed to appeal to adult smokers of the largest selling
cigarette brand in the United States, but there can be no assurance that such
efforts will be successful.
In addition, increased selling prices and taxes on cigarettes have resulted
in additional price sensitivity of cigarettes at the consumer level and in a
proliferation of discounted brands in the growing savings segment of the market.
Generally, sales of cigarettes in the savings segment are not as profitable as
those in other segments.
In April 1993, RJRT's largest competitor announced a shift in strategy
designed to gain share of market while sacrificing short-term profits. The
competitor's tactics included increased promotional spending and temporary price
reductions on its largest cigarette brand, followed several months later by list
price reductions on all its full-price and mid-price brands. RJRT defended its
major full-price brands during the period of temporary price reductions and, to
remain competitive in the marketplace, also reduced list prices on all its
full-price and mid-price brands in August 1993. The cost of defensive price
promotions and the impact of lower list prices were primarily responsible for
the sharp drop in RJRT's 1993 operating company contribution.
Although some improvement to the stability of the competitive environment
has occurred in the fourth quarter of 1993, RJRT cannot predict if or when any
further improvement to the competitive environment will occur or whether such
stability will continue. In addition, growth in lower price brands was slowed in
the second half of 1993 due to net price reductions on full price brands. RJRT
is unable to predict whether this trend will continue.
ENVIRONMENTAL MATTERS
The U.S. Government and various state and local governments have enacted or
adopted laws and regulations concerning protection of the environment. The
regulations promulgated by the EPA and other governmental agencies under various
statutes have resulted in, and will likely continue to result in, substantial
expenditures for pollution control, waste treatment, plant modification and
similar activities.
Certain subsidiaries of the Registrants have been named "potentially
responsible parties" with third parties under the Comprehensive Environmental
Response, Compensation and Liability Act ("CERCLA") with respect to
approximately fifteen sites.
RJRN has been engaged in a continuing program to assure compliance with
such laws and regulations. Although it is difficult to identify precisely the
portion of capital expenditures or other costs attributable to compliance with
environmental laws and the Registrants can not reasonably estimate the cost of
resolving the above mentioned CERCLA matters, the Registrants do not expect
such expenditures or costs to have a material adverse effect on the financial
condition of either of the Registrants.
EMPLOYEES
At December 31, 1993, the Registrants together with their subsidiaries had
approximately 66,500 full time employees. None of RJRT's operations are
unionized. Most of the unionized workers at Nabisco's operations are represented
under a national contract with the Bakery, Confectionery and Tobacco Workers
International Union, which was ratified in August 1992 and which will expire
in August 1996. Other unions represent the employees of a number of Nabisco's
operations. In addition, several of Tobacco International's operations are
unionized. RJRN believes that its relations with its employees and with the
unions in which its employees are members are good.
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(d) Financial Information about Foreign and Domestic Operations and Export
Sales
For information about foreign and domestic operations and export sales for
the years 1991 through 1993, see "Geographic Data" in Note 15 to the
Consolidated Financial Statements.
ITEM 2. PROPERTIES
For information pertaining to the Registrants' assets by lines of business
and geographic areas as of December 31, 1993 and 1992, see Note 15 to the
Consolidated Financial Statements.
For information on properties, see Item 1.
ITEM 3. LEGAL PROCEEDINGS
For information relating to litigation and legal proceedings, see "Other
Matters-Environmental Matters" and "Litigation Affecting the Cigarette Industry"
contained in Item 1 hereof.
------------------------------
The Registrants believe that the ultimate outcome of all pending litigation
and legal proceedings should not have a material adverse effect on either of the
Registrants' financial position; however, it is possible that the results of
operations or cash flows of the Registrants in a particular quarterly or annual
period could be materially affected by the ultimate outcome of certain pending
litigation matters. Management is unable to derive a meaningful estimate of the
amount or range of such possible loss in any particular quarterly or annual
period or in the aggregate.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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EXECUTIVE OFFICERS OF THE REGISTRANTS
EXECUTIVE OFFICERS OF HOLDINGS
The executive officers of Holdings are Charles M. Harper (Chairman of the
Board and Chief Executive Officer), Lawrence R. Ricciardi (President and General
Counsel), Eugene R. Croisant (Executive Vice President), Stephen R. Wilson
(Executive Vice President and Chief Financial Officer), Robert S. Roath (Senior
Vice President and Controller) and John J. Delucca (Senior Vice President and
Treasurer). The following table sets forth certain information regarding such
officers.
<TABLE><CAPTION>
PRESENT PRINCIPAL OCCUPATION
OR EMPLOYMENT AND FIVE-YEAR
NAME AGE EMPLOYMENT HISTORY
- -------------------------- --------- ------------------------------------------------------------------------------
<S> <C> <C>
Charles M. Harper 66 May 1993-Present, Chairman and Chief Executive Officer; prior thereto,
Chairman and Chief Executive Officer, ConAgra, Inc., 1981-1993.
Lawrence R. Ricciardi 53 May 1993-Present, President and General Counsel; prior thereto, Co-Chairman
and Chief Executive Officer and General Counsel, March, 1993-May, 1993;
Executive Vice President and General Counsel, 1989-1993; Executive Vice
President and General Counsel, American Express Travel Related Services Co.,
Inc., 1985-1989.
Eugene R. Croisant 56 1989-Present, Executive Vice President of Human Resources and Administration;
prior thereto, Chief Operations Officer, Continental Bank Corporation,
1988-1989.
Stephen R. Wilson 47 May 1993-Present, Executive Vice President and Chief Financial Officer; prior
thereto, Senior Vice President, Corporate Development, 1990-1993; General
Manager, North America, Franklin Mint, 1989-1990; President, Cadbury
Beverages North America, 1987-1989.
Robert S. Roath 51 1991-Present, Senior Vice President and Controller; prior thereto, Vice
President and Controller, 1990-1991; Vice President and Corporate
Controller, Colgate-Palmolive Company, 1988-1990.
John J. Delucca 50 September 1993-Present, Senior Vice President and Treasurer; prior thereto,
Managing Director and Chief Financial Officer, Hascoe Associates, 1991-1993;
President and Chief Financial Officer, Lexington Group, 1990-1991; Senior
Vice President, Finance and Managing Director, Trump Group, 1988-1990.
</TABLE>
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<PAGE>
EXECUTIVE OFFICERS OF RJRN NOT LISTED ABOVE
Set forth below are the names, ages, positions and offices held and a brief
account of the business experience during the past five years of each executive
officer of RJRN, other than those listed above.
<TABLE><CAPTION>
PRESENT PRINCIPAL OCCUPATION
OR EMPLOYMENT AND FIVE-YEAR
NAME AGE EMPLOYMENT HISTORY
- ------------------------------ ----------- ---------------------------------------------------------------------------
<S> <C> <C>
H. John Greeniaus 49 May 1993-Present, Chairman and Chief Executive Officer, NFG; prior thereto,
President, NFG, 1992-1993; President and Chief Executive Officer of
Nabisco Brands, Inc., 1987-1991. Director since 1989.
James W. Johnston 47 1989-Present, Chairman and Chief Executive Officer, R. J. Reynolds Tobacco
Company; Chairman, R. J. Reynolds Tobacco International, Inc. since
October 1993; prior thereto, Division Executive, Citibank, N.A.,
1984-1989. Director since 1989.
Anthony J. Butterworth 56 October 1993-Present, President and Chief Executive Officer, R.J. Reynolds
Tobacco International, Inc.; prior thereto, Managing Director and Chief
Executive Officer, London International Group plc, 1991-1993; Chief
Operating Officer, London International Group plc, 1989-1991.
H.F. Powell 61 January 1994-Present, Chairman and Chief Executive Officer, Nabisco
International, Inc.; prior thereto, President, Nabisco International,
Inc., 1993-1994; Executive Vice President, Nabisco International, Inc.,
1989-1993.
M.B. Oglesby, Jr. 51 1989-Present, Senior Vice President, Government Affairs; prior thereto,
Deputy Chief of Staff to President Ronald Reagan, 1988-1989.
J. Thomas Pearson 52 1988-Present, Senior Vice President, Taxation.
Jeffrey A. Kuchar 39 November 1993-Present, Vice President and General Auditor; prior thereto,
Director of Finance and Business Development, Specialty Products Company
of NFG, 1993; Director of Financial Planning, Specialty Products Company
of NFG, 1992-1993; Assistant Corporate Controller, 1987-1991.
Robert F. Sharpe, Jr. 41 1989-Present, Vice President, Assistant General Counsel and Secretary;
prior thereto, Assistant General Counsel, 1988-1989.
Jason H. Wright 33 March 1993-Present, Vice President of Worldwide Communications; prior
thereto, Vice President of Financial Communications, 1990-1993; Director
of Corporate Communications, Aetna Life & Casualty, 1988-1990.
</TABLE>
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PART II
ITEM 5. MARKET FOR REGISTRANTS' COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The common stock of Holdings, par value $.01 per share (the "Common
Stock"), is listed and traded on the New York Stock Exchange (the "NYSE"). Since
completion of the Acquisition there has been no public trading market for the
common stock of RJRN.
As of January 31, 1994, there were approximately 51,000 record holders of
the Common Stock. All of the common stock of RJRN is owned by Holdings. The
Common Stock closing price on the NYSE for February 22, 1994 was $7 1/2.
The following table sets forth, for the calendar periods indicated, the
high and low sales prices per share for the Common Stock on the NYSE Composite
Tape, as reported in the Wall Street Journal:
<TABLE><CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
1993:
First Quarter................................................... $ 9 1/4 $ 7 5/8
Second Quarter.................................................. 8 1/8 5 1/8
Third Quarter................................................... 5 7/8 4 1/2
Fourth Quarter.................................................. 7 3/8 4 3/8
</TABLE>
<TABLE><CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
1992:
First Quarter................................................... $ 11 3/4 $ 8 3/4
Second Quarter.................................................. 10 3/8 8 3/8
Third Quarter................................................... 9 7/8 8
Fourth Quarter.................................................. 9 1/4 7 7/8
</TABLE>
Holdings has never paid any cash dividends on shares of the Common Stock.
Cash dividends paid by RJRN to Holdings are set forth in the Consolidated
Statements of Cash Flows in the Consolidated Financial Statements.
The operations of the Registrants are conducted through RJRN's subsidiaries
and, therefore, the Registrants are dependent on the earnings and cash flow of
RJRN's subsidiaries to satisfy their respective debt obligations and other cash
needs. The Credit Agreements, which contain restrictions on the payment of cash
dividends or other distributions by Holdings in excess of certain specified
amounts, and the indentures relating to certain of RJRN's debt securities, which
contain restrictions on the payment of cash dividends or other distributions by
RJRN to Holdings in excess of certain specified amounts, or for certain
specified purposes, effectively limit the payment of dividends on the Common
Stock. In addition, the declaration and payment of dividends is subject to the
discretion of the board of directors of Holdings and to certain limitations
under Delaware law.
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ITEM 6. SELECTED FINANCIAL DATA
The selected consolidated financial data presented below as of December 31,
1993 and 1992 and for each of the years in the three-year period ended December
31, 1993 for Holdings was derived from the Consolidated Financial Statements,
which have been audited by Deloitte & Touche, independent auditors. In addition,
the consolidated financial data as of December 31, 1991, 1990 and 1989, for the
year ended December 31, 1990 and for the period from February 9, 1989 through
December 31, 1989 for Holdings and for the period from January 1, 1989 through
February 8, 1989 for RJRN was derived from the consolidated financial statements
of Holdings and RJRN as of December 31, 1991, 1990 and 1989, for the year ended
December 31, 1990 and for each of the periods within the one-year period ended
December 31, 1989, not presented herein, which has been audited by Deloitte &
Touche, independent auditors. The data should be read in conjunction with the
Consolidated Financial Statements, related notes and other financial information
included herein.
<TABLE><CAPTION>
HOLDINGS RJRN
-------------------------------------------------------- -----------
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------------------------------------
(DOLLARS IN MILLIONS EXCEPT PER SHARE
AMOUNTS) 1993 1992 1991 1990 1989
--------- --------- --------- --------- -------------------------
2/9 TO 12/31 1/1 TO 2/8
------------ -----------
<S> <C> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS
Net sales.................................. $ 15,104 $ 15,734 $ 14,989 $ 13,879 $ 12,114 $ 650
--------- --------- --------- --------- ------------ -----------
Cost of products sold...................... 6,640 6,326 6,088 5,652 5,241 332
Selling, advertising, administrative and
general expenses......................... 5,731 5,788 5,358 4,801 4,276 295
Amortization of trademarks and goodwill.... 625 616 609 608 557 10
Restructuring expense...................... 730 106 -- -- -- --
--------- --------- --------- --------- ------------ -----------
Operating income(1)...................... 1,378 2,898 2,934 2,818 2,040 13
Interest expense........................... (1,190) (1,429) (2,113) (3,000) (2,893) (44)
Amortization of debt issuance costs........ (19) (20) (104) (176) (447) --
Change in control costs.................... -- -- -- -- -- (247)
Other income (expense), net................ (58) 7 (69) (44) 169 15
--------- --------- --------- --------- ------------ -----------
Income (loss) from continuing operations
before income taxes.................... 111 1,456 648 (402) (1,131) (263)
Provision (benefit) for income taxes....... 114 680 280 60 (156) (66)
--------- --------- --------- --------- ------------ -----------
Income (loss) from continuing
operations............................. (3) 776 368 (462) (975) (197)
Income (loss) from operations of
discontinued businesses, net of income
taxes(2)................................. -- -- -- -- (1) 24
Extraordinary item--(loss) gain on early
extinguishments of debt, net of income
taxes.................................... (142) (477) -- 33 -- --
--------- --------- --------- --------- ------------ -----------
Net income (loss).......................... (145) 299 368 (429) (976) (173)
Preferred stock dividends.................. 68 31 173 50 -- 4
--------- --------- --------- --------- ------------ -----------
Net income (loss) applicable to common
stock.................................... $ (213) $ 268 $ 195 $ (479) $ (976) $ (177)
--------- --------- --------- --------- ------------ -----------
--------- --------- --------- --------- ------------ -----------
PER SHARE DATA
Income (loss) from continuing operations
per common and common equivalent share... $ (0.05) $ 0.55 $ 0.22 $ (1.19) $ (3.21) $ (0.89)
Dividends per share of Series A Preferred
Stock(3)................................. 3.34 3.34 0.49 -- -- --
BALANCE SHEET DATA
(AT END OF PERIODS)
Working capital............................ $ 202 $ 730 $ 165 $ (1,089) $ 106
Total assets............................... 31,295 32,041 32,131 32,915 36,412
Total debt................................. 12,448 14,218 14,531 18,918 25,159
Redeemable preferred stock(4).............. -- -- -- 1,795 --
Stockholders' equity(5).................... 9,070 8,376 8,419 2,494 1,237
</TABLE>
(Footnotes on following page)
17
<PAGE>
(Footnotes for preceding page)
- ---------------
(1) The 1992 amount includes a gain of $98 million on the sale of Holdings'
ready-to-eat cold cereal business.
(2) The 1989 amount for Holdings included $237 million of interest expense
allocated to discontinued operations.
(3) On November 8, 1991, Holdings issued 52,500,000 shares of Series A
Conversion Preferred Stock, par value $.01 per share ("Series A Preferred
Stock") and sold 210,000,000 $.835 depositary shares (the "Series A
Depositary Shares"). Each Series A Depositary Share represents a one-quarter
ownership interest in a share of Series A Preferred Stock. Each share of
Series A Preferred Stock bears cumulative cash dividends at a rate of $3.34
per annum and is payable quarterly in arrears on the 15th day of each
February, May, August and November. Because Series A Preferred Stock
mandatorily converts into Common Stock by November 15, 1994, dividends on
shares of Series A Preferred Stock are reported similar to common equity
dividends.
(4) On December 16, 1991, an amendment to the Amended and Restated Certificate
of Incorporation of Holdings was filed which deleted the provisions
providing for the mandatory redemption of the redeemable preferred stock of
Holdings on November 1, 2015. Accordingly, such securities were presented as
a component of Holdings' stockholders' equity as of December 31, 1992 and
1991. Such securities were redeemed on December 6, 1993 (see Note 12 to the
Consolidated Financial Statements).
(5) Holdings' stockholders' equity at December 31 of each year from 1993 to 1989
includes non-cash expenses related to accumulated trademark and goodwill
amortization of $3.015 billion, $2.390 billion, $1.774 billion, $1.165
billion and $557 million, respectively. (See Note 13 to the Consolidated
Financial Statements.)
See Notes to Consolidated Financial Statements.
18
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RJR Nabisco, Inc.'s ("RJRN") operating subsidiaries comprise one of the
largest tobacco and food companies in the world. In the United States, the
tobacco business is conducted by R. J. Reynolds Tobacco Company ("RJRT"), the
second largest manufacturer of cigarettes, and the packaged food business is
conducted by the Nabisco Foods Group ("NFG"), the largest manufacturer and
marketer of cookies and crackers. Tobacco operations outside the United States
are conducted by R.J. Reynolds Tobacco International, Inc. ("Tobacco
International") and food operations outside the United States and Canada are
conducted by Nabisco International, Inc. ("Nabisco International").
The following is a discussion and analysis of the consolidated financial
condition and results of operations of RJR Nabisco Holdings Corp. ("Holdings"),
the parent company of RJRN. The discussion and analysis should be read in
connection with the historical financial information included in the
Consolidated Financial Statements.
RESULTS OF OPERATIONS
Summarized financial data for Holdings is as follows:
<TABLE><CAPTION>
% CHANGE FROM
PRIOR YEAR
------------------------
1993 1992 1991 1993 1992
--------- --------- --------- ----------- -----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Net Sales:
RJRT..................................................... $ 4,949 $ 6,165 $ 5,861 (20)% 5%
Tobacco International.................................... 3,130 2,862 2,679 9% 7%
--------- --------- ---------
Total Tobacco............................................ 8,079 9,027 8,540 (11)% 6%
Total Food............................................... 7,025 6,707 6,449 5% 4%
--------- --------- ---------
$ 15,104 $ 15,734 $ 14,989 (4)% 5%
--------- --------- ---------
--------- --------- ---------
Operating Company Contribution(1):
RJRT..................................................... $ 1,200 $ 2,112 $ 2,226 (43)% (5)%
Tobacco International.................................... 644 575 500 12% 15%
--------- --------- ---------
Total Tobacco............................................ 1,844 2,687 2,726 (31)% (1)%
Total Food............................................... 995 947 920 5% 3%
Headquarters............................................. (106) (112) (103) 5% (9)%
--------- --------- ---------
$ 2,733 $ 3,522 $ 3,543 (22)% (1)%
--------- --------- ---------
--------- --------- ---------
Operating Income:
RJRT..................................................... $ 480 $ 1,704 $ 1,860 (72)% (8)%
Tobacco International.................................... 413 537 462 (23)% 16%
--------- --------- ---------
Total Tobacco............................................ 893 2,241 2,322 (60)% (3)%
Total Food............................................... 624 769 715 (19)% 8%
Headquarters............................................. (139) (112) (103) (24)% (9)%
--------- --------- ---------
$ 1,378 $ 2,898 $ 2,934 (52)% (1)%
--------- --------- ---------
--------- --------- ---------
</TABLE>
(Footnotes on following page)
19
<PAGE>
INDUSTRY SEGMENTS
The percentage contributions of each of Holdings' industry segments to net
sales and operating company contribution during the last five years were as
follows:
<TABLE><CAPTION>
1993 1992 1991 1990 1989(3)
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net Sales:
Total Tobacco.......................................... 53% 57% 57% 58% 55%
Total Food............................................. 47 43 43 42 45
----- ----- ----- ----- -----
100% 100% 100% 100% 100%
----- ----- ----- ----- -----
----- ----- ----- ----- -----
Operating Company Contribution(1)(2):
Total Tobacco.......................................... 65% 74% 75% 77% 73%
Total Food............................................. 35 26 25 23 27
----- ----- ----- ----- -----
100% 100% 100% 100% 100%
----- ----- ----- ----- -----
----- ----- ----- ----- -----
</TABLE>
- ---------------
(1) Operating income before amortization of trademarks and goodwill and
exclusive of restructuring expenses (RJRT: 1993-$355 million, 1992-$43
million; Tobacco International: 1993-$189 million, 1992-$0; Total Food:
1993-$153 million, 1992-$63 million; Headquarters: 1993-$33 million, 1992-
$0) and a 1992 gain ($98 million) on the sale of Holdings' ready-to-eat cold
cereal business as discussed below.
(2) Contributions by industry segments were computed without effects of
Headquarters' expenses.
(3) Includes predecessor period January 1, 1989 through February 8, 1989.
TOBACCO
Holdings' tobacco business is conducted by RJRT and Tobacco International.
1993 vs. 1992. Holdings' worldwide tobacco business experienced continued
net sales growth in its international business that was more than offset by a
significant sales decline in the domestic business, resulting in reported net
sales of $8.08 billion in 1993, a decline of 11% from the 1992 level of $9.03
billion. Operating company contribution for the worldwide tobacco business of
$1.84 billion in 1993 declined 31% from the 1992 level of $2.69 billion,
reflecting sharp reductions for the domestic business which were partially
offset by gains in the international business. Operating income for the
worldwide tobacco business in 1993 of $893 million declined 60% from $2.24
billion in 1992, reflecting the lower operating company contribution and a $544
million restructuring expense in 1993 versus a restructuring expense of $43
million in 1992. The 1993 restructuring expense includes expenses to streamline
both the domestic and international operations by the reduction of personnel in
administration, manufacturing and sales functions, as well as rationalization of
manufacturing and office facilities.
Net sales for RJRT amounted to $4.95 billion in 1993, a decline of 20% from
the 1992 level, reflecting the impact of industry-wide price reductions and
price discounting on higher price brands, a higher proportion of sales from
lower price brands and an overall volume decline of approximately 3.6%. The 1993
decrease in overall volume resulted from a decline in the full-price segment
that more than offset growth in the lower price segment. The growth in lower
price brands was slowed in the second half of 1993 by net price reductions on
full-price brands. RJRT's operating company contribution was $1.20 billion in
1993, a 43% decline from the 1992 level of $2.11 billion, primarily due to the
lower net sales and a higher proportion of sales from the lower margin segment,
offset in part by lower operating expenses. RJRT's operating income was $480
million in 1993, a decline of 72% from $1.7 billion in 1992. The decline in
operating income reflected the lower RJRT operating company contribution as well
as a restructuring expense of $355 million in 1993 which is significantly higher
than the $43 million restructuring expense recorded in 1992.
Tobacco International recorded net sales of $3.13 billion in 1993, an
increase of 9% from the 1992 level, due to higher volume in all regions of
business, the expansion of markets through ventures in Eastern Europe and
Turkey, contract sales to the Russian Republic, favorable pricing in certain
regions
20
<PAGE>
and a change in fiscal year end, which more than offset unfavorable currency
developments in Western Europe. Tobacco International's operating company
contribution rose to $644 million in 1993, an increase of 12% compared to the
prior year due to higher volume and pricing which was offset in part by higher
operating expenses and to a lesser extent foreign currency developments. Tobacco
International's operating income was $413 million for 1993, a decline of 23%
from the 1992 level. The decline in operating income reflects a restructuring
expense of $189 million in 1993 that more than offset the increase in operating
company contribution.
1993 Competitive Activity. During recent years, the lower price segment of
the domestic cigarette market has grown significantly and the full price segment
has declined. The shifting of smokers of full price brands to lower price brands
adversely affects RJRT's earnings since lower price brands are generally less
profitable than full price brands. Although the difference in profitability is
often substantial, it varies greatly depending on marketing and promotion levels
and the terms of sale. Accordingly, RJRT has in recent years experienced
substantial increased volume in the lower price segment, but the earnings
attributable to these sales have not been sufficient to offset decreased
earnings from declining sales of RJRT's full price brands.
In April 1993, RJRT's largest competitor announced a shift in strategy
designed to gain share of market while sacrificing short-term profits. The
competitor's tactics included increased promotional spending and temporary price
reductions on its largest cigarette brand, followed several months later by list
price reductions on all its full-price and mid-price brands. RJRT defended its
major full-price brands during the period of temporary price reductions and, to
remain competitive in the marketplace, also reduced list prices on all its
full-price and mid-price brands in August 1993. The cost of defensive price
promotions and the impact of lower list prices were primarily responsible for
the sharp drop in RJRT's 1993 operating company contribution.
Currently, the domestic cigarette market has consolidated list prices for
cigarettes from four or more tiers into two tiers, with price competition being
conducted principally through trade and retail promotion on a brand-by-brand
basis. The resulting effects from increased list prices on lower price brands
and reduced promotional spending by RJRT on its full price brands have not been
sufficient to offset the effect of decreased list prices on RJRT's full price
brands. This has resulted in lower aggregate profit margins for RJRT. These
depressed margins are expected to continue until such time as the competitive
environment improves and operating costs are further reduced.
Although some improvement to the stability of the competitive environment
has occurred in the fourth quarter of 1993, RJRT cannot predict if or when any
further improvement to the competitive environment will occur or whether such
stability will continue. In addition, growth in lower price brands was slowed in
the second half of 1993 due to net price reductions on full price brands. RJRT
is unable to predict whether this trend will continue. RJRT's domestic cigarette
volume of non-full price brands as a percentage of total domestic volume was 44%
in 1993, 35% in 1992 and 25% in 1991 versus 37%, 30% and 25%, respectively, for
the domestic cigarette market.
1993 Governmental Activity. Legislation recently enacted restricts the use
of imported tobacco in cigarettes manufactured in the United States and is
expected to increase RJRT's future raw material cost. In addition, the Clinton
Administration and members of Congress have introduced bills in Congress that
would significantly increase the federal excise tax on cigarettes, eliminate the
deductibility of a portion of the cost of tobacco advertising, ban smoking in
public buildings and workplaces, add additional health warnings on cigarette
packaging and advertising and further restrict the marketing of tobacco
products. It is not possible to determine what additional federal, state or
local legislation or regulations relating to smoking or cigarettes will be
enacted or to predict any resulting effect thereof on RJRT, Tobacco
International or the cigarette industry generally but such legislation or
regulations could have an adverse effect on RJRT, Tobacco International or the
cigarette industry generally.
21
<PAGE>
1992 vs. 1991. Net sales for RJRT rose 5% from 1991 to $6.17 billion in
1992 as higher unit selling prices and volume were offset in part by a higher
proportion of sales from lower price brands. Overall volume for the 1992 year
increased 3% from the prior year as a result of gains in the lower price segment
more than offsetting a decline in the full price segment. RJRT's operating
company contribution in 1992 was $2.11 billion, a 5% decline from the prior
year. The decline in operating company contribution was primarily due to the
higher proportion of sales of lower margin brands and higher marketing and
selling expenditures, which when combined more than offset the effect of higher
unit selling prices and volume. RJRT's operating income of $1.70 billion in 1992
declined 8% from the prior year as a result of the decline in operating company
contribution as well as a $43 million charge incurred in connection with a
restructuring plan, the purpose of which was to improve productivity by
realigning operations in the sales, manufacturing, research and development, and
administrative areas.
Tobacco International recorded net sales of $2.86 billion in 1992, an
increase of 7% from 1991. Excluding contract sales to the Russian Republic, for
which there were major shipments in 1991, Tobacco International would have
reported an increase in net sales in 1992 of 10%. The sales increase is a result
of volume gains in Eastern Europe (where the company made several acquisitions),
Asia and the Middle East, favorable currency developments and higher selling
prices that more than offset lower volume in Western Europe. Operating company
contribution and operating income for 1992 rose 15% and 16%, respectively, from
the prior year to $575 million and $537 million. The increase in operating
company contribution and operating income was due to higher volume, favorable
currency developments and higher selling prices offset in part by a higher
proportion of sales in the lower margin segment.
For a description of certain litigation affecting RJRT and its affiliates,
see Note 11 to the Consolidated Financial Statements.
FOOD
Holdings' food business is conducted by NFG, which comprises the Nabisco
Biscuit Company, the LifeSavers Division, the Planters Division, the Specialty
Products Company, the Fleischmann's Division, the Food Service Division and
Nabisco Brands Ltd, (collectively the "North American Group") and Nabisco
International.
1993 vs. 1992. NFG reported net sales of $7.03 billion in 1993, an increase
of 5% from 1992. Excluding the 1992 operating results of the ready-to-eat cold
cereal business, which was sold at the end of that year, net sales in 1993
increased 9% from 1992, resulting from higher volume, sales from recently
acquired businesses and modest price increases in both the North American Group
and Nabisco International. The North American Group volume increase was
primarily attributable to the success of new product introductions in the U.S.,
including the Snackwell's line of low fat/fat free cookies and crackers, Fat
Free Newtons, Life Savers Gummi Savers candy and Planters' stand-up bag line of
peanuts and snacks. Nabisco International's net sales increased as a result of
the 1993 acquisitions in Spain and Peru and higher volume and prices from its
Latin American businesses.
NFG's operating company contribution of $995 million in 1993 was 5% higher
than the 1992 amount. Excluding the 1992 operating results of the ready-to-eat
cold cereal business, operating company contribution increased 14%, with the
North American Group up 13% and Nabisco International up 18%. The North American
Group increase was primarily due to the gain in net sales, savings from
productivity programs, and contributions from the recently acquired businesses,
offset in part by higher expenses for consumer marketing programs. Nabisco
International increased operating company contribution through acquisitions and
gains in net sales.
22
<PAGE>
NFG's operating income was $624 million in 1993, a decrease of 19% from
1992, as a result of the $153 million restructuring expense in 1993, which was
significantly higher than the restructuring expense of $63 million recorded in
1992, that more than offset the gain in operating company contribution.
Excluding the 1992 operating results of the ready-to-eat cold cereal business
and the related gain on its sale, as well as the restructuring expenses in both
1993 and 1992, NFG's operating income was up 16% as a result of the increase in
operating company contribution. The 1993 restructuring expense primarily
consists of expenses related to the reorganization and downsizing of
manufacturing and sales functions which will reduce personnel costs, both
domestically and internationally, in order to improve productivity and, to a
lesser extent, the rationalization of facilities.
1992 vs. 1991. NFG reported net sales of $6.71 billion in 1992, an increase
of 4% from 1991. The increase primarily results from higher volume and pricing
in the Latin American subsidiaries and the addition of recently acquired
businesses in Mexico and Brazil. Net sales for the North American Group were
relatively flat, as higher unit selling prices and volume in U.S. cookie and
selected grocery products, including new products and product varieties, were
offset by lower sales in the balance of the food lines as a result of restrained
consumer spending. NFG's operating company contribution increased 3% from 1991
to $947 million in 1992 as a result of the increase in net sales in Latin
America. Operating company contribution in the North American Group was about
even with last year reflecting the modest net sales performance in 1992. Margins
in the North America Group were maintained in 1992 as a result of productivity
gains offsetting the industry trends toward higher trade promotion spending.
NFG's 1992 operating income, which included a restructuring expense of $63
million, as well as a gain of $98 million on the sale of the ready-to-eat cold
cereal business, rose 8% from 1991 to $769 million as a result of the increase
in 1992 operating company contribution. The $63 million charge was incurred in
connection with a restructuring plan, the purpose of which was to reduce costs
and improve productivity by realigning sales operations and implementing a
voluntary separation program.
RESTRUCTURING EXPENSE
Holdings recorded a pre-tax restructuring expense of $730 million in the
fourth quarter of 1993 ($467 million after-tax) related to a program announced
on December 7, 1993. Such restructuring program was undertaken in response to a
changing consumer product business environment and is expected to streamline
operations and improve profitability. Implementation of the program, although
begun in the latter part of 1993, will primarily occur in 1994. Approximately
75% of the restructuring program will require cash outlays which will occur
primarily in 1994 and early 1995. As an offset to the cash outlays, Holdings
expects annual after-tax cash savings of approximately $250 million.
The cost of providing severance pay and benefits for the reduction of
approximately 6,000 employees throughout the domestic and international food and
tobacco businesses is approximately $400 million of the charge and is primarily
a cash expense. The workforce reduction was undertaken in order to establish
fundamental changes to the cost structure of the domestic tobacco business in
the face of acute competitive activity in that business and to take advantage of
cost savings opportunities in other businesses through process efficiency
improvements. Legislation enacted during the third quarter of 1993
stipulates that, effective January 1, 1994, financial penalties will be assessed
against manufacturers if cigarettes produced in the United States do not contain
at least 75% (by weight) of domestically grown flue cured and burly tobaccos. As
a result, the domestic and international tobacco businesses accrued
approximately $70 million of related restructuring charges resulting from a
reassessment of raw material sourcing and production arrangements. In addition,
a shift in pricing strategy designed to gain share of market by RJRT's largest
competitor has resulted in a redeployment of spending and changes in sales and
distribution strategies resulting in a restructuring charge of approximately
$80 million primarily related to contract termination costs. Abandonment of
leases related to the above changes in the businesses results in approximately
$60 million of restructuring charges. The remainder of the charge,
approximately $120 million, represents
23
<PAGE>
non-cash costs to rationalize and close manufacturing and sales facilities in
both the tobacco and food businesses to facilitate cost improvements.
INTEREST EXPENSE
1993 vs. 1992. Consolidated interest expense of $1.19 billion in 1993
decreased 17% from 1992, primarily as a result of the refinancings of debt that
were completed during 1992 and 1993, lower debt levels from the application of
net proceeds from the issuance of preferred stock in 1993 and lower effective
interest rates and the impact of declining market interest rates in 1993.
1992 vs. 1991. Consolidated interest expense of $1.43 billion in 1992
decreased 32% from 1991, primarily due to the refinancings completed during 1991
and 1992, lower effective interest rates and the impact of declining market
interest rates in 1992.
INCOME TAXES
Effective January 1, 1993, Holdings and RJRN adopted Statement of Financial
Accounting Standards No. 109 ("SFAS No. 109"), Accounting for Income Taxes. SFAS
No. 109 superseded Statement of Financial Accounting Standards No. 96, the
method of accounting for income taxes previously followed by the Registrants.
The adoption of SFAS No. 109 did not have a material impact on the financial
statements of either Holdings or RJRN.
Holdings' provision for income taxes for 1993 was increased by $96 million
as a result of the enactment of certain federal tax legislation during the third
quarter of 1993 which increased federal corporate income tax rates to 35% from
34%, retroactively to January 1, 1993. The components of this increase to
Holdings' provision for income taxes included an $86 million non-cash charge
resulting primarily from the remeasurement of the balance of deferred federal
income taxes at the date of enactment of the new federal tax legislation for the
change in the income tax rates, and a $10 million charge resulting from the
increase in current federal income taxes accrued for the change in the income
tax rates and other effects of the new tax legislation. Also during 1993,
Holdings' provision for income taxes was decreased by a $108 million credit
resulting from a remeasurement of the balance of deferred income taxes for a
change in estimate of the basis of certain deferred tax amounts relating
primarily to international operations.
NET INCOME
1993 vs. 1992. Holdings reported a net loss of $145 million in 1993, a
decrease of $444 million from 1992. Included in Holdings' 1993 net loss is an
after-tax extraordinary loss of $142 million related to the repurchases of high
cost debt during 1993 and an after-tax restructuring expense of $467 million.
Excluding the extraordinary loss and restructuring expense recorded in 1993,
Holdings would have reported net income of $464 million in 1993. Excluding a
similar after-tax extraordinary loss and an after-tax restructuring expense of
$477 million and $66 million, respectively, in 1992, as well as a 1992 after-tax
gain on the sale of Holdings' ready-to-eat cold cereal business of $30 million,
Holdings would have reported net income of $812 million in 1992. The decrease in
net income in 1993 from 1992, after such exclusions, is due to the lower
operating income offset in part by lower interest expense.
1992 vs. 1991. Holdings' net income of $299 million in 1992 includes an
after-tax extraordinary loss of $477 million related to the repurchases of high
cost debt during 1992. However, after excluding the extraordinary loss, Holdings
would have reported net income of $776 million for 1992, an increase of $408
million over last year, primarily as a result of significantly lower interest
expense. Net income in 1991 was reduced by $28 million of net charges included
in "Other income (expense), net" as a result of the write-off of $109 million of
unamortized debt issuance costs and the recognition of $144 million of
24
<PAGE>
unrealized losses from interest rate hedges related to the refinancing of
existing credit lines, partially offset by a $225 million credit for a change in
estimated postretirement health care liabilities.
Holdings' net income (loss) applicable to its common stock for 1993, 1992
and 1991 of $(213) million, $268 million and $195 million, respectively,
includes a deduction for preferred stock dividends of $68 million, $31 million
and $173 million, respectively.
Effective January 1, 1993, RJRN adopted Statement of Financial Accounting
Standards No. 112 ("SFAS No. 112"), Employers' Accounting for Postemployment
Benefits. Under SFAS No. 112, RJRN is required to accrue the costs for
preretirement postemployment benefits provided to former or inactive employees
and recognize an obligation for these benefits. The adoption of SFAS No. 112 did
not have a material impact on the financial statements of either Holdings or
RJRN.
25
<PAGE>
LIQUIDITY AND FINANCIAL CONDITION
DECEMBER 31, 1993
Holdings continued to generate significant free cash flow in 1993, although
at a lower level than in 1992. Free cash flow, which represents cash available
for the repayment of debt and certain other corporate purposes before the
consideration of any debt and equity financing transactions, acquisition
expenditures and divestiture proceeds, was $1.0 billion for 1993 and $1.6
billion for 1992. The lower level of free cash flow for 1993 primarily reflects
lower operating company contribution in the domestic tobacco business, higher
capital expenditures for tobacco manufacturing facilities in Eastern Europe and
Turkey and for Nabisco Biscuit facilities and higher taxes paid, offset in part
by lower inventory levels in the domestic tobacco business, higher sales of
receivables, and a decrease in interest paid.
The components of free cash flow are as follows:
<TABLE><CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------
1993 1992
--------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C>
OPERATING INCOME........................................................................... $ 1,378 $ 2,898
Amortization of intangibles.............................................................. 625 616
Restructuring expense, net of a 1992 gain from the sale of the ready-to-eat cold cereal
business............................................................................... 730 8
--------- ---------
OPERATING COMPANY CONTRIBUTION............................................................. 2,733 3,522
Depreciation and other amortization...................................................... 524 530
Increase in operating working capital.................................................... (121) (196)
Capital expenditures..................................................................... (615) (519)
Change in other assets and liabilities................................................... (21) (298)
--------- ---------
OPERATING CASH FLOW*....................................................................... 2,500 3,039
Taxes paid............................................................................... (332) (116)
Interest paid............................................................................ (912) (1,102)
Dividends paid........................................................................... (241) (214)
Other, net............................................................................... 19 31
--------- ---------
FREE CASH FLOW............................................................................. $ 1,034 $ 1,638
--------- ---------
--------- ---------
</TABLE>
- ---------------
* Operating cash flow, which is used as an internal measurement for evaluating
business performance, includes, in addition to net cash flow from (used in)
operating activities as recorded in the Consolidated Statement of Cash Flows,
proceeds from the sale of capital assets less capital expenditures, and is
adjusted to exclude income taxes paid and items of a financial nature (such as
interest paid, interest income, and other miscellaneous financial income or
expense items).
---------------
In 1993, Holdings and RJRN continued to enter into a series of transactions
designed to refinance long-term debt, lower debt levels and lower interest
costs, thereby improving the consolidated debt cost and maturity structure.
These transactions included the issuance of preferred stock and the repurchase
and redemption of certain debt obligations with funds provided from the issuance
of debt securities (including medium-term notes), borrowings under Holdings' and
RJRN's credit agreement, dated as of December 1, 1991, as amended (the "1991
Credit Agreement"), and free cash flow, as well as RJRN's management of interest
rate exposure through swaps, options, caps and other interest rate arrangements.
As a result of these transactions and lower market interest rates during 1993,
Holdings reduced the effective interest rate on its consolidated long-term debt
from 8.7% at December 31, 1992 to 8.4% at December 31, 1993. Future effective
interest rates may vary as a result of RJRN's ongoing management of interest
rate exposure and changing market interest rates as well as refinancing
activities and changes in the ratings assigned to RJRN's debt securities by
independent rating agencies.
One of Holdings' current financial objectives is to achieve a
capitalization ratio of 43% over time. Holdings' capitalization ratio was 44.5%
at December 31, 1993. The capitalization ratio, which is
26
<PAGE>
intended to measure Holdings' long-term debt (including current maturities) as a
percentage of total capital, is calculated by dividing (i) Holdings' long-term
debt by (ii) the sum of Holdings' total equity, consolidated long-term debt,
deferred income taxes and certain other long-term liabilities.
Certain of Holdings' other current financial objectives, which are all
based on income before extraordinary items excluding after-tax amortization of
trademarks and goodwill and referred to below as cash net income, are to achieve
a 20% return on year beginning common stockholders' equity, a 2.7 interest and
preferred stock dividend coverage ratio and a trendline average annual earnings
per share growth of 15% over time.
The 20% return on year beginning common stockholders' equity objective,
which is intended to measure the return to Holdings' common equity holders on
the net assets employed in the business, is calculated by dividing (i) cash net
income (after deducting preferred stock dividends) by (ii) total stockholders'
equity at the beginning of the year exclusive of preferred stockholders' equity
interest. For purposes of calculating the return on year beginning common
stockholders' equity, Series A Preferred Stock and similar convertible preferred
stock securities, if any, are considered common equity and the related dividends
thereon are considered common dividends. The 2.7 interest and preferred stock
dividend coverage ratio objective, which is intended to measure Holdings'
ability to service its annual interest and preferred stock dividend payments, is
calculated by dividing (i) operating income before amortization of trademarks
and goodwill and depreciation by (ii) the sum of cash interest expense and
preferred stock dividends. The trendline average annual earnings per share
growth of 15% as adjusted for after-tax amortization of trademarks and goodwill,
is intended to measure Holdings' ability to achieve a certain level of earnings
per share growth over time.
At December 31, 1993, Holdings had an outstanding total debt level (notes
payable and long-term debt, including current maturities) and a total capital
level (total debt and total stockholders' equity) of approximately $12.4 billion
and $21.5 billion, respectively, each of which is lower than the corresponding
amounts at December 31, 1992. Holdings' ratio of total debt to total
stockholders' equity at December 31, 1993 improved to 1.4-to-1 versus 1.7-to-1
at December 31, 1992. RJRN's ratio of total debt to common equity at
December 31, 1993 was 1.3-to-1, compared with 1.6-to-1 at December 31, 1992.
Total current liabilities and long-term debt of RJRN's subsidiaries was
approximately $3.4 billion at December 31, 1993 and 1992.
Management believes that the improvement to Holdings' and its subsidiaries'
financial structure since 1991 has enhanced its ability to take advantage of
opportunities to further improve its capital and/or cost structure. Management
expects that it will continue to consider opportunities as they arise. Such
opportunities, if pursued, could involve further acquisitions from time to time
of substantial amounts of securities of Holdings or its subsidiaries through
open market purchases, redemptions, privately negotiated transactions, tender or
exchange offers or otherwise and/or the issuance from time to time of additional
securities by Holdings or its subsidiaries. Acquisitions of securities at prices
above their book value, together with the accelerated amortization of deferred
financing fees attributable to the acquired securities, would reduce reported
net income, depending upon the extent of such acquisitions. Nonetheless,
Holdings' and its subsidiaries' ability to take advantage of such opportunities
is subject to restrictions in the 1991 Credit Agreements and Holdings' and
RJRN's credit agreement, dated as of April 5, 1993, as amended (the "1993 Credit
Agreement", and together with the 1991 Credit Agreement, the "Credit
Agreements"), and in certain of their debt indentures. For a discussion of
recent developments affecting the tobacco business and the potential effect on
RJRT's cash flow, see "Results of Operations--Tobacco."
In addition, management currently is reviewing and expects to continue to
review various corporate transactions, including, but not limited to, joint
ventures, mergers, acquisitions, divestitures, asset swaps, spin-offs and
recapitalizations. Although Holdings has discussed and continues to discuss
various transactions with third parties, no assurance may be given that any
transaction will be announced or completed. It is likely that Holdings' tobacco
and food businesses would be separated should certain of the foregoing
transactions be consummated.
27
<PAGE>
During 1993, RJRN issued $750 million principal amount of 8% Notes due
2000, $500 million principal amount of 8 3/4% Notes due 2005 and $500 million
principal amount of 9 1/4% Debentures due 2013. Also during 1993, RJRN issued
medium-term notes maturing in the years 1995-1998 having an aggregate initial
offering price of approximately $230 million. The net proceeds from the sale of
debt securities and the sale of 50,000,000 depositary shares at $25 per share
issued in connection with the issuance of Series B Cumulative Preferred Stock
have been or will be used for general corporate purposes, which include
refinancings of indebtedness, working capital, capital expenditures,
acquisitions and repurchases and redemptions of securities. Pending such uses,
proceeds may be used to repay indebtedness under RJRN's revolving credit
facilities or for short-term liquid investments.
A portion of the net proceeds collected from the sale of Holdings'
ready-to-eat cold cereal business was used on February 5, 1993 to redeem $216
million principal amount of RJRN's 9 3/8% Sinking Fund Debentures due 2016 at a
price of $1,065.63 for each $1,000 principal amount of such debentures, plus
accrued and unpaid interest thereon.
The 1991 Credit Agreement is a $6.5 billion revolving bank credit facility
that provides for the issuance of up to $800 million of irrevocable letters of
credit. Availability under the 1991 Credit Agreement is reduced by an amount
equal to the stated amount of such letters of credit outstanding, by commercial
paper borrowings in excess of $1 billion and by amounts borrowed under such
facility. At December 31, 1993, approximately $456 million stated amount of
letters of credit was outstanding and $328 million was borrowed under the 1991
Credit Agreement. Accordingly, the amount available under the 1991 Credit
Agreement at December 31, 1993 was $5.72 billion.
On April 5, 1993, Holdings and RJRN entered into the 1993 Credit Agreement,
which matures on April 4, 1994 and provides a back-up line of credit to support
commercial paper issuances of up to $1 billion. Availability thereunder is
reduced by an amount equal to the aggregate amount of commercial paper
outstanding. At December 31, 1993, approximately $913 million of commercial
paper was outstanding. Accordingly, $87 million was available under the 1993
Credit Agreement at December 31, 1993. Holdings and RJRN expect to obtain bank
consent to extend the maturity date of the 1993 Credit Agreement for an
additional 364 days.
The aggregate of consolidated indebtedness and interest rate arrangements
subject to fluctuating interest rates approximated $5.5 billion at December 31,
1993. This represents an increase of $800 million from the year end 1992 level
of $4.7 billion, primarily due to Holdings' on-going management of its interest
rate exposure.
As a result of the general decline in market interest rates compared with
the high interest cost on certain of Holdings' consolidated debt obligations,
the estimated fair value amount of Holdings' long-term debt reflected in its
Consolidated Balance Sheets at December 31, 1993 and 1992 exceeded the carrying
amount (book value) of such debt by approximately $400 million and $1.1 billion,
respectively. For additional disclosures concerning the fair value of Holdings'
consolidated indebtedness as well as the fair value of its interest rate
arrangements at December 31, 1993 and 1992, see Notes 10 and 11 to the
Consolidated Financial Statements.
Capital expenditures were $615 million, $519 million and $459 million for
1993, 1992 and 1991, respectively. The current level of expenditures planned for
1994 is expected to be approximately $600 million (approximately 60% Food and
40% Tobacco), which will be funded primarily by cash flows from operating
activities. Management expects that its capital expenditure program will
continue at a level sufficient to support the strategic and operating needs of
Holdings' businesses.
Holdings has operations in many countries, utilizing 35 functional
currencies in its foreign subsidiaries and branches. Significant foreign
currency net investments are located in Germany, Canada, Hong Kong, Brazil and
Spain. Changes in the strength of these countries' currencies relative to the
U.S. dollar result in direct charges or credits to equity for
non-hyperinflationary countries and direct charges or credits to the income
statement for hyperinflationary countries. Translation gains or losses,
resulting from foreign-denominated borrowings that are accounted for as hedges
of certain
28
<PAGE>
foreign currency net investments, also result in charges or credits to equity.
Holdings also has significant exposure to foreign exchange sale and purchase
transactions in currencies other than its functional currency. The exposures
include the U.S. dollar, German mark, Japanese yen, Swiss franc, Hong Kong
dollar, Singapore dollar and cross-rate exposure among the French franc, British
pound, Italian lira and the German mark. Holdings manages these exposures to
minimize the effects of foreign currency transactions on its cash flows.
Certain financing agreements to which Holdings is a party and debt
instruments of RJRN directly or indirectly restrict the payment of dividends by
Holdings. The Credit Agreements, which contain restrictions on the payment of
cash dividends or other distributions by Holdings in excess of certain specified
amounts, and the indentures relating to certain of RJRN's debt securities, which
contain restrictions on the payment of cash dividends or other distributions by
RJRN to Holdings in excess of certain specified amounts, or for certain
specified purposes, effectively limit the payment of dividends on the Common
Stock. In addition, the declaration and payment of dividends is subject to the
discretion of the board of directors of Holdings and to certain limitations
under Delaware law. The Credit Agreements and the indentures under which certain
debt securities of RJRN have been issued also impose certain operating and
financial restrictions on Holdings and its subsidiaries. These restrictions
limit the ability of Holdings and its subsidiaries to incur indebtedness, engage
in transactions with stockholders and affiliates, create liens, sell certain
assets and certain subsidiaries' stock, engage in certain mergers or
consolidations and make investments in unrestricted subsidiaries. As a result of
the increased competitive conditions in the domestic cigarette market and in
order to provide Holdings with additional flexibility under certain financial
ratios contained in the Credit Agreements, Holdings obtained an amendment to
such Credit Agreements during October 1993. Holdings and RJRN believe that they
are currently in compliance with all covenants and restrictions in the Credit
Agreements and their other indebtedness.
On February 24, 1994, Holdings filed a Registration Statement on Form S-3
for a proposed offering of 300 million depositary shares, each representing a
one-tenth ownership interest in a share of a newly created series
of Preferred Equity Redemption Cumulative Stock ("PERCS"). Each depositary share
would mandatorily convert in three years into one share of Common Stock, subject
to adjustment and subject to earlier conversion or redemption under certain
circumstances. Any net proceeds of a PERCS offering may be used for general
corporate purposes which may include refinancings of indebtedness, working
capital, capital expenditures, acquisitions and repurchases or redemptions of
securities. In addition, such proceeds may be used to facilitate one or more
significant corporate transactions, such as a joint venture, merger,
acquisition, divestiture, asset swap, spin-off and/or recapitalization, that
would result in the separation of the tobacco and food businesses of Holdings.
As of February 24, 1994, the specific uses of proceeds have not been determined.
Pending such uses, any proceeds would be used to repay indebtedness under RJRN's
revolving credit facilities or for short-term liquid investments.
ENVIRONMENTAL MATTERS
RJRN has been engaged in a continuing program to assure compliance with
U.S. Government and various state and local government laws and regulations
concerning the protection of the environment. Certain subsidiaries of the
Registrants have been named "potentially responsible parties" with third parties
under the Comprehensive Environmental Response, Compensation and Liability Act,
("CERCLA") with respect to approximately fifteen sites. Although it is
difficult to identify precisely the portion of capital expenditures or other
costs attributable to compliance with environmental laws and the Registrants
can not reasonably estimate the cost of resolving the above-mentioned CERCLA
matters, the Registrants do not expect such expenditures or costs to have a
material adverse effect on the financial condition of either of the
Registrants.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Refer to the Index to Financial Statements and Financial Statement
Schedules on page 34, for the required information.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
29
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTS
Item 10 is hereby incorporated by reference to Holdings' Definitive Proxy
Statement to be filed with the Securities and Exchange Commission on or prior to
April 30, 1994. Reference is also made regarding the executive officers of the
Registrants to "Executive Officers of the Registrants" following Item 4 of Part
I of this Report.
ITEM 11. EXECUTIVE COMPENSATION
Item 11 is hereby incorporated by reference to Holdings' Definitive Proxy
Statement to be filed with the Securities and Exchange Commission on or prior to
April 30, 1994.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Item 12 is hereby incorporated by reference to Holdings' Definitive Proxy
Statement to be filed with the Securities and Exchange Commission on or prior to
April 30, 1994.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Item 13 is hereby incorporated by reference to Holdings' Definitive Proxy
Statement to be filed with the Securities and Exchange Commission on or prior to
April 30, 1994.
30
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
<TABLE>
<S> <C> <C>
(a) 1. The financial statements listed in the accompanying Index to Financial Statements and Financial
Statement Schedules are filed as part of this report.
2. The financial statement schedules listed in the accompanying Index to Financial Statements and
Financial Statement Schedules are filed as part of this report.
3. The exhibits listed in the accompanying Index to Exhibits are filed as part of this report.
(b) Reports on Form 8-K filed in Fourth Quarter 1993
None.
(c) Exhibits
See Exhibit Index.
(d) Financial Statement Schedules.
See Index to Financial Statements and Financial Statement Schedules.
</TABLE>
31
<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, in the City of New
York, State of New York on February 24, 1994.
RJR NABISCO HOLDINGS CORP.
By: /s/ CHARLES M. HARPER
....................................
(Charles M. Harper)
Chairman of the Board
and Chief Executive Officer
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 indicated on February 24, 1994.
<TABLE><CAPTION>
SIGNATURE TITLE
- ---------------------------------------- ----------------------------------------
<S> <C> <C>
/s/ CHARLES M. HARPER Chairman of the Board and Chief
........................................ Executive Officer (principal executive
(Charles M. Harper) officer) and Director
/s/ STEPHEN R. WILSON Executive Vice President and Chief
........................................ Financial Officer (principal financial
(Stephen R. Wilson) officer)
/s/ ROBERT S. ROATH Senior Vice President and Controller
........................................ (principal accounting officer)
(Robert S. Roath)
* Director
........................................
(John T. Chain, Jr.)
* Director
........................................
(Saul A. Fox)
* Director
........................................
(Louis V. Gerstner, Jr.)
* Director
........................................
(James H. Greene, Jr.)
* Director
........................................
(H. John Greeniaus)
* Director
........................................
(James W. Johnston)
* Director
........................................
(Vernon E. Jordan, Jr.)
* Director
........................................
(Henry R. Kravis)
* Director
........................................
(John G. Medlin, Jr.)
* Director
........................................
(Paul E. Raether)
* Director
........................................
(Lawrence R. Ricciardi)
* Director
........................................
(Rozanne L. Ridgway)
* Director
........................................
(Clifton S. Robbins)
* Director
........................................
(George R. Roberts)
* Director
........................................
(Scott M. Stuart)
* Director
........................................
(Michael T. Tokarz)
</TABLE>
*By: /s/ ROBERT F. SHARPE, JR.
......................................
(Robert F. Sharpe, Jr.)
Attorney-in-Fact
32
<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, in the City of New
York, State of New York on February 24, 1994.
RJR NABISCO, INC.
By: /s/ CHARLES M. HARPER
......................................
(Charles M. Harper)
Chairman of the Board
and Chief Executive Officer
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 indicated on February 24, 1994.
<TABLE><CAPTION>
SIGNATURE TITLE
- ---------------------------------------- ----------------------------------------
<S> <C> <C>
/s/ CHARLES M. HARPER Chairman of the Board and Chief
........................................ Executive Officer (principal executive
(Charles M. Harper) officer) and Director
/s/ STEPHEN R. WILSON Executive Vice President and Chief
........................................ Financial Officer (principal financial
(Stephen R. Wilson) officer)
/s/ ROBERT S. ROATH Senior Vice President and Controller
........................................ (principal accounting officer)
(Robert S. Roath)
* Director
........................................
(John T. Chain, Jr.)
* Director
........................................
(Saul A. Fox)
* Director
........................................
(Louis V. Gerstner, Jr.)
* Director
........................................
(James H. Greene, Jr.)
* Director
........................................
(H. John Greeniaus)
* Director
........................................
(James W. Johnston)
* Director
........................................
(Vernon E. Jordan, Jr.)
* Director
........................................
(Henry R. Kravis)
* Director
........................................
(John G. Medlin, Jr.)
* Director
........................................
(Paul E. Raether)
* Director
........................................
(Lawrence R. Ricciardi)
* Director
........................................
(Rozanne L. Ridgway)
* Director
........................................
(Clifton S. Robbins)
* Director
........................................
(George R. Roberts)
* Director
........................................
(Scott M. Stuart)
* Director
........................................
(Michael T. Tokarz)
</TABLE>
*By: /s/ ROBERT F. SHARPE, JR.
.......................................
(Robert F. Sharpe, Jr.)
Attorney-in-Fact
33
<PAGE>
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
<TABLE><CAPTION>
PAGE
--------------
<S> <C>
FINANCIAL STATEMENTS
Report of Deloitte & Touche, Independent Auditors............................................... F-1
Summary of Significant Accounting Policies...................................................... F-2
Consolidated Statements of Income and Retained Earnings--Years Ended December 31, 1993, 1992 and
1991......................................................................................... F-3
Consolidated Statements of Cash Flows--Years Ended December 31, 1993,
1992 and 1991................................................................................ F-4
Consolidated Balance Sheets--December 31, 1993 and 1992......................................... F-5
Notes to Consolidated Financial Statements...................................................... F-6-F-32
</TABLE>
FINANCIAL STATEMENT SCHEDULES
For the years ended December 31, 1993, 1992 and 1991:
<TABLE>
<S> <C> <C>
Schedule II --Amounts Receivable from Related Parties and Underwriters, Promoters and
Employees Other Than Related Parties......................................... S-1-S-2
Schedule III --Condensed Financial Information of Registrant................................ S-3-S-6
Schedule V --Property, Plant and Equipment................................................ S-7
Schedule VI --Accumulated Depreciation, Depletion, and Amortization of Property, Plant and
Equipment.................................................................... S-8
Schedule VIII --Valuation and Qualifying Accounts............................................ S-9
Schedule IX --Short-Term Borrowings........................................................ S-10
Schedule X --Supplementary Income Statement Information................................... S-11
</TABLE>
All other schedules for which provision is made in the applicable
regulations of the Securities and Exchange Commission are omitted because they
are not required under the related instructions or are not applicable or the
required information is shown in the financial statements or notes thereto.
34
<PAGE>
REPORT OF DELOITTE & TOUCHE, INDEPENDENT AUDITORS
RJR Nabisco Holdings Corp.:
RJR Nabisco, Inc.:
We have audited the accompanying consolidated balance sheets of RJR Nabisco
Holdings Corp. ("Holdings") and RJR Nabisco, Inc. ("RJRN") as of December 31,
1993 and 1992, and the related consolidated statements of income and retained
earnings and cash flows for each of the three years in the period ended December
31, 1993. Our audits also included the financial statement schedules of Holdings
and RJRN as of December 31, 1993 and 1992, and for each of the three years in
the period ended December 31, 1993 as listed in the accompanying Index to
Financial Statements and Financial Statement Schedules. These financial
statements and financial statement schedules are the responsibility of the
companies' management. Our responsibility is to express an opinion on these
financial statements and financial statement schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatements. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the consolidated financial position of Holdings and RJRN
at December 31, 1993 and 1992, and the consolidated results of their operations
and their cash flows for each of the three years in the period ended December
31, 1993 in conformity with generally accepted accounting principles. Also, in
our opinion, such financial statement schedules, when considered in relation to
the basic consolidated financial statements taken as a whole, present fairly in
all material respects the information set forth therein.
DELOITTE & TOUCHE
New York, New York
February 1, 1994
(except with respect to the subsequent
event discussed in Note 17, as to
which the date is February 24, 1994)
F-1
<PAGE>
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
CONSOLIDATED FINANCIAL STATEMENTS
The Summary of Significant Accounting Policies below and the notes to
consolidated financial statements on pages F-6 through F-32 are integral parts
of the accompanying consolidated financial statements of RJR Nabisco Holdings
Corp. ("Holdings") and RJR Nabisco, Inc. ("RJRN" and, collectively with
Holdings, the "Registrants") (the "Consolidated Financial Statements").
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This Summary of Significant Accounting Policies is presented to assist in
understanding the Consolidated Financial Statements included in this report.
These policies conform to generally accepted accounting principles.
Consolidation
Consolidated Financial Statements include the accounts of each Registrant
and its subsidiaries.
Cash Equivalents
Cash equivalents include all short-term, highly liquid investments that are
readily convertible to known amounts of cash and so near maturity that they
present an insignificant risk of changes in value because of changes in interest
rates.
Inventories
Inventories are stated at the lower of cost or market. Various methods are
used for determining cost. The cost of U.S. tobacco inventories is determined
principally under the LIFO method. The cost of remaining inventories is
determined under the FIFO, specific lot and weighted average methods. In
accordance with recognized trade practice, stocks of tobacco, which must be
cured for more than one year, are classified as current assets.
Depreciation
Property, plant and equipment are depreciated principally by the
straight-line method.
Trademarks and Goodwill
Values assigned to trademarks are based on appraisal reports and are
amortized on the straight-line method over a 40 year period. Goodwill is also
amortized on the straight-line method over a 40 year period.
Other Income (Expense), Net
Interest income, gains and losses on foreign currency transactions and
other financial items are included in "Other income (expense), net".
Income Taxes
Income taxes are accounted for under the provisions of Statement of
Financial Accounting Standards No. 109 ("SFAS No. 109"), Accounting for Income
Taxes, and are calculated for each Registrant on a separate return basis.
Postretirement Benefits Other Than Pensions
Postretirement benefits other than pensions are accounted for under the
provisions of Statement of Financial Accounting Standards No. 106 ("SFAS No.
106"), Employers' Accounting for Postretirement Benefits Other Than Pensions.
Postemployment Preretirement Benefits
Postemployment preretirement benefits are accounted for under the
provisions of Statement of Financial Accounting Standards No. 112 ("SFAS No.
112"), Employers' Accounting for Postemployment Benefits.
Excise Taxes
Excise taxes are excluded from "Net sales" and "Cost of products sold".
Reclassifications and Restatements
Certain reclassifications have been made to prior years' amounts to conform
to the 1993 presentation.
F-2
<PAGE>
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
<TABLE><CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1993 1992 1991
----------------------- ----------------------- ---------------------
HOLDINGS RJRN HOLDINGS RJRN HOLDINGS RJRN
------------ --------- ------------ --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
NET SALES (NOTE 1)............................... $ 15,104 $ 15,104 $ 15,734 $ 15,734 $ 14,989 $ 14,989
------------ --------- ------------ --------- ---------- ---------
Costs and expenses (Note 1):
Cost of products sold.......................... 6,640 6,640 6,326 6,326 6,088 6,088
Selling, advertising, administrative and
general expenses............................. 5,731 5,723 5,788 5,776 5,358 5,345
Amortization of trademarks and goodwill........ 625 625 616 616 609 609
Restructuring expense.......................... 730 730 106 106 -- --
------------ --------- ------------ --------- ---------- ---------
OPERATING INCOME.......................... 1,378 1,386 2,898 2,910 2,934 2,947
Interest expense (Notes 8 and 10)................ (1,190) (1,167) (1,429) (1,340) (2,113) (2,030)
Amortization of debt issuance costs.............. (19) (19) (20) (19) (104) (110)
Other income (expense), net (Note 1)............. (58) (88) 7 (75) (69) (157)
------------ --------- ------------ --------- ---------- ---------
Income before income taxes................ 111 112 1,456 1,476 648 650
Provision for income taxes (Note 3).............. 114 116 680 693 280 301
------------ --------- ------------ --------- ---------- ---------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM... (3) (4) 776 783 368 349
Extraordinary item--loss on early extinguishments
of debt, net of income taxes (Note 4).......... (142) (135) (477) (464) -- --
------------ --------- ------------ --------- ---------- ---------
NET INCOME (LOSS)......................... (145) (139) 299 319 368 349
Less preferred stock dividends................... 68 -- 31 -- 173 --
------------ --------- ------------ --------- ---------- ---------
Net income (loss) applicable to common
stock................................. (213) (139) 268 319 195 349
Retained earnings (accumulated deficit) at
beginning of period............................ (738) (320) (1,037) (639) (1,405) (988)
Add preferred stock dividends charged to paid-in
capital........................................ 68 -- 31 -- 173 --
------------ --------- ------------ --------- ---------- ---------
RETAINED EARNINGS (ACCUMULATED DEFICIT) AT END OF
PERIOD (NOTE 13)............................... $ (883) $ (459) $ (738) $ (320) $ (1,037) $ (639)
------------ --------- ------------ --------- ---------- ---------
------------ --------- ------------ --------- ---------- ---------
Net income (loss) per common and common
equivalent share:
Income (loss) before extraordinary item........ $ (.05) -- $ 0.55 -- $ 0.22 --
Extraordinary item............................. (.10) -- (0.35) -- -- --
------------ --------- ------------ --------- ---------- ---------
Net income (loss)......................... $ (.15) -- $ 0.20 -- $ 0.22 --
------------ --------- ------------ --------- ---------- ---------
------------ --------- ------------ --------- ---------- ---------
Dividends per share of Series A Preferred Stock
(Note 12)...................................... $ 3.34 -- $ 3.34 -- $ 0.49 --
Average number of common and common equivalent
shares outstanding (in thousands)(Note 2)...... 1,349,196 -- 1,363,549 -- 887,622 --
------------ --------- ------------ --------- ---------- ---------
------------ --------- ------------ --------- ---------- ---------
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN MILLIONS)
<TABLE><CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1993 1992 1991
-------------------- -------------------- --------------------
HOLDINGS RJRN HOLDINGS RJRN HOLDINGS RJRN
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
NET CASH FLOWS FROM OPERATING ACTIVITIES (NOTE 5).. $ 1,769 $ 1,604 $ 2,307 $ 2,455 $ 1,971 $ 1,981
--------- --------- --------- --------- --------- ---------
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES:
Capital expenditures............................. (615) (615) (519) (519) (459) (459)
Proceeds from dispositions of businesses......... 450 450 -- -- 98 98
Acquisition of businesses........................ (128) (128) (385) (385) -- --
Other, net....................................... 32 32 11 11 20 20
--------- --------- --------- --------- --------- ---------
Net cash flows from (used in) investing
activities................................... (261) (261) (893) (893) (341) (341)
--------- --------- --------- --------- --------- ---------
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt......... 25,747 25,747 19,179 19,179 7,079 7,079
Repayments of long-term debt..................... (28,031) (27,483) (20,622) (20,371) (11,597) (11,597)
Increase (decrease) in notes payable............. (24) (24) (25) (25) 46 46
Proceeds from issuance of common stock and
exercise of warrants........................... 9 -- 1 -- 1,300 --
Proceeds from issuance of Series A Preferred
Stock.......................................... -- -- -- -- 2,126 --
Proceeds from issuance of Series B Preferred
Stock.......................................... 1,250 -- -- -- -- --
Financing and advisory fees paid................. (48) (9) (35) (33) (227) (81)
Capital contributions from/issuance of common
stock to parent................................ -- 1,214 -- -- -- 3,454
Dividends paid to parent......................... -- (48) -- (278) -- --
Preferred stock dividends paid................... (241) -- (214) -- (205) --
Repurchase of Preferred Stock.................... (105) -- -- -- -- --
Repurchases and cancellations of common stock,
stock options and warrants..................... (1) -- (89) -- (4) --
Other, net--including intercompany transfers..... 62 (621) 62 (363) (12) (191)
--------- --------- --------- --------- --------- ---------
Net cash flows from (used in) financing
activities................................... (1,382) (1,224) (1,743) (1,891) (1,494) (1,290)
--------- --------- --------- --------- --------- ---------
Effect of exchange rate changes on cash and cash
equivalents.................................. (10) (10) (6) (6) (25) (25)
--------- --------- --------- --------- --------- ---------
Net change in cash and cash equivalents........ 116 109 (335) (335) 111 325
Cash and cash equivalents at beginning of period... 99 96 434 431 323 106
--------- --------- --------- --------- --------- ---------
Cash and cash equivalents at end of period......... $ 215 $ 205 $ 99 $ 96 $ 434 $ 431
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN MILLIONS)
<TABLE><CAPTION>
DECEMBER 31, DECEMBER 31,
1993 1992
-------------------- --------------------
HOLDINGS RJRN HOLDINGS RJRN
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents (Note 5)....................................... $ 215 $ 205 $ 99 $ 96
Accounts and notes receivable, net (Notes 1 and 5)....................... 856 847 1,356 1,333
Inventories (Note 6)..................................................... 2,700 2,700 2,776 2,776
Prepaid expenses and excise taxes........................................ 374 374 345 345
--------- --------- --------- ---------
TOTAL CURRENT ASSETS................................................ 4,145 4,126 4,576 4,550
--------- --------- --------- ---------
Property, plant and equipment--at cost..................................... 7,166 7,166 6,515 6,515
Less accumulated depreciation.............................................. (1,998) (1,998) (1,657) (1,657)
--------- --------- --------- ---------
Net property, plant and equipment (Note 7)............................... 5,168 5,168 4,858 4,858
--------- --------- --------- ---------
Trademarks, net of accumulated amortization of $1,223 and $972,
respectively............................................................. 8,727 8,727 8,959 8,959
Goodwill, net of accumulated amortization of $1,767 and $1,395,
respectively............................................................. 12,851 12,851 13,062 13,062
Other assets and deferred charges.......................................... 404 400 586 581
--------- --------- --------- ---------
$ 31,295 $ 31,272 $ 32,041 $ 32,010
--------- --------- --------- ---------
--------- --------- --------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable (Note 8)................................................... $ 301 $ 301 $ 298 $ 298
Accounts payable......................................................... 515 515 401 401
Accrued liabilities (Note 9)............................................. 2,751 2,705 2,468 2,425
Current maturities of long-term debt (Note 10)........................... 142 142 379 351
Income taxes accrued (Note 3)............................................ 234 234 300 300
--------- --------- --------- ---------
TOTAL CURRENT LIABILITIES........................................... 3,943 3,897 3,846 3,775
--------- --------- --------- ---------
Long-term debt (less current maturities) (Note 10)......................... 12,005 12,005 13,541 13,054
Other noncurrent liabilities............................................... 2,503 2,353 2,203 2,859
Deferred income taxes (Note 3)............................................. 3,774 3,701 4,075 3,978
Commitments and contingencies (Note 11)....................................
Stockholders' equity (Notes 12, 13 and 17):
Redeemable convertible preferred stock--4,032,968 shares issued and
outstanding at December 31, 1992....................................... -- -- 101 --
ESOP convertible preferred stock--15,573,973 and 15,625,000 shares issued
and outstanding at December 31, 1993 and 1992, respectively........... 249 -- 250 --
Series A convertible preferred stock--52,500,000 shares issued and
outstanding at December 31, 1993 and 1992.............................. 2 -- 2 --
Series B preferred stock--50,000 shares issued and outstanding at
December 31, 1993...................................................... 1,250 -- -- --
Common stock--1,138,011,292 and 1,134,648,542 shares issued and
outstanding at December 31, 1993 and 1992, respectively............... 11 -- 11 --
Paid-in capital.......................................................... 8,778 9,877 9,048 8,711
Cumulative translation adjustments....................................... (102) (102) (47) (47)
Retained earnings (accumulated deficit).................................. (883) (459) (738) (320)
Receivable from ESOP..................................................... (211) -- (227) --
Loans receivable from employees.......................................... (18) -- (24) --
Unamortized value of restricted stock.................................... (6) -- -- --
--------- --------- --------- ---------
TOTAL STOCKHOLDERS' EQUITY.......................................... 9,070 9,316 8,376 8,344
--------- --------- --------- ---------
$ 31,295 $ 31,272 $ 32,041 $ 32,010
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--OPERATIONS
Net sales and cost of products sold exclude excise taxes of $3.757 billion,
$3.560 billion and $3.715 billion for 1993, 1992 and 1991, respectively.
Operating income in the fourth quarter of 1993 was reduced by a $730
million restructuring expense for a program initiated at the domestic tobacco
operations ($355 million), the international tobacco operations ($189 million),
the food operations ($153 million) and Headquarters ($33 million). Such
restructuring program was undertaken in response to a changing consumer product
business environment and is expected to streamline operations and improve
profitability. Implementation of the program, although begun in the latter part
of 1993, will primarily occur in 1994. Approximately 75% of the restructuring
program will require cash outlays which will occur primarily in 1994 and early
1995. As an offset to the cash outlays, Holdings expects annual after-tax cash
savings of approximately $250 million.
The cost of providing severance pay and benefits for the reduction of
approximately 6,000 employees throughout the domestic and international food and
tobacco businesses is approximately $400 million of the charge and is primarily
a cash expense. The workforce reduction was undertaken in order to establish
fundamental changes to the cost structure of the domestic tobacco business in
the face of acute competitive activity in that business and to take advantage of
cost savings opportunities in other businesses through process efficiency
improvements. Legislation enacted during the third quarter of 1993 stipulates
that, effective January 1, 1994, financial penalties will be assessed against
manufacturers if cigarettes produced in the United States do not contain at
least 75% (by weight) of domestically grown flue cured and burly tobaccos. As a
result, the domestic and international tobacco businesses accrued approximately
$70 million of related restructuring charges resulting from a reassessment of
raw material sourcing and production arrangements. In addition, a shift in
pricing strategy designed to gain share of market by RJRT's largest competitor
has resulted in a redeployment of spending and changes in sales and
distribution strategies resulting in a restructuring charge of approximately
$80 million primarily related to contract termination costs. Abandonment of
leases related to the above changes in the businesses results in approximately
$60 million of restructuring charges. The remainder of the charge, approximately
$120 million, represents non-cash costs to rationalize and close manufacturing
and sales facilities in both the tobacco and food businesses to facilitate cost
improvements.
During the fourth quarter of 1992, operating income was reduced by a net
charge of $8 million as a result of a $106 million restructuring expense
recorded at the tobacco operations ($43 million) and the food operations ($63
million), partially offset by a $98 million gain recognized from the sale of
Holdings' ready-to-eat cold cereal business for $456 million in cash, prior to
post-closing adjustments. The restructuring expense was incurred in connection
with a restructuring plan at the tobacco operations, the purpose of which was to
improve productivity by realigning operations in the sales, manufacturing,
research and development, and administrative areas and a restructuring plan at
the food operations, the purpose of which was to reduce costs and improve
productivity by realigning sales operations and implementing a previously
announced voluntary separation program. The receivable established at December
31, 1992 for the sale of the ready-to-eat cold cereal business was collected on
January 4, 1993, except for certain escrow amounts which were subsequently
collected.
During the fourth quarter of 1991, net income was reduced by $28 million of
net charges included in "Other income (expense), net" as a result of the
write-off of $109 million of unamortized debt issuance costs and the recognition
of $144 million of unrealized losses from interest rate hedges related
F-6
<PAGE>
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 1--OPERATIONS--(CONTINUED)
to the refinancing of the bank credit agreement of RJR Nabisco Capital Corp.
("Capital") dated as of January 31, 1989 (as amended, the "1989 Credit
Agreement") and the repayment of the $2.25 billion bank credit facility (as
amended, the "1990 Credit Agreement"), partially offset by a $225 million credit
for a change in estimated postretirement health care liabilities.
NOTE 2--EARNINGS PER SHARE
Earnings per share is based on the weighted average number of shares of
common stock and Series A Depositary Shares (hereinafter defined) outstanding
during the period and common stock assumed to be outstanding to reflect the
effect of dilutive warrants and options. Holdings' other potentially dilutive
securities are not included in the earnings per share calculation because the
effect of excluding interest and dividends on such securities for the period
would exceed the earnings allocable to the common stock into which such
securities would be converted. Accordingly, Holdings' earnings per share and
fully diluted earnings per share are the same.
NOTE 3--INCOME TAXES
The provision for income taxes consisted of the following:
<TABLE><CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1993 1992 1991
------------------------ ------------------------ ------------------------
HOLDINGS RJRN HOLDINGS RJRN HOLDINGS RJRN
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Current:
Federal.......................................... $ 295 $ 366 $ 165 $ 115 $ 53 $ 20
Foreign and other................................ 169 169 216 216 206 202
----------- ----------- ----------- ----------- ----------- -----------
464 535 381 331 259 222
----------- ----------- ----------- ----------- ----------- -----------
Deferred:
Federal.......................................... (298) (367) 300 363 17 75
Foreign and other................................ (52) (52) (1) (1) 4 4
----------- ----------- ----------- ----------- ----------- -----------
(350) (419) 299 362 21 79
----------- ----------- ----------- ----------- ----------- -----------
Provision for income taxes......................... $ 114 $ 116 $ 680 $ 693 $ 280 $ 301
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
</TABLE>
F-7
<PAGE>
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 3--INCOME TAXES--(CONTINUED)
The components of the deferred income tax liability disclosed on the
Consolidated Balance Sheet at December 31, 1993 included the following:
<TABLE><CAPTION>
DECEMBER 31, 1993
----------------------
HOLDINGS RJRN
----------- ---------
<S> <C> <C>
Deferred tax assets:
Pension liabilities.............................................................. $ (123) $ (123)
Other postretirement liabilities................................................. (342) (342)
Restructure and other accrued liabilities........................................ (325) (325)
----------- ---------
Total deferred tax assets................................................ (790) (790)
----------- ---------
Deferred tax liabilities:
Property and equipment........................................................... 1,154 1,154
Trademarks....................................................................... 2,913 2,913
Other............................................................................ 465 392
----------- ---------
Total deferred tax liabilities........................................... 4,532 4,459
----------- ---------
Net deferred tax liabilities before valuation allowance............... 3,742 3,669
Valuation allowance.............................................................. 32 32
----------- ---------
Net deferred income taxes........................................................ $ 3,774 $ 3,701
----------- ---------
----------- ---------
</TABLE>
Pre-tax income (loss) before extraordinary item for domestic and foreign
operations is shown in the following table:
<TABLE><CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1993 1992 1991
---------------------- ---------------------- ----------------------
HOLDINGS RJRN HOLDINGS RJRN HOLDINGS RJRN
----------- --------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Domestic (includes U.S. exports)................... $ (169) $ (168) $ 1,052 $ 1,072 $ 285 $ 287
Foreign............................................ 280 280 404 404 363 363
----------- --------- ----------- --------- ----------- ---------
Pre-tax income..................................... $ 111 $ 112 $ 1,456 $ 1,476 $ 648 $ 650
----------- --------- ----------- --------- ----------- ---------
----------- --------- ----------- --------- ----------- ---------
</TABLE>
F-8
<PAGE>
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 3--INCOME TAXES--(CONTINUED)
The differences between the provision for income taxes and income taxes
computed at statutory U.S. federal income tax rates are explained as follows:
<TABLE><CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1993 1992 1991
---------------------- ---------------------- ----------------------
HOLDINGS RJRN HOLDINGS RJRN HOLDINGS RJRN
----------- --------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Income taxes computed at statutory
U.S. federal income tax rates...... $ 39 $ 39 $ 495 $ 502 $ 220 $ 221
State taxes, net of federal ben-
efit............................... 23 23 54 54 60 57
Goodwill amortization................ 125 125 122 122 121 121
March 1991 Exchange Offer............ -- -- -- -- (104) (104)
Asset sale........................... -- -- 33 33 -- --
Federal rate change impact on
deferred income taxes.............. 86 86 -- -- -- --
Change in estimate of the basis of
certain deferred tax amounts....... (108) (108) -- -- -- --
Taxes on foreign operations at rates
different than statutory U.S.
federal rate....................... (14) (14) 15 15 7 7
FSC income exclusion................. (14) (14) (10) (10) (5) (5)
Other items, net..................... (23) (21) (29) (23) (19) 4
----------- --------- ----------- --------- ----------- ---------
Provision for income taxes........... $ 114 $ 116 $ 680 $ 693 $ 280 $ 301
----------- --------- ----------- --------- ----------- ---------
----------- --------- ----------- --------- ----------- ---------
Effective tax rate................... 102.7% 103.8% 46.7% 47.0% 43.2% 46.3%
----------- --------- ----------- --------- ----------- ---------
----------- --------- ----------- --------- ----------- ---------
</TABLE>
At December 31, 1993, there was $1.242 billion of accumulated and
undistributed income of foreign subsidiaries. These earnings are intended by
management to be reinvested abroad indefinitely. Accordingly, no applicable U.S.
federal deferred income taxes or foreign withholding taxes have been provided
nor is a determination of the amount of unrecognized U.S. federal deferred
income taxes practicable.
At December 31, 1993, Holdings had cumulative minimum tax credit
carryforwards for U.S. federal tax purposes of $64 million.
Effective January 1, 1993, Holdings and RJRN adopted SFAS No. 109. SFAS No.
109 superseded Statement of Financial Accounting Standards No. 96, the method of
accounting for income taxes previously followed by the Registrants. The adoption
of SFAS No. 109 did not have a material impact on the financial statements of
either Holdings or RJRN.
Holdings' provision for income taxes for 1993 was increased by $96 million
as a result of the enactment of certain federal tax legislation during the third
quarter of 1993 which increased federal corporate income tax rates to 35% from
34%, retroactively to January 1, 1993. The components of this
F-9
<PAGE>
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 3--INCOME TAXES--(CONTINUED)
increase to Holdings' provision for income taxes included an $86 million
non-cash charge resulting primarily from the remeasurement of the balance of
deferred federal income taxes at the date of enactment of the new federal tax
legislation for the change in the income tax rates, and a $10 million charge
resulting from the increase in current federal income taxes accrued for the
change in the income tax rates and other effects of the new tax legislation.
Also during 1993, Holdings' provision for income taxes was decreased by a $108
million credit resulting from a remeasurement of the balance of deferred income
taxes for a change in estimate of the basis of certain deferred tax amounts
relating primarily to international operations.
During 1993, $101 million of previously recognized deferred income tax benefits
for operating loss carryforwards ($36 million), minimum tax credit carryforwards
($44 million) and other carryforward items ($21 million) were realized for U.S.
federal tax purposes.
NOTE 4--EXTRAORDINARY ITEM
The extinguishments of debt of Holdings and RJRN resulted in the following
extraordinary losses:
<TABLE><CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1993 1992
---------------------- ----------------------
HOLDINGS RJRN HOLDINGS RJRN
----------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Cash paid in excess of net carrying amount (book value) of debentures
extinguished........................................................... $ (206) $ (196) $ (636) $ (616)
Write-off of debt issuance costs......................................... (12) (12) (40) (40)
----------- --------- ----------- ---------
Extraordinary item--loss on early extinguishments of debt before income
taxes.................................................................. (218) (208) (676) (656)
Benefit for income taxes................................................. 76 73 199 192
----------- --------- ----------- ---------
Extraordinary item--loss on early extinguishments of debt, net of income
taxes.................................................................. $ (142) $ (135) $ (477) $ (464)
----------- --------- ----------- ---------
----------- --------- ----------- ---------
</TABLE>
F-10
<PAGE>
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 5--SUPPLEMENTAL CASH FLOWS INFORMATION
A reconciliation of net income (loss) to net cash flows from operating
activities follows:
<TABLE><CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1993 1992 1991
---------------------- ---------------------- ----------------------
HOLDINGS RJRN HOLDINGS RJRN HOLDINGS RJRN
----------- --------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES:
Net income (loss)............................... $ (145) $ (139) $ 299 $ 319 $ 368 $ 349
----------- --------- ----------- --------- ----------- ---------
Adjustments to reconcile net income (loss) to
net cash flows from operating activities:
Depreciation of property, plant and
equipment.................................... 448 448 455 455 441 441
Amortization (principally intangibles)....... 701 701 691 691 683 683
Deferred income tax provision (benefit)...... (350) (419) 299 362 21 79
Non-cash interest expense.................... 276 254 434 356 787 703
Amortization of debt issuance costs.......... 19 19 20 19 104 110
Extraordinary item--loss on early
extinguishments of debt.................... 218 208 676 656 -- --
Gain on sale of ready-to-eat cold cereal
business................................... -- -- (98) (98) -- --
(Increase) decrease in accounts and notes
receivable................................. 75 84 (180) (180) (161) (139)
(Increase) decrease in inventories........... 80 80 (102) (102) (23) (23)
(Increase) decrease in prepaid expenses and
excise taxes............................... (37) (37) (53) (53) 5 5
(Increase) decrease in other assets and
deferred charges........................... (4) 43 (186) (185) 54 57
Increase (decrease) in accounts payable and
accrued liabilities........................ 308 312 70 84 (279) (290)
Increase (decrease) in income taxes
accrued.................................... (53) 54 38 128 (90) (125)
Increase (decrease) in other noncurrent
liabilities................................ 215 24 (110) (96) 10 15
Other, net................................... 18 (28) 54 99 51 116
----------- --------- ----------- --------- ----------- ---------
Total adjustments....................... 1,914 1,743 2,008 2,136 1,603 1,632
----------- --------- ----------- --------- ----------- ---------
Net cash flows from operating activities..... $ 1,769 $ 1,604 $ 2,307 $ 2,455 $ 1,971 $ 1,981
----------- --------- ----------- --------- ----------- ---------
----------- --------- ----------- --------- ----------- ---------
</TABLE>
Cash payments for income taxes and interest were as follows:
<TABLE><CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1993 1992 1991
------------------------ ---------------------- ----------------------
HOLDINGS RJRN HOLDINGS RJRN HOLDINGS RJRN
----------- ----------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Income taxes paid, net of refunds................... $ 408 $ 408 $ 116 $ 116 $ 368 $ 368
Interest paid....................................... $ 912 $ 912 $ 1,102 $ 1,102 $ 1,397 $ 1,397
</TABLE>
F-11
<PAGE>
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 5--SUPPLEMENTAL CASH FLOWS INFORMATION--(CONTINUED)
Cash equivalents at December 31, 1993 and 1992, valued at cost (which
approximates market value), totaled $215 million and $99 million, respectively,
and consisted principally of domestic and Eurodollar time deposits and
certificates of deposit.
At December 31, 1993 and 1992, cash of $62 million and $63 million,
respectively, was held in escrow as collateral for letters of credit issued in
connection with certain foreign currency debt.
On February 7, 1990, RJRN entered into an arrangement in which it agreed to
sell for cash substantially all of its domestic trade accounts receivable
generated during a five-year period to a financial institution. Pursuant to
amendments entered into in 1992, the length of the receivable program was
extended an additional year. The accounts receivable have been and will continue
to be sold with limited recourse at purchase prices reflecting the rate
applicable to the cost to the financial institution of funding its purchases of
accounts receivable and certain administrative costs. During 1993, 1992 and
1991, total proceeds of approximately $8.2 billion, $8.5 billion and $8.7
billion, respectively, were received by RJRN in connection with this
arrangement. At December 31, 1993 and 1992, the accounts receivable balance has
been reduced by approximately $437 million and $352 million, respectively, due
to the receivables sold.
For information regarding certain non-cash financing activities, see Notes
10 and 12 to the Consolidated Financial Statements.
NOTE 6--INVENTORIES
The major classes of inventory are shown in the table below:
<TABLE><CAPTION>
DECEMBER 31, DECEMBER 31,
1993 1992
------------- -------------
<S> <C> <C>
Finished products....................................................... $ 771 $ 730
Leaf tobacco............................................................ 1,458 1,501
Raw materials........................................................... 208 222
Other................................................................... 263 323
------------- -------------
$ 2,700 $ 2,776
------------- -------------
------------- -------------
</TABLE>
At December 31, 1993 and 1992, approximately $1.4 billion of inventory was
valued under the LIFO method. The current cost of LIFO inventories at December
31, 1993 and 1992 was greater than the amount at which these inventories were
carried on the Consolidated Balance Sheets by $284 million and $277 million,
respectively.
For the years ended December 31, 1993, 1992 and 1991, net income was
increased by $6 million, $4 million, and $9 million, respectively, as a result
of LIFO inventory liquidations. The LIFO liquidations resulted from programs to
reduce leaf durations consistent with forecasts of future operating
requirements.
F-12
<PAGE>
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 7--PROPERTY, PLANT AND EQUIPMENT
Components of property, plant and equipment were as follows:
<TABLE><CAPTION>
DECEMBER 31, DECEMBER 31,
1993 1992
------------- -------------
<S> <C> <C>
Land and land improvements.............................................. $ 308 $ 277
Buildings and leasehold improvements.................................... 1,771 1,682
Machinery and equipment................................................. 4,624 4,086
Construction-in-process................................................. 463 470
------------- -------------
7,166 6,515
Less accumulated depreciation........................................... (1,998) (1,657)
------------- -------------
Net property, plant and equipment.................................. $ 5,168 $ 4,858
------------- -------------
------------- -------------
</TABLE>
NOTE 8--NOTES PAYABLE
Notes payable consisted of the following:
<TABLE><CAPTION>
DECEMBER 31, DECEMBER 31,
1993 1992
--------------- ---------------
<S> <C> <C>
Notes payable to foreign banks.......................................... $ 301 $ 280
Foreign commercial paper................................................ -- 18
--------- ---------
$ 301 $ 298
--------- ---------
--------- ---------
</TABLE>
NOTE 9--ACCRUED LIABILITIES
Accrued liabilities consisted of the following:
<TABLE><CAPTION>
DECEMBER 31, DECEMBER 31,
1993 1992
------------- -------------
<S> <C> <C>
Marketing and advertising............................................... $ 643 $ 645
Payroll and employee benefits........................................... 325 291
Excise taxes............................................................ 226 322
Accrued interest........................................................ 260 236
Restructuring........................................................... 377 124
Other................................................................... 920 850
------------- -------------
$ 2,751 $ 2,468
------------- -------------
------------- -------------
</TABLE>
NOTE 10--LONG-TERM DEBT AND INTEREST EXPENSE
Interest expense consisted of the following:
<TABLE><CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1993 1992 1991
------------- ------------- -------------
<S> <C> <C> <C>
Cash interest................................................. $ 914 $ 995 $ 1,326
Non-cash interest............................................. 276 434 787
------------- ------------- -------------
$ 1,190 $ 1,429 $ 2,113
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
F-13
<PAGE>
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 10--LONG-TERM DEBT AND INTEREST EXPENSE--(CONTINUED)
Long-term debt consisted of the following:
<TABLE><CAPTION>
DECEMBER 31, 1993 DECEMBER 31, 1992
------------------------ ----------------------
DUE DUE DUE DUE
WITHIN AFTER WITHIN AFTER
ONE YEAR ONE YEAR(1) ONE YEAR ONE YEAR
----------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
RJRN Debt:
7 3/8-9 3/8% Debentures with annual sinking fund payments through
2017 (net of $160 million and $162 million of such debentures
held by RJRN on December 31, 1993 and 1992, respectively, for
future sinking fund requirements, and $137 million of such
debentures held by Holdings on December 31, 1992)............... $ -- $ 1,464 $ 216 $ 1,572
5.09-10.5% Notes, due 1995 through 2013............................ -- 6,631 100 4,655
5.375-10%, Foreign Currency Debt, due 1994 to 2001................. 123 472 -- 605
1991 Credit Agreement, variable interest (varies with prime rate
and LIBOR--weighted average interest rate of 3.94% at December
31, 1993), due December 31, 1996(2)............................. -- 328 -- 2,831
Commercial paper(3)................................................ -- 913 -- 571
Other indebtedness................................................. 19 247 35 239
Subordinated Debentures:
15% Subordinated Debentures, net of discount of $18 million and $27
million at December 31, 1993 and 1992, respectively, effective
interest rate of 15.88%, interest payable-in-kind or cash, at
the option of RJRN, until May 15, 1994, cash payment thereafter,
sinking fund requirements beginning 1999, due 2001.............. -- 280 -- 423
Subordinated Discount Debentures, net of discount of $133 million
and $495 million at December 31, 1993 and 1992, respectively,
effective interest rate of 15.88%, interest payable-in-kind
until May 15, 1994, cash payment thereafter, sinking fund
requirements beginning 1999, due 2001........................... -- 1,393 -- 1,799
Other Subordinated Debentures, fixed rate of 13 1/2%, due 2001..... -- 277 -- 359
----------- ----------- ----------- ---------
RJRN(4)....................................................... 142 12,005 351 13,054
</TABLE>
F-14
<PAGE>
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 10--LONG-TERM DEBT AND INTEREST EXPENSE--(CONTINUED)
<TABLE><CAPTION>
DECEMBER 31, 1993 DECEMBER 31, 1992
------------------------ ----------------------
DUE DUE DUE DUE
WITHIN AFTER WITHIN AFTER
ONE YEAR ONE YEAR(1) ONE YEAR ONE YEAR
----------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Holdings Debt:
Converting Debentures, fixed rate of 17 3/8%, interest
payable-in-kind or cash at Holdings' option through May 1, 1999,
cash payment thereafter, convertible into Holdings' Common Stock
on April 30, 1993, otherwise due 2009........................... -- -- -- 413
11.68% ESOP participation.......................................... -- -- 28 74
----------- ----------- ----------- ---------
Holdings...................................................... $ 142 $ 12,005 $ 379 $ 13,541
----------- ----------- ----------- ---------
----------- ----------- ----------- ---------
</TABLE>
- ---------------
(1) The payment of debt through December 31, 1998 is due as follows (in
millions): 1995--$617; 1996--$465; 1997--$70 and 1998--$1,714.
(2) RJRN maintains a revolving credit facility of $6.5 billion of which $6.2
billion was unused at December 31, 1993. At December 31, 1993, availability
of the unused portion is reduced by $456 million for the extension of
irrevocable letters of credit which support the principal and interest on
certain existing foreign debt of RJRN and its subsidiaries. A commitment fee
of 1/4% per annum is payable on the unused portion of the facility.
(3) RJRN maintains a back-up line of credit to support commercial paper
issuances of up to $1 billion. Commercial paper outstanding in excess of $1
billion is supported by the 1991 Credit Agreement.
(4) As a result of RJRN's management of its interest rate exposure through
swaps, options, caps, and other interest rate arrangements, the effective
interest rate on certain debt may differ from that disclosed in the table.
------------------------
During 1991, Holdings entered into the following refinancing transactions:
(i) the repayment on March 11, 1991 of the aggregate principal amount
outstanding of a subordinated promissory note held by a limited partnership
affiliated with Kohlberg Kravis Roberts & Co., L.P. ("KKR") plus accrued and
unpaid interest thereon for a total of approximately $468 million in cash from
borrowings under the revolving credit portion of the 1989 Credit Agreement, (ii)
the issuance by Capital on April 25, 1991 of $1.5 billion principal amount of 10
1/2% Senior Notes due 1998 (the "10 1/2% Senior Notes") (the "Senior Note
Offering") and the repayment of a portion of the amount outstanding under the
1990 Credit Agreement with a portion of the net proceeds from the Senior Note
Offering equal to approximately $731 million in cash, (iii) the redemption on
June 3, 1991 of 100% of the aggregate principal amount of all outstanding
Subordinated Exchange Debentures Due 2007 of RJR Nabisco Holdings Group, Inc.
("Group") equal to approximately $1.86 billion plus accrued and unpaid interest
thereon to the redemption date with (a) an additional portion of the net
proceeds from the Senior Note Offering and (b) the entire net proceeds from the
issuance by Holdings on April 18, 1991 of 115,000,000 shares of common stock of
Holdings, par value $.01 per share (the "Common Stock") at $11.25 per share,
(iv) open market purchases of certain of Capital's debentures totalling
approximately $128 million with the remaining net proceeds from the Senior Note
Offering, (v) the exchange by Holdings of 3.8 shares of Common Stock for each of
the 67,997,769 shares of Cumulative Convertible Preferred Stock (the "Preferred
Stock") exchanged pursuant to an exchange offer commenced on November 7, 1991
and completed on December 7, 1991, (vi) the issuance by Holdings on November 8,
1991 of 52,500,000 shares of Series A Conversion Preferred Stock, par value .01
per share ("Series A Preferred Stock") of Holdings and the sale of 210,000,000
$.835 depositary shares ("Series A Depositary
F-15
<PAGE>
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 10--LONG-TERM DEBT AND INTEREST EXPENSE--(CONTINUED)
Shares") at $10.125 per Series A Depositary Share in connection with such
issuance (the "Series A Preferred Stock Offering"), (vii) the repayment of the
aggregate amount outstanding under the 1990 Credit Agreement, the repayment of a
portion of the amount outstanding under the 1989 Credit Agreement and the
redemption of certain notes of RJRN with the net proceeds from the Series A
Preferred Stock Offering equal to approximately $2.1 billion and (viii) the
repayment by Capital on December 19, 1991 of the aggregate amount outstanding
under the working capital facility, revolving credit facility and term loan
portions of the 1989 Credit Agreement with approximately $3.3 billion in cash
from borrowings under a $6.5 billion bank credit facility (as amended, the "1991
Credit Agreement").
On May 15, 1992, Capital merged with and into its wholly-owned subsidiary,
RJRN. As a result of the merger, Group became the direct parent of RJRN and RJRN
assumed all of the obligations of Capital under the 1991 Credit Agreement and
with respect to the following debt securities: Subordinated Discount Debentures
due May 15, 2001 (the "Subordinated Discount Debentures"); 15% Payment-in-Kind
Subordinated Debentures due May 15, 2001 (the "15% Subordinated Debentures"); 13
1/2% Subordinated Debentures due May 15, 2001 (the "13 1/2% Subordinated
Debentures" and, collectively with the Subordinated Discount Debentures and the
15% Subordinated Debentures, the "Subordinated Debentures"); 10 1/2% Senior
Notes; 8.30% Senior Notes due April 15, 1999 (the "8.30% Senior Notes"); and
8.75% Senior Notes due April 15, 2004 (the "8.75% Senior Notes" and,
collectively with the 8.30% Senior Notes, the "1992 Senior Notes"). Prior to
this merger, RJRN had guaranteed all of Capital's obligations with respect to
such indebtedness, and the financial statements of RJRN had reflected such
indebtedness and all debt related costs.
On December 17, 1992, Group merged with and into its wholly-owned
subsidiary, RJRN.
Also during 1992, Holdings entered into the following refinancing
transactions: (i) the redemption on February 15, 1992 of $250 million principal
amount of Capital's Subordinated Floating Rate Notes due 1999 (the "Subordinated
Floating Rate Notes") at a price of $1,005 for each $1,000 principal amount of
Subordinated Floating Rate Notes plus accrued and unpaid interest thereon, (ii)
the early extinguishments by Capital of approximately $1 billion aggregate
principal amount of certain of Capital's subordinated debentures in a privately
negotiated transaction (the "1992 Capital Debenture Repurchase") for
approximately $995 million in cash, consisting of $165 million aggregate
principal amount of its 15% Subordinated Debentures, $85 million aggregate
principal amount of its 13 1/2% Subordinated Debentures and $750 million
aggregate principal amount (approximately $550 million accreted amount) of its
Subordinated Discount Debentures, (iii) the issuance by Capital on April 9, 1992
of $600 million principal amount of 8.30% Senior Notes and $600 million
principal amount of 8.75% Senior Notes and the application of substantially all
of the net proceeds from the issuance of the 1992 Senior Notes to repay a
portion of the funds temporarily drawn under the 1991 Credit Agreement for the
redemption of the Subordinated Floating Rate Notes and for the 1992 Capital
Debenture Repurchase, (iv) the retirement on May 15, 1992 of $225 million
aggregate principal amount of Capital's Subordinated Extendible Reset Debentures
due May 15, 1991 (the "Subordinated Reset Debentures") at a price of $1,010 for
each $1,000 principal amount of Subordinated Reset Debentures plus accrued and
unpaid interest thereon with the remaining proceeds available from the 1992
Senior Notes plus temporary borrowings under the 1991 Credit Agreement, which
were repaid with proceeds of medium-term notes and (v) the additional
repurchases during 1992 for approximately $1.822 billion in cash of certain of
RJRN's subordinated debentures consisting of $690 million aggregate principal
amount of its 15% Subordinated Debentures, $81 million aggregate principal
amount of its 13 1/2%
F-16
<PAGE>
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 10--LONG-TERM DEBT AND INTEREST EXPENSE--(CONTINUED)
Subordinated Debentures and $941 million aggregate principal amount
(approximately $728 million accreted amount) of its Subordinated Discount
Debentures. The principal or accreted amount of the debentures in item (v) was
refinanced with proceeds of debt securities maturing in the years 1999-2004. The
purchase of most of such amount had been temporarily funded with borrowings
under the 1991 Credit Agreement. Also during 1992, Holdings repurchased $126
million aggregate principal amount (approximately $209 million including accrued
interest) of its Senior Converting Debentures due 2009 (the "Converting
Debentures") for $229 million in cash, and RJRN repurchased $229 million
aggregate principal amount of various other debentures for $240 million in cash.
The funds for the repurchase of Converting Debentures and various other
debentures of RJRN and for a portion of the purchase price of the Subordinated
Debentures in item (v) were provided from the issuance of medium-term notes
maturing in the years 1995-1997, borrowings under the 1991 Credit Agreement and
cash flow from operations.
During 1993, RJRN repurchased for approximately $1.0 billion in cash
certain of its subordinated debentures consisting of $153 million aggregate
principal amount of its 15% Subordinated Debentures, $82 million aggregate
principal amount of its 13 1/2% Subordinated Debentures and $768 million
aggregate principal amount (approximately $671 million accreted amount) of its
Subordinated Discount Debentures. The principal or accreted amounts of such
debentures was refinanced from proceeds of debt securities maturing after 1998,
including debt securities issued during 1993. The purchase of most of such
amount had been temporarily funded with borrowings under the 1991 Credit
Agreement.
The remaining portion of the ESOP participation was repurchased on January
15, 1993 for cash, plus accrued and unpaid interest thereon.
Holdings redeemed on May 1, 1993, 100% of the aggregate principal amount of
its outstanding Converting Debentures at a price of $1,000 for each $1,000
principal amount of Converting Debentures, plus accrued and unpaid interest
thereon, for the period from February 9, 1989 through April 30, 1993, of $937.54
for each $1,000 principal amount of Converting Debentures.
During 1993, RJRN issued $750 million principal amount of 8% Notes due
2000, $500 million principal amount of 8 3/4% Notes due 2005 and $500 million
principal amount of 9 1/4% Debentures due 2013. Also during 1993, RJRN issued
medium-term notes maturing in the years 1995-1998 having an aggregate initial
offering price of approximately $230 million. The net proceeds from the sale of
debt securities and the Series B Preferred Stock Offering (as hereinafter
defined) have been or will be used for general corporate purposes, which include
refinancings of indebtedness, working capital, capital expenditures,
acquisitions and repurchases and redemptions of securities. Pending such uses,
proceeds may be used to repay indebtedness under RJRN's revolving credit
facilities or for short-term liquid investments.
A portion of the net proceeds collected from the sale of Holdings'
ready-to-eat cold cereal business was used on February 5, 1993 to redeem $216
million principal amount of RJRN's 9 3/8% Sinking Fund Debentures due 2016 (the
"9 3/8% Debenture") at a price of $1,065.63 for each $1,000 principal amount of
9 3/8% Debentures, plus accrued and unpaid interest thereon.
On April 5, 1993, the Registrants entered into a credit agreement (as
amended, the "1993 Credit Agreement" and together with the 1991 Credit
Agreement, the "Credit Agreements"), which matures on April 4, 1994 and provides
a back-up line of credit to support commercial paper issuances of up to $1
billion. Availability thereunder is reduced by an amount equal to the aggregate
amount of commercial
F-17
<PAGE>
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 10--LONG-TERM DEBT AND INTEREST EXPENSE--(CONTINUED)
paper outstanding. At December 31, 1993, approximately $913 million of
commercial paper was outstanding. Accordingly, $87 million was available under
the 1993 Credit Agreement at December 31, 1993. Holdings and RJRN expect to
obtain bank consent to extend the maturity date of the 1993 Credit Agreement for
an additional 364 days.
Based on RJRN's intention and ability to continue to refinance, for more
than one year, the amount of its commercial paper borrowings outstanding either
in the commercial paper market or with additional borrowings under the 1991
Credit Agreement, the commercial paper borrowings have been included under
"Long-term debt".
As permitted by the governing indenture, RJRN intends to pay in cash the
May 15, 1994 interest payment due on its 15% Subordinated Debentures.
Accordingly, the interest accrued thereon as of December 31, 1993 has been
included in "Accrued liabilities".
Certain financing agreements to which Holdings is a party and debt
instruments of RJRN directly or indirectly restrict the payment of dividends by
Holdings. The Credit Agreements, which contain restrictions on the payment of
cash dividends or other distributions by Holdings in excess of certain specified
amounts, and the indentures relating to certain of RJRN's debt securities, which
contain restrictions on the payment of cash dividends or other distributions by
RJRN to Holdings in excess of certain specified amounts, or for certain
specified purposes, effectively limit the payment of dividends on the Common
Stock. In addition, the declaration and payment of dividends is subject to the
discretion of the board of directors of Holdings and to certain limitations
under Delaware law. The Credit Agreements and the indentures under which certain
debt securities of RJRN have been issued also impose certain operating and
financial restrictions on Holdings and its subsidiaries. These restrictions
limit the ability of Holdings and its subsidiaries to incur indebtedness, engage
in transactions with stockholders and affiliates, create liens, sell certain
assets and certain subsidiaries' stock, engage in certain mergers or
consolidations and make investments in unrestricted subsidiaries.
The estimated fair value of Holdings' consolidated long-term debt as of
December 31, 1993 and 1992 was approximately $12.4 billion and $14.9 billion,
respectively, based on available market quotes, discounted cash flows and book
values, as appropriate. The estimated fair value exceeded the carrying amount of
Holdings' long-term debt by approximately $400 million and $1.1 billion at
December 31, 1993 and 1992, respectively, as a result of the general decline in
market interest rates compared with the higher interest cost on certain of
Holdings' debt obligations. Considerable judgment was required in interpreting
market data to develop the estimates of fair value. In addition, the use of
different market assumptions and/or estimation methodologies may have had a
material effect on the estimated fair value amounts. Accordingly, the estimated
fair value of Holdings' consolidated long-term debt as of December 31, 1993 and
1992 is not necessarily indicative of the amounts that Holdings could realize in
a current market exchange.
NOTE 11--COMMITMENTS AND CONTINGENCIES
Various legal actions, proceedings and claims are pending or may be
instituted against R. J. Reynolds Tobacco Company ("RJRT") or its affiliates or
indemnities, including those claiming that lung cancer and other diseases have
resulted from the use of or exposure to RJRT's tobacco products. During 1993, 16
new actions were filed or served against RJRT and/or its affiliates or
indemnities and 18 such actions were dismissed or otherwise resolved in favor of
RJRT and/or its
F-18
<PAGE>
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 11--COMMITMENTS AND CONTINGENCIES--(CONTINUED)
affiliates or indemnities. A total of 35 such actions in the United States, one
in Puerto Rico and one against RJRT's Canadian subsidiary were pending on
December 31, 1993. As of February 7, 1994, 35 active cases were pending against
RJRT and/or its affiliates or indemnities, 33 in the United States, one in
Puerto Rico and one in Canada. Four of the 33 active cases in the United States
involve alleged non-smokers claiming injuries resulting from exposure to
environmental tobacco smoke. One of such cases is currently scheduled for trial
on September 5, 1994 and if tried, will be the first such case to reach trial.
One of the active cases is alleged to be a class action on behalf of a purported
class of 60,000 individuals.
The plaintiffs in these actions seek recovery on a variety of legal
theories, including strict liability in tort, design defect, negligence, breach
of warranty, failure to warn, fraud, misrepresentation and conspiracy. Punitive
damages, often in amounts totalling many millions of dollars, are specifically
pleaded in 20 cases in addition to compensatory and other damages. The defenses
raised by RJRT and/or its affiliates, where applicable, include preemption by
the Federal Cigarette Labeling and Advertising Act, as amended (the "Cigarette
Act") of some or all such claims arising after 1969; the lack of any defect in
the product; assumption of the risk; comparative fault; lack of proximate cause;
and statutes of limitations or repose. Juries have found for plaintiffs in two
smoking and health cases, but in one such case, which has been appealed by both
parties, no damages were awarded. The jury awarded plaintiffs $400,000 in the
other such case, Cipollone v. Liggett Group, Inc., et. al., which award was
overturned on appeal and the case was subsequently dismissed.
On June 24, 1992, the United States Supreme Court in Cipollone held that
claims that tobacco companies failed to adequately warn of the risks of smoking
after 1969 and claims that their advertising and promotional practices
undermined the effect of warnings after that date were preempted by the
Cigarette Act. The Court also held that claims of breach of express warranty,
fraud, misrepresentation and conspiracy were not preempted. The Supreme Court's
decision was announced through a plurality opinion, and further definition of
how Cipollone will apply to other cases must await rulings in those cases.
Certain legislation proposed in recent years in Congress, among other
things, would eliminate any such preemptive effect on common law damage actions
for personal injuries. RJRT is unable to predict whether such legislation will
be enacted, if so, in what form, or whether such legislation would be intended
by Congress to apply retroactively. The Supreme Court's Cipollone decision
itself, or the passage of such legislation, could increase the number of cases
filed against cigarette manufacturers, including RJRT.
RJRT understands that a grand jury investigation being conducted in the
Eastern District of New York is examining possible violations of criminal law in
connection with activities relating to the Council for Tobacco Research-USA,
Inc., of which RJRT is a sponsor. RJRT is unable to predict the outcome of this
investigation.
RJRT recently received a civil investigative demand from the U.S.
Department of Justice requesting broad documentary information from RJRT.
Although the request appears to focus on tobacco industry activities in
connection with product development efforts, it also requests general
information concerning contacts with competitors. RJRT is unable to predict the
outcome of this investigation.
Litigation is subject to many uncertainties, and it is possible that some
of the legal actions, proceedings or claims could be decided against RJRT or its
affiliates or indemnities. Determinations of
F-19
<PAGE>
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 11--COMMITMENTS AND CONTINGENCIES--(CONTINUED)
liability or adverse rulings against other cigarette manufacturers that are
defendants in similar actions, even if such rulings are not final, could
adversely affect the litigation against RJRT and its affiliates or indemnities
and increase the number of such claims. Although it is impossible to predict the
outcome of such events or their effect on RJRT, a significant increase in
litigation activities could have an adverse effect on RJRT. RJRT believes that
it has a number of valid defenses to any such actions, including but not limited
to those defenses based on preemption under the Cipollone decision, and RJRT
intends to defend vigorously all such actions.
The Registrants believe that the ultimate outcome of all pending litigation
matters should not have a material adverse effect on either of the Registrants'
financial position; however, it is possible that the results of operations or
cash flows of the Registrants in a particular quarterly or annual period could
be materially affected by the ultimate outcome of certain pending litigation
matters. Management is unable to derive a meaningful estimate of the amount or
range of such possible loss in any particular quarterly or annual period or in
the aggregate.
COMMITMENTS
At December 31, 1993, other commitments totalled approximately $556
million, principally for minimum operating lease commitments, the purchase of
machinery and equipment and other contractual arrangements.
FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND SIGNIFICANT CONCENTRATIONS
OF CREDIT RISK
Certain financial instruments with off-balance sheet risk have been entered
into by the RJRN to manage its interest rate and foreign currency exposures.
Interest Rate Arrangements
At December 31, 1993 and 1992, RJRN had outstanding interest rate swaps,
options, caps and other interest rate arrangements with financial institutions
having a total notional principal amount of $5.7 billion and $5.2 billion,
respectively. The arrangements at December 31, 1993 mature as follows:
1994--$2.7 billion; 1995--$1.1 billion; 1996--$1.1 billion; 1997--$450 million
and 1998 $350 million, respectively. The estimated fair value of these
arrangements as of December 31, 1993 and 1992 was favorable by approximately $37
million and unfavorable by approximately $1 million, respectively, based on
calculations from independent third parties for similar arrangements.
Because interest rate swaps and purchased options and other interest rate
arrangements effectively hedge interest rate exposures, the differential to be
paid or received is accrued and recognized in interest expense as market
interest rates change. If an arrangement is terminated prior to maturity, then
the realized gain or loss is recognized over the remaining original life of the
agreement if the hedged item remains outstanding, or immediately, if the
underlying hedged instrument does not remain outstanding. If the arrangement is
not terminated prior to maturity, but the underlying hedged instrument is no
longer outstanding, then the unrealized gain or loss on the related interest
rate swap, option, cap or other interest rate arrangement is recognized
immediately. In addition, for written options and other similar interest rate
arrangements that are entered into to manage interest rate exposure, changes in
market value of such instruments would result in the current recognition of any
related gains or losses.
F-20
<PAGE>
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 11--COMMITMENTS AND CONTINGENCIES--(CONTINUED)
Foreign Currency Arrangements
At December 31, 1993 and 1992, RJRN had outstanding forward foreign
exchange contracts with banks to purchase or sell an aggregate notional
principal amount of $476 million and $566 million, respectively. The estimated
fair value of these arrangements as of December 31, 1993 and 1992 was favorable
by approximately $3 million and $4 million, respectively, based on calculations
from independent third parties for similar arrangements.
The forward foreign exchange contracts and other hedging arrangements
entered into by RJRN generally mature at the time the hedged foreign currency
transactions are settled. Gains or losses on forward foreign currency
transactions are determined by changes in market rates and are generally
included at settlement in the basis of the underlying hedged transaction. To the
extent that the foreign currency transaction does not occur, gains and losses
are recognized immediately.
The above interest rate and foreign currency arrangements entered into by
RJRN involve, to varying degrees, elements of market risk as a result of
potential changes in future interest and foreign currency exchange rates. To the
extent that the financial instruments entered into remain outstanding as
effective hedges of existing interest rate and foreign currency exposure, the
impact of such potential changes in future interest and foreign currency
exchange rates on the financial instruments entered into would offset the
related impact on the items being hedged. Also, RJRN may be exposed to credit
losses in the event of non-performance by the counterparties to these financial
instruments. However, RJRN continually monitors its positions and the credit
rating of its counterparties and therefore, does not anticipate any
non-performance.
There are no significant concentrations of credit risk with any individual
counterparties or groups of counterparties as a result of any financial
instruments entered into including those financial instruments discussed above.
F-21
<PAGE>
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 12--CAPITAL STOCK AND PAID-IN CAPITAL
The changes in Common Stock and paid-in capital are shown as follows:
<TABLE><CAPTION>
1993 1992
--------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
-------------- ----------- -------------- -----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Common Stock--$0.01 par value--authorized
1,500,000,000 shares at December 31, 1993:
Balance at beginning of year..................... 1,134,648,542 $ 11 1,121,658,569 $ 11
Shares issued during the period.................. 3,692,911 -- 13,117,248 --
Management shares repurchased and
cancelled...................................... (330,161) -- (127,275) --
-------------- ----------- -------------- -----------
Balance at end of year....................... 1,138,011,292 $ 11 1,134,648,542 $ 11
-------------- ----------- -------------- -----------
-------------- ----------- -------------- -----------
Paid-in capital:
Balance at beginning of year..................... $ 9,048 $ 9,352
Shares issued during the period, net of stock
issuance costs................................. (16) (8)
Tax benefits recorded on shares issued to
management and ESOP shares allocated........... 3 4
Issuance of Series A Preferred Stock............. -- --
Management shares and stock options repurchased
and cancelled.................................. (2) (6)
Preferred stock dividends........................ (246) (207)
Warrants repurchased and cancelled............... -- (87)
Other............................................ (9) --
----------- -----------
Balance at end of year....................... $ 8,778 $ 9,048
----------- -----------
----------- -----------
</TABLE>
<TABLE> <CAPTION>
1991
---------------------------
SHARES AMOUNT
-------------- ----------
<S> <C> <C>
Common Stock--$0.01 par value--authorized
1,500,000,000 shares at December 31, 1993:
Balance at beginning of year..................... 580,023,513 $ 6
Shares issued during the period.................. 542,135,431 5
Management shares repurchased and
cancelled...................................... (500,375) --
------------- -----------
Balance at end of year....................... 1,121,658,569 $ 11
-------------- -----------
-------------- -----------
Paid-in capital:
Balance at beginning of year..................... $ 3,860
Shares issued during the period, net of stock
issuance costs................................. 3,630
Tax benefits recorded on shares issued to
management and ESOP shares allocated........... 4
Issuance of Series A Preferred Stock............. 2,060
Management shares and stock options repurchased
and cancelled.................................. (4)
Preferred stock dividends........................ (198)
Warrants repurchased and cancelled............... --
Other............................................ --
------------
Balance at end of year....................... $ 9,352
------------
------------
</TABLE>
<PAGE>
The changes in stock options are shown as follows:
<TABLE><CAPTION>
1993 1992 1991
------------------------- -------------------------- -----------
OPTIONS PRICE OPTIONS PRICE OPTIONS
----------- ------------ ----------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Balance at beginning of year:
Stock Option Plan................................ 25,355,948 $ 5.00-10.45 25,814,648 $ 5.00- 5.75 25,638,520
Long Term Incentive Plan......................... 19,654,600 7.50-11.56 12,990,600 7.50-11.63
Options granted to management investors and
directors:
Stock Option Plan................................ 2,400 5.00 2,176,828
Long Term Incentive Plan......................... 49,213,100 4.52- 9.13 7,004,000 8.25-10.125 13,041,800
Management options exercised:
Stock Option Plan................................ (1,116,046) 5.00
Management options repurchased and cancelled:
Stock Option Plan................................ (999,790) 5.00- 8.55 (461,100) 5.00-10.45 (2,000,700)
Long Term Incentive Plan......................... (4,235,066) 5.56-10.00 (340,000) 7.50-11.63 (51,200)
----------- ----------- -----------
Balance at end of year:
Stock Option Plan................................ 23,240,112 5.00-10.45 25,355,948 5.00-10.45 25,814,648
Long Term Incentive Plan......................... 64,632,634 4.52-11.56 19,654,600 7.50-11.56 12,990,600
----------- ----------- -----------
87,872,746 4.52-11.56 45,010,548 5.00-11.56 38,805,248
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
<TABLE><CAPTION>
PRICE
------------
<S> <C>
Balance at beginning of year:
Stock Option Plan................................ $ 5.00
Long Term Incentive Plan.........................
Options granted to management investors and
directors:
Stock Option Plan................................ 5.75
Long Term Incentive Plan......................... 7.50-11.63
Management options exercised:
Stock Option Plan................................
Management options repurchased and cancelled:
Stock Option Plan................................ 5.00- 5.75
Long Term Incentive Plan......................... 7.50
Balance at end of year:
Stock Option Plan................................ 5.00- 5.75
Long Term Incentive Plan......................... 7.50-11.63
5.00-11.63
</TABLE>
At December 31, 1993, options were exercisable as to 20,018,041 shares,
compared with 15,590,909 shares at December 31, 1992, and 11,310,162 shares at
December 31, 1991. As of December 31, 1993, options for 66,777,008 shares of
Common Stock were available for future grant.
F-22
<PAGE>
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 12--CAPITAL STOCK AND PAID-IN CAPITAL--(CONTINUED)
To provide an incentive to attract and retain key employees responsible for
the management and administration of the business affairs of Holdings and its
subsidiaries, on June 15, 1989 the board of directors of Holdings adopted the
Stock Option Plan for Directors and Key Employees of RJR Holdings Corp.
and Subsidiaries (the "Stock Option Plan") pursuant to which options to
purchase Common Stock may be granted. On June 16, 1989, the Stock Option Plan
was approved by the written consent of the holders of a majority of the Common
Stock. Any director or key employee of Holdings or any subsidiary of Holdings is
eligible to be granted options under the Stock Option Plan. A maximum of
30,000,000 shares of Common Stock (which may be adjusted in the event of certain
capital changes) may be issued under the Stock Option Plan. The options to key
employees granted to key employees under the Stock Option Plan generally vest
over a five year period and the options granted to directors under the Stock
Option Plan are immediately fully vested. The exercise price of such options
is generally the fair market value of the Common Stock on the date of grant.
On August 1, 1990, the board of directors of Holdings adopted the 1990 Long
Term Incentive Plan (the "1990 LTIP") which was approved on such date by the
written consent of the holders of a majority of the Common Stock. The 1990 LTIP
authorizes grants of incentive awards ("Grants") in the form of "incentive stock
options" under Section 422 of the Code, other stock options, stock appreciation
rights, restricted stock, purchase stock, dividend equivalent rights,
performance units, performance shares or other stock-based grants. Awards under
the 1990 LTIP may be granted to key employees of, or other persons having a
unique relationship to, Holdings and its subsidiaries. Directors who are not
also employees of Holdings and its subsidiaries are ineligible for Grants. A
maximum of 105,000,000 shares of Common Stock (which may be adjusted in
the event of certain capital changes) may be issued under the 1990 LTIP pursuant
to Grants. The 1990 LTIP also limits the amount of shares which may be issued
pursuant to "incentive stock options" and the amount of shares subject to Grants
which may be issued to any one participant. As of December 31, 1993, purchase
stock, stock options other than incentive stock options, restricted stock,
performance shares and other stock-based grants have been granted under the 1990
LTIP. The options granted before 1993 under the 1990 LTIP generally will vest
over a three year period ending December 31, 1995. Prior to January 1, 1993,
such options had vested over a six to eight year period. Options granted in 1993
vest over a three year period beginning from the date of grant. The exercise
prices of such options are between $4.50 and $11.56 per share. In connection
with the purchase stock grants awarded during 1993, 1992 and 1991, 622,222
shares, 495,000 shares and 2,681,000 shares, respectively, of Common Stock were
purchased and options to purchase four shares were granted for every share of
such Common Stock purchased. In addition, arrangements were made enabling
purchasers to borrow on a secured basis from Holdings the price of the stock
purchased, as well as the taxes due on any taxable income recognized in
connection with such purchases. The current annual interest rate on such
arrangements, which was set in July 1993 at the then applicable federal rate
for long-term loans, is 6.37%. These borrowings plus accrued interest and taxes
must generally be repaid within two years following termination of active
employment. During 1993, 1,484,840 shares of Common Stock were awarded in
connection with restricted stock grants. These shares are subject to
restrictions that will lapse on December 31, 1994. Performance shares were
also granted under the 1990 LTIP during 1993, pursuant to which participants
are granted a designated number of performance shares that may be earned over
a three year performance period commencing January 1, 1993. Pay outs of awards
at the end of the performance period, which are denominated in shares of Common
Stock, but which may be paid at Holdings' option in either Common Stock or cash,
are currently based on Holdings' cumulative cash-earnings per share during such
performance period. During 1993, 3,307,500 performance shares were awarded. The
maximum aggregate number of shares of Common Stock that
F-23
<PAGE>
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 12--CAPITAL STOCK AND PAID-IN CAPITAL--(CONTINUED)
may be paid at the end of the performance period is 4,961,250. Commitments to
make other stock-based awards were made in 1993 under the 1990 LTIP to
individuals who previously acquired certain purchase stock under the 1990 LTIP.
Under this program, such individuals may receive grants of Common Stock or cash
at the Company's election on either three or four annual grant dates beginning
July 1994 and ending either July 1, 1996 or July 1, 1997. The fair market value
of Common Stock to be awarded on each grant date is equal to the excess, if any,
of (i) 33% or 25%, respectively, of the maximum amount the individual could have
borrowed to acquire purchase stock, over (ii) the then fair market value of the
same percentage of such individual's purchase stock. The grant is increased by
the amount of presumed borrowing costs and the amount necessary to hold the
individual harmless from income taxes due as a result of the grant. No grant
will be made on a grant date if, on such grant date, the amount determined under
clause (ii) above equals or exceeds the amount determined in clause (i) above.
In addition to the shares purchased under the 1990 LTIP, approximately
550,000 shares of Common Stock were sold during 1991 to certain management
investors. No such sales occurred in 1992 or 1993. Unlike the shares sold under
the 1990 LTIP, a portion of these shares remain subject to significant
restrictions on transferability.
The Preferred Stock, together with the Series A Preferred Stock, Series B
Preferred Stock and ESOP Convertible Preferred Stock, stated value $16.00 per
share and par value $.01 per share, of Holdings (the "ESOP Preferred Stock")
(150,000,000 aggregate preferred shares authorized at December 31, 1993 and
1992) are senior to the Common Stock as to dividends and preferences in
liquidation.
On December 6, 1993, the outstanding Preferred Stock was redeemed at a
redemption price of $27.0125 per share plus accrued and unpaid dividends
thereon. Also during 1993, 123,523 shares of Preferred Stock were converted into
342,976 shares of Common Stock. During 1992, 379 shares of Preferred Stock were
converted into 1,051 shares of Common Stock. During 1991, 884 shares of
Preferred Stock were converted into 2,450 shares of Common Stock and 67,997,769
shares of Preferred Stock were exchanged for 258,391,523 shares of Common Stock
in connection with the December 1991 Exchange Offer. The Preferred Stock, stated
value $25 per share at par value $.01 per share, paid cash dividends at a rate
of 11.5% of stated value per annum, payable quarterly in arrears commencing
January 15, 1991. The Preferred Stock was convertible after May 1, 1991 into
shares of Common Stock at a conversion price of $9 of stated value per share of
Common Stock.
Each Series A Depositary Share represents a one-quarter ownership interest
in a share of Series A Preferred Stock of Holdings. Each share of Series A
Preferred Stock bears cumulative cash dividends at a rate of $3.34 per annum and
is payable quarterly in arrears commencing February 18, 1992. Each share of
Series A Preferred Stock will mandatorily convert into four shares of Common
Stock by November 15, 1994, subject to adjustment in certain events. In
addition, each share of Series A Preferred Stock may be convertible upon the
occurrence of certain other events, including the option by Holdings to redeem,
in whole or in part, at any time at an initial optional redemption price of
$64.82 per share, to be paid in shares of Common Stock, plus accrued and unpaid
dividends. The initial optional redemption price declines by $.009218 on each
day following the issuance of the Series A Preferred Stock to $55.36 on
September 15, 1994 and $54.80 thereafter. Holders of Series A Preferred Stock
have voting rights with respect to certain matters submitted to a vote of the
holders of the Common
F-24
<PAGE>
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 12--CAPITAL STOCK AND PAID-IN CAPITAL--(CONTINUED)
Stock. Because Series A Preferred Stock mandatorily converts into Common Stock,
dividends on shares of Series A Preferred Stock are reported similar to common
equity dividends.
On August 18, 1993, Holdings issued 50,000 shares of Series B Cumulative
Preferred Stock, par value $.01 per share ("Series B Preferred Stock"), and sold
50,000,000 depositary shares ("Series B Depositary Shares") at $25 per Series B
Depositary Share ($1.250 billion) in connection with such issuance (the "Series
B Preferred Stock Offering"). Each share of Series B Preferred Stock bears
cumulative cash dividends at a rate of $2,312.50 per annum, or $2.3125 per
Series B Depositary Share, and is payable quarterly in arrears commencing
December 1, 1993. Each Series B Depositary Share represents .001 ownership
interest in a share of Series B Preferred Stock of Holdings. At Holdings'
option, on or after August 19, 1998, Holdings may redeem shares of the Series B
Preferred Stock (and the Depositary will redeem the number of Series B
Depositary Shares representing the shares of Series B Preferred Stock) at a
redemption price equivalent to $25 per Series B Depositary Share, plus accrued
and unpaid dividends thereon.
On August 1, 1991, Holdings issued 2,983,904 shares of Common Stock in
exchange for certain debentures of RJRN aggregating approximately $32.3 million
in principal amount.
On April 10, 1991, an employee stock ownership plan established by Holdings
borrowed $250 million from Holdings (the "ESOP Loan") to purchase 15,625,000
shares of ESOP Preferred Stock. The ESOP Loan, which was renegotiated in 1993,
has a final maturity in 2006 and bears interest at the rate of 8.2% per annum.
The ESOP Preferred Stock is convertible as of December 31, 1993 into 15,573,973
shares of Common Stock, subject to adjustment in certain events, and bears
cumulative dividends at a rate of 7.8125% of stated value per annum at least
until April 10, 1999, payable semi-annually in arrears commencing January 2,
1992, when, as and if declared by the board of directors of Holdings. The ESOP
Preferred Stock is redeemable at the option of Holdings, in whole or in part, at
any time on or after April 10, 1999, at an initial optional redemption price of
$16.250 per share. The initial optional redemption price declines thereafter on
an annual basis in the amount of $.125 a year to $16 per share on April 10,
2001, plus accrued and unpaid dividends. Holders of ESOP Preferred Stock have
voting rights with respect to certain matters submitted to a vote of the holders
of the Common Stock. Effective January 1, 1992, RJRN's matching contributions to
eligible employees under its Capital Investment Plan are being made in the form
of ESOP Preferred Stock. RJRN's matching contribution obligation in respect of
each participating employee is equal to $.50 for every pre-tax dollar
contributed by the employee, up to 6% of the employee's pay. The shares of ESOP
Preferred Stock are allocated at either the floor value of $16 a share or the
fair market value of Common Stock, whichever is higher. During 1993 and 1992,
approximately $29 million and $29 million, respectively, was contributed to the
ESOP by RJRN or Holdings and approximately $20 million and $24 million,
respectively, of ESOP dividends were used to service the ESOP's debt to
Holdings.
On February 9, 1989, 15,254,238 warrants were issued to purchase 15,254,238
shares of Common Stock. Such warrants were initially exercisable at an exercise
price of $5.00 per share, subject to adjustment in certain events, at any time
prior to February 9, 1999. On November 8, 1991, the exercise price for the
warrants and the number of shares of Common Stock issuable upon exercise thereof
were adjusted to $4.9164 and 1.017, respectively. During the third quarter of
1992, Holdings repurchased from a limited partnership of which KKR Associates,
an affiliate of KKR, is the sole general partner and certain affiliates of
Merrill Lynch & Co., Inc. 6,182,586 warrants of the 15,254,238 warrants issued
F-25
<PAGE>
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 12--CAPITAL STOCK AND PAID-IN CAPITAL--(CONTINUED)
on February 9, 1989 for approximately $36 million in cash. During October 1992,
Holdings repurchased from the same parties the remaining 9,071,652 warrants for
approximately $51 million in cash. Each of these warrants allowed the holder to
purchase 1.017 shares of Common Stock for an exercise price of $4.9164 at any
time on or prior to February 8, 1999.
Warrants to purchase 45,529,024 shares of Common Stock were issued in
connection with the sale of the 15% Subordinated Debentures and the Subordinated
Discount Debentures. Such warrants were initially exercisable at an exercise
price of $0.07 per share, subject to adjustment in certain events, and expired
January 31, 1992. On November 8, 1991, the exercise price for the warrants and
the number of shares of Common Stock issuable upon exercise thereof were
adjusted to $0.0688 and 1.017, respectively. During 1992, 12,370,936 warrants
were exercised at $0.0688 per share. During 1991, 29,695,730 warrants were
exercised at $0.07 per share and 3,361,323 warrants were exercised at $0.0688
per share.
See Note 10 for transactions involving the exchange of capital stock for
long-term debt.
NOTE 13--RETAINED EARNINGS AND CUMULATIVE TRANSLATION ADJUSTMENTS
Retained earnings (accumulated deficit) at December 31, 1993, 1992 and 1991
includes non-cash expenses related to accumulated trademark and goodwill
amortization of $3.015 billion, $2.390 billion and $1.774 billion, respectively.
The changes in cumulative translation adjustments are shown as follows:
<TABLE><CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1993 1992 1991
------------- --------------- ---------------
<S> <C> <C> <C>
Balance at beginning of period...................................... $ (47) $ 11 $ 35
Translation and other adjustments................................. (55) (58) (24)
------------- -------------- ---------------
Balance at end of period............................................ $ (102) $ (47) $ 11
------------- -------------- ---------------
------------- -------------- ---------------
</TABLE>
NOTE 14--RETIREMENT BENEFITS
RJRN sponsors a number of non-contributory defined benefit pension plans
covering most U.S. and certain foreign employees. Plans covering regular
full-time employees in the tobacco operations as well as the majority of
salaried employees in the corporate groups and food operations to provide
pension benefits that are based on credits, determined by age, earned throughout
an employee's service and final average compensation before retirement. Plan
benefits are offered as lump sum or annuity options. Plans covering hourly as
well as certain salaried employees in the corporate groups and food operations
provide pension benefits that are based on the employee's length of service and
final average compensation before retirement. RJRN's policy is to fund the cost
of current service benefits and past service cost over periods not exceeding 30
years to the extent that such costs are currently tax deductible. Additionally,
RJRN participates in several multi-employer and other defined contribution
plans, which provide benefits to certain of RJRN's union employees. Employees in
foreign countries who are not
F-26
<PAGE>
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 14--RETIREMENT BENEFITS--(CONTINUED)
U.S. citizens are covered by various post-employment benefit arrangements, some
of which are considered to be defined benefit plans for accounting purposes.
A summary of the components of pension expense for RJRN-sponsored plans
follows:
<TABLE><CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1993 1992 1991
------------- ------------- -------------
<S> <C> <C> <C>
Defined benefit pension plans:
Service cost--benefits earned during the period........................ $ 76 $ 84 $ 71
Interest cost on projected benefit obligation.......................... 255 251 239
Less actual return on plan assets...................................... (262) (259) (504)
Net amortization and deferral.......................................... (4) (4) 252
------------- ------------- -------------
Total............................................................. 65 72 58
Multi-employer and other contribution plans.............................. 32 31 33
------------- ------------- -------------
Total pension expense............................................. $ 97 $ 103 $ 91
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
The principal plans used the following actuarial assumptions for accounting
purposes:
<TABLE><CAPTION>
DECEMBER 31, DECEMBER 31,
1993 1992
--------------- ---------------
<S> <C> <C>
Weighted average discount rate............................ 7.5% 8.5%
Rate of increase in compensation levels................... 5.0% 5.0%
Expected long-term rate of return on assets............... 9.5% 10.0%
</TABLE>
F-27
<PAGE>
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 14--RETIREMENT BENEFITS--(CONTINUED)
The following table sets forth the funded status and amounts recognized in
the Consolidated Balance Sheets at December 31, 1993 and 1992 for RJRN's defined
benefit pension plans.
<TABLE><CAPTION>
U.S. PLANS FOREIGN PLANS
------------------------------------------------------------------------ ----------------------------------
DECEMBER 31, 1993 DECEMBER 31, 1992 DECEMBER 31, 1993
---------------------------------- ------------------------------------ ----------------------------------
PLANS WHOSE PLANS WHOSE PLANS WHOSE PLANS WHOSE PLANS WHOSE PLANS WHOSE
ASSETS EXCEEDED ACCUMULATED ASSETS EXCEEDED ACCUMULATED ASSETS EXCEEDED ACCUMULATED
ACCUMULATED BENEFITS EXCEEDED ACCUMULATED BENEFITS EXCEEDED ACCUMULATED BENEFITS
BENEFITS ASSETS(1) BENEFITS ASSETS(1) BENEFITS EXCEEDED ASSETS
--------------- ----------------- --------------- ------------------- ----------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Actuarial
present value
of:
Vested
benefits...... $ 2,252 $ 272 $ 2,133 $ 80 $ 148 $ 186
Non-vested
benefits.... 225 5 118 4 6 23
------ ----- ------ --- ----- -----
Accumulated
benefit
obligation.. 2,477 277 2,251 84 154 209
Effect of
future
salary
increases... 296 29 366 5 42 31
------ ----- ------ --- ----- -----
Projected
benefit
obligation.. 2,773 306 2,617 89 196 240
Plan assets at
fair market
value......... 2,529 204 2,449 35 172 109
------ ----- ------ --- ----- -----
Plan assets in
excess of
(less than)
projected
benefit
obligation.... (244) (102) (168) (54) (24) (131)
Unrecognized net
(gain) loss... (68) 3 (121) (19) 17 26
Unrecognized
prior service
cost.......... (31) (10) (32) (13) (8) 14
------ ----- ------ --- ----- -----
Net pension
liabilities
recognized in
the
Consolidated
Balance Sheets.. $ (343) $ (109) $ (321) $ (86) $ (15) $ (91)
------ ----- ------ --- ----- -----
------ ----- ------ --- ----- -----
</TABLE>
<TABLE><CAPTION>
DECEMBER 31, 1992
----------------------------------
PLANS WHOSE PLANS WHOSE
ASSETS EXCEEDED ACCUMULATED
ACCUMULATED BENEFITS
BENEFITS EXCEEDED ASSETS
----------------- ---------------
<S> <C> <C>
Actuarial
present value
of:
Vested
benefits...... $ 159 $ 155
Non-vested
benefits.... 6 21
----- -----
Accumulated
benefit
obligation.. 165 176
Effect of
future
salary
increases... 46 33
----- -----
Projected
benefit
obligation.. 211 209
Plan assets at
fair market
value......... 196 88
----- -----
Plan assets in
excess of
(less than)
projected
benefit
obligation.... (15) (121)
Unrecognized net
(gain) loss... 11 20
Unrecognized
prior service
cost.......... (11) 11
----- -----
Net pension
liabilities
recognized in
the
Consolidated
Balance Sheets.. $ (15) $ (90)
----- -----
----- -----
</TABLE>
- ---------------
(1) Of the net pension liability amounts at December 31, 1993 and 1992,
$34 million and $12 million, respectively, were related to qualified plans.
At December 31, 1993, approximately 99 percent of the plans' assets were
invested in listed stocks and bonds and other highly liquid investments. The
balance consisted of various income producing investments.
In addition to providing pension benefits, RJRN provides certain health
care and life insurance benefits for retired employees and their dependents.
Substantially all of its regular full-time employees, including certain
employees in foreign countries, may become eligible for those benefits if they
reach retirement age while working for RJRN. Effective January 1, 1992, RJRN
adopted SFAS No. 106. Under SFAS No. 106, RJRN is required to accrue the costs
for retirees' health and other postretirement benefits other than pensions and
recognize the unfunded and unrecognized accumulated benefit obligation for these
benefits. RJRN had previously accrued a liability for postretirement benefits
other
F-28
<PAGE>
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 14--RETIREMENT BENEFITS--(CONTINUED)
than pensions and as a result, SFAS No. 106 did not have a material impact on
RJRN's financial statements.
Net postretirement health and life insurance benefit cost for 1993 consists
of the following:
<TABLE><CAPTION>
1993 1992
----------- -----------
<S> <C> <C>
Service cost--benefits earned during the period..................................................... $ 16 $ 12
Interest cost on accumulated postretirement benefit obligation...................................... 60 58
----- -----
Net postretirement health care cost............................................................... $ 76 $ 70
----- -----
----- -----
</TABLE>
Net postretirement health and life insurance benefit costs representing
accretion on the liability balance of $89 million was charged to operations for
the year ended December 31, 1991. The reduction in expense in 1992 reflects the
reduction of recorded liabilities by approximately $225 million at December 31,
1991 as disclosed in Note 1 to the Consolidated Financial Statements.
RJRN's postretirement health and life insurance benefit plans currently are
not funded. The status of the plans was as follows:
<TABLE><CAPTION>
DECEMBER 31, DECEMBER 31,
1993 1992
--------------- ---------------
<S> <C> <C>
Actuarial present value of accumulated postretirement benefit obligation:
Retirees.......................................................................... $ 693 $ 598
Fully eligible active plan participants........................................... 88 135
Other active plan participants.................................................... 263 226
Unrecognized actuarial amounts...................................................... (58) --
------ ------
Accrued postretirement health care costs............................................ $ 986 $ 959
------ ------
------ ------
</TABLE>
The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligation was 8% in 1993, 9% in 1994 and 10.7% in
1995 gradually declining to 6.0% by the year 2002 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, 1993 and net postretirement health care cost by
approximately 7% and 8.5%, respectively.
The assumed discount rate used in determining the accumulated
postretirement benefit obligation was 7.5% and 8.5% as of December 31, 1993 and
1992, respectively.
Effective January 1, 1993, RJRN adopted SFAS No. 112. Under SFAS No. 112,
RJRN is required to accrue the costs for preretirement postemployment benefits
provided to former or inactive employees and recognize an obligation for these
benefits. The adoption of SFAS No. 112 did not have a material impact on the
financial statements of either Holdings or RJRN.
F-29
<PAGE>
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 15--SEGMENT INFORMATION
Industry Segment Data
Holdings classifies its continuing operations into two industry segments
which are described in Management's Discussion and Analysis of Financial
Condition and Results of Operations, appearing elsewhere herein. Summarized
financial information for these operations is shown in the following tables.
<TABLE><CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1993 1992 1991
------------- ------------- -------------
Net sales:
<S> <C> <C> <C>
Tobacco........................................................... $ 8,079 $ 9,027 $ 8,540
Food.............................................................. 7,025 6,707 6,449
------------- ------------- -------------
Consolidated net sales......................................... $ 15,104 $ 15,734 $ 14,989
------------- ------------- -------------
------------- ------------- -------------
Operating income:
Tobacco(1)(2)..................................................... $ 893 $ 2,241 $ 2,322
Food(1)(2)........................................................ 624 769 715
Headquarters (2).................................................. (139) (112) (103)
------------- ------------- -------------
Consolidated operating income.................................. $ 1,378 $ 2,898 $ 2,934
------------- ------------- -------------
------------- ------------- -------------
Capital expenditures:
Tobacco........................................................... $ 224 $ 189 $ 200
Food.............................................................. 391 330 254
Headquarters...................................................... -- -- 5
------------- ------------- -------------
Consolidated capital expenditures.............................. $ 615 $ 519 $ 459
------------- ------------- -------------
------------- ------------- -------------
Depreciation expense:
Tobacco........................................................... $ 237 $ 252 $ 242
Food.............................................................. 207 197 194
Headquarters...................................................... 4 6 5
------------- ------------- -------------
Consolidated depreciation expense.............................. $ 448 $ 455 $ 441
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
<TABLE><CAPTION>
Assets: DECEMBER 31, 1993 DECEMBER 31, 1992
------------------ ------------------
<S> <C> <C>
Tobacco............................................................. $ 19,904 $ 20,592
Food................................................................ 11,270 11,165
Headquarters(3)..................................................... 121 284
---------- ----------
Consolidated assets.............................................. $ 31,295 $ 32,041
---------- ----------
---------- ----------
</TABLE>
- ---------------
(1) Includes amortization of trademarks and goodwill for Tobacco and Food,
respectively, for the year ended December 31, 1993, of $407 million and $218
million; for the year ended December 31, 1992, of $404 million and $212
million and for the year ended December 31, 1991, of $404 million and $205
million.
(2) The 1993 and 1992 amounts include the effects of the restructuring expense
at Tobacco (1993-- $544 million; 1992--$43 million), Food (1993--$153
million; 1992--$63 million) and Headquarters (1993--$33 million; 1992--$0),
as applicable, and the sale of Holdings' ready-to-eat cold cereal business
(See Note 1 to the Consolidated Financial Statements).
(3) Cash and cash equivalents for the domestic operating companies are included
in Headquarters' assets.
F-30
<PAGE>
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 15--SEGMENT INFORMATION--(CONTINUED)
Geographic Data
The following tables show certain financial information relating to
Holdings' continuing operations in various geographic areas.
<TABLE><CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1993 1992 1991
------------- ------------- -------------
Net sales:
<S> <C> <C> <C>
United States (including U.S. export sales)....................... $ 11,570 $ 13,182 $ 12,548
Europe............................................................ 1,671 1,109 1,037
Other geographic areas............................................ 2,794 1,855 1,675
Less transfers between geographic areas(1)........................ (931) (412) (271)
------------- ------------- -------------
Consolidated net sales......................................... $ 15,104 $ 15,734 $ 14,989
------------- ------------- -------------
------------- ------------- -------------
Operating income:(2)
United States..................................................... $ 1,284 $ 2,634 $ 2,692
Europe............................................................ 40 138 117
Other geographic areas............................................ 193 238 228
Headquarters...................................................... (139) (112) (103)
------------- ------------- -------------
Consolidated operating income(3)............................... $ 1,378 $ 2,898 $ 2,934
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
<TABLE><CAPTION>
DECEMBER 31, 1993 DECEMBER 31, 1992
------------------ ------------------
Assets:
<S> <C> <C>
United States....................................................... $ 27,143 $ 28,553
Europe.............................................................. 1,820 1,360
Other geographic areas.............................................. 2,211 1,844
Headquarters........................................................ 121 284
---------- ----------
Consolidated assets.............................................. $ 31,295 $ 32,041
---------- ----------
---------- ----------
Liabilities of Holdings' continuing operations located in foreign
countries............................................................. $ 1,689 $ 1,352
---------- ----------
---------- ----------
</TABLE>
- ---------------
(1) Transfers between geographic areas (which consist principally of tobacco
transferred principally from the United States to Europe) are generally made
at fair market value.
(2) The 1993 and 1992 amounts include the effects of the restructuring expense
of $730 million and $106 million, respectively, and a gain on the sale of
Holdings' ready-to-eat cold cereal business ($98 million) (see Note 1 to the
Consolidated Financial Statements).
(3) Includes amortization of trademarks and goodwill of $625 million, $616
million and $609 million for the 1993, 1992 and 1991 periods, respectively.
F-31
<PAGE>
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 16--QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of the quarterly results of operations for
Holdings for the quarterly periods of 1993 and 1992:
<TABLE><CAPTION>
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
FIRST SECOND THIRD FOURTH
--------- --------- --------- ---------
1993
<S> <C> <C> <C> <C>
Net sales................................................................ $ 3,736 $ 3,719 $ 3,598 $ 4,051
Operating income (loss).................................................. 683 582 431 (318)
Income (loss) before extraordinary item.................................. 210 142 74 (429)
Net income (loss)........................................................ 163 77 76 (461)
Income (loss) before extraordinary item per common share(1).............. 0.15 0.10 0.04 (0.34)
Net income (loss) per common share(1).................................... 0.12 0.05 0.04 (0.36)
</TABLE>
<TABLE><CAPTION>
FIRST SECOND THIRD FOURTH
--------- --------- --------- ---------
1992
<S> <C> <C> <C> <C>
Net sales................................................................ $ 3,643 $ 3,983 $ 4,021 $ 4,087
Operating income......................................................... 664 768 763 703
Income before extraordinary item......................................... 144 209 252 171
Net income (loss)........................................................ (15) 87 182 45
Income before extraordinary item per common share(1)..................... 0.10 0.15 0.18 0.12
Net income (loss) per common share(1).................................... (0.02) 0.06 0.13 0.03
</TABLE>
- ---------------
(1) Earnings per share is computed independently for each of the periods
presented; therefore, the sum of the earnings per share amounts for the
quarters may not equal the total for the year. In addition, assuming that
the transactions discussed in Notes 10 and 12 to the Consolidated Financial
Statements had occurred on January 1, 1993 or January 1, 1992, as
applicable, and the net proceeds thereof were used to redeem or to repay
outstanding indebtedness, the impact on earnings per share would be
anti-dilutive for the reported periods.
NOTE 17--SUBSEQUENT EVENT
On February 24, 1994, Holdings filed a Registration Statement on Form S-3
for a proposed offering of 300 million depositary shares, each
representing a one-tenth ownership interest in a share of a newly created series
of Preferred Equity Redemption Cumulative Stock ("PERCS"). Each depositary share
would mandatorily convert in three years into one share of Common Stock, subject
to adjustment and subject to earlier conversion or redemption under certain
circumstances. Any net proceeds of a PERCS offering may be used for general
corporate purposes which may include refinancings of indebtedness, working
capital, capital expenditures, acquisitions and repurchases or redemptions of
securities. In addition, such proceeds may be used to facilitate one or more
significant corporate transactions, such as a joint venture, merger,
acquisition, divestiture, asset swap, spin-off and/or recapitalization, that
would result in the separation of the tobacco and food businesses of Holdings.
As of February 24, 1994, the specific uses of proceeds have not been determined.
Pending such uses, any proceeds would be used to repay indebtedness under RJRN's
revolving credit facilities or for short-term liquid investments.
------------------------------------
F-32
<PAGE>
SCHEDULE II
RJR NABISCO HOLDINGS CORP.
SCHEDULE II--AMOUNTS RECEIVABLE FROM RELATED PARTIES AND
UNDERWRITERS, PROMOTERS AND EMPLOYEES OTHER THAN RELATED PARTIES
FOR THE YEAR ENDED DECEMBER 31, 1993
<TABLE><CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ------------------------- ---------------------------- -------------- ----------------------------- ----------------------------
BALANCE AT BALANCE AT
BEGINNING OF PERIOD DEDUCTIONS END OF PERIOD
---------------------------- ----------------------------- ----------------------------
NAME OF DEBTOR NOT AMOUNTS AMOUNTS NOT
(EMPLOYEES) CURRENT CURRENT ADDITIONS COLLECTED WRITTEN OFF CURRENT CURRENT
- ------------------------- ----------- --------------- -------------- -------------- ------------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
H. J. Greeniaus.......... $ -- $ 1,787,839.91 $ 203,218.59 $ 18,189.65 $ $ -- $ 1,972,868.85
G. R. Thoman............. -- 1,712,600.00 176,238.90 -- -- 1,888,838.90
J. W. Johnston........... -- 1,520,430.30 138,906.54 -- -- 1,659,336.84
L. R. Ricciardi.......... -- 1,182,556.90 108,038.42 -- -- 1,290,595.32
D. F. Sisel.............. -- 929,151.85 84,887.33 -- -- 1,014,039.18
E. R. Croisant........... -- 919,713.07 83,873.95 81,733.22 -- 921,853.80
J. C. Schroer............ -- 1,032,497.53 83,198.35 193,842.08 -- 921,853.80
D. J. Anderson........... -- 825,608.47 75,452.76 -- -- 901,061.23
A. J. Schindler.......... -- 790,359.86 71,094.44 -- -- 861,454.30
C. W. Ehmann............. -- 675,499.50 54,673.94 -- -- 730,173.44
J. W. Farrelly........... -- 637,500.00 49,524.12 -- -- 687,024.12
B. J. Wood............... -- 506,810.10 46,302.18 -- -- 553,112.28
K. D. Langner(A)......... -- 596,126.88 44,211.82 112,197.26 -- 528,141.44
M. B. Oglesby, Jr........ -- 475,858.69 43,489.11 -- -- 519,347.80
S. R. Wilson............. -- 416,113.74 38,029.29 -- -- 454,143.03
J. C. Mitchell........... -- 388,143.68 35,617.06 6,000.00 -- 417,760.74
T. C. Griscom............ -- 337,873.40 30,868.12 -- -- 368,741.52
D. Conant................ -- 327,687.43 26,536.71 -- -- 354,224.14
H. J. Lees............... -- 306,011.01 27,966.00 -- -- 333,977.01
Y. W. Ford, Jr........... -- 295,639.23 27,009.60 -- -- 322,648.83
R. R. Gordon, Jr......... -- 295,639.23 27,009.60 -- -- 322,648.83
C. M. Sayeau............. -- 295,639.23 27,009.60 -- -- 322,648.83
W. W. Juchatz............ -- 293,376.20 29,272.62 -- -- 322,648.82
J. R. Chambers........... -- 286,693.64 26,200.76 -- -- 312,894.40
J. F. Manfredi........... -- 285,786.57 26,117.74 -- -- 311,904.31
D.N. Iauco............... -- 253,405.05 23,151.09 -- -- 276,556.14
E. J. Lang(A)............ -- 270,445.18 21,673.94 33,208.57 -- 258,910.55
R. S. Roath.............. -- 337,506.73 27,508.47 110,000.00 -- 255,015.20
P. Brown................. -- 218,458.29 17,691.14 -- -- 236,149.43
J. Willard............... -- 211,170.88 19,292.58 -- -- 230,463.46
D. L. Clark.............. -- 388,068.18 33,416.97 202,325.00 -- 219,160.15
S. Heath................. -- 194,423.04 17,766.77 -- -- 212,189.81
T. G. McBrady............ -- 193,726.48 17,704.43 -- -- 211,430.91
R. F. Sharpe, Jr......... -- 159,987.36 15,164.87 -- -- 175,152.23
M. G. DiNapoli........... -- 146,224.48 13,363.77 -- -- 159,588.25
J. A. Kuchar............. -- 146,217.84 13,363.16 -- -- 159,581.00
N. G. Jungmann........... -- 145,242.47 13,273.88 -- -- 158,516.35
J. T. Pearson............ -- 310,638.41 19,059.78 182,225.00 -- 147,473.19
S. Brown................. -- 129,375.00 10,206.81 -- -- 139,581.81
R. J. Hall............... -- 123,750.00 10,159.83 -- -- 133,909.83
J. Ford.................. -- 218,458.29 13,550.37 100,000.00 -- 132,008.66
A. H. Newton............. -- 94,049.99 8,595.44 -- -- 102,645.43
R. J. Verdon(A).......... -- 93,824.92 7,225.42 14,737.57 -- 86,312.77
K. E. Glover............. -- 146,457.86 3,860.17 121,104.10 -- 29,213.93
C. E. Becker............. -- 198,583.45 7,254.66 189,784.88 -- 16,053.23
D. B. Kalis.............. -- 486,346.55 22,823.58 509,170.13 -- --
W. B. McKnight, Jr....... -- 457,875.65 7,880.45 465,756.10 -- --
B. Thomas................ -- 267,400.65 4,600.74 272,001.39 -- --
C. A. Bachelder.......... -- 258,976.54 5,200.50 264,177.04 -- --
L. H. Kleinberg.......... -- 210,000.00 10,233.30 220,233.30 -- --
T. A. McKiernan.......... -- 155,837.92 5,122.82 160,960.74 -- --
J. Condon................ -- 210,950.00 4,733.72 215,683.72 -- --
J. A. Kirkman III........ -- 193,591.27 4,528.05 198,119.32 -- --
E. R. Marram............. -- 844,683.50 38,122.55 882,806.05 -- --
K. M. von der Heyden..... -- 1,520,430.30 119,492.02 1,639,922.32 -- --
L. V. Gerstner, Jr....... -- 2,534,050.51 208,005.40 2,742,055.91 -- --
</TABLE>
- ---------------
(A) Loan is denominated in a foreign currency. Rate fluctuations are included in
the "Amounts Collected" column.
The amounts presented represent loans to employees in connection with the
1990 Long Term Incentive Plan. See Note 12 to the Consolidated Financial
Statements.
S-1
<PAGE>
SCHEDULE II
RJR NABISCO HOLDINGS CORP.
SCHEDULE II--AMOUNTS RECEIVABLE FROM RELATED PARTIES AND
UNDERWRITERS, PROMOTERS AND EMPLOYEES OTHER THAN RELATED PARTIES
FOR THE YEAR ENDED DECEMBER 31, 1992
<TABLE><CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ----------------------------- --------------------------- -------------- ----------------------------- -----------
BALANCE AT
BALANCE AT END OF
BEGINNING OF PERIOD DEDUCTIONS PERIOD
--------------------------- ----------------------------- -----------
NAME OF DEBTOR NOT AMOUNTS AMOUNTS
(EMPLOYEES) CURRENT CURRENT ADDITIONS COLLECTED WRITTEN OFF CURRENT
- ----------------------------- ----------- -------------- -------------- ------------ --------------- -----------
<S> <C> <C> <C> <C> <C> <C>
L. V. Gerstner, Jr........... $ -- $ 2,341,287.00 $ 192,763.51 $ -- $ -- $ --
H. J. Greeniaus.............. -- 1,696,855.01 115,658.10 24,673.20 -- --
G. R. Thoman................. -- -- 1,712,600.00 -- -- --
J. W. Johnston............... -- 1,404,772.20 115,658.10 -- -- --
K. M. von der Heyden......... -- 1,404,772.20 115,658.10 -- -- --
L. R. Ricciardi.............. -- 1,343,278.61 100,401.51 261,123.22 -- --
J. C. Schroer................ -- 953,901.45 78,596.08 -- -- --
D. F. Sisel.................. -- 858,471.90 70,679.95 -- -- --
E. R. Croisant............... -- 966,388.85 68,324.22 115,000.00 -- --
E. R. Marram................. -- 780,429.00 64,254.50 -- -- --
D. J. Anderson............... -- 762,761.35 62,847.12 -- -- --
A. J. Schindler.............. -- 629,281.58 161,078.30 -- -- --
C. W. Ehmann................. -- -- 675,499.50 -- -- --
J. W. Farrelly............... -- -- 637,500.00 -- -- --
K. D. Langner................ -- 555,613.44 40,513.44 -- -- --
B. J. Wood................... -- 468,257.40 38,552.70 -- -- --
D. B. Kalis.................. -- 449,322.02 37,024.53 -- -- --
M. B. Oglesby, Jr............ -- 439,635.02 36,223.67 -- -- --
W. B. McKnight, Jr........... -- 423,022.71 34,852.94 -- -- --
S. R. Wilson................. -- 384,437.46 31,676.28 -- -- --
J. C. Mitchell............... -- 358,598.29 29,545.39 -- -- --
D. L. Clark.................. -- 358,528.56 29,539.62 -- -- --
T. C. Griscom................ -- 312,171.60 25,701.80 -- -- --
R. S. Roath.................. -- 384,515.70 28,632.89 75,641.86 -- --
D. Conant.................... -- -- 327,687.43 -- -- --
J. T. Pearson................ -- 286,991.69 23,646.72 -- -- --
H. J. Lees................... -- 282,717.64 23,293.37 -- -- --
Y. W. Ford, Jr............... -- 273,150.15 22,489.08 -- -- --
R. R. Gordon, Jr............. -- 273,150.15 22,489.08 -- -- --
C. M. Sayeau................. -- 273,150.15 22,489.08 -- -- --
W. W. Juchatz................ -- 333,992.36 22,489.08 63,105.24 -- --
J. R. Chambers............... -- 264,870.43 21,823.21 -- -- --
J. F. Manfredi............... -- 264,032.63 21,753.94 -- -- --
E. J. Lang................... -- 251,468.30 18,976.88 -- -- --
B. Thomas.................... -- 247,788.00 19,612.65 -- -- --
C. A. Bachelder.............. -- 239,262.45 19,714.09 -- -- --
D. N. Iauco.................. -- 234,128.70 19,276.35 -- -- --
J. Ford...................... -- -- 218,458.29 -- -- --
P. Brown..................... -- -- 218,458.29 -- -- --
J. Willard................... -- 195,107.25 16,063.63 -- -- --
J. Condon.................... -- -- 210,950.00 -- -- --
L. H. Kleinberg.............. -- 218,520.12 17,291.64 25,811.76 -- --
C. E. Becker................. -- 183,466.25 15,117.20 -- -- --
S. Heath..................... -- 179,625.99 14,797.05 -- -- --
T. G. McBrady................ -- 178,980.16 14,746.32 -- -- --
J. A. Kirkman III............ -- 178,855.27 14,736.00 -- -- --
R. F. Sharpe, Jr............. -- 182,905.47 13,611.18 36,529.29 -- --
T. A. McKiernan.............. -- 143,974.95 11,862.97 -- -- --
K. E. Glover................. -- 135,308.70 11,149.16 -- -- --
M. G. DiNapoli............... -- 135,093.14 11,131.34 -- -- --
J. A. Kuchar................. -- 135,087.00 11,130.84 -- -- --
N. G. Jungmann............... -- 134,186.11 11,056.36 -- -- --
S. Brown..................... -- -- 129,375.00 -- -- --
R. J. Hall................... -- -- 123,750.00 -- -- --
R. J. Verdon................. -- 217,284.30 3,454.24 126,913.62 -- --
F. W. Zuckerman.............. -- -- 200,000.00 200,000.00 -- --
<CAPTION>
COLUMN A
NAME OF DEBTOR NOT
(EMPLOYEES) CURRENT
- ----------------------------- --------------
L. V. Gerstner, Jr........... $ 2,534,050.51
H. J. Greeniaus.............. 1,787,839.91
G. R. Thoman................. 1,712,600.00
J. W. Johnston............... 1,520,430.30
K. M. von der Heyden......... 1,520,430.30
L. R. Ricciardi.............. 1,182.556.90
J. C. Schroer................ 1,032,497.53
D. F. Sisel.................. 929,151.85
E. R. Croisant............... 919,713.07
E. R. Marram................. 844,683.50
D. J. Anderson............... 825,608.47
A. J. Schindler.............. 790,359.86
C. W. Ehmann................. 675,499.50
J. W. Farrelly............... 637,500.00
K. D. Langner................ 596,126.88
B. J. Wood................... 506,810.10
D. B. Kalis.................. 486,346.55
M. B. Oglesby, Jr............ 475,858.69
W. B. McKnight, Jr........... 457,875.65
S. R. Wilson................. 416,113.74
J. C. Mitchell............... 388,143.68
D. L. Clark.................. 388,068.18
T. C. Griscom................ 337,873.40
R. S. Roath.................. 337,506.73
D. Conant.................... 327,687.43
J. T. Pearson................ 310,638.41
H. J. Lees................... 306,011.01
Y. W. Ford, Jr............... 295,639.23
R. R. Gordon, Jr............. 295,639.23
C. M. Sayeau................. 295,639.23
W. W. Juchatz................ 293,376.20
J. R. Chambers............... 286,693.64
J. F. Manfredi............... 285,786.57
E. J. Lang................... 270,445.18
B. Thomas.................... 267,400.65
C. A. Bachelder.............. 258,976.54
D. N. Iauco.................. 253,405.05
J. Ford...................... 218,458.29
P. Brown..................... 218,458.29
J. Willard................... 211,170.88
J. Condon.................... 210,950.00
L. H. Kleinberg.............. 210,000.00
C. E. Becker................. 198,583.45
S. Heath..................... 194,423.04
T. G. McBrady................ 193,726.48
J. A. Kirkman III............ 193,591.27
R. F. Sharpe, Jr............. 159,987.36
T. A. McKiernan.............. 155,837.92
K. E. Glover................. 146,457.86
M. G. DiNapoli............... 146,224.48
J. A. Kuchar................. 146,217.84
N. G. Jungmann............... 145,242.47
S. Brown..................... 129,375.00
R. J. Hall................... 123,750.00
R. J. Verdon................. 93,824.92
F. W. Zuckerman.............. --
- ----------------------------
</TABLE>
The amounts presented represent loans to employees in connection with the
1990 Long Term Incentive Plan. See Note 12 to the Consolidated Financial
Statements.
S-2
<PAGE>
SCHEDULE III
RJR NABISCO HOLDINGS CORP.
SCHEDULE III--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED STATEMENTS OF INCOME AND RETAINED EARNINGS
(DOLLARS IN MILLIONS)
<TABLE><CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1993 1992 1991
------------- ------------- -------------
<S> <C> <C> <C>
Administrative expenses............................................. $ (8) $ (12) $ (13)
Interest expense and amortization of debt issuance costs............ (23) (90) (77)
Other income (expense), net......................................... 30 82 88
------------- ------------- -------------
Income (loss) before income taxes............................ (1) (20) (2)
Provision (benefit) for income taxes................................ (2) (13) (21)
------------- ------------- -------------
1 (7) 19
Equity in income (loss) of subsidiary, net of income taxes.......... (4) 783 349
------------- ------------- -------------
Income (loss) before extraordinary item...................... (3) 776 368
Extraordinary item--loss on early extinguishments of debt, net of
income taxes (including extraordinary losses of $135 and $464 from
subsidiary for 1993 and 1992, respectively)....................... (142) (477) --
------------- ------------- -------------
Net income (loss)............................................ (145) 299 368
Less preferred stock dividends...................................... 68 31 173
------------- ------------- -------------
Net income (loss) applicable to common stock................. (213) 268 195
Retained earnings (accumulated deficit) at beginning of period...... (738) (1,037) (1,405)
Add preferred stock dividends charged to paid-in capital............ 68 31 173
------------- ------------- -------------
Retained earnings (accumulated deficit) at end of period............ $ (883) $ (738) $ (1,037)
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
See Notes to Condensed Financial Information.
S-3
<PAGE>
SCHEDULE III
RJR NABISCO HOLDINGS CORP.
SCHEDULE III--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED STATEMENTS OF CASH FLOWS
(DOLLARS IN MILLIONS)
<TABLE><CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1993 1992 1991
------------------ ------------- -------------
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net income (loss).............................................. $ (145) $ 299 $ 368
---------- ------------- -------------
Adjustments to reconcile net income (loss) to net cash flows
from (used in) operating activities:
Deferred income tax provision (benefit)..................... 69 (63) (58)
Non-cash interest expense and amortization of debt issuance
costs............................................................ 22 79 77
Extraordinary item--loss on early extinguishments of debt... 10 20 --
Equity in (income) loss of subsidiary,
net of income taxes....................................... 139 (319) (349)
Other, net.................................................. 70 (164) (48)
---------- ------------- -------------
Total adjustments...................................... 310 (447) (378)
---------- ------------- -------------
Net cash flows from (used in) operating activities.......... 165 (148) (10)
---------- ------------- -------------
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES:
Dividends received from subsidiary............................. 48 278 --
Investment in subsidiary....................................... (1,214) -- (3,454)
---------- ------------- -------------
Net cash flows from (used in) investing activities.......... (1,166) 278 (3,454)
---------- ------------- -------------
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES (NOTE A):
Repayments of long-term debt................................... (548) (251) --
Proceeds from issuance of common stock and exercised
warrants..................................................... 9 1 1,300
Proceeds from issuance of Series A Preferred Stock............. -- -- 2,126
Proceeds from issuance of Series B Preferred Stock............. 1,250 -- --
Preferred stock dividends paid................................. (241) (214) (205)
Financing and advisory fees paid............................... (39) (2) (146)
Repurchase of Preferred Stock.................................. (105) -- --
Repurchases and cancellations of common stock, stock options
and warrants................................................. (1) (89) (4)
Other, net--including intercompany transfers................... 683 425 179
---------- ------------- -------------
Net cash flows from (used in) financing activities.......... 1,008 (130) 3,250
---------- ------------- -------------
Net change in cash and cash equivalents..................... 7 -- (214)
Cash and cash equivalents at beginning of period................. 3 3 217
---------- ------------- -------------
Cash and cash equivalents at end of period....................... $ 10 $ 3 $ 3
---------- ------------- -------------
---------- ------------- -------------
</TABLE>
See Notes to Condensed Financial Information.
S-4
<PAGE>
SCHEDULE III
RJR NABISCO HOLDINGS CORP.
SCHEDULE III--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED BALANCE SHEETS
(DOLLARS IN MILLIONS)
<TABLE><CAPTION>
DECEMBER 31, 1993 DECEMBER 31, 1992
------------------- ------------------
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents.............................................. $ 10 $ 3
Accounts and notes receivable.......................................... 9 23
--------- ----------
TOTAL CURRENT ASSETS........................................... 19 26
--------- ----------
Intercompany receivable (payable), net................................... (150) 607
Investment in subsidiary................................................. 9,316 8,344
Other assets and deferred charges........................................ 4 54
--------- ----------
$ 9,189 $ 9,031
--------- ----------
--------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities............................... $ 46 $ 43
Current maturities of long-term debt................................... -- 28
--------- ----------
TOTAL CURRENT LIABILITIES...................................... 46 71
--------- ----------
Long-term debt (less current maturities) (Note B)........................ -- 487
Deferred income taxes.................................................... 73 97
Commitments and contingencies (Note C)...................................
Stockholders' equity:
Redeemable convertible preferred stock--4,032,968 shares issued and
outstanding at December 31, 1992.................................... -- 101
ESOP convertible preferred stock--15,573,973 and 15,625,000 shares
issued and outstanding at December 31, 1993 and 1992,
respectively........................................................ 249 250
Series A convertible preferred stock--52,500,000 shares issued and
outstanding at December 31, 1993 and 1992........................... 2 2
Series B preferred stock--50,000 shares issued and outstanding at
December 31, 1993................................................... 1,250 --
Common stock--1,138,011,292 and 1,134,648,542 shares issued and
outstanding at December 31, 1993 and 1992, respectively............. 11 11
Paid-in capital........................................................ 8,778 9,048
Cumulative translation adjustments..................................... (102) (47)
Retained earnings (accumulated deficit)................................ (883) (738)
Receivable from ESOP................................................... (211) (227)
Loans receivable from employees........................................ (18) (24)
Unamortized value of restricted stock.................................. (6) --
--------- ----------
TOTAL STOCKHOLDERS' EQUITY..................................... 9,070 8,376
--------- ----------
$ 9,189 $ 9,031
--------- ----------
--------- ----------
</TABLE>
See Notes to Condensed Financial Information.
S-5
<PAGE>
SCHEDULE III
RJR NABISCO HOLDINGS CORP.
SCHEDULE III -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
NOTES TO CONDENSED FINANCIAL INFORMATION
NOTE A--SUPPLEMENTAL CASH FLOWS INFORMATION
For information regarding certain non-cash financing activities, see Notes
10 and 12 to the Consolidated Financial Statements.
NOTE B--LONG-TERM DEBT
See Note 10 to the Consolidated Financial Statements for information
relating to the Converting Debentures.
NOTE C--COMMITMENTS AND CONTINGENCIES
Holdings has guaranteed the indebtedness of RJRN under the Credit
Agreements and certain debentures. The guaranties are secured by a pledge of the
capital stock of RJRN owned by Holdings. For a discussion of certain restrictive
covenants associated with these debt obligations, see Note 10 to the
Consolidated Financial Statements.
For disclosure of additional contingent liabilities, see Note 11 to the
Consolidated Financial Statements.
S-6
<PAGE>
SCHEDULE V
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
SCHEDULE V--PROPERTY, PLANT AND EQUIPMENT
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(DOLLARS IN MILLIONS)
<TABLE><CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
- -------------------------------------------------------------------------------------------------------------------
BALANCE AT BALANCE AT
BEGINNING ADDITIONS AT OTHER CHANGES END OF
CLASSIFICATION OF PERIOD COST RETIREMENTS ADD (DEDUCT) PERIOD
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1993:
Land and land improvements............... $ 277 $ 6 $ (7) $ 32 $ 308
Buildings and leasehold
improvements.......................... 1,682 22 (46) 113 1,771
Machinery and equipment.................. 4,086 133 (110) 515 4,624
Construction-in-process.................. 470 462 (6) (463) 463
----------- ---------- ------------- ---------- -----------
$ 6,515 $ 623 $ (169) $ 197 $ 7,166
----------- ---------- ------------- ---------- -----------
----------- ---------- ------------- ---------- -----------
Year ended December 31, 1992:
Land and land improvements............... $ 270 $ 2 $ (1) $ 6 $ 277
Buildings and leasehold
improvements.......................... 1,644 4 (12) 46 1,682
Machinery and equipment.................. 3,781 64 (105) 346 4,086
Construction-in-process.................. 405 449 (1) (383) 470
----------- ---------- ------------- ---------- -----------
$ 6,100 $ 519 $ (119) $ 15 $ 6,515
----------- ---------- ------------- ---------- -----------
----------- ---------- ------------- ---------- -----------
Year ended December 31, 1991:
Land and land improvements............... $ 264 $ 1 $ (6) $ 11 $ 270
Buildings and leasehold improvements..... 1,604 8 (12) 44 1,644
Machinery and equipment.................. 3,510 76 (118) 313 3,781
Construction-in-process.................. 403 374 -- (372) 405
----------- ---------- ------------- ---------- -----------
$ 5,781 $ 459 $ (136) $ (4) $ 6,100
----------- ---------- ------------- ---------- -----------
----------- ---------- ------------- ---------- -----------
</TABLE>
- ---------------
Property, plant and equipment are depreciated principally by the straight-line
method. Annual depreciation rates for new assets range principally from 5% to 7%
for land improvements; 2% to 33% for buildings and leasehold improvements;
and 5% to 33% for machinery and equipment. Correspondingly higher
depreciation rates are applicable with respect to assets in service at
February 9, 1989, the date of the acquisition by Holdings and its affiliates
of RJRN.
S-7
<PAGE>
SCHEDULE VI
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
SCHEDULE VI--ACCUMULATED DEPRECIATION, DEPLETION, AND AMORTIZATION
OF PROPERTY, PLANT AND EQUIPMENT
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(DOLLARS IN MILLIONS)
<TABLE><CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
- --------------------------------------------------------------------------------------------------------------------
ADDITIONS
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND OTHER CHANGES ADD END OF
CLASSIFICATION OF PERIOD EXPENSES RETIREMENTS (DEDUCT) PERIOD
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1993:
Land and land improvements.............. $ 20 $ 5 $ -- $ -- $ 25
Buildings and leasehold improvements.... 269 68 (15) (3) 319
Machinery and equipment................. 1,368 375 (60) (29) 1,654
----------- ------------- ------------- ------------- -----------
$ 1,657 $ 448 $ (75) $ (32) $ 1,998
----------- ------------- ------------- ------------- -----------
----------- ------------- ------------- ------------- -----------
Year ended December 31, 1992:
Land and land improvements.............. $ 15 $ 5 $ -- $ -- $ 20
Buildings and leasehold
improvements......................... 205 73 (8) (1) 269
Machinery and equipment................. 1,064 377 (45) (28) 1,368
----------- ------------- ------------- ------------- -----------
$ 1,284 $ 455 $ (53) $ (29) $ 1,657
----------- ------------- ------------- ------------- -----------
----------- ------------- ------------- ------------- -----------
Year ended December 31, 1991:
Land and land improvements.............. $ 10 $ 5 $ -- $ -- $ 15
Buildings and leasehold improvements.... 142 64 (2) 1 205
Machinery and equipment................. 763 372 (53) (18) 1,064
----------- ------------- ------------- ------------- -----------
$ 915 $ 441 $ (55) $ (17) $ 1,284
----------- ------------- ------------- ------------- -----------
----------- ------------- ------------- ------------- -----------
</TABLE>
S-8
<PAGE>
SCHEDULE VIII
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
SCHEDULE VIII--VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(DOLLARS IN MILLIONS)
<TABLE><CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ---------------------------------------------------------------------------------------------------------------------------------
ADDITIONS
----------------------------
(1) (2)
CHARGED CHARGED
BALANCE AT TO COSTS TO OTHER BALANCE AT
BEGINNING AND ACCOUNTS DEDUCTIONS END OF
DESCRIPTION OF PERIOD EXPENSES (A) (B) PERIOD(C)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Those valuation and qualifying accounts which are
deducted in the balance sheet from the assets to
which they apply:
Year ended December 31, 1993:
For discounts and doubtful accounts................. $ 84 $ 23 $ 8 $ (56) $ 59
Other assets........................................ 38 26 -- (18) 46
------------- ------------- ------------- -------------- ------------
$ 122 $ 49 $ 8 $ (74) $ 105
------------- ------------- ------------- -------------- ------------
------------- ------------- ------------- -------------- ------------
Year ended December 31, 1992:
For discounts and doubtful accounts................. $ 99 $ 15 $ 3 $ (33) $ 84
Other assets........................................ 30 25 -- (17) 38
------------- ------------- ------------- -------------- ------------
$ 129 $ 40 $ 3 $ (50) $ 122
------------- ------------- ------------- -------------- ------------
------------- ------------- ------------- -------------- ------------
Year ended December 31, 1991:
For discounts and doubtful accounts................. $ 70 $ 61 $ 2 $ (34) $ 99
Other assets........................................ 31 15 1 (17) 30
------------- ------------- ------------- -------------- ------------
$ 101 $ 76 $ 3 $ (51) $ 129
------------- ------------- ------------- -------------- ------------
------------- ------------- ------------- -------------- ------------
</TABLE>
- ---------------
(A) Miscellaneous adjustments.
(B) Principally charges against the accounts.
(C) Excludes valuation allowance accounts for deferred tax assets.
S-9
<PAGE>
SCHEDULE IX
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
SCHEDULE IX--SHORT-TERM BORROWINGS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(DOLLARS IN MILLIONS)
<TABLE><CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
- ----------------------------------------------------------------------------------------------------------------
WEIGHTED
MAXIMUM AVERAGE AVERAGE
WEIGHTED AMOUNT AMOUNT INTEREST
BALANCE AT AVERAGE OUTSTANDING OUTSTANDING RATE DURING
CATEGORY OF AGGREGATE END OF INTEREST DURING THE DURING THE THE
SHORT-TERM BORROWINGS PERIOD(A) RATE(C) PERIOD PERIOD(B) PERIOD(C)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1993:
Banks.................................... $ 301 6.11% $ 712 $ 365 8.37%
Commercial paper holders(D).............. -- --% 58 33 5.84%
Year ended December 31, 1992:
Banks.................................... $ 280 9.45% $ 632 $ 333 9.74%
Commercial paper holders(D).............. 18 6.90% 79 60 7.40%
Year ended December 31, 1991:
Banks.................................... $ 319 9.86% $ 639 $ 396 9.26%
Commercial paper holders(D).............. 50 9.54% 63 19 9.52%
</TABLE>
- ---------------
<TABLE>
<S> <C>
(A) Varying maturity dates with no provision for extension at maturity.
(B) Primarily daily average balance of total short-term debt.
(C) Short-term interest expense as a percentage of the average balance of interest bearing short-term debt. The
weighted average interest rates include nominal borrowing rates in high inflationary countries, primarily
Latin America.
(D) Commercial paper interest rates reflect nominal Canadian borrowing costs.
</TABLE>
S-10
<PAGE>
SCHEDULE X
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
SCHEDULE X--SUPPLEMENTARY INCOME STATEMENT INFORMATION
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(DOLLARS IN MILLIONS)
<TABLE><CAPTION>
COLUMN A COLUMN B
- ---------------------------------------------------------------------------------------------------------------------
ITEM CHARGED TO COSTS AND EXPENSES
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1993 1992 1991
--------- --------- ---------
Maintenance and repairs.............................................................. $ 316 $ 302 $ 291
--------- --------- ---------
--------- --------- ---------
Advertising costs.................................................................... $ 544 $ 564 $ 657
--------- --------- ---------
--------- --------- ---------
Amortization of trademarks........................................................... $ 253 $ 253 $ 252
--------- --------- ---------
--------- --------- ---------
Amortization of goodwill............................................................. $ 372 $ 363 $ 357
--------- --------- ---------
--------- --------- ---------
</TABLE>
S-11
<PAGE>
EXHIBIT INDEX
<TABLE><CAPTION>
EXHIBIT SEQUENTIAL
NO. PAGE NO.
- ------------ ---------------
<S> <C>
3.1 Amended and Restated Certificate of Incorporation of RJR Nabisco Holdings Corp., filed
October 1, 1990 (incorporated by reference to Exhibit 3.1 to Amendment No. 4, filed on
October 2, 1990, to the Registration Statement on Form S-4 of RJR Nabisco Holdings
Corp., Registration No. 33-36070, filed on July 25, 1990, as amended (the "Form S-4,
Registration No. 33-36070")).
3.1(a) Certificate of Amendment to Amended and Restated Certificate of Incorporation of RJR
Nabisco Holdings Corp., filed January 29, 1991 (incorporated by reference to Exhibit
3.1(a) to Amendment No. 3, filed on January 31, 1991, to the Registration Statement on
Form S-4 of RJR Nabisco Holdings Corp., Registration No. 33-38227).
3.1(b) Certificate of Designation of ESOP Convertible Preferred Stock, filed April 10, 1991
(incorporated by reference to Exhibit 3.1(b) to Amendment No. 2, filed on April 11,
1991, to the Registration Statement on Form S-1 of RJR Nabisco Holdings Corp.,
Registration No. 33-39532, filed on March 20, 1991).
3.1(c) Certificate of Designation of Series A Conversion Preferred Stock, filed November 7,
1991 (incorporated by reference to Exhibit 3.1(c) to Amendment No. 3, filed on November
1, 1991, to the Registration Statement on Form S-1 of RJR Nabisco Holdings Corp.,
Registration No. 33-43137, filed October 2, 1991 (the "Form S-1, Registration No. 33-
43137")).
3.1(d) Certificate of Amendment to Amended and Restated Certificate of Incorporation of RJR
Nabisco Holdings Corp., filed December 16, 1991 (incorporated by reference to Exhibit
3.1(d) of the Annual Report on Form 10-K of RJR Nabisco Holdings Corp., RJR Nabisco
Holdings Group, Inc., RJR Nabisco Capital Corp. and RJR Nabisco, Inc. for the fiscal
year ended December 31, 1991, File Nos. 1-10215, 1-10214, 1-10248 and 1-6388 (the "1991
Form 10-K")).
3.1(e) Certificate of Amendment to the Amended and Restated Certificate of Incorporation of RJR
Nabisco Holdings Corp., filed April 6, 1993 (incorporated by reference to Exhibit 3.3 of
the Quarterly Report on Form 10-Q of RJR Nabisco Holdings Corp. and RJR Nabisco, Inc.
for the fiscal quarter ended March 31, 1993, filed April 30, 1993 (the "March 1993 Form
10-Q")).
*3.1(f) Certificate of Designation of Series B Cumulative Preferred Stock.
*3.1(g) A composite of the Amended and Restated Certificate of Incorporation of RJR Nabisco
Holdings Corp., as amended to August 16, 1993.
*3.2 Amended and Restated By-Laws of RJR Nabisco Holdings Corp., as amended, effective
January 20, 1994.
3.3 Restated Certificate of Incorporation of RJR Nabisco, Inc. (incorporated by reference to
Exhibit 3.9 to Amendment No. 2, filed on May 12, 1989, to the Registration Statement on
Form S-1 of RJR Holdings Capital Corp., RJR Holdings Corp., RJR Holdings Group, Inc. and
RJR Nabisco, Inc., Registration No. 33-27891, filed on April 4, 1989 (the "Form S-1,
Registration No. 33-27891")).
3.3(a) Certificate of Amendment of the Certificate of Incorporation of RJR Nabisco, Inc., filed
September 22, 1989 (incorporated by reference to Exhibit 3.7(b) to the Registration
Statement on Form S-1 of RJR Holdings Capital Corp., RJR Holdings Corp., RJR Holdings
Group, Inc. and RJR Nabisco, Inc., Registration No. 33-31937, filed on November 3, 1989,
as amended (the "Form S-1, Registration No. 33-31937")).
</TABLE>
<PAGE>
<TABLE><CAPTION>
EXHIBIT SEQUENTIAL
NO. PAGE NO.
- ------------ ---------------
<S> <C>
3.3(b) Certificate of Change of Location of Registered Office and of Registered Agent of RJR
Nabisco, Inc., filed July 5, 1990 (incorporated by reference to Exhibit 3.7(b) of the
Annual Report on Form 10-K of RJR Nabisco Holdings Corp., RJR Nabisco Holdings Group,
Inc., RJR Nabisco Capital Corp. and RJR Nabisco, Inc. for the year ended December 31,
1990, File Nos. 1-10215, 1-10214, 1-10248 and 1-6388 (the "1990 Form 10-K")).
3.3(c) A composite of the Certificate of Incorporation of RJR Nabisco, Inc., as amended to July
5, 1990 (incorporated by reference to Exhibit 3.7(c) of the 1990 Form 10-K).
*3.4 Amended and Restated By-laws of RJR Nabisco, Inc., as amended, effective January 20,
1994.
4.1 Credit Agreement dated as of December 1, 1991 among RJR Nabisco Holdings Corp., RJR
Nabisco Holdings Group, Inc., RJR Nabisco Capital Corp., RJR Nabisco, Inc. and the
lending institutions party thereto (the "Credit Agreement") (incorporated by reference
to Exhibit 4.1 of the 1991 Form 10-K).
4.1(a) Amendment No. 1 to Credit Agreement, dated as of October 21, 1992 (incorporated by
reference to Exhibit 4.1(a) of the Annual Report on Form 10-K of RJR Nabisco Holdings
Corp. and RJR Nabisco, Inc. for the fiscal year ended December 31, 1992, File Nos.
1-10215 and 1-6388 (the "1992 Form 10-K")).
4.1(b) Second Amendment to Credit Agreement, dated as of March 4, 1993 (incorporated by
reference to Exhibit 4.2 of the March 1993 Form 10-Q).
4.1(c) Third Amendment to Credit Agreement, dated as of October 12, 1993 (incorporated by
reference to Exhibit 10.1 of the Quarterly Report on Form 10-Q of RJR Nabisco Holdings
Corp. and RJR Nabisco, Inc. for the fiscal quarter ended September 30, 1993, filed
October 29, 1993 (the "September 1993 Form 10-Q")).
4.2 Credit Agreement dated as of April 15, 1993 among RJR Nabisco Holdings Corp., RJR
Nabisco, Inc. and the lending institutions party thereto (incorporated by reference to
Exhibit 4.3 of the March 1993 Form 10-Q).
4.2(a) First Amendment to Credit Agreement dated as of October 12, 1993 (incorporated by
reference to Exhibit 10.1 of the September 1993 Form 10-Q).
4.3 The Registrants agree to furnish copies of any instrument defining the rights of holders
of long-term debt of the Registrants and their consolidated subsidiaries that does not
exceed 10 percent of the total assets of the Registrants and their consolidated
subsidiaries to the Commission upon request.
10.1 Registration Rights Agreement, dated as of February 9, 1989, among RJR Holdings Corp.,
RJR Associates, L.P., KKR Partners II, L.P., Drexel Burnham Lambert Incorporated and
Merrill Lynch & Co. (incorporated by reference to Exhibit 4.3 to the Registration
Statement on Form S-1 of RJR Holdings Corp., Registration No. 33-29401, filed on June
20, 1989, as amended (the "Form S-1, Registration No. 33-29401")).
10.2 Retirement Plan for Directors of RJR Nabisco, Inc. as amended and restated on January 1,
1989 (incorporated by reference to Exhibit 10(a) to the Annual Report on Form 10-K for
the fiscal year ended December 31, 1988, file number 1-6388, filed on March 9, 1989, as
amended through April 14, 1989 (the "1988 Form 10-K")).
10.3 Retirement Trust Agreement, made as of October 12, 1988, between RJR Nabisco, Inc. and
Wachovia Bank and Trust Company, N.A. (incorporated by reference to Exhibit 10.6 to the
Registration Statement on Form S-4 of RJR Holdings Corp. and RJR Holdings Group, Inc.,
Registration No. 33-27894, filed April 5, 1989, as amended (the "Form S-4, Registration
No. 33-27894")).
</TABLE>
<PAGE>
<TABLE><CAPTION>
EXHIBIT SEQUENTIAL
NO. PAGE NO.
- ------------ ---------------
<S> <C>
10.4 Agreement Containing Consent Order to Cease and Desist, dated January 30, 1989, among
KKR Associates, the general partners of KKR Associates, Kohlberg Kravis Roberts & Co.,
L.P., the general partners of Kohlberg Kravis Roberts & Co., L.P., RJR Associates, L.P.,
RJR Holdings Corp., RJR Holdings Group, Inc., RJR Acquisition Corporation and the
Federal Trade Commission (incorporated by reference to Exhibit 10.2 to the Form S-4,
Registration No. 33-27894).
10.5 Form of Employment Agreement containing Change of Control provision (incorporated by
reference to Exhibit 10.8 to the Form S-4, Registration No. 33-27894).
10.6 Special Addendum to Form of Employment Agreement filed as Exhibit 10.22, dated December
20, 1988 (incorporated by reference to Exhibit 10(d)(ii) to the 1988 Form 10-K).
10.7 Form of Agreement containing Gross-Up provisions, dated January 27, 1989 (incorporated
by reference to Exhibit 10(d)(iii) to the 1988 Form 10-K).
10.8 Trust Agreement between RJR Nabisco, Inc. and Wachovia Bank and Trust Company, N.A.,
Trustee, dated January 27, 1989 (incorporated by reference to Exhibit 10(d)(iv) to the
1988 Form 10-K).
10.9 Form of Employment Agreement Without Change of Control provision (incorporated by
reference to Exhibit 10.16 to the Form S-4, Registration No. 33-27894).
10.10 Special Addendum, dated December 20, 1988 (incorporated by reference to Exhibit
10(d)(ii) to the 1988 Form 10-K).
10.11 Master Trust Agreement, as amended and restated as of October 12, 1988, between RJR
Nabisco, Inc. and Wachovia Bank and Trust Company, N.A. (incorporated by reference to
Exhibit 10.18 to the Form S-4, Registration No. 33-27894).
10.11(a) Amendment No. 1 to Master Trust Agreement, dated January 27, 1989 (incorporated by
reference to Exhibit 10(g)(ii) to the 1988 Form 10-K).
10.11(b) Amendment No. 2 to Master Trust Agreement, dated January 27, 1989 (incorporated by
reference to Exhibit 10(g)(iii) to the 1988 Form 10-K).
10.12 Excess Benefit Master Trust Agreement, as amended and restated as of October 12, 1988,
between RJR Nabisco, Inc. and Wachovia Bank and Trust Company, N.A. (incorporated by
reference to Exhibit 10.21 to the Form S-4, Registration No. 33-27894).
10.12(a) Amendment No. 1 to Excess Benefit Master Trust Agreement, dated January 27, 1989
(incorporated by reference to Exhibit 10(h)(ii) to the 1988 Form 10-K).
10.13 Supplemental Benefits Plan of RJR Nabisco, Inc. and Participating Companies, as amended
on October 12, 1988 (incorporated by reference to Exhibit 10.25 to the Form S-4,
Registration No. 33-27894).
10.13(a) Amendment to Supplemental Benefits Plan, dated November 23, 1988 (incorporated by
reference to Exhibit 10(k)(ii) to the 1988 Form 10-K).
10.13(b) Amendment No. 2 to Supplemental Benefits Plan, dated January 27, 1989 (incorporated by
reference to Exhibit 10(k)(iii) to the 1988 Form 10-K).
10.14 Additional Benefits Plan of RJR Nabisco, Inc. and Participating Companies, effective
October 12, 1988 (incorporated by reference to Exhibit 10.28 to the Form S-4,
Registration No. 33-27894).
10.14(a) Amendment to Additional Benefits Plan, dated October 28, 1988 (incorporated by reference
to Exhibit 10(l)(ii) to the 1988 Form 10-K).
10.14(b) Amendment to Additional Benefits Plan, dated November 23, 1988 (incorporated by
reference to Exhibit 10(1)(iii) to the 1988 Form 10-K).
10.14(c) Amendment to Additional Benefits Plan No. 3, dated January 27, 1989 (incorporated by
reference to Exhibit 10(1)(iv) to the 1988 Form 10-K).
</TABLE>
<PAGE>
<TABLE><CAPTION>
EXHIBIT SEQUENTIAL
NO. PAGE NO.
- ------------ ---------------
<S> <C>
10.15 RJR Nabisco, Inc. Supplemental Executive Retirement Plan, as amended on July 21, 1988
(incorporated by reference to Exhibit 10.32 to the Form S-4, Registration No. 33-27894).
10.15(a) Amendment to Supplemental Executive Retirement Plan, dated November 23, 1988
(incorporated by reference to Exhibit 10(m)(ii) to the 1988 Form 10-K).
10.15(b) Amendment No. 2 to Supplemental Executive Retirement Plan, dated January 27, 1989
(incorporated by reference to Exhibit 10(m)(iii) to the 1988 Form 10-K).
*10.15(c) Amendment to Supplemental Executive Retirement Plan, dated April 10, 1993.
10.16 Stock Option Plan for Directors and Key Employees of RJR Holdings Corp. and
Subsidiaries, dated as of July 21, 1989 (incorporated by reference to Exhibit 10.71 to
the Form S-1, Registration No. 33-29401).
10.17 Form of Common Stock Subscription Agreement between RJR Holdings Corp. and the purchaser
named therein (incorporated by reference to Exhibit A to Post-Effective Amendment No. 2,
filed on August 21, 1989, to the Form S-1, Registration No. 33-29401 (the
"Post-Effective Amendment No. 2 to the Form S-1, Registration No. 33-29401")).
10.18 Form of Non-Qualified Stock Option Agreement between RJR Holdings Corp. and the optionee
named therein (incorporated by reference to Exhibit B to Post-Effective Amendment No. 2
to the Form S-1, Registration No. 33-29401).
*10.19 Form of Non-Qualified Stock Option Agreement, dated December 31, 1993, between RJR
Nabisco Holdings Corp. and Charles M. Harper.
10.20 Employment Agreement, dated May 27, 1993, by and among RJR Nabisco Holdings Corp., RJR
Nabisco, Inc. and Charles M. Harper (incorporated by reference to Exhibit 10.1 of the
Quarterly Report on Form 10-Q of RJR Nabisco Holdings Corp. and RJR Nabisco, Inc. for
the fiscal quarter ended June 30, 1993, filed August 3, 1993 (the "June 1993 Form
10-Q")).
10.21 Form of Non-Qualified Stock Option Agreement between RJR Nabisco Holdings Corp. and
Charles M. Harper (incorporated by reference to Exhibit 10.2 of the June 1993 Form
10-Q).
10.22 Employment Agreement, dated July 19, 1993, by and among RJR Nabisco Holdings Corp., RJR
Nabisco, Inc. and Lawrence R. Ricciardi (incorporated by reference to Exhibit 10.3 of
the June 1993 Form 10-Q).
10.23 Letter Agreement, dated July 27, 1989, between RJR Holdings Corp. and Lawrence R.
Ricciardi (incorporated by reference to Exhibit 10.71 to the Form S-1, Registration No.
33-31937).
*10.24 Letter Agreement, dated Janaury 20, 1994, between RJR Nabisco Holdings Corp. and
Lawrence R. Ricciardi.
10.25 Amended and Restated Employment Agreement, dated as of September 1, 1993, by and among
R.J. Reynolds Tobacco Company, R.J. Reynolds Tobacco International Inc., RJR Nabisco
Holdings Corp., RJR Nabisco, Inc. and Mr. James W. Johnston (incorporated by reference
to Exhibit 10.2 to the September 1993 Form 10-Q).
10.26 Letter Agreement, dated March 30, 1993, between RJR Nabisco, Inc. and Eugene R. Croisant
(incorporated by reference to Exhibit 10.4 to the March 1993 Form 10-Q).
10.27 Equity Securities Purchase Agreement dated as of July 15, 1990 between RJR Nabisco
Holdings Corp. and Whitehall Associates, L.P. (incorporated by reference to Exhibit 4.4
to the Form S-4, Registration No. 33-36070).
10.28 Registration Rights Agreement (Common Stock), dated as of July 15, 1990, between RJR
Nabisco Holdings Corp. and Whitehall Associates, L.P. (incorporated by reference to
Exhibit 4.5 to the Form S-4, Registration No. 33-36070).
</TABLE>
<PAGE>
<TABLE><CAPTION>
EXHIBIT SEQUENTIAL
NO. PAGE NO.
- ------------ ---------------
<S> <C>
10.29 Amended and Restated RJR Nabisco Holdings Corp. 1990 Long Term Incentive Plan
(incorporated by reference to Exhibit 10.2 to the March 1993 Form 10-Q).
10.30 Form of Purchase Stock Agreement between RJR Nabisco Holdings Corp. and purchaser named
therein (1991 Grant) (incorporated by reference to Exhibit 4.3 to the Registration
Statement on Form S-8 of RJR Nabisco Holdings Corp., Registration No. 33-39791, filed on
April 5, 1991 (the "Form S-8, Registration No. 33-39791").
10.31 Form of Non-Qualified Stock Option Agreement between RJR Nabisco Holdings Corp. and the
senior executive optionee named therein (1991 Grant) (incorporated by reference to
Exhibit 4.4(a) to Form S-8, Registration No. 33-39791).
10.32 Form of Non-Qualified Stock Option Agreement between RJR Nabisco Holdings Corp. and the
executive or management optionee named therein (1991 Grant) (incorporated by reference
to Exhibit 4.4(b) to Form S-8, Registration No. 33-39791).
10.33 Form of Secured Promissory Note of purchaser named therein in favor of RJR Nabisco
Holdings Corp. (1991 Grant) (incorporated by reference to Exhibit 4.5 to Form S-8,
Registration No. 33-39791).
*10.33(a) Form of Amendment and Exchange of Secured Promissory Note, dated July 1, 1993 (1991 Grant).
10.34 Form of Purchase Stock Agreement between RJR Nabisco Holdings Corp. and the purchaser
named therein (1992 Grant) (incorporated by reference to Exhibit 10.34 of the 1991 Form
10-K).
10.35 Form of Non-Qualified Stock Option Agreement between RJR Nabisco Holdings Corp. and the
senior executive optionee named therein (1992 Grant/cycle) (incorporated by reference to
Exhibit 10.35 of the 1991 Form 10-K).
10.36 Form of Non-Qualified Stock Option Agreement between RJR Nabisco Holdings Corp. and the
senior executive optionee named therein (1992 Grant/5-year) (incorporated by reference
to Exhibit 10.36 of the 1991 Form 10-K).
10.37 Form of Non-Qualified Stock Option Agreement between RJR Nabisco Holdings Corp. and the
executive or management optionee named therein (1992 Grant) (incorporated by reference
to Exhibit 10.37 of the 1991 Form 10-K).
*10.38 Form of Restated Non-Qualified Stock Option Agreement under the 1990 Long Term Incentive
Plan, between RJR Nabisco Holdings Corp. and the optionee named therein.
10.39 Form of Non-Qualified Stock Option Agreement between RJR Nabisco Holdings Corp. and the
optionee name therein (1993 Grant) (incorporated by reference to Exhibit 10.39 of the
1992 Form 10-K).
10.40 Performance Share Program under RJR Nabisco Holdings Corp. 1990 Long Term Incentive Plan
(incorporated by reference to Exhibit 10.40 of the 1992 Form 10-K).
10.41 Form of Performance Share Agreement between RJR Nabisco Holdings Corp. and the grantee
named therein (1993 Grant) (incorporated by reference to Exhibit 10.41 of the 1992 Form
10-K).
*10.42 Restricted Stock Program under the 1990 Long Term Incentive Plan.
10.43 Form of Restricted Stock Agreement under the 1990 Long Term Incentive Plan between RJR
Nabisco Holdings Corp. and the grantee named therein (1993 Grant) (incorporated by
reference to Exhibit 10.1 the March 1993 Form 10-Q).
*10.44 Form of Executive Equity Program Agreement under the 1990 Long Term Incentive Plan,
between RJR Nabisco Holdings Corp. and the grantee named therein (3 year).
</TABLE>
<PAGE>
<TABLE><CAPTION>
EXHIBIT SEQUENTIAL
NO. PAGE NO.
- ------------ ---------------
<S> <C>
*10.45 Form of Executive Equity Program Agreement under the 1990 Long Term Incentive Plan,
between RJR Nabisco Holdings Corp. and the grantee named therein (4 year).
10.46 Form of Non-Qualified Stock Option Agreement between RJR Nabisco Holdings Corp. and the
Consultant named therein (1991 Grant) (incorporated by reference to Exhibit 10.42 of the
1992 Form 10-K).
10.47 Form of Secured Promissory Note of purchaser named therein in favor of RJR Nabisco
Holdings Corp. (1992 Grant) (incorporated by reference to Exhibit 10.38 of the 1991 Form
10-K).
*10.47(a) Form of Amendment and Exchange of Secured Promissory Note, dated July 1, 1993 (1992 Grant).
10.48 Registration Rights Agreement (Preferred Stock), dated as of July 15, 1990, between RJR
Nabisco Holdings Corp. and Whitehall Associates, L.P. (incorporated by reference to
Exhibit 4.6 to the Form S-4, Registration No. 33-36070).
10.49 Preferred Stock Exchange Agreement dated as of October 1, 1990 between RJR Nabisco
Holdings Corp. and Whitehall Associates, L.P. (incorporated by reference to Exhibit 4.8
to the Form S-4, Registration No. 33-36070).
*11. RJR Nabisco Holdings Corp. Computation of Earnings Per Share for the years ended
December 31, 1993, 1992 and 1991.
*12. RJR Nabisco, Inc. Computation of Ratio of Earnings to Fixed Charges/Deficiency in the
Coverage of Fixed Charges by Earnings before Fixed Charges for each of the periods
within the five year period ended December 31, 1993.
*21. Subsidiaries of the Registrants.
*23. Consent of Independent Auditors.
*24. Powers of Attorney.
</TABLE>
- ---------------
*Filed herewith.
RJR NABISCO HOLDINGS CORP.
CERTIFICATE OF DESIGNATION
Pursuant to Section 151 of the General
Corporation Law of the State of Delaware
-------------------------
SERIES B CUMULATIVE
PREFERRED STOCK
RJR Nabisco Holdings Corp. (the "Corporation"), a
corporation organized and existing under the laws of the State of
Delaware, HEREBY CERTIFIES that pursuant to the provisions of
Section 151 of the General Corporation Law of the State of
Delaware the following resolution was duly adopted by the Board
of Directors of the Corporation, pursuant to authority conferred
upon the Board of Directors by the provisions of the Amended and
Restated Certificate of Incorporation, as amended, of the
Corporation (the "Certificate of Incorporation"):
WHEREAS, the Board of Directors by Section 141(c) of
the General Corporation Law of the State of Delaware, by the
Certificate of Incorporation, by Article II, Section 4 of the
By-Laws of the Corporation and by the resolutions of the Board of
Directors of the Corporation dated August 11, 1993 is authorized,
within the limitations and restrictions stated in the Certificate
of Incorporation, to fix, by resolution or resolutions for each
series of Preferred Stock (the "Preferred Stock"), the number of
shares constituting such series and the designations and powers,
preferences and relative, participating, optional or other
special rights and qualifications, limitations or restrictions
thereof, including, without limiting the generality of the
foregoing, such provisions as may be desired concerning voting,
redemption, dividends, dissolution or the distribution of assets,
conversion or exchange, and such other subjects or matters as may
be fixed by resolution or resolutions of the Board of Directors
under the General Corporation Law of the State of Delaware; and
WHEREAS, the Board of Directors of the Corporation on
August 11, 1993 adopted resolutions authorizing a new series of
Preferred Stock to be designated as Series B Cumulative Preferred
Stock; and
WHEREAS, it is the desire of the Board of Directors to
fix the number of shares constituting a series of Preferred Stock
and the designations and powers, preferences and relative,
participating, optional and other special rights and
qualifications, limitations and restrictions of such series as
set forth below.
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NOW, THEREFORE, BE IT RESOLVED, that there is hereby
authorized such series of Preferred Stock on the terms and with
the provisions herein set forth:
1. Designation. The designation of the series of
Preferred Stock authorized by this resolution shall be "Series B
Cumulative Preferred Stock" (the "Series B Preferred Stock")
consisting of 50,000 shares. The stated value of the Series B
Preferred Stock shall be $25,000 per share, which value does not
represent a determination by the Board of Directors for the
purposes of the capital accounts.
2. Rank. The Series B Preferred Stock shall, with
respect to dividend rights and rights on liquidation, dissolution
and winding up, rank prior to the Common Stock, par value $0.01
per share (the "Common Stock"), of the Corporation and on a
parity with the Cumulative Convertible Preferred Stock, par value
$0.01 per share and stated value $25.00 per share (the
"Cumulative Convertible Preferred Stock"), the ESOP Convertible
Preferred Stock, par value $0.01 per share and stated value
$16.00 per share (the "ESOP Convertible Preferred Stock"), and
the Series A Conversion Preferred Stock, par value $0.01 per
share (the "Series A Preferred Stock"), of the Corporation. All
equity securities of the Corporation to which the Series B
Preferred Stock ranks prior, including the Common Stock, are
collectively referred to herein as the "Junior Securities," all
equity securities of the Corporation with which the Series B
Preferred Stock ranks on a parity, including the Cumulative
Convertible Preferred Stock, the ESOP Convertible Preferred Stock
and the Series A Preferred Stock, are collectively referred to
herein as the "Parity Securities" and all equity securities of
the Corporation (other than convertible debt securities) to which
the Series B Preferred Stock ranks junior, whether with respect
to dividends or upon liquidation, dissolution, winding-up or
otherwise, are collectively referred to herein as the "Senior
Securities." The Series B Preferred Stock shall be subject to
the creation of Junior Securities, Parity Securities and Senior
Securities.
3. Dividends. (i) The holders of outstanding shares
of Series B Preferred Stock shall be entitled to receive, when,
as and if declared by the Board of Directors, out of funds
legally available for the payment of dividends, cumulative
preferential cash dividends at the rate per annum of 9 1/4% of the
stated value ($25,000) per share and no more, payable in arrears
on the first business day of each March, June, September and
December, commencing December 1, 1993 (each of such dates being a
"Dividend Payment Date"). If any Dividend Payment Date shall be
or be declared a national or New York State holiday or if banking
institutions in the State of New York shall be closed because of
a banking moratorium or otherwise on such date, then the Dividend
Payment Date shall be on the next succeeding day on which such
banks shall be open. Each such dividend shall be payable to
holders of record as they appear on the stock books of the
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Corporation at the close of business on each record date, which
shall be the 15th day immediately preceding each such Dividend
Payment Date (each of such dates being a "Dividend Payment Record
Date"). Each of such quarterly dividends shall be fully
cumulative and shall accrue (whether or not declared) on a daily
basis, without interest, from the previous Dividend Payment Date,
except that the first dividend shall accrue, without interest,
from the date of initial issuance of the Series B Preferred
Stock. Accrued and unpaid dividends shall not bear interest.
Dividends will cease to accrue in respect of the Series B
Preferred Stock on the date of their earlier redemption pursuant
to paragraph (4), unless the Corporation shall default in
providing funds for the payment of the redemption price of the
shares called for redemption pursuant to paragraphs (4) and (5).
Dividends payable on the Series B Preferred Stock for the first
dividend period and any partial dividend period will be computed
on the basis of a 360-day year consisting of twelve 30-day
months.
(ii) No full dividends shall be declared by the Board
of Directors or paid or set apart for payment by the Corporation
on any Parity Securities for any period unless full cumulative
dividends have been or contemporaneously are declared and paid or
declared and a sum set apart sufficient for such payment on the
Series B Preferred Stock through the most recent Dividend Payment
Date. If any dividends are not paid or set apart in full, as
aforesaid, upon the shares of the Series B Preferred Stock and
any Parity Securities, all dividends declared upon shares on the
Series B Preferred Stock and any Parity Securities shall be
declared pro rata so that the amount of dividends declared per
share on the Series B Preferred Stock and such Parity Securities
shall in all cases bear to each other the same ratio that accrued
dividends per share on the Series B Preferred Stock and such
Parity Securities bear to each other. Unless full cumulative
dividends, if any, accrued on all outstanding shares of the
Series B Preferred Stock have been or contemporaneously are
declared and paid or declared and a sum set apart sufficient for
such payment through the most recent Dividend Payment Date, no
dividend shall be declared or paid or set apart for payment or
other distribution declared or made on any Junior Securities
(other than a dividend or distribution paid in shares of, or
warrants, rights or options exercisable for or convertible into,
any Junior Securities), nor shall any Junior Securities be
redeemed, purchased or otherwise retired for any consideration,
nor may any moneys be paid to or made available for a sinking
fund for the redemption of any shares of any such securities, by
the Corporation (other than redemptions and purchases pursuant to
or in accordance with employee stock subscription agreements
entered into between the Corporation and certain of its or its
subsidiaries' directors, officers and key employees), except by
conversion into or exchange for Junior Securities. Holders of
the shares of the Series B Preferred Stock shall not be entitled
to any dividends, whether payable in cash, property or stock, in
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excess of full cumulative dividends as provided in paragraph
3(i).
(iii) Subject to the foregoing provisions of this
paragraph (3), the Board of Directors may declare and the
Corporation may pay or set apart for payment dividends and other
distributions on any of the Junior Securities or Parity
Securities, and may redeem, purchase, or otherwise retire any
Junior Securities, and the holders of the shares of the Series B
Preferred Stock shall not be entitled to share therein.
(iv) Any dividend payment made on shares of the Series
B Preferred Stock shall first be credited against the earliest
accrued but unpaid dividend due with respect to shares of the
Series B Preferred Stock.
(v) All dividends paid with respect to shares of the
Series B Preferred Stock pursuant to this paragraph (3) shall be
paid pro rata to the holders entitled thereto.
(vi) Holders of shares of the Series B Preferred Stock
shall be entitled to receive the dividends provided for in this
paragraph (3) in preference to and in priority over any dividends
upon any of the Junior Securities.
4. Redemption. (i) The shares of the Series B
Preferred Stock shall not be redeemable prior to August 18, 1998.
On and after August 18, 1998, the Corporation, at its option, may
redeem shares of the Series B Preferred Stock, as a whole or in
part, at any time or from time to time, at a redemption price per
share of $25,000, plus, in each case, an amount equal to accrued
and unpaid dividends thereon to the date fixed for redemption,
without interest, to the extent the Corporation shall have funds
legally available for such payment.
(ii) So long as any shares of the Series B Preferred
Stock are outstanding, any repurchase, redemption or other
retirement of any Parity Securities or any warrants, rights or
options exercisable for or convertible into any of the Parity
Securities (other than the repurchase, redemption or other
retirement of debentures or other debt securities that are
convertible or exchangeable into any Parity Securities) must be
made on a pro rata basis with the Series B Preferred Stock so
that the total redemption prices of the shares redeemed of Series
B Preferred Stock and such Parity Securities shall in all cases
bear to each other the same ratio that the total redemption
prices of all shares outstanding on the applicable date of Series
B Preferred Stock and such Parity Securities bear to each other,
unless prior to or concurrently with such repurchase, redemption
or other retirement, as the case may be, all accrued and unpaid
dividends on shares of the Series B Preferred Stock not paid on
the dates provided for in paragraph (3)(i) hereof (including
accrued dividends not paid by reason of the terms and conditions
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of paragraph (3)(i) or paragraph (3)(ii) hereof) shall have been
or be paid.
(iii) The holders of shares of Series B Preferred
Stock at the close of business on a Dividend Payment Record Date
shall be entitled to receive the dividend payable on such shares
on the corresponding Dividend Payment Date notwithstanding the
call for redemption thereof (except that holders of shares called
for redemption on a date occurring between such Record Date and
the Dividend Payment Date shall not be entitled to receive such
dividend on such Dividend Payment Date) or the Corporation's
default in payment of the dividend due on such Dividend Payment
Date.
(iv) Shares of Series B Preferred Stock that have been
issued and reacquired in any manner, including shares purchased
or redeemed, shall (upon compliance with any applicable
provisions of the laws of the State of Delaware) have the status
of authorized and unissued shares of the class of Preferred Stock
undesignated as to series and may be redesignated and reissued as
part of any series of the Preferred Stock.
5. Procedure for Redemption. (i) In the event that
fewer than all the outstanding shares of Series B Preferred Stock
are to be redeemed, the number of shares to be redeemed shall be
determined by the Board of Directors and the shares to be
redeemed shall be selected pro rata (as nearly as may be
practicable without creating fractional shares) or by any other
means determined by the Board of Directors in its sole discretion
to be equitable, except the Corporation may redeem all shares
held by any holders of a number of shares not to exceed 100,
including all shares held by holders who, after giving effect to
such redemption, would hold less than 100 shares, as may be
specified by the Corporation.
(ii) In the event the Corporation shall redeem shares
of Series B Preferred Stock, written notice of such redemption
shall be given by first class mail, postage prepaid, mailed not
less than 30 days nor more than 60 days prior to the redemption
date, to each holder of record of the shares to be redeemed at
such holder's address as the same appears on the stock register
of the Corporation; provided, however, that no failure to give
such notice nor any defect therein shall affect the validity of
the proceeding for the redemption of any shares of Series B
Preferred Stock to be redeemed except as to the holder to whom
the Corporation has failed to mail said notice or except as to
the holder whose notice was defective. Each such notice shall
state: (a) the redemption date; (b) the number of shares of
Series B Preferred Stock to be redeemed and, if less than all the
shares held by such holder are to be redeemed from such holder,
the number of shares to be redeemed from such holder; (c) the
redemption price including an amount equal to any accrued and
unpaid dividends to the redemption date; (d) the place or places
where certificates for such shares are to be surrendered for
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payment of the redemption price; and (e) that dividends on the
shares to be redeemed will cease to accrue on such redemption
date (unless the Corporation shall default in providing funds for
the payment of the redemption price of the shares called for
redemption at the time and place specified in such notice).
(iii) Notice having been mailed as aforesaid, from and
after the redemption date (unless default shall be made by the
Corporation in providing funds for the payment of the redemption
price of the shares called for redemption), notwithstanding that
the certificates evidencing any shares of Series B Preferred
Stock so called for redemption shall not have been surrendered,
dividends on the shares of Series B Preferred Stock so called for
redemption shall cease to accrue and shall be redeemed and, upon
the taking of any action required by applicable law, said shares
shall no longer be deemed to be outstanding and shall have the
status of authorized but unissued shares of Preferred Stock,
undesignated as to series, and all rights of the holders thereof
as stockholders of the Corporation (except the right to receive
from the Corporation the redemption price and any accrued and
unpaid dividends) shall cease. Upon surrender in accordance with
said notice of the certificates for any shares so redeemed
(properly endorsed or assigned for transfer, if the Board of
Directors of the Corporation shall so require and the notice
shall so state), such shares shall be redeemed by the Corporation
at the redemption price aforesaid plus an amount equal to any
accrued and unpaid dividends, without interest. In case fewer
than all the shares represented by any such certificate are
redeemed, a new certificate shall be issued representing the
unredeemed shares without cost to the holder thereof.
(iv) The Corporation's obligation to provide funds for
the payment of the redemption price (including an amount equal to
any accrued and unpaid dividends to the redemption date) of the
shares called for redemption shall be deemed fulfilled if, on or
before a redemption date, the Corporation shall deposit, with a
bank or trust company, or an affiliate of a bank or trust
company, having an office or agency in New York City and having a
capital and surplus of at least $50,000,000, such funds
sufficient to pay the redemption price (including an amount equal
to any accrued and unpaid dividends to the redemption date) of
the shares called for redemption, in trust for the account of the
holders of the shares to be redeemed (and so as to be and
continue to be available therefor), with irrevocable instructions
and authority to such bank or trust company that such funds be
delivered upon redemption of the shares of Series B Preferred
Stock so called for redemption. Any interest accrued on such
funds shall be paid to the Corporation from time to time. Any
funds so deposited and unclaimed at the end of two years from
such redemption date shall be repaid and released to the
Corporation, after which the holder or holders of such shares of
Series B Preferred Stock so called for redemption shall look only
to the Corporation for delivery of such funds.
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6. Liquidation Preference. (i) In the event of any
voluntary or involuntary liquidation, dissolution or winding up
of the affairs of the Corporation, holders of shares of Series B
Preferred Stock then outstanding shall be entitled to be paid out
of the assets of the Corporation available for distribution to
its stockholders, after payment or provision for payment of any
Senior Securities, an amount per share of Series B Preferred
Stock in cash equal to the sum of $25,000 plus an amount equal to
all accrued and unpaid dividends thereon to the date of
liquidation, dissolution or winding up, before any payment shall
be made or any assets distributed to the holders of any of the
Junior Securities in connection with such liquidation,
dissolution or winding up. If the assets of the Corporation are
not sufficient to pay in full the liquidation payments payable to
the holders of outstanding shares of the Series B Preferred Stock
and any Parity Securities, then the holders of all such shares
shall share ratably in such distribution of assets in accordance
with the amount which would be payable on such distribution if
the amounts to which the holders of outstanding shares of Series
B Preferred Stock and the holders of outstanding shares of such
Parity Securities are entitled were paid in full. Except as
provided in this paragraph (6)(i), holders of Series B Preferred
Stock shall not be entitled to any distribution in the event of
liquidation, dissolution or winding up of the affairs of the
Corporation.
(ii) For the purposes of this paragraph (6), neither
the voluntary sale, conveyance, lease, exchange or transfer (for
cash, shares of stock, securities or other consideration) of all
or substantially all of the property or assets of the Corporation
nor the consolidation or merger of the Corporation with or into
one or more other corporations nor the consolidation or merger of
one or more corporations with or into the Corporation shall be
deemed to be a voluntary or involuntary liquidation, dissolution
or winding up.
7. Voting Rights. (i) The holders of record of
shares of Series B Preferred Stock shall not be entitled to any
voting rights except as hereinafter provided in this paragraph
(7) or as otherwise provided by law.
(ii) (a) If at any time or times dividends payable on
all series of Preferred Stock, including the Series B Preferred
Stock, shall be in arrears and unpaid for the six quarterly
periods, then the number of directors constituting the Board of
Directors, without further action, shall be increased by two (2)
and the holders of shares of Series B Preferred Stock shall have
the right, together with the holders of all other outstanding
series of the Preferred Stock entitled to vote thereon (other
than the Cumulative Convertible Preferred Stock), to elect the
directors of the Corporation to fill such newly created
directorships, the remaining directors to be elected by the other
class or classes of stock entitled to vote therefor, at each
meeting of stockholders held for the purpose of electing
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directors; provided, that in no event shall such holders have the
right to elect more than 25% of the total number of directors of
the Corporation; provided, further, that, notwithstanding the
foregoing proviso, such holders shall have the right to elect not
less than one director pursuant to this paragraph (7)(ii)(a).
(b) Whenever such voting right shall have vested, such
right may be exercised initially either at a special meeting of
the holders of shares of Series B Preferred Stock together with
the holders of all other outstanding series of the Preferred
Stock entitled to vote thereon (other than the Cumulative
Convertible Preferred Stock), called as hereinafter provided, or
at any annual meeting of stockholders held for the purpose of
electing directors, and thereafter at such meetings or by the
written consent of such holders pursuant to Section 228 of the
General Corporation Law of the State of Delaware. Such voting
right shall continue until such time as all cumulative dividends
accumulated on all outstanding series of Preferred Stock shall
have been paid in full or declared and set aside for payment in
full, at which time such voting right of such holders shall
terminate, subject to revesting in the event of each and every
subsequent failure of the Corporation to pay dividends for the
requisite number of quarters as described above.
(c) At any time when such voting right shall have
vested in the holders of shares of Series B Preferred Stock
together with all other series of Preferred Stock entitled to
vote thereon (other than the Cumulative Convertible Preferred
Stock) and if such right shall not already have been initially
exercised, a proper officer of the Corporation shall, upon the
written request of 10% of the holders of record of shares of such
series of Preferred Stock then outstanding, addressed to the
Secretary of the Corporation, call a special meeting of holders
of shares of such series of Preferred Stock. Such meeting shall
be held at the earliest practicable date upon the notice required
for annual meetings of stockholders at the place for holding
annual meetings of stockholders of the Corporation or, if none,
at a place designated by the Secretary of the Corporation. If
such meeting shall not be called by the proper officers of the
Corporation within 30 days after the personal service of such
written request upon the Secretary of the Corporation, or within
30 days after mailing the same within the United States, by
registered mail, addressed to the Secretary of the Corporation at
its principal office (such mailing to be evidenced by the
registry receipt issued by the postal authorities), then the
holders of record of 10% of the shares of such series of
Preferred Stock then outstanding may designate in writing a
holder of shares of such series of Preferred Stock to call such
meeting at the expense of the Corporation, and such meeting may
be called by such person so designated upon the notice required
for annual meetings of stockholders and shall be held at the same
place as is elsewhere provided in this paragraph (7)(ii)(c). Any
holder of shares of such series of Preferred Stock that would be
entitled to vote at such meeting shall have access to the stock
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books of the Corporation for such series of Preferred Stock for
the purpose of causing a meeting of stockholders to be called
pursuant to the provisions of this paragraph. Notwithstanding
the provisions of this paragraph, however, no such special
meeting shall be called during a period within 90 days
immediately preceding the date fixed for the next annual meeting
of stockholders.
(d) At any meeting held for the purpose of electing
directors at which the holders of shares of Series B Preferred
Stock together with all other series of Preferred Stock entitled
to vote thereon (other than the Cumulative Convertible Preferred
Stock) shall have the right to elect directors as provided
herein, the presence in person or by proxy of the holders of at
least a majority of the then outstanding shares of such series of
Preferred Stock shall be required and be sufficient to constitute
a quorum of such series for the election of directors by such
series. At any such meeting or adjournment thereof (x) the
absence of a quorum of the holders of shares of such series of
Preferred Stock shall not prevent the election of directors other
than those to be elected by the holders of stock of such series
of Preferred Stock and the absence of a quorum or quorums of the
holders of capital stock entitled to elect such other directors
shall not prevent the election of directors to be elected by the
holders of shares of such series of Preferred Stock and (y) in
the absence of a quorum of the holders of shares of such series
of Preferred Stock, a majority of such holders present in person
or by proxy shall have the power to adjourn the meeting for the
election of directors which the holders of shares of such series
of Preferred Stock may be entitled to elect, from time to time,
without notice (except as required by law) other than
announcement at the meeting, until a quorum shall be present.
(e) The term of office of all directors elected by the
holders of shares of Series B Preferred Stock together with all
other series of Preferred Stock entitled to vote thereon (other
than Cumulative Convertible Preferred Stock) pursuant to
paragraph (7)(ii)(a) in office at any time when the aforesaid
voting rights are vested in the holders of shares of such series
of Preferred Stock shall terminate upon the election of their
successors at any meeting of stockholders for the purpose of
electing directors. Upon any termination of the aforesaid voting
rights in accordance with paragraph (7)(ii)(b), the term of
office of all directors elected by the holders of shares of such
series of Preferred Stock pursuant to paragraph (7)(ii)(a) then
in office shall thereupon terminate and upon such termination the
number of directors constituting the Board of Directors shall,
without further action, be reduced by two (2) (or such other
lesser number by which the number of directors constituting the
Board of Directors shall have been increased pursuant to
paragraph (7)(ii)(a) hereof), subject always to the increase of
the number of directors pursuant to paragraph (7)(ii)(a) in case
of the future right of the holders of shares of such series of
Preferred Stock to elect directors as provided herein.
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(f) In case of any vacancy occurring among the
directors elected pursuant to paragraph (7)(ii)(a), the remaining
director who shall have been so elected may appoint a successor
to hold office for the unexpired term of the director whose place
shall be vacant. If all directors so elected by the holders of
shares of Series B Preferred Stock together with all other series
of Preferred Stock entitled to vote thereon (other than
Cumulative Convertible Preferred Stock) shall cease to serve as
directors before their terms shall expire, the holders of shares
of such series of Preferred Stock then outstanding may, at a
special meeting of the holders called as provided above, elect
successors to hold office for the unexpired terms of the
directors whose places shall be vacant.
(iii) So long as any shares of the Series B Preferred
Stock are outstanding (except when notice of the redemption of
all outstanding shares of Series B Preferred Stock has been given
pursuant to paragraphs (5) and (6) and funds have been deposited
in trust for such redemption), the Corporation shall not, without
the affirmative vote or consent of the holders of at least a
majority of the shares of Series B Preferred Stock and any other
series of Preferred Stock entitled to vote thereon at the time
outstanding voting or consenting, as the case may be, together as
one class, given in person or by proxy, either in writing or by
resolution adopted at an annual or special meeting called for the
purpose, authorize any new class of Parity Securities.
(iv) So long as any shares of the Series B Preferred
Stock are outstanding (except when notice of the redemption of
all outstanding shares of Series B Preferred Stock has been given
pursuant to paragraphs (5) and (6) and funds have been deposited
in trust for such redemption), the Corporation shall not, without
the affirmative vote or consent of the holders of at least 66-
2/3% of the shares of Series B Preferred Stock and any other
series of Preferred Stock entitled to vote thereon at the time
outstanding voting or consenting, as the case may be, together as
one class, given in person or by proxy, either in writing or by
resolution adopted at an annual or special meeting called for the
purpose, authorize any new class of Senior Securities or
designate a new series of Senior Securities from an existing
class of Preferred Stock.
(v) So long as any shares of the Series B Preferred
Stock are outstanding (except when notice of the redemption of
all outstanding shares of Series B Preferred Stock has been given
pursuant to paragraphs (5) and (6) and funds have been deposited
in trust for such redemption), the Corporation shall not, without
the affirmative vote or consent of the holders of at least 66-
2/3% of the shares of Series B Preferred Stock and any other
series of Preferred Stock entitled to vote thereon at the time
outstanding voting or consenting, as the case may be, together as
one class, given in person or by proxy, either in writing or by
resolution adopted at an annual or special meeting called for the
purpose, amend the Certificate of Incorporation or this
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Certificate of Designation so as to affect materially and
adversely the specified rights, preferences, privileges or voting
power of holders of shares of Series B Preferred Stock.
(vi) Except as set forth in paragraph (7)(iii) and
paragraph (7)(iv) above, the creation, authorization or issuance
of any shares of any Junior Securities, Parity Securities or
Senior Securities, the creation of any indebtedness of any kind
of the Corporation, or the increase or decrease in the amount of
authorized capital stock of any class, including Preferred Stock,
shall not require the consent of the holders of Series B
Preferred Stock and shall not be deemed to affect materially and
adversely the rights, preferences, privileges or voting power of
holders of shares of Series B Preferred Stock.
(vii) When voting together as one class with the holders
of any other series of Preferred Stock, the holders of Series B
Preferred Stock shall be entitled to 1,000 votes per share.
8. Increase in Shares. The number of shares of Series
B Preferred Stock may, to the extent of the Corporation's
authorized and unissued Preferred Stock, be increased by further
resolution duly adopted by the Board of Directors and the filing
of a certificate of increase with the Secretary of State of the
State of Delaware.
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9. Limitations. Except as may otherwise be required
by law, the shares of Series B Preferred Stock shall not have any
powers, preferences or relative, participating, optional or other
special rights other than those specifically set forth in this
resolution (as such resolution may be amended from time to time)
or otherwise in the Certificate of Incorporation of the
Corporation.
IN WITNESS WHEREOF, RJR Nabisco Holdings Corp. has
caused this Certificate of Designation to be made under the seal
of the Corporation signed by Robert F. Sharpe, Jr., its Vice
President and Secretary, and attested by Suzanne P. Jenney, its
Assistant Secretary, this __th day of August, 1993.
RJR NABISCO HOLDINGS CORP.
By:________________________________
Robert F. Sharpe, Jr.
Vice President and Secretary
[SEAL]
Attested:
By:_________________________
Suzanne P. Jenney
Assistant Secretary
[Composite, as amended to and including August 16, 1993]
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
RJR NABISCO HOLDINGS CORP.
(Originally incorporated as RJR Holdings Corp. on October 25,
1988)
ARTICLE FIRST
The name of the Corporation is RJR Nabisco Holdings
Corp.
ARTICLE SECOND
The registered office and registered agent of the
Corporation is The Prentice-Hall Corporation System, Inc., 32
Loockerman Square, Suite L-100, City of Dover, County of Kent,
Delaware 19901.
ARTICLE THIRD
The purpose of the Corporation is to engage in any
lawful act or activity for which corporations may be organized
under the General Corporation Law of Delaware.
ARTICLE FOURTH
The total number of shares of capital stock that the
Corporation is authorized to issue is 2,350,000,000 shares of
which 2,200,000,000 shares are Common Stock, par value $.01 each,
and 150,000,000 shares of which are shares of preferred stock,
par value $.01 each (hereinafter referred to as "Preferred
Stock"). The Preferred Stock may be issued from time to time in
one or more series with such distinctive designations as may be
stated in resolution or resolutions providing for the issue of
such stock from time to time adopted by the Board of Directors or
a duly authorized committee thereof. The resolution or
resolutions providing for the issue of shares of a particular
series shall fix, subject to applicable laws and the provisions
of this ARTICLE FOURTH, for each such series the number of shares
constituting such series and the designations and powers,
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2
preferences and relative participating, optional or other special
rights and qualifications, limitations or restrictions thereof,
including, without limiting the generality of the foregoing, such
provisions as may be desired concerning voting, redemption,
dividends, dissolution or the distribution of assets, conversion
or exchange, and such other subjects or matters as may be fixed
by resolution or resolutions of the Board of Directors or a duly
authorized committee thereof under the General Corporation Law of
the State of Delaware. The number of authorized shares of any
class or classes of stock may be increased or decreased (but not
below the number of shares thereof then outstanding) by the
affirmative vote of the holders of a majority of the Common Stock
of the Corporation irrespective of the provisions of Section
242(b)(2) of the General Corporation Law of the State of Delaware
or any corresponding provision hereinafter enacted.
The following is a statement of the number,
designation, powers, preferences and relative, participating,
optional or other special rights and qualifications, limitations
or restrictions of the Cumulative Convertible Preferred Stock of
the Corporation:
(1) Designation. The designation of the series of
Preferred Stock authorized by this resolution shall be
"Cumulative Convertible Preferred Stock" (the "Cumulative
Convertible Preferred Stock") consisting of 75,000,000 shares.
The stated value of the Cumulative Convertible Preferred Stock
shall be $25.00 per share, which value does not represent a
determination by the Board of Directors for the purposes of the
capital accounts.
(2) Rank. The Cumulative Convertible Preferred Stock
shall, with respect to dividend rights and rights on liquidation,
winding up and dissolution, rank prior to the Common Stock, par
value $0.01 per share (the "Common Stock"), of the Corporation.
(All equity securities of the Corporation to which the Cumulative
Convertible Preferred Stock ranks prior, including the Common
Stock, are collectively referred to herein as the "Junior
Securities", all equity securities of the Corporation with which
the Cumulative Convertible Preferred Stock ranks on a parity are
collectively referred to herein as the "Parity Securities" and
all equity securities of the Corporation (other than convertible
debt securities) to which the Cumulative Convertible Preferred
Stock ranks junior, whether with respect to dividends or upon
liquidation, dissolution, winding-up or otherwise, are
collectively referred to herein as the "Senior Securities.") The
Cumulative Convertible Preferred Stock shall be subject to the
creation of Junior Securities, Parity Securities and Senior
Securities.
(3) Dividends. (i) The holders of the shares of
Cumulative Convertible Preferred Stock shall be entitled to
receive, when, as and if declared by the Board of Directors, out
<PAGE>
3
of funds legally available for the payment of dividends,
cumulative dividends at the rate of 11.5% of the stated value
($2.875) per share per annum, and no more. Such dividends shall
be payable in quarterly payments on January 15, April 15, July 15
and October 15 of each year commencing with January 15, 1991
(each of such dates being a "dividend payment date"), in
preference to dividends on the Junior Securities. Such dividends
shall be paid to the holders of record at the close of business
on the tenth business day immediately preceding each dividend
payment date (each of such dates being a "dividend payment record
date"). Each of such quarterly dividends shall be fully
cumulative and shall accrue (whether or not declared), without
interest, from the previous dividend payment date, except that
with respect to the first dividend, such dividend shall accrue
from the date of initial issuance; provided, however, that, in
the event of an exchange transaction before the initial dividend
payment date whereby outstanding shares of Cumulative Convertible
Preferred Stock are exchanged by the Corporation for new shares
of Cumulative Convertible Preferred Stock, dividends shall accrue
on shares of Cumulative Convertible Preferred Stock issued in the
exchange transaction from the date of initial issuance of the
shares of Cumulative Convertible Preferred Stock for which such
new shares of Cumulative Convertible Preferred Stock are being
exchanged. Dividends payable for the first dividend period and
any partial dividend period shall be calculated on the basis of a
360-day year and the actual number of days elapsed in the period
for which payable.
(ii) All dividends paid with respect to shares of the
Cumulative Convertible Preferred Stock pursuant to paragraph
(3)(i) shall be paid pro rata to the holders entitled thereto.
(iii) No full dividends shall be declared by the
Board of Directors or paid or set apart for payment by the
Corporation on any Parity Securities for any period unless full
cumulative dividends have been or contemporaneously are declared
and paid or declared and a sum set apart sufficient for such
payment on the Cumulative Convertible Preferred Stock for all
dividend payment periods terminating on or prior to the date of
payment, or setting apart for payment, of such full dividends on
such Parity Securities. If any dividends are not paid in full,
as aforesaid, upon the shares of the Cumulative Convertible
Preferred Stock and any other Parity Securities, all dividends
declared upon shares of the Cumulative Convertible Preferred
Stock and any other Parity Securities shall be declared pro rata
so that the amount of dividends declared per share of the
Cumulative Convertible Preferred Stock and such Parity Securities
shall in all cases bear to each other the same ratio that accrued
dividends per share on the Cumulative Convertible Preferred Stock
and such Parity Securities bear to each other. No interest, or
sum of money in lieu of interest, shall be payable in respect of
any dividend payment or payments on the Cumulative Convertible
Preferred Stock or any other Parity Securities which may be in
<PAGE>
4
arrears. Any dividend not paid pursuant to paragraph (3)(i)
hereof or this paragraph (3)(iii) shall be fully cumulative and
shall accrue (whether or not declared), without interest, as set
forth in paragraph (3)(i) hereof.
(iv) (a) Holders of shares of the Cumulative
Convertible Preferred Stock shall be entitled to receive the
dividends provided for in paragraph (3)(i) hereof in preference
to and in priority over any dividends upon any of the Junior
Securities.
(b) So long as any shares of the Cumulative
Convertible Preferred Stock are outstanding, the Board of
Directors shall not declare, and the Corporation shall not pay or
set apart for payment any dividend on any of the Junior
Securities or make any payment on account of, or set apart for
payment money for a sinking or other similar fund for, the
repurchase, redemption or other retirement of, any of the Junior
Securities or Parity Securities or any warrants, rights or
options exercisable for or convertible into any of the Junior
Securities or Parity Securities (other than purchases or
redemptions pursuant to or in accordance with employee stock
subscription agreements entered into between the Corporation and
certain of its or its subsidiaries' directors, officers and key
employees and other than the repurchase, redemption or other
retirement of any Parity Securities or any warrants, rights or
options exercisable for or convertible into any of the Parity
Securities made pursuant to the requirements of paragraph
(5)(iii) hereof and other than the repurchase, redemption or
other retirement of debentures or other debt securities that are
convertible or exchangeable into any of the Junior Securities or
Parity Securities), or make any distribution in respect of the
Junior Securities, either directly or indirectly, and whether in
cash, obligations or shares of the Corporation or other property
(other than distributions or dividends in Junior Securities to
the holders of Junior Securities), and shall not permit any
corporation or other entity directly or indirectly controlled by
the Corporation to purchase or redeem any of the Junior
Securities or Parity Securities or any warrants, rights, calls or
options exercisable for or convertible into any of the Junior
Securities or Parity Securities (other than purchases or
redemptions pursuant to or in accordance with employee stock
subscription agreements entered into between the Corporation and
certain of its or its subsidiaries' directors, officers and key
employees and other than the repurchase, redemption or other
retirement of debentures or other debt securities that are
convertible or exchangeable into any of the Junior Securities or
Parity Securities) unless prior to or concurrently with such
declaration, payment, setting apart for payment, repurchase,
redemption or other retirement or distribution, as the case may
be, all accrued and unpaid dividends on shares of the Cumulative
Convertible Preferred Stock not paid on the dates provided for in
paragraph (3)(i) hereof (including accrued dividends not paid by
<PAGE>
5
reason of the terms and conditions of paragraph (3)(i) or
paragraph (3)(iii) hereof) shall have been or be paid.
(v) Subject to the foregoing provisions of this
paragraph (3), the Board of Directors may declare and the
Corporation may pay or set apart for payment dividends and other
distributions on any of the Junior Securities or Parity
Securities, and may repurchase, redeem or otherwise retire any of
the Junior Securities or Parity Securities or any warrants,
rights or options exercisable for or convertible into any of the
Junior Securities or Parity Securities, and the holders of the
shares of the Cumulative Convertible Preferred Stock shall not be
entitled to share therein.
(4) Liquidation Preference. (i) In the event of any
voluntary or involuntary liquidation, dissolution or winding up
of the affairs of the Corporation, the holders of shares of
Cumulative Convertible Preferred Stock then outstanding shall be
entitled to be paid out of the assets of the Corporation
available for distribution to its stockholders an amount in cash
equal to $25.00 for each share outstanding, plus an amount in
cash equal to all accrued but unpaid dividends thereon to the
date of liquidation, dissolution or winding up before any payment
shall be made or any assets distributed to the holders of any of
the Junior Securities. If the assets of the Corporation are not
sufficient to pay in full the liquidation payments payable to the
holders of outstanding shares of the Cumulative Convertible
Preferred Stock and any Parity Securities, then the holders of
all such shares shall share ratably in such distribution of
assets in accordance with the amount which would be payable on
such distribution if the amounts to which the holders of
outstanding shares of Cumulative Convertible Preferred Stock and
the holders of outstanding shares of such Parity Securities are
entitled were paid in full. Except as provided in this paragraph
(4)(i), holders of Cumulative Convertible Preferred Stock shall
not be entitled to any distribution in the event of liquidation,
dissolution or winding up of the affairs of the Corporation.
(ii) For the purposes of this paragraph (4), neither the
voluntary sale, conveyance, lease, exchange or transfer (for
cash, shares of stock, securities or other consideration) of all
or substantially all of the property or assets of the Corporation
nor the consolidation or merger of the Corporation with or into
one or more other corporations nor the consolidation or merger of
one or more corporations with or into the Corporation shall be
deemed to be a voluntary or involuntary liquidation, dissolution
or winding up.
(5) Redemption. (i) The Corporation may redeem at
its option the Cumulative Convertible Preferred Stock, at any
time in whole or from time to time in part after the date that is
three years after the Expiration Date (as hereinafter defined),
at the redemption price per share set forth below, together with
<PAGE>
6
accrued and unpaid dividends thereon to the date of redemption,
without interest, to the extent the Corporation shall have funds
legally available for such payment.
If redeemed during the 12 month period beginning on the
anniversary of the Expiration Date in each of the years set forth
below, the redemption price per share shall be as follows:
Year Redemption Price Per Share
---- --------------------------
1993 $27.0125
1994 26.7250
1995 26.4375
1996 26.1500
1997 25.8625
1998 25.5750
1999 25.2875
2000 and thereafter 25.0000
As used herein, the term "Expiration Date" shall mean
the earlier to occur of (i) the expiration date of the
Corporation's offer to exchange Senior Converting Debentures Due
2009 of the Corporation (the "Converting Debentures") and (ii)
the expiration date of the Corporation's offer to exchange
Subordinated Exchange Debentures Due 2007 of RJR Nabisco Holdings
Group, Inc., in each case for consideration including shares of
Cumulative Convertible Preferred Stock (each an "Exchange
Offer"); provided, however, that until an expiration date of one
of the Exchange Offers, "Expiration Date" shall mean the date of
initial issuance of the Cumulative Convertible Preferred Stock.
(ii) So long as any shares of the Cumulative
Convertible Preferred Stock are outstanding, any repurchase,
redemption or other retirement of any Parity Securities or any
warrants, rights or options exercisable for or convertible into
any of the Parity Securities (other than the repurchase,
redemption or other retirement of debentures or other debt
securities that are convertible or exchangeable into any Parity
Securities) must be made on a pro rata basis with the Cumulative
Convertible Preferred Stock so that the total redemption prices
of the shares redeemed of Cumulative Convertible Preferred Stock
and such Parity Securities shall in all cases bear to each other
the same ratio that the total redemption prices of all shares
outstanding on the applicable date of Cumulative Convertible
Preferred Stock and such Parity Securities bear to each other,
unless prior to or concurrently with such repurchase, redemption
or other retirement, as the case may be, all accrued and unpaid
dividends on shares of the Cumulative Convertible Preferred Stock
not paid on the dates provided for in paragraph (3)(i) hereof
(including accrued dividends not paid by reason of the terms and
conditions of paragraph (3)(i) or paragraph (3)(iii) hereof)
shall have been or be paid.
<PAGE>
7
(iii) Shares of Cumulative Convertible Preferred Stock
that have been issued and reacquired in any manner, including
shares purchased or redeemed or exchanged or converted, shall
(upon compliance with any applicable provisions of the laws of
the State of Delaware) have the status of authorized and unissued
shares of the class of Preferred Stock undesignated as to series
and may be redesignated and reissued as part of any series of the
Preferred Stock; provided, however, that shares of Cumulative
Convertible Preferred Stock acquired in an exchange transaction
for outstanding shares of Cumulative Convertible Preferred Stock
concluded before the initial dividend payment date shall continue
to have the status of authorized and unissued shares of the
series of the Cumulative Convertible Preferred Stock and may be
reissued immediately as part of such series of Preferred Stock in
connection with such exchange or otherwise.
(6) Procedure for Redemption. (i) In the event that
fewer than all the outstanding shares of Cumulative Convertible
Preferred Stock are to be redeemed, the number of shares to be
redeemed shall be determined by the Board of Directors and the
shares to be redeemed shall be selected pro rata, except that in
any redemption of fewer than all the outstanding shares of
Cumulative Convertible Preferred Stock, the Corporation may
redeem all shares held by any holders of a number of shares not
to exceed 100, including all shares held by holders who, after
giving effect to such redemption, would hold less than 100
shares, as may be specified by the Corporation.
(ii) In the event the Corporation shall redeem shares of
Cumulative Convertible Preferred Stock, written notice of such
redemption shall be given by first class mail, postage prepaid,
mailed not less than 30 days nor more than 60 days prior to the
redemption date, to each holder of record of the shares to be
redeemed at such holder's address as the same appears on the
stock register of the Corporation; provided, however, that no
failure to give such notice nor any defect therein shall affect
the validity of the proceeding for the redemption of any shares
of Cumulative Convertible Preferred Stock to be redeemed except
as to the holder to whom the Corporation has failed to give said
notice or except as to the holder whose notice was defective.
Each such notice shall state: (a) the redemption date; (b) the
number of shares of Cumulative Convertible Preferred Stock to be
redeemed and, if less than all the shares held by such holder are
to be redeemed from such holder, the number of shares to be
redeemed from such holder; (c) the redemption price; (d) that
shares of Cumulative Convertible Preferred Stock called for
redemption may be converted in accordance with, and subject to
the terms of, paragraph (7) hereof at any time prior to the date
fixed for redemption (unless the Corporation shall default in
payment of the redemption price, in which case such right shall
not terminate at such date); (e) the place or places where
certificates for such shares are to be surrendered for payment of
<PAGE>
8
the redemption price; and (f) that dividends on the shares to be
redeemed will cease to accrue on such redemption date.
(iii) Notice having been mailed as aforesaid, from and after
the redemption date (unless default shall be made by the
Corporation in providing money for the payment of the redemption
price of the shares called for redemption) dividends on the
shares of Cumulative Convertible Preferred Stock so called for
redemption shall cease to accrue and said shares shall no longer
be deemed to be outstanding and shall have the status of
authorized but unissued shares of Preferred Stock, undesignated
as to series, and all rights of the holders thereof as
stockholders of the Corporation (except the right to receive from
the Corporation the redemption price and any accrued and unpaid
dividends) shall cease. Upon surrender in accordance with said
notice of the certificates for any shares so redeemed (properly
endorsed or assigned for transfer, if the Board of Directors of
the Corporation shall so require and the notice shall so state),
such shares shall be redeemed by the Corporation at the
redemption price aforesaid plus any accrued and unpaid dividends,
without interest. In case fewer than all the shares represented
by any such certificate are redeemed, a new certificate shall be
issued representing the unredeemed shares without cost to the
holder thereof.
(7) Conversion. (i) Upon the terms and in the manner
set forth in this paragraph (7) and subject to the provisions for
adjustment contained in paragraph (7)(vii), each share of the
Cumulative Convertible Preferred Stock shall be convertible, at
the option of the holder thereof at any time after the date that
is 180 days after the Expiration Date or such earlier date as
provided in paragraph (7)(ii), upon surrender to the Corporation
of the certificates for the shares to be converted, into a number
of fully paid and nonassessable shares of Common Stock equal to
the aggregate stated value of the Cumulative Convertible
Preferred Stock to be converted divided by a conversion price
(the "Conversion Price") of $9.00; provided, however, that the
right to convert shares of Cumulative Convertible Preferred Stock
that have been called for redemption pursuant to paragraph (5)
and paragraph (6) shall terminate at the close of business on the
dated fixed for redemption, unless the Corporation shall default
in making payment of the amount payable upon such redemption.
(ii) If, prior to the date that is 180 days after the
Expiration Date, there occurs a sale, conveyance, exchange or
transfer (for cash, shares of stock, securities or other
consideration) of all or substantially all of the property or
assets of the Corporation or a consolidation or merger of the
Corporation with or into another corporation, in which the shares
of Common Stock are converted into cash, assets or securities,
the time when the conversion rights of holders of shares of
Cumulative Convertible Preferred Stock become effective shall be
accelerated and such conversion rights shall be effective at and
<PAGE>
9
after a time at least 20 business days prior to the consummation
of such transaction.
(iii) In order to convert shares of the Cumulative
Convertible Preferred Stock, the holder thereof shall (a) deliver
a properly completed and duly executed written notice of election
to convert specifying the number (in whole shares) of the shares
of the Cumulative Convertible Preferred Stock to be converted and
the name or names in which such holder wishes the certificate or
certificates for shares of Common Stock to be issued to the
Corporation at its principal office or at the office of the
agency which may be maintained for such purpose (the "Conversion
Agent"), (b) surrender the certificate for such shares of
Cumulative Convertible Preferred Stock to the Corporation or the
Conversion Agent, accompanied, if so required by the Corporation
or the Conversion Agent, by a written instrument or instruments
of transfer in form reasonably satisfactory to the Corporation or
the Conversion Agent duly executed by the holder or his attorney
duly authorized in writing, and (c) pay any transfer or similar
tax required by paragraph (7)(ix).
(iv) (a) Conversion shall be deemed to have been effected
at the close of business on the date (the "Conversion Date") on
which the Corporation or the Conversion Agent shall have received
the notice of election to convert, the surrendered certificate,
any required payments and all other required documents.
Immediately upon conversion, the rights of the holders of
converted shares of Cumulative Convertible Preferred Stock shall
cease and the persons entitled to receive the shares of Common
Stock upon the conversion of such shares of Cumulative
Convertible Preferred Stock shall be treated for all purposes as
having become the beneficial owners of such shares of Common
Stock; provided, however, that such persons shall be entitled to
receive when paid dividends accrued on such shares of Cumulative
Convertible Preferred Stock to the last preceding dividend
payment date and unpaid as of the date of such conversion.
Conversion shall be at the Conversion Price in effect at such
time on such date, unless the stock transfer books of the
Corporation shall be closed on that date, in which event such
person or persons shall be deemed to have become such holder or
holders of record of the Common Stock at the close of business on
the next succeeding day on which such stock transfer books are
open, but such conversion shall be at the Conversion Price in
effect on the date upon which such shares shall have been
surrendered and such notice and any required payments received by
the Corporation.
(b) As promptly as practicable after the Conversion
Date, the Corporation shall deliver or cause to be delivered at
the office or agency of the Conversion Agent, to or upon the
written order of the holder of the surrendered shares of
Cumulative Convertible Preferred Stock, a certificate or
certificates representing the number of fully paid and
<PAGE>
10
nonassessable shares of Common Stock into which such shares of
Cumulative Convertible Preferred Stock have been converted in
accordance with the provisions of this paragraph (7), and any
cash payable in respect of fractional shares as provided in
paragraph (7)(v).
(c) Upon the surrender of a certificate representing
shares of Cumulative Convertible Preferred Stock that is
converted in part, the Corporation shall issue or cause to be
issued for the holder a new certificate representing shares of
Cumulative Convertible Preferred Stock equal in number to the
unconverted portion of the shares of Cumulative Convertible
Preferred Stock represented by the certificate so surrendered.
(v) (a) No fractional shares or scrip representing
fractional shares of Common Stock shall be issued upon the
conversion of any shares of Cumulative Convertible Preferred
Stock. Instead of any fractional interest in a share of Common
Stock which would otherwise be deliverable upon the conversion of
a share of Cumulative Convertible Preferred Stock, the
Corporation shall either (A) pay to the holder of such share (a
"Fractional Shareholder") an amount in cash (computed to the
nearest cent) equal to the current market price (as defined in
paragraph (7)(vii)(e) below) thereof on the business day next
preceding the day of conversion or (B) follow the procedures set
forth in paragraph 7(v)(b). If more than one share shall be
surrendered for conversion at one time by the same holder, the
number of full shares of Common Stock issuable upon conversion
thereof shall be computed on the basis of the aggregate stated
value of the shares of Convertible Preferred Stock so
surrendered.
(b) The Corporation may, in lieu of paying cash to
Fractional Shareholders as provided in paragraph (7)(v)(a),
issue, in full payment of the Corporation's obligation with
respect to such fractional interests, shares of Common Stock
equal to the aggregate of such fractional interests of such
Fractional Shareholder and other Fractional Shareholders
(aggregated over a reasonable period of time, but not in any
event more than 20 business days, and rounded upwards to the
nearest whole share) to an agent (the "Transfer Agent") appointed
by the Corporation for such Fractional Shareholders (and which
may be the Conversion Agent), for sale promptly by the Transfer
Agent on behalf of the Fractional Shareholders. The Transfer
Agent will remit promptly to such Fractional Shareholders their
proportionate interest in the net proceeds (following the
deduction of applicable transaction costs and computed to the
nearest cent) from such sale.
(vi) The holders of shares of Cumulative Convertible
Preferred Stock at the close of business on a dividend payment
record date shall be entitled to receive the dividend payable on
such shares (except that holders of shares called for redemption
<PAGE>
11
on a redemption date occurring between such record date and the
dividend payment date shall not be entitled to receive such
dividend on such dividend payment date but instead will receive
accrued and unpaid dividends to such redemption date) on the
corresponding dividend payment date notwithstanding the
conversion thereof or the Corporation's default in payment of the
dividend due on such dividend payment date.
(vii) The Conversion Price shall be subject to adjustment as
follows:
(a) If the Corporation shall (v) declare or pay a
dividend on its outstanding Common Stock in shares of Common
Stock or make a distribution to all holders of its Common Stock
in shares of Common Stock, (w) subdivide its outstanding shares
of Common Stock into a greater number of shares of Common Stock,
(x) combine its outstanding shares of Common Stock into a smaller
number of shares of Common Stock or (y) issue by reclassification
of its shares of Common Stock other securities of the
Corporation, then the Conversion Price in effect immediately
prior thereto shall be adjusted so that the holder of any shares
of Cumulative Convertible Preferred Stock thereafter converted
shall be entitled to receive the number and kind of shares of
Common Stock or other securities that the holder would have owned
or have been entitled to receive after the happening of any of
the events described above had such shares of Cumulative
Convertible Preferred Stock been converted immediately prior to
the happening of such event or any record date with respect
thereto. An adjustment made pursuant to this paragraph
(7)(vii)(a) shall become effective on the date of the dividend
payment, subdivision, combination or issuance retroactive to the
record date with respect thereto, if any, for such event. Such
adjustment shall be made successively.
(b) If the Corporation shall issue to all holders of
its Common Stock rights, options, warrants or convertible or
exchangeable securities containing the right to subscribe for or
purchase shares of Common Stock at a price per share that is
lower than the then current market price per share of Common
Stock (as defined in paragraph (7)(vii)(e) below) at the record
date mentioned below, the Conversion Price shall be adjusted in
accordance with the following formula:
<PAGE>
12
( N x P )
-----
O + ( M )
AC = C x -------------
O + N
where
AC = the adjusted Conversion Price.
C = the current Conversion Price.
O = the number of shares of Common Stock
outstanding on the record date.
N = the number of additional shares of
Common Stock offered.
P = the offering price per share of the
additional shares.
M = the current market price per share of
Common Stock on the record date.
The adjustment shall be made successively whenever any such
rights, options, warrants or convertible or exchangeable
securities are issued, and shall become effective immediately
after the record date for the determination of stockholders
entitled to receive the rights, options, warrants or convertible
or exchangeable securities. Upon the expiration of any such
rights, options, warrants or convertible or exchangeable
securities, if any thereof shall not have been exercised, then
the Conversion Price shall be increased by the amount of the
initial adjustment of the Conversion Price pursuant to this
paragraph (7)(vii) in respect of such expired rights, options,
warrants or convertible or exchangeable securities.
(c) In case the Corporation shall distribute
to all holders of its outstanding Common Stock any shares of
capital stock of the Corporation (other than Common Stock) or
evidences of its indebtedness or assets (excluding ordinary cash
dividends, which may be an initial cash dividend, payable out of
consolidated earnings or earned surplus (both of which to be
calculated for these purposes excluding charges for amortization
of goodwill and other intangibles) and dividends or distributions
referred to in paragraphs (7)(vii)(a) and (b) above) or rights or
warrants to subscribe for or purchase any of its securities
(excluding those referred to in paragraph (7)(vii)(b) above) (any
of the foregoing being hereinafter in this paragraph (7)(iii)
called the "Securities or Assets"), then in each such case,
unless the Corporation elects to reserve shares or other units of
such Securities or Assets for distribution to the holders of the
Cumulative Convertible Preferred Stock upon the conversion of the
shares of Cumulative Convertible Preferred Stock so that any such
holder converting shares of Cumulative Convertible Preferred
Stock will receive upon such conversion, in addition to the
<PAGE>
13
shares of the Common Stock to which such holder is entitled, the
amount and kind of such Securities or Assets which such holder
would have received if such holder had, immediately prior to the
record date for the distribution of the Securities or Assets,
converted its shares of Cumulative Convertible Preferred Stock
into Common Stock, the Conversion Price shall be adjusted so that
the same shall equal the price determined by multiplying the
Conversion Price in effect immediately prior to the date of such
distribution by a fraction of which the numerator shall be the
current market price per share (as defined in paragraph
(7)(viii)(e) below) of the Common Stock on the record date
mentioned below less the then fair market value (as determined by
the Board of Directors, whose determination shall, if made in
good faith, be conclusive) of the portion of the capital stock or
assets or evidences of indebtedness so distributed or of such
rights or warrants applicable to one share of Common Stock, and
of which the denominator shall be the current market price per
share of the Common Stock on such record date. Such adjustment
shall become effective immediately after the record date for the
determination of stockholders entitled to receive such
distribution, except as provided in paragraph (7)(vii)(i) below.
(d) If the Corporation shall, after the date
hereof, sell and issue any shares of Common Stock, rights,
options, warrants or convertible or exchangeable securities
containing the right to subscribe for or purchase shares of
Common Stock (excluding (i) shares of Common Stock, rights,
options, warrants or convertible or exchangeable securities
containing the right to subscribe for or purchase shares of
Common Stock issued in any of the transactions described in
paragraphs (a) and (b) above; (ii) stock options and shares of
Common Stock issued to, or issuable upon the exercise of stock
options granted to or to be granted to, employees or directors of
the Corporation or its subsidiaries; (iii) shares of Common Stock
issuable upon exercise of warrants previously issued; (iv) shares
issued upon conversion of the Converting Debentures; and (v)
shares issued upon conversion of shares of Cumulative Convertible
Preferred Stock), at a price per share (determined, in the case
of rights, options, warrants or convertible or exchangeable
securities, by dividing (x) the total amount received or
receivable by the Corporation in consideration of the sale and
issuance of such rights, options, warrants or convertible or
exchangeable securities, plus the total consideration payable to
the Corporation upon exercise or conversion or exchange thereof,
by (y) the total number of shares of Common Stock covered by such
rights, options, warrants or convertible or exchangeable
securities) that is lower than the then current market price per
share of Common Stock (as defined in paragraph (7)(vii)(e) below)
immediately prior to such sale and issuance, then in each case
the Conversion Price shall be adjusted in accordance with the
following formula:
<PAGE>
14
( N x P )
-----
O + ( M )
AC = C x -------------
O + N
where
AC = the adjusted Conversion Price.
C = the current Conversion Price.
O = the number of shares of Common Stock
outstanding on the issue date.
N = the number of additional shares of
Common Stock offered.
P = the offering price per share of the
additional shares.
M = the current market price per share of
Common Stock on the issue date.
For the purposes of such adjustments, the shares of Common Stock
which the holder of any such rights, options, warrants, or
convertible or exchangeable securities shall be entitled to
subscribe for or purchase shall be deemed to be issued and
outstanding as of the date of such sale and issuance, and the
consideration received or receivable by the Corporation therefor
shall be deemed to be the consideration received or receivable by
the Corporation (plus any discounts or commissions in connection
therewith) for such rights, options, warrants or convertible or
exchangeable securities, plus the consideration or premiums
stated in such rights, options, warrants or convertible or
exchangeable securities to be paid for the shares of Common Stock
purchasable thereby. In case the Corporation shall (i) sell and
issue shares of Common Stock for a consideration consisting, in
whole or in part, of property other than cash or its equivalent
or (ii) sell and issue shares of Common Stock together with one
or more other securities as part of a unit at a price per unit,
then in determining the "price per share" and the "consideration
received or receivable by the Corporation" for purposes of the
first sentence and the immediately preceding sentence of this
paragraph (7)(vii)(d), the Board of Directors shall determine, in
its discretion, the fair value of said property or the shares of
Common Stock then being sold as part of such unit, as the case
may be, and such determinations, if made in good faith, shall be
binding. The adjustment shall be made successively whenever any
such shares of Common Stock, rights, options, warrants or
convertible or exchangeable securities containing the right to
subscribe for or purchase shares of Common Stock are issued for
less than the current market price, subject to the exceptions
noted above, and shall become effective immediately after the
issue date.
<PAGE>
15
Notwithstanding the foregoing, no adjustments of any
kind under this paragraph (7)(vii)(d) shall be made with respect
to the sale and issuance by the Corporation of any shares of
Common Stock, rights, options, warrants or convertible or
exchangeable securities containing the right to subscribe for or
purchase shares of Common Stock in connection with either (1) an
underwritten public offering or (2) any transaction as to which
the Corporation has received a written opinion of a nationally
recognized investment bank stating that the transaction is fair
to the Corporation from a financial point of view.
(e) For the purposes of any computation under
paragraphs (7)(vii)(b), (c) and (d) and for the purposes of
paragraph (7)(v)(a), the current market price per share of Common
Stock at any date shall be deemed to be the average of the daily
closing prices for the 20 consecutive trading days commencing on
the 30th trading day prior to the date in question. The closing
price for each day shall be (x) if the Common Stock is listed or
admitted to trading on a national securities exchange, the
closing price on the New York Stock Exchange Consolidated Tape
(or any successor composite tape reporting transactions on
national securities exchanges) or, if such a composite tape shall
not be in use or shall not report transactions in the Common
Stock, the last reported sales price regular way on the principal
national securities exchange on which the Common Stock is listed
admitted to trading (which shall be the national securities
exchange on which the greatest number of shares of Common Stock
has been traded during such 20 consecutive trading days), or, if
there is no transaction on any such day in any such situation,
the mean of the bid and asked prices on such day or, (y) if the
Common Stock is not listed or admitted to trading on any such
exchange, the closing price, if reported, or, if the closing
price is not reported, the average of the closing bid and asked
prices as reported by the National Association of Securities
Dealers Automated Quotation System (NASDAQ) or a similar source
selected from time to time by the Corporation for the purpose. In
the event such closing prices are unavailable, the current market
price shall be deemed to be the fair market value as determined
in good faith by the Board of Directors, on the basis of such
relevant factors as it in good faith considers, in the reasonable
judgment of the Board of Directors, appropriate.
(f) No adjustment in the Conversion Price shall be
required unless such adjustment would require an increase or
decrease of at least 1% of such price; provided, however, that
any adjustments which by reason of this paragraph (7)(vii)(f) are
not required to be made shall be carried forward and taken into
account in any subsequent adjustment. All calculations under
this paragraph (7)(vii) shall be made to the nearest one-
hundredth of a cent or to the nearest one-hundredth of a share,
as the case may be.
<PAGE>
16
(g) If the Corporation is a party to a consolidation
or merger transaction, the shares of Cumulative Convertible
Preferred Stock will thereafter no longer be convertible into
shares of Common Stock of the Corporation, but instead will be
convertible into the kind and amount of securities or assets
which the holder of such shares of Cumulative Convertible
Preferred Stock would have owned immediately after the
consolidation or merger if such holder had converted the shares
of Cumulative Convertible Preferred Stock immediately before the
effective date of such transaction. If this paragraph
(7)(vii)(g) applies, then no adjustment in respect of the same
transaction shall be made pursuant to the other provisions of
this paragraph (7).
(h) For the purposes of this paragraph (7)(vii) and
paragraph (7)(x), the term "shares of Common Stock" shall mean
(x) the class of stock designated as the Common Stock of the
Corporation at the date hereof or (y) any other class of stock
resulting from successive changes or reclassifications of such
shares consisting solely of changes in par value, or from no par
value to par value. In the event that at any time, as a result
of an adjustment made pursuant to paragraphs (7)(vii)(a), (c) or
(g) above, the holders of Cumulative Convertible Preferred Stock
shall become entitled to receive any securities other than shares
of Common Stock, thereafter the number of such other securities
so issuable upon conversion of the shares of Cumulative
Convertible Preferred Stock shall be subject to adjustment from
time to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to the shares of
Cumulative Convertible Preferred Stock contained in this
paragraph (7)(vii).
(i) Notwithstanding the foregoing, in any case in
which this paragraph (7)(vii) provides that an adjustment shall
become effective immediately after a record date for an event,
the Corporation may defer until the occurrence of such event (A)
issuing to the holder of any share of Cumulative Convertible
Preferred Stock converted after such record date and before the
occurrence of such event the additional shares of Common Stock
issuable upon such conversion before giving effect to such
adjustment and (B) paying to such holder any amount in cash in
lieu of any fraction pursuant to paragraph (7)(v).
(viii) Whenever the Conversion Price is adjusted as herein
provided, the Chief Financial Officer of the Corporation shall
compute the adjusted Conversion Price in accordance with the
foregoing provisions and shall prepare a certificate setting
forth such adjusted Conversion Price and showing in reasonable
detail the facts upon which such adjustment is based, which
certificate shall be conclusive evidence of the correctness of
the adjustment. A copy of such certificate shall be filed
promptly with the Conversion Agent. Promptly after delivery of
such certificate, the Corporation shall prepare a notice of such
<PAGE>
17
adjustment of the Conversion Price setting forth the adjusted
Conversion Price and the date on which such adjustment becomes
effective and shall mail such notice of such adjustment of the
Conversion Price to the holder of each share of Cumulative
Convertible Preferred Stock at his last address as shown on the
stock books of the Corporation.
(ix) The Corporation will pay any and all documentary, stamp
or similar issue or transfer taxes payable in respect of the
issue or delivery of shares of Common Stock on the conversion of
shares of Cumulative Convertible Preferred Stock pursuant to this
paragraph (7); provided, however, that the Corporation shall not
be required to pay any tax which may be payable in respect of any
registration of transfer involved in the issue or delivery of
shares of Common Stock in a name other than that of the
registered holder of Cumulative Convertible Preferred Stock
converted or to be converted, and no such issue or delivery shall
be made unless and until the person requesting such issue has
paid to the Corporation the amount of any such tax or has
established, to the satisfaction of the Corporation, that such
tax has been paid.
(x) (a) The Corporation shall at all times reserve
and keep available, free from preemptive rights, out of the
aggregate of its authorized but unissued Common Stock or its
issued Common Stock held in its treasury, or both, for the
purpose of effecting the conversion of the Cumulative Convertible
Preferred Stock, the full number of shares of Common Stock then
deliverable upon the conversion of all outstanding shares of the
Cumulative Convertible Preferred Stock.
(b) Before taking any action which would cause an
adjustment reducing the Conversion Price below the then par value
(if any) of the Common Stock issuable upon conversion of the
Cumulative Convertible Preferred Stock, the Corporation will take
any corporate action which may, in the opinion of its counsel, be
necessary in order that the Corporation may validly and legally
issue fully paid and nonassessable shares of such Common Stock at
such adjusted Conversion Price.
(8) Voting Rights. (i) The holders of record of
shares of Cumulative Convertible Preferred Stock shall not be
entitled to any voting rights except as hereinafter provided in
this paragraph (8) or as otherwise provided by law.
(ii) (a) If at any time or times dividends payable on
Cumulative Convertible Preferred Stock shall be in arrears and
unpaid for the six (6) preceding quarters, then the number of
directors constituting the Board of Directors, without further
action, shall be increased by two (2) and the holders of
Cumulative Convertible Preferred Stock shall have the exclusive
right, voting separately as a class, to elect the directors of
the Corporation to fill such newly created directorships, the
<PAGE>
18
remaining directors to be elected by the other class or classes
of stock entitled to vote therefor, at each meeting of
stockholders held for the purpose of electing directors;
provided, that in no event shall the holders of Cumulative
Convertible Preferred Stock have the right to elect more than
twenty-five percent (25%) of the total number of directors of the
Corporation, provided, further, that, notwithstanding the
foregoing proviso, holders of Cumulative Convertible Preferred
Stock shall have the right to elect not less than one (1)
director pursuant to this paragraph (8)(ii)(a).
(b) Whenever such voting right shall have vested, such
right may be exercised initially either at a special meeting of
the holders of Cumulative Convertible Preferred Stock, called as
hereinafter provided, or at any annual meeting of stockholders
held for the purpose of electing directors, and thereafter at
such meetings or by the written consent of the holders of
Cumulative Convertible Preferred Stock pursuant to Section 228 of
the General Corporation Law of the State of Delaware. Such
voting right shall continue until such time as all cumulative
dividends accumulated on all outstanding Cumulative Convertible
Preferred Stock shall have been paid in full or declared and set
aside for payment in full, at which time such voting right of the
holders of Cumulative Convertible Preferred Stock shall
terminate, subject to revesting in the event of each and every
subsequent failure of the Corporation to pay dividends for the
requisite number of quarters as described above.
(c) At any time when such voting right shall have
vested in the holders of Cumulative Convertible Preferred Stock
and if such right shall not already have been initially
exercised, a proper officer of the Corporation shall, upon the
written request of 10% of the holders of record of Cumulative
Convertible Preferred Stock then outstanding, addressed to the
Secretary of the Corporation, call a special meeting of holders
of Cumulative Convertible Preferred Stock. Such meeting shall be
held at the earliest practicable date upon the notice required
for annual meetings of stockholders at the place for holding
annual meetings of stockholders of the Corporation or, if none,
at a place designated by the Secretary of the Corporation. If
such meeting shall not be called by the proper officers of the
Corporation within 30 days after the personal service of such
written request upon the Secretary of the Corporation, or within
30 days after mailing the same within the United States, by
registered mail, addressed to the Secretary of the Corporation at
its principal office (such mailing to be evidenced by the
registry receipt issued by the postal authorities), then the
holders of record of 10% of the shares of Cumulative Convertible
Preferred Stock then outstanding may designate in writing a
holder of Cumulative Convertible Preferred Stock to call such
meeting at the expense of the Corporation, and such meeting may
be called by such person so designated upon the notice required
for annual meetings of stockholders and shall be held at the same
<PAGE>
19
place as is elsewhere provided in this paragraph (8)(ii)(c). Any
holder of Cumulative Convertible Preferred Stock that would be
entitled to vote at such meeting shall have access to the stock
books of the Corporation for the purpose of causing a meeting of
stockholders to be called pursuant to the provisions of this
paragraph. Notwithstanding the provisions of this paragraph,
however, no such special meeting shall be called during a period
within 90 days immediately preceding the date fixed for the next
annual meeting of stockholders.
(d) At any meeting held for the purpose of electing
directors at which the holders of Cumulative Convertible
Preferred Stock shall have the right to elect directors as
provided herein, the presence in person or by proxy of the
holders of at least a majority of the then outstanding shares of
Cumulative Convertible Preferred Stock shall be required and be
sufficient to constitute a quorum of such class for the election
of directors by such class. At any such meeting or adjournment
thereof (x) the absence of a quorum of the holders of Cumulative
Convertible Preferred Stock shall not prevent the election of
directors other than those to be elected by the holders of stock
of such class and the absence of a quorum or quorums of the
holders of capital stock entitled to elect such other directors
shall not prevent the election of directors to be elected by the
holders of Cumulative Convertible Preferred Stock and (y) in the
absence of a quorum of the holders of shares of Cumulative
Convertible Preferred Stock, a majority of such holders present
in person or by proxy shall have the power to adjourn the meeting
for the election of directors which the holders of shares of
Cumulative Convertible Preferred Stock may be entitled to elect,
from time to time, without notice (except as required by law)
other than announcement at the meeting, until a quorum shall be
present.
(e) The term of office of all directors elected by the
holders of Cumulative Convertible Preferred Stock pursuant to
paragraph (8)(ii)(a) in office at any time when the aforesaid
voting rights are vested in the holders of Cumulative Convertible
Preferred Stock shall terminate upon the election of their
successors at any meeting of stockholders for the purpose of
electing directors. Upon any termination of the aforesaid voting
rights in accordance with paragraph (8)(ii)(b), the term of
office of all directors elected by the holders of Cumulative
Convertible Preferred Stock pursuant to paragraph (8)(ii)(a) then
in office shall thereupon terminate and upon such termination the
number of directors constituting the Board of Directors shall,
without further action, be reduced by two (2) (or such other
lesser number by which the number of directors constituting the
Board of Directors shall have been increased pursuant to
paragraph (8)(ii)(a) hereof), subject always to the increase of
the number of directors pursuant to paragraph (8)(ii)(a) in case
of the future right of the holders of Cumulative Convertible
Preferred Stock to elect directors as provided herein.
<PAGE>
20
(f) In case of any vacancy occurring among the
directors so elected, the remaining director who shall have been
so elected may appoint a successor to hold office for the
unexpired term of the director whose place shall be vacant. If
all directors so elected by the holders of Cumulative Convertible
Preferred Stock shall cease to serve as directors before their
terms shall expire, the holders of Cumulative Convertible
Preferred Stock then outstanding may, at a special meeting of the
holders called as provided above, elect successors to hold office
for the unexpired terms of the directors whose places shall be
vacant.
(iii) So long as any shares of the Cumulative Convertible
Preferred Stock are outstanding (except when notice of the
redemption of all outstanding shares of Cumulative Convertible
Preferred Stock has been given pursuant to paragraph (5) and
paragraph (6) and funds have been deposited in trust for such
redemption), the Corporation shall not, without the affirmative
vote or consent of the holders of at least a majority of the
shares of Cumulative Convertible Preferred Stock and any other
series of Preferred Stock entitled to vote thereon at the time
outstanding voting or consenting, as the case may be, together as
one class, given in person or by proxy, either in writing or by
resolution adopted at an annual or special meeting called for the
purpose, authorize any new class of Parity Securities.
(iv) So long as any shares of the Cumulative Convertible
Preferred Stock are outstanding (except when notice of the
redemption of all outstanding shares of Cumulative Convertible
Preferred Stock has been given pursuant to paragraph (5) and
paragraph (6) and funds have been deposited in trust for such
redemption), the Corporation shall not, without the affirmative
vote or consent of the holders of at least 66-2/3% of the shares
of Cumulative Convertible Preferred Stock and any other series of
Preferred Stock entitled to vote thereon at the time outstanding
voting or consenting, as the case may be, together as one class,
given in person or by proxy, either in writing or by resolution
adopted at an annual or special meeting called for the purpose,
authorize any new class of Senior Securities.
(v) (a) Except as set forth in paragraph (8)(iii) and
paragraph (8)(iv) above, the creation, authorization or issuance
of any shares of any Junior Securities, Parity Securities or
Senior Securities, (b) the creation of any indebtedness of any
kind of the Corporation, or (c) the increase or decrease in the
amount of authorized capital stock of any class, including
Preferred Stock, shall not require the consent of the holders of
Cumulative Convertible Preferred Stock and shall not be deemed to
affect materially and adversely the rights, preferences,
privileges or voting rights of shares of Cumulative Convertible
Preferred Stock.
<PAGE>
21
(vi) So long as any shares of the Cumulative Convertible
Preferred Stock are outstanding (except when notice of the
redemption of all outstanding shares of Cumulative Convertible
Preferred Stock has been given pursuant to paragraph (5) and
paragraph (6) and funds have been deposited in trust for such
redemption), the Corporation shall not, without the affirmative
vote or consent of the holders of at least 66-2/3% of the shares
of Cumulative Convertible Preferred Stock and any other series of
Preferred Stock entitled to vote thereon at the time outstanding
voting or consenting, as the case may be, together as one class,
given in person or by proxy, either in writing or by resolution
adopted at an annual or special meeting called for the purpose,
amend the Certificate of Incorporation or this Certificate of
Designation so as to affect materially and adversely the
specified rights, preferences, privileges or voting rights of
shares of Cumulative Convertible Preferred Stock.
(9) Transactions with Affiliates. So long as any
shares of the Cumulative Convertible Preferred Stock are
outstanding, the Corporation and its subsidiaries shall not
engage in, directly or indirectly, any purchase, sale or other
acquisition or disposition of a material amount of assets of the
Corporation and its subsidiaries, taken as a whole, with any
Affiliate (as hereinafter defined) of the Corporation (other than
a wholly owned subsidiary of the Corporation) except on terms
that are not less favorable to the Corporation than those which
would have been obtainable at the time of such transaction from a
person who is not such an Affiliate; provided, however, that any
purchase, sale or other acquisition or disposition of a material
amount of assets of the Corporation with any Affiliate of the
Corporation shall be deemed to be on terms that are not less
favorable to the Corporation than those which would have been
obtainable at the time of the transaction from a person who is
not such an Affiliate if the Corporation receives a written
opinion of a nationally recognized investment bank stating that
the transaction is fair to the Corporation from a financial point
of view.
"Affiliate" as applied to any person, means any other
person who directly or indirectly through one or more
intermediaries controls, is controlled by, or is under common
control with, that person. For the purposes of this definition,
"control" (including the terms "controlled by" and "under common
control with"), as applied to any person, means the possession,
directly or indirectly, of the power to direct or cause the
direction of the management and policies of that person, whether
through the ownership of voting securities, by contract or
otherwise.
(10) Limitations. Except as may otherwise be required
by law, the shares of Cumulative Convertible Preferred Stock
shall not have any powers, preferences or relative,
participating, optional or other special rights other than those
<PAGE>
22
specifically set forth in this resolution (as such resolution may
be amended from time to time) or otherwise in the Certificate of
Incorporation of the Corporation.
The following is a statement of the number,
designation, powers, preferences and relative, participating,
optional or other special rights and qualifications, limitations
or restrictions of the ESOP Convertible Preferred Stock of the
Corporation:
(1) Designation; Issuance. (i) The designation of
the series of Preferred Stock authorized by this resolution shall
be "ESOP Convertible Preferred Stock" (the "ESOP Convertible
Preferred Stock") consisting of 15,625,000 shares. The stated
value of the ESOP Convertible Preferred Stock shall be $16.00 per
share, which value does not represent a determination by the
Board of Directors for the purposes of the capital accounts.
(ii) Shares of ESOP Convertible Preferred Stock shall
be issued only to a trustee acting on behalf of an employee stock
ownership plan or other employee benefit plan of the Corporation.
In the event of any transfer of shares of ESOP Convertible
Preferred Stock except for (a) any transfer to any such plan
trustee or (b) any transfer to, or with respect to, a participant
in any such plan to, or with respect to, whom ESOP Convertible
Preferred Stock is distributed by any such plan trustee in
satisfaction of the distribution requirements of any such plan or
any investment elections provided to participants pursuant to any
such plan, unless the Corporation shall have otherwise previously
consented to such transfer, the shares of ESOP Convertible
Preferred Stock so transferred, upon such transfer and without
any further action by the Corporation or the holder, shall be
automatically converted into shares of Common Stock (as defined
in paragraph (2) hereof) on the terms otherwise provided for the
conversion of shares of ESOP Convertible Preferred Stock into
shares of Common Stock pursuant to paragraph (7) hereof and no
such transferee shall have any of the powers (including voting
powers), preferences and relative, participating, optional or
special rights ascribed to shares of ESOP Convertible Preferred
Stock hereunder but, rather, only the powers (including voting
powers) and rights pertaining to the Common Stock into which such
shares of ESOP Convertible Preferred Stock shall be so converted.
Certificates representing shares of ESOP Convertible Preferred
Stock shall be legended to reflect such restrictions on transfer.
Notwithstanding the foregoing provisions of this paragraph
(1)(ii), shares of ESOP Convertible Preferred Stock (a) shall be
redeemable by the Corporation upon the terms and conditions
provided by paragraphs (5), (6) and (9) hereof and (b) may be
converted into shares of Common Stock as provided by
paragraph (7) hereof and the shares of Common Stock issued upon
such conversion may be transferred by the holder thereof as
permitted by law.
<PAGE>
23
(2) Rank. The ESOP Convertible Preferred Stock shall,
with respect to dividend rights and rights on liquidation,
winding up and dissolution, rank prior to the Common Stock, par
value $0.01 per share (the "Common Stock"), of the Corporation
and on a parity with the Cumulative Convertible Preferred Stock,
par value $0.01 per share, stated value $25.00 per share, of the
Corporation (the "Cumulative Convertible Preferred Stock"). All
equity securities of the Corporation to which the ESOP
Convertible Preferred Stock ranks prior, including the Common
Stock, are collectively referred to herein as the "Junior
Securities," all equity securities of the Corporation with which
the ESOP Convertible Preferred Stock ranks on a parity, including
Cumulative Convertible Preferred Stock, are collectively referred
to herein as the "Parity Securities" and all equity securities of
the Corporation (other than convertible debt securities) to which
the ESOP Convertible Preferred Stock ranks junior, whether with
respect to dividends or upon liquidation, dissolution, winding-up
or otherwise, are collectively referred to herein as the "Senior
Securities." The ESOP Convertible Preferred Stock shall be
subject to the creation of Junior Securities, Parity Securities
and Senior Securities.
(3) Dividends. (i)(a) Subject to paragraph (3)(i)(b),
the holders of the shares of ESOP Convertible Preferred Stock
shall be entitled to receive, when, as and if declared by the
Board of Directors, out of funds legally available for the
payment of dividends, dividends initially at the rate of 7.8125%
of the stated value ($1.25) per share per annum (the "Dividend
Rate"), and no more. Subject to paragraph (3)(i)(b), such
dividends shall be payable in semi-annual payments, one half on
January 2, (or, at the option of the Corporation, the preceding
December 27) and one half on July 2 of each year commencing with
January 2, 1992 (or, at the option of the Corporation, December
27, 1991) (each of such dates being a "Dividend Payment Date"),
in preference to dividends on the Junior Securities. Subject to
paragraph (3)(i)(b), such dividends shall be paid to the holders
of record at the close of business on the tenth business day
immediately preceding each Dividend Payment Date (each of such
dates being a "Dividend Payment Record Date"). Subject to
paragraph (3)(i)(b), each of such semi-annual dividends shall be
fully cumulative and shall accrue (whether or not declared),
without interest, from the previous Dividend Payment Date, except
that with respect to the first dividend, such dividend shall
accrue from the date of initial issuance. Dividends payable for
the first dividend period and any partial dividend period
(excluding for this purpose dividends paid on December 27 in lieu
of January 2) shall be calculated on the basis of a 360-day year
of twelve 30-day months.
(b) Notwithstanding anything to the contrary in
paragraph (3)(i)(a), in the event that after the eighth (8th)
anniversary of the initial date of issuance, for at least twenty
(20) trading days within any period of thirty (30) consecutive
<PAGE>
24
trading days (such thirty (30) day period being hereinafter
referred to as the "Adjustment Period"), the closing price on the
New York Stock Exchange Consolidated Tape (or any successor
composite tape reporting transactions on national securities
exchanges) or, if such a composite tape shall not be in use or
shall not report transactions in the Common Stock, the last
reported sales price regular way on the principal national
securities exchange on which the Common Stock is listed or
admitted to trading (which shall be the national securities
exchange on which the greatest number of shares of Common Stock
has been traded during such Adjustment Period) or, if there is no
transaction on any such day in any such situation, the mean of
the bid and asked prices on such day or, if the Common Stock is
not listed or admitted to trading on any such exchange, the
closing price, if reported, or, if the closing price is not
reported, the average of the closing bid and asked prices as
reported by the National Market System of the National
Association of Securities Dealers, Inc. Automated Quotation
System ("NASDAQ") or a similar source selected from time to time
by the Corporation for the purpose, of the Common Stock equals or
exceeds one hundred percent (100%) of the Conversion Price (as
defined in paragraph (7) hereof) (giving effect to any
adjustments required by paragraph (7) hereof), the Corporation
may elect, in its sole discretion, to cease to pay dividends on
the ESOP Convertible Preferred Stock on the Dividend Payment
Dates at the Dividend Rate. Notice of the Corporation's election
to discontinue paying dividends on the ESOP Convertible Preferred
Stock at the Dividend Rate shall be given within ten (10) trading
days of the conclusion of the Adjustment Period. Upon the
Corporation giving notice of its election as set forth above, the
Dividend Rate shall cease to be effective as the applicable rate
for subsequent ESOP Convertible Preferred Stock dividend periods
commencing the next succeeding regular Dividend Payment Date (the
"Adjustment Date") provided that following the payment of the
dividend due pursuant to paragraph (3)(i)(a) on such date there
shall be no cumulative dividends on the ESOP Convertible
Preferred Stock remaining accrued and unpaid. Notice shall be
given by first class mail, postage prepaid, to each holder of
record as of the conclusion of the Adjustment Period of the
shares at such holder's address as the same appears on the stock
register of the Corporation.
Commencing on the Adjustment Date, dividends, if any,
on the ESOP Convertible Preferred Stock will be payable, when, as
and if declared, in amounts equal to such dividends as may be
declared and paid on the Common Stock, if any, multiplied by the
number of shares of Common Stock issuable upon the conversion of
the ESOP Convertible Preferred Stock on the record date or record
dates for such Common Stock dividends (calculated quarterly if
dividends are then paid quarterly on the Common Stock, without
interest), and no more. After the Adjustment Date, dividends, if
any, on the ESOP Convertible Preferred Stock will paid be on the
next succeeding Common Stock dividend payment date and thereafter
<PAGE>
25
semi-annually on the same date as Common Stock dividends are
paid; provided, however, that the dividends payable in respect of
the first ESOP Convertible Preferred Stock dividend payment
period following the Adjustment Date shall be adjusted as set
forth in paragraph (3)(a) to the extent that the number of days
in such dividend payment period is less than the number of days
in the corresponding Common Stock quarterly dividend payment
period. The record dates for such ESOP Convertible Preferred
Stock dividends shall be the same date as may be established as
the record date for the corresponding Common Stock dividend.
Notwithstanding the foregoing, in the event that a Common Stock
dividend is paid in respect of the initial quarterly period
comprising any semi-annual dividend payment period for the ESOP
Convertible Preferred Stock but no dividend is declared and paid
in respect of the Common Stock for the second quarterly period
comprising any such semi-annual dividend payment period for the
ESOP Convertible Preferred Stock, a dividend equal to the
dividend paid on the Common Stock for the initial quarterly
period and no more shall be paid on the ESOP Convertible
Preferred Stock on the date 90 days from the date that the last
dividend was paid on the Common Stock (or, if such date is not a
business day, on the next succeeding business day) and the record
date for such dividend on the ESOP Convertible Preferred Stock
shall be the date 90 days from the record date in respect of such
last dividend paid on the Common Stock (or, if such date is not a
business day, on the next succeeding business day). In the event
that no dividends are paid on the Common Stock in respect of the
two calendar quarters comprising an ESOP Convertible Preferred
Stock dividend payment period, no dividends will be payable or
paid on the ESOP Convertible Preferred Stock in respect of such
period. Notwithstanding anything to the contrary contained
herein, no dividends shall be payable pursuant to this paragraph
(3)(i)(b) to the extent that the corresponding Common Stock
dividend is paid other than in cash.
(ii) All dividends paid with respect to shares of the
ESOP Convertible Preferred Stock pursuant to paragraph (3)(i)
hereof shall be paid pro rata to the holders entitled thereto.
(iii) Prior to the Adjustment Date, no full dividends shall
be declared by the Board of Directors or paid or set apart for
payment by the Corporation on any Parity Securities for any
period unless full dividends calculated in accordance with
paragraph (3)(i) have been or contemporaneously are declared and
paid or declared and a sum set apart sufficient for such payment
on the ESOP Convertible Preferred Stock for all dividend periods
terminating on or prior to the date of payment, or setting apart
for payment, of such full dividends on such Parity Securities.
Prior to the Adjustment Date, if any dividends are not paid in
full as aforesaid upon the shares of the ESOP Convertible
Preferred Stock and any other Parity Securities, all dividends
declared upon shares of the ESOP Convertible Preferred Stock and
any other Parity Securities shall be declared pro rata so that
<PAGE>
26
the amount of dividends declared per share of the ESOP
Convertible Preferred Stock and such Parity Securities shall in
all cases bear to each other the same ratio that accrued
dividends per share on the ESOP Convertible Preferred Stock and
such Parity Securities bear to each other. No interest, or sum
of money in lieu of interest, shall be payable in respect of any
dividend payment or payments on the ESOP Convertible Preferred
Stock or any other Parity Securities which may be in arrears. Any
dividend not paid pursuant to paragraph (3)(i)(a) hereof or this
paragraph (3)(iii) shall be fully cumulative and shall accrue
(whether or not declared), without interest, as set forth in
paragraph (3)(i)(a) hereof. On and after the Adjustment Date,
dividends on the ESOP Convertible Preferred Stock shall cease to
be cumulative.
(iv) (a) Holders of shares of the ESOP Convertible
Preferred Stock shall be entitled to receive the dividends
provided for in paragraph (3)(i) hereof in preference to and in
priority over any dividends upon any of the Junior Securities.
(b) So long as any shares of the ESOP Convertible
Preferred Stock are outstanding, the Board of Directors shall not
declare, and the Corporation shall not pay or set apart for
payment any dividend on any of the Junior Securities or make any
payment on account of, or set apart for payment money for a
sinking or other similar fund for, the repurchase, redemption or
other retirement of, any of the Junior Securities or Parity
Securities or any warrants, rights or options exercisable for or
convertible into any of the Junior Securities or Parity
Securities (other than purchases or redemptions pursuant to or in
accordance with employee stock subscription agreements entered
into between the Corporation and certain of its or its
subsidiaries' directors, officers and key employees and purchases
and redemptions pursuant to employee benefit plans and other than
the repurchase, redemption or other retirement of any Parity
Securities or any warrants, rights or options exercisable for or
convertible into any of the Parity Securities made pursuant to
the requirements of paragraph (5)(ii) hereof and other than the
repurchase, redemption or other retirement of debentures or other
debt securities that are convertible or exchangeable into any of
the Junior Securities or Parity Securities), or make any
distribution in respect of the Junior Securities, either directly
or indirectly, and whether in cash, obligations or shares of the
Corporation or other property (other than distributions or
dividends in Junior Securities to the holders of Junior
Securities), and shall not permit any corporation or other entity
directly or indirectly controlled by the Corporation to purchase
or redeem any of the Junior Securities or Parity Securities or
any warrants, rights, calls or options exercisable for or
convertible into any of the Junior Securities or Parity
Securities (other than purchases or redemptions pursuant to or in
accordance with employee stock subscription agreements entered
into between the Corporation and certain of its or its
<PAGE>
27
subsidiaries' directors, officers and key employees and purchases
and redemptions pursuant to employee benefit plans and other than
the repurchase, redemption or other retirement of any Parity
Securities or any warrants, rights or options exercisable for or
convertible into any of the Parity Securities made pursuant to
the requirements of paragraph (5)(ii) hereof and other than the
repurchase, redemption or other retirement of debentures or other
debt securities that are convertible or exchangeable into any of
the Junior Securities or Parity Securities) unless prior to or
concurrently with such declaration, payment, setting apart for
payment, repurchase, redemption or other retirement or
distribution, as the case may be, any and all accrued and unpaid
dividends on shares of the ESOP Convertible Preferred Stock not
paid on the dates provided for in paragraph (3)(i) hereof
(including any and all accrued dividends not paid by reason of
the terms and conditions of paragraph (3)(i)(a) or paragraph
(3)(iii) hereof but excluding any and all accrued dividends not
yet payable by reason of the terms and conditions of paragraph
(3)(i)(b) hereof) shall have been or be paid.
(v) Subject to the foregoing provisions of this
paragraph (3) and paragraph (7)(vi)(c), the Board of Directors
may declare and the Corporation may pay or set apart for payment
dividends and other distributions on any of the Junior Securities
or Parity Securities, and may repurchase, redeem or otherwise
retire any of the Junior Securities or Parity Securities or any
warrants, rights or options exercisable for or convertible into
any of the Junior Securities or Parity Securities, and the
holders of the shares of the ESOP Convertible Preferred Stock
shall not be entitled to share therein.
(4) Liquidation Preference. (i) In the event of any
voluntary or involuntary liquidation, dissolution or winding up
of the affairs of the Corporation, the holders of shares of ESOP
Convertible Preferred Stock then outstanding shall be entitled to
be paid out of the assets of the Corporation available for
distribution to its stockholders an amount in cash equal to
$16.00 for each share outstanding, plus an amount in cash equal
to any and all accrued but unpaid dividends thereon to the date
of liquidation, dissolution or winding up before any payment
shall be made or any assets distributed to the holders of any of
the Junior Securities; provided, however, that for the purposes
of this paragraph (4)(i), to the extent that after the Adjustment
Date dividends have been declared and paid on the Common Stock
and the corresponding dividend has not yet been paid on the ESOP
Convertible Preferred Stock, the amount to be paid in respect of
the ESOP Convertible Preferred Stock in accordance with paragraph
(3)(i)(b) in light of the declaration and payment of such
dividend on the Common Stock shall be deemed to be an accrued but
unpaid dividend. If the assets of the Corporation are not
sufficient to pay in full the liquidation payments payable to the
holders of outstanding shares of the ESOP Convertible Preferred
Stock and any Parity Securities, then the holders of all such
<PAGE>
28
shares shall share ratably in such distribution of assets in
accordance with the amount which would be payable on such
distribution if the amounts to which the holders of outstanding
shares of ESOP Convertible Preferred Stock and the holders of
outstanding shares of such Parity Securities are entitled were
paid in full. Except as provided in this paragraph (4)(i),
holders of ESOP Convertible Preferred Stock shall not be entitled
to any distribution in the event of liquidation, dissolution or
winding up of the affairs of the Corporation.
(ii) For the purposes of this paragraph (4), neither the
voluntary sale, conveyance, lease, exchange or transfer (for
cash, shares of stock, securities or other consideration) of all
or substantially all of the property or assets of the Corporation
nor the consolidation or merger of the Corporation with or into
one or more other corporations nor the consolidation or merger of
one or more corporations with or into the Corporation shall be
deemed to be a voluntary or involuntary liquidation, dissolution
or winding up.
(5) Redemption. (i) The Corporation may redeem at
its option the ESOP Convertible Preferred Stock, at any time in
whole or from time to time in part after the eighth (8th)
anniversary of the initial date of issuance or on or before said
date if permitted by paragraphs (5)(iv) through (5)(viii) or
paragraph (9) at the redemption price per share set forth below,
together with accrued and unpaid dividends thereon to the date of
redemption (or, if pursuant to paragraphs (5)(iv), (5)(v),
(5)(vii) and (5)(viii), at the redemption price set forth
therein), without interest, to the extent the Corporation shall
have funds legally available for such payment. For the purposes
of this paragraph (5)(i), to the extent that after the Adjustment
Date dividends have been declared and paid on the Common Stock
and the corresponding dividend has not yet been paid on the ESOP
Convertible Preferred Stock, the amount to be paid in respect of
the ESOP Convertible Preferred Stock in accordance with paragraph
(3)(i)(b) in light of the declaration and payment of such
dividend on the Common Stock shall be deemed to be an accrued but
unpaid dividend.
If redeemed during the 12 month period beginning on
April 10 in each of the years set forth below, the redemption
price per share shall be as follows:
<PAGE>
29
Year Redemption Price Per Share
---- --------------------------
1991 . . . . . . . . $ 17.250
1992 . . . . . . . . 17.125
1993 . . . . . . . . 17.000
1994 . . . . . . . . 16.875
1995 . . . . . . . . 16.750
1996 . . . . . . . . 16.625
1997 . . . . . . . . 16.500
1998 . . . . . . . . 16.375
1999 . . . . . . . . 16.250
2000 . . . . . . . . 16.125
2001 and thereafter . 16.000
(ii) So long as any shares of the ESOP Convertible
Preferred Stock are outstanding, any repurchase, redemption or
other retirement of any Parity Securities or any warrants, rights
or options exercisable for or convertible into any of the Parity
Securities (other than the repurchase, redemption or other
retirement of debentures or other debt securities that are
convertible or exchangeable into any Parity Securities) must be
made on a pro rata basis with the ESOP Convertible Preferred
Stock so that the total redemption prices of the shares redeemed
of ESOP Convertible Preferred Stock and such Parity Securities
shall in all cases bear to each other the same ratio that the
total redemption prices of all shares outstanding on the
applicable date of ESOP Convertible Preferred Stock and such
Parity Securities bear to each other, unless prior to or
concurrently with such repurchase, redemption or other
retirement, as the case may be, any and all accrued and unpaid
dividends on shares of the ESOP Convertible Preferred Stock not
paid on the dates provided for in paragraph (3)(i) hereof
(including any and all accrued dividends not paid by reason of
the terms and conditions of paragraph (3)(i) or paragraph
(3)(iii) hereof) shall have been or be paid.
(iii) Shares of ESOP Convertible Preferred Stock that
have been issued and reacquired in any manner, including shares
purchased or redeemed or exchanged or converted, shall (upon
compliance with any applicable provisions of the laws of the
State of Delaware) have the status of authorized and unissued
shares of the class of Preferred Stock undesignated as to series
and may be redesignated and reissued as part of any series of the
Preferred Stock.
(iv) In the event of a change in the federal tax law or
regulations of the United States of America or of an
interpretation or application of such law or regulations or of a
determination by a court of competent jurisdiction, which in any
case has the effect of precluding the Corporation from claiming
(other than for purposes of calculating any alternative minimum
tax) any of the tax deductions for dividends paid on the ESOP
<PAGE>
30
Convertible Preferred Stock when such dividends are used as
provided under Section 404(k)(2) of the Internal Revenue Code of
1986, as amended (the "Code"), as in effect on the date shares of
ESOP Convertible Preferred Stock are initially issued, the
Corporation may, in its sole discretion and notwithstanding
anything to the contrary in paragraph (5)(i) hereof, elect to
redeem any or all of the ESOP Convertible Preferred Stock for (a)
the amount payable in respect of such shares upon liquidation of
the Corporation pursuant to paragraph (4) hereof, if such
election is made within one year of the occurrence of such event
or (b) the amount payable in respect of such shares as set forth
in paragraph (5)(i) hereof, if such election is made after one
year from the occurrence of such event.
(v) In the event that the Corporation certifies to the
holders of the ESOP Convertible Preferred Stock that the
Corporation has determined in good faith that either the RJR
Nabisco Capital Accumulation Plan, as amended as of March 15,
1991, as the same may be further amended, or any successor plan
(the "Plan") is not qualified within the meaning of Section
401(a) of the Code or the RJR Nabisco Employee Stock Ownership
Program forming a part thereof, as the same may be amended, or
any successor program (the "Program"), is not an "employee stock
ownership plan" within the meaning of Section 4975(e)(7) of the
Code, the Corporation may, in its sole discretion and
notwithstanding anything to the contrary in paragraph (5)(i)
hereof, elect to redeem any or all of the ESOP Convertible
Preferred Stock for (a) the amount payable in respect of such
shares upon liquidation of the Corporation pursuant to paragraph
(4) hereof, if such election is made within one year of the
occurrence of such event or (b) the amount payable in respect of
such shares as set forth in paragraph (5)(i) hereof, if such
election is made after one year from the occurrence of such
event.
(vi) In the event that the Plan or the Program is, or
contributions thereto are, expressly terminated by the
Corporation, the Corporation may, in its sole discretion and
notwithstanding anything to the contrary in paragraph (5)(i)
hereof, elect to redeem any or all the ESOP Convertible Preferred
Stock for the amount payable in respect of such shares as set
forth in paragraph (5)(i) hereof.
(vii) In the event and to the extent that redemption of
shares of ESOP Convertible Preferred Stock is necessary or
appropriate to provide for the distributions required to be made
under, or to satisfy an investment election provided to
participants in accordance with, the Program, the Corporation
may, in its sole discretion and notwithstanding anything to the
contrary in paragraph (5)(i) hereof, elect to redeem any or all
ESOP Convertible Preferred Stock for the amount payable in
respect of such shares upon liquidation of the Corporation
pursuant to paragraph (4) hereof.
<PAGE>
31
(viii) In the event and to the extent that shares of ESOP
Convertible Preferred Stock are transferred to a participant in
the Plan, the Corporation may, in its sole discretion and
notwithstanding anything to the contrary in paragraph (5)(i)
hereof, elect to redeem such shares of ESOP Convertible Preferred
Stock for the amount payable in respect of such shares upon
liquidation of the Corporation pursuant to paragraph (4) hereof.
(ix) In the event and to the extent that the Corporation
is required under Section 409(h)(1)(B) of the Code or any
successor provision of law to redeem shares of ESOP Convertible
Preferred Stock, the Corporation shall, notwithstanding anything
to the contrary contained in paragraph (5)(i) hereof, redeem such
shares of ESOP Convertible Preferred Stock for the amount equal
to the greater of (i) the value as of the applicable valuation
date (as determined under the Program) of the shares of Common
Stock into which such shares of ESOP Convertible Preferred Stock
are convertible as of such date or (ii) the amount payable in
respect of such shares of upon liquidation of the Corporation
pursuant to paragraph (4) hereof.
(x) Notwithstanding anything to the contrary contained
herein, subject to the final sentence of this paragraph (5)(x),
if there is, or if as a result of any redemption pursuant to
paragraph (5)(ix) hereof there would be, a default or event of
default under any debt instrument or agreement of the Corporation
or any of its subsidiaries or any other material obligation of
the Company or any of its subsidiaries, or an impairment of
capital or violation of the General Corporation Law of the State
of Delaware (collectively, an "Event"), then any such redemption
shall be deferred until the first business day that such
redemption may occur without any such Event existing or
resulting. If at any time consummation of any redemptions to be
made by the Corporation pursuant to paragraph (5)(ix) would
result in an Event, then the Corporation shall make redemptions
of shares of ESOP Convertible Preferred Stock pro rata (on the
basis of the proportion of the number of shares of ESOP
Convertible Preferred Stock which each holder shall have
specified to be redeemed for the maximum number of shares of ESOP
Convertible Preferred Stock permitted without resulting in an
Event; provided, however, that the provisions of the first
sentence of this paragraph (5)(x) shall apply in respect of all
shares of ESOP Convertible Preferred Stock not redeemed. Until
all of such ESOP Convertible Preferred Stock is redeemed and paid
for by the Corporation, the shares of ESOP Convertible Preferred
Stock which are required to be redeemed under Section
409(h)(1)(B) of the Code or any successor provision of law which
are not redeemed in accordance with this paragraph (5)(x) shall
have priority, on a pro rata basis, over other redemptions by the
Corporation pursuant to this paragraph (5). Notwithstanding the
terms of this paragraph (5)(x) or paragraph (5)(ix), to the
extent the deferral provided for by this paragraph (5)(x) would
not be permitted by the Code or the Employee Retirement Income
<PAGE>
32
Security Act of 1974, as amended ("ERISA"), or any successor
provision of law, the provisions of paragraph (5)(ix) shall, to
the extent permitted by the Code and ERISA, be of no force or
effect where an Event would occur without regard to such
deferral.
(xi) The Corporation, at its option, may make payment of
the redemption price required to be paid upon redemption of
shares of ESOP Convertible Preferred Stock (other than pursuant
to paragraph (9)(iv)) in cash or in shares of Common Stock, or in
securities of comparable value that constitute "qualifying
employer securities" with respect to a holder of ESOP Convertible
Preferred Stock within the meaning of Section 409(1) of the Code
and Section 407(d)(5) of ERISA or any successor provisions of law
("Qualifying Employer Securities") or in any combination of such
shares, Qualifying Employer Securities and cash, any such shares
and Qualifying Employer Securities to be valued for such purpose
at their Fair Market Value (as defined in paragraph (7)(vi)(e)
hereof) as of the date of redemption.
(6) Procedure for Redemption. (i) In the event that
fewer than all the outstanding shares of ESOP Convertible
Preferred Stock are to be redeemed other than pursuant to
paragraph (5)(vii), (5)(viii) or (5)(ix) or paragraph (9)(iv),
the number of shares to be redeemed shall be determined by the
Board of Directors and the shares to be redeemed shall be
selected pro rata, except that in any redemption of fewer than
all the outstanding shares of ESOP Convertible Preferred Stock,
the Corporation may redeem all shares held by any holders of a
number of shares not to exceed 100, including all shares held by
holders who, after giving effect to such redemption, would hold
less than 100 shares, as may be specified by the Corporation.
(ii) In the event the Corporation shall redeem shares
of ESOP Convertible Preferred Stock other than pursuant to
paragraph 5(vii), 5(viii) or (5)(ix) or paragraph (9)(iv),
subject to applicable law, written notice of such redemption
shall be given by first class mail, postage prepaid, mailed not
less than 20 days nor more than 60 days prior to the redemption
date, to each holder of record of the shares to be redeemed at
such holder's address as the same appears on the stock register
of the Corporation; provided, however, that no failure to give
such notice nor any defect therein shall affect the validity of
the proceeding for the redemption of any shares of ESOP
Convertible Preferred Stock to be redeemed except as to the
holder to whom the Corporation has failed to give said notice or
except as to the holder whose notice was defective. Each such
notice shall state: (a) the redemption date; (b) the number of
shares of ESOP Convertible Preferred Stock to be redeemed and, if
less than all the shares held by such holder are to be redeemed
from such holder, the number of shares to be redeemed from such
holder; (c) the redemption price; (d) that shares of ESOP
Convertible Preferred Stock called for redemption may be
<PAGE>
33
converted in accordance with, and subject to the terms of,
paragraph (7) hereof at any time prior to the date fixed for
redemption (unless the Corporation shall default in payment of
the redemption price, in which case such right shall not
terminate at such date); (e) the place or places where
certificates for such shares are to be surrendered for payment of
the redemption price; (f) the method and form of payment of the
redemption price; and (g) that dividends on the shares to be
redeemed will cease to accrue on such redemption date.
(iii) Notice having been mailed as aforesaid, from and after
the redemption date (unless default shall be made by the
Corporation in providing cash, Qualifying Employer Securities or
shares of Common Stock for the payment of the redemption price of
the shares called for redemption) dividends on the shares of ESOP
Convertible Preferred Stock so called for redemption, to the
extent theretofore accruing, shall cease to accrue and said
shares shall no longer be deemed to be outstanding and shall have
the status of authorized but unissued shares of Preferred Stock,
undesignated as to series, and all rights of the holders thereof
as holders of the ESOP Convertible Preferred Stock (except the
right to receive from the Corporation the redemption price and
any and all accrued and unpaid dividends) shall cease. Upon
surrender in accordance with said notice of the certificates for
any shares so redeemed (properly endorsed or assigned for
transfer, if the Board of Directors of the Corporation shall so
require and the notice shall so state), such shares shall be
redeemed by the Corporation at the redemption price aforesaid
together with payment of any and all accrued and unpaid
dividends, without interest. In case fewer than all the shares
represented by any such certificate are redeemed, a new
certificate shall be issued representing the unredeemed shares
without cost to the holder thereof.
(7) Conversion. (i) Upon the terms and in the manner
set forth in this paragraph (7) and subject to the provisions for
adjustment contained in paragraph (7)(vi), each share of the ESOP
Convertible Preferred Stock shall be convertible, at the option
of the holder thereof at any time, upon surrender to the
Corporation of the certificates for the shares to be converted,
into a number of fully paid and nonassessable shares of Common
Stock equal to the aggregate stated value of the ESOP Convertible
Preferred Stock to be converted divided by a conversion price
(the "Conversion Price") of $16.00; provided, however, that the
right to convert shares of ESOP Convertible Preferred Stock that
have been called for redemption pursuant to paragraphs (5), (6)
and (9)(iii) shall terminate at the close of business on the date
fixed for redemption, unless the Corporation shall default in
making payment of the amount payable upon such redemption and
provided, further, that the right to convert shares of ESOP
Convertible Preferred Stock as to which a notice of redemption
has been delivered pursuant to paragraph (9)(iv) shall terminate
<PAGE>
34
at the close of business on the fifth (5th) business day prior to
the consummation of the transaction described in paragraph
(9)(ii), unless the Corporation or the successor of the
Corporation shall default in making payment of the amount payable
upon such redemption.
(ii) In order to convert shares of the ESOP Convertible
Preferred Stock, the holder thereof shall (a) deliver a properly
completed and duly executed written notice of election to convert
specifying the number of the shares of the ESOP Convertible
Preferred Stock to be converted and the name or names in which
such holder wishes the certificate or certificates for shares of
Common Stock to be issued to the Corporation at its principal
office or at the office of any agency which may be maintained for
such purpose (the "Conversion Agent"), (b) surrender the
certificate for such shares of ESOP Convertible Preferred Stock
to the Corporation or the Conversion Agent, accompanied, if so
required by the Corporation or the Conversion Agent, by a written
instrument or instruments of transfer in form reasonably
satisfactory to the Corporation or the Conversion Agent duly
executed by the holder or his attorney duly authorized in
writing, and (c) pay any transfer or similar tax required by
paragraph (7)(viii).
(iii) (a) Conversion shall be deemed to have been effected
at the close of business on the date (the "Conversion Date") on
which the Corporation or the Conversion Agent shall have received
the notice of election to convert, the surrendered certificate,
any required payments and all other required documents.
Immediately upon conversion, the rights of the holders of
converted shares of ESOP Convertible Preferred Stock shall cease
and the persons entitled to receive the shares of Common Stock
upon the conversion of such shares of ESOP Convertible Preferred
Stock shall be treated for all purposes as having become the
record owners of such shares of Common Stock but no allowance or
adjustment shall be made in respect of dividends payable to
holders of Common Stock of record on any date prior to the
Conversion Date. Conversion shall be at the Conversion Price in
effect at such time on such date, unless the stock transfer books
of the Corporation shall be closed on that date, in which event
such person or persons shall be deemed to have become such holder
or holders of record of the Common Stock at the close of business
on the next succeeding day on which such stock transfer books are
open, but such conversion shall be at the Conversion Price in
effect on the date upon which such shares shall have been
surrendered and such notice and any required payments received by
the Corporation.
(b) As promptly as practicable after the Conversion
Date, the Corporation shall deliver or cause to be delivered at
the office or agency of the Conversion Agent, to or upon the
written order of the holder of the surrendered shares of ESOP
Convertible Preferred Stock, a certificate or certificates
<PAGE>
35
representing the number of fully paid and nonassessable shares of
Common Stock into which such shares of ESOP Convertible Preferred
Stock have been converted in accordance with the provisions of
this paragraph (7), and any cash payable in respect of fractional
shares as provided in paragraph (7)(iv).
(c) Upon the surrender of a certificate representing
shares of ESOP Convertible Preferred Stock that is converted in
part, the Corporation shall issue or cause to be issued for the
holder a new certificate representing shares of ESOP Convertible
Preferred Stock equal in number to the unconverted portion of the
shares of ESOP Convertible Preferred Stock represented by the
certificate so surrendered.
(iv) (a) No fractional shares or scrip representing
fractional shares of Common Stock shall be issued upon the
conversion of any shares of ESOP Convertible Preferred Stock.
Instead of any fractional interest in a share of Common Stock
which would otherwise be deliverable upon the conversion of a
share of ESOP Convertible Preferred Stock, the Corporation shall
either (A) pay to the holder of such share (a "Fractional
Shareholder") an amount in cash (computed to the nearest cent)
equal to the Fair Market Value thereof (as defined in paragraph
(7)(vi)(e)) on the business day next preceding the Conversion
Date or (B) follow the procedures set forth in paragraph
(7)(iv)(b). If more than one share shall be surrendered for
conversion at one time by the same holder, the number of full
shares of Common Stock issuable upon conversion thereof shall be
computed on the basis of the aggregate stated value of the shares
of ESOP Convertible Preferred Stock so surrendered.
(b) The Corporation may, in lieu of paying cash to
Fractional Shareholders as provided in paragraph (7)(iv)(a),
issue, in full payment of the Corporation's obligation with
respect to such fractional interests, shares of Common Stock
equal to the aggregate of such fractional interests of such
Fractional Shareholder and other Fractional Shareholders
(aggregated over a reasonable period of time, but not in any
event more than 20 business days, and rounded upwards to the
nearest whole share) to an agent (which, without limiting the
generality of the foregoing, may be the trustee under the Plan or
Program, the Corporation or the Conversion Agent) (the "Transfer
Agent") appointed by the Corporation for such Fractional
Shareholders for sale promptly by the Transfer Agent on behalf of
the Fractional Shareholders. The Transfer Agent will remit
promptly to such Fractional Shareholders their proportionate
interest in the net proceeds (following the deduction of
applicable transaction costs and computed to the nearest cent)
from such sale.
(v) The holders of shares of ESOP Convertible
Preferred Stock at the close of business on a record date for an
ESOP Convertible Preferred Stock dividend (including a Dividend
<PAGE>
36
Payment Record Date) shall be entitled to receive the dividend
payable on such shares (except that holders of shares called for
redemption on a redemption date occurring between such record
date and the corresponding dividend payment date (including a
corresponding Dividend Payment Date) shall not be entitled to
receive such dividend on such dividend payment date (including a
Dividend Payment Date) but instead will receive accrued and
unpaid dividends to such redemption date) on the corresponding
dividend payment date (including a Dividend Payment Date)
notwithstanding the conversion thereof or the Corporation's
default in payment of the dividend due on such dividend payment
date (including a Dividend Payment Date).
(vi) The Conversion Price shall be subject to adjustment as
follows:
(a) If the Corporation shall (v) declare or pay a
dividend on its outstanding Common Stock in shares of Common
Stock or make a distribution to all holders of its Common Stock
in shares of Common Stock, (w) subdivide its outstanding shares
of Common Stock into a greater number of shares of Common Stock,
(x) combine its outstanding shares of Common Stock into a smaller
number of shares of Common Stock or (y) issue by reclassification
of its shares of Common Stock other securities of the
Corporation, then the Conversion Price in effect immediately
prior thereto shall be adjusted so that the holder of any shares
of ESOP Convertible Preferred Stock thereafter converted shall be
entitled to receive the number and kind of shares of Common Stock
or other securities that the holder would have owned or have been
entitled to receive after the happening of any of the events
described above had such shares of ESOP Convertible Preferred
Stock been converted immediately prior to the happening of such
event or any record date with respect thereto. An adjustment
made pursuant to this paragraph (7)(vi)(a) shall become effective
on the date of the dividend payment, subdivision, combination or
issuance retroactive to the record date with respect thereto, if
any, for such event. Such adjustment shall be made successively.
(b) If the Corporation shall issue to all holders of
its Common Stock rights, options, warrants or convertible or
exchangeable securities containing the right to subscribe for or
purchase shares of Common Stock at a price per share that is
lower than the then Fair Market Value per share of Common Stock
(as defined in paragraph (7)(vi)(e) below) at the record date
mentioned below, the Conversion Price shall be adjusted in
accordance with the following formula:
<PAGE>
37
( N x P )
-----
O + ( M )
AC = C x -------------
O + N
where
AC = the adjusted Conversion Price.
C = the current Conversion Price.
O = the number of shares of Common Stock
outstanding on the record date.
N = the number of additional shares of
Common Stock offered.
P = the offering price per share of the
additional shares.
M = the Fair Market Value per share of
Common Stock on the record date.
The adjustment shall be made successively whenever any such
rights, options, warrants or convertible or exchangeable
securities are issued, and shall become effective immediately
after the record date for the determination of stockholders
entitled to receive the rights, options, warrants or convertible
or exchangeable securities. Upon the expiration of any such
rights, options, warrants or convertible or exchangeable
securities, if any thereof shall not have been exercised, then
the Conversion Price shall be increased by the amount of the
initial adjustment of the Conversion Price pursuant to this
paragraph (7)(vi)(b) in respect of such expired rights, options,
warrants or convertible or exchangeable securities.
(c) In case the Corporation shall distribute to all
holders of its outstanding Common Stock any shares of capital
stock of the Corporation (other than Common Stock) or evidences
of its indebtedness or assets (excluding ordinary cash dividends,
which may be an initial cash dividend, payable out of
consolidated earnings or earned surplus (both of which to be
calculated for these purposes excluding charges for amortization
of goodwill and other intangibles) and dividends or distributions
referred to in paragraphs (7)(vi)(a) and (b) above and, after the
Adjustment Date, excluding all cash dividends) or rights or
warrants to subscribe for or purchase any of its securities
(excluding those referred to in paragraph (7)(vi)(b) above) (any
of the foregoing being hereinafter in this paragraph (7)(vi)(c)
called the "Securities or Assets"), then in each such case,
unless the Corporation elects to reserve shares or other units of
such Securities or Assets for distribution to the holders of the
ESOP Convertible Preferred Stock upon the conversion of the
shares of ESOP Convertible Preferred Stock so that any such
holder converting shares of ESOP Convertible Preferred Stock will
<PAGE>
38
receive upon such conversion, in addition to the shares of the
Common Stock to which such holder is entitled, the amount and
kind of such Securities or Assets which such holder would have
received if such holder had, immediately prior to the record date
for the distribution of the Securities or Assets, converted its
shares of ESOP Convertible Preferred Stock into Common Stock, the
Conversion Price shall be adjusted so that the same shall equal
the price determined by multiplying the Conversion Price in
effect immediately prior to the date of such distribution by a
fraction of which the numerator shall be the Fair Market Value
per share (as defined in paragraph (7)(vi)(e) below) of the
Common Stock on the record date mentioned below less the then
fair market value (as determined by the Board of Directors, whose
determination shall, if made in good faith, be conclusive, final
and binding) of the portion of the capital stock or assets or
evidences of indebtedness so distributed or of such rights or
warrants applicable to one share of Common Stock, and of which
the denominator shall be the Fair Market Value per share of the
Common Stock on such record date. Such adjustment shall become
effective immediately after the record date for the determination
of stockholders entitled to receive such distribution, except as
provided in paragraph (7)(vi)(h) below.
(d) If the Corporation shall, after the date hereof,
sell and issue any shares of Common Stock, rights, options,
warrants or convertible or exchangeable securities containing the
right to subscribe for or purchase shares of Common Stock
(excluding (i) shares of Common Stock, rights, options, warrants
or convertible or exchangeable securities containing the right to
subscribe for or purchase shares of Common Stock issued in any of
the transactions described in paragraphs (7)(vi)(a) and
(7)(vi)(b) above; (ii) stock options and shares of Common Stock
issued to, or issuable upon the exercise of stock options granted
to or to be granted to, employees or directors of the Corporation
or its subsidiaries; (iii) shares of Common Stock issuable upon
exercise of warrants previously issued; (iv) shares issued upon
conversion of the Senior Converting Debentures Due 2009 of the
Corporation; and (v) shares issued upon conversion of shares of
ESOP Convertible Preferred Stock), at a price per share
(determined, in the case of rights, options, warrants or
convertible or exchangeable securities, by dividing (x) the total
amount received or receivable by the Corporation in consideration
of the sale and issuance of such rights, options, warrants or
convertible or exchangeable securities, plus the total
consideration payable to the Corporation upon exercise or
conversion or exchange thereof, by (y) the total number of shares
of Common Stock covered by such rights, options, warrants or
convertible or exchangeable securities) that is lower than the
then Fair Market Value per share of Common Stock immediately
<PAGE>
39
prior to such sale and issuance, then in each case the Conversion
Price shall be adjusted in accordance with the following formula:
( N x P )
-----
O + ( M )
AC = C x -------------
O + N
where
AC = the adjusted Conversion Price.
C = the current Conversion Price.
O = the number of shares of Common Stock
outstanding on the issue date.
N = the number of additional shares of
Common Stock offered.
P = the offering price per share of the
additional shares.
M = the Fair Market Value per share of
Common Stock on the issue date.
For the purposes of such adjustments, the shares of Common Stock
which the holder of any such rights, options, warrants, or
convertible or exchangeable securities shall be entitled to
subscribe for or purchase shall be deemed to be issued and
outstanding as of the date of such sale and issuance, and the
consideration received or receivable by the Corporation therefor
shall be deemed to be the consideration received or receivable by
the Corporation (plus any discounts or commissions in connection
therewith) for such rights, options, warrants or convertible or
exchangeable securities, plus the consideration or premiums
stated in such rights, options, warrants or convertible or
exchangeable securities to be paid for the shares of Common Stock
purchasable thereby. In case the Corporation shall (i) sell and
issue shares of Common Stock for a consideration consisting, in
whole or in part, of property other than cash or its equivalent
or (ii) sell and issue shares of Common Stock together with one
or more other securities as part of a unit at a price per unit,
then in determining the "price per share" and the "consideration
received or receivable by the Corporation" for purposes of the
first sentence and the immediately preceding sentence of this
paragraph (7)(vii)(d), the Board of Directors shall determine, in
its discretion, the fair market value of said property or the
shares of Common Stock then being sold as part of such unit, as
the case may be, and such determinations, if made in good faith,
shall be conclusive, final and binding. The adjustment shall be
made successively whenever any such shares of Common Stock,
rights, options, warrants or convertible or exchangeable
securities containing the right to subscribe for or purchase
<PAGE>
40
shares of Common Stock are issued for less than the Fair Market
Value, subject to the exceptions noted above, and shall become
effective immediately after the issue date.
Notwithstanding the foregoing, no adjustments of any
kind under this paragraph (7)(vi)(d) shall be made with respect
to the sale and issuance by the Corporation of any shares of
Common Stock, rights, options, warrants or convertible or
exchangeable securities containing the right to subscribe for or
purchase shares of Common Stock in connection with either (1) an
underwritten public offering or (2) any transaction as to which
the Corporation has received a written opinion of a nationally
recognized investment bank stating that the transaction is fair
to the Corporation from a financial point of view.
(e) For the purposes of any computation under
paragraphs (7)(vi)(b), (c) and (d) and for the purposes of
paragraphs (5)(xi), (7)(iv)(a) and (9)(iii), the Fair Market
Value as to shares of Common Stock or any other class of capital
stock or securities of the Corporation or any other issuer that
are traded shall at any date shall be deemed to be the average of
the daily closing prices for the twenty (20) consecutive trading
days commencing on the thirtieth (30th) trading day prior to the
date in question. The closing price for each day shall be (x) if
the shares of Common Stock or any other class of capital stock or
securities of the Corporation or any other issuer are listed or
admitted to trading on a national securities exchange, the
closing price on the New York Stock Exchange Consolidated Tape
(or any successor composite tape reporting transactions on
national securities exchanges) or, if such a composite tape shall
not be in use or shall not report transactions in such
securities, the last reported sales price regular way on the
principal national securities exchange on which such securities
are listed or admitted to trading (which shall be the national
securities exchange on which the greatest number of shares of
stock or the greatest aggregate principal amount of debt
securities has been traded during such twenty (20) consecutive
trading days), or, if there is no transaction on any such day in
any such situation, the mean of the bid and asked prices on such
day, or (y) if such securities are not listed or admitted to
trading on any such exchange, the closing price, if reported, or,
if the closing price is not reported, the average of the closing
bid and asked prices as reported by NASDAQ or a similar source
selected from time to time by the Corporation for the purpose. In
the event such closing prices are unavailable, the Fair Market
Value shall be deemed to be, subject to applicable law, the fair
market value as determined in good faith by the Board of
Directors, on the basis of such relevant factors as it in good
faith considers, in the reasonable judgment of the Board of
Directors, appropriate.
(f) No adjustment in the Conversion Price shall be
required unless such adjustment would require an increase or
<PAGE>
41
decrease of at least 1% of such price; provided, however, that
any adjustments which by reason of this paragraph (7)(vi)(f) are
not required to be made shall be carried forward and taken into
account in any subsequent adjustment. All calculations under
this paragraph (7)(vi) shall be made to the nearest one-hundredth
of a cent or to the nearest one-hundredth of a share, as the case
may be.
(g) For the purposes of this paragraph (7)(vi) and
paragraph (7)(ix), the term "shares of Common Stock" shall mean
(x) the class of stock designated as the Common Stock of the
Corporation at the date hereof or (y) any other class of stock
resulting from successive changes or reclassifications of such
shares consisting solely of changes in par value, or from no par
value to par value. In the event that at any time, as a result
of an adjustment made pursuant to paragraphs (7)(vi)(a) or (c)
above, the holders of ESOP Convertible Preferred Stock shall
become entitled to receive any securities other than shares of
Common Stock, thereafter the number of such other securities so
issuable upon conversion of the shares of ESOP Convertible
Preferred Stock shall be subject to adjustment from time to time
in a manner and on terms as nearly equivalent as practicable to
the provisions with respect to the shares of ESOP Convertible
Preferred Stock contained in this paragraph (7)(vi).
(h) Notwithstanding the foregoing, in any case in
which this paragraph (7)(vi) provides that an adjustment shall
become effective immediately after a record date for an event,
the Corporation may defer until the occurrence of such event (A)
issuing to the holder of any share of ESOP Convertible Preferred
Stock converted after such record date and before the occurrence
of such event the additional shares of Common Stock issuable upon
such conversion before giving effect to such adjustment and (B)
paying to such holder any amount in cash in lieu of any fraction
pursuant to paragraph (7)(iv).
(i) If the Corporation shall make any dividend or
distribution on the Common Stock or issue any Common Stock, other
capital stock or other security of the Corporation or any rights
or warrants to purchase or acquire any such security, which
transaction does not result in an adjustment to the Conversion
Price pursuant to the foregoing provisions of this paragraph
(7)(vi), the Board of Directors of the Corporation may consider
whether such action is of such a nature that an adjustment to the
Conversion Price should equitably be made in respect of such
transaction. If in such case the Board of Directors of the
Corporation determines that an adjustment to the Conversion Price
should be made, an adjustment shall be made effective as of such
date as is determined by the Board of Directors of the
Corporation. The determination of the Board of Directors of the
Corporation as to whether an adjustment to the Conversion Price
should be made pursuant to the foregoing provisions of this
paragraph (7)(vi)(i), and, if so, as to what adjustment should be
<PAGE>
42
made and when, shall be conclusive, final and binding on the
Corporation and all stockholders of the Corporation. The
Corporation shall be entitled to make such additional adjustments
in the Conversion Price, in addition to those required by the
foregoing provisions of this paragraph (7)(vi), as shall be
necessary in order that any dividend or distribution in shares of
capital stock of the Corporation, subdivision, reclassification
or combination of shares of stock of the Corporation or any
recapitalization of the Corporation shall not be taxable to
holders of the Common Stock.
(vii) Whenever the Conversion Price is adjusted as
herein provided, the Chief Financial Officer, Treasurer or
Controller of the Corporation shall compute the adjusted
Conversion Price in accordance with the foregoing provisions and
shall prepare a certificate setting forth such adjusted
Conversion Price and showing in reasonable detail the facts upon
which such adjustment is based, which certificate shall be
conclusive, final and binding evidence of the correctness of the
adjustment. A copy of such certificate shall be filed promptly
with any Conversion Agent. Promptly after delivery of any such
certificate, the Corporation shall prepare a notice of such
adjustment of the Conversion Price setting forth the adjusted
Conversion Price and the date on which such adjustment becomes
effective and shall mail such notice of such adjustment of the
Conversion Price to the holder of each share of ESOP Convertible
Preferred Stock at his last address as shown on the stock books
of the Corporation.
(viii) The Corporation will pay any and all
documentary, stamp or similar issue or transfer taxes payable in
respect of the issue or delivery of shares of Common Stock on the
conversion of shares of ESOP Convertible Preferred Stock;
provided, however, that the Corporation shall not be required to
pay any tax which may be payable in respect of any registration
of transfer involved in the issue or delivery of shares of Common
Stock in a name other than that of the registered holder of ESOP
Convertible Preferred Stock converted or to be converted, and no
such issue or delivery shall be made unless and until the person
requesting such issue has paid to the Corporation the amount of
any such tax or has established, to the satisfaction of the
Corporation, that such tax has been paid.
(ix) (a) The Corporation shall at all times reserve
and keep available, free from preemptive rights, out of the
aggregate of its authorized but unissued Common Stock or its
issued Common Stock held in its treasury, or both, for the
purpose of effecting the conversion of the ESOP Convertible
Preferred Stock, the full number of shares of Common Stock then
deliverable upon the conversion of all outstanding shares of the
ESOP Convertible Preferred Stock.
<PAGE>
43
(b) Before taking any action which would cause an
adjustment reducing the Conversion Price below the then par value
(if any) of the Common Stock issuable upon conversion of the ESOP
Convertible Preferred Stock, the Corporation will take any
corporate action which may, in the opinion of its counsel, be
necessary in order that the Corporation may validly and legally
issue fully paid and nonassessable shares of such Common Stock at
such adjusted Conversion Price.
(8) Voting Rights. (i) The holders of record of
shares of ESOP Convertible Preferred Stock shall not be entitled
to any voting rights except as hereinafter provided in this
paragraph (8) or as otherwise provided by law. The holders of
ESOP Convertible Preferred Stock shall be entitled to vote on all
matters submitted to a vote of the holders of Common Stock of the
Corporation, voting together with the holders of Common Stock as
one class; provided, however, that the ESOP Convertible Preferred
Stock shall not be entitled to vote on any increase or decrease
in the number of authorized shares of any class or classes of
stock. Each share of the ESOP Convertible Preferred Stock shall
be entitled to the number of votes equal to the number of shares
of Common Stock into which such share of ESOP Convertible
Preferred Stock could be converted on the record date for
determining the stockholders entitled to vote, rounded to the
nearest one-tenth of a vote; it being understood that whenever
the Conversion Price is adjusted as provided in paragraph (7)
hereof, the voting rights of the ESOP Convertible Preferred Stock
shall also be similarly adjusted.
(ii) So long as any shares of the ESOP Convertible Preferred
Stock are outstanding (except when notice of the redemption of
all outstanding shares of ESOP Convertible Preferred Stock has
been given pursuant to paragraphs (5) and (6) or paragraph
(9)(iii) and cash, Qualifying Employer Securities or shares of
Common Stock have been deposited in trust for such redemption),
the Corporation shall not, without the affirmative vote or
consent of the holders of at least a majority of the shares of
ESOP Convertible Preferred Stock and any other series of
Preferred Stock entitled to vote thereon at the time outstanding
voting or consenting, as the case may be, together as one class,
given in person or by proxy, either in writing or by resolution
adopted at an annual or special meeting called for the purpose,
amend the Certificate of Incorporation or this Certificate of
Designation so as to affect materially and adversely the
specified rights, preferences, privileges or voting rights of
shares of ESOP Convertible Preferred Stock.
(iii) (a) The creation, authorization or issuance of any
shares of any Junior Securities, Parity Securities or Senior
Securities, (b) the creation of any indebtedness of any kind of
the Corporation, or (c) subject to paragraph (8)(i), the increase
or decrease in the amount of authorized capital stock of any
class, including Preferred Stock, shall not require the consent
<PAGE>
44
of the holders of ESOP Convertible Preferred Stock and shall not
be deemed to affect materially and adversely the rights,
preferences, privileges or voting rights of shares of ESOP
Convertible Preferred Stock.
(9) Consolidation, Merger, etc.
(i) In the event that the Corporation shall consummate
any consolidation or merger or similar transaction, however
named, pursuant to which the outstanding shares of Common Stock
are by operation of law exchanged solely for or changed,
reclassified or converted solely into shares of any successor or
resulting company (including the Corporation) that constitute
Qualifying Employer Securities that are common stock or common
equity with respect to a holder of ESOP Convertible Preferred
Stock within the meaning of Section 409(1) of the Code and
Section 407(d)(5) of ERISA, or any successor provision of law,
and, if applicable, for a cash payment in lieu of fractional
shares, if any, then, in such event, the shares of ESOP
Convertible Preferred Stock of such holder shall be converted
into or exchanged for and shall become preferred shares of such
successor or resulting company, having in respect of such company
insofar as possible (taking into account, without limitation, any
requirements relating to the listing of such preferred shares on
any national securities exchange or the qualification of such
preferred shares for trading in any over-the-counter market) the
same powers, preferences and relative, participating, optional or
other special rights (including the redemption rights provided by
paragraphs (5) and (6) hereof and this paragraph (9)), and the
qualifications, limitations or restrictions thereon, that the
ESOP Convertible Preferred Stock had immediately prior to such
transaction; provided, however, that after such transaction each
share of stock into which the ESOP Convertible Preferred Stock is
so converted or for which it is exchanged shall be convertible,
pursuant to the terms and conditions provided by paragraph (7)
hereof, into the number and kind of Qualifying Employer
Securities receivable by a holder of the number of shares of
Common Stock into which such shares of ESOP Convertible Preferred
Stock could have been converted pursuant to paragraph (7) hereof
immediately prior to such transaction and provided, further, that
if by virtue of the structure of such transaction, a holder of
Common Stock is required to make an election with respect to the
nature and kind of consideration to be received in such
transaction, then such election shall be deemed to be solely for
Qualifying Employer Securities (together, if applicable, with a
cash payment in lieu of fractional shares) with the effect
provided above on the basis of the number and kind of Qualifying
Employer Securities receivable by a holder of the number of
shares of Common Stock into which the shares of ESOP Convertible
Preferred Stock could have been converted pursuant to paragraph
(7) hereof immediately prior to such transaction (it being
understood that if the kind or amount of Qualifying Employer
Securities receivable in respect of each share of Common Stock
<PAGE>
45
upon such transaction is not the same for each such share, then
the kind and amount of Qualifying Employer Securities deemed to
be receivable in respect of each share of Common Stock for
purposes of this proviso shall be the kind and amount so
receivable per share of Common Stock by a plurality of such
shares). The rights of the ESOP Convertible Preferred Stock as
preferred shares of such successor resulting company shall
successively be subject to adjustments pursuant to paragraph (7)
hereof after any such transaction as nearly equivalent to the
adjustments provided for by such paragraph prior to such
transaction.
(ii) In the event that the Corporation shall
consummate any consolidation or merger or similar transaction,
however named, pursuant to which the outstanding shares of Common
Stock are by operation of law exchanged for or changed,
reclassified or converted into other shares or securities or cash
or any other property, or any combination thereof, other than any
such consideration which is constituted solely of Qualifying
Employer Securities that are common stock or common equity (as
referred to in paragraph (9)(i)) and cash payments, if
applicable, in lieu of fractional shares, outstanding shares of
ESOP Convertible Preferred Stock shall, without any action on the
part of the Corporation or any holder thereof but subject to
paragraph (9)(iii) and (9)(iv), be automatically converted
immediately prior to the consummation of such merger,
consolidation or similar transaction into shares of Common Stock
at the conversion rate then in effect so that each share of ESOP
Convertible Preferred Stock shall, by virtue of such transaction
and on the same terms as apply to the holders of Common Stock, be
converted into or exchanged for the aggregate amount of shares,
securities, cash or other property (payable in like kind)
receivable by a holder of the number of shares of Common Stock
into which such shares of ESOP Convertible Preferred Stock could
have been converted immediately prior to such transaction if such
holder of Common Stock failed to exercise any rights of election
as to the kind or amount of shares, securities, cash or other
property receivable upon such transaction (provided that, if the
kind or amount of shares, securities, cash or other property
receivable upon such transaction is not the same for each non-
electing share, then the kind and amount of shares, securities,
cash or other property receivable upon such transaction for each
non-electing share shall be the kind and amount so receivable per
share by a plurality of non-electing shares).
(iii) In the event the Corporation shall enter into
any agreement providing for any consolidation or merger or
similar transaction described in paragraph (9)(ii), then the
Corporation shall as soon as practicable thereafter (and in any
event at least ten (10) business days before consummation of such
transaction) give notice of such agreement and the material terms
thereof to each holder of ESOP Convertible Preferred Stock and
<PAGE>
46
the Corporation shall have the right to elect, to the extent
permitted by applicable law, by written notice to the holders, to
redeem such ESOP Convertible Preferred Stock upon consummation of
such transaction (if and when such transaction is consummated),
out of funds legally available therefor, in lieu of any cash or
other securities which such holder would otherwise be entitled to
receive under paragraph (9)(ii) hereof, for the amount payable in
respect of shares of ESOP Convertible Preferred Stock upon a
redemption by the Corporation pursuant to paragraph (5)(i)
hereof, which amount may be paid in cash or in shares of Common
Stock or common stock of the successor of the Corporation or in
Qualifying Employer Securities of the Corporation or the
successor of the Corporation or in any combination thereof, any
such shares and Qualifying Employer Securities to be valued for
such purpose at their Fair Market Value (as defined in paragraph
(7)(vi)(e). No such notice of redemption shall be effective
unless given to the holders prior to the close of business of the
tenth (10th) business day prior to consummation of such
transaction, unless the holders shall waive such prior notice,
but any notice or redemption so given prior to such time may be
withdrawn by notice of withdrawal given to the holders prior to
the close of business on the tenth (10th) business day prior to
consummation of such transaction.
(iv) In the event the Corporation shall enter into any
agreement providing for any consolidation or merger or similar
transaction described in paragraph (9)(ii) and the Corporation
shall not elect pursuant to paragraph (9)(iii) to redeem the ESOP
Convertible Preferred Stock, to the extent permitted by
applicable law, each such holder shall have the right to elect,
by written notice to the Corporation, to receive, upon
consummation of such transaction (if and when such transaction is
consummated), out of funds legally available therefor, from the
Corporation or the successor of the Corporation, in redemption of
such ESOP Convertible Preferred Stock, in lieu of any cash or
other securities which such holder would otherwise be entitled to
receive under paragraph (9)(ii) hereof, a cash payment equal to
the amount payable in respect of shares of ESOP Convertible
Preferred Stock upon a redemption by the Corporation pursuant to
paragraph (5)(i) hereof. No such notice of redemption shall be
effective unless given to the Corporation prior to the close of
business of the fifth (5th) business day prior to consummation of
such transaction, unless the Corporation or the successor of the
Corporation shall waive such prior notice, but any notice or
redemption so given prior to such time may be withdrawn by notice
of withdrawal given to the Corporation prior to the close of
business on the fifth (5th) business day prior to consummation of
such transaction.
(10) Limitations. Except as may otherwise be required
by law, the shares of ESOP Convertible Preferred Stock shall not
have any powers, preferences or relative, participating, optional
or other special rights other than those specifically set forth
<PAGE>
47
in this resolution (as such resolution may be amended from time
to time) or otherwise in the Certificate of Incorporation of the
Corporation.
The following is a statement of the number,
designation, powers, preferences and relative, participating,
optional or other special rights and qualifications, limitations
or restrictions of the Series A Conversion Preferred Stock of the
Corporation:
(1) Designation. The designation of the series of
Preferred Stock authorized by this resolution shall be "Series A
Conversion Preferred Stock" (the "Series A Preferred Stock")
consisting of 52,500,000 shares.
(2) Rank. The Series A Preferred Stock shall, with
respect to dividend rights and rights upon liquidation,
dissolution and winding up, rank prior to the Common Stock, par
value $0.01 per share (the "Common Stock"), of the Corporation
and on a parity with the Cumulative Convertible Preferred Stock,
par value $0.01 per share and stated value $25.00 per share (the
"Cumulative Convertible Preferred Stock"), and the ESOP
Convertible Preferred Stock, par value $0.01 per share and stated
value $16.00 per share (the "ESOP Convertible Preferred Stock"),
of the Corporation. All equity securities of the Corporation to
which the Series A Preferred Stock ranks prior, including the
Common Stock, are collectively referred to herein as the "Junior
Securities," all equity securities of the Corporation with which
the Series A Preferred Stock ranks on a parity, including the
Cumulative Convertible Preferred Stock and the ESOP Convertible
Preferred Stock, are collectively referred to herein as the
"Parity Securities" and all equity securities of the Corporation
(other than convertible debt securities) to which the Series A
Preferred Stock ranks junior, whether with respect to dividends
or upon liquidation, dissolution, winding-up or otherwise, are
collectively referred to herein as the "Senior Securities." The
Series A Preferred Stock shall be subject to the creation of
Junior Securities, Parity Securities and Senior Securities.
(3) Dividends. (i) The holders of outstanding shares
of the Series A Preferred Stock shall be entitled to receive,
when, as and if declared by the Board of Directors, out of funds
legally available for the payment of dividends, cumulative
preferential cash dividends accruing at the per share rate of
$.835 per quarter and no more, payable in arrears on each
February 15, May 15, August 15 and November 15, respectively
(each such date being hereinafter referred to as a "Dividend
Payment Date"), commencing on February 17, 1992. If any Dividend
Payment Date shall be or be declared a national or New York State
holiday or if banking institutions in the State of New York shall
be closed because of a banking moratorium or otherwise on such
date, then the Dividend Payment Date shall be on the next
succeeding day on which such banks shall be open. Each such
<PAGE>
48
dividend will be payable to holders of record as they appear on
the stock books of the Corporation on such record dates, not less
than 10 nor more than 50 days preceding the payment dates
thereof, as shall be fixed by the Board of Directors. Dividends
on the Series A Preferred Stock shall accrue (whether or not
declared) on a daily basis from the previous Dividend Payment
Date, except that the first dividend shall accrue from the date
of issuance of the Series A Preferred Stock. Accrued and unpaid
dividends shall not bear interest. Dividends will cease to
accrue in respect of the Series A Preferred Stock on the
Mandatory Conversion Date (as defined in paragraph (4)(a)) or on
the date of their earlier redemption or on the Settlement Date
(as defined in paragraph (4)(h)(v)), in the event of their
earlier conversion, unless the Corporation shall default in
delivering the shares of Common Stock and cash, if any, payable
by the Corporation upon such redemption or conversion pursuant to
paragraph (4). Dividends (or cash amounts equal to accrued and
unpaid dividends) payable on the Series A Preferred Stock for any
period shorter than a quarterly dividend period shall be computed
on the basis of a 360-day year of twelve 30-day months.
(ii) No full dividends shall be declared by the Board
of Directors or paid or set apart for payment by the Corporation
on any Parity Securities for any period unless full cumulative
dividends have been or contemporaneously are declared and paid or
declared and a sum set apart sufficient for such payment on the
Series A Preferred Stock through the most recent Dividend Payment
Date. If any dividends are not paid or set apart in full, as
aforesaid, upon the shares of the Series A Preferred Stock and
any Parity Securities, all dividends declared upon the Series A
Preferred Stock and any Parity Securities shall be declared pro
rata so that the amount of dividends declared per share on the
Series A Preferred Stock and such Parity Securities shall in all
cases bear to each other the same ratio that accrued dividends
per share on the Series A Preferred Stock and such Parity
Securities bear to each other. Unless full cumulative dividends,
if any, accrued on all outstanding shares of the Series A
Preferred Stock have been or contemporaneously are declared and
paid or declared and a sum set apart sufficient for such payment
through the most recent Dividend Payment Date, no dividend shall
be declared or paid or set aside for payment or other
distribution declared or made upon the Common Stock or upon any
other Junior Securities (other than a dividend or distribution
paid in shares of, or warrants, rights or options exercisable for
or convertible into, Common Stock or any other Junior
Securities), nor shall any Common Stock nor any other Junior
Securities be redeemed, purchased or otherwise retired for any
consideration, nor may any moneys be paid to or made available
for a sinking fund for the redemption of any shares of any such
securities, by the Corporation (other than redemptions and
purchases pursuant to or in accordance with employee stock
subscription agreements entered into between the Corporation and
certain of its subsidiaries' directors, officers and key
<PAGE>
49
employees), except by conversion into or exchange for Junior
Securities. Holders of the shares of the Series A Preferred
Stock shall not be entitled to any dividends, whether payable in
cash, property or stock, in excess of full cumulative dividends
as provided in paragraph 3(a).
(iii) Subject to the foregoing provisions of this
paragraph (3) and paragraph (4)(d)(ii), the Board of Directors
may declare and the Corporation may pay or set apart for payment
dividends and other distributions on any of the Junior Securities
or Parity Securities, and may redeem, purchase or otherwise
retire any Junior Securities, and the holders of the shares of
the Series A Preferred Stock shall not be entitled to share
therein.
(iv) Any dividend payment made on shares of the Series
A Preferred Stock shall first be credited against the earliest
accrued but unpaid dividend due with respect to shares of the
Series A Preferred Stock.
(v) All dividends paid with respect to shares of the
Series A Preferred Stock pursuant to this paragraph (3) shall be
paid pro rata to the holders entitled thereto.
(vi) Holders of shares of the Series A Preferred Stock
shall be entitled to receive the dividends provided for in this
paragraph (3) in preference to and in priority over any dividends
upon any of the Junior Securities.
(4) Redemptions or Conversions. (i) Automatic
---------
Conversion on Mandatory Conversion Date. Unless earlier called
- ---------------------------------------
for redemption in accordance with the provisions hereof, on
November 15, 1994 (the "Mandatory Conversion Date"), each
outstanding share of the Series A Preferred Stock shall
automatically convert into:
(a) subject to paragraph (4)(d)(iv),
shares of Common Stock at the Common Equivalent Rate
(determined as provided in paragraph (4)(d)) in effect on
the Mandatory Conversion Date; and
(b) the right to receive an amount in
cash equal to all accrued and unpaid dividends on such share
of Series A Preferred Stock to and including the Mandatory
Conversion Date, whether or not declared, out of funds
legally available for the payment of dividends (and
dividends shall cease to accrue on such share as of the
Mandatory Conversion Date).
The Corporation shall at all times reserve and keep
available, free from preemptive rights, out of the aggregate of
its authorized but unissued Common Stock and its issued Common
Stock held in its treasury for the purpose of effecting any
<PAGE>
50
conversion of the Series A Preferred Stock pursuant to this
paragraph (4)(a), the full number of shares of Common Stock then
deliverable upon any such conversion of all outstanding shares of
Series A Preferred Stock.
(ii) Automatic Conversion Upon the Occurrence of
-------------------------------------------
Certain Events. Immediately prior to the effectiveness of a
- --------------
merger or consolidation of the Corporation (other than a merger
or consolidation of the Corporation with or into a wholly owned
subsidiary of the Corporation) that results in the conversion or
exchange of Common Stock into, or the right to receive, other
securities or other property (whether of the Corporation or any
other entity) (any such merger or consolidation is referred to
herein as a "Merger or Consolidation"), each outstanding share of
the Series A Preferred Stock shall automatically convert into:
(a) subject to paragraph (4)(d)(iv),
shares of Common Stock at the Common Equivalent Rate in
effect immediately prior to such Merger or Consolidation;
plus
(b) the right to receive an amount in
cash equal to all accrued and unpaid dividends on such share
of the Series A Preferred Stock to and including the
Settlement Date, whether or not declared, out of funds
legally available for the payment of dividends (and
dividends shall cease to accrue on such share as of the
Settlement Date); plus
(c) the right to receive an amount of
cash initially equal to $10.02, declining by $.009218 on
each day following the date of issuance of the Series A
Preferred Stock (computed on the basis of a 360-day year of
twelve 30-day months) to $.56 on September 15, 1994, and
equal to zero thereafter, in each case determined with
reference to the Settlement Date, out of funds legally
available therefor,
unless sooner redeemed.
At the option of the Corporation, it may deliver on the
Settlement Date in lieu of some or all of the cash consideration
described in clauses (ii) and (iii) above, a number of shares of
Common Stock to be determined by dividing the amount of cash
consideration that the Corporation has elected to pay in Common
Stock by the Current Market Price (as defined in paragraph
(4)(d)(vi)) of the Common Stock determined as of the second
Trading Date (as defined paragraph (4)(h)(vi)) immediately
preceding the Notice Date (as defined in paragraph (4)(h)(iv)).
Notwithstanding the foregoing, if there shall have occurred an
adjustment pursuant to paragraph (4)(d)(iv) as a result of a
merger or consolidation prior to the Settlement Date relating to
the exercise of any such option by the Corporation (or its
successor), the Corporation shall deliver on such Settlement
<PAGE>
51
Date, in lieu of shares of Common Stock as described in the
preceding sentences, the kind of securities or other property
received by holders of Common Stock as a result of such merger or
consolidation, in the same relative proportions (if more than one
kind of securities or other property was so received) as exist in
the Common Equivalent Rate on such Settlement Date, with an
aggregate market price (determined, for any security or other
property, to the extent possible, in the manner that the Current
Market Price is determined for the Common Stock, and otherwise
determined by the Board of Directors of the Corporation, whose
determination shall be conclusive), as of the second Trading Date
immediately preceding the Notice Date, equal to the amount of
cash consideration that the Corporation has elected to pay in
such securities or other property.
(iii) Right to Call for Redemption. At any time and
----------------------------
from time to time prior to the Mandatory Conversion Date, the
Corporation shall have the right to call, in whole or in part,
the outstanding shares of the Series A Preferred Stock for
redemption (subject to the notice provisions set forth in
paragraph (4)(i)). Upon the redemption date, the Corporation
shall deliver to the holders thereof in exchange for each such
share called for redemption, (i) a number of shares of Common
Stock equal to the Call Price (as defined in paragraph
(4)(h)(ii)) in effect on the redemption date divided by the
Current Market Price of the Common Stock determined as of the
second Trading Date immediately preceding the Notice Date and
(ii) an amount in cash equal to all accrued and unpaid dividends
on such share of Series A Preferred Stock to and including the
redemption date (and dividends shall cease to accrue on such
share as of such date), whether or not declared, out of funds
legally available for the payment of dividends; provided that if
there shall have occurred an adjustment pursuant to paragraph
(4)(d)(iv) as a result of a merger or consolidation prior to the
redemption date, the Corporation shall deliver on the redemption
date to the holders of shares of Series A Preferred Stock in
exchange for each share thereof called for redemption, in lieu of
shares of Common Stock as described in paragraph (4)(c)(i), the
kind of securities or other property received by holders of
Common Stock as a result of such merger or consolidation, in the
same relative proportions (if more than one kind of securities or
other property was so received) as exist in the Common Equivalent
Rate on the redemption date, with an aggregate market price
(determined, for any security or other property, to the extent
possible, in the manner that the Current Market Price is
determined for the Common Stock, and otherwise determined by the
Board of Directors of the Corporation, whose determination shall
be conclusive), as of the second Trading Date immediately
preceding the Notice Date, equal to the Call Price in effect on
the redemption date. If fewer than all the outstanding shares of
Series A Preferred Stock are to be called for redemption, shares
to be redeemed shall be selected by the Corporation from
outstanding shares of Series A Preferred Stock not previously
<PAGE>
52
redeemed by lot or pro rata (as nearly as may be practicable
without creating fractional shares) or by any other method
determined by the Board of Directors of the Corporation in its
sole discretion to be equitable.
(iv) Common Equivalent Rate; Adjustments. The Common
-----------------------------------
Equivalent Rate to be used to determine the number of shares of
Common Stock to be delivered on the conversion of the Series A
Preferred Stock into shares of Common Stock pursuant to paragraph
(4)(a) or (b) shall be initially four shares of Common Stock for
each share of Series A Preferred Stock; provided, however, that
-------- -------
such Common Equivalent Rate shall be subject to adjustment from
time to time as provided below in this paragraph (4)(d). All
adjustments to the Common Equivalent Rate shall be calculated to
the nearest 1/100th of a share of Common Stock. Such rate in
effect at any time is herein called the "Common Equivalent Rate."
(a) If the Corporation shall either:
(A) pay a dividend or make a distribution with
respect to Common Stock in shares of Common Stock,
(B) subdivide or split its outstanding shares of
Common Stock into a greater number of shares,
(C) combine its outstanding shares of Common
Stock into a smaller number of shares, or
(D) issue by reclassification of its shares of
Common Stock any shares of common stock of the
Corporation,
then, in any such event, the Common Equivalent Rate in
effect immediately prior thereto shall be adjusted so that
the holder of a share of the Series A Preferred Stock shall
be entitled to receive on the conversion of such share of
the Series A Preferred Stock, the number of shares of common
stock of the Corporation which such holder would have owned
or been entitled to receive after the happening of any of
the events described above had such share of the Series A
Preferred Stock been converted at the Common Equivalent Rate
in effect immediately prior to such event or any record date
with respect thereto. Such adjustment shall become
effective at the opening of business on the business day
next following the record date for determination of
stockholders entitled to receive such dividend or
distribution in the case of a dividend or distribution, and
shall become effective immediately after the effective date
in case of a subdivision, split, combination or
reclassification; and any shares of Common Stock issuable in
<PAGE>
53
payment of a dividend shall be deemed to have been issued
immediately prior to the close of business on the record
date for such dividend for purposes of calculating the
number of outstanding shares of Common Stock under clauses
(ii) and (iii) below. Such adjustment shall be made
successively.
(b) If the Corporation shall, after the date
hereof, issue rights or warrants to all holders of its
Common Stock entitling them (for a period not exceeding 45
days from the date of such issuance) to subscribe for or
purchase shares of Common Stock at a price per share less
than the Current Market Price of the Common Stock
(determined pursuant to paragraph (4)(d)(vi)) on the record
date for the determination of stockholders entitled to
receive such rights or warrants, then in each case the
Common Equivalent Rate shall be adjusted by multiplying the
Common Equivalent Rate in effect immediately prior to the
date of issuance of such rights or warrants by a fraction,
of which the numerator shall be the number of shares of
Common Stock outstanding on the date of issuance of such
rights or warrants, immediately prior to such issuance, plus
the number of additional shares of Common Stock offered for
subscription or purchase pursuant to such rights or
warrants, and of which the denominator shall be the number
of shares of Common Stock outstanding on the date of
issuance of such rights or warrants, immediately prior to
such issuance, plus the number of shares of Common Stock
which the aggregate offering price of the total number of
shares of Common Stock so offered for subscription or
purchase pursuant to such rights or warrants would purchase
at such Current Market Price (determined by multiplying such
total number of shares by the exercise price of such rights
or warrants and dividing the product so obtained by such
Current Market Price). Such adjustment shall become
effective at the opening of business on the business day
next following the record date for the determination of
stockholders entitled to receive such rights or warrants. To
the extent that shares of Common Stock are not delivered
after the expiration of such rights or warrants, the Common
Equivalent Rate shall be readjusted to the Common Equivalent
Rate which would then be in effect had the adjustments made
upon the issuance of such rights or warrants been made upon
the basis of delivery of only the number of shares of Common
Stock actually delivered. Such adjustment shall be made
successively.
(c) If the Corporation shall pay a dividend
or make a distribution to all holders of its Common Stock of
evidence of its indebtedness or other assets (including
shares of capital stock of the Corporation (other than
Common Stock) but excluding any distributions and dividends
referred to in clause (i) above or any cash dividends), or
<PAGE>
54
shall issue to all holders of its Common Stock rights or
warrants to subscribe for or purchase any of its securities
(other than those referred to in clause (ii) above), then in
each such case, unless the Corporation elects to reserve
shares or other units of such securities or assets for
distribution to the holders of the Series A Preferred Stock
upon the redemption or conversion of the shares of Series A
Preferred Stock so that any holder of Series A Preferred
Stock will receive upon such redemption or conversion, in
addition to the shares of the Common Stock to which such
holder is entitled, the kind and amount of such securities
or assets which such holder would have received if such
shares of Series A Preferred Stock had been converted into
shares of Common Stock immediately prior to the record date
for the distribution of the securities or assets, the Common
Equivalent Rate shall be adjusted by multiplying the Common
Equivalent Rate in effect on the record date mentioned below
by a fraction, of which the numerator shall be the Current
Market Price of the Common Stock (determined pursuant to
paragraph (4)(d)(vi)) on the record date for the
determination of stockholders entitled to receive such
dividend or distribution, and of which the denominator shall
be such Current Market Price per share of Common Stock less
the fair value (as determined by the Board of Directors of
the Corporation, whose determination shall be conclusive) as
of such record date of the portion of the assets or
evidences of indebtedness so distributed, or of such
subscription rights or warrants, applicable to one share of
Common Stock. Such adjustment shall become effective on the
opening of business on the business day next following the
record date for the determination of stockholders entitled
to receive such dividend or distribution.
(d) If there shall occur a merger or
consolidation of the Corporation with or into a wholly owned
subsidiary of the Corporation that results in the conversion
or exchange of the Common Stock into, or the right to
receive, other securities or other property (whether of the
Corporation or any other entity), then the Series A
Preferred Stock will thereafter no longer be subject to
conversion into shares of Common Stock pursuant to paragraph
(4)(a) and (b), but instead will be subject to conversion
into the kind and amount of securities or other property
which the holder of such shares of Series A Preferred Stock
would have owned immediately after such merger or
consolidation if such shares of Series A Preferred Stock had
been converted into shares of Common Stock immediately
before the effective time of such merger or consolidation.
If this paragraph (4)(d)(iv) applies, then no adjustment in
respect of the same merger or consolidation shall be made
pursuant to the other provisions of this paragraph (4)(d).
In the event that at any time, as a result of an adjustment
made pursuant to this paragraph (4)(d)(iv), the Series A
<PAGE>
55
Preferred Stock shall become subject to conversion into any
securities other than shares of Common Stock, thereafter the
number of such other securities so issuable upon conversion
of the shares of Series A Preferred Stock shall be subject
to adjustment from time to time in a manner and on terms as
nearly equivalent as practicable to the provisions with
respect to the shares of Series A Preferred Stock contained
in this paragraph (4)(d).
(e) Anything in this paragraph (4) notwithstanding,
the Corporation shall be entitled to make such upward
adjustments in the Common Equivalent Rate, in addition to
those required by this paragraph (4), as the Corporation in
its sole discretion may determine to be advisable, in order
that any stock dividends, subdivision of shares,
distribution of rights to purchase stock or securities, or a
distribution of securities convertible into or exchangeable
for stock (or any transaction which could be treated as any
of the foregoing transactions pursuant to Section 305 of the
Internal Revenue Code of 1986, as amended) hereafter made by
the Corporation to its stockholders shall not be taxable.
If the Corporation determines that an adjustment to the
Common Equivalent Rate should be made, an adjustment shall
be made effective as of such date as is determined by the
Board of Directors of the Corporation. The determination of
the Board of Directors of the Corporation as to whether an
adjustment to the Common Equivalent Rate should be made
pursuant to the foregoing provisions of this paragraph
4(d)(v), and, if so, as to what adjustment should be made
and when, shall be conclusive, final and binding on the
Corporation and all stockholders of the Corporation.
(f) As used in this paragraph (4), the "Current
Market Price" of the Common Stock on any date shall be the
average of the daily Closing Prices (as defined in paragraph
4(h)(iii)) for the five consecutive Trading Dates ending on
and including the date of determination of the Current
Market Price; provided, however, that if the Closing Price
for the Trading Date next following such five-day period
(the "next-day closing price") is less than 95% of such
average, then the Current Market Price per share of Common
Stock on such date of determination shall be the next-day
closing price; and provided, further, that, if any event
that results in an adjustment of the Common Equivalent Rate
occurs during such five-day period or, for the purposes of
calculating the Current Market Price in connection with any
redemption or conversion of Series A Preferred Stock or any
determination of an amount in cash payable in lieu of a
fraction of a share of Common Stock, if any event that
results in an adjustment of the Common Equivalent Rate
occurs during the period beginning on the first day of such
five-day period and ending on the applicable redemption or
<PAGE>
56
conversion date, the Current Market Price as determined
pursuant to the foregoing will be appropriately adjusted to
reflect the occurrence of such event.
(g) In any case in which paragraph (4)(d) shall
require that an adjustment as a result of any event become
effective at the opening of business on the business day next
following a record date and the date fixed for conversion
pursuant to paragraph (4)(a) and (b) occurs after such record
date, but before the occurrence of such event the Corporation may
in its sole discretion elect to defer the following until after
the occurrence of such event: (A) issuing to the holder of any
converted shares of the Series A Preferred Stock the additional
shares of Common Stock issuable upon such conversion before
giving effect to such adjustment and (B) paying to such holder
any amount in cash in lieu of a fractional share of Common Stock
pursuant to paragraph (4)(f).
(h) Before taking any action which would cause an
adjustment to the Common Equivalent Rate that would cause
the Corporation to issue shares of Common Stock for
consideration below the then par value (if any) of the
Common Stock upon conversion of the Series A Preferred
Stock, the Corporation will take any corporate action which
may, in the opinion of its counsel, be necessary in order
that the Corporation may validly and legally issue fully
paid and nonassessable shares of such Common Stock at such
adjusted Common Equivalent Rate.
(v) Notice of Adjustments. Whenever the Common
---------------------
Equivalent Rate is adjusted as herein provided, the Corporation
shall:
(a) forthwith compute the adjusted Common
Equivalent Rate in accordance with this paragraph (4) and
prepare a certificate signed by the Chief Financial Officer,
any Vice President, the Treasurer or Controller of the
Corporation setting forth the adjusted Common Equivalent
Rate, the method of calculation thereof in reasonable detail
and the facts requiring such adjustment and upon which such
adjustment is based, which certificate shall be conclusive,
final and binding evidence of the correctness of the
adjustment, and file such certificate forthwith with the
transfer agent or agents for the Series A Preferred Stock
and the Common Stock; and
(b) mail a notice stating that the Common
Equivalent Rate has been adjusted, the facts requiring such
adjustment and the facts upon which such adjustment is based
and setting forth the adjusted Common Equivalent Rate to the
holders of record of the outstanding shares of the Series A
Preferred Stock at or prior to the time the Corporation
<PAGE>
57
mails an interim statement to its stockholders covering the
fiscal quarter during which the facts requiring such
adjustment occurred, but in any event within 45 days of the
end of such fiscal quarter.
(vi) No Fractional Shares. (i) No fractional shares
--------------------
or scrip representing fractional shares of Common Stock shall be
issued upon the redemption or conversion of any shares of Series
A Preferred Stock. Instead of any fractional interest in a share
of Common Stock which would otherwise be deliverable upon the
conversion of a share of Series A Preferred Stock, the
Corporation shall either (A) pay to the holder of such share (a
"Fractional Shareholder") an amount in cash (computed to the
nearest cent) equal to the same fraction of the Current Market
Price of the Common Stock determined as of the second Trading
Date immediately preceding the relevant Notice Date or (B) follow
the procedures set forth in paragraph (f)(ii). If more than one
share shall be surrendered for conversion at one time by the same
holder, the number of full shares of Common Stock issuable upon
conversion thereof shall be computed on the basis of the
aggregate number of shares of Series A Preferred Stock so
surrendered.
(ii) The Corporation may, in lieu of paying cash to
Fractional Shareholders as provided in paragraph (f)(i), issue,
in full payment of the Corporation's obligation with respect to
such fractional interests, shares of Common Stock equal to the
aggregate of such fractional interests of such Fractional
Shareholder and other Fractional Shareholders (aggregated over a
reasonable period of time, but not in any event more than 20
business days, and rounded upwards to the nearest whole share) to
an agent (the "Transfer Agent") appointed by the Corporation for
such Fractional Shareholders for sale promptly by the Transfer
Agent on behalf of the Fractional Shareholders. The Transfer
Agent will remit promptly to such Fractional Shareholders their
proportionate interest in the net proceeds (following the
deduction of applicable transaction costs and computed to the
nearest cent) from such sale.
.
(vii) Cancellation. Shares of Series A Preferred
------------
Stock that have been issued and reacquired in any manner,
including shares purchased, exchanged, redeemed or converted,
shall not be reissued as part of the Series A Preferred Stock and
shall (upon compliance with any applicable provisions of the laws
of the State of Delaware) have the status of authorized and
unissued shares of the class of Preferred Stock undesignated as
to series and may be redesignated and reissued as part of any
series of the Preferred Stock.
(viii) Definitions. As used in this paragraph (4):
-----------
(a) the term "business day" shall mean any day other
than a Saturday, Sunday, or a day on which banking
<PAGE>
58
institutions in the State of New York are authorized or
obligated by law or executive order to close;
(b) the term "Call Price" shall mean the per
share price (payable in shares of Common Stock) at which the
Corporation may redeem shares of Series A Preferred Stock,
which shall be initially equal to $64.82, declining by
$.009218 on each day following the date of issuance of the
Series A Preferred Stock (computed on the basis of a 360-day
year of twelve 30-day months) to $55.36 on September 15,
1994 and equal to $54.80 thereafter, if not sooner redeemed;
(c) the term "Closing Price" on any day shall
mean the closing sale price regular way on such day or, in
case no such sale takes place on such day, the average of
the reported closing bid and asked prices regular way, in
each case on the New York Stock Exchange Consolidated Tape
(or any successor composite tape reporting transactions on
national securities exchanges), or, if the Common Stock is
not listed or admitted to trading on such Exchange, on the
principal national securities exchange on which the Common
Stock is listed or admitted to trading (which shall be the
national securities exchange on which the greatest number of
shares of Common Stock has been traded during the five
consecutive Trading Dates ending on and including the date
of determination of the Current Market Price), or, if not
listed or admitted to trading on any national securities
exchange, the average of the closing bid and asked prices of
the Common Stock on the over-the-counter market on the day
in question as reported by the National Association of
Securities Dealers Automated Quotation System, or a
similarly generally accepted reporting service, or if not so
available as determined in good faith by the Board of
Directors, on the basis of such relevant factors as it in
good faith considers, in the reasonable judgment of the
Board of Directors, appropriate;
(d) the term "Notice Date" with respect to any
notice given by the Corporation in connection with a
redemption or conversion of any of the Series A Preferred
Stock shall be the commencement of the mailing of such
notice to the holders of the Series A Preferred Stock in
accordance with paragraph (4)(i);
(e) the term "Settlement Date" shall mean the
business day immediately prior to the effective date of a
Merger or Consolidation;
(f) the term "Trading Date" shall mean a date on which
the New York Stock Exchange (or any successor to such
Exchange) is open for the transaction of business.
<PAGE>
59
(ix) Notice of Redemption or Conversion. The
----------------------------------
Corporation will provide notice of any redemption or conversion
(including any potential conversion upon the effectiveness of a
Merger or Consolidation) of shares of Series A Preferred Stock to
holders of record of the Series A Preferred Stock to be called or
converted not less than 30 nor more than 60 days prior to the
date fixed for such redemption or conversion, as the case may be;
provided, however, that if the timing of the effectiveness of a
Merger or Consolidation makes it impracticable to provide at
least 30 days' notice, the Corporation shall provide such notice
as soon as practicable prior to such effectiveness. Such notice
shall be provided by mailing notice of such redemption or
conversion first class postage prepaid, to each holder of record
of the Series A Preferred Stock to be redeemed or converted, at
such holder's address as it appears on the stock register of the
Corporation; provided, however, that no failure to give such
notice nor any defect therein shall affect the validity of the
proceeding for the redemption or conversion of any shares of
Series A Preferred Stock to be redeemed or converted except as to
the holder to whom the Corporation has failed to give said notice
or except as to the holder whose notice was defective. Each such
notice shall state, as appropriate, the following:
(a) the redemption or conversion date;
(b) that all outstanding shares of Series A
Preferred Stock are to be redeemed or converted or, in the
case of a call for redemption pursuant to paragraph 4(c) of
fewer than all outstanding shares of Series A Preferred
Stock pursuant to paragraph (4)(c), the number of such
shares held by such holder to be redeemed;
(c) in the case of a call for redemption
pursuant to paragraph (4)(c), the Call Price, the number of
shares of Common Stock deliverable upon redemption of each
share of Series A Preferred Stock to be redeemed and the
Current Market Price used to calculate such number of shares
of Common Stock subject to any subsequent adjustments
pursuant to paragraph 4(d);
(d) whether the Corporation is exercising any
option to deliver shares of Common Stock in lieu of cash (in
the case of a conversion pursuant to paragraph (4)(b)), the
Current Market Price to be used to calculate the number of
such shares of Common Stock and, if the Corporation is
exercising such option in respect of less than all the cash
that is deliverable by the Corporation upon such conversion,
the portion of such cash in lieu of which Common Stock will
be delivered;
(e) the place or places where certificates for
such shares are to be surrendered for redemption or
conversion; and
<PAGE>
60
(f) that dividends on the shares of Series A
Preferred Stock to be redeemed or converted will cease to
accrue on such redemption or conversion date or, in the case
of a conversion pursuant to paragraph (4)(b), on the related
Settlement Date, unless the Corporation shall default in
delivering the shares of Common Stock and cash, if any,
payable by the Corporation pursuant to this paragraph (4),
at the time and place specified in such notice.
(x) Deposit of Shares and Funds. The Corporation's
---------------------------
obligation to deliver shares of Common Stock and provide funds in
accordance with this paragraph (4) shall be deemed fulfilled if,
on or before a redemption or conversion date, the Corporation
shall deposit, with a bank or trust company, or an affiliate of a
bank or trust company, having an office or agency in New York
City and having a capital and surplus of at least $50,000,000,
such number of shares of Common Stock as are required to be
delivered by the Corporation pursuant to this paragraph (4) upon
the occurrence of the related redemption or conversion (including
any payment of fractional share amounts pursuant to paragraph
(4)(f)(i)), together with funds (or, in the case of a conversion
pursuant to paragraph 4(b), shares of Common Stock and/or funds)
sufficient to pay all accrued and unpaid dividends on the shares
to be redeemed or converted as required by this paragraph (4), in
trust for the account of the holders of the shares to be redeemed
or converted (and so as to be and continue to be available
therefor), with irrevocable instructions and authority to such
bank or trust company that such shares and funds be delivered
upon redemption or conversion of the shares of Series A Preferred
Stock so called for redemption or converted. Any interest
accrued on such funds shall be paid to the Corporation from time
to time. Any shares of Common Stock or funds so deposited and
unclaimed at the end of two years from such redemption or
conversion date shall be repaid and released to the Corporation,
after which the holder or holders of such shares of Series A
Preferred Stock so called for redemption or converted shall look
only to the Corporation for delivery of such shares of Common
Stock or funds.
(xi) Surrender of Certificates; Status. Each holder
---------------------------------
of shares of Series A Preferred Stock to be redeemed or converted
shall surrender the certificates evidencing such shares (properly
endorsed or assigned for transfer, if the Board of Directors of
the Corporation shall so require and the notice shall so state)
to the Corporation at the place designated in the notice of such
redemption or conversion and shall thereupon be entitled to
receive certificates evidencing shares of Common Stock and to
receive any funds payable pursuant to this paragraph 4 following
such surrender and following the date of such redemption or
conversion. In case fewer than all the shares represented by any
such surrendered certificate are called for redemption, a new
certificate shall be issued at the expense of the Corporation
representing the unredeemed shares. If such notice of redemption
<PAGE>
61
or conversion shall have been given, and if on the date fixed for
redemption or conversion shares of Common Stock and funds
necessary for the redemption or conversion shall have been either
set aside by the Corporation separate and apart from its other
funds or assets in trust for the account of the holders of the
shares to be redeemed or converted (and so as to be and continue
to be available therefor) or deposited with a bank or trust
company or affiliate thereof as provided in paragraph 4(j), then,
notwithstanding that the certificates evidencing any shares of
Series A Preferred Stock so called for redemption or subject to
conversion shall not have been surrendered, the shares
represented thereby so called for redemption or subject to
conversion shall be deemed no longer outstanding, dividends with
respect to the shares so called for redemption or subject to
conversion shall cease to accrue after the date fixed for
redemption or conversion or, in the case of a conversion pursuant
to paragraph (4)(b), on the related Settlement Date, and all
rights with respect to the shares so called for redemption or
subject to conversion shall forthwith after such date cease and
terminate, except for the right of the holders to receive the
shares of Common Stock and funds, if any, payable pursuant to
this paragraph 4 without interest upon surrender of their
certificates therefor.
(xii) Dividend Payments. The holders of shares of
-----------------
Series A Preferred Stock at the close of business on a dividend
payment record date shall be entitled to receive the dividend
payable on such shares on the corresponding Dividend Payment Date
notwithstanding the call or conversion thereof (except that
holders of shares called for redemption or to be converted on a
date occurring between such record date and the Dividend Payment
Date shall not be entitled to receive such dividend on such
Dividend Payment Date but instead will receive accrued and unpaid
dividends to such date or the related Settlement Date, as the
case may be) or the Corporation's default in payment of the
dividend due on such Dividend Payment Date.
(xiii) Payment of Taxes. The Corporation will pay any
----------------
and all documentary, stamp or similar issue or transfer taxes
payable in respect of the issue or delivery of shares of Common
Stock on the redemption or conversion of shares of Series A
Preferred Stock pursuant to this paragraph (4); provided,
however, that the Corporation shall not be required to pay any
tax which may be payable in respect of any registration of
transfer involved in the issue or delivery of shares of Common
Stock in a name other than that of the registered holder of
Series A Preferred Stock redeemed or converted or to be redeemed
or converted, and no such issue or delivery shall be made unless
and until the person requesting such issue has paid to the
Corporation the amount of any such tax or has established, to the
satisfaction of the Corporation, that such tax has been paid.
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62
(5) Liquidation Preference. (i) In the event of any
voluntary or involuntary liquidation, dissolution or winding up
of the affairs of the Corporation, the holders of shares of
Series A Preferred Stock then outstanding shall be entitled to be
paid out of the assets of the Corporation available for
distribution to its stockholders, after payment or provision for
payment of any Senior Securities, an amount per share of Series A
Preferred Stock in cash equal to the sum of (i) $40.50 plus (ii)
all accrued and unpaid dividends thereon to the date of
liquidation, dissolution or winding up, before any payment shall
be made or any assets distributed to the holders of any of the
Junior Securities. If the assets of the Corporation are not
sufficient to pay in full the liquidation payments payable to the
holders of outstanding shares of the Series A Preferred Stock and
any Parity Securities, then the holders of all such shares shall
share ratably in such distribution of assets in accordance with
the amount which would be payable on such distribution if the
amounts to which the holders of outstanding shares of Series A
Preferred Stock and the holders of outstanding shares of such
Parity Securities are entitled were paid in full. Except as
provided in this paragraph (5)(a), holders of Series A Preferred
Stock shall not be entitled to any distribution in the event of
liquidation, dissolution or winding up of the affairs of the
Corporation.
(ii) For the purposes of this paragraph (5), neither
the voluntary sale, conveyance, lease, exchange or transfer (for
cash, shares of stock, securities or other consideration) of all
or substantially all of the property or assets of the Corporation
nor the consolidation or merger of the Corporation with or into
one or more other corporations nor the consolidation or merger of
one or more corporations with or into the Corporation shall be
deemed to be a voluntary or involuntary liquidation, dissolution
or winding up.
(6) Voting Rights. (i) The holders of record of
shares of Series A Preferred Stock shall not be entitled to any
voting rights except as hereinafter provided in this paragraph
(6) or as otherwise provided by law. The holders of shares of
Series A Preferred Stock shall be entitled to vote on all matters
submitted to a vote of the holders of Common Stock, voting
together with the holders of Common Stock (and any other capital
stock of the Corporation entitled to vote together with the
Common Stock) as one class; provided, however, that the holders
of Series A Preferred Stock shall not be entitled to vote on any
increase or decrease in the number of authorized shares of any
class or classes of stock. Each share of the Series A Preferred
Stock shall be entitled to a number of votes equal to one-quarter
of the Common Equivalent Rate, rounded to the nearest one-tenth
of a vote; it being understood that whenever the Common
Equivalent Rate is adjusted as provided in paragraph 4(d) hereof,
the voting rights of the Series A Preferred Stock shall also be
similarly adjusted.
<PAGE>
63
(ii) (a) If at any time or times dividends
payable on all series of Preferred Stock, including the
Series A Preferred Stock, shall be in arrears and
unpaid for six quarterly periods, then the number of
directors constituting the Board of Directors, without
further action, shall be increased by two (2) and the
holders of shares of Series A Preferred Stock shall
have the right, together with the holders of all other
outstanding series of the Preferred Stock entitled to
vote thereon (other than the Cumulative Convertible
Preferred Stock), to elect the directors of the
Corporation to fill such newly created directorships,
the remaining directors to be elected by the other
class or classes of stock entitled to vote therefor, at
each meeting of stockholders held for the purpose of
electing directors; provided, that in no event shall
such holders have the right to elect more than 25% of
the total number of directors of the Corporation;
provided, further, that, notwithstanding the foregoing
proviso, such holders shall have the right to elect not
less than one director pursuant to this paragraph
(6)(b)(i). While holders of shares of such series of
Preferred Stock are entitled to elect two directors,
they shall not be entitled to participate with the
holders of Common Stock in the election of any other
directors, but shall continue to be entitled to vote
with the holders of Common Stock upon each other matter
coming before any meeting of the stockholders.
(b) Whenever such voting right shall have vested,
such right may be exercised initially either at a
special meeting of the holders of shares of Series A
Preferred Stock together with the holders of all other
outstanding series of the Preferred Stock entitled to
vote thereon (other than the Cumulative Convertible
Preferred Stock), called as hereinafter provided, or at
any annual meeting of stockholders held for the purpose
of electing directors, and thereafter at such meetings
or by the written consent of such holders pursuant to
Section 228 of the General Corporation Law of the State
of Delaware. Such voting right shall continue until
such time as all cumulative dividends accumulated on
all outstanding series of Preferred Stock shall have
been paid in full or declared and set aside for payment
in full, at which time such voting right of such
holders shall terminate, subject to revesting in the
event of each and every subsequent failure of the
Corporation to pay dividends for the requisite number
of quarters as described above.
(c) At any time when such voting right shall have
vested in the holders of shares of Series A Preferred
Stock together with all other series of Preferred Stock
entitled to vote thereon (other than the Cumulative
Convertible Preferred Stock) and if such right shall
not already have been initially exercised, a proper
officer of
<PAGE>
64
the Corporation shall, upon the written request of 10%
of the holders of record of shares of such series of
Preferred Stock then outstanding, addressed to the
Secretary of the Corporation, call a special meeting of
holders of shares of such series of Preferred Stock.
Such meeting shall be held at the earliest practicable
date upon the notice required for annual meetings of
stockholders at the place for holding annual meetings
of stockholders of the Corporation or, if none, at a
place designated by the Secretary of the Corporation.
If such meeting shall not be called by the proper
officers of the Corporation within 30 days after the
personal service of such written request upon the
Secretary of the Corporation, or within 30 days after
mailing the same within the United States, by
registered mail, addressed to the Secretary of the
Corporation at its principal office (such mailing to be
evidenced by the registry receipt issued by the postal
authorities), then the holders of record of 10% of the
shares of such series of Preferred Stock then
outstanding may designate in writing a holder of shares
of such series of Preferred Stock to call such meeting
at the expense of the Corporation, and such meeting may
be called by such person so designated upon the notice
required for annual meetings of stockholders and shall
be held at the same place as is elsewhere provided in
this paragraph (6)(b)(iii). Any holder of shares of
such series of Preferred Stock that would be entitled
to vote at such meeting shall have access to the stock
books of the Corporation for such series of Preferred
Stock for the purpose of causing a meeting of
stockholders to be called pursuant to the provisions of
this paragraph. Notwithstanding the provisions of this
paragraph, however, no such special meeting shall be
called during a period within 90 days immediately
preceding the date fixed for the next annual meeting of
stockholders.
(d) At any meeting held for the purpose of
electing directors at which the holders of shares of
Series A Preferred Stock together with all other series
of Preferred Stock entitled to vote thereon (other than
the Cumulative Convertible Preferred Stock) shall have
the right to elect directors as provided herein, the
presence in person or by proxy of the holders of at
least a majority of the then outstanding shares of such
series of Preferred Stock shall be required and be
sufficient to constitute a quorum of such series for
the election of directors by such series. At any such
meeting or adjournment thereof (x) the absence of a
quorum of the holders of shares of such series of
Preferred Stock shall not prevent the election of
directors other than those to be elected by the holders
of stock of such series and the absence of a quorum or
quorums of the holders of capital stock entitled to
elect such other directors shall not prevent the
election of directors to be elected by the holders of
shares of such series of Preferred
<PAGE>
65
Stock and (y) in the absence of a quorum of the holders
of shares of such series of Preferred Stock, a majority
of such holders present in person or by proxy shall
have the power to adjourn the meeting for the election
of directors which the holders of shares of such series
of Preferred Stock may be entitled to elect, from time
to time, without notice (except as required by law)
other than announcement at the meeting, until a quorum
shall be present.
(e) The term of office of all directors elected
by the holders of shares of Series A Preferred Stock
together with all other series of Preferred Stock
entitled to vote thereon (other than Cumulative
Convertible Preferred Stock) pursuant to paragraph
(6)(b)(i) in office at any time when the aforesaid
voting rights are vested in the holders of shares of
such series of Preferred Stock shall terminate upon the
election of their successors at any meeting of
stockholders for the purpose of electing directors.
Upon any termination of the aforesaid voting rights in
accordance with paragraph (6)(b)(ii), the term of
office of all directors elected by the holders of
shares of such series of Preferred Stock pursuant to
paragraph (6)(b)(i) then in office shall thereupon
terminate and upon such termination the number of
directors constituting the Board of Directors shall,
without further action, be reduced by two (2) (or such
other lesser number by which the number of directors
constituting the Board of Directors shall have been
increased pursuant to paragraph (6)(b)(i) hereof),
subject always to the increase of the number of
directors pursuant to paragraph (6)(b)(i) in case of
the future right of the holders of shares of such
series of Preferred Stock to elect directors as
provided herein.
(f) In case of any vacancy occurring among the
directors elected pursuant to paragraph (6)(b)(i), the
remaining director who shall have been so elected may
appoint a successor to hold office for the unexpired
term of the director whose place shall be vacant. If
all directors so elected by the holders of shares of
Series A Preferred Stock together with all other series
of Preferred Stock entitled to vote thereon (other than
Cumulative Convertible Preferred Stock) shall cease to
serve as directors before their terms shall expire, the
holders of shares of such series of Preferred Stock
then outstanding may, at a special meeting of the
holders called as provided above, elect successors to
hold office for the unexpired terms of the directors
whose places shall be vacant.
(iii) So long as any shares of the Series A
Preferred Stock are outstanding (except when notice of the
redemption or conversion of all outstanding shares of Series A
Preferred Stock has been given pursuant to paragraph (4)(i) and
shares of Common Stock and any necessary funds have been
deposited in trust for
<PAGE>
66
such redemption or conversion pursuant to paragraph (4)(j)), the
Corporation shall not, without the affirmative vote or consent of
the holders of at least a majority of the shares of Series A
Preferred Stock and any other series of Preferred Stock entitled
to vote thereon at the time outstanding voting or consenting, as
the case may be, together as one class, given in person or by
proxy, either in writing or by resolution adopted at an annual or
special meeting called for the purpose, authorize any new class
of Parity Securities.
(iv) So long as any shares of the Series A
Preferred Stock are outstanding (except when notice of the
redemption or conversion of all outstanding shares of Series A
Preferred Stock has been given pursuant to paragraph (4)(i) and
shares of Common Stock and any necessary funds have been
deposited in trust for such redemption or conversion pursuant to
paragraph (4)(j)), the Corporation shall not, without the
affirmative vote or consent of the holders of at least 66-2/3% of
the shares of Series A Preferred Stock and any other series of
Preferred Stock entitled to vote thereon at the time outstanding
voting or consenting, as the case may be, together as one class,
given in person or by proxy, either in writing or by resolution
adopted at an annual or special meeting called for the purpose,
authorize any new class of Senior Securities.
(v) So long as any shares of the Series A
Preferred Stock are outstanding (except when notice of the
redemption or conversion of all outstanding shares of Series A
Preferred Stock has been given pursuant to paragraph (4)(i) and
shares of Common Stock and any necessary funds have been
deposited in trust for such redemption or conversion pursuant to
paragraph (4)(j)), the Corporation shall not, without the
affirmative vote or consent of the holders of at least 66-2/3% of
the shares of Series A Preferred Stock and any other series of
Preferred Stock entitled to vote thereon at the time outstanding
voting or consenting, as the case may be, together as one class,
given in person or by proxy, either in writing or by resolution
adopted at an annual or special meeting called for the purpose,
amend the Certificate of Incorporation or this Certificate of
Designation so as to affect materially and adversely the
specified rights, preferences, privileges or voting rights of
holders of shares of Preferred Stock.
(vi) (i) Except as set forth in paragraphs
(6)(c) and (6)(d) above, the creation, authorization or issuance
of any shares of any Junior Securities, Parity Securities or
Senior Securities, (ii) the creation of any indebtedness of any
kind of the Corporation, or (iii) the increase or decrease in the
amount of authorized capital stock of any class, including
Preferred Stock, shall not require the consent of the holders of
Series A Preferred Stock and shall not be deemed to affect
materially and adversely the rights, preferences, privileges or
voting rights of holders of shares of Series A Preferred Stock.
<PAGE>
67
(7) Increase in Shares. The number of shares of
Series A Preferred Stock may, to the extent of the Corporation's
authorized and unissued Preferred Stock, be increased by further
resolution duly adopted by the Board of Directors and the filing
of a certificate of increase with the Secretary of State of the
State of Delaware.
(8) Limitations. Except as may otherwise be
required by law, the shares of Series A Preferred Stock shall not
have any powers, preferences or relative, participating, optional
or other special rights other than those specifically set forth
in this resolution (as such resolution may be amended from time
to time) or otherwise in the Certificate of Incorporation of the
Corporation.
The following is a statement of the number,
designation, powers, preferences and relative, participating,
optional or other special rights and qualifications, limitations
or restrictions of the Series B Preferred Stock of the
Corporation:
1. Designation. The designation of the series
of Preferred Stock authorized by this resolution shall be "Series
B Cumulative Preferred Stock" (the "Series B Preferred Stock")
consisting of 50,000 shares. The stated value of the Series B
Preferred Stock shall be $25,000 per share, which value does not
represent a determination by the Board of Directors for the
purposes of the capital accounts.
2. Rank. The Series B Preferred Stock shall,
with respect to dividend rights and rights on liquidation,
dissolution and winding up, rank prior to the Common Stock, par
value $0.01 per share (the "Common Stock"), of the Corporation
and on a parity with the Cumulative Convertible Preferred Stock,
par value $0.01 per share and stated value $25.00 per share (the
"Cumulative Convertible Preferred Stock"), the ESOP Convertible
Preferred Stock, par value $0.01 per share and stated value
$16.00 per share (the "ESOP Convertible Preferred Stock"), and
the Series A Conversion Preferred Stock, par value $0.01 per
share (the "Series A Preferred Stock"), of the Corporation. All
equity securities of the Corporation to which the Series B
Preferred Stock ranks prior, including the Common Stock, are
collectively referred to herein as the "Junior Securities," all
equity securities of the Corporation with which the Series B
Preferred Stock ranks on a parity, including the Cumulative
Convertible Preferred Stock, the ESOP Convertible Preferred Stock
and the Series A Preferred Stock, are collectively referred to
herein as the "Parity Securities" and all equity securities of
the Corporation (other than convertible debt securities) to which
the Series B Preferred Stock ranks junior, whether with respect
to dividends or upon liquidation, dissolution, winding-up or
otherwise, are collectively referred to herein as the "Senior
Securities." The Series B Preferred Stock shall be subject to
the creation of Junior Securities, Parity Securities and Senior
Securities.
<PAGE>
68
3. Dividends. (i) The holders of outstanding
shares of Series B Preferred Stock shall be entitled to receive,
when, as and if declared by the Board of Directors, out of funds
legally available for the payment of dividends, cumulative
preferential cash dividends at the rate per annum of 9 1/4% of the
stated value ($25,000) per share and no more, payable in arrears
on the first business day of each March, June, September and
December, commencing December 1, 1993 (each of such dates being a
"Dividend Payment Date"). If any Dividend Payment Date shall be
or be declared a national or New York State holiday or if banking
institutions in the State of New York shall be closed because of
a banking moratorium or otherwise on such date, then the Dividend
Payment Date shall be on the next succeeding day on which such
banks shall be open. Each such dividend shall be payable to
holders of record as they appear on the stock books of the
Corporation at the close of business on each record date, which
shall be the 15th day immediately preceding each such Dividend
Payment Date (each of such dates being a "Dividend Payment Record
Date"). Each of such quarterly dividends shall be fully
cumulative and shall accrue (whether or not declared) on a daily
basis, without interest, from the previous Dividend Payment Date,
except that the first dividend shall accrue, without interest,
from the date of initial issuance of the Series B Preferred
Stock. Accrued and unpaid dividends shall not bear interest.
Dividends will cease to accrue in respect of the Series B
Preferred Stock on the date of their earlier redemption pursuant
to paragraph (4), unless the Corporation shall default in
providing funds for the payment of the redemption price of the
shares called for redemption pursuant to paragraphs (4) and (5).
Dividends payable on the Series B Preferred Stock for the first
dividend period and any partial dividend period will be computed
on the basis of a 360-day year consisting of twelve 30-day
months.
(ii) No full dividends shall be declared by the
Board of Directors or paid or set apart for payment by the
Corporation on any Parity Securities for any period unless full
cumulative dividends have been or contemporaneously are declared
and paid or declared and a sum set apart sufficient for such
payment on the Series B Preferred Stock through the most recent
Dividend Payment Date. If any dividends are not paid or set
apart in full, as aforesaid, upon the shares of the Series B
Preferred Stock and any Parity Securities, all dividends declared
upon shares on the Series B Preferred Stock and any Parity
Securities shall be declared pro rata so that the amount of
dividends declared per share on the Series B Preferred Stock and
such Parity Securities shall in all cases bear to each other the
same ratio that accrued dividends per share on the Series B
Preferred Stock and such Parity Securities bear to each other.
Unless full cumulative dividends, if any, accrued on all
outstanding shares of the Series B Preferred Stock have been or
contemporaneously are declared and paid or declared and a sum set
apart sufficient for such payment through the most recent
Dividend Payment Date, no dividend shall be declared or paid or
set apart for payment or other distribution declared or made on
any Junior Securities (other than a dividend or distribution paid
in shares of, or
<PAGE>
69
warrants, rights or options exercisable for or convertible into,
any Junior Securities), nor shall any Junior Securities be
redeemed, purchased or otherwise retired for any consideration,
nor may any moneys be paid to or made available for a sinking
fund for the redemption of any shares of any such securities, by
the Corporation (other than redemptions and purchases pursuant to
or in accordance with employee stock subscription agreements
entered into between the Corporation and certain of its or its
subsidiaries' directors, officers and key employees), except by
conversion into or exchange for Junior Securities. Holders of
the shares of the Series B Preferred Stock shall not be entitled
to any dividends, whether payable in cash, property or stock, in
excess of full cumulative dividends as provided in paragraph
3(i).
(iii) Subject to the foregoing provisions of this
paragraph (3), the Board of Directors may declare and the
Corporation may pay or set apart for payment dividends and other
distributions on any of the Junior Securities or Parity
Securities, and may redeem, purchase, or otherwise retire any
Junior Securities, and the holders of the shares of the Series B
Preferred Stock shall not be entitled to share therein.
(iv) Any dividend payment made on shares of the Series
B Preferred Stock shall first be credited against the earliest
accrued but unpaid dividend due with respect to shares of the
Series B Preferred Stock.
(v) All dividends paid with respect to shares of the
Series B Preferred Stock pursuant to this paragraph (3) shall be
paid pro rata to the holders entitled thereto.
(vi) Holders of shares of the Series B Preferred Stock
shall be entitled to receive the dividends provided for in this
paragraph (3) in preference to and in priority over any dividends
upon any of the Junior Securities.
4. Redemption. (i) The shares of the Series B
Preferred Stock shall not be redeemable prior to August 18, 1998.
On and after August 18, 1998, the Corporation, at its option, may
redeem shares of the Series B Preferred Stock, as a whole or in
part, at any time or from time to time, at a redemption price per
share of $25,000, plus, in each case, an amount equal to accrued
and unpaid dividends thereon to the date fixed for redemption,
without interest, to the extent the Corporation shall have funds
legally available for such payment.
(ii) So long as any shares of the Series B Preferred
Stock are outstanding, any repurchase, redemption or other
retirement of any Parity Securities or any warrants, rights or
options exercisable for or convertible into any of the Parity
Securities (other than the repurchase, redemption or other
retirement of debentures or other debt securities that are
convertible or exchangeable into any Parity Securities) must be
made on a pro rata basis with the Series B Preferred Stock so
that the total redemption prices of the shares redeemed of Series
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70
B Preferred Stock and such Parity Securities shall in all cases
bear to each other the same ratio that the total redemption
prices of all shares outstanding on the applicable date of Series
B Preferred Stock and such Parity Securities bear to each other,
unless prior to or concurrently with such repurchase, redemption
or other retirement, as the case may be, all accrued and unpaid
dividends on shares of the Series B Preferred Stock not paid on
the dates provided for in paragraph (3)(i) hereof (including
accrued dividends not paid by reason of the terms and conditions
of paragraph (3)(i) or paragraph (3)(ii) hereof) shall have been
or be paid.
(iii) The holders of shares of Series B Preferred
Stock at the close of business on a Dividend Payment Record Date
shall be entitled to receive the dividend payable on such shares
on the corresponding Dividend Payment Date notwithstanding the
call for redemption thereof (except that holders of shares called
for redemption on a date occurring between such Record Date and
the Dividend Payment Date shall not be entitled to receive such
dividend on such Dividend Payment Date) or the Corporation's
default in payment of the dividend due on such Dividend Payment
Date.
(iv) Shares of Series B Preferred Stock that have been
issued and reacquired in any manner, including shares purchased
or redeemed, shall (upon compliance with any applicable
provisions of the laws of the State of Delaware) have the status
of authorized and unissued shares of the class of Preferred Stock
undesignated as to series and may be redesignated and reissued as
part of any series of the Preferred Stock.
5. Procedure for Redemption. (i) In the event
that fewer than all the outstanding shares of Series B Preferred
Stock are to be redeemed, the number of shares to be redeemed
shall be determined by the Board of Directors and the shares to
be redeemed shall be selected pro rata (as nearly as may be
practicable without creating fractional shares) or by any other
means determined by the Board of Directors in its sole discretion
to be equitable, except the Corporation may redeem all shares
held by any holders of a number of shares not to exceed 100,
including all shares held by holders who, after giving effect to
such redemption, would hold less than 100 shares, as may be
specified by the Corporation.
(ii) In the event the Corporation shall redeem shares
of Series B Preferred Stock, written notice of such redemption
shall be given by first class mail, postage prepaid, mailed not
less than 30 days nor more than 60 days prior to the redemption
date, to each holder of record of the shares to be redeemed at
such holder's address as the same appears on the stock register
of the Corporation; provided, however, that no failure to give
such notice nor any defect therein shall affect the validity of
the proceeding for the redemption of any shares of Series B
Preferred Stock to be redeemed except as to the holder to whom
the Corporation has failed to mail said notice or except as to
the holder whose notice was defective. Each such notice shall
<PAGE>
71
state: (a) the redemption date; (b) the number of shares of
Series B Preferred Stock to be redeemed and, if less than all the
shares held by such holder are to be redeemed from such holder,
the number of shares to be redeemed from such holder; (c) the
redemption price including an amount equal to any accrued and
unpaid dividends to the redemption date; (d) the place or places
where certificates for such shares are to be surrendered for
payment of the redemption price; and (e) that dividends on the
shares to be redeemed will cease to accrue on such redemption
date (unless the Corporation shall default in providing funds for
the payment of the redemption price of the shares called for
redemption at the time and place specified in such notice).
(iii) Notice having been mailed as aforesaid, from and
after the redemption date (unless default shall be made by the
Corporation in providing funds for the payment of the redemption
price of the shares called for redemption), notwithstanding that
the certificates evidencing any shares of Series B Preferred
Stock so called for redemption shall not have been surrendered,
dividends on the shares of Series B Preferred Stock so called for
redemption shall cease to accrue and shall be redeemed and, upon
the taking of any action required by applicable law, said shares
shall no longer be deemed to be outstanding and shall have the
status of authorized but unissued shares of Preferred Stock,
undesignated as to series, and all rights of the holders thereof
as stockholders of the Corporation (except the right to receive
from the Corporation the redemption price and any accrued and
unpaid dividends) shall cease. Upon surrender in accordance with
said notice of the certificates for any shares so redeemed
(properly endorsed or assigned for transfer, if the Board of
Directors of the Corporation shall so require and the notice
shall so state), such shares shall be redeemed by the Corporation
at the redemption price aforesaid plus an amount equal to any
accrued and unpaid dividends, without interest. In case fewer
than all the shares represented by any such certificate are
redeemed, a new certificate shall be issued representing the
unredeemed shares without cost to the holder thereof.
(iv) The Corporation's obligation to provide
funds for the payment of the redemption price (including an
amount equal to any accrued and unpaid dividends to the
redemption date) of the shares called for redemption shall be
deemed fulfilled if, on or before a redemption date, the
Corporation shall deposit, with a bank or trust company, or an
affiliate of a bank or trust company, having an office or agency
in New York City and having a capital and surplus of at least
$50,000,000, such funds sufficient to pay the redemption price
(including an amount equal to any accrued and unpaid dividends to
the redemption date) of the shares called for redemption, in
trust for the account of the holders of the shares to be redeemed
(and so as to be and continue to be available therefor), with
irrevocable instructions and authority to such bank or trust
company that such funds be delivered upon redemption of the
shares of Series B Preferred Stock so called for redemption. Any
interest accrued on such funds shall be paid to the Corporation
from time to time. Any funds so deposited and unclaimed at the
end of two years from
<PAGE>
72
such redemption date shall be repaid and released to the
Corporation, after which the holder or holders of such shares of
Series B Preferred Stock so called for redemption shall look only
to the Corporation for delivery of such funds.
6. Liquidation Preference. (i) In the event of
any voluntary or involuntary liquidation, dissolution or winding
up of the affairs of the Corporation, holders of shares of Series
B Preferred Stock then outstanding shall be entitled to be paid
out of the assets of the Corporation available for distribution
to its stockholders, after payment or provision for payment of
any Senior Securities, an amount per share of Series B Preferred
Stock in cash equal to the sum of $25,000 plus an amount equal to
all accrued and unpaid dividends thereon to the date of
liquidation, dissolution or winding up, before any payment shall
be made or any assets distributed to the holders of any of the
Junior Securities in connection with such liquidation,
dissolution or winding up. If the assets of the Corporation are
not sufficient to pay in full the liquidation payments payable to
the holders of outstanding shares of the Series B Preferred Stock
and any Parity Securities, then the holders of all such shares
shall share ratably in such distribution of assets in accordance
with the amount which would be payable on such distribution if
the amounts to which the holders of outstanding shares of Series
B Preferred Stock and the holders of outstanding shares of such
Parity Securities are entitled were paid in full. Except as
provided in this paragraph (6)(i), holders of Series B Preferred
Stock shall not be entitled to any distribution in the event of
liquidation, dissolution or winding up of the affairs of the
Corporation.
(ii) For the purposes of this paragraph (6), neither
the voluntary sale, conveyance, lease, exchange or transfer (for
cash, shares of stock, securities or other consideration) of all
or substantially all of the property or assets of the Corporation
nor the consolidation or merger of the Corporation with or into
one or more other corporations nor the consolidation or merger of
one or more corporations with or into the Corporation shall be
deemed to be a voluntary or involuntary liquidation, dissolution
or winding up.
7. Voting Rights. (i) The holders of record of
shares of Series B Preferred Stock shall not be entitled to any
voting rights except as hereinafter provided in this paragraph
(7) or as otherwise provided by law.
(ii) (a) If at any time or times dividends payable on
all series of Preferred Stock, including the Series B Preferred
Stock, shall be in arrears and unpaid for the six quarterly
periods, then the number of directors constituting the Board of
Directors, without further action, shall be increased by two (2)
and the holders of shares of Series B Preferred Stock shall have
the right, together with the holders of all other outstanding
series of the Preferred Stock entitled to vote thereon (other
than the Cumulative Convertible Preferred Stock), to elect the
directors of the Corporation to fill such newly created
<PAGE>
73
directorships, the remaining directors to be elected by the other
class or classes of stock entitled to vote therefor, at each
meeting of stockholders held for the purpose of electing
directors; provided, that in no event shall such holders have the
right to elect more than 25% of the total number of directors of
the Corporation; provided, further, that, notwithstanding the
foregoing proviso, such holders shall have the right to elect not
less than one director pursuant to this paragraph (7)(ii)(a).
(b) Whenever such voting right shall have vested,
such right may be exercised initially either at a special meeting
of the holders of shares of Series B Preferred Stock together
with the holders of all other outstanding series of the Preferred
Stock entitled to vote thereon (other than the Cumulative
Convertible Preferred Stock), called as hereinafter provided, or
at any annual meeting of stockholders held for the purpose of
electing directors, and thereafter at such meetings or by the
written consent of such holders pursuant to Section 228 of the
General Corporation Law of the State of Delaware. Such voting
right shall continue until such time as all cumulative dividends
accumulated on all outstanding series of Preferred Stock shall
have been paid in full or declared and set aside for payment in
full, at which time such voting right of such holders shall
terminate, subject to revesting in the event of each and every
subsequent failure of the Corporation to pay dividends for the
requisite number of quarters as described above.
(c) At any time when such voting right shall have
vested in the holders of shares of Series B Preferred Stock
together with all other series of Preferred Stock entitled to
vote thereon (other than the Cumulative Convertible Preferred
Stock) and if such right shall not already have been initially
exercised, a proper officer of the Corporation shall, upon the
written request of 10% of the holders of record of shares of such
series of Preferred Stock then outstanding, addressed to the
Secretary of the Corporation, call a special meeting of holders
of shares of such series of Preferred Stock. Such meeting shall
be held at the earliest practicable date upon the notice required
for annual meetings of stockholders at the place for holding
annual meetings of stockholders of the Corporation or, if none,
at a place designated by the Secretary of the Corporation. If
such meeting shall not be called by the proper officers of the
Corporation within 30 days after the personal service of such
written request upon the Secretary of the Corporation, or within
30 days after mailing the same within the United States, by
registered mail, addressed to the Secretary of the Corporation at
its principal office (such mailing to be evidenced by the
registry receipt issued by the postal authorities), then the
holders of record of 10% of the shares of such series of
Preferred Stock then outstanding may designate in writing a
holder of shares of such series of Preferred Stock to call such
meeting at the expense of the Corporation, and such meeting may
be called by such person so designated upon the notice required
for annual meetings of stockholders and shall be held at the same
place as is elsewhere provided in this paragraph (7)(ii)(c). Any
holder of shares of such series of Preferred Stock that would be
<PAGE>
74
entitled to vote at such meeting shall have access to the stock
books of the Corporation for such series of Preferred Stock for
the purpose of causing a meeting of stockholders to be called
pursuant to the provisions of this paragraph. Notwithstanding
the provisions of this paragraph, however, no such special
meeting shall be called during a period within 90 days
immediately preceding the date fixed for the next annual meeting
of stockholders.
(d) At any meeting held for the purpose of
electing directors at which the holders of shares of Series B
Preferred Stock together with all other series of Preferred Stock
entitled to vote thereon (other than the Cumulative Convertible
Preferred Stock) shall have the right to elect directors as
provided herein, the presence in person or by proxy of the
holders of at least a majority of the then outstanding shares of
such series of Preferred Stock shall be required and be
sufficient to constitute a quorum of such series for the election
of directors by such series. At any such meeting or adjournment
thereof (x) the absence of a quorum of the holders of shares of
such series of Preferred Stock shall not prevent the election of
directors other than those to be elected by the holders of stock
of such series of Preferred Stock and the absence of a quorum or
quorums of the holders of capital stock entitled to elect such
other directors shall not prevent the election of directors to be
elected by the holders of shares of such series of Preferred
Stock and (y) in the absence of a quorum of the holders of shares
of such series of Preferred Stock, a majority of such holders
present in person or by proxy shall have the power to adjourn the
meeting for the election of directors which the holders of shares
of such series of Preferred Stock may be entitled to elect, from
time to time, without notice (except as required by law) other
than announcement at the meeting, until a quorum shall be
present.
(e) The term of office of all directors elected
by the holders of shares of Series B Preferred Stock together
with all other series of Preferred Stock entitled to vote thereon
(other than Cumulative Convertible Preferred Stock) pursuant to
paragraph (7)(ii)(a) in office at any time when the aforesaid
voting rights are vested in the holders of shares of such series
of Preferred Stock shall terminate upon the election of their
successors at any meeting of stockholders for the purpose of
electing directors. Upon any termination of the aforesaid voting
rights in accordance with paragraph (7)(ii)(b), the term of
office of all directors elected by the holders of shares of such
series of Preferred Stock pursuant to paragraph (7)(ii)(a) then
in office shall thereupon terminate and upon such termination the
number of directors constituting the Board of Directors shall,
without further action, be reduced by two (2) (or such other
lesser number by which the number of directors constituting the
Board of Directors shall have been increased pursuant to
paragraph (7)(ii)(a) hereof), subject always to the increase of
the number of directors pursuant to paragraph (7)(ii)(a) in case
of the future right of the holders of shares of such series of
Preferred Stock to elect directors as provided herein.
<PAGE>
75
(f) In case of any vacancy occurring among the
directors elected pursuant to paragraph (7)(ii)(a), the remaining
director who shall have been so elected may appoint a successor
to hold office for the unexpired term of the director whose place
shall be vacant. If all directors so elected by the holders of
shares of Series B Preferred Stock together with all other series
of Preferred Stock entitled to vote thereon (other than
Cumulative Convertible Preferred Stock) shall cease to serve as
directors before their terms shall expire, the holders of shares
of such series of Preferred Stock then outstanding may, at a
special meeting of the holders called as provided above, elect
successors to hold office for the unexpired terms of the
directors whose places shall be vacant.
(iii) So long as any shares of the Series B Preferred
Stock are outstanding (except when notice of the redemption of
all outstanding shares of Series B Preferred Stock has been given
pursuant to paragraphs (5) and (6) and funds have been deposited
in trust for such redemption), the Corporation shall not, without
the affirmative vote or consent of the holders of at least a
majority of the shares of Series B Preferred Stock and any other
series of Preferred Stock entitled to vote thereon at the time
outstanding voting or consenting, as the case may be, together as
one class, given in person or by proxy, either in writing or by
resolution adopted at an annual or special meeting called for the
purpose, authorize any new class of Parity Securities.
(iv) So long as any shares of the Series B Preferred
Stock are outstanding (except when notice of the redemption of
all outstanding shares of Series B Preferred Stock has been given
pursuant to paragraphs (5) and (6) and funds have been deposited
in trust for such redemption), the Corporation shall not, without
the affirmative vote or consent of the holders of at least 66-
2/3% of the shares of Series B Preferred Stock and any other
series of Preferred Stock entitled to vote thereon at the time
outstanding voting or consenting, as the case may be, together as
one class, given in person or by proxy, either in writing or by
resolution adopted at an annual or special meeting called for the
purpose, authorize any new class of Senior Securities or
designate a new series of Senior Securities from an existing
class of Preferred Stock.
(v) So long as any shares of the Series B Preferred
Stock are outstanding (except when notice of the redemption of
all outstanding shares of Series B Preferred Stock has been given
pursuant to paragraphs (5) and (6) and funds have been deposited
in trust for such redemption), the Corporation shall not, without
the affirmative vote or consent of the holders of at least 66-
2/3% of the shares of Series B Preferred Stock and any other
series of Preferred Stock entitled to vote thereon at the time
outstanding voting or consenting, as the case may be, together as
one class, given in person or by proxy, either in writing or by
resolution adopted at an annual or special meeting called for the
purpose, amend the Certificate of Incorporation or this
Certificate of Designation so as to affect materially and
<PAGE>
76
adversely the specified rights, preferences, privileges or voting
power of holders of shares of Series B Preferred Stock.
(vi) Except as set forth in paragraph (7)(iii) and
paragraph (7)(iv) above, the creation, authorization or issuance
of any shares of any Junior Securities, Parity Securities or
Senior Securities, the creation of any indebtedness of any kind
of the Corporation, or the increase or decrease in the amount of
authorized capital stock of any class, including Preferred Stock,
shall not require the consent of the holders of Series B
Preferred Stock and shall not be deemed to affect materially and
adversely the rights, preferences, privileges or voting power of
holders of shares of Series B Preferred Stock.
(vii) When voting together as one class with the holders
of any other series of Preferred Stock, the holders of Series B
Preferred Stock shall be entitled to 1,000 votes per share.
8. Increase in Shares. The number of shares of
Series B Preferred Stock may, to the extent of the Corporation's
authorized and unissued Preferred Stock, be increased by further
resolution duly adopted by the Board of Directors and the filing
of a certificate of increase with the Secretary of State of the
State of Delaware.
9. Limitations. Except as may otherwise be
required by law, the shares of Series B Preferred Stock shall not
have any powers, preferences or relative, participating, optional
or other special rights other than those specifically set forth
in this resolution (as such resolution may be amended from time
to time) or otherwise in the Certificate of Incorporation of the
Corporation.
ARTICLE FIFTH
The Board of Directors of the Corporation,
acting by majority vote, may alter, amend or repeal the By-Laws
of the Corporation.
ARTICLE SIXTH
Except as otherwise provided by the Delaware
General Corporation Law as the same exists or may hereafter be
amended, no director of the Corporation shall be personally
liable to the Corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director. Any repeal
or modification of this Article SIXTH by the stockholders of the
Corporation shall not adversely affect any right or protection of
a director of the Corporation existing at the time of such repeal
or modification.
<PAGE>
77
ARTICLE SEVENTH
So long as the Corporation's Senior
Converting Debentures Due 2009 are outstanding, the Corporation
and its Subsidiaries shall not engage in, directly or indirectly,
any purchase, sale, or other acquisition or disposition of a
material amount of assets of the Corporation and its
Subsidiaries, taken as a whole, with any Affiliate of the
Corporation (other than a wholly owned subsidiary of the
Corporation) except on terms that are not less favorable to the
Corporation than those which would have been obtainable at the
time of such transaction from a person who is not such an
Affiliate, without the approval of the holders of a majority of
shares of the common stock of the Corporation issued and then
outstanding not held by Affiliates of the Corporation; provided,
however, than any purchase, sale or other acquisition or
disposition of a material amount of assets of the Corporation
with any Affiliate of the Corporation shall be deemed to be on
terms that are not less favorable to the Corporation than those
which would have been obtainable at the time of the transaction
from a person who is not an Affiliate if the Corporation receives
a written opinion from a nationally recognized investment bank
stating that the transaction is fair to the Corporation from a
financial point of view. For the purposes of this Article
SEVENTH and Article EIGHTH, the terms "Affiliate" and
"Subsidiary" shall have the meanings set forth in the indenture
relating to the Senior Converting Debentures Due 2009.
ARTICLE EIGHTH
If Senior Converting Debentures shall have
been converted into not less than a number of shares of common
stock of the Corporation equal to 12 1/2% of the fully diluted
common stock of the Corporation at the Conversion Date (as
defined in the indenture pursuant to which the Senior Converting
Debentures have been issued), the Corporation shall not, without
approval of the holders of a majority of shares of the common
stock of the Corporation issued and then outstanding not held by
Affiliates of the Corporation, engage in any transaction subject
to Rule 13e-3 promulgated under the Securities Exchange Act of
1934, as amended ("Rule 13e-3"), during the period from the
fourth anniversary of the effective time of the merger of RJR
Acquisition Corporation with and into RJR Nabisco, Inc. (the
"Effective Time") to the fifth anniversary of the Effective Time.
For the purposes of this Article EIGHTH only, it is assumed that
the common stock of the Corporation is subject to the application
of Rule 13e-3.
<PAGE>
78
IN WITNESS WHEREOF, this Amended and Restated
Certificate of Incorporation, having been duly adopted by the
Board of Directors of the Corporation in accordance with the
provisions of Section 242 and Section 245 of the General
Corporation Law of the State of Delaware, has been executed this
day of , 199 .
- ---- ----------- --
RJR NABISCO HOLDINGS CORP.
By:
--------------------------
Robert F. Sharpe, Jr.
Vice President and Secretary
[CORPORATE SEAL]
Attest:
By:
------------------------
Suzanne P. Jenney
Assistant Secretary
RJR NABISCO HOLDINGS CORP.
BY-LAWS
As Amended Effective January 20, 1994
ARTICLE I
MEETINGS OF STOCKHOLDERS
------------------------
Section 1. Place of Meetings. Meetings of stockholders of the
-----------------
Corporation shall be held at such place either within or without the State of
Delaware as the Board of Directors may determine.
Section 2. Annual and Special Meetings. Annual meetings of
---------------------------
stockholders shall be held, at a date, time and place fixed by the Board of
Directors and stated in the notice of meeting, to elect a Board of Directors
and to transact such other business as may properly come before the meeting.
Special meetings of stockholders may be called by the Chairman for any purpose
and shall be called by the Chairman or the Secretary if directed by the Board
of Directors or requested in writing by the holders of not less than 25% of the
common stock of the Corporation. Each such stockholder request shall state the
purpose of the proposed meeting.
Section 3. Notice. Except as otherwise provided by law or by the
------
Certificate of Incorporation, written notice shall be given to each stockholder
entitled to vote at least 10 and not more than 60 days before each meeting of
stockholders, such notice to include the time, date and place of the meeting
and, in the case of a special meeting, the purpose or purposes for which the
meeting is called.
Section 4. Quorum. At any meeting of stockholders, the holders of
------
record, present in person or by proxy, of a majority of the Corporation's stock
issued and outstanding and entitled to vote shall constitute a quorum for the
transaction of business, except as otherwise provided by law or by the
Certificate of Incorporation. In the absence of a quorum, any officer entitled
to preside at or to act as secretary of the meeting shall have power to adjourn
the meeting from time to time until a quorum is present.
<PAGE>
Section 5. Conduct of Meeting and Order of Business. The Chairman
----------------------------------------
or, in his absence, the President, shall act as chairman at all meetings of
stockholders. The Secretary of the Corporation or, in his absence, an
Assistant Secretary shall act as secretary at all meetings of stockholders.
The chairman of the meeting shall have the right and authority to determine and
maintain the rules, regulations and procedures for the proper conduct of the
meeting, including but not limited to restricting entry to the meeting after it
has commenced, maintaining order and the safety of those in attendance, opening
and closing the polls for voting, dismissing business not properly submitted,
and limiting time allowed for discussion of the business of the meeting.
Business to be conducted at annual meetings of stockholders shall
be limited to that properly submitted to the meeting either by or at the
direction of the Board of Directors or by any stockholder of the Corporation
who shall be entitled to vote at such meeting and who complies with the notice
requirements set forth in Section 6 of this Article I. If the chairman of the
meeting shall determine that any business was not properly submitted in
accordance with the terms of Section 6 of this Article I, he shall declare to
the meeting that such business was not properly submitted and would not be
transacted at that meeting.
Section 6. Advance Notice of Stockholder Proposals. In order to
---------------------------------------
properly submit any business to an annual meeting of stockholders, a
stockholder must give timely notice in writing to the Secretary of the
Corporation. To be considered timely, a stockholder's notice must be delivered
either in person or by United States certified mail, postage prepaid, and
received at the principal executive offices of the Corporation (a) not less
than 120 days nor more than 150 days before the first anniversary date of the
Corporation's proxy statement in connection with the last annual meeting of
stockholders or (b) if no annual meeting was held in the previous year or the
date of the applicable annual meeting has been changed by more than 30 days
from the date contemplated at the time of the previous year's proxy statement,
not less than a reasonable time, as determined by the Board of Directors, prior
to the date of the applicable annual meeting.
Nomination of persons for election to the Board of Directors may be
made by the Board of Directors or any committee designated by the Board of
Directors or by any stockholder entitled to vote for the election of directors
at the applicable meeting of stockholders. However, nominations other than
those made by the Board of Directors or its designated committee must comply
with the procedures set forth in this Section 6, and no person shall be
eligible for election as a director unless nominated in accordance with the
terms of this Section 6.
<PAGE>
A stockholder may nominate a person or persons for election to the
Board of Directors by giving written notice to the Secretary of the Corporation
in accordance with the procedures set forth above. In addition to the
timeliness requirements set forth above for notice to the Corporation by a
stockholder of business to be submitted at an annual meeting of stockholders,
with respect to any special meeting of stockholders called for the election of
directors, written notice must be delivered in the manner specified above and
not later than the close of business on the seventh day following the date on
which notice of such meeting is first given to stockholders.
The Secretary of the Corporation shall deliver any stockholder
proposals and nominations received in a timely manner for review by the Board
of Directors or a committee designated by the Board of Directors.
A stockholder's notice to submit business to an annual meeting of
stockholders shall set forth (i) the name and address of the stockholder, (ii)
the class and number of shares of stock beneficially owned by such stockholder,
(iii) the name in which such shares are registered on the stock transfer books
of the Corporation, (iv) a representation that the stockholder intends to
appear at the meeting in person or by proxy to submit the business specified in
such notice, (v) any material interest of the stockholder in the business to be
submitted and (vi) a brief description of the business desired to be submitted
to the annual meeting, including the complete text of any resolutions to be
presented at the annual meeting, and the reasons for conducting such business
at the annual meeting. In addition, the stockholder making such proposal shall
promptly provide any other information reasonably requested by the Corporation.
In addition to the information required above to be given by a
stockholder who intends to submit business to a meeting of stockholders, if the
business to be submitted is the nomination of a person or persons for election
to the Board of Directors then such stockholder's notice must also set forth,
as to each person whom the stockholder proposes to nominate for election as a
director, (a) the name, age, business address and, if known, residence address
of such person, (b) the principal occupation or employment of such person, (c)
the class and number of shares of stock of the Corporation which are
beneficially owned by such person, (d) any other information relating to such
person that is required to be disclosed in solicitations of proxies for
election of directors or is otherwise required by the rules and regulations of
the Securities and Exchange Commission promulgated under the Securities
Exchange Act of 1934, as amended, (e) the written consent of such person to be
named in the proxy statement as a nominee
<PAGE>
and to serve as a director if elected and (f) a description of all arrangements
or understandings between such stockholder and each nominee and any other
person or persons (naming such person or persons) pursuant to which the
nomination or nominations are to be made by such stockholder.
Any person nominated for election as director by the Board of
Directors or any committee designated by the Board of Directors shall, upon the
request of the Board of Directors or such committee, furnish to the Secretary
of the Corporation all such information pertaining to such person that is
required to be set forth in a stockholder's notice of nomination.
Notwithstanding the foregoing provisions of this Section 6, a
stockholder who seeks to have any proposal included in the Corporation's proxy
statement shall comply with the requirements of Regulation 14A under the
Securities Exchange Act of 1934, as amended.
Section 7. Voting. Except as otherwise provided by law or by the
------
Certificate of Incorporation, all matters submitted to a meeting of
stockholders shall be decided by vote of the holders of record, present in
person or by proxy, of a majority of the Corporation's stock issued and
outstanding and entitled to vote.
A proxy shall be executed in writing by the stockholder or by his
duly authorized attorney-in-fact and shall be delivered to the secretary of the
meeting at or prior to the time designated by the chairman of the meeting. No
stockholder may designate more than four persons to act on his behalf at a
meeting of stockholders.
Section 8. Inspectors of Election. Prior to any meeting of
----------------------
stockholders, the Board of Directors shall appoint one or more inspectors to
act at the meeting and make a written report thereof in accordance with the
Delaware General Corporation Law. The Board of Directors may designate one or
more persons as alternate inspectors to replace any inspector who fails to act.
Each inspector, before entering upon the discharge of his duties, shall take
and sign an oath to execute faithfully the duties of inspector with strict
impartiality and according to the best of his ability.
<PAGE>
ARTICLE II
DIRECTORS
---------
Section 1. Number, Election and Removal of Directors. The number
-----------------------------------------
of Directors that shall constitute the Board of Directors shall be not less
than one nor more than seventeen. The first Board of Directors shall consist
of three Directors. Thereafter, within the limits specified above, the number
of Directors shall be determined by the Board of Directors or by the
stockholders. The Directors shall be elected by the stockholders at their
annual meeting and shall serve until the next annual meeting of stockholders
and until their successors are elected and shall qualify. Vacancies and newly
created directorships resulting from any increase in the number of Directors
may be filled by a majority of the Directors then in office, although less than
a quorum, or by the sole remaining Director or by the stockholders, and any
Director so chosen shall serve until the next annual meeting of stockholders
and until his successor shall be elected and shall qualify. A Director may be
removed with or without cause by the stockholders.
Section 2. Meetings. Regular meetings of the Board of Directors
--------
shall be held at such times and places as may from time to time be fixed by the
Board of Directors or as may be specified in a notice of meeting. Special
meetings of the Board of Directors may be held at any time upon the call of the
Chairman and shall be called by the Chairman or the Secretary if directed by
the Board of Directors. A meeting of the Board of Directors may be held
without notice immediately after the annual meeting of stockholders. Notice
need not be given of regular or special meetings of the Board of Directors.
Section 3. Quorum. One-third of the total number of Directors
------
shall constitute a quorum for the transaction of business. If a quorum is not
present at any meeting of the Board of Directors, the Directors present may
adjourn the meeting from time to time, without notice other than announcement
at the meeting, until such a quorum is present. Except as otherwise provided
by law, the Certificate of Incorporation of the Corporation, these By-Laws or
any contract or agreement to which the Corporation is a party, the act of a
majority of the Directors present at any meeting at which there is a quorum
shall be the act of the Board of Directors.
<PAGE>
Section 4. Executive Committee. The Board of Directors, by
-------------------
resolution adopted by a majority of the entire Board, may appoint from among
its members an Executive Committee consisting of the Chairman and at least
three other Directors. Meetings of the Executive Committee shall be held
without notice at such dates, times and places as shall be determined by the
Executive Committee. The Executive Committee shall have and may exercise all
the powers and authority of the Board of Directors in the management of the
business and affairs of the Corporation that are permitted by law to be
exercised by a committee of the Board of Directors, including the power to
declare dividends, to authorize the issuance of stock and to adopt a
certificate of ownership and merger of parent corporation and subsidiary or
subsidiaries; provided, however, that the Executive Committee shall not have
the power or authority of the Board of Directors in reference to amending the
Certificate of Incorporation, adopting an agreement of merger or consolidation
with respect to the Corporation, recommending to the stockholders the sale,
lease or exchange of all or substantially all the Corporation's property and
assets, recommending to the stockholders a dissolution of the Corporation or a
revocation of a dissolution, amending the By-Laws of the Corporation or
adopting a certificate of ownership and merger of the Corporation (other than a
certificate of ownership and merger of parent corporation and subsidiary or
subsidiaries). The majority of the members of the Executive Committee shall
constitute a quorum. Minutes shall be kept of the proceedings of the Executive
Committee, which shall be reported at meetings of the Board of Directors. The
Executive Committee may, to the extent authorized in the resolution or
resolutions providing for the issuance of shares of stock adopted by the Board
of Directors of the Corporation, fix any of the preferences or rights of such
shares relating to dividends, redemption, dissolution, any distribution of
assets of the Corporation or the conversion into, or the exchange of such
shares for, shares of any other class or classes or any other series of the
same or any other class or classes of stock of the Corporation or fix the
number of shares of any series of stock or authorize the increase or decrease
of the shares of any series.
Section 5. Other Committees of Directors. The Board of Directors
-----------------------------
may, by resolution adopted by a majority of the Board of Directors, designate
one or more other committees to have and exercise such power and authority as
the Board of Directors shall specify. In the absence or disqualification of a
member of a committee, the member or members thereof present at any meeting and
not disqualified from voting, whether or not he or they constitute a quorum,
may unanimously appoint another Director to act at the meeting in place of any
such absent or disqualified member.
<PAGE>
ARTICLE III
OFFICERS
--------
Section 1. Description and Terms. The officers of the Corporation
---------------------
shall be the Chairman, who shall be the Chief Executive Officer of the Company,
a President, a Secretary, a Treasurer and such other additional officers with
such titles as the Board of Directors shall determine, all of whom shall be
chosen by and serve at the pleasure of the Board of Directors; provided that
the Chairman may appoint Senior Vice Presidents, Vice Presidents or Assistant
Officers at his discretion. Subject to such limitations as may be imposed by
the Board of Directors, the Chairman shall, acting singly have full executive
power and authority with respect to the Company. The President shall have all
the power and authority reserved to the office of President under Delaware Law
as well as such additional powers and authority as the Chairman may determine.
In addition, in the absence or incapacitation of the Chairman, the President
shall have all the power and authority of the Chairman. Other officers shall
have the usual powers and shall perform all the usual duties incident to their
respective offices. All officers shall be subject to the supervision and
direction of the Board of Directors. The authority, duties or responsibilities
of any officer of the Corporation may be suspended by the Chairman with or
without cause. Any officer elected or appointed by the Board of Directors may
be removed by the Board of Directors with or without cause. Subject to such
limitations as the Board of Directors may provide, each officer may further
delegate to any other officer or any employee or agent of the Corporation such
portions of their authority as the officer shall deem appropriate, subject to
such limitation as the officer shall specify, and may revoke such authority at
any time.
Section 2. Stockholder Consents and Proxies. The Chairman, the
--------------------------------
President, the Secretary and the Treasurer, or any one of them, shall have the
power and authority on behalf of the Corporation to execute any stockholders'
consents or proxies and to attend and act and vote in person or by proxy at any
meetings of stockholders of any corporation in which the Corporation may own
stock, and at any such meetings shall possess and may exercise any and all of
the rights and powers incident to the ownership of such stock which as the
owner thereof the Corporation might have possessed and executed if present.
The Board of Directors by resolution from time to time may confer like powers
upon any other officer.
<PAGE>
ARTICLE IV
INDEMNIFICATION
---------------
To the fullest extent permitted by the Delaware General Corporation
Law, the Corporation shall indemnify any current or former Director or officer
of the Corporation and may, at the discretion of the Board of Directors,
indemnify any current or former employee or agent of the Corporation against
all expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with any
threatened, pending or completed action, suit or proceeding brought by or in
the right of the Corporation or otherwise, to which he was or is a party or is
threatened to be made a party by reason of his current or former position with
the Corporation or by reason of the fact that he is or was serving, at the
request of the Corporation, as a director, officer, partner, trustee, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise.
ARTICLE V
GENERAL PROVISIONS
------------------
Section 1. Notices. Whenever any statute, the Certificate of
-------
Incorporation or these By-Laws require notice to be given to any Director or
stockholder, such notice to be given in writing by mail, addressed to such
Director or stockholder at his address as it appears on the records of the
Corporation, with postage thereon prepaid. Such notice shall be deemed to have
been given when it is deposited in the United States mail. Notice to Directors
may also be given by telegram or facsimile transmission or be delivered
personally or by telephone.
Section 2. Fiscal Year. The fiscal year of the Corporation shall
-----------
be fixed by the Board of Directors.
Section 3. Certificates of Stock. Certificates representing
---------------------
shares of the Corporation shall be signed by the Chairman and by the Secretary
or an Assistant Secretary. Any and all signatures on such certificates,
including signatures of officers, transfer agents and registrars, may be
facsimile.
RJR NABISCO, INC.
BY-LAWS
As Amended Effective January 20, 1994
ARTICLE I
MEETINGS OF STOCKHOLDERS
------------------------
Section 1. Place of Meetings. Meetings of the stockholders of the
------------------
Corporation shall be held at such place either within or without the State of
Delaware as the Board of Directors may determine.
Section 2. Annual and Special Meetings. Annual meetings of
----------------------------
stockholders shall be held, at a date, time and place fixed by the Board of
Directors and stated in the notice of meeting, to elect a Board of Directors
and to transact such other business as may properly come before the meeting.
Special meetings of the stockholders may be called by the Chairman for any
purpose and shall be called by the Chairman or the Secretary if directed by the
Board of Directors or requested in writing by the holders of not less than 25%
of the common stock of the Corporation. Each such stockholder request shall
state the purpose of the proposed meeting.
Section 3. Notice. Except as otherwise provided by law or by the
-------
Certificate of Incorporation, at least 10 and not more than 60 days before each
meeting of stockholders, written notice of the time, date and place of the
meeting, and, in the case of a special meeting, the purpose or purposes for
which the meeting is called, shall be given to each stockholder.
Section 4. Quorum. At any meeting of stockholders, the holders of
-------
record, present in person or by proxy, of a majority of the Corporation's
issued and outstanding common stock shall constitute a quorum for the
transaction of business, except as otherwise provided by law or by the
Certificate of Incorporation. In the absence of a quorum, any officer entitled
to preside at or to act as secretary of the meeting shall have power to adjourn
the meeting from time to time until a quorum is present.
<PAGE>
Section 5. Voting. Except as otherwise provided by law or by the
-------
Certificate of Incorporation, all matters submitted to a meeting of
stockholders shall be decided by vote of the holders of record, present in
person or by proxy, of a majority of the Corporation's issued and outstanding
common stock. The date and time of the opening and closing of the polls for
each matter upon which stockholders will vote shall be announced at the
meeting.
Section 6. Inspectors of Election. Prior to any meeting of the
-----------------------
stockholders, the Board of Directors shall appoint one or more inspectors to
act at the meeting and make a written report thereof in accordance with the
Delaware General Corporation Law. The Board of Directors may designate one or
more persons as alternate inspectors to replace any inspector who fails to act.
Each inspector, before entering upon the discharge of his duties, shall take
and sign an oath to execute faithfully the duties of inspector with strict
impartiality and according to the best of his ability.
ARTICLE II
DIRECTORS
---------
Section 1. Number, Election and Removal of Directors. The number
------------------------------------------
of Directors that shall constitute the Board of Directors shall be not less
than one nor more than seventeen. The first Board of Directors shall consist
of three Directors. Thereafter, within the limits specified above, the number
of Directors shall be determined by the Board of Directors or by the
stockholders. The Directors shall be elected by the stockholders at their
annual meeting and shall serve until the next annual meeting of the
stockholders and until their successors are elected and shall qualify.
Vacancies and newly created directorships resulting from any increase in the
number of Directors may be filled by a majority of the Directors then in
office, although less than a quorum, or by the sole remaining Director or by
the stockholders, and any Director so chosen shall serve until the next annual
meeting of the stockholders and until his successor shall be elected and shall
qualify. A Director may be removed with or without cause by the stockholders.
Section 2. Meetings. Regular meetings of the Board of Directors
---------
shall be held at such times and places as may from time to time be fixed by the
Board of Directors or as may be specified in a notice of meeting. Special
meetings of the Board of Directors may be held at any time upon the call of the
Chairman and shall be called by the Chairman or the Secretary if directed by
the Board of Directors. A meeting of the Board of Directors may be held
2
<PAGE>
without notice immediately after the annual meeting of the stockholders.
Notice need not be given of regular or special meetings of the Board of
Directors.
Section 3. Quorum. One-third of the total number of Directors
-------
shall constitute a quorum for the transaction of business. If a quorum is not
present at any meeting of the Board of Directors, the Directors present may
adjourn the meeting from time to time, without notice other than announcement
at the meeting, until such a quorum is present. Except as otherwise provided
by law, the Certificate of Incorporation of the Corporation, these By-Laws or
any contract or agreement to which the Corporation is a party, the act of a
majority of the Directors present at any meeting at which there is a quorum
shall be the act of the Board of Directors.
Section 4. Executive Committee. The Board of Directors, by
--------------------
resolution adopted by a majority of the entire Board, may appoint from among
its members an Executive Committee consisting of the Chairman and at least
three other Directors. Meetings of the Executive Committee shall be held
without notice as such dates, times and places as shall be determined by the
Executive Committee. The Executive Committee shall have and may exercise all
the powers and authority of the Board of Directors in the management of the
business and affairs of the Corporation that are permitted by law to be
exercised by a committee of the Board of Directors, including the power to
declare dividends, to authorize the issuance of stock and to adopt a
certificate of ownership and merger of parent corporation and subsidiary or
subsidiaries; provided, however, that the Executive Committee shall not have
the power or authority of the Board of Directors in reference to amending the
Certificate of Incorporation, adopting an agreement of merger or consolidation
with respect to the Corporation, recommending to the stockholders the sale,
lease or exchange of all or substantially all of the Corporation's property and
assets, recommending to the stockholders a dissolution of the Corporation or a
revocation of a dissolution, amending the By-Laws of the Corporation or
adopting a certificate of ownership and merger of the Corporation (other than a
certificate of ownership and merger of parent corporation and subsidiary or
subsidiaries). The majority of the members of the Executive Committee shall
constitute a quorum. Minutes shall be kept of the proceedings of the Executive
Committee, which shall be reported at meetings of the Board of Directors. The
Executive Committee may, to the extent authorized in the resolution or
resolutions providing for the issuance of shares of stock adopted by the Board
of Directors of the Corporation, fix any of the preferences or rights of such
shares relating to dividends, redemption, dissolution, any distribution of
assets of the Corporation or the conversion into, or the exchange of such
shares for, shares of any other class or classes or any other series of the
same or any other class or classes of stock of the Corporation or fix the
3
<PAGE>
number of shares of any series of stock or authorized the increase or decrease
of the shares of any series.
Section 5. Other Committees of Directors. The Board of Directors
------------------------------
may, by resolution adopted by a majority of the Board of Directors, designate
one or more other committees to have and exercise such power and authority as
the Board of Directors shall specify. In the absence or disqualification of a
member of a committee, the member or members thereof present at any meeting and
not disqualified from voting, whether or not he or they constitute a quorum,
may unanimously appoint another Director to act at the meeting in place of any
such absent or disqualified member.
ARTICLE III
OFFICERS
--------
Section 1. Description and Terms. The officers of the Corporation
---------------------
shall be the Chairman, who shall be the Chief Executive Officer of the Company,
a President, a Secretary, a Treasurer and other such additional officers with
such titles as the Board of Directors shall determine, all of whom shall be
chosen by and serve at the pleasure of the Board; provided that the Chairman
may appoint Senior Vice Presidents, Vice Presidents or Assistant officers at
his discretion. Subject to such limitations as may be imposed by the Board of
Directors, the Chairman has full executive power and authority with respect to
the Company. The President shall have all of the power and authority reserved
to the office of President under Delaware Law as well as such additional powers
and authority as the Chairman may determine. In addition, in the absence or
incapacitation of the Chairman, the President shall have all the power and
authority of the Chairman. Other officers shall have the usual powers and
shall perform all the usual duties incident to their respective offices. All
officers shall be subject to the supervision and direction of the Board of
Directors. The authority, duties or responsibilities of any officer of the
Corporation may be suspended by the Chairman with or without cause. Any
officer elected or appointed by the Board of Directors may be removed by the
Board of Directors with or without cause. Subject to such limitations as the
Board of Directors may provide, each officer may further delegate to any other
officer or any employee or agent of the Corporation such portions of his
authority as the officer shall deem appropriate, subject to such limitation as
the officer shall specify, and may revoke such authority at any time.
Section 2. Stockholder Consents and Proxies. The Chairman, the
---------------------------------
President, the Treasurer and the Secretary, or any one of them, shall have the
4
<PAGE>
power and authority on behalf of the Corporation to execute any stockholders'
consents or proxies and to attend and act and vote in person or by proxy at any
meetings of the stockholders of any corporation in which the Corporation may
own stock, and at any such meetings shall possess and may exercise any and all
of the rights and powers incident to the ownership of such stock which as the
owner thereof the Corporation might have possessed and executed if present.
The Board of Directors, by resolutions from time to time, may confer like
powers upon any other officer.
ARTICLE IV
INDEMNIFICATION
---------------
To the fullest extent permitted by the Delaware General Corporation
Law, the Corporation shall indemnify any current or former Director or officer
of the Corporation and may, at the discretion of the Board of Directors,
indemnify any current or former employee or agent of the Corporation against
all expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with any
threatened, pending or completed action, suit or proceeding brought by or in
the right of the Corporation or otherwise, to which he was or is a party or is
threatened to be made a party by reason of his current or former position with
the Corporation or by reason of the fact that he is or was serving, at the
request of the Corporation, as a director, officer, partner, trustee, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise.
ARTICLE V
GENERAL PROVISIONS
------------------
Section 1. Notices. Whenever any statute, the Certificate of
--------
Incorporation or these By-Laws require notice to be given to any Director or
stockholder, such notices may be given in writing by mail, addressed to such
Director or stockholder at his address as it appears on the records of the
Corporation, with postage thereon prepaid. Such notice shall be deemed to have
been given when it is deposited in the United States mail. Notice to Directors
may also be given by telegram or facsimile transmission or be delivered
personally or by telephone.
Section 2. Fiscal Year. The fiscal year of the Corporation shall
------------
be fixed by the Board of Directors.
5
FOURTH AMENDMENT TO THE
RJR NABISCO, INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
WHEREAS, RJR Nabisco, Inc. has in effect the RJR Nabisco,
Inc. Supplemental Executive Retirement Plan ("Plan"); and
WHEREAS, in accordance with resolutions authorized by the
RJR Employee Benefits Committee on April 20, 1993,
---------
this Amendment has been authorized and adopted; and
WHEREAS, the Compensation Committee on August 9, 1989
delegated the authority to amend employee plans to the RJR
Employee Benefits committee; and
WHEREAS, the amendments herein do not violate the
prohibitions of section 11(g) of the Plan;
NOW, THEREFORE, the Plan is hereby amended January 1,
1991, unless otherwise specified herein, as follows:
1.
Effective January 1, 1993, Section 2.3 of the Plan is
hereby amended in its entirety to read as follows:
"2.3. Final Average Compensation means the Participating
--------------------------
Executive's average annual compensation determined in the
same manner as "final Average Earnings" is determined under
the Retirement Plan for Employees of RJR Nabisco, Inc.;
except that the limitations of Internal Revenue Code Section
401(a)(17) shall not be imposed."
2.
Section 2.8 of the Plan is hereby amended by replacing
the reference therein to "the Organization, Compensation and
Nominating Committee" with "the Compensation Committee."
3.
Section 2.14 of the Plan is hereby amended to read as
follows:
"2.14 Participating Company means Nabisco, Inc.,
---------------------
Nabisco International, Inc., R. J. Reynolds Tobacco
Company, R. J. Reynolds Tobacco International, Inc., and
any other Affiliated Company which is designated by the
Chief Executive Officer as a Participating Company in
this Plan."
<PAGE>
4.
Section 2.19 of the Plan is hereby amended to correct the
reference in the last sentence thereof from "Final Average
Coverage Compensation" to "Final Average Covered
Compensation."
5.
Effective April 1, 1991, Section 3(a) is hereby amended
by changing the reference therein from "salary grade 23 or
higher" to "salary level D or higher."
6.
Section 5 of the Plan is hereby amended by clarifying the
reference to "Section 4" in the first sentence thereof so
that it reads "Section 4(a), (b), or (c)."
7.
Section 6 of the Plan is hereby amended by changing the
first sentence thereof to read as follows:
"A Participating Executive whose retirement is
postponed beyond his Normal Retirement Age with the
written consent of the Chief Executive Officer (or in the
case of the Chief Executive Officer, the Committee), may
not commence to receive an Executive Plan Benefit until
the first day of the month next following his actual
retirement date."
END OF AMENDMENT
Name of the Optionee: Number of Shares for Which
Option may be Exercised:
Charles M. Harper 750,000
Grant Date: December 31, 1993
RJR NABISCO HOLDINGS CORP.
1990 LONG TERM INCENTIVE PLAN
NON-QUALIFIED STOCK OPTION AGREEMENT
WITNESSETH:
ARTICLE I
GRANT OF OPTION
SECTION 1.1 Grant of Option.
----------------
Pursuant to the provisions of the RJR Nabisco Holdings Corp.
1990 Long Term Incentive Plan (the "Plan"), and for good and valuable
consideration, on and as of the date hereof (the "Grant date") RJR Nabisco
Holdings Corp. ("Holdings"), in consideration of Optionee's agreement to
purchase the Purchased Stock set forth in the Employment Agreement dated May
27, 1993 by and among Holdings, RJR Nabisco, Inc. and the Optionee (the
"Employment Agreement"), irrevocably grants (the "Grant") to the Optionee above
named the option to purchase any part or all of an aggregate of the number of
shares set forth on the first page hereof of its Common Stock upon the terms
and conditions set forth in this Agreement and has directed the undersigned
officer to execute this Agreement. A copy of the Plan is attached hereto as
Exhibit A and made a part of this Agreement with the same effect as if set
forth in the Agreement itself. A copy of the Employment Agreement is attached
hereto as Exhibit B and made a part of this Agreement with the same effect as
if set forth in the Agreement itself. All capitalized terms used below shall
have the meaning set forth in the Plan or the Employment Agreement, as the case
may be, unless the context requires a different meaning.
SECTION 1.2 Exercise Price.
--------------
The exercise price of the shares of Common Stock covered by
the Option shall be $6.563 per share without commission or other charge.
<PAGE>
SECTION 1.3 Consideration to Holdings.
-------------------------
In consideration of the granting of this Option by Holdings,
the Optionee agrees to render faithful and efficient services to the
Corporation, with such duties and responsibilities the Corporation shall from
time to time prescribe, consistent with the terms of the Employment Agreement.
Nothing in this Agreement or in the Plan shall confer upon the Optionee any
right to continue in the employ of the Corporation or shall interfere with or
restrict in any way the rights of the Corporation, which are hereby expressly
reserved, to terminate the employment of the Optionee at any time for any
reason whatsoever, with or without cause, subject to the terms of the
Employment Agreement.
SECTION 1.4 Adjustments in Option.
----------------------
Subject to Section 8 of the Plan, in the event that the
outstanding shares of the Common Stock subject to the Option are, from time to
time, changes into or exchanged for a different number or kind of shares of
Holdings or other securities of Holdings or another corporation by reason of a
merger, consideration, recapitalization, reclassification, stock split, stock
dividend, combination of shares, or otherwise, or in the event of an
extraordinary transaction involving the Holdings capital stock or assets or the
capital stock or assets of an affiliated corporation, an appropriate and
equitable adjustment shall be made in the number and kind of shares or other
consideration as to which the option, or portions thereof then unexercised,
shall be exercisable.
ARTICLE II
PERIOD OF EXERCISABILITY
SECTION 2.1 Commencement of Exercisability.
-------------------------------
The Option shall become exercisable as follows:
Percentage of Total Shares As
Date Option Becomes Exercisable to Which Option is Exercisable
- ------------------------------- ------------------------------
Grant Date through May 30, 1994 0%
May 31, 1994 - May 30, 1995 25%
May 31, 1995 - May 30, 1996 50%
May 31, 1996 - May 30, 1997 75%
May 31, 1997 - thereafter 100%
<PAGE>
(a) Notwithstanding the foregoing, the Option shall immediately
become exercisable as to all shares following the termination
of employment of the Optionee for any reason other than a
termination of employment by Holdings for Cause or a
termination of employment by executive without Good Reason.
(b) The Optionee shall be deemed to have a "Permanent Disability"
if he becomes totally and permanently disable (as defined in
the Company's Long Term Disability Plan applicable to senior
executive officers as in effect on the date hereof), or if the
Board of Directors or any committee thereof so determines.
(c) "Retirement" shall mean retirement on or after May 31, 1997,
or earlier with the consent of the Committee.
(d) "Termination of employment" as used herein means termination
from active employment; it does not mean termination of
payment or benefits at the end of salary continuation or other
form of severance or pay in lieu of salary.
SECTION 2.2 Expiration of Option.
---------------------
The option may not be exercised to any extent by Optionee and
shall expire or terminate after the first to occur to the following events:
(a) The fifteenth anniversary of the Grant date; or
(b) The first anniversary of the date of the Optionee's
termination of employment for any reason, other than by reason of Retirement or
for Cause; or
(c) The third anniversary of the date of Optionee's termination of
employment by reason of Retirement or Permanent Disability.
(d) Immediately upon the Optionee's termination of employment for
Cause; or
(e) If applicable, the date the Option is terminated pursuant to
the Employment Agreement.
<PAGE>
ARTICLE III
EXERCISE OF OPTION
SECTION 31.1 Person Eligible to Exercise.
----------------------------
During the lifetime of the Optionee, only the Optionee may
exercise the Option or any portion thereof. After the death of the Optionee,
any exercisable portion of the Option may, prior to the time when the option
becomes unexercisable and expires under Section 2.2, be exercised by his
personal representative or by any person empowered to do so under the
Optionee's will or under the then applicable laws of descent and distribution.
SECTION 3.2 Partial Exercise.
-----------------
Any exercisable portion of the option or the entire Option, if
then wholly exercisable, may be exercised in whole or in part at any time prior
to the time when the Option or portion thereof becomes unexercisable and
expires under Section 2.2; provided, however, that any partial exercise shall
be for whole shares only.
SECTION 3.3 Manner of Exercise.
-------------------
The Option, or any exercisable portion thereof, may be
exercised solely by delivering to the Corporate Secretary of Holdings (the
"Secretary") or his office all of the following prior to the time when the
Option or such portion becomes unexercisable under Section 2.2:
(a) Notice in writing signed by the Optionee or the other person
then entitled to exercise the Option or portion thereof, stating that the
Option or portion thereof is thereby exercised, such notice complying with all
applicable rules established by the Committee;
(b) Full payment by;
(i) tender to Holdings of cash for the full purchase price of
the shares with respect to which such Option or portion
thereof is exercised;
(ii) The unsecured, demand borrowing by Optionee from Holdings
on an open account maintained solely for this purpose in
the amount of the full exercise price together with the
instruction from Optionee to sell the shares exercised on
the open market through a duly registered broker-dealer
with which Holdings makes an arrangement for the sale of
such shares under the Plan. This method is known as the
"broker-dealer exercise method" and is subject to the
terms and conditions set forth herein, in the Plan and in
guidelines established by the Committee. The option
shall be deemed to be
<PAGE>
exercised simultaneously with the sale of the shares by
the broker-dealer. If the shares purchased upon the
exercise of an Option or a portion thereof cannot be sold
for a price equal to or greater than the full exercise
price plus direct costs of the sales, then there is no
exercise of the Option. Election of this method
authorizes Holdings to deliver shares to the broker-
dealer and authorizes the broker-dealer to sell said
shares on the open market. The broker-dealer will remit
proceeds of the sale to Holdings which will remit net
proceeds of the sale to Holdings which will remit net
proceeds to Optionee after repayment of the borrowing,
deduction of costs, if any, and withholding of taxes.
Optionee's borrowing from Holdings on an open account
shall be a personal obligation of Optionee which shall
bear interest at the published Applicable Federal Rate
(AFR) for short-term loans and shall be payable upon
demand by Holdings. Such borrowing may be authorized by
telephone or other telecommunications acceptable to
Holdings. Upon such borrowing and the exercise of the
Option or portion thereof, title to the shares shall pass
to the Optionee whose election hereunder shall constitute
instruction to Holdings to register the shares in the
name of the broker-dealer or its nominee. Holdings
reserves the right to discontinue this broker-dealer
exercise method at any time for any reason whatsoever.
Optionee agrees that if this broker-dealer exercise
method under this Paragraph 3.3(b)(ii) hereof is used,
Optionee promises unconditionally to pay Holdings the
full balance in his open account at any time upon demand.
Optionee also agrees to pay interest on the account
balance at the AFR for short-term loans from and after
demand.
(c) Full payment to Holdings of all amounts which, under federal,
state or local law, it is required to withhold upon exercise of the Option; and
(d) In the event the Option or portion thereof shall be exercised
pursuant to Section 3.1 by any person or persons other than the Optionee,
appropriate proof of the right of such person or persons to exercise the
Option.
(e) This Option shall not be exercisable prior to six months after
the Date of Grant.
<PAGE>
SECTION 3.4 Conditions of Issuance of Stock Certificates.
---------------------------------------------
The shares of Common Stock deliverable upon the exercise of
the Option, or any portion thereof, may be either previously authorized but
unissued shares or issued shares which have then been reacquired by Holdings.
Such shares shall be duly and validly issued, fully paid and nonassessable.
Holdings shall not be required to issue or deliver any certificate or
certificates for shares of stock purchased upon the exercise of the Option or
portion thereof prior to fulfillment of all of the following conditions:
(a) The admission of such shares to listing on all stock exchanges
on which such class of Common Stock is then listed; and
(b) The completion of any registration or other qualification of
such shares under any state or federal law or under rulings or regulations of
the Securities and Exchange Commission or of any other governmental regulatory
body, which the Committee shall deem necessary; and
(c) The obtaining of approval or other clearance from any state of
federal governmental agency which the Committee shall determine to be
necessary; and
(d) The payment to Holdings of all amounts which, under federal,
state or local law, it is required to withhold upon exercise of the Option; and
(e) The lapse of such reasonable period of time following the
exercise of the Option as the Committee may from time to time establish for
reasons of administrative convenience.
SECTION 3.5 Rights as Stockholder.
----------------------
The holder of the Option shall not be, nor have any of the
rights or privileges of, a stockholder of Holdings in respect of any shares
purchasable upon the exercise of the Option or any portion thereof unless and
until certificates representing such shares shall have been issued by Holdings
to such holder.
ARTICLE IV
MISCELLANEOUS
SECTION 4.1 Administration.
---------------
The Committee shall have the power to interpret the Plan and
this Agreement and to adopt such rules for the administration, interpretation
and application of the Plan as are consistent therewith and to interpret or
revoke any such rules. All actions taken and all interpretations and
determinations made by the Committee shall be final and binding upon the
<PAGE>
Optionee, Holdings and all other interested persons, subject to the terms of
the Employment Agreement. No member of the Committee shall be personally
liable for any action, determination or interpretation made in good faith with
respect to the Plan or this Agreement. In its absolute discretion, the Board
may at any time and from time to time exercise any and all rights and duties of
the Committee under the Plan and this Agreement.
SECTION 4.2 Option Not Transferable.
------------------------
Neither the Option nor any interest or right therein or part
thereof shall be liable for the debts, contracts or obligations of the Optionee
or his successors in interest or shall be subject to disposition by transfer,
alienation, anticipation, pledge, encumbrance, assignment or any other means
whether such disposition be voluntary or involuntary or by operation of law by
judgment, levy, attachment, garnishment or any other legal or equitable
proceedings (including bankruptcy), and any attempted disposition thereof shall
be null and void and of no effect; provided, however, that this Section 4.2
shall not prevent transfers by will or by, the applicable laws of descent and
distribution.
SECTION 4.3 Shares to Be reserved; Other Covenants.
---------------------------------------
.1 Holdings shall at all times during the term of the Option
reserve and keep available such number of shares of Common Stock as will be
sufficient to satisfy the requirements of this Agreement; and
.2 Holdings shall take all actions necessary to satisfy the
conditions set forth in clauses (a), (b) and (c) of Section 3.4 hereof so that
such conditions shall remain satisfied so long as any of the Options remain
outstanding.
SECTION 4.4 Notices.
--------
Any notice to be given under the terms of this Agreement to
Holdings shall be addressed to Holdings in care of its Secretary, and any
notice to be given to the Optionee shall be addressed to him at the address
appearing beneath his signature on the final page of this Agreement. By a
notice given pursuant to this Section 4.4, either party may hereafter designate
different address for notices to be given to him. Any notice which is required
to be given to the Optionee shall, if the Optionee is then deceased, be given
to the Optionee's personal representative if such representative has previously
informed Holdings of his status and address by written notice under this
Section 4.4. Any notice shall have been deemed duly given when enclosed in a
properly sealed envelope addressed as aforesaid, deposited (with postage
prepaid) in a post office or branch post office regularly maintained by the
United States Postal Service.
<PAGE>
SECTION 4.5 Termination for Cause.
----------------------
For purposes of this Agreement, an Optionee's employment shall
be deemed to have been terminated for "Cause" only as such term is defined in
the Employment Agreement.
SECTION 4.6 Titles.
-------
Titles are provided herein for convenience only and are not to
serve as a basis for interpretation or construction of this Agreement.
SECTION 4.7 Applicability of Plan and the Employment
----------------------------------------
Agreement.
- ----------
The Option and the shares of Common Stock issued to the
Optionee upon exercise of this Option shall be subject to all of the terms and
provisions of the Plan and the Employment Agreement, to the extent applicable
to this Option and such shares. In the event of any conflict between the Plan,
this Agreement and/or the Employment Agreement, the terms of the Employment
Agreement shall control. Notwithstanding anything to the contrary contained
herein, this Agreement shall be null and void and of no effect unless the
Optionee has purchased the Purchased Stock pursuant to the Employment
Agreement, unless such purchase is not consummated for reasons beyond the
control of Optionee.
SECTION 4.8 Amendment.
----------
This Agreement may be amended only by a writing executed by
the parties hereto which specifically states that it is amending this
Agreement.
SECTION 4.9 Pronouns.
---------
The masculine pronoun shall include the feminine and neuter,
and the singular the plural, where the context so indicates.
SECTION 4.10 GOVERNING LAW.
--------------
THE LAWS OF THE STATE OF DELAWARE SHALL GOVERN THE
INTERPRETATION, VALIDITY AND PERFORMANCE OF THE TERMS OF THIS AGREEMENT
REGARDLESS OF THE LAW THAT MIGHT BE APPLIED UNDER PRINCIPLES OF CONFLICTS OF
LAWS.
SECTION 4.11 Jurisdiction.
-------------
Any suit, action or proceeding against the Optionee with
respect to this Agreement, or any judgment entered by any court in respect of
any thereof, may be brought in any court of competent jurisdiction in the State
of Delaware or New York, as "Holdings may elect in its sole discretion, and the
<PAGE>
Optionee hereby submits to the non-exclusive jurisdiction of such courts for
the purpose of any such suit, action, proceeding or judgment. By the execution
and delivery of this Agreement, the Optionee appoints The Prentice-Hall
Corporation at its office at 15 Columbus Circle, New York, NY 10023-7773 as
his agent upon which process may be served in any such suit, action or
proceeding. Service of process upon such agent, together with notice of such
service given to the Optionee in the manner provided in section 4.4, hereof,
shall be deemed in every respect effective service of process upon him in any
suit, action or proceeding. Nothing herein shall in any way be deemed to limit
the ability of Holdings to serve any such writs, process or summonses in any
other manner permitted by applicable law or to obtain jurisdiction over the
Optionee, in such other manner permitted by applicable law or to obtain
jurisdiction over the Optionee, in such other jurisdictions, and in such
manner, as may be permitted by applicable law. The Optionee hereby irrevocably
waives any objections which he may now or hereafter have to the laying of the
venue of any suit, action or proceeding arising out of or relating to this
Agreement brought in any court of competent jurisdiction in the State of
Delaware or New York, and hereby further irrevocably waives any claim that any
such suit, action or proceeding brought in any such court has been brought in
any inconvenient forum. Holdings hereby submits to the jurisdiction of such
courts for the purpose of any such suit, action or proceeding.
SECTION 4.12 Taxes.
------
Any taxes required by federal, state, or local laws to be
withheld by the Company (i) on exercise by the Optionee of the Option for
Common Stock, or (ii) at the time an election, if any, is made by the Optionee
pursuant to Section 83(b) of the internal Revenue Code, as amended, shall be
paid to the Company before delivery of the Common Stock is made to the
Optionee. When the Option is exercised under the broker-dealer exercise
method, the full amount of any taxes required to be withheld by the Company on
exercise of stock options shall be deducted by the Company from the proceeds.
SECTION 4.13 Signatures.
-----------
This Agreement may be executed by Holdings by manual or
facsimile signature of any duly authorized officer of Holdings.
SECTION 4.14 Counterparts.
-------------
This Agreement may be executed in two or more counterparts.
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed and
delivered by the parties hereto.
RJR NABISCO HOLDINGS, CORP.
By_________________________________
_____________________________
Charles M. Harper
Optionee's Taxpayer Identification Number:
_____________________________
Optionee's Address:
Suite 1500
One Central Park Plaza
Omaha, Nebraska 68102
Dated:
RJR NABISCO
Date: January 20, 1994
To: L. R. Ricciardi
From: C. M. Harper
Subject: Spousal SERP Benefit
This is to follow up our conversation the other day concerning the SERP benefit
that your spouse would receive if you were to die while employed by the Company
after August 14, 1995, the date upon which you may first retire with CEO
consent (as previously given to you). During our discussion, you correctly
pointed out that if you were to die while employed by the Company after August
14, 1995, your spouse would receive a SERP benefit roughly one-half the size of
the benefit that you would have received had you retired on August 14, 1995.
Thus, you might be compelled to retire on that date in order to secure the
higher SERP benefit, and this may be contrary to the desires of both the
Company and you that you continue working for the Company.
In order to remove this potential obstacle to your continued service with the
Company beyond August 14, 1995, I have been authorized by the Compensation
Committee of the Board to confirm to you that if you should die while employed
by the Company after that date, your spouse will receive the same lump-sum SERP
benefit that you would have received had you retired rather than dies on the
date of your death. Of course, the lump sum could be used by your spouse to
purchase an immediate annuity if she so elects. This benefit will be grossed-
up for taxes as your benefit would have been had you retired.
Larry, I trust this addresses the concerns you expressed regarding your SERP
benefit. If you concur, please sign this memo next to your printed name above,
thereby constituting this as an Agreement between you and the Company.
AMENDMENT AND EXCHANGE
OF
SECURED PROMISSORY NOTE
The undersigned promises to pay the currently outstanding balance
under previously executed Secured Promissory Notes to RJR Nabisco Holdings
Corp. pursuant to the terms of any and all such Notes, except that interest on
the unpaid balance of all indebtedness shall accrue from July 1, 1993 at the
applicable Federal rate (6.37%).
________________________
Employee
________________________
Printed Name
Date: July 1, 1993
--------------------
As an incentive to Employee's continued employment with the Company or an
affiliate thereof, and as the holder of the above referenced promissory notes,
the Company agrees to the above amendment; and further agrees that partial
sales of Stock pledged under the Notes will be applied to pay the loan balance
without accelerating that date upon which the entire loan balance becomes due
and payable; provided, however, until the principal amount and accrued interest
on the Loan are repaid in full, such stock shall only be sold by the Company,
acting on behalf of Employee, for the purpose of repaying the loan balance.
RJR Nabisco Holdings Corp.
By:______________________
Date: July 1, 1993
--------------------
Option
1991/1992 LTIP Amend.
I
RJR NABISCO HOLDINGS CORP.
1990 LONG TERM INCENTIVE PLAN
RESTATED
STOCK OPTION AGREEMENT
___________________________
W I T N E S S E T H :
1. Restated Option.
---------------
Pursuant to the provisions of the 1990 Long Term Incentive Plan
(the "Plan"), RJR Nabisco Holdings Corp. (the "Company") on the Grant Date, or
Dates, as applicable, listed in Attachment 1 hereto has previously granted to
FIRSTNAME LASTNAME (the "Optionee")
the right and option to exercise from the Company a number of shares of Common
Stock of the Company at the exercise price, or prices, as applicable, as listed
in Attachment 1. This restatement amends the vesting and exercisability
provisions of the prior Stock Option Agreement, or Agreements, as applicable,
(the "Prior Agreements"), but it does not alter the original Grant Dates or
Grant Prices of the Prior Agreements listed in Attachment 1 which dates and
prices shall remain in effect now as then. A copy of the Plan is made a part
of this restated Agreement with the same effect as if set forth in the
Agreement itself. All capitalized terms used herein shall have the meaning set
forth in the Plan, unless the context requires a different meaning. Except as
specifically set forth herein, the Prior Agreements are null and void.
2. Exercise of Option.
-------------------
(a) Shares may be purchased by giving the Corporate Secretary of
the Company written notice of exercise, on a form prescribed by the Company,
specifying the number of shares to be purchased. The notice of exercise shall
be accompanied by:
(i) tender to the Company of cash for the full purchase price of
the shares with respect to which such Option or portion
thereof is exercised; or
--
<PAGE>
(ii) the unsecured, demand borrowing by the Optionee from the
Company on an open account maintained solely for this purpose
in the amount of the full
exercise price together with the instruction from the Optionee
to sell the shares exercised on the open market through a duly
registered broker-dealer with which the Company makes an
arrangement for the sale of such shares under the Plan. This
method is known as the "broker-dealer exercise method" and is
subject to the terms and conditions set forth herein, in the
Plan and in guidelines established by the Committee. The
Option shall be deemed to be exercised simultaneously with the
sale of the shares by the broker-dealer. If the shares
purchased upon the exercise of an Option or a portion thereof
cannot be sold for a price equal to or greater than the full
exercise price plus direct costs of the sales, then there is
no exercise of the Option. Election of this method authorizes
the Company to deliver shares to the broker-dealer and
authorizes the broker-dealer to sell said shares on the open
market. The broker-dealer will remit proceeds of the sale to
the Company which will remit net proceeds to the Optionee
after repayment of the borrowing, deduction of costs, if any,
and withholding of taxes. The Optionee's borrowing from the
Company on an open account shall be a personal obligation of
the Optionee which shall bear interest at the published
Applicable Federal Rate (AFR) for short-term loans and shall
be payable upon demand by the Company. Such borrowing may be
authorized by telephone or other telecommunications acceptable
to the Company. Upon such borrowing and the exercise of the
Option or portion thereof, title to the shares shall pass to
the Optionee whose election hereunder shall constitute
instruction to the Company to register the shares in the name
of the broker-dealer or its nominee. The Company reserves the
right to discontinue this broker-dealer exercise method at any
time for any reason whatsoever. The Optionee agrees that if
this broker-dealer exercise method under this paragraph is
used, the Optionee promises unconditionally to pay the Company
the full balance in his open account at any time upon demand.
Optionee also agrees to pay interest on the account balance at
the AFR for short-term loans from and after demand.
(b) The Option, or Options, as applicable, listed in Attachment 1
shall be, or become, exercisable as follows:
Percentage of shares
Date Option(s) Become(s) Exercisable As to which Option(s) Exercisable
- ------------------------------------ ---------------------------------
On or after January 1, 1993 As stated in the Prior Agreements
On or after December 31, 1993 33% of Total number listed in
-----
Attachment 1
On or after December 31, 1994 66% of Total number listed in
-----
Attachment 1
On or after December 31, 1995 100% of Total number listed in
------
Attachment 1
Attachment 1 shall only be valid if the signature of a authorized signatory of
the Company is affixed thereto.
-2-
<PAGE>
To the extent that any of the above installments is not exercised
when it becomes exercisable, it shall be not expire, but shall continue to be
exercisable at any time thereafter until the Option(s) shall terminate, expire
or be surrendered. An exercise shall be for whole shares only.
(c) The Option(s) are not exercisable prior to six months after
the Date of Grant.
3. Rights in Event of Termination of Employment.
---------------------------------------------
(a) Unless otherwise provided in a written employment or
termination agreement between the Optionee and the Company,
the Option shall not become exercisable as to any additional
shares following the Termination of Employment of the Optionee
for any reason other than a Termination of Employment because
of death, Permanent Disability or Retirement of the Optionee.
In the event of Termination of Employment because of death,
Permanent Disability or Retirement, the Option shall
immediately become exercisable as to all shares.
(b) The Optionee shall be deemed to have a "Permanent Disability"
if he becomes totally and permanently disabled (as defined in
RJR Nabisco, Inc's Long Term Disability Plan applicable to
senior executive officers as in effect on the date hereof), or
if the Board of Directors or any committee thereof so
determines.
(c) "Retirement" as used herein means retirement at age 65 or
over, or early retirement at age 55 or over with the approval
of the Company, which approval may either be specific to the
Option(s) hereunder or a general approval in writing from the
Chief Executive Officer of the Company to retire at or after
age 55.
(d) "Termination of Employment" as used herein means termination
from active employment; it does not mean termination of
payment or benefits at the end of salary continuation or
(other form of severance or pay in lieu of salary).
4. Expiration of Option. The Option shall expire or terminate and
----------------------
may not be exercised to any extent by the Optionee after the first to occur of
the following events:
(a) The fifteenth anniversary of the Date of Grant, or such
earlier time as the Company may determine is necessary or appropriate in light
of applicable foreign tax laws; or
(b) The third anniversary of the date of the Optionee's
Termination of Employment by reason of death, Permanent Disability or
Retirement; or
-3-
<PAGE>
(c) Immediately upon the Optionee's Termination of Employment for
Cause (as defined in Section 11 herein); or
(d) Ninety days after Termination of Employment of the Optionee
for a reason other than for Cause, death, Permanent Disability or Retirement;
provided, however, there shall be no exercise prior to December 31, 1993, and
if Termination of Employment occurs prior to December 31, 1993, the option
shall expire March 31, 1994.
5. Transferability. Other than as specifically provided with
---------------
regard to the death of the Optionee, this option agreement and any benefit
provided or accruing hereunder shall not be subject in any manner to
anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, or
charge; and any attempt to do so shall be void. No such benefit shall, prior
to receipt thereof by the Optionee, be in any manner liable for or subject to
the debts, contracts, liabilities, engagements or torts of the Optionee.
6. No Right to Employment. Neither the execution and delivery of
----------------------
this agreement nor the granting of the Option evidenced by this agreement shall
constitute or be evidence of any agreement or understanding, express or
implied, on the part of the Company or its subsidiaries to employ the Optionee
for any specific period or shall prevent the Company or its subsidiaries from
terminating the Optionee's employment at any time with or without "Cause" (as
defined in Section 11 herein).
7. Adjustments in Option.
---------------------
a) In the event that the outstanding shares of the Common
Stock subject to the Option are, from time to time, changed into or exchanged
for a different number or kind of shares of the Company or other securities by
reason of a merger, consolidation, recapitalization, reclassification, stock
split, stock dividend, combination or division of shares, or otherwise, the
Committee shall make an appropriate and equitable adjustment in the number and
kind of shares or other consideration as to which the Option, or portions
thereof then unexercised, shall be exercisable. Any adjustment made by the
Committee shall be final and binding upon the Optionee, the Company and all
other interested persons.
b) In its absolute discretion, and on such terms and
conditions as it deems appropriate, coincident with or after the grant of any
Option, the Committee may provide that such Option cannot be exercised after
the merger or consolidation of the Company with or into another corporation,
the exchange of all or substantially all of the assets of the Company for the
securities of another corporation, the acquisition by another person of 80% or
more of the Company's outstanding shares of voting stock or the
recapitalization, reclassification, liquidation or dissolution of the Company,
and if the Committee so provides, it may, in its absolute discretion and on
such terms and conditions as it deems appropriate, also provide, either by the
terms of such Option or by a resolution adopted prior to the occurrence of such
merger, consolidation, exchange, acquisition, recapitalization,
reclassification, liquidation or dissolution, that , for some period of time
-4-
<PAGE>
prior to such event, such Option shall be exercisable as to all shares subject
thereto; provided, however, that the Committee may also provide, in its
absolute discretion, that even if the Option shall remain exercisable after any
such event, from and after such event, any such Options shall be exercisable
only for the kind and amount of securities and/or other property, or the cash
equivalent thereof, receivable as a result of such event by the holder of a
number of shares of stock for which such Option could have been exercised
immediately prior to such event.
8. Application of Laws. The granting and the exercise of this
-------------------
Option and the obligations of the Company to sell and deliver shares hereunder
and to remit cash under the broker-dealer exercise method shall be subject to
all applicable laws, rules, and regulations and to such approvals of any
governmental agencies as may be required.
9. Taxes. Any taxes required by federal, state, or local laws to
-----
be withheld by the Company (i) on exercise by the Optionee of the Option for
Common Stock, or (ii) at the time an election, if any, is made by the Optionee
pursuant to Section 83(b) of the Internal Revenue Code, as amended, shall be
paid to the Company before delivery of the Common Stock is made to the
Optionee. When the Option is exercised under the broker-dealer exercise
method, the full amount of any taxes required to be withheld by the Company on
exercise of stock options shall be deducted by the Company from the proceeds.
10. Notices. Any notices required to be given hereunder to the
-------
Company shall be addressed to The Secretary, RJR Nabisco Holdings Corp., 1301
Avenue of the Americas, New York, NY 10019-6013, and any notice required to be
given hereunder to the Optionee shall be sent to the Optionee's address as
shown on the records of the Company.
11. Termination For "Cause." For purposes of this Agreement, an
------------------------
Optionee's employment shall be deemed to have been terminated for "Cause" if
the termination results from the Optionee's: (a) criminal conduct, (b)
deliberate continual refusal to perform employment duties on substantially a
full time basis, (c) deliberate and continual refusal to act in accordance with
any specific lawful instructions of an authorized officer or employee more
senior than the Optionee, or (d) deliberate misconduct which could be
materially damaging to the Company or any of its business operations without a
reasonable good faith belief by the Optionee that such conduct was in the best
interests of the Company. A termination of Optionee's employment shall not be
deemed for Cause hereunder unless the senior personnel executive of the Company
shall confirm that any such termination is for Cause as defined hereunder. Any
voluntary termination by the Optionee in anticipation of an involuntary
termination of the Optionee's employment for Cause shall be deemed to be a
termination of Optionee's employment for Cause.
12. Administration and Interpretation. In consideration of the
----------------------------------
grant, the Optionee specifically agrees that the Committee shall have the
exclusive power to interpret the Plan and this Agreement and to adopt such
rules for the administration, interpretation and application of the Plan and
-5-
<PAGE>
Agreement as are consistent therewith and to interpret or revoke any such
rules. All actions taken and all interpretations and determinations made by
the Committee shall be final, conclusive, and binding upon the Optionee, the
Company and all other interested persons. No member of the Committee shall be
personally liable for any action, determination or interpretation made in good
faith with respect to the Plan or the Agreement. The Committee may delegate
its interpretive authority to an officer or officers of the Company.
13. Other Provisions.
------------------
a) Titles are provided herein for convenience only and are
not to serve as a basis for interpretation of the Agreement.
b) This Agreement may be amended only by a writing executed
by the parties hereto which specifically states that it is amending this
Agreement.
c) THE LAWS OF THE STATE OF DELAWARE SHALL GOVERN THE
INTERPRETATION, VALIDITY AND PERFORMANCE OF THE TERMS OF THIS AGREEMENT
REGARDLESS OF THE LAW THAT MIGHT BE APPLIED UNDER PRINCIPLES OF CONFLICTS OF
LAWS.
IN WITNESS WHEREOF, the Company, by its duly authorized officer,
and the Optionee have executed this Agreement as of the date of Grant first
above written.
RJR NABISCO HOLDINGS CORP.
By
------------------------
Authorized Signatory
- -------------------------------------
Optionee
Optionee's Taxpayer Identification Number:
- --------------------------------
Optionee's Home Address:
- --------------------------------
- --------------------------------
- --------------------------------
-6-
RJR NABISCO HOLDINGS CORP.
RESTRICTED STOCK PROGRAM
[Effective March 1, 1993]
1. Relationship to 1990 Long-Term Incentive Plan
---------------------------------------------
The Restricted Stock Program (the "Program") sets forth the terms
and conditions under which restricted shares of RJR Nabisco Holdings Corp. (the
"Company") Common Stock may be granted under the 1990 Long-Term Incentive Plan
("LTIP"). No grant may be made inconsistent with the LTIP.
2. Definitions
-----------
For the purpose of the Program, the following terms shall have the
meaning shown:
(a) Date of Grant. The date on which the Committee awards a Grant
-------------
to a Participant for the applicable Performance Period, which
generally will be within 90 days following the commencement of
such period. Participants may have different Dates of Grant
for the same Performance Period.
(b) Grant. An award made by the Committee in the form of shares
-----
of Restricted Stock.
(c) Termination For Cause. For purposes of the Plan, a
---------------------
Participant's employment shall be deemed to have been
terminated for "Cause" if the termination results from the
Participant's: (a) criminal conduct, (b) deliberate and
continual refusal to perform employment duties on
substantially a full time basis, (c) deliberate and continual
refusal to act in accordance with any specific lawful
instructions of an authorized officer or employee more senior
than the Participant, or (d) deliberate misconduct which could
be materially damaging to the Company or any of its business
operations without a reasonable good faith belief by the
Participant that such conduct was in the best interests of the
Company and its subsidiaries taken as a whole. A termination
of the Participant's employment shall not be deemed for Cause
hereunder unless the senior personnel executive of the Company
shall confirm that any such termination is for Cause as
defined hereunder. Any voluntary termination by the
Participant in anticipation of an involuntary termination of
the Participant's employment for Cause shall be deemed to be a
termination of the Participant's employment for Cause.
<PAGE>
(d) Performance Period. A period of two, three or four
------------------
consecutive calendar years or until a specified date as
determined by the Committee.
(e) Restricted Shares. Common Stock granted to a Participant
-----------------
under the Program, certificates for which are issued as of the
Date of Grant and held in custody by the Company and
subsequently deliverable to the Participant only when the
restrictions applicable to the Grant lapse. Prior to lapse of
restrictions, Restricted Shares may not be sold, transferred,
tendered, assigned, pledged or otherwise encumbered; part or
all of a Grant may be irrevocably forfeited in accordance with
the terms of the Program.
3. Performance Periods and Grants
------------------------------
(a) One new Performance Period may be established commencing each
year with a duration of two, three or four calendar years or until a specified
date.
(b) For each Performance Period the Committee may select and make
Grants of Restricted Shares to Participants, as it shall determine, at any time
during the first six months of such period.
(c) Grants made by the Committee shall be subject to the provisions
of the Program and to such other terms and conditions, not inconsistent with
the Program and the LTIP, as are set forth in a Restricted Stock Agreement
entered into by the Company and the Participant. A Participant may be required
to execute and deliver to the Company an irrevocable stock power endorsed in
blank as a condition of receiving a Grant.
(d) The Committee at any time may make other grants of Restricted
Shares which are not covered by this Program and which may be subject to
different terms and conditions otherwise consistent with the LTIP.
4. Lapse of Restrictions; Forfeitures
----------------------------------
All restrictions on Restricted Shares granted for a Performance
Period shall lapse 45 to 60 days following the end of such Performance Period,
such date to be established by the Committee, provided, that the Participant's
employment has not terminated prior to the end of the Performance Period.
If a Participant terminates employment within one year of the Date
of Grant for any reason whatsoever, including death, disability or retirement,
all Restricted Shares covered by such Grant shall be irrevocably forfeited and
such Participant shall have no rights or claims thereto. The following
provisions shall apply to a Participant who terminates employment at least one
year after the Date of Grant but prior to the end of a Performance Period:
<PAGE>
(a) If a Participant's employment terminates because of death,
Disability (as defined in the Company's Long Term Disability
Plan), or retirement at his Normal Retirement Date established
by an applicable Company retirement program, all restrictions
shall lapse on the Restricted Shares covered by such Grant and
such shares shall be issuable to the participant or his estate
as soon as practicable.
(b) If a Participant's employment terminates prior to the end of a
Performance Period due to (a) involuntary termination by
action of the Company, other than termination for Cause, or
(b) retirement prior to normal retirement date under a
retirement plan of the Company, restrictions may, in the sole
discretion of the Chief Executive Officer of the Company,
lapse on a pro rata basis. Except as may otherwise be
specifically provided in a Participant's employment or
separation agreement, if any, for each Grant, the pro rata
number of such unrestricted shares shall be determined by
multiplying the number of shares in the grant by a fraction,
the numerator of which is the number of months such
Participant was actively employed during the Performance
Period (including the month during which employment
terminated) and the denominator of which is the total number
of months in the Performance Period. If the Participant
elects to retire prior to his Normal Retirement Date, or prior
to any earlier retirement date established by previous
agreement with the Company, all shares will be forfeited
unless such retirement is pursuant to the written consent of
the Chief Executive Officer of the Company. In the case of
the Chief Executive Officer consent shall be determined by the
Committee.
(c) If a participant voluntarily terminates employment prior to
the end of a Performance Period, or is involuntarily
terminated for Cause, all Restricted Shares covered by all his
Grants shall be forfeited.
5. Dividend and Voting Rights
--------------------------
A participant shall become a shareholder of record of Restricted
Shares commencing with the Date of Grant and continuing until the date such
shares are forfeited or disposed of by the Participant following distribution.
He shall be entitled to vote such shares and currently receive dividends on
such shares so long as he is shareholder of record on the applicable record
date for a shareholder vote or a dividend payment, regardless of whether or not
restrictions have lapsed.
<PAGE>
6. Delivery of Stock Certificates
------------------------------
As soon as practicable following the date restrictions lapse on
Restricted Shares, one or more certificates for shares of Common Stock shall be
issued to the Participant, or if the Participant so elects, jointly in the name
of the Participant and the Participant's spouse, and thereafter delivered to
the Participant. Any distribution made with respect to a Participant who has
died shall be issued to his estate.
7. Tax Withholding
---------------
Any taxes required to be withheld by Federal, state or local law
upon delivery of Common Stock to a Participant without restrictions shall be
paid by the Participant at or before the time of delivery. Alternatively, to
the extent it would not result in adverse consequences to a Participant by
reason of Rule 16b-3 of the Securities Exchange Act of 1934, the Company may
elect to convert to cash such number of shares as are necessary to satisfy such
withholding requirements. The Company shall effect any such cash conversion
based on the fair market value (average of high and low trade) of a share of
Common Stock on the New York Stock Exchange on the date restrictions lapse or
the subsequent trading day, with such shares reverting to the Company.
8. Amendment or Termination
------------------------
The Committee shall have the power to amend, suspend or terminate
the Program at any time except that no action can be taken that would not be
permitted by the LTIP or that would materially adversely affect the rights of
Participants with respect to outstanding Grants.
9. Adjustments
-----------
In the event that a stock dividend, stock split, or other
subdivision, consolidation reclassification or change of the shares of Common
Stock takes place, the outstanding Restricted Shares shall be automatically
adjusted accordingly, consistent with the terms of the LTIP.
In the event of a merger, acquisition or other change which may
have a significant effect upon the Company or its subsidiaries, the Committee
shall adopt appropriate changes in Performance Measures as needed to achieve
the Program's objectives consistent with the LTIP.
<PAGE>
10. Miscellaneous
-------------
(a) Except as determined by the Committee, no person shall have
any right to receive a Grant. Participation in the Program does not give a
Participant the right to be retained as an employee of the Company.
(b) The Company, the Board of Directors, the Committee, the
officers and other employees of the Company shall not be liable for any action
taken in good faith in interpreting and administering the Program.
(c) Restricted Shares granted under the Program are subject to the
requirement that, if at any time the Committee determines, in its sole
discretion, that the listing, registration, or qualification of shares of
Common Stock issuable pursuant to the Program, is required by any securities
exchange or under any state or Federal law, or the consent of approval of any
governmental regulatory body is necessary or desirable as a condition of, or in
connection with, the issue of shares of Common Stock, no distribution under the
Program shall be made in whole or in part, unless listing, registration,
qualification, consent or approval has been effected or obtained free of any
conditions not acceptable to the Committee.
(d) The Program shall be governed by and subject to the laws of
the State of Delaware.
11. Finality of Determination
-------------------------
The Committee shall have the power to interpret the Program and all
interpretations, determinations and actions by the Committee shall be final,
conclusive and binding upon all parties.
12. Effective Date
--------------
The Program shall become effective as of March 1, 1993.
EEP
3 year
RJR NABISCO HOLDINGS CORP.
1990 LONG TERM INCENTIVE PLAN
EXECUTIVE EQUITY PROGRAM
__________________________
DATE OF AGREEMENT July 1, 1993
-----------------
WITNESSETH:
-----------
1) General
-------
Pursuant to the terms of the 1990 Long Term Incentive Plan (the
"Plan"), RJR Nabisco Holdings Corp. (the "Company") on the date above has
agreed, subject to the eligibility provisions and other contingencies described
herein, to make certain awards to:
NAME (the "Executive")
2) Grants To Be Made
-----------------
The Executive, if eligible pursuant to Section 3 of this Agreement,
shall, on the Grant Dates specified below, receive a grant of Common Stock of
the Company ("Shares") with a fair market value on the Grant Date equal to the
amount, if any, by which (x) exceeds (y) where,
(x) is a percentage, as stated below, of the Executive's
Hypothetical Loan Balance (as defined in Section 4) on the Grant
Date; and
(y) is the fair market value on the Grant Date of the percentage
described below of the Executive's Purchase Shares pledged under a
Promissory Note to the Company.
<PAGE>
Grant (x) (y)
Date Percent of Hypothetical Loan Percent of LTIP Purchase
- ---- ---------------------------- -------------------------
Balance Shares
------- ------
July 1, 1994 33% 33%
July 1, 1995 50% 33%
July 1, 1996 100% 34%
Each grant described above shall be increased by the number of Shares having a
fair market value on the Grant Date equal to the amount needed (i) to cover the
stock transfer fees as calculated by the Company in both the sale of Shares
granted by this Agreement and the Shares described in (y) above and (ii) to
hold the Executive harmless from Federal, State and Local income taxes as
calculated by the Company due as a result of the grant, if any, pursuant to
this Agreement.
The Shares when and if granted shall be freely transferable after the Grant
Date.
3) Eligibility For Grant
---------------------
The Executive shall be eligible for a grant on the Grant Dates
specified in Section 2 if, and only if, the Executive was actively employed on
July 1, 1993 and on the Grant Date Executive is in any one of the following
---
categories:
a) Actively employed by the Company
b) Terminated by the Company without Cause as defined herein
c) Deceased, disabled, or retired and consent of the Chief Executive
---
Officer of the Company to continue grants is given.
4) Definitions
-----------
a) Capitalized terms, unless otherwise defined herein, shall have
the meaning described in the 1990 Long Term Incentive Plan.
b) Hypothetical Loan Balance. The Hypothetical Loan Balance
-------------------------
("HLB") shall be calculated in the exclusive discretion of the Company, and the
Company's calculation shall be final, conclusive, and binding on the Company
and the Executive. In determining the HLB, it shall be assumed that the
Executive took all Company loans available on the date he acquired Purchase
Shares under the Plan. Any payments applied to the HLB as the result of the
sale of Purchase Shares or the application of grants under this Agreement will
reduce the HLB, whereas payments which are not so derived will not reduce the
HLB. Furthermore, in determining the declining value of the HLB with each
successive grant under this Agreement, it shall be assumed that the full value
of (i) the amount, if any, by which (x) exceeds (y) in Section 2 and (ii) the
full value of (y) in Section 2 are applied against the HLB. The Executive's
HLB as of July 1, 1993 is described in Attachment 1 hereto.
<PAGE>
c) Cause. For purposes of this Agreement, an Executive's
-----
employment shall be deemed to have been terminated for "Cause" if the
termination results from the Executive's: (a) criminal conduct, (b) deliberate
and continual refusal to perform employment duties on substantially a full time
basis, (c) deliberate and continual refusal to act in accordance with any
specific lawful instructions of an authorized officer or employee more senior
than the Executive, or (d) deliberate misconduct which could be materially
damaging to the Company or any of its business operations without a reasonable
good faith belief by the Executive that such conduct was in the best interests
of the Company. A termination of the Executive's employment shall not be
deemed for Cause hereunder unless the senior personnel executive of the Company
shall confirm that any such termination is for Cause as defined hereunder. Any
voluntary termination by the Executive in anticipation of an involuntary
termination of the Executive's employment for Cause shall be deemed to be a
termination of Executive's employment for Cause.
5) Transferability.
---------------
Other than as specifically provided in the Plan with regard to the
death of the executive, this Agreement and any benefit provided or accruing
hereunder shall not be subject in any manner to anticipation, alienation, sale,
transfer, assignment, pledge, encumbrance, or charge; and any attempt to do so
shall be void. No such benefit shall, prior to receipt thereof by the
Executive, be in any manner liable for or subject to the debts, contracts,
liabilities, engagements or torts of the Executive.
6) No Right to Employment.
----------------------
Neither the execution and delivery of this Agreement nor the
granting of the Shares hereby shall constitute any agreement or understanding,
express or implied, on the part of the Company or its subsidiaries to employ
the Executive for any specific period or in any specific capacity or shall
prevent the Company or its subsidiaries from terminating the Executive's
employment at any time with or without Cause. "Termination of employment"
under the Plan and this Agreement means termination from active employment; it
does not mean the termination of pay and benefits at the end of salary
continuation (or other form of severance pay or pay in lieu of salary).
7) Change in Common Stock or Corporate Structure.
----------------------------------------------
(a) If at any time the number or nature of outstanding shares of
Common Stock of the Company shall be increased or changed as the result of any
stock dividend, subdivision or reclassification of shares, the number or nature
of shares of Common Stock to be granted to the Executive on any Grant Date
after such an event shall be increased or changed in the same proportion or
manner as the outstanding number of shares of Common Stock is increased or
<PAGE>
changed, or if the number of outstanding shares of Common Stock shall at any
time be decreased as the result of any combination or reclassification of
shares, the number of shares of Common Stock in the Executive's grants after
such an event shall be decreased in the same proportion as the outstanding
number of shares of Common Stock is decreased.
(b) In the event the Company shall at any time be consolidated with
or merged into any other corporation and holders of the Company's Common Stock
receive common shares of the resulting or surviving corporation, there shall be
an adjustment to the Executive's future grants after such an event, and in
place of the shares to be awarded, a stock equivalent shall be determined by
multiplying the number of common shares of stock given in exchange for a share
of Common Stock upon such consolidation or merger, by the number of shares of
Common Stock to which the Executive's grants are equivalent. If in such a
consolidation or merger, holders of the Company's Common Stock shall receive
any consideration other than common shares of the resulting or surviving
corporation, the Committee shall determine the appropriate change in grants
after such an event; provided, however, such change shall not be to the
detriment of the Executive.
8) Notices
-------
Any notices required to be given hereunder to the Company shall be
addressed to The Secretary, RJR Nabisco Holdings, Inc., 1301 Avenue of the
Americas, New York, NY 10019-6013 and any notice required to be given hereunder
to the Grantee shall be sent to the Grantee's address as shown on the records
of the Company.
9) Executive.
---------
In consideration of the potential grants under this Agreement, the
Executive specifically agrees that the Committee shall have the exclusive power
to interpret the Plan and this Agreement and to adopt such rules for the
administration, interpretation and application of the Plan and Agreement as are
consistent therewith and to interpret or revoke any such rules. The Committee
in its exclusive discretion may substitute cash or any other award equal in
value to the awarded amount calculated under Section 2. All actions taken and
all interpretation and determinations made by the Committee shall be final,
conclusive, and binding upon the Executive, the Company and all other
interested persons. No member of the Committee shall be personally liable for
any action, determination or interpretation made in good faith with respect to
the Plan or the Agreement. The Committee may delegate its interpretive
authority to an officer or officers of the Company.
<PAGE>
IN WITNESS WHEREOF, the Company, by its duly authorized officer,
and the Executive have executed this Agreement as of the Date of Grant first
above written.
RJR NABISCO HOLDINGS CORP.
By___________________________
Authorized Signatory
___________________________
Executive
Grantee's Taxpayer Identification Number:
___________________________
Grantee's Home Address:
___________________________
___________________________
___________________________
EEP
4 year
RJR NABISCO HOLDINGS CORP.
1990 LONG TERM INCENTIVE PLAN
EXECUTIVE EQUITY PROGRAM
__________________________
DATE OF AGREEMENT July 1, 1993
-----------------
WITNESSETH:
-----------
1) General
-------
Pursuant to the terms of the 1990 Long Term Incentive Plan (the
"Plan"), RJR Nabisco Holdings Corp. (the "Company") on the date above has
agreed, subject to the eligibility provisions and other contingencies described
herein, to make certain awards to:
NAME (the "Executive")
2) Grants To Be Made
-----------------
The Executive, if eligible pursuant to Section 3 of this Agreement,
shall, on the Grant Dates specified below, receive a grant of Common Stock of
the Company ("Shares") with a fair market value on the Grant Date equal to the
amount, if any, by which (x) exceeds (y) where,
(x) is a percentage, as stated below, of the Executive's
Hypothetical Loan Balance (as defined in Section 4) on the Grant
Date; and
(y) is the fair market value on the Grant Date of the percentage
described below of the Executive's Purchase Shares pledged under a
Promissory Note to the Company.
<PAGE>
Grant (x) (y)
Date Percent of Hypothetical Loan Percent of LTIP
---- ---------------------------- ---------------
Balance Purchase Shares
------- ---------------
July 1, 1994 25% 25%
July 1, 1995 33% 25%
July 1, 1996 50% 25%
July 1, 1997 100% 25%
Each grant described above shall be increased by the number of Shares having a
fair market value on the Grant date equal to the amount needed (i) to cover the
stock transfer fees as calculated by the Company in both the sale of Shares
granted by this Agreement and the Shares described in (y) above and (ii) to
hold the Executive harmless from Federal, State and Local income taxes as
calculated by the Company due as a result of the grant, if any, pursuant to
this Agreement.
The Shares when and if granted shall be freely transferable after the Grant
Date.
3) Eligibility For Grant
---------------------
The Executive shall be eligible for a grant on the Grant Dates
specified in Section 2 if, and only if, the Executive was actively employed on
July 1, 1993 and on the Grant Date Executive is in any one of the following
---
categories:
a) Actively employed by the Company
b) Terminated by the Company without Cause as defined herein
c) Deceased, disabled, or retired and consent of the Chief Executive
---
Officer of the Company to continue grants is given.
4) Definitions
-----------
a) Capitalized terms, unless otherwise defined herein, shall have
the meaning described in the 1990 Long Term Incentive Plan.
b) Hypothetical Loan Balance. The Hypothetical Loan Balance
-------------------------
("HLB") shall be calculated in the exclusive discretion of the Company, and the
Company's calculation shall be final, conclusive, and binding on the Company
and the Executive. In determining the HLB, it shall be assumed that the
Executive took all Company loans available on the date he acquired Purchase
Shares under the Plan. Any payments applied to the HLB as the result of the
sale of Purchase Shares or the application of grants under this Agreement will
reduce the HLB, whereas payments which are not so derived will not reduce the
HLB. Furthermore, in determining the declining value of the HLB with each
successive grant under this Agreement, it shall be assumed that the full value
of (i) the amount, if any, by which (x) exceeds (y) in Section 2 and (ii) the
full value of (y) in Section 2 are applied against the HLB. The Executive's
HLB as of July 1, 1993 is described in Attachment 1 hereto.
<PAGE>
c) Cause. For purposes of this Agreement, an Executive's
-----
employment shall be deemed to have been terminated for "Cause" if the
termination results from the Executive's: (a) criminal conduct, (b) deliberate
and continual refusal to perform employment duties on substantially a full time
basis, (c) deliberate and continual refusal to act in accordance with any
specific lawful instructions of an authorized officer or employee more senior
than the Executive, or (d) deliberate misconduct which could be materially
damaging to the Company or any of its business operations without a reasonable
good faith belief by the Executive that such conduct was in the best interests
of the Company. A termination of the Executive's employment shall not be
deemed for Cause hereunder unless the senior personnel executive of the Company
shall confirm that any such termination is for Cause as defined hereunder. Any
voluntary termination by the Executive in anticipation of an involuntary
termination of the Executive's employment for Cause shall be deemed to be a
termination of Executive's employment for Cause.
5) Transferability.
---------------
Other than as specifically provided in the Plan with regard to the
death of the executive, this Agreement and any benefit provided or accruing
hereunder shall not be subject in any manner to anticipation, alienation, sale,
transfer, assignment, pledge, encumbrance, or charge; and any attempt to do so
shall be void. No such benefit shall, prior to receipt thereof by the
Executive, be in any manner liable for or subject to the debts, contracts,
liabilities, engagements or torts of the Executive.
6) No Right to Employment.
----------------------
Neither the execution and delivery of this Agreement nor the
granting of the Shares hereby shall constitute any agreement or understanding,
express or implied, on the part of the Company or its subsidiaries to employ
the Executive for any specific period or in any specific capacity or shall
prevent the Company or its subsidiaries from terminating the Executive's
employment at any time with or without Cause. "Termination of employment"
under the Plan and this Agreement means termination from active employment; it
does not mean the termination of pay and benefits at the end of salary
continuation (or other form of severance pay or pay in lieu of salary).
7) Change in Common Stock or Corporate Structure.
----------------------------------------------
a) If at any time the number or nature of outstanding shares of
Common Stock of the Company shall be increased or changed as the result of any
stock dividend, subdivision or reclassification of shares, the number or nature
of shares of Common Stock to be granted to the Executive on any Grant Date
after such an event shall be increased or changed in the same proportion or
manner as the outstanding number of shares of Common Stock is increased or
changed, or if the number of outstanding shares of
<PAGE>
Common Stock shall at any time be decreased as the result of any combination or
reclassification of shares, the number of shares of Common Stock in the
Executive's grants after such an event shall be decreased in the same
proportion as the outstanding number of shares of Common Stock is decreased.
b) In the event the Company shall at any time be consolidated with
or merged into any other corporation and holders of the Company's Common Stock
receive common shares of the resulting or surviving corporation, there shall be
an adjustment to the Executive's future grants after such an event, and in
place of the shares to be awarded, a stock equivalent shall be determined by
multiplying the number of common shares of stock given in exchange for a share
of Common Stock upon such consolidation or merger, by the number of shares of
Common Stock to which the Executive's grants are equivalent. If in such a
consolidation or merger, holders of the Company's Common Stock shall receive
any consideration other than common shares of the resulting or surviving
corporation, the Committee shall determine the appropriate change in grants
after such an event; provided, however, such change shall not be to the
detriment of the Executive.
8) Notices
-------
Any notices required to be given hereunder to the Company shall be
addressed to The Secretary, RJR Nabisco Holdings, Inc., 1301 Avenue of the
Americas, New York, NY 10019-6013 and any notice required to be given hereunder
to the Grantee shall be sent to the Grantee's address as shown on the records
of the Company.
9) Executive.
---------
In consideration of the potential grants under this Agreement, the
Executive specifically agrees that the Committee shall have the exclusive power
to interpret the Plan and this Agreement and to adopt such rules for the
administration, interpretation and application of the Plan and Agreement as are
consistent therewith and to interpret or revoke any such rules. The Committee
in its exclusive discretion may substitute cash or any other award equal in
value to the awarded amount calculated under Section 2. All actions taken and
all interpretation and determinations made by the Committee shall be final,
conclusive, and binding upon the Executive, the Company and all other
interested persons. No member of the Committee shall be personally liable for
any action, determination or interpretation made in good faith with respect to
the Plan or the Agreement. The Committee may delegate its interpretive
authority to an officer or officers of the Company.
<PAGE>
IN WITNESS WHEREOF, the Company, by its duly authorized officer,
and the Executive have executed this Agreement as of the Date of Grant first
above written.
RJR NABISCO HOLDINGS CORP.
By___________________________
Authorized Signatory
___________________________
Executive
Grantee's Taxpayer Identification Number:
___________________________
Grantee's Home Address:
___________________________
___________________________
___________________________
AMENDMENT AND EXCHANGE
OF
SECURED PROMISSORY NOTE
The undersigned promises to pay the currently outstanding balance
under previously executed Secured Promissory Notes to RJR Nabisco Holdings
Corp. pursuant to the terms of any and all such Notes, except that interest on
the unpaid balance of all indebtedness shall accrue from July 1, 1993 at the
applicable Federal rate (6.37%).
________________________
Employee
________________________
Printed Name
Date: July 1, 1993
--------------------
As an incentive to Employee's continued employment with the Company or an
affiliate thereof, and as the holder of the above referenced promissory notes,
the Company agrees to the above amendment; and further agrees that partial
sales of Stock pledged under the Notes will be applied to pay the loan balance
without accelerating that date upon which the entire loan balance becomes due
and payable; provided, however, until the principal amount and accrued interest
on the Loan are repaid in full, such stock shall only be sold by the Company,
acting on behalf of Employee, for the purpose of repaying the loan balance.
RJR Nabisco Holdings Corp.
By:______________________
Date: July 1, 1993
--------------------
EXHIBIT 11
RJR NABISCO HOLDINGS CORP.
COMPUTATIONS OF EARNINGS PER SHARE
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
<TABLE><CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1993(A) 1992(A) 1991(A)
------------------------ ------------------------ -----------------------
FULLY FULLY FULLY
PRIMARY DILUTED PRIMARY DILUTED PRIMARY DILUTED
---------- ------------ ---------- ------------ --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Average number of common and common
equivalent shares outstanding during the
period (in thousands):
Common stock issued and outstanding at
beginning of period.................... 1,344,649 1,344,649 1,331,659 1,331,659 580,024 580,024
Less: shares related to unamortized value
of restricted stock.................... -- -- (120) (120) (344) (344)
---------- ------------ ---------- ------------ --------- ------------
1,344,649 1,344,649 1,331,539 1,331,539 579,680 579,680
Average number of shares of common stock
issued during the period............... 3,541 3,541 11,835 11,836 227,764 227,764
Average number of shares related to value
of restricted stock earned during the
period................................. 1,006 1,006 60 60 112 112
Average number of stock warrants and
options outstanding during the
period................................. -- 6,217 20,115 20,167 49,821 52,816
Average number of shares issuable on
conversion of redeemable convertible
preferred stock........................ -- 10,498 -- 11,203 -- 187,769
Average number of shares issuable on
conversion of senior converting
debentures............................. -- 5,548 -- 20,203 -- 25,453
ESOP convertible preferred stock......... -- 15,610 -- 15,625 -- 11,290
Average number of Series A Depositary
Shares issued during the period(B)..... -- -- -- -- 30,245 30,245
---------- ------------ ---------- ------------ --------- ------------
Average number of common and common
equivalent shares outstanding during
the period (in thousands).............. 1,349,196 1,387,069 1,363,549 1,410,633 887,622 1,115,129
---------- ------------ ---------- ------------ --------- ------------
---------- ------------ ---------- ------------ --------- ------------
Net income (loss) applicable to common
stock:
Income (loss) before extraordinary
item................................... $ (3) $ (3) $ 776 $ 776 $ 368 $ 368
Interest on senior converting debentures
(net of income taxes).................. -- 17 -- 51 -- 55
Preferred stock dividends................ (68) (43) (31) -- (173) --
Income tax benefit on ESOP convertible
preferred stock dividends.............. -- (1) -- (6) -- (5)
---------- ------------ ---------- ------------ --------- ------------
Income (loss) before extraordinary item
applicable to common stock............. (71) (30) 745 821 195 418
Extraordinary item--(loss) gain on early
extinguishments of debt, net of income
taxes.................................. (142) (142) (477) (477) -- --
---------- ------------ ---------- ------------ --------- ------------
Net income (loss) applicable to common
stock.................................. $ (213) $ (172) $ 268 $ 344 $ 195 $ 418
---------- ------------ ---------- ------------ --------- ------------
---------- ------------ ---------- ------------ --------- ------------
Net income (loss) per common and common
equivalent share:
Income (loss) before extraordinary
item..................................... $ (0.05) $ (0.02) $ 0.55 $ 0.58 $ 0.22 $ 0.37
Extraordinary item....................... (0.10) (0.10) (0.35) (0.34) -- --
---------- ------------ ---------- ------------ --------- ------------
Net income (loss)........................ $ (0.15) $ (0.12) $ 0.20 $ 0.24 $ 0.22 $ 0.37
---------- ------------ ---------- ------------ --------- ------------
---------- ------------ ---------- ------------ --------- ------------
</TABLE>
- ---------------
(A) The calculations of fully diluted earnings per share are antidilutive;
therefore, primary earnings per share are used for financial statement
purposes.
(B) Each Series A Depositary Share represents a one-quarter ownership interest
in a share of Series A Preferred Stock of Holdings.
EXHIBIT 12
RJR NABISCO, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES/
DEFICIENCY IN THE COVERAGE OF FIXED CHARGES BY EARNINGS
BEFORE FIXED CHARGES
(DOLLARS IN MILLIONS)
<TABLE><CAPTION>
YEAR ENDED
DECEMBER 31, FEBRUARY 9, 1989 JANUARY 1, 1989
------------------------------------------ THROUGH THROUGH
1993 1992 1991 1990 DECEMBER 31, 1989 FEBRUARY 8, 1989
--------- --------- --------- --------- ------------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Earnings before fixed charges:
Income (loss) from continuing
operations.............................. $ (4) $ 783 $ 349 $ (283) $ (816) $ (197)
Provision for income taxes.............. 116 693 301 152 (74) (66)
--------- --------- --------- --------- -------- -------
Income (loss) before income taxes....... 112 1,476 650 (131) (890) (263)
Interest expense........................ 1,167 1,340 2,030 2,724 2,655 44
Amortization of debt issuance costs..... 19 19 110 175 444 --
Interest portion of rental expense...... 52 49 56 49 41 11
--------- --------- --------- --------- -------- -------
Earnings before fixed charges(a).......... $ 1,350 $ 2,884 $ 2,846 $ 2,817 $ 2,250 $ (208)
--------- --------- --------- --------- -------- -------
--------- --------- --------- --------- -------- -------
Fixed charges:
Interest expense........................ $ 1,167 $ 1,340 $ 2,030 $ 2,724 $ 2,655 $ 44
Amortization of debt issuance costs..... 19 19 110 175 444 --
Interest portion of rental expense...... 52 49 56 49 41 11
Capitalized interest.................... 9 5 10 12 12 3
--------- --------- --------- --------- -------- -------
Total fixed charges.................. $ 1,247 $ 1,413 $ 2,206 $ 2,960 $ 3,152 $ 58
--------- --------- --------- --------- -------- -------
--------- --------- --------- --------- -------- -------
Deficiency in the coverage of fixed
charges by earnings before fixed
charges................................. $ -- $ -- $ -- $ (143) $ (902) $ (266)
--------- --------- --------- --------- -------- -------
--------- --------- --------- --------- -------- -------
Ratio of earnings to fixed charges........ 1.1 2.0 1.3 -- -- --
--------- --------- --------- --------- -------- -------
--------- --------- --------- --------- -------- -------
</TABLE>
- ---------------
(a) Includes non-cash amortization of trademarks and goodwill for each of the
years in the four-year period ended December 31, 1993 and each of the
periods within the one-year period ended December 31, 1989 of $625 million,
$616 million, $609 million, $608 million, $557 million and $10 million,
respectively.
RJR NABISCO HOLDINGS CORP.
--------------------------
Date of Place of
Name of Subsidiary Incorporation Incorporation
- ----------------------------------------------------------------------------
RJR Nabisco Holdings Corp. Oct 25, 1988 Delaware
RJR Nabisco, Inc. Mar 04, 1970 Delaware
Airco IHC, Inc. Mar 22, 1989 Delaware
Andalucia A.V.V. Nov 28, 1988 Aruba
Arjay Equipment Corporation Nov 08, 1968 Delaware
Arjay Holdings, Inc. May 07, 1984 Delaware
Associated Biscuits * Mar 29, 1898 England
Batavia Inc. Jul 31, 1951 New Jersey
Beech-Nut LifeSavers (Panama) S.A. Jul 12, 1963 Panama
Bisco Services B.V. Dec 22, 1988 Netherlands
Camel Racing Inc. Jun 22, 1989 Canada
Cartera e Inversiones S.A. * Mar 05, 1979 Peru
CGM-Cooperation GmbH Jan 15, 1990 Germany
China-American Cigarette Company Limited
(50%)*** May 29, 1984 China
Colophon Company Limited * Jul 09, 1981 Bermuda
Comercial La Favorita, C.A. Aug 14, 1991 Venezuela
Comercial Benut, S.A. de C.V. ** Mar 16, 1977 Mexico
Compania Nacional de Galletas Nabisco La
Favorita C.A. Jun 06, 1938 Venezuela
Compania Venezolana de Conservas C.A. Jul 25, 1969 Venezuela
Compania Venezolana de Conservas Covenco II,
C.A. Aug 20, 1991 Venezuela
Covenco Holding C.A. Nov 26, 1991 Venezuela
* Inactive
** In Liquidation December 31, 1993
*** Partnership Page 1
**** Nameholder SUB-CURR
<PAGE>
RJR NABISCO HOLDINGS CORP.
--------------------------
Date of Place of
Name of Subsidiary Incorporation Incorporation
- ----------------------------------------------------------------------------
Dely, S.A. Dec 18, 1960 Guatemala
Distribuidora Pan Americana, S.A. Oct 22, 1974 Panama
Exhold Limited Oct 03, 1989 Liberia
Expefo, Inc. Mar 09, 1965 Delaware
Export "A" Inc. Mar 31, 1989 Canada
F.& R. Peru, S.A. Jan 28, 1972 Peru
Fleischmann Argentina S.A. * Dec 13, 1990 Argentina
Fleischmann Corporation, The Nov 02, 1929 Delaware
Fleischmann Ecuatoriana S.A. Sep 16, 1977 Ecuador
Fleischmann International, Inc. Nov 20, 1944 Delaware
Fleischmann Peruana Inc. Sep 01, 1939 Delaware
Fleischmann Uruguaya S.A. Mar 09, 1961 Uruguay
Freezer Queen Foods (Canada) Limited Nov 03, 1967 Ontario,
Canada
Fulmer Corporation Limited May 15, 1981 Bahamas
Fulmer Two S.A. * Jul 01, 1991 Panama
Gelatinas Ecuatorianas S.A. (66.7%) Nov 21, 1978 Ecuador
GEM: Global Event Management, Ltd. Jun 27, 1991 England
Global Events Management, Inc. Sep 05, 1991 Delaware
Golden Sociedad Anonima Apr 01, 1966 Costa Rica
Grapple Company Limited Sep 02, 1985 Bahamas
Grupo Gamesa, S.A. de C.V. (1%) Jul 29, 1981 Mexico
Hanover Servicing, Inc. Jan 12, 1990 Delaware
Haus Neuerburg GmbH Feb 25, 1977 Germany
Hervin Company, The May 28, 1965 Oregon
Hervin Holdings, Inc. Mar 29, 1988 Delaware
Hickey & Nicholson Tobacco Company, Ltd., The * Apr 30, 1906 Prince
Edward Is.
Huntley & Palmer Foods Pensions Limited ? 1967 England
* Inactive
** In Liquidation December 31, 1993
*** Partnership Page 2
**** Nameholder SUB-CURR
<PAGE>
RJR NABISCO HOLDINGS CORP.
--------------------------
Date of Place of
Name of Subsidiary Incorporation Incorporation
- ----------------------------------------------------------------------------
Industria de Colores y Sabores S.A. * Jun 21, 1967 Colombia
Industria de Laticinios Gloria Ltda. Jan 18, 1978 Brazil
Industrias Alimenticias Maguary S.A. ? Brazil
Industrias Nabisco Cristal, S.A. (60%) Dec 10, 1965 Nicaragua
International Standard Brands (Sharjah)
Limited* Sep 05, 1979 Sharjah
Iracema Industrias de Caju S.A. Aug 08, 1978 Brazil
ISMA (60%) Mar 24, 1993 Russia
Jack's Snacks Limited ** May 08, 1972 New Zealand
Jati Industrias de Caju S.A. Sep 24, 1984 Brazil
Jupiter Produtos Alimenticios Ltda. Mar 02, 1962 Brazil
Lance, S.A. de C.V. Dec 28, 1982 Mexico
Landers Centro Americana Fabricantes de Molinos
Marca "Corona", S.A. de C.V. (95%) ** Jan 09, 1979 Honduras
Landers Y Cia, S.A. Oct 01, 1951 Colombia
Leite Gloria do Nordeste S.A. May 16, 1968 Brazil
Life Savers Manufacturing, Inc. Apr 21, 1976 Delaware
Litografia A. Romero, S.A. (.001%) Feb 22, 1978 Canary Is.
LMS Investments, Ltd. Oct 21, 1988 Cayman Is.
Lowney, Inc. Jan 01, 1983 Federal,
Canada
Mahachai Holding Co. Ltd. (49%) Jan 07, 1986 Thailand
Marcas Alimenticias Internacionales S.A. Mar 07, 1979 Panama
MEX Holdings, Ltd. Nov 27, 1991 Delaware
MEX Holdings II, S.A. de C.V. Jan 29, 1992 Mexico
Mexican Foods Limited (50%) ** Apr 11, 1972 New Zealand
Mont Pelrin Inc. May 05, 1954 New Jersey
NAB New Zealand Holding One, Inc. * Dec 21, 1988 New York
NAB New Zealand Two IHC, Inc. * Dec 21, 1988 New York
* Inactive
** In Liquidation December 31, 1993
*** Partnership Page 3
**** Nameholder SUB-CURR
<PAGE>
RJR NABISCO HOLDINGS CORP.
--------------------------
Date of Place of
Name of Subsidiary Incorporation Incorporation
- ----------------------------------------------------------------------------
Nabisco * Dec 24, 1908 England
Nabisco Brands Holdings Denmark Limited ? 1989 Liberia
Nabisco Brands, Inc. Apr 21, 1981 Delaware
Nabisco Brands Ltd Dec 31, 1992 Federal,
Canada
Nabisco Brands Nominees Limited Aug 22, 1983 England
Nabisco Brands Trading Ltd. * Mar 25, 1987 Delaware
Nabisco Brands (U.K.) Limited Apr 05, 1982 Delaware
Nabisco Brazil, Inc. May 10, 1990 Delaware
Nabisco Caribbean Export, Inc. Jun 13, 1984 Delaware
Nabisco Cereals * Mar 15, 1956 England
Nabisco/Cetus Food Biotechnology Research
Partnership (80%) *** Mar 01, 1984 Delaware
Nabisco de Puerto Rico, Inc. Sep 21, 1951 New York
Nabisco Ecuador, S.A. Nov 17, 1982 Ecuador
Nabisco England IHC, Inc. Mar 29, 1989 Delaware
Nabisco Enterprises IHC, Inc. Mar 22, 1989 Delaware
Nabisco Foods, Inc. Dec 30, 1991 New Jersey
Nabisco Foreign Administration, Inc. Mar 22, 1989 Delaware
Nabisco Group Ltd. Apr 05, 1982 Nevada
Nabisco Group Pensions Investments Ltd. Jun 07, 1962 England
Nabisco Group Pensions Limited Sep 13, 1977 England
Nabisco Holding I B.V. * Dec 22, 1988 Netherlands
Nabisco Holding II B.V. * Dec 22, 1988 Netherlands
Nabisco Holdings IHC, Inc. Mar 22, 1989 Delaware
Nabisco, Inc. Feb 03, 1898 New Jersey
Nabisco, Inc. Foreign Sales Corporation Dec 17, 1991 US Virgin
Is.
* Inactive
** In Liquidation December 31, 1993
*** Partnership Page 4
**** Nameholder SUB-CURR
<PAGE>
RJR NABISCO HOLDINGS CORP.
--------------------------
Date of Place of
Name of Subsidiary Incorporation Incorporation
- ----------------------------------------------------------------------------
Nabisco International, Inc. Jul 29, 1947 Delaware
Nabisco International Limited Dec 11, 1987 Nevada
Nabisco International, S.A. Nov 26, 1953 Panama
Nabisco Music Publishers, Inc. Mar 24, 1986 Delaware
Nabisco Music Ventures, Inc. Mar 24, 1986 Delaware
Nabisco (New Zealand) Limited **** Mar 30, 1990 New Zealand
Nabisco Pension Trust Limited Aug 31, 1956 England
Nabisco Royal Argentina Inc. Sep 29, 1934 Delaware
Nabisco Royal Colombiana Inc. Jan 03, 1938 Delaware
Nabisco Royal Inc. Sep 03, 1932 Delaware
Nabisco S.A. de C.V. (99%) Jun 15, 1992 Mexico
Nabisco (Thailand) Limited (50+%) ** Jan 07, 1986 Thailand
Nabisco Trading A.G. Aug 02, 1960 Switzerland
Nabisco Trading Ltd.* Feb 20, 1986 England
Nabisco Venezuela, C.A. Nov 26, 1991 Venezuela
National Biscuit Company **** Jan 17, 1971 Delaware
New York Style Bagel Chip Company, Inc. Apr 13, 1992 Delaware
Northern Brands International, Inc. Dec 10, 1992 Delaware
Nova Zembla Inc. Aug 19, 1975 New Jersey
N.V. R. J. Reynolds International S.A.** May 06, 1987 Belgium
N.V. R. J. Reynolds Tobacco Belgium S.A.** Sep 09, 1988 Belgium
Outdoor Traders International S.r.L. (35%) Jan 17, 1991 Italy
Plush Pippin Corporation Aug 06, 1986 Washington
Plush Pippin Restaurants, Inc. Aug 29, 1974 Oregon
Precis One Hundred Limited Feb 12, 1982 England
Productos Alimenticios Royal Limitada Mar 22, 1978 Chile
Productos Confitados Salvavidas de Guatemala,
S.A. Jul 03, 1974 Guatemala
Productos Royal de Honduras, Sociedad Anonima Jul 22, 1982 Honduras
Productos Royal S.A.* Dec 27, 1977 Argentina
Produtos Alimenticios Fleischmann e Royal Ltda. Nov 28, 1964 Brazil
Produtos Alimenticios Fleischmann Ltda. Dec 29, 1978 Brazil
* Inactive
** In Liquidation December 31, 1993
*** Partnership Page 5
**** Nameholder SUB-CURR
<PAGE>
RJR NABISCO HOLDINGS CORP.
--------------------------
Date of Place of
Name of Subsidiary Incorporation Incorporation
- ----------------------------------------------------------------------------
R. J. Reynolds Berhad (60%) Jan 29, 1970 Malaysia
R. J. Reynolds (Canary Islands) S.A. (55%) Apr , 1987 Canary Is.
R. J. Reynolds (Cyprus) Limited Feb 20, 1990 Cyprus
R. J. Reynolds Espana, S.L. (50+%) ? ?
R. J. Reynolds Europe, Inc. Apr 24, 1992 Delaware
R. J. Reynolds Finance S.A. Sep 17, 1982 Switzerland
R. J. Reynolds, Inc. Oct 09, 1985 Delaware
R. J. Reynolds International, Inc. Dec 13, 1985 Delaware
R. J. Reynolds Italia S.r.L. Feb 09, 1989 Italy
R. J. Reynolds (Korea) Ltd. Mar 09, 1989 Korea
R. J. Reynolds/M.C. Tobacco Company, Limited
(70%) Jul 01, 1982 Japan
R. J. Reynolds Overseas Finance Co. N.V. Oct 21, 1977 Neth.
Antilles
R. J. Reynolds (Portugal) Empresa Comercial
de Tabaco Ltda. (50%) Jul 20, 1980 Portugal
R. J. Reynolds Reklam Ve Pazarlama A.S. Mar 22, 1990 Turkey
R. J. Reynolds Scandinavia A.B. Apr 12, 1969 Sweden
R.J. Reynolds (SEA) SDN BHD Aug 29, 1992 Malaysia
R. J. Reynolds (Thailand) Inc. Aug 06, 1992 Delaware
R. J. Reynolds Tobacco Australia Inc. ** Jul 20, 1981 Delaware
R. J. Reynolds Tobacco B.V. Sep 24, 1973 Netherlands
R. J. Reynolds Tobacco Company Apr 04, 1899 New Jersey
R. J. Reynolds Tobacco Company Aug 08, 1969 Delaware
R. J. Reynolds Tobacco Company (Hong Kong),
Limited Apr 07, 1970 Hong Kong
R. J. Reynolds Tobacco Company S.A.E. Apr 27, 1971 Spain
R. J. Reynolds Tobacco Company Sdn. Bhd. Oct 10, 1973 Malaysia
R. J. Reynolds Tobacco Company (Taiwan), Inc. Apr 14, 1988 Delaware
R. J. Reynolds Tobacco (Czechoslovakia) Spol.
s.r.o. Apr 12, 1991 Czech.
R. J. Reynolds Tobacco Dagmersellen A.G. Mar 03, 1966 Switzerland
R. J. Reynolds Tobacco Espana S.A. Jul 20, 1982 Spain
R. J. Reynolds Tobacco Foreign Sales
Corporation Dec 19, 1984 US Virgin
Is.
R. J. Reynolds Tobacco France S.A. Aug 21, 1976 France
R. J. Reynolds Tobacco GmbH Nov 30, 1957 Germany
R. J. Reynolds Tobacco (Hellas) A.E.B.E. Sep 24, 1981 Greece
R .J. Reynolds Tobacco (Hungary) Kft Jun 18, 1991 Hungary
R. J. Reynolds Tobacco (Hungary) LLC Feb 27, 1991 Hungary
* Inactive
** In Liquidation December 31, 1993
*** Partnership Page 6
**** Nameholder SUB-CURR
<PAGE>
RJR NABISCO HOLDINGS CORP.
--------------------------
Date of Place of
Name of Subsidiary Incorporation Incorporation
- ----------------------------------------------------------------------------
R. J. Reynolds Tobacco International (Asia
Pacific), Inc. Nov 27, 1978 Delaware
R. J. Reynolds Tobacco International (Hong
Kong) Limited Jul 28, 1987 Hong Kong
R. J. Reynolds Tobacco International, Inc. Jan 12, 1976 Delaware
R. J. Reynolds Tobacco International (Korea)
Inc. Jan 17, 1991 Delaware
R. J. Reynolds Tobacco International (Mexico)
Inc. Jun 24, 1981 Delaware
R. J. Reynolds Tobacco International S.A. Nov 03, 1966 Switzerland
R. J. Reynolds Tobacco - Kremenchug Jun 01, 1993 Ukraine
R. J. Reynolds Tobacco Limited * Jun 18, 1975 New Zealand
R. J. Reynolds Tobacco (Poland) S.o.o. Jan 07, 1991 Poland
R. J. Reynolds Tobacco Rt Jul 28, 1992 Hungary
R. J. Reynolds Tobacco (UK) Limited Nov 18, 1980 England
R. J. Reynolds Trading Company Sdn. Bhd. Nov 06, 1987 Malaysia
R. J. Reynolds Tutun Sanayi A.S. Feb , 1992 Turkey
Ritz Biscuit Company Limited **** Sep 28, 1989 England
RJI Corporation Nov 06, 1970 Delaware
RJR Comercial Ltda. * Aug 18, 1977 Brazil
RJR Distribuidora Comercial, S.A. Jun , 1989 Spain
RJR Group, Inc., The Dec 13, 1985 Delaware
RJR Industries, Inc. Dec 29, 1975 Delaware
RJR Industries (U.K.) Limited ** Jun 01, 1982 England
RJR-Macdonald Inc. Sep 12, 1978 Canada
RJR Nabisco & Company *** Mar 20, 1992 Cyprus
RJR Nabisco China Limited Dec 28, 1979 Hong Kong
RJR Nabisco (Cyprus) Limited Mar 29, 1990 Cyprus
RJR-Nabisco Industries, Inc. Dec 13, 1985 Delaware
RJR Nabisco Investments, Inc. Mar 22, 1989 Delaware
RJR Nabisco (Philippines) Inc. Apr 22, 1992 Philippines
RJR Nabisco Russia Dec 05, 1991 Russia
RJR Nabisco Securities Ltd. May 29, 1987 Canada
RJR Nabisco Washington, Inc. Dec 13, 1985 Delaware
RJR-PETRO (52%) *** May 07, 1992 Russia
RJR Sales Co. Feb 18, 1993 Delaware
RJR Technical Company May 16, 1991 Delaware
RJR Tobacco Company, Inc. Dec 30, 1982 N. Carolina
RJR Tobacco Consolidated IHC, Inc. Mar 22, 1989 Delaware
RJR Tobacco Holdings IHC, Inc. Mar 22, 1989 Delaware
RJR Trade Promotion Co. Feb 18, 1993 Delaware
RJRN Policy Institute, Inc. Dec 13, 1985 Delaware
* Inactive
** In Liquidation December 31, 1993
*** Partnership Page 7
**** Nameholder SUB-CURR
<PAGE>
RJR NABISCO HOLDINGS CORP.
--------------------------
Date of Place of
Name of Subsidiary Incorporation Incorporation
- ----------------------------------------------------------------------------
Rodrigues Pinto Gelatinas Ltda. Jan 23, 1943 Brazil
Royal Holding C.A. Nov 26, 1991 Venezuela
Royal Productos Alimenticios, C.A. Jul 26, 1971 Venezuela
Royal Productos Alimenticios II, C.A. Aug 20, 1991 Venezuela
Salem Servicing, Inc. Jan 12, 1990 Delaware
Salvavidas S. de R.L. de C.V. ** Mar 30, 1967 Mexico
Saria Inc. Mar 09, 1956 New Jersey
Smiths Foods * Jul 26, 1922 England
Sociedade Brasileira Beneficiadora de Cha'
Ltda. (60%) Feb 24, 1958 Brazil
Sports Marketing Enterprises, Inc. **** Apr 14, 1988 N. Carolina
STAR Cooperation GmbH Jan 29, 1960 Germany
S*T*A*R* France S.A.R.L. Mar 01, 1990 France
Stella D'oro Biscuit Co., Inc. Jan 02, 1948 New York
Tecnologica Venezolana de Alimentos Tevalca,
C.A. Nov 28, 1985 Venezuela
Tecnologica Venezolana de Alimentos Tevalca
II, C.A. Aug 20, 1991 Venezuela
Tevalca Holding C.A. Nov 26, 1991 Venezuela
Transnational Services, Inc. Jan 06, 1988 Delaware
20th Century Denmark Limited Mar 06, 1990 Liberia
Vantage Arts Inc. Jun 22, 1989 Canada
WBI (International) S.A. ? 1989 Switzerland
West Indies Yeast Company Ltd. (72%) Nov 29, 1965 Jamaica
Worldwide Brands, Inc. Oct 18, 1983 Delaware
Worldwide Brands International (Hong Kong) Inc. Jan 19, 1988 Hong Kong
Worldwide Brands (Malaysia) Sdn. Bhd. Mar 30, 1991 Malaysia
Yili-Nabisco Biscuit & Food Company Limited
(51%) *** Jan 29, 1985 China
* Inactive
** In Liquidation December 31, 1993
*** Partnership Page 8
**** Nameholder SUB-CURR
EXHIBIT 23
CONSENT OF DELOITTE & TOUCHE, INDEPENDENT AUDITORS
We consent to the incorporation by reference in Registration Statement Nos.
33-39791, 33-39725, 33-40400, 33-40395, 33-40396, 33-66084 and 33-40702 of RJR
Nabisco Holdings Corp. on Form S-8 and Registration Statement No. 33-55716 of
RJR Nabisco, Inc. on Form S-3, of our report dated February 1, 1994 (except with
respect to the subsequent event discussed in Note 17, as to which the date is
February 24, 1994), appearing in this Annual Report on Form 10-K of RJR Nabisco
Holdings Corp. and RJR Nabisco, Inc. for the year ended December 31, 1993.
DELOITTE & TOUCHE
New York, New York
February 24, 1994
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, that each of the
undersigned, being a director or officer, or both, of each
of RJR NABISCO HOLDINGS CORP. and RJR NABISCO, INC., each a
Delaware corporation (the "Companies"), do hereby make,
constitute and appoint Jo-Ann Ford, Lawrence R. Ricciardi
and Robert F. Sharpe, Jr., and each of them,
attorneys-in-fact and agents of the undersigned with full
power and authority of substitution and resubstitution, in
any and all capacities, to execute for and on behalf of the
undersigned the ANNUAL REPORT ON FORM 10-K of RJR Nabisco
Holdings Corp. and RJR Nabisco, Inc., for the fiscal year
ended December 31, 1993, and any and all amendments or
supplements to the foregoing Annual Report and any other
documents and instruments incidental thereto, and to deliver
and file the same, with all exhibits thereto, and all
documents and instruments in connection therewith, with the
Securities and Exchange Commission, and with each exchange
on which any class of securities of the Companies is
registered, granting unto said attorneys-in-fact and agents,
and each of them, full power and authority to do and perform
each and every act and thing that said attorneys-in-fact and
agents, and each of them, deem advisable or necessary to
enable the Companies to effectuate the intents and purposes
hereof, and the undersigned hereby fully ratify and confirm
all that said attorneys-in-fact and agents, or any of them,
or their or his or her substitute or substitutes, shall do
or cause to be done by virtue hereof.
IN WITNESS WHEREOF, each of the undersigned has
subscribed his or her name, this 21st day of February,
1994.
/s/ Charles M. Harper Chairman of the Board and Chief
-------------------------- Executive Officer, Director
Charles M. Harper
/s/ Stephen R. Wilson Executive Vice President and Chief
-------------------------- Financial Officer
Stephen R. Wilson
/s/ Robert S. Roath Senior Vice President and Controller
--------------------------
Robert S. Roath
/s/ John T. Chain, Jr. Director
--------------------------
John T. Chain, Jr.
/s/ Saul A. Fox Director
--------------------------
Saul A. Fox
/s/ Louis V. Gerstner, Jr. Director
--------------------------
Louis V. Gerstner, Jr.
/s/ James H. Greene, Jr. Director
--------------------------
James H. Greene, Jr.
/s/ H. John Greeniaus Director
--------------------------
H. John Greeniaus
/s/ James W. Johnston Director
--------------------------
James W. Johnston
/s/ Vernon E. Jordan, Jr. Director
--------------------------
Vernon E. Jordan, Jr.
/s/ Henry R. Kravis Director
--------------------------
Henry R. Kravis
/s/ John G. Medlin, Jr. Director
--------------------------
John G. Medlin, Jr.
/s/ Paul E. Raether Director
--------------------------
Paul E. Raether
/s/ Lawrence R. Ricciardi Director
--------------------------
Lawrence R. Ricciardi
/s/ Rozanne L. Ridgway Director
--------------------------
Rozanne L. Ridgway
/s/ Clifton S. Robbins Director
--------------------------
Clifton S. Robbins
/s/ George R. Roberts Director
--------------------------
George R. Roberts
/s/ Scott M. Stuart Director
--------------------------
Scott M. Stuart
/s/ Michael T. Tokarz Director
--------------------------
Michael T. Tokarz
