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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, 1994
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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
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(State or other jurisdiction of (Commission file number) (I.R.S. Employer Identification 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 jurisdiction of (Commission file number) (I.R.S. Employer Identification 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:
NAME OF EACH
EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
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RJR NABISCO HOLDINGS CORP.
Common Stock, par value $.01 per
share New York
Series B Depositary Shares New York
Series C Depositary Shares New York
RJR NABISCO, INC.
8.30% Senior Notes due April 15, 1999 New York
8.75% Senior Notes due April 15, 2004 New York
7 5/8% Notes due September 15, 2003 New York
8 5/8% Notes due 2002 New York
8% Notes due 2000 New York
9 1/4% Debentures due 2013 New York
8 3/4% Notes due 2005 New York
SUBSIDIARIES OF THE REGISTRANTS
Nabisco, Inc.
7 3/4% Sinking Fund Debentures due
May 1, 2001 New York
7 3/4% Sinking Fund Debentures due
November 1, 2003 New York
Standard Brands Incorporated
7 3/4% Sinking Fund Debentures, due
May 1, 2001 New York
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. [X]
THE AGGREGATE MARKET VALUE OF VOTING STOCK HELD BY NON-AFFILIATES OF RJR
NABISCO HOLDINGS CORP. ON JANUARY 31, 1995 WAS APPROXIMATELY $5.9 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, 1995:
RJR NABISCO HOLDINGS CORP.: 1,362,133,648 SHARES OF COMMON STOCK, PAR VALUE,
$.01 PER SHARE
RJR NABISCO, INC.: 3,021.86513 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, 1995 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....................... 3
(c) Narrative Description of Business................................... 3
Tobacco........................................................... 3
Food.............................................................. 13
Other Matters..................................................... 17
(d) Financial Information about Foreign and Domestic Operations 17
and Export Sales..................................................
Item 2. Properties.................................................................. 18
Item 3. Legal Proceedings........................................................... 18
Item 4. Submission of Matters to a Vote of Security Holders......................... 18
Executive Officers of the Registrants....................................... 19
PART II
Item 5. Market for Registrants' Common Equity and Related Stockholder Matters....... 21
Item 6. Selected Financial Data..................................................... 22
Item 7. Management's Discussion and Analysis of Financial Condition and 24
Results of Operations.....................................................
Item 8. Financial Statements and Supplementary Data................................. 38
Item 9. Changes in and Disagreements with Accountants on Accounting and 38
Financial Disclosure......................................................
PART III
Item 10. Directors and Executive Officers of the Registrants......................... 39
Item 11. Executive Compensation...................................................... 39
Item 12. Security Ownership of Certain Beneficial Owners and Management.............. 39
Item 13. Certain Relationships and Related Transactions.............................. 39
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K............ 40
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PART I
ITEM 1. BUSINESS
(a) General Development of Business
The operating subsidiaries of RJR Nabisco Holdings Corp. ("Holdings") and
its wholly-owned subsidiary, RJR Nabisco, Inc. ("RJRN") (collectively the
"Registrants") 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 Nabisco Holdings Corp. ("Nabisco
Holdings") through its wholly-owned subsidiary, Nabisco, Inc. ("Nabisco"), the
largest manufacturer and marketer of cookies and crackers. Outside the United
States, the tobacco operations are conducted by R. J. Reynolds Tobacco
International, Inc. ("Tobacco International"), and the food operations are
conducted by Nabisco International, Inc. ("Nabisco International") and Nabisco
Brands Ltd. 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, 1994 and 1993 and
for each of the years in the three-year period ended December 31, 1994 (the
"Consolidated Financial Statements").
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 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.
RJRN was incorporated as a holding company in 1970. RJRT can trace its
origins back to its formation 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 (which was sold in 1989), RJRN began to concentrate its
focus on consumer products. This strategy led to the acquisition of Nabisco
Holdings Corp. (formerly Nabisco Brands, Inc.) in 1985.
In recent years subsidiaries of the Registrants have completed a number of
acquisitions. In 1994, these acquisitions included (i) the KNOX gelatin brand;
(ii) an approximately 99% interest in Establecimiento Modelo Terrabusi S.A.,
Argentina's second largest biscuit and pasta maker; (iii) a 76% interest in the
Yelets tobacco processing plant in Russia; (iv) a controlling interest in a
cigarette manufacturer in the Krasnodar region of southern Russia; and (v) a 90%
interest in Shimkent Confectionery Enterprises and a site for a new cigarette
factory in Kazakhstan. In February 1995, Tobacco International acquired Oy P.C.
Rettig Ab, Finland's second largest tobacco company.
In 1993, these acquisitions included (i) a 50% interest (increased to 100%
in 1994) in Royal Brands, S.A. in Spain and Royal Brands Portugal; (ii) a 95%
interest in Cia. Arturo Field y la Estrella Ltda., S.A., the leading biscuit
maker in Peru; (iii) the remaining interest in Compania Nacional de Galletas
Nabisco La Favorita, C.A., a Venezuelan biscuit maker, which as a result became
a wholly-owned indirect subsidiary of Nabisco International; and (iv) a 70%
interest in two cigarette factories in Ukraine.
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In 1992, these acquisitions included (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 ("Plush Pippin"), 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") that
manufactures breadsticks, breakfast biscuits, specialty cakes, pastries and
snacks; (iv) Industrias Alimenticias Maguary S.A., Brazil's largest producer and
marketer of packaged fruit-based beverages; (v) the NOW & LATER confection
brand, a fruit chewy taffy product; (vi) Lance S.A. de C.V., one of Mexico's
leading biscuit and pasta manufacturers; (vii) 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; and (viii) a 52%
interest (increased to 80% in 1994) in a cigarette factory in St. Petersburg,
Russia.
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 other 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 business
of certain subsidiaries of RJRN.
On January 26, 1995, Nabisco Holdings completed the initial public offering
of 51,750,000 shares of its Class A Common Stock at an initial offering price of
$24.50 per share. Nabisco used all of the approximately $1.2 billion of net
proceeds from the initial public offering to repay a portion of its initial
borrowing under its credit agreement, dated as of December 6, 1994 (the "Nabisco
1994 Credit Agreement"). RJRN owns 100% of the outstanding Class B Common Stock
of Nabisco Holdings, which represents approximately 80.5% of the economic
interest in Nabisco Holdings and approximately 97.6% of the total voting power
of Nabisco Holdings' outstanding common stock. In connection with the offering,
Holdings, RJRN and Nabisco Holdings entered into agreements to exchange certain
services, to establish tax sharing arrangements and to provide RJRN with certain
preemptive and registration rights with respect to Nabisco Holdings and Nabisco
securities.
Certain provisions in approximately $6 billion of RJRN's publicly held debt
limit the ability of its subsidiaries to incur long-term debt. RJRN and Nabisco
are currently considering a transaction in which they would seek to obtain
consents to remove such limitations in order to permit Nabisco to establish
long-term borrowing capacity independent of RJRN and to reduce its intercompany
debt to RJRN. It is anticipated that such consents would be sought in connection
with offers by Nabisco or RJRN to exchange debt of Nabisco for, or to pay
certain cash consent solicitation fees in respect of, all or a portion of such
RJRN debt. RJRN believes that any such transaction would not materially change
the amount of consolidated indebtedness of either RJRN or Nabisco, although any
newly issued debt of RJRN or Nabisco incurred in connection with the transaction
may have maturities, interest rates or other terms that are less attractive to
RJRN or Nabisco, respectively, than the terms of their existing debt. No
assurance can be given that any such restructuring will be pursued or
consummated or as to the timing of any such restructuring.
During 1994, the percentage voting power of Holdings held by partnerships
affiliated with KKR (the "KKR Partnerships") decreased substantially. This
reduction was principally the result of transactions in connection with the
acquisition of Borden, Inc. ("Borden") by certain of the KKR Partnerships. As of
December 31, 1993, an aggregate of approximately 46.16% (approximately 38.28% on
a fully diluted basis) of the total voting power of Holdings was held by the KKR
Partnerships. As of December 31, 1994, after giving effect to certain
transactions in connection with the acquisition of Borden by the KKR
Partnerships, the KKR Partnerships held or controlled an aggregate of
approximately 24.95% (approximately 20.28% on a fully diluted basis) of the
total voting power of Holdings, including 51,106,768 shares of Holdings Common
Stock, par value $.01 per share (the "Common Stock"), held by Borden. Subsequent
to December 31, 1994, Borden acquired 68,893,232 additional
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shares of Holdings Common Stock from the KKR Partnerships. On February 16, 1995,
Borden sold 120,000,000 shares of Holdings Common Stock in a public offering
(the "Borden Offering"). After giving effect to the Borden Offering and the
projected completion in March 1995 of the remaining steps in the acquisition of
Borden by the KKR Partnerships and assuming that no further options for Borden
common stock are exercised, the KKR Partnerships will hold or control an
aggregate of approximately 7.95% (approximately 6.56% on a fully diluted basis)
of the total voting power of Holdings based on the number of shares of Holdings
Common Stock outstanding as of January 31, 1995.
(b) Financial Information about Industry Segments
During 1994, 1993 and 1992, the Registrants' industry segments were tobacco
and food.
For information relating to industry segments for the years ended December
31, 1994, 1993 and 1992, 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
1994, approximately 60% of total tobacco segment net sales (after deducting
excise taxes) and approximately 66% of total tobacco segment operating income
(before amortization of trademarks and goodwill) 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, CAMEL, SALEM,
MONARCH and VANTAGE. RJRT's other cigarette brands, including MORE, NOW, BEST
VALUE, 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 1994 of 27.8%, a decrease of
approximately 2 share points from 1993. During 1994, RJRT and the largest
domestic cigarette manufacturer, Philip Morris U.S.A., together sold, on a
shipment basis, approximately 73% of all cigarettes sold in the United States.
In November 1994, RJRT confirmed press reports that it was developing
ECLIPSE, a cigarette that primarily heats rather than burns tobacco and thereby
substantially reduces second-hand smoke. The cigarette remains under
development, and RJRT continues to assess a possible introduction of an ECLIPSE
cigarette.
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 build brand loyalty among current adult smokers and attract
adult smokers of competitive brands. In 1994, these efforts included the
introduction and expansion of conversion, continuity and relationship-building
programs such as the CAMEL Genuine Taste Mission, CAMEL Cash, CAMEL Insider,
WINSTON Winners Club and WINSTON Select Weekends and the
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regional introduction of the SALEM Preferred line extension. RJRT believes it is
essential to compete in all segments of the cigarette market, and accordingly it
offers a range of lower-priced brands including DORAL, MONARCH and BEST VALUE
intended to appeal to more cost-conscious adult smokers. For a discussion on
competition in the tobacco business, see "Tobacco--Competition" in this Item 1
and "Impact of 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 13% of RJRT's sales, no RJRT customers accounted for more than 10%
of sales for 1994. 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 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 1994.
Approximately 22% of Tobacco International's cigarette volume for 1994 was
manufactured by RJRT in the United States for sale in foreign markets. The
remainder was manufactured overseas,
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principally in owned manufacturing facilities or by licensees or joint ventures.
In addition to its new operations in the former Soviet Union, Tobacco
International operates two tobacco manufacturing facilities in Germany and one
located in each of Canada, Hong Kong, Hungary, Malaysia, Poland, Puerto Rico,
Switzerland and Turkey. Tobacco International also opened a factory in the
People's Republic of China in 1988 as part of the first cigarette manufacturing
joint venture in that country.
Certain of Tobacco International's foreign operations are subject to local
regulations that set import quotas, restrict financing flexibility, affect
repatriation of earnings or assets and limit advertising. 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. RJRT and Tobacco
International believe there is a sufficient supply of tobacco in the worldwide
tobacco market to satisfy their current production requirements.
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 addition, Congress
enacted the Omnibus Budget Reconciliation Act of 1993, which assesses financial
penalties against manufacturers if cigarettes produced in the United States do
not contain at least 75% (by weight) domestically grown flue cured and burley
tobaccos. In December 1994, Congress enacted the Uruguay Round Agreements Act to
replace this domestic content requirement with a tariff rate quota system that
keys tariffs to import volumes. The tariff rate quotas are currently being
negotiated by the United States and overseas tobacco producers. Compliance with
import restrictions increased raw material costs slightly in 1994 and may cause
increases in the future.
COMPETITION
Generally, the markets in which RJRT and Tobacco International conduct their
businesses are highly competitive, with a number of large participants.
Competition is conducted on the basis of brand recognition, brand loyalty,
quality and price. For most of RJRT's and Tobacco International's brands,
substantial advertising and promotional expenditures are required to maintain or
improve a brand's market position or to introduce a new brand. 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 savings
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segment of the market. Generally, sales of cigarettes in the savings segment are
not as profitable as those in other segments.
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. The federal excise tax per pack of 20
cigarettes increased from 16 cents to 20 cents on January 1, 1991 and to 24
cents on January 1, 1993. In addition, all states and the District of Columbia
impose excise taxes at levels ranging from a low of 2.5 cents to a high of 75
cents per pack on cigarettes. 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
to 41 cents per pack. In 1994, the cigarette excise tax in five states was
increased by amounts which ranged from 7.5 cents to 50 cents per pack.
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 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 February 1994, the Commissioner of the U.S. Food and Drug Administration
(the "FDA"), which historically has refrained from asserting jurisdiction over
cigarette products, stated that he intended to cause the FDA to work with the
U.S. Congress to resolve the regulatory status of cigarettes under the Food,
Drug and Cosmetic Act. During the second quarter of 1994, hearings were held in
this regard, and RJRT and other members of the United States cigarette industry
were asked to provide voluntarily certain documents and other information to
Congress. RJRT is unable to predict the outcome of any Congressional
deliberations or the likelihood that the FDA will assert jurisdiction over
cigarettes in some manner. Were the FDA to assert jurisdiction in a manner that
materially restricts the availability of cigarettes to consumers, it would
likely have a significant adverse effect on RJRT.
In March 1994, the U.S. Occupational Safety and Health Administration
("OSHA") announced proposed regulations that would restrict smoking in the
workplace to designated smoking rooms that are separately exhausted to the
outside. Although RJRT cannot predict the form of any regulations that may be
finally adopted by OSHA, if the proposed regulations are adopted, RJRT expects
that many employers who have not already done so would prohibit smoking in the
workplace rather than make expenditures necessary to establish designated
smoking areas to accommodate smokers. Because many employers currently do not
permit smoking in the workplace, RJRT cannot predict the effect of any
regulations that may be adopted, but incremental restrictions on smokers could
have an adverse effect on cigarette sales and RJRT.
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In July 1994, an amendment to a Florida statute became effective which
allows the state of Florida to bring an action in its own name against the
tobacco industry to recover amounts paid by the state under its Medicaid program
to treat illnesses statistically associated with cigarette smoking. The amended
statute does not require the state to identify the individual who received
medical care, permits a lawsuit to be filed as a class action, and eliminates
the comparative negligence and assumption of risk defenses. Similar legislation,
without Florida's elimination of these defenses, has been introduced in the
Massachusetts and New Jersey legislatures. RJRT is unable to predict whether
other states will enact similar legislation, whether lawsuits will be filed
under these statutes, or their outcome if filed. The Florida statute is being
challenged on state and federal constitutional grounds in a lawsuit brought by
Philip Morris Companies Inc., Associated Industries of Florida, Publix
Supermarkets, and National Association of Convenience Stores in June 1994. On
February 20, 1995, RJRT and Philip Morris Incorporated filed a petition with the
Supreme Court of Florida to prohibit Florida's Agency for Health Care
Administration and the Department of Business and Professional Regulation from
filing and maintaining a lawsuit against the tobacco industry under this
statute. A suit against the tobacco industry was filed under the Florida
statute on February 21, 1995. See "Litigation Affecting the Cigarette Industry"
below in this Item 1.
Legislation imposing various restrictions on public smoking has also been
enacted in forty-eight states and many local jurisdictions, and many employers
have initiated programs restricting or eliminating smoking in the workplace.
Seventeen 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.
Certain common carriers have imposed additional restrictions on passenger
smoking.
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.
In 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 Abuse and Mental Health Act
was signed into law. This Act requires states to adopt a minimum age of 18 for
purchases of tobacco products and to establish a system to monitor, report and
reduce the illegal sale of tobacco products to minors in order to continue
receiving 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
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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 Low Birth Weight"; and (iv) "Surgeon General's
Warning: Cigarette Smoke Contains Carbon Monoxide." Similar warnings are
required on outdoor billboards. In 1990, the Fire Safe Cigarette Act of 1990 was
enacted, which directed the Consumer Product Safety Commission to conduct and
oversee research begun under the direction of the Cigarette and Little Cigar
Fire Safety Act of 1984 to assess the practicability of developing a performance
standard to reduce cigarette ignition propensity. The Commission presented a
final report to Congress in 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 RJRT 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. During the last Congress, the Clinton Administration and
federal legislators introduced bills that would have significantly increased the
federal excise tax on cigarettes, eliminated the deductibility of a portion of
the cost of tobacco advertising, banned smoking in public buildings and
workplaces, added additional health warnings on cigarette packaging and
advertising, further restricted the marketing of tobacco products and authorized
the Attorney General of the United States to seek to recover federal Medicaid
and Medicare payments used to treat illnesses allegedly related to the use of
tobacco products from their manufacturers. This legislation was not enacted.
Similarly, in recent years various Congressional committees and subcommittees
have approved other legislation 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.
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It is not possible to determine what additional federal, state, local or
foreign 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 1994, 32 new actions were filed or
served against RJRT and/or its affiliates or indemnitees and 14 such actions
were dismissed or otherwise resolved in favor of RJRT and/or its affiliates or
indemnitees without trial. A total of 54 such actions in the United States and
one against RJRT's Canadian subsidiary were pending on December 31, 1994. As of
February 17, 1995, 55 active cases were pending against RJRT and/or its
affiliates or indemnitees, 54 in the United States and one in Canada. The United
States cases are in 23 states and are distributed as follows: thirteen in
Louisiana, eight in Texas, three in each of Indiana, Mississippi and Tennessee,
two in each of Alabama, California, Florida, Minnesota, New Jersey and West
Virginia and one in each of Colorado, Ohio, Illinois, Kansas, Washington,
Oklahoma, Massachusetts, Nevada, South Carolina, New Hampshire, New York and
Pennsylvania. Of the 54 active cases in the United States, 33 are pending in
state court and 21 in federal court.
Five of the 54 active cases in the United States involve alleged non-smokers
claiming injuries resulting from exposure to environmental tobacco smoke. Seven
cases, which are described more specifically below, purport to be class actions
on behalf of thousands of individuals. Purported classes include individuals
claiming to be addicted to cigarettes, flight attendants alleging personal
injury from exposure to environmental tobacco smoke in their workplace and, in
one case, parents claiming that an RJRT advertising campaign constitutes an
unfair trade practice.
The plaintiffs in these actions seek recovery on a variety of legal
theories, including strict liability in tort, design defect, negligence, breach
of warranty, failure to warn, fraud, misrepresentation, unfair trade practices,
conspiracy, unjust enrichment, indemnity and common law public nuisance.
Punitive damages, often in amounts ranging into the hundreds of millions of
dollars, are specifically pleaded in 27 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 in
which RJRT was not a defendant, 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 and, if so, in what form, or whether such legislation would be
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intended by Congress to apply retroactively. The passage of such legislation
could increase the number of cases filed against cigarette manufacturers,
including RJRT.
Set forth below are descriptions of class action lawsuits, a suit in which
plaintiffs seek to act as private attorneys general, actions brought
by state attorneys general in Minnesota, Mississippi and West Virginia, an
action brought by the State of Florida and pending investigations relating to
RJRT's tobacco business.
In 1991, Broin v. Philip Morris Company, Inc. et al., a purported class
action against certain tobacco industry defendants, including RJRT, was brought
by flight attendants, claiming to represent a class of 60,000 individuals,
alleging personal injury caused by exposure to environmental tobacco smoke in
their workplace. In December 1994, the Florida state court certified a class
consisting of "all non-smoking flight attendants who are or have been employed
by airlines based in the United States and are suffering from diseases and
disorders caused by their exposure to secondhand cigarette smoke in airline
cabins." The defendants have appealed the ruling to the Florida Third District
Court of Appeal.
In March 1994, Castano v. The American Tobacco Company, et. al., a purported
class action, was filed in the United States District Court for the Eastern
District of Louisiana against tobacco industry defendants, including RJRT,
seeking certification of a class action on behalf of all United States residents
who allegedly are or claim to be addicted, or are the legal survivors of persons
who allegedly were addicted, to tobacco products manufactured by defendants. The
complaint alleges that cigarette manufacturers manipulated the levels of
nicotine in their tobacco products to induce addiction in smokers. Plaintiffs'
motion for certification of the class was granted in part on February 17, 1995.
The district court certified core liability issues (fraud, negligence, breach of
warranty, both express and implied, intentional tort, strict liability and
consumer protection statutes), and punitive damages. Not certified were issues
of injury-in-fact, proximate cause, reliance, affirmative defenses, and
compensatory damages. The defendants plan to pursue appellate remedies.
In March 1994, Lacey v. Lorillard Tobacco Company, Inc., et. al., a
purported class action, was filed in Circuit Court, Fayette County, Alabama
against three cigarette manufacturers, including RJRT. Plaintiff, who claims to
represent all smokers who have smoked or are smoking cigarettes manufactured and
sold by defendants in the state of Alabama, seeks compensatory and punitive
damages not to exceed $48,500 per class member and injunctive relief arising
from defendants' alleged failure to disclose additives used in their cigarettes.
In April 1994, defendants removed the case to the United States District Court
for the Northern District of Alabama.
In April 1994, Sparks v. R.J. Reynolds Tobacco Company, et al. was brought
in Washington state court on behalf of a purported class of "parents with a
conscience" alleging that an RJRT advertising campaign targets minors and
constitutes an unfair trade practice under Washington state law. In 1994, the
case was removed to the United States District Court for the Western District of
Washington. Defendants' motion to dismiss the case on preemption grounds was
granted on December 9, 1994. Plaintiffs have filed a notice of appeal.
In May 1994, Engle v. R.J. Reynolds Tobacco Company, et al. was filed in
Circuit Court, Eleventh Judicial District, Dade County, Florida against tobacco
manufacturers, including RJRT, and other members of the industry, by plaintiffs
who allege injury and purport to represent a class of all United States citizens
and residents who claim to be addicted, or who claim to be legal survivors of
persons who allegedly were addicted, to tobacco products. On October 28, 1994, a
state court judge in Miami granted plaintiffs' motion to certify the class. The
defendants have appealed that ruling to the Florida Third District Court of
Appeal.
In September 1994, Granier v. American Tobacco Company, et al., a purported
class action apparently patterned after the Castano case, was filed in the
United States District Court for the
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Eastern District of Louisiana against tobacco industry defendants, including
RJRT. Plaintiffs seek certification of a class action on behalf of all residents
of the United States who have used and purportedly became addicted to tobacco
products manufactured by defendants. The complaint alleges that cigarette
manufacturers manipulated the levels of nicotine in tobacco products for the
purpose of addicting consumers. By agreement of the parties, all action in this
case is stayed pending determination of the motion for class certification in
the Castano case.
In January 1995, a purported class action was filed in the Ontario Canada
Court of Justice against RJR-MacDonald, Inc. and two other Canadian cigarette
manufacturers. The lawsuit, Le Tourneau, et al. v. Imperial Tobacco Company,
Ltd., et al., seeks certification of a class of persons who have allegedly
become addicted to the nicotine in cigarettes or who had such alleged addiction
heightened or maintained through the use of cigarettes, and who have allegedly
suffered loss, injury, and damage in consequence, together with persons with
Family Law Act claims in respect to the claims of such allegedly addicted
persons, and the estates of such allegedly addicted persons. Theories of
recovery pleaded include negligence, strict liability, failure to warn,
deceit, negligent misrepresentation, implied warranty and conspiracy. The
relief sought consists of damages of three million dollars, punitive damages,
funding of nicotine addiction rehabilitation centers, interest and costs.
As of February 21, 1995, RJR-MacDonald, Inc. had not yet been served with a
copy of the complaint.
In March 1994, Allman v. Philip Morris, Inc., et al. and Higley v. Philip
Morris, Inc., et al. were filed in the United States District Court for the
Southern District of California against industry members and others, including
RJRT, on behalf of a purported class of persons claiming to be addicted to
cigarettes who had been prescribed treatment using the nicotine transdermal
system. Plaintiffs assert a violation of the Racketeer Influenced and Corrupt
Organizations Act and claim unspecified actual and treble damages. In April
1994, the two cases were combined into a single amended complaint and
plaintiffs' counsel agreed to dismiss the Higley case. On September 28, 1994,
the court granted the defendants' motion to dismiss the remaining case with
prejudice. Plaintiffs filed a notice of appeal, but the parties later stipulated
to a dismissal. An order was entered February 13, 1995 dismissing the case.
In June 1994, in Mangini v. R.J. Reynolds Tobacco Company, et al., the
California Supreme Court ruled that the plantiffs' claim that an RJRT
advertising campaign constitutes unfair competition under the California
Business and Professions Code was not preempted by the Cigarette Act. The suit
is similar to the Sparks case pending in Washington except that the plantiffs
here are acting as private attorneys general rather than on behalf of a
purported class. This opinion allows the plaintiffs to pursue their lawsuit
which had been dismissed at the trial court level. On September 28, 1994, the
defendants in this case filed a Petition for Certiorari to the United States
Supreme Court, which was denied on December 28, 1994. The case has been remanded
to the trial court where additional defendants, including RJRN, have been added.
In June 1994, in Moore v. The American Tobacco Company, et al., RJRN and
RJRT were named along with other industry members as defendants in an action
brought by the Mississippi state attorney general on behalf of the state to
recover state funds paid for health care and medical and other assistance to
state citizens suffering from diseases and conditions allegedly related to
tobacco use. This suit, which was brought in Chancery (non-jury) Court, Jackson
County, Mississippi also seeks an injunction from "promoting" or "aiding and
abetting" the sale of cigarettes to minors. Both actual and punitive damages are
sought in unspecified amounts. Motions by the defendants to dismiss the case or
to transfer it to circuit (jury) court were denied on February 21, 1995 and the
case will proceed in Chancery Court. The defendants are considering their
options regarding appeal.
In August 1994, RJRT and other U.S. cigarette manufacturers were named as
defendants in an action instituted on behalf of the state of Minnesota and on
behalf of Blue Cross and Blue Shield of Minnesota to recover the costs of
medical expenses paid by the state and by Blue Cross/Blue Shield that were
incurred in the treatment of diseases allegedly caused by cigarette smoking. The
suit, Minnesota v.
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Philip Morris, et al., alleges consumer fraud, unlawful and deceptive trade
practices, false advertising and restraint of trade, and it seeks injunctive
relief and money damages, trebled for violations of the state antitrust law.
In September 1994, the Attorney General of West Virginia filed suit against
RJRT, RJRN and twenty-one additional defendants in state court in West Virginia.
The lawsuit, McGraw v. American Tobacco Company, et al., is similar to those
previously filed in Mississippi and Minnesota. It seeks recovery for medical
expenses incurred by the state in the treatment of diseases statistically
associated with cigarette smoking and requests an injunction against the
promotion and sale of cigarettes and tobacco products to minors. The lawsuit
also seeks a declaration that the state of West Virginia, as plaintiff, is not
subject to the defenses of statute of repose, statute of limitations,
contributory negligence, comparative negligence, or assumption of the risk.
On February 21, 1994, the state of Florida filed a suit against RJRT and
RJRN, along with other industry members, their holding companies and other
entities, under the Florida statute described above in "Legislation and Other
Matters Affecting the Cigarette Industry". In addition to Medicaid reimbursement
under various theories of liability, the suit seeks injunctive relief to:
prevent the defendants from engaging in consumer fraud; disclose and publish all
research conducted directly or indirectly by the industry; fund a corrective
public education campaign on the issues of smoking and health in Florida;
prevent the distribution and sale of cigarettes to minors under the age of
eighteen; fund clinical smoking cessation programs in the state of Florida;
dissolve the Council for Tobacco Research and the Tobacco Institute or divest
ownership, sponsorship or membership in both; and disgorge all profits from
sales of cigarettes in Florida. Neither RJRT nor RJRN has been served with
a copy of the complaint as of February 21, 1995.
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 received a civil investigative demand dated January 11, 1994 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 tobacco-related 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 or 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.
The Registrants believe that the ultimate outcome of all pending litigation
matters should not have a material adverse effect on the financial position of
either of the Registrants; however, it is possible that the results of
operations or cash flows of the Registrants in particular quarterly or annual
periods or the financial condition of the Registrants 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
any possible loss in any particular quarterly or annual period or in the
aggregate.
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FOOD
The food line of business is conducted by operating subsidiaries of Nabisco
Holdings. RJRN owns 100% of the outstanding Class B Common Stock of Nabisco
Holdings, which represents approximately 80.5% of the economic interest in
Nabisco Holdings and approximately 97.6% of the total voting power of Nabisco
Holdings' outstanding common stock. Nabisco's business in the United States is
comprised of the Nabisco Biscuit, Specialty Products, LifeSavers, Planters, Food
Service and Fleischmann's Companies (collectively, the "Domestic Food Group").
Nabisco's business outside the United States is conducted by Nabisco Brands Ltd
and Nabisco International (collectively, the "International Food Group").
Nabisco Brands Ltd was recently shifted from the Domestic Food Group (formerly
the North American Food Group) to the International Food Group.
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 1994.
DOMESTIC FOOD GROUP OPERATIONS
Nabisco Biscuit Company. Nabisco Biscuit Company is the largest manufacturer
and marketer in the United States cookie and cracker industry with nine of the
ten top selling brands, each of which had annual net sales of over $100 million
in 1994. Overall, in 1994, Nabisco Biscuit had a 41.6% share of the domestic
cookie category and a 54.8% share of the domestic cracker category, in the
aggregate more than three times the share of its closest competitor. Leading
Nabisco Biscuit cookie brands include OREO, CHIPS AHOY!, NEWTONS and
SNACKWELL'S. Leading Nabisco Biscuit cracker brands include RITZ, PREMIUM,
NABISCO HONEY MAID GRAHAMS, WHEAT THINS 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. Line extensions such as OREO DOUBLE STUF, FUDGE COVERED OREO and
Reduced Fat OREO continue to increase the brand's appeal to targeted consumer
groups. CHIPS AHOY! is the leader in the chocolate chip cookie segment with line
extensions such as CHUNKY CHIPS AHOY! and CHEWY 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 FAT FREE CRANBERRY, RASPBERRY and STRAWBERRY NEWTONS in 1993
has expanded the appeal of NEWTONS and added incremental sales.
Nabisco Biscuit's cracker business is led by RITZ, the largest selling
cracker in the United States, as well as RITZ BITS and RITZ BITS SANDWICHES,
successful product line extensions which, together with RITZ, accounted for
12.2% of cracker sales in the United States in 1994. In addition, PREMIUM, the
oldest Nabisco cracker brand and the leader in the saltine cracker segment, is
joined by NABISCO HONEY MAID GRAHAMS, WHEAT THINS and TRISCUIT to comprise,
along with RITZ, five of the six 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 line with the
introduction of MR. PHIPPS TATER CRISPS in 1992, which deliver salty snack taste
with only half the fat of potato chips.
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. Nabisco Biscuit also acquired Stella d'Oro, a leading producer of
breadsticks, breakfast biscuits, specialty cakes, pastries and snacks. This line
of specialty items gave Nabisco Biscuit access to new areas within supermarkets,
further broadening Nabisco's cookie and cracker portfolio.
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Nabisco Biscuit's other cookie and cracker brands, which include NUTTER
BUTTER, NILLA WAFERS, BARNUM'S ANIMAL CRACKERS, BETTER CHEDDARS, HARVEST CRISPS,
CHICKEN IN A BISKIT and CHEESE NIPS, 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 modernizing 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 10 major distribution warehouses
and 125 shipping branches where shipments are consolidated for delivery to
approximately 111,000 separate delivery points. Nabisco believes this
sophisticated distribution and delivery system provides it with a significant
service advantage over its competitors.
Specialty Products Company. The Specialty Products Company manufacturers and
markets a broad range of food products, with sauces and condiments, pet snacks,
Mexican 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, CREAM OF WHEAT hot cereals, ROYAL desserts and COLLEGE INN
broths.
Specialty Products' primary entries in the sauce and condiment segments are
A.1. and A.1. BOLD steak sauces, the leading lines of steak sauces, and GREY
POUPON mustards, which include the leading Dijon mustard. 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 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. ROYAL gelatins and puddings, KNOX gelatins and
MY-T-FINE puddings are manufactured in one facility.
Nabisco, through the Specialty Products Company, manufactures hot cereals,
participating in the cook-on-stove and mix-in-bowl segments of the category.
CREAM OF WHEAT, the leading wheat-based hot cereal, and CREAM OF RICE
participate in the cook-on-stove segment and eight varieties of INSTANT CREAM OF
WHEAT participate in the mix-in-bowl segment. Hot cereals are manufactured in
one facility. Quaker Oats Company is the most significant participant in the hot
cereal category.
Specialty Products sells to retail grocery chains through independent
brokers and to drugstores, mass merchandisers and other major retail outlets
through a direct sales force. The products are sold and distributed by Nabisco's
Sales & Integrated Logistics Group.
LifeSavers Company. The LifeSavers Company 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
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SAVERS fruit chewy candy. Based on 1994 net sales, LIFE SAVERS is the largest
selling hard roll candy in the United States, with a 21.4% 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' products are seasonally strongest in the fourth
quarter.
LifeSavers sells its products in the United States primarily to grocery
stores, drug stores, mass merchandisers, convenience stores, membership club
stores and food service, military and vending machine suppliers. The products
are sold and distributed by Nabisco's Sales & Integrated Logistics Group.
LifeSavers currently owns and operates four manufacturing facilities.
Planters Company. The Planters Company produces and/or markets nuts and
snacks largely for sale in the United States, primarily under the PLANTERS
trademark. PLANTERS nuts are the clear leader in the packaged nut category, with
a market share of six 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 grocery
stores, drug stores, mass merchandisers, convenience stores, membership club
stores and food service, military and vending machine suppliers. The products
are sold and distributed by Nabisco's Sales & Integrated Logistics Group.
Planters currently owns and operates two manufacturing facilities.
Food Service Company. The Food Service Company sells through non-grocery
channels a variety of specially packaged food products of the Nabisco Biscuit,
LifeSavers, Planters, Fleischmann's and Specialty Products Companies, including
cookies, crackers, hot cereals, sauces and condiments for the food service and
vending machine industry. Food Service is also a leading regional supplier of
premium frozen pies to in-store supermarket bakeries, wholesale clubs and food
service accounts through Plush Pippin Corporation. Food Service provides Nabisco
with an additional distribution method for its products. The Food Service
products are distributed by Nabisco's Sales & Integrated Logistics Group.
Fleischmann's Company. The Fleischmann's Company manufactures and markets
various margarines and spreads as well as a no-fat egg product, EGG BEATERS.
Fleischmann's margarine business is the second largest margarine producer in
the United States. Fleischmann's currently participates in all segments of the
margarine category, with FLEISCHMANN'S, BLUE BONNET and MOVE OVER BUTTER.
Fleischmann's margarines are manufactured in three facilities. Fleischmann's is
the market leader in the healthy packaged egg category with EGG BEATERS.
Distribution for the Fleischmann's Company is principally direct from plant to
retailer warehouse and through Nabisco's Sales & Integrated Logistics Group.
Sales and Integrated Logistics Group. The Sales & Integrated Logistics Group
handles sales and distribution for the Specialty Products, LifeSavers, Planters
and Fleischmann's Companies and distribution for the Food Service Company. Their
products are sold to retail grocery chains through independent brokers and a
direct sales force, and to drug stores, mass merchandisers and other major
retail outlets through the direct sales force. The products are distributed from
twelve distribution centers located throughout the United States.
INTERNATIONAL FOOD GROUP OPERATIONS
Nabisco Brands Ltd. Nabisco Brands Ltd conducts Nabisco's Canadian
operations through a biscuit division, a grocery division and a food service
division. Excluding private label brands, the biscuit division produced nine of
the top ten cookies and nine of the top ten crackers in Canada in 1994. 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 also markets a variety of single-serve
15
<PAGE>
cookies, crackers and salty snacks under such brand names as MINI OREO, RITZ
BITS SANDWICHES and CRISPERS.
Nabisco Brands Ltd's grocery division produces and markets canned fruits and
vegetables, fruit juices and 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, vegetables, soups and fruit juices
and drinks are marketed under the DEL MONTE trademark, pursuant to a license
from the Del Monte Corporation, and under the AYLMER trademark. The grocery
division also markets MILK-BONE pet snacks and MAGIC baking powder, each a
leading brand in Canada. Nabisco Brands Ltd's grocery division operated six
manufacturing facilities in 1994, five of which were 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 and 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. Nabisco International is a leading producer of
biscuits, powdered dessert and drink mixes, baking powder, other grocery items,
industrial yeast and bakery ingredients. Nabisco International also exports a
variety of Nabisco, Inc. 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 biscuits and crackers under
the NABISCO brand, yeast, baking powder and bakery ingredients under the
FLEISCHMANN'S and ROYAL brands, desserts 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 the Del Monte Corporation.
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 and certain other Latin American
countries, 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. In Argentina, Nabisco International acquired
71% of Establecimiento Modelo Terrabusi S.A. in April 1994 and increased its
interest in the Argentine biscuit and pasta company to approximately 99% in
October and November 1994. Nabisco International now has operations in 17 Latin
American countries.
Nabisco International significantly increased its presence in Europe through
the 1993 acquisition of 50% of each of Royal Brands S.A. in Spain and Royal
Brands Portugal. The remaining 50% of each was purchased in May 1994. Nabisco
International's products in Spain now include biscuits marketed under the
ARTIACH and MARBU trademarks, powdered 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. These raw materials 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 generally also affect Nabisco's competitors. Nabisco believes that
all of the raw
16
<PAGE>
materials for its products are in plentiful supply and are readily available
from a variety of independent suppliers.
COMPETITION
Generally, the markets in which the Domestic Food Group and the
International Food Group conduct their business are highly competitive.
Competition consists of large domestic and international companies, local and
regional firms and generic and private label products of food retailers.
Competition is conducted on the basis of brand recognition, brand loyalty,
quality and price. Substantial advertising and promotional expenditures are
required to maintain or improve a brand's market position or to introduce a new
product.
The trademarks under which the Domestic Food Group and the International
Food Group market their products are generally registered in the United States
and other countries in which such products are sold and are generally renewable
indefinitely. Nabisco and certain of its subsidiaries have from time to time
granted various parties exclusive licenses to use one or more of their
trademarks in particular locations. Nabisco does not believe that such licensing
arrangements have a material effect on the conduct of its domestic or
international business.
OTHER MATTERS
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 Environmental Protection Agency 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
fifteen sites.
The Registrants' subsidiaries have 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 to estimate the cost of
resolving these CERCLA matters, the Registrants do not expect such expenditures
or other costs to have a material adverse effect on the financial condition of
either of the Registrants.
EMPLOYEES
At December 31, 1994, the Registrants together with their subsidiaries had
approximately 70,600 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, Confection and Tobacco Workers Union,
which was ratified in September 1992 and which will expire in September 1996.
Other unions represent the employees of a number of Nabisco's operations and
several of Tobacco International's operations are unionized. RJRN believes that
its relations with these employees and with their unions are good.
(d) Financial Information about Foreign and Domestic Operations and Export
Sales
For information about foreign and domestic operations and export sales for
the years 1992 through 1994, see "Geographic Data" in Note 15 to the
Consolidated Financial Statements.
17
<PAGE>
ITEM 2. PROPERTIES
For information pertaining to the Registrants' assets by lines of business
and geographic areas as of December 31, 1994 and 1993, see Note 15 to the
Consolidated Financial Statements.
For information on properties, see Item 1.
ITEM 3. LEGAL PROCEEDINGS
In September 1994, nine putative class and derivative actions were filed by
purported Holdings' stockholders in the Court of Chancery of the State of
Delaware in and for New Castle County against members of the Holdings' board of
directors, KKR and Holdings, as nominal defendant, challenging the proposed
acquisition by Holdings of any interest in Borden. These actions alleged, among
other things, that the agreement in principle for Holdings to purchase a 20%
stake in Borden constituted a breach of fiduciary duty and waste of corporate
assets in that the price paid by Holdings for its Borden stake would be inflated
because it would include a control premium and that the issuance of new Holdings
Common Stock would substantially dilute the cash value and shareholdings of the
noncontrolling public stockholders of Holdings. On October 25, 1994, Holdings
and KKR concluded that they were unable to reach a definitive agreement for the
transaction contemplated by their agreement in principle. Shortly thereafter,
the nine actions were consolidated. In December 1994, the parties entered into a
proposed stipulation and order dismissing the litigation with prejudice and on
the merits, but providing that the court would retain jurisdiction to consider
an application by the plantiffs for fees and expenses. The order was entered by
the court on February 11, 1995.
For information about other litigation and legal proceedings, see
"Litigation Affecting the Cigarette Industry" and "Other Matters--Environmental
Matters" in Item 1.
------------------------
Litigation is subject to many uncertainties, and it is possible that some of
the tobacco-related 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 or 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.
The Registrants believe that the ultimate outcome of all pending litigation
matters should not have a material adverse effect on the financial position of
either of the Registrants; however, it is possible that the results of
operations or cash flows of the Registrants in particular quarterly or annual
periods or the financial condition of the Registrants 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
any 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.
18
<PAGE>
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), John J. Delucca (Senior Vice President and
Treasurer) and Jo-Ann Ford (Senior Vice President, Law). Mr. Roath and Ms. Ford
are married. 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 67 May 1993-Present, Chairman and Chief Executive Officer;
prior thereto, Chairman and Chief Executive Officer,
ConAgra, Inc., 1981-1993.
Lawrence R. Ricciardi(1) 54 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.
Eugene R. Croisant(2) 57 1989-Present, Executive Vice President of Human Resources
and Administration.
Stephen R. Wilson 48 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.
Robert S. Roath 52 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 51 September 1993-Present, Senior Vice President and Treasurer;
Treasurer of Nabisco Holdings Corp. October 1994-February
1995; 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.
Jo-Ann Ford 39 Effective March 3, 1995, Senior Vice President, Law and
Secretary; Vice President, Assistant General Counsel and
Secretary since July 1994; prior thereto, Vice President
and Assistant General Counsel, 1991-1994; Senior Counsel,
1990-1991; Counsel, Exxon Corporation, 1988-1990.
</TABLE>
- ------------
(1) Mr. Ricciardi, in anticipation of retirement, will cease to be an
executive officer of Holdings effective March 3, 1995. Steven F. Goldstone,
has been appointed General Counsel effective March 3, 1995. Mr. Goldstone
will remain a partner of Davis Polk & Wardwell, and has been a partner of
such law firm since 1978.
(2) Mr. Croisant, in anticipation of retirement, will cease to be an
executive officer of Holdings effective March 3, 1995. Mr. Gerald I.
Angowitz, Vice President, Human Resources and Administration of RJRN since
1993, has been appointed Senior Vice President, Human Resources and
Administration of Holdings, effective March 3, 1995. Mr. Angowitz was Vice
President, Benefits of RJRN, 1991-1993, and was previously a principal in
Kwasha Lipton, an international benefits consulting firm.
19
<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 50 October 1994-Present, President, Chief Executive Officer and
Director, Nabisco Holdings Corp. and Nabisco, Inc.; prior
thereto, Chairman and Chief Executive Officer, Nabisco,
Inc., 1993-October 1994. President, Nabisco Holdings
Corp., 1992-1993, President and Chief Executive Officer,
Nabisco Holdings Corp., 1987-1991.
James W. Johnston 48 1989-Present, Chairman and Chief Executive Officer, R. J.
Reynolds Tobacco Company; Chairman, R. J. Reynolds Tobacco
International, Inc. since 1993.
Anthony J. Butterworth 57 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.
James J. Postl 49 December 1994-Present, President and Chief Executive
Officer, Nabisco International, Inc. and Senior Vice
President, Nabisco Holdings Corp.; prior thereto,
President and Chief Operating Officer, Nabisco
International, Inc., February-December 1994; President,
Hostess Frito-Lay, Canada and President, Americas, PepsiCo
Foods International, 1991-1994; Area/Group Vice President,
PepsiCo Foods International, 1986-1991.
M.B. Oglesby, Jr. 52 1989-Present, Senior Vice President, Government Affairs.
J. Thomas Pearson 53 1988-Present, Senior Vice President, Taxation.
Jason H. Wright 34 February 1994-Present, Senior Vice President of Worldwide
Communications; prior thereto, Vice President of Worldwide
Communications, 1993-1994; Vice President of Financial
Communications, 1990-1993; Director of Corporate
Communications, Aetna Life & Casualty, 1988-1990.
Jeffrey A. Kuchar 40 1993-Present, Vice President and General Auditor; prior
thereto, Director of Finance and Business Development,
Specialty Products Company, Nabisco, Inc., 1993; Director
of Financial Planning, Specialty Products Company,
Nabisco, Inc., 1992-1993; Assistant Corporate Controller,
1987-1991.
</TABLE>
20
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANTS' COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
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, 1995, there were approximately 65,000 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 17, 1995 was $5 5/8.
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>
1994:
First Quarter..................................... $ 8 1/8 $ 5 5/8
Second Quarter.................................... 7 5 1/2
Third Quarter..................................... 7 1/8 5 5/8
Fourth Quarter.................................... 7 1/4 5 5/16
<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>
The Board of Directors of Holdings has declared an initial quarterly cash
dividend of $.075 per share payable on April 1, 1995 to holders of record as of
March 10, 1995. Holdings expects to continue to pay a quarterly cash dividend on
its common stock of $.075 per share or $.30 per share on an annualized basis.
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 obligations and other cash
needs. The Credit Agreements and certain policies adopted by the Board of
Directors of Holdings limit the payment by Holdings of dividends on the Common
Stock in excess of certain specific amounts. See Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Liquidity and Financial Condition" and "-Holdings' Board of Directors
Policies" and Note 10 to the Consolidated Financial Statements. Holdings
does not believe that the provisions of its Credit Agreements or its adopted
policies concerning distributions to stockholders will limit its ability to
pay its anticipated quarterly dividends.
The Board of Directors of Holdings has approved a one-for-five reverse split
of the Common Stock, which will be submitted to Holdings' stockholders for
approval at its annual meeting in April 1995. If approved, the reverse stock
split would result in a dividend and earnings per share that are five times
higher with a corresponding reduction in the number of shares outstanding.
Holdings has indicated that, under normal circumstances, it does not plan to
issue additional equity securities for purposes of balance sheet improvement.
21
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The selected consolidated financial data of RJR Nabisco Holdings Corp.
("Holdings") presented below as of December 31, 1994 and 1993 and for each of
the years in the three-year period ended December 31, 1994 was derived from the
consolidated financial statements of Holdings (the "Consolidated Financial
Statements"), which have been audited by Deloitte & Touche LLP, independent
auditors. In addition, the consolidated financial data of Holdings presented
below as of December 31, 1992, 1991 and 1990 and for each of the years in the
two year period ended December 31, 1991 was derived from the audited
consolidated financial statements of Holdings as of December 31, 1992, 1991
and 1990 and for the years ended December 31, 1991 and 1990, and are not
presented herein. The data should be read in conjunction with the Consolidated
Financial Statements, related notes and other financial information included
herein.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------------------
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS) 1994 1993 1992 1991 1990
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS
Net sales....................................... $15,366 $15,104 $15,734 $14,989 $13,879
------- ------- ------- ------- -------
Cost of products sold........................... 6,977 6,640 6,326 6,088 5,652
Selling, advertising, administrative and
general expenses.............................. 5,210 5,731 5,788 5,358 4,801
Amortization of trademarks and goodwill......... 629 625 616 609 608
Restructuring expense........................... -- 730 106 -- --
------- ------- ------- ------- -------
Operating income(1)........................... 2,550 1,378 2,898 2,934 2,818
Interest and debt expense....................... (1,065) (1,209) (1,449) (2,217) (3,176)
Other income (expense), net..................... (110) (58) 7 (69) (44)
------- ------- ------- ------- -------
Income (loss) before income taxes............. 1,375 111 1,456 648 (402)
Provision for income taxes...................... 611 114 680 280 60
------- ------- ------- ------- -------
Income (loss) before extraordinary item....... 764 (3) 776 368 (462)
Extraordinary item--(loss) gain on early
extinguishments of debt, net of income
taxes............................................ (245) (142) (477) -- 33
------- ------- ------- ------- -------
Net income (loss)............................... 519 (145) 299 368 (429)
Preferred stock dividends....................... 131 68 31 173 50
------- ------- ------- ------- -------
Net income (loss) applicable to common stock.... $ 388 $ (213) $ 268 $ 195 $ (479)
------- ------- ------- ------- -------
------- ------- ------- ------- -------
PER SHARE DATA
Income (loss) before extraordinary item per
common and common equivalent share(2)......... $ 0.41 $ (0.05) $ 0.55 $ 0.22 $ (1.19)
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Pro forma income (loss) before extraordinary
item per common and common equivalent
share(3)...................................... $ 2.06 $ (0.26) $ 2.73 $ 1.10 $ (5.93)
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Dividends per share of Series A Preferred
Stock(4)......................................... $ 2.92 $ 3.34 $ 3.34 $ 0.49 --
Dividends per share of Series C Preferred
Stock(4)......................................... $ 3.94 -- -- -- --
BALANCE SHEET DATA
(AT END OF PERIODS)
Working capital(5).............................. $(1,231) $ 202 $ 730 $ 165 $(1,089)
Total assets.................................... 31,408 31,295 32,041 32,131 32,915
Total debt(5)................................... 11,149 12,448 14,218 14,531 18,918
Redeemable preferred stock(6)................... -- -- -- -- 1,795
Stockholders' equity(7)......................... 10,908 9,070 8,376 8,419 2,494
</TABLE>
(Footnotes on following page)
22
<PAGE>
(Footnotes from preceding page)
- ------------
(1) The 1992 amount includes a gain of $98 million on the sale of the
ready-to-eat cold cereal business.
(2) The loss before extraordinary item per common and common equivalent share
reported for the year ended December 31, 1993 would have increased by $.17
per share if the weighted average number of shares of Series A Depositary
Shares (as defined below) outstanding during the period had been excluded
from the earnings per share calculation.
(3) Amounts reflect a one-for-five reverse split approved by the Board of
Directors of Holdings which will be submitted to Holdings' stockholders for
approval at its annual meeting in April 1995.
(4) 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 of which represented one-quarter of a share of
Series A Preferred Stock. On May 6, 1994, Holdings issued 26,675,000 shares
of Series C Conversion Preferred Stock, par value $.01 per share (the
"Series C Preferred Stock"), and sold 266,750,000 Series C Depositary Shares
(the "Series C Depositary Shares"), each of which represented one-tenth of a
share of Series C Preferred Stock. On November 15, 1994, each outstanding
Series A Depositary Share converted into one share of Holdings Common Stock.
(5) Working capital at December 31, 1994 included $1.35 billion of borrowings
under the Nabisco 1994 Credit Agreement, a substantial portion of which was
used in connection with the refinancing of certain debt. On January 26,
1995, such borrowings were substantially reduced through the application of
approximately $1.2 billion of net proceeds received from the initial public
offering of 51,750,000 shares of Nabisco's Class A Common Stock.
(6) 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.
(7) Holdings' stockholders' equity at December 31 of each year from 1994 to 1990
includes non-cash expenses related to accumulated trademark and goodwill
amortization of $3.644 billion, $3.015 billion, $2.390 billion, $1.774
billion and $1.165 billion, respectively.
See Notes to Consolidated Financial Statements.
23
<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 Nabisco Holdings Corp. ("Nabisco Holdings") through its
wholly-owned subsidiary, Nabisco, Inc. ("Nabisco"), 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 are conducted by
Nabisco International, Inc. ("Nabisco International") and Nabisco Brands Ltd.
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
--------------
1994 1993 1992 1994 1993
------- ------- ------- ----- ----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Net Sales:
RJRT........................................... $ 4,570 $ 4,949 $ 6,165 (8)% (20)%
Tobacco International.......................... 3,097 3,130 2,862 (1)% 9%
------- ------- -------
Total Tobacco.................................. 7,667 8,079 9,027 (5)% (11)%
Total Food..................................... 7,699 7,025 6,707 10% 5%
------- ------- -------
$15,366 $15,104 $15,734 2% (4)%
------- ------- -------
------- ------- -------
Operating Company Contribution(1):
RJRT........................................... $ 1,475 $ 1,200 $ 2,112 23% (43)%
Tobacco International.......................... 755 644 575 17% 12%
------- ------- -------
Total Tobacco.................................. 2,230 1,844 2,687 21% (31)%
Total Food..................................... 1,156 995 947 16% 5%
Headquarters................................... (207) (106) (112) (95)% 5%
------- ------- -------
$ 3,179 $ 2,733 $ 3,522 16% (22)%
------- ------- -------
------- ------- -------
Operating Income:
RJRT........................................... $ 1,110 $ 480 $ 1,704 131% (72)%
Tobacco International.......................... 716 413 537 73% (23)%
------- ------- -------
Total Tobacco.................................. 1,826 893 2,241 104% (60)%
Total Food..................................... 931 624 769 49% (19)%
Headquarters................................... (207) (139) (112) (49)% (24)%
------- ------- -------
$ 2,550 $ 1,378 $ 2,898 85% (52)%
------- ------- -------
------- ------- -------
</TABLE>
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>
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Sales:
Total Tobacco................................... 50 % 53 % 57 % 57 % 58 %
Total Food...................................... 50 47 43 43 42
---- ---- ---- ---- ----
100 % 100 % 100 % 100 % 100 %
---- ---- ---- ---- ----
---- ---- ---- ---- ----
Operating Company Contribution(1)(2):
Total Tobacco................................... 66 % 65 % 74 % 75 % 77 %
Total Food...................................... 34 35 26 25 23
---- ---- ---- ---- ----
100 % 100 % 100 % 100 % 100 %
---- ---- ---- ---- ----
---- ---- ---- ---- ----
</TABLE>
(Footnotes on following page)
24
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(Footnotes from preceding page)
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(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.
TOBACCO
The tobacco business is conducted by RJRT and Tobacco International.
1994 vs. 1993. Despite declines in net sales for both the domestic and
international tobacco businesses, the worldwide tobacco business reported profit
gains for 1994. RJRT's net sales decline resulted principally from overall lower
pricing and volume which more than offset the impact of a higher proportion of
sales from full price brands. Tobacco International's net sales decline was
primarily attributable to a reduction in trade inventory levels and price
repositioning in Canada and Puerto Rico which more than offset higher selling
prices and volume. Overall, net sales from the worldwide tobacco business
amounted to $7.67 billion in 1994, a decline of 5% from the 1993 level of $8.08
billion. Worldwide volume for 1994 was flat compared to 1993. Operating company
contribution for the worldwide tobacco business grew to $2.23 billion in 1994
from $1.84 billion in 1993, an increase of 21% that resulted from improved
margins in both the domestic and international businesses. Operating income for
the worldwide tobacco business rose to $1.83 billion in 1994, an increase of
104% from the 1993 level of $893 million, as a result of the increase in
operating company contribution discussed above and the 1993 restructuring
expense of $544 million.
Net sales for RJRT amounted to $4.57 billion in 1994, a decrease of 8% from
the 1993 level of $4.95 billion. The decrease primarily reflects the impact of
industry-wide price reductions on full price brands (approximately $500 million)
which went into effect during the second half of 1993, lower volume in the
savings segment (approximately $60 million) primarily due to RJRT's decision to
be more selective in its participation in that segment and lower volume in the
full price segment (approximately $300 million) primarily due to increased
competitor activities during the second half of 1994. These factors more than
offset the impact of a higher proportion of sales from full price brands
(approximately $400 million), higher selling prices in the savings segment
(approximately $60 million) and higher selling prices in the full price segment
during the fourth quarter of 1994 as compared to the fourth quarter of 1993
(approximately $40 million). RJRT's operating company contribution was $1.48
billion in 1994, a 23% increase from the 1993 level of $1.20 billion, as reduced
promotional and selling expenses (approximately $650 million) more than offset
the decline in net sales. RJRT's operating income was $1.11 billion in 1994, an
increase of 131% from the 1993 level of $480 million. The increase in operating
income for 1994 from the prior year reflects the increase in RJRT's operating
company contribution discussed above and the 1993 restructuring expense of $355
million.
Tobacco International recorded net sales of $3.10 billion in 1994, a
decrease of 1% from the 1993 level of $3.13 billion. The net sales decrease for
1994 primarily resulted from a reduction in trade inventory levels
(approximately $75 million), repositioning of prices in Canada and Puerto Rico
to enhance brand competitiveness (approximately $60 million), and unfavorable
foreign exchange developments, primarily in Europe and the Middle East
(approximately $30 million), which were offset in part by higher selling prices
throughout Tobacco International's international markets (approximately $70
million) and an increase in volume in certain regions (approximately $60
million). Tobacco International's operating company contribution rose to $755
million in 1994, an increase of 17% compared to the 1993 level of $644 million.
The increase in operating company contribution for 1994 was due to lower product
costs in all regions (approximately $100 million), reduced promotional expenses
(approximately $70 million), the higher selling prices (approximately $70
million) and higher
25
<PAGE>
volume (approximately $15 million), which more than offset price repositioning
in Canada and Puerto Rico (approximately $50 million), the reduction in trade
inventories (approximately $30 million), higher operating expenses to support
expansion of business activity primarily in Eastern Europe (approximately $30
million) and unfavorable foreign exchange developments (approximately $20
million). Tobacco International's operating income was $716 million in 1994, an
increase of 73% from the 1993 level of $413 million. The increase in operating
income reflects the increase in Tobacco International's operating company
contribution discussed above and the 1993 restructuring expense of $189 million.
1993 vs. 1992. The worldwide tobacco business experienced continued net
sales growth in its international business which 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 through administrative,
manufacturing and sales personnel reductions and the 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 (approximately $700 million), a higher
proportion of sales from lower price brands (approximately $600 million) and an
overall volume decline of approximately 3.6% (approximately $300 million), that
more than offset benefits of earlier price increases in full price brands
(approximately $400 million). The impact of the 1993 decrease in overall volume
resulted mainly from the decline in the full-price segment. 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 (approximately $1.2 billion), offset in part by lower
promotional expenses on savings brands (approximately $200 million). 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 (approximately $274 million), favorable pricing in certain regions
(approximately $71 million), the expansion of markets through ventures in
Eastern Europe and Turkey (approximately $23 million) and contract sales to the
Russian Federation (approximately $9 million), which more than offset
unfavorable currency developments in Western Europe (approximately $104
million). 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 (approximately $112 million) and pricing (approximately $71 million)
which was offset in part by higher operating expenses (approximately $80
million) and to a lesser extent foreign currency developments (approximately $12
million) and unfavorable product mix (approximately $17 million). 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.
26
<PAGE>
Impact of Competitive Activity
RJRT's largest U.S. competitor announced competitive initiatives in April
1993 that ultimately resulted in significant changes in the U.S. cigarette
market. These competitive actions and responses by RJRT and other competitors
effectively lowered the retail price of full price cigarette brands and raised
the price of the most highly discounted brands in the second half of 1993. This
resulted in a market comprised of a full price tier and a lower price tier of
products (as opposed to the three or more tiers that had previously existed) and
in smaller relative price differences between brands in different tiers.
The costs of responding to these competitive initiatives and the decrease in
list prices for full price cigarette brands of approximately 40 cents per pack
were primarily responsible for the sharp decline in RJRT's operating company
contribution in 1993 because net price increases of approximately 12 cents per
pack (including the price increase referenced below) in the most highly
discounted brands did not and are not expected to offset the lower margins on
full price brands. Notwithstanding these lower margins, full price brands remain
more profitable than lower price brands, which consist of certain national
brands designed to have a lower price and private label brands for retailers and
distributors. The private label brands are generally the least profitable of
RJRT's brands, but are important to facilitate RJRT's service to wholesale and
retail customers.
Although RJRT's full price volume as a percentage of total volume declined
to 56% in 1993 from 65% in 1992, lower retail prices on full price brands since
the third quarter of 1993 have resulted in an increase in full price volume as a
percentage of total volume to 60% in 1994. The higher mix of full price volume
occurred despite significantly reduced promotional expenses on full price brands
during this period.
During the fourth quarter of 1993, RJRT increased the list price of all of
its brands by 4 cents per pack, a move that its competitors generally matched.
The increases reflected an improvement in the stability of the competitive
environment that began in the fourth quarter of 1993. This improved stability
continued through 1994 and, together with operating cost reductions and
favorable product mix shifts, improved margins. However, 1994 profit margins
remain below first quarter 1993 levels and experienced some deterioration in the
last quarter of 1994 as a result of increases in marketing expenses to protect
and build market share. RJRT is unable to predict whether 1994's pricing
stability and profit margins are sustainable.
1994 Governmental Activity. Congress enacted legislation effective January
1, 1994 (the Omnibus Budget Reconciliation Act of 1993) that assesses financial
penalties against manufacturers if cigarettes produced in the United States do
not contain at least 75% (by weight) domestically grown flue cured and burley
tobaccos. In December 1994, Congress enacted the Uruguay Round Agreements Act to
replace this domestic content requirement with a tariff rate quota system that
keys tariffs to import volumes. The tariff rate quotas are currently being
negotiated by the United States and overseas tobacco producers. Domestic content
requirements and tariff rate quotas increased raw material costs slightly in
1994 and may do so again in the future. RJRT is unable to predict the impact of
these import barriers on raw material costs while the tariff rate quotas are
still being negotiated.
In February 1994, the Commissioner of the U.S. Food and Drug Administration
(the "FDA"), which historically has refrained from asserting jurisdiction over
cigarette products, stated that he intended to cause the FDA to work with the
U.S. Congress to resolve the regulatory status of cigarettes under the Food,
Drug and Cosmetic Act. During the second quarter of 1994, hearings were held in
this regard and RJRT and other members of the U.S. cigarette industry were asked
to provide voluntarily certain documents and other information to Congress and
the FDA. RJRT is unable to predict the outcome of any Congressional
deliberations or the likelihood that the FDA will assert jurisdiction over
cigarettes in some manner. Were the FDA to assert jurisdiction in a manner that
materially restricts the availability of cigarettes to consumers, it would
likely have a significant adverse effect on RJRT.
27
<PAGE>
In March 1994, the U.S. Occupational Safety and Health Administration
("OSHA") announced proposed regulations that would restrict smoking in the
workplace to designated smoking rooms that are separately exhausted to the
outside. Although RJRT cannot predict the form of any regulations that may be
finally adopted by OSHA, if the proposed regulations are adopted, RJRT expects
that many employers who have not already done so would prohibit smoking in the
workplace rather than make expenditures necessary to establish designated
smoking areas to accommodate smokers. Because many employers currently do not
permit smoking in the workplace, RJRT cannot predict the effect of any
regulations that may be adopted, but incremental restrictions on smokers could
have an adverse effect on cigarette sales and RJRT.
In July 1994, an amendment to a Florida statute became effective which
allows the state of Florida to bring an action in its own name against the
tobacco industry to recover amounts paid by the state under its Medicaid program
to treat illnesses statistically associated with cigarette smoking. The amended
statute does not require the state to identify the individual who received
medical care, permits a lawsuit to be filed as a class action and eliminates the
comparative negligence and assumption of risk defenses. Similar legislation,
without Florida's elimination of these defenses, has been introduced in the
Massachusetts and New Jersey legislatures. RJRT is unable to predict whether
other states will enact similar legislation and whether lawsuits will be filed
under these statutes or their outcome if filed. The Florida statute is being
challenged on state and federal constitutional grounds in a lawsuit brought by
Philip Morris Companies Inc., Associated Industries of Florida, Publix
Supermarkets, and National Association of Convenience Stores in June 1994.
On February 20, 1995, RJRT and Philip Morris Companies Incorporated filed
a petition with the Supreme Court of Florida to prohibit Florida's Agency for
Health Care Administration and the Department of Business and Professional
Regulation from filing and maintaining a lawsuit against the tobacco
industry under this statute. A suit against the tobacco industry under this
statute was filed on February 21, 1995. See Note 11 to the Consolidated
Financial Statements.
Various states and local jurisdictions enacted legislation imposing various
restrictions on public smoking, increasing excise taxes and designating a
portion of the increased cigarette excise taxes to fund anti-smoking programs,
health care programs or cancer research. Many employers also initiated programs
restricting or eliminating smoking in the workplace.
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.
For a description of certain litigation affecting RJRT and its affiliates,
see Note 11 to the Consolidated Financial Statements.
FOOD
The food business is conducted by operating subsidiaries of Nabisco
Holdings. Nabisco's businesses in the United States are comprised of the Nabisco
Biscuit, Specialty Products, LifeSavers, Planters, Food Service and
Fleischmann's Companies (collectively, the "Domestic Food Group"). Nabisco's
businesses outside the United States are conducted by Nabisco Brands Ltd and
Nabisco International (collectively, the "International Food Group"). Nabisco
Brands Ltd was recently shifted from the Domestic Food Group (formerly the North
American Food Group) to the International Food Group. Accordingly, prior periods
have been restated to conform to the 1994 presentation.
1994 vs. 1993. Nabisco reported net sales of $7.70 billion in 1994, an
increase of 10% from the 1993 level of $7.03 billion, with the Domestic Food
Group up 4% and the International Food Group up 28%. The Domestic Food Group
increase was primarily attributable to significant volume gains at Nabisco
Biscuit Company, reflecting the success of new product introductions and product
line extensions in the U.S. biscuit market (approximately $215 million) and
volume increases from the Specialty Products Company (approximately $13
million). The International Food Group increase was primarily the result of the
favorable impact of recent acquisitions (approximately $345 million) and
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<PAGE>
improved business conditions in Brazil (approximately $70 million) as a result
of its second-half economic recovery.
Nabisco's operating company contribution was $1.16 billion in 1994, an
increase of 16% from the 1993 level of $995 million, with the Domestic Food
Group up 14% and the International Food Group up 27%. The Domestic Food Group
increase for 1994 was primarily due to the increase in net sales (approximately
$40 million) and savings from productivity programs (approximately $135
million), including previously established restructuring programs, which were
offset in part by competitive pricing pressures (approximately $35 million) and
the absence of a 1993 gain on the sale of certain assets (approximately $17
million). The International Food Group increase in operating company
contribution for 1994 was primarily due to recent acquisitions (approximately
$40 million) and strong results in Canada (approximately $7 million), partially
offset by unfavorable business results in Mexico (approximately $7 million). The
devaluation of the Mexican peso was not material to earnings in 1994.
Nabisco's operating income was $931 million in 1994, an increase of 49% from
the 1993 level of $624 million, as a result of the increase in operating company
contribution discussed above and the 1993 restructuring expense of $153 million.
1993 vs. 1992. Nabisco 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
(approximately $260 million), sales from recently acquired businesses
(approximately $270 million) and modest price increases in both the Domestic
Food Group (approximately $65 million) and the International Food Group
(approximately $15 million). The Domestic Food Group's volume increase
(approximately $210 million) 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
the PLANTERS stand-up bag line of peanuts and snacks. The International Food
Group's net sales increased as a result of the 1993 acquisitions in Spain and
Peru (approximately $108 million) and higher volume (approximately $50 million)
and prices (approximately $15 million) from its Latin American businesses.
Nabisco'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 Domestic Food Group up 15% and the International Food Group up 5%. The
Domestic Food Group's increase was primarily due to the gain in net sales
(approximately $45 million), savings from productivity programs (approximately
$150 million), contributions from the recently acquired businesses
(approximately $15 million) and the $17 million gain on sale of certain assets,
offset in part by higher expenses for consumer marketing programs (approximately
$40 million) and competitive pricing pressures (approximately $75 million). The
International Food Group increased operating company contribution through
acquisitions (approximately $10 million).
Nabisco'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. The effect of the restructuring expenses 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, Nabisco'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 reduced
personnel costs, both domestically and internationally, in order to improve
productivity and, to a lesser extent, the rationalization of facilities.
29
<PAGE>
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. The restructuring program was undertaken in response to a
changing consumer product business environment and to streamline operations and
improve profitability. The program was implemented in the latter part of 1993.
Approximately 75% of the restructuring program will require cash outlays of
which approximately $300 million was spent as of the end of 1994. As an offset
to the cash outlays, after-tax cash savings of approximately $140 million were
realized as of the end of 1994. Holdings expects future annual after-tax cash
savings to be in the range of approximately $200 million to $225 million.
The cost of providing severance pay and benefits for the reduction of
approximately 6,000 employees (approximately 4,400 positions eliminated by the
end of 1994) throughout the domestic and international food and tobacco
businesses was approximately $400 million of the pre-tax charge and is primarily
a cash expense. Actual charges for severance pay and benefits through December
31, 1994 amounted to approximately $250 million. The workforce reduction was
undertaken in order to make 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 stipulated that, effective January 1, 1994, financial penalties
would be assessed against manufacturers if cigarettes produced in the United
States did not contain at least 75% (by weight) domestically grown flue cured
and burley 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 market
share by RJRT's largest competitor led to a redeployment of spending and changes
in sales and distribution strategies that resulted 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 resulted in
approximately $60 million of restructuring charges. The remainder of the charge,
approximately $120 million, represents primarily non-cash costs to rationalize
and close manufacturing and sales facilities in both the tobacco and food
businesses to facilitate cost improvements. Charges related to these items
amounted to approximately $250 million through December 31, 1994.
As of December 31, 1994, the original estimates related to the food
businesses have remained unchanged. However, changes have occurred in the
original tobacco estimates. Due to stronger than anticipated demand for domestic
tobacco products, the estimate of the amount of domestic production to be moved
off-shore has been reduced, causing a domino-effect on domestic and
international raw material sourcing and production strategies. The end result
will be a reduction in the amount of domestic production moved to off-shore
facilities and significant changes in sourcing and production among off-shore
production facilities.
As a result of this change, approximately 300 domestic tobacco employees
originally anticipated to be terminated will be retained and approximately 200
additional international tobacco employees will be terminated. The financial
impact of these changes is a credit to income of approximately $23 million
related to the reduction in the cost of providing severance pay and benefits to
domestic tobacco employees and an increase in the cost of providing such
benefits to terminated international tobacco employees. In addition, the cost
associated with the rationalization and abandonment of manufacturing and sales
facilities was increased by approximately $21 million as it became evident that
the original plan to find an alternative manufacturing use for a tobacco
blending facility would not come to fruition. The net adjustment to operating
income of the above changes is included in selling, advertising, administrative
and general expense.
30
<PAGE>
INTEREST EXPENSE
1994 vs. 1993. Consolidated interest and debt expense of $1.06 billion in
1994 decreased 12% from 1993, primarily as a result of refinancings of debt
during 1993 and 1994 and lower debt levels resulting primarily from the
application of proceeds from the issuance of preferred stock to repay debt.
These factors more than offset the impact of higher market interest rates during
1994, including the effects thereof on RJRN's interest rate derivative
instruments described below.
RJRN manages its interest rate exposure by adjusting its mix of floating
rate debt and fixed rate debt. As part of such management of interest rate
exposure, RJRN has entered into interest rate swaps, options, caps and other
interest rate arrangements, including written options and other financial
instruments having a risk profile substantially similar to written options. As
a result of the impact of higher market interest rates during 1994, RJRN
recognized additional interest expense of approximately $22 million associated
with its interest rate derivative instruments. However, such interest rate
derivative instruments resulted in lower interest expense during 1993 and 1992
of approximately $70 million and $15 million, respectively. Included in the
1994 additional interest expense is approximately $45 million related to
RJRN's outstanding written options and interest rate derivatives with embedded
written optionality, all of which were cancelled during 1994. Also as part of
RJRN's ongoing management of its interest rate exposure during 1994, RJRN
effectively neutralized the effects of any further changes in market interest
rates on the remainder of its outstanding derivative interest rate instruments
through the purchase of offsetting positions. Accordingly, as a result
of higher interest rates on the above instruments, approximately $39 million,
$28 million and $5 million of additional interest expense remains to be
recognized in 1995, 1996 and 1997, respectively.
In 1994, RJRN adopted a policy to utilize interest rate derivative
transactions that will adjust the mix of floating rate debt and fixed rate debt
on a one for one basis.
1993 vs. 1992. Consolidated interest and debt expense of $1.21 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 which were partly attributable to declining market interest rates
in 1993.
INCOME TAXES
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
primarily resulting from a change in the functional currency, for U.S. federal
income tax purposes, relating to foreign branch operations.
NET INCOME
1994 vs. 1993. Holdings' net income of $519 million in 1994 includes an
after-tax extraordinary loss of $245 million related to the repurchase and
redemption of debt during the year. Excluding the extraordinary loss in 1994, as
well as a similar extraordinary item which resulted in a $142 million after-tax
loss in 1993, Holdings would have reported net income of $764 million for 1994,
an increase of $767 million from 1993. The increase results primarily from the
improvement in operating company contribution by both the Tobacco and Food
operations, the impact of lower interest expense and the
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1993 restructuring expense of $730 million, offset in part by a $65 million
charge related to the realignment of Headquarters' functions at the holding
company discussed below.
During the fourth quarter of 1994, Holdings approved and adopted a plan to
realign Headquarters' functions, transferring certain responsibilities to the
operating companies and significantly streamlining the holding company. The plan
reflects expectations of a lower level of financings and other activities at the
holding company as Holdings concludes the post-LBO period. The costs and
expenses associated with this decision resulted in a charge of approximately $65
million before tax, a significant portion of which is a cash expense. The
majority of the charge is related to accrued employee termination benefits for
the 25% of Headquarters' employees terminated (approximately $40 million). This
cost was incurred pursuant to a continuing plan for employee termination
benefits that provides for the payment of specified amounts of severance and
benefits to terminated employees. The remainder of the charge (approximately $25
million) is related to the abandonment of leases of certain corporate office
facilities as a result of the realignment and streamlining and the reduced need
for office space. The plan was implemented in the first quarter of 1995 and will
be completed by year-end 1995. Anticipated annual future cash savings flowing
from the plan are estimated at approximately $25 million before tax
(approximately $16 million after tax).
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.
Holdings' net income (loss) applicable to its common stock for 1994, 1993
and 1992 of $388 million, ($213) million and $268 million, respectively,
includes a deduction for preferred stock dividends of $131 million, $68 million
and $31 million, respectively.
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LIQUIDITY AND FINANCIAL CONDITION
DECEMBER 31, 1994
Holdings continued to generate significant free cash flow in 1994. 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
$0.8 billion for 1994 and $1.0 billion for 1993. The lower level of free cash
flow for 1994 primarily reflects increased capital expenditures, higher taxes,
interest and preferred stock dividends paid and an increase in operating working
capital (primarily restructuring payments) which more than offset the higher
operating company contribution by both the Tobacco and Food operations.
The components of free cash flow are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-----------------
1994 1993
------ -------
(DOLLARS IN
MILLIONS)
<S> <C> <C>
OPERATING INCOME......................................................... $2,550 $ 1,378
Amortization of intangibles............................................ 629 625
Restructuring expense.................................................. -- 730
------ -------
OPERATING COMPANY CONTRIBUTION........................................... 3,179 2,733
Depreciation and other amortization.................................... 522 524
Increase in operating working capital.................................. (414) (121)
Capital expenditures................................................... (670) (615)
Change in other assets and liabilities................................. 12 (21)
------ -------
OPERATING CASH FLOW*..................................................... 2,629 2,500
Taxes paid............................................................. (496) (332)
Interest paid.......................................................... (986) (912)
Dividends paid......................................................... (395) (241)
Other, net............................................................. 17 19
------ -------
FREE CASH FLOW........................................................... $ 769 $ 1,034
------ -------
------ -------
</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).
------------
During 1994, 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. As more fully described below, these transactions included the
issuance of preferred stock and repurchase and redemption of certain debt
obligations. As a result of these transactions, Holdings reduced the effective
interest rate on its consolidated long-term debt from 8.4% at December 31, 1993
to 7.7% at December 31, 1994 despite the impact of higher market interest rates
during 1994, including the effects thereof on RJRN's interest rate derivative
instruments. Future effective interest rates may vary as a result of changing
market interest rates as well as refinancing activities and changes in the
ratings assigned to RJRN's debt securities by independent rating agencies. In
addition, Holdings' outstanding total debt (notes payable and long-term debt,
including current maturities) and total capital (total debt and total
stockholders' equity) levels at December 31, 1994 amounted to approximately
$11.1 billion and $22.1 billion, respectively, of which total debt is lower by
approximately $1.3 billion and total capital is higher by approximately $539
million than the corresponding amounts at December 31, 1993. Furthermore,
Holdings' ratio of total debt to total stockholders' equity at December 31, 1994
improved to 1.0-to-1 from 1.4-to-1 at December 31, 1993. RJRN's
33
<PAGE>
ratio of total debt to common equity at December 31, 1994 was 1.0-to-1 compared
with 1.3-to-1 at December 31, 1993. Total current liabilities and long-term debt
of RJRN's subsidiaries was approximately $4.8 billion at December 31, 1994.
On May 6, 1994, Holdings completed the issuance of 26,675,000 shares of
Series C Conversion Preferred Stock, par value $.01 per share (the "Series C
Preferred Stock"), in connection with the sale of 266,750,000 Series C
Depositary Shares (the "Series C Depositary Shares") at $6.50 per depositary
share. Approximately $900 million of the net proceeds from the sale of the
Series C Depositary Shares was applied to the redemption of RJRN's subordinated
debentures on May 15, 1994 as discussed below. The remaining proceeds from the
sale of the Series C Depositary Shares were used to repay indebtedness under the
Registrants' credit agreement, dated as of December 1, 1991, as amended (the
"1991 Credit Agreement"), and for short-term liquid investments until they were
applied to redeem certain of RJRN's sinking fund debentures as discussed below.
On May 15, 1994, RJRN redeemed substantially all of its approximately $2
billion in outstanding subordinated debentures. The subordinated debentures
redeemed consisted of the Subordinated Discount Debentures due May 15, 2001, the
15% Payment-in-Kind Subordinated Debentures due May 15, 2001 and the 13 1/2%
Subordinated Debentures due May 15, 2001 (the "13 1/2% Subordinated Debentures")
at redemption prices of 107 1/2%, 107 1/2% and 106 3/4%, respectively, plus
accrued interest. Approximately $1.2 billion principal or accreted amount of
such debentures was refinanced with proceeds of debt securities maturing after
1998 that were issued during 1993. Such proceeds had been used to temporarily
reduce indebtedness under the 1991 Credit Agreement.
On November 15, 1994, the 210,000,000 outstanding $.835 Depositary Shares
("Series A Depositary Shares"), which represented 52,500,000 shares of Series A
Conversion Preferred Stock, par value $.01 per share ("Series A Preferred
Stock"), issued by Holdings on November 8, 1991, converted into 210,000,000
shares of common stock of Holdings, par value $.01 per share (the "Common
Stock").
On November 30, 1994, RJRN redeemed $1.5 billion of 10 1/2% Senior Notes due
1998, $373.5 million of 8 3/8% Sinking Fund Debentures due 2017 and
approximately $24.8 million of 7 3/8% Sinking Fund Debentures due 2001. On
December 2, 1994, RJRN redeemed $100 million of the 13 1/2% Subordinated
Debentures. The redemption price for the 10 1/2% Senior Notes due 1998 was equal
to $1,071 plus accrued interest for each $1,000 principal amount of notes. The
redemption price for the 8 3/8% Sinking Fund Debentures due 2017 was equal to
$1,054.44 plus accrued interest for each $1,000 principal amount of debentures.
The redemption price for the 7 3/8% Sinking Fund Debentures due 2001 was equal
to $1,005.60 plus accrued interest for each $1,000 principal amount of
debentures. The redemption price for the 13 1/2% Subordinated Debentures was
equal to $1,067.50 plus accrued interest for each $1,000 principal amount of
debentures. These redemptions were funded with borrowings under the 1991 Credit
Agreement, internally generated cash flow and, in the case of the 8 3/8% Sinking
Fund Debentures due 2017, proceeds from Holdings' Series C Preferred Stock
offering.
On December 7, 1994, Nabisco borrowed $1.35 billion under its credit
agreement, dated as of December 6, 1994 (the "Nabisco 1994 Credit Agreement"),
to repay a portion of Nabisco's intercompany indebtedness to RJRN. RJRN used the
proceeds of the repayment to reduce its borrowings under the 1991 Credit
Agreement.
Management expects to consider opportunities to improve Holdings' and its
subsidiaries' capital and/or cost structure 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 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, as applicable, would
reduce reported net income and/or stockholders' equity, depending upon the price
paid and related financing fees of such acquisitions. Holdings' and its
subsidiaries' ability to take advantage of such opportunities is subject to
34
<PAGE>
restrictions in RJRN debt indentures, the 1991 Credit Agreement, the
Registrants' 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 the Nabisco 1994 Credit Agreement. For information
concerning a transaction that RJRN and Nabisco are seeking to pursue, see
"Subsequent Events" below.
The 1991 Credit Agreement is a 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 the letters of credit outstanding, by borrowings under the
facility and by commercial paper borrowings in excess of $1.0 billion. On
December 1, 1994, the Registrants reduced the commitment under the 1991 Credit
Agreement from $6.5 billion to $6.0 billion and agreed to reduce availability by
the amount of borrowings and the stated amount of letters of credit issued under
the Nabisco 1994 Credit Agreement. The amendment to the 1991 Credit Agreement
imposed additional restrictions on dividends and distributions, as described
below, and extended the term of the facility from December 31, 1996 to December
31, 1997. At December 31, 1994, approximately $412 million stated amount of
letters of credit and $1.75 billion in borrowings were outstanding under the
1991 Credit Agreement, and $1.35 billion in borrowings (but no letters of
credit) were outstanding under the Nabisco 1994 Credit Agreement. Accordingly,
the amount available under the 1991 Credit Agreement at December 31, 1994 was
$2.49 billion.
The 1993 Credit Agreement, under which commitments terminate on April 3,
1995, provides a back-up line of credit to support commercial paper issuances of
up to $1.0 billion. Availability thereunder is reduced by an amount equal to the
aggregate amount of domestic commercial paper outstanding. At December 31, 1994,
approximately $864 million of commercial paper was outstanding. Accordingly,
$136 million was available under the 1993 Credit Agreement at December 31, 1994.
Holdings and RJRN expect to obtain bank consent to extend the maturity date of
the 1993 Credit Agreement for an additional 364 days.
The Nabisco 1994 Credit Agreement is a 364 day, $1.5 billion revolving bank
credit facility that provides for the issuance of up to $200 million of
irrevocable letters of credit. Availability under the Nabisco 1994 Credit
Agreement is reduced by an amount equal to the stated amount of the letters of
credit outstanding and by amounts borrowed under the facility. At December 31,
1994, $1.35 billion in borrowings and no letters of credit were outstanding
under the Nabisco 1994 Credit Agreement. Accordingly, the amount available under
the Nabisco 1994 Credit Agreement at December 31, 1994 was $150 million.
The aggregate consolidated indebtedness subject to fluctuating interest
rates approximated $4.3 billion at December 31, 1994. This represents a decrease
of $1.2 billion from the year end 1993 level of $5.5 billion, primarily due to
Holdings' on-going management of its interest rate exposure and activities
associated with RJRN's interest rate derivative instruments discussed above.
As a result of the level of market interest rates at December 31, 1994 and
1993 compared with the interest rates associated with Holdings' consolidated
debt obligations, the estimated fair value amounts of Holdings' long-term debt
reflected in its Consolidated Balance Sheets is lower by $444 million and higher
by $400 million than the carrying amounts (book value) of such debt at December
31, 1994 and 1993, 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, 1994 and 1993, see Notes 10 and 11 to
the Consolidated Financial Statements.
Capital expenditures were $670 million, $615 million and $519 million for
1994, 1993 and 1992, respectively. The current level of expenditures planned for
1995 is expected to be in the range of approximately $750 million to $850
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' operating subsidiaries.
35
<PAGE>
Holdings' subsidiaries have 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 foreign currency net investments, also result in charges or credits
to equity. Holdings' subsidiaries also have 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. These
exposures are managed to minimize the effects of foreign currency transactions
on its cash flows.
Nabisco Holdings has advised RJRN that, commencing after the second quarter
of 1995, it anticipates paying a quarterly cash dividend on its outstanding
stock of $.1375 per share or $.55 per share on an annualized basis. This policy
would provide RJRN with dividends on the 213,250,000 shares of Nabisco Holdings
Class B Common Stock held by it of approximately $58.6 million in 1995 and
approximately $117 million annually thereafter.
In general, the Nabisco 1994 Credit Agreement limits prepayments of
Nabisco's indebtedness to RJRN and limits dividends and distributions by Nabisco
to $300 million plus 50% of Nabisco's cumulative consolidated net income
commencing January 1, 1995. Loans and advances by Nabisco to RJRN are generally
subject to a $100 million limit. The Nabisco 1994 Credit Agreement also limits
the ability of Nabisco to incur indebtedness, engage in transactions with
stockholders and affiliates, create liens, sell certain assets and securities
and engage in certain mergers or consolidations. These limitations are not
expected to have a material effect on the ability of Nabisco Holdings to pay its
anticipated dividends to RJRN, or on the ability of RJRN to meet its
obligations.
The Credit Agreements limit the payment of dividends by Holdings.
Specifically, these Credit Agreements generally restrict dividends and
distributions by Holdings to $1 billion, plus 50% of cumulative consolidated
net income commencing January 1, 1995, plus the net cash proceeds of up to
$250 million in any twelve month period from issuances of its equity
securities. These credit agreements and certain other financing agreements limit
the ability of Holdings and its subsidiaries to incur indebtedness, engage in
transactions with stockholders and affiliates, create liens, sell or dispose of
certain assets and certain subsidiaries' stock and engage in certain mergers or
consolidations. Holdings and RJRN believe that they and their subsidiaries are
currently in compliance with all covenants and restrictions imposed by the terms
of their indebtedness.
ENVIRONMENTAL MATTERS
RJRN's subsidiaries have 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 of these
subsidiaries 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 to estimate
the cost of resolving these CERCLA matters, the Registrants do not expect such
expenditures or other costs to have a material adverse effect on the financial
condition of either of the Registrants.
HOLDINGS' BOARD OF DIRECTORS POLICIES
The Board of Directors of Holdings has adopted a policy stating that
Holdings will limit, until December 31, 1998, the aggregate amount of cash
dividends on its capital stock. Under this policy,
36
<PAGE>
during that period Holdings will not pay any extraordinary cash dividends and
will limit the aggregate amount of its cash dividends, cash distributions and
repurchases for cash of capital stock and subordinated debt to an amount equal
to the sum of $500 million plus (i) 65% of Holdings' cumulative consolidated net
income before extraordinary gains or losses and restructuring charges subsequent
to December 31, 1994 and (ii) net cash proceeds of up to $250 million in any
year from the sale of capital stock of Holdings or its subsidiaries (other than
proceeds from the Nabisco Holdings initial public offering) to the extent used
to repay, purchase or redeem debt or preferred stock.
The Board of Directors of Holdings has adopted a policy providing that
Holdings will not declare a dividend or distribution to its stockholders of the
shares of capital stock of a subsidiary before December 31, 1996. Holdings has
also adopted a policy setting forth its intention not to make such a
distribution prior to December 31, 1998 if that distribution would cause the
ratings of the senior indebtedness of RJRN to be reduced from investment grade
to non-investment grade or if, after giving effect to such distribution, any
publicly-held senior indebtedness of the distributed company would not be rated
investment grade. There is no assurance that any such distribution will take
place. Additional policies provide that an amount equal to the net cash proceeds
from any issuance and sale of equity by Holdings or from any sale outside the
ordinary course of business of material assets owned or used by subsidiaries in
the tobacco business, in each case before December 31, 1998, will be used either
to repay, purchase or redeem consolidated indebtedness or to acquire properties,
assets or businesses to be used in existing or new lines of business and that an
amount equal to the net cash proceeds of any secondary sale of shares of Nabisco
Holdings before December 31, 1998 will be used to repay, purchase or redeem
consolidated debt. No assurance can be given that Holdings will issue or sell
any equity or sell any material assets outside the ordinary course of business.
SUBSEQUENT EVENTS
On January 26, 1995, Nabisco Holdings completed the initial public offering
of 51,750,000 shares of its Class A Common Stock at an initial offering price of
$24.50 per share. Nabisco used all of the approximately $1.2 billion of net
proceeds from the initial public offering to repay a portion of its initial
borrowing under the Nabisco 1994 Credit Agreement. RJRN owns 100% of the
outstanding Class B Common Stock of Nabisco Holdings, which represents
approximately 80.5% of the economic interest in Nabisco Holdings and
approximately 97.6% of its voting power. In connection with the offering,
Holdings, RJRN and Nabisco Holdings entered into agreements to exchange certain
services, to establish tax sharing arrangements and to provide RJRN with certain
preemptive and registration rights with respect to Nabisco Holdings and Nabisco
securities.
Certain provisions in approximately $6 billion of RJRN's publicly held debt
limit the ability of Nabisco Holdings and Nabisco to incur long-term debt. RJRN
and Nabisco are currently considering a transaction in which they would
seek to obtain consents to remove such limitations in order to permit Nabisco to
establish long-term borrowing capacity independent of RJRN and to reduce its
intercompany debt to RJRN. It is anticipated that such consents would be sought
in connection with offers by Nabisco or RJRN to exchange debt of Nabisco for, or
to pay certain cash consent solicitation fees in respect of, all or a portion of
such RJRN debt. RJRN believes that any such transaction would not materially
change the amount of consolidated indebtedness of either RJRN or Nabisco,
although any newly issued debt of RJRN or Nabisco incurred in connection with
the transaction may have maturities, interest rates or other terms that are less
attractive to RJRN or Nabisco, respectively, than the terms of their existing
debt. No assurance can be given that any such restructuring will be pursued or
consummated or as to the timing of any such restructuring.
The Board of Directors of Holdings has declared an initial quarterly
dividend of $.075 per share payable on April 1, 1995 to holders of record as of
March 10, 1995. Holdings expects to continue to pay a quarterly cash dividend on
the Common Stock of $.075 per share or $.30 per share on an annualized basis.
Holdings does not believe that the provisions of its Credit Agreements or
its adopted policies concerning distributions to stockholders will limit its
ability to pay its anticipated quarterly dividends.
37
<PAGE>
The Board of Directors of Holdings approved a one-for-five reverse split of
the Common Stock, which will be submitted to Holdings' stockholders for approval
at its annual meeting in April 1995. If approved, the reverse stock split would
result in a dividend and earnings per share that are five times higher with a
corresponding reduction in the number of shares outstanding.
Holdings has indicated that, under normal circumstances, it does not plan to
issue additional equity securities for purposes of balance sheet improvement.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Refer to the Index to Financial Statements and Financial Statement Schedules
on page 43, for the required information.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
38
<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, 1995. 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, 1995.
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, 1995.
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, 1995.
39
<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 1994
None.
(c) Exhibits
See Exhibit Index.
(d) Financial Statement Schedules.
See Index to Financial Statements and Financial Statement Schedules.
</TABLE>
40
<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 23, 1995.
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 23, 1995.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- -------------------------------- --------------------------------
<S> <C> <C>
/s/ CHARLES M. HARPER Chairman of the Board and Chief
................................ Executive Officer (principal
(Charles M. Harper) executive officer) and Director
/s/ STEPHEN R. WILSON Executive Vice President and
................................ Chief Financial Officer
(Stephen R. Wilson) (principal financial officer)
Senior Vice President and
/s/ ROBERT S. ROATH Controller (principal
................................ accounting officer)
(Robert S. Roath)
Director
................................
(John T. Chain, Jr.)
* Director
................................
(Julius L. Chambers)
* Director
................................
(John L. Clendenin)
* Director
................................
(James H. Greene, Jr.)
* Director
................................
(H. John Greeniaus)
Director
................................
(James W. Johnston)
* Director
................................
(Henry R. Kravis)
* Director
................................
(John G. Medlin, Jr.)
* Director
................................
(Paul E. Raether)
* 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/ JO-ANN FORD
(Jo-Ann Ford)
Attorney-in-Fact
41
<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 23, 1995.
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 23, 1995.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- -------------------------------- --------------------------------
<S> <C> <C>
/s/ CHARLES M. HARPER Chairman of the Board and Chief
................................ Executive Officer (principal
(Charles M. Harper) executive officer) and Director
/s/ STEPHEN R. WILSON Executive Vice President and
................................ Chief Financial Officer
(Stephen R. Wilson) (principal financial officer)
Senior Vice President and
/s/ ROBERT S. ROATH Controller (principal
................................ accounting officer)
(Robert S. Roath)
Director
................................
(John T. Chain, Jr.)
* Director
................................
(Julius L. Chambers)
* Director
................................
(John L. Clendenin)
* Director
................................
(James H. Greene, Jr.)
* Director
................................
(H. John Greeniaus)
Director
................................
(James W. Johnston)
* Director
................................
(Henry R. Kravis)
* Director
................................
(John G. Medlin, Jr.)
* Director
................................
(Paul E. Raether)
* 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/ JO-ANN FORD
(Jo-Ann Ford)
Attorney-in-Fact
42
<PAGE>
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
FINANCIAL STATEMENTS
Report of Deloitte & Touche LLP, Independent Auditors......................... F-1
Summary of Significant Accounting Policies.................................... F-2-F-3
Consolidated Statements of Income and Retained Earnings--Years Ended December
31, 1994, 1993 and 1992..................................................... F-4
Consolidated Statements of Cash Flows--Years Ended December 31, 1994,
1993 and 1992............................................................... F-5
Consolidated Balance Sheets--December 31, 1994 and 1993....................... F-6
Notes to Consolidated Financial Statements.................................... F-7-F-39
</TABLE>
FINANCIAL STATEMENT SCHEDULES
For the years ended December 31, 1994, 1993 and 1992:
<TABLE>
<S> <C> <C>
Schedule I --Condensed Financial Information of Registrants................... S-1-S-8
Schedule II --Valuation and Qualifying Accounts................................ S-9
</TABLE>
43
<PAGE>
REPORT OF DELOITTE & TOUCHE LLP, 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,
1994 and 1993, 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, 1994. Our audits also include the financial statement schedules of Holdings
and RJRN as of December 31, 1994 and 1993, and for each of the three years in
the period ended December 31, 1994 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, 1994 and 1993, and the consolidated results of their operations
and their cash flows for each of the three years in the period ended December
31, 1994 in conformity with generally accepted accounting principles. 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 LLP
New York, New York
January 30, 1995 (February 21, 1995 as to Notes 11 and 17)
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-7 through F-39 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 (three months
or less) 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.
In evaluating the value and future benefits of trademarks and goodwill, the
recoverability from operating income is measured. Under this approach, the
carrying value of goodwill and trademarks would be reduced if it is probable
that management's best estimate of future operating income before amortization
of trademarks and goodwill from related operations, on an undiscounted basis,
will be less than the carrying amount of trademarks and goodwill over the
remaining amortization 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".
F-2
<PAGE>
Income Taxes
Income taxes are calculated for each Registrant on a separate return basis.
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 1994 presentation.
Advertising
Advertising costs are generally expensed as incurred.
F-3
<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,
1994 1993 1992
----------------------- ----------------------- -----------------------
HOLDINGS RJRN HOLDINGS RJRN HOLDINGS RJRN
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
NET SALES (NOTE 1)............ $ 15,366 $ 15,366 $ 15,104 $ 15,104 $ 15,734 $ 15,734
---------- ---------- ---------- ---------- ---------- ----------
Costs and expenses (Note 1):
Cost of products sold........ 6,977 6,977 6,640 6,640 6,326 6,326
Selling, advertising,
administrative and general
expenses...................... 5,210 5,198 5,731 5,723 5,788 5,776
Amortization of trademarks
and goodwill............... 629 629 625 625 616 616
Restructuring expense........ -- -- 730 730 106 106
---------- ---------- ---------- ---------- ---------- ----------
OPERATING INCOME......... 2,550 2,562 1,378 1,386 2,898 2,910
Interest and debt expense
(Notes 8 and 10)............. (1,065) (1,065) (1,209) (1,186) (1,449) (1,359)
Other income (expense), net... (110) (121) (58) (88) 7 (75)
---------- ---------- ---------- ---------- ---------- ----------
Income before income
taxes......................... 1,375 1,376 111 112 1,456 1,476
Provision for income taxes
(Note 3)...................... 611 614 114 116 680 693
---------- ---------- ---------- ---------- ---------- ----------
INCOME (LOSS) BEFORE
EXTRAORDINARY ITEM............ 764 762 (3) (4) 776 783
Extraordinary item--loss on
early extinguishments of
debt, net of income taxes
(Note 4)...................... (245) (245) (142) (135) (477) (464)
---------- ---------- ---------- ---------- ---------- ----------
NET INCOME (LOSS)........ 519 517 (145) (139) 299 319
Less preferred stock
dividends..................... 131 -- 68 -- 31 --
---------- ---------- ---------- ---------- ---------- ----------
Net income (loss)
applicable to common
stock......................... 388 517 (213) (139) 268 319
Retained earnings (accumulated
deficit) at beginning of
period........................ (883) (459) (738) (320) (1,037) (639)
Dividends paid to parent and
charged to retained earnings.. -- (42) -- -- -- --
Add preferred stock dividends
charged to paid-in capital.... 131 -- 68 -- 31 --
---------- ---------- ---------- ---------- ---------- ----------
RETAINED EARNINGS (ACCUMULATED
DEFICIT) AT END OF PERIOD
(NOTE 13)..................... $ (364) $ 16 $ (883) $ (459) $ (738) $ (320)
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
Net income (loss) per common
and common equivalent share
(Note 2):
Income (loss) before
extraordinary item............ $ 0.41 -- $ (.05) -- $ 0.55 --
Extraordinary item........... (0.16) -- (.10) -- (0.35) --
---------- ---------- ---------- ---------- ---------- ----------
Net income (loss)........ $ 0.25 -- $ (.15) -- $ 0.20 --
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
Pro forma net income (loss)
per common and common
equivalent share (Note 2).... $ 1.26 -- $ (.79) -- $ .98 --
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
Dividends per share of Series
A Preferred Stock (Note
12)........................... $ 2.92 -- $ 3.34 -- $ 3.34 --
Dividends per share of Series
C Preferred Stock (Note
12)........................... $ 3.94 -- -- -- -- --
Average number of common and
common equivalent shares
outstanding (in thousands)
(Note 2)...................... 1,538,127 -- 1,349,196 -- 1,363,549 --
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<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,
1994 1993 1992
------------------ ------------------ ------------------
HOLDINGS RJRN HOLDINGS RJRN HOLDINGS RJRN
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
NET CASH FLOWS FROM OPERATING ACTIVITIES
(NOTE 5)................................. $ 1,754 $ 1,719 $ 1,769 $ 1,604 $ 2,307 $ 2,455
-------- -------- -------- -------- -------- --------
CASH FLOWS FROM (USED IN) INVESTING
ACTIVITIES:
Capital expenditures.................... (670) (670) (615) (615) (519) (519)
Proceeds from disposition of business... -- -- 450 450 -- --
Acquisitions of businesses.............. (510) (510) (128) (128) (385) (385)
Other, net.............................. 39 39 32 32 11 11
-------- -------- -------- -------- -------- --------
Net cash flows used in investing
activities............................... (1,141) (1,141) (261) (261) (893) (893)
-------- -------- -------- -------- -------- --------
CASH FLOWS FROM (USED IN) FINANCING
ACTIVITIES:
Net borrowings (repayments) under credit
agreements............................... 2,911 2,911 (2,614) (2,614) (620) (620)
Net proceeds from the issuance
(repayments) of commercial paper...... (49) (49) 342 342 571 571
Proceeds from issuance of other
long-term debt........................ 16 16 1,965 1,965 3,155 3,155
Repayments of other long-term debt...... (4,666) (4,666) (1,977) (1,429) (4,549) (4,298)
Increase (decrease) in notes payable.... 18 18 (24) (24) (25) (25)
Proceeds from issuance of common stock
and exercise of warrants.............. 54 -- 9 -- 1 --
Proceeds from issuance of Series B
Preferred Stock....................... -- -- 1,250 -- -- --
Proceeds from issuance of Series C
Preferred Stock....................... 1,734 -- -- -- -- --
Financing and advisory fees paid........ (60) (6) (48) (9) (35) (33)
Capital contributions from/issuance of
common stock to parent................... -- 1,680 -- 1,214 -- --
Dividends paid to parent................ -- (42) -- (48) -- (278)
Preferred stock dividends paid.......... (395) -- (241) -- (214) --
Repurchase of preferred stock........... (3) -- (105) -- -- --
Repurchases and cancellations of common
stock, stock options and warrants........ (1) -- (1) -- (89) --
Other, net--including intercompany
transfers................................ 42 (230) 62 (621) 62 (363)
-------- -------- -------- -------- -------- --------
Net cash flows used in financing
activities............................... (399) (368) (1,382) (1,224) (1,743) (1,891)
-------- -------- -------- -------- -------- --------
Effect of exchange rate changes on cash
and cash equivalents.................... (6) (6) (10) (10) (6) (6)
-------- -------- -------- -------- -------- --------
Net change in cash and cash
equivalents.............................. 208 204 116 109 (335) (335)
Cash and cash equivalents at beginning of
period................................... 215 205 99 96 434 431
-------- -------- -------- -------- -------- --------
Cash and cash equivalents at end of
period................................... $ 423 $ 409 $ 215 $ 205 $ 99 $ 96
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1994 1993
----------------- -----------------
HOLDINGS RJRN HOLDINGS RJRN
-------- ------- -------- -------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents (Note 5)........................ $ 423 $ 409 $ 215 $ 205
Accounts and notes receivable, net (Note 5)............... 934 934 856 847
Inventories (Note 6)...................................... 2,580 2,580 2,700 2,700
Prepaid expenses and excise taxes......................... 426 426 374 374
-------- ------- -------- -------
TOTAL CURRENT ASSETS.................................. 4,363 4,349 4,145 4,126
-------- ------- -------- -------
Property, plant and equipment--at cost...................... 7,767 7,767 7,166 7,166
Less accumulated depreciation............................... (2,333) (2,333) (1,998) (1,998)
-------- ------- -------- -------
Net property, plant and equipment (Note 7)................ 5,434 5,434 5,168 5,168
-------- ------- -------- -------
Trademarks, net of accumulated amortization of $1,491 and
$1,223, respectively........................................ 8,506 8,506 8,727 8,727
Goodwill, net of accumulated amortization of $2,124 and
$1,767, respectively........................................ 12,681 12,681 12,851 12,851
Other assets and deferred charges........................... 424 423 404 400
-------- ------- -------- -------
$ 31,408 $31,393 $ 31,295 $31,272
-------- ------- -------- -------
-------- ------- -------- -------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable (Note 8).................................... $ 296 $ 296 $ 301 $ 301
Accounts payable.......................................... 548 548 515 515
Accrued liabilities (Note 9).............................. 2,532 2,488 2,751 2,705
Current maturities of long-term debt (Notes 10 and 17).... 1,970 1,970 142 142
Income taxes accrued (Note 3)............................. 248 248 234 234
-------- ------- -------- -------
TOTAL CURRENT LIABILITIES............................. 5,594 5,550 3,943 3,897
-------- ------- -------- -------
Long-term debt (less current maturities) (Notes 10 and
17)......................................................... 8,883 8,883 12,005 12,005
Other noncurrent liabilities................................ 2,235 1,836 2,503 2,353
Deferred income taxes (Note 3).............................. 3,788 3,714 3,774 3,701
Commitments and contingencies (Note 11)
Stockholders' equity (Notes 12, 13 and 17):
ESOP convertible preferred stock--15,315,130 and
15,573,973 shares issued and outstanding at December 31,
1994 and 1993, respectively............................. 245 -- 249 --
Series A convertible preferred stock--52,500,000 shares
issued and outstanding at December 31, 1993............. -- -- 2 --
Series B preferred stock--50,000 shares issued and
outstanding at December 31, 1994 and 1993................... 1,250 -- 1,250 --
Series C preferred stock--26,675,000 shares issued and
outstanding at December 31, 1994............................ 3 -- -- --
Common stock--1,361,656,883 and 1,138,011,292 shares
issued and outstanding at December 31, 1994 and 1993,
respectively................................................ 13 -- 11 --
Paid-in capital........................................... 10,147 11,558 8,778 9,877
Cumulative translation adjustments........................ (164) (164) (102) (102)
Retained earnings (accumulated deficit)................... (364) 16 (883) (459)
Receivable from ESOP...................................... (186) -- (211) --
Loans receivable from employees........................... (14) -- (18) --
Unamortized value of restricted stock..................... (22) -- (6) --
-------- ------- -------- -------
TOTAL STOCKHOLDERS' EQUITY............................ 10,908 11,410 9,070 9,316
-------- ------- -------- -------
$ 31,408 $31,393 $ 31,295 $31,272
-------- ------- -------- -------
-------- ------- -------- -------
</TABLE>
See Notes to Consolidated Financial Statements.
F-6
<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 $3.578 billion,
$3.757 billion and $3.560 billion for 1994, 1993 and 1992, respectively.
During the fourth quarter of 1994, Holdings approved and adopted a plan to
realign Headquarters' functions, transferring certain responsibilities to the
operating companies and significantly streamlining the holding company. The plan
reflects expectations of a lower level of financings and other activities at the
holding company as Holdings concludes the post-LBO period. The costs and
expenses associated with this decision resulted in a charge of approximately $65
million before tax, a significant portion of which is a cash expense. The
majority of the charge is related to accrued employee termination benefits for
the 25% of Headquarters' employees terminated (approximately $40 million). This
cost was incurred pursuant to a continuing plan for employee termination
benefits that provides for the payment of specified amounts of severance and
benefits to terminated employees. The remainder of the charge (approximately $25
million) is related to the abandonment of leases of certain corporate office
facilities as a result of the realignment and streamlining and the reduced need
for office space. The plan was implemented in the first quarter of 1995 and will
be completed by year-end 1995. Anticipated annual future cash savings flowing
from the plan are estimated at approximately $25 million before tax
(approximately $16 million after tax).
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 to streamline operations and improve profitability. The program
was implemented in the latter part of 1993. Approximately 75% of the
restructuring program will require cash outlays of which approximately $300
million was spent as of the end of 1994. As an offset to the cash outlays,
after-tax cash savings of approximately $140 million were realized as of the end
of 1994. Holdings expects future annual after-tax cash savings to be in the
range of approximately $200 million to $225 million.
The cost of providing severance pay and benefits for the reduction of
approximately 6,000 employees (approximately 4,400 positions eliminated by the
end of 1994) throughout the domestic and international food and tobacco
businesses was approximately $400 million of the pre-tax charge and is primarily
a cash expense. Actual charges for severance pay and benefits through December
31, 1994 amounted to approximately $250 million. 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 stipulated that, effective January 1, 1994, financial penalties
would be assessed against manufacturers if cigarettes produced in the United
States did not contain at least 75% (by weight) domestically grown flue cured
and burley 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 market
share by RJRT's largest competitor led to a redeployment of spending and changes
in sales and distribution strategies that resulted 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 resulted in
approximately $60 million of restructuring charges. The remainder of the
F-7
<PAGE>
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 1--OPERATIONS--(CONTINUED)
charge, approximately $120 million, represents primarily non-cash costs to
rationalize and close manufacturing and sales facilities in both the tobacco and
food businesses to facilitate cost improvements. Charges related to these items
amounted to approximately $250 million through December 31, 1994.
As of December 31, 1994, the original estimates related to the food
businesses have remained unchanged. However, changes have occurred in the
original tobacco estimates. Due to stronger than anticipated demand for domestic
tobacco products, the estimate of the amount of domestic production to be moved
off-shore has been reduced, causing a domino-effect on domestic and
international raw material sourcing and production strategies. The end result
will be a reduction in the amount of domestic production moved to off-shore
facilities and significant changes in sourcing and production among off-shore
production facilities.
As a result of this change, approximately 300 domestic tobacco employees
originally anticipated to be terminated will be retained and approximately 200
additional international tobacco employees will be terminated. The financial
impact of these changes is a credit to income of approximately $23 million
related to the reduction in the cost of providing severance pay and benefits to
domestic tobacco employees and an increase in the cost of providing such
benefits to terminated international tobacco employees. In addition, the cost
associated with the rationalization and abandonment of manufacturing and sales
facilities was increased by approximately $21 million as it became evident that
the original plan to find an alternative manufacturing use for a tobacco
blending facility would not come to fruition. The net adjustment to operating
income as a result of the above changes (approximately $2 million) is included
in selling, advertising, administrative and general expense.
The major components of restructuring reserves are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1994 1993
------------ ------------
<S> <C> <C>
Severance pay and benefits......................................... $147 $323
Manufacturing/sales facilities..................................... 26 100
Contract termination costs......................................... -- 75
Abandonment of leases.............................................. 15 45
Reassessment of sourcing/product arrangements...................... 38 67
----- -----
$226 $610
----- -----
----- -----
</TABLE>
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.
F-8
<PAGE>
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 2--EARNINGS PER SHARE
Earnings per share is based on the weighted average number of shares of
Holdings' common stock, par value $.01 per share (the "Common Stock"), $.835
Depositary Shares ("Series A Depositary Shares") and Series C Depositary Shares
("Series C Depositary Shares") 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.
The net loss per common and common equivalent share reported for the year ended
December 31, 1993 would have increased by $.19 per share if the weighted average
number of shares of Series A Depositary Shares outstanding during the period had
been excluded from the earnings per share calculation.
The pro forma net income (loss) per common and common equivalent share for
each of the years within the three year period ended December 31, 1994 reflects
a one-for-five reverse split approved by the Board of Directors of Holdings
which will be submitted to Holdings' stockholders for approval at its annual
meeting in April 1995. (See Note 17 to the Consolidated Financial Statements.)
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,
1994 1993 1992
----------------- ---------------- ----------------
HOLDINGS RJRN HOLDINGS RJRN HOLDINGS RJRN
-------- ---- -------- ---- -------- ----
<S> <C> <C> <C> <C> <C> <C>
Current:
Federal................................ $401 $466 $295 $366 $165 $115
Foreign and other...................... 221 221 169 169 216 216
-------- ---- -------- ---- -------- ----
622 687 464 535 381 331
-------- ---- -------- ---- -------- ----
Deferred:
Federal................................ (40) (102) (298) (367) 300 363
Foreign and other...................... 29 29 (52) (52 ) (1) (1 )
-------- ---- -------- ---- -------- ----
(11) (73 ) (350) (419) 299 362
-------- ---- -------- ---- -------- ----
Provision for income taxes............... $611 $614 $114 $116 $680 $693
-------- ---- -------- ---- -------- ----
-------- ---- -------- ---- -------- ----
</TABLE>
F-9
<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, 1994 and 1993 included the following:
<TABLE>
<CAPTION>
DECEMBER 31, 1994 DECEMBER 31, 1993
------------------ ------------------
HOLDINGS RJRN HOLDINGS RJRN
-------- ------ -------- ------
<S> <C> <C> <C> <C>
Deferred tax assets:
Pension liabilities............................ $ (88) $ (88) $ (123) $ (123)
Other postretirement liabilities............... (326) (326) (342) (342)
Restructure and other accrued liabilities...... (226) (226) (325) (325)
-------- ------ -------- ------
Total deferred tax assets................ (640) (640) (790) (790)
-------- ------ -------- ------
Deferred tax liabilities:
Property and equipment......................... 1,049 1,049 1,154 1,154
Trademarks..................................... 2,784 2,784 2,913 2,913
Other.......................................... 531 457 465 392
-------- ------ -------- ------
Total deferred tax liabilities........... 4,364 4,290 4,532 4,459
-------- ------ -------- ------
Net deferred tax liabilities before
valuation allowance.............................. 3,724 3,650 3,742 3,669
Valuation allowance............................ 64 64 32 32
-------- ------ -------- ------
Net deferred income taxes...................... $3,788 $3,714 $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,
1994 1993 1992
------------------ ------------------ ------------------
HOLDINGS RJRN HOLDINGS RJRN HOLDINGS RJRN
-------- ------ -------- ------ -------- ------
<S> <C> <C> <C> <C> <C> <C>
Domestic (includes U.S. exports)....... $ 867 $ 868 $ (169) $ (168) $1,052 $1,072
Foreign................................ 508 508 280 280 404 404
-------- ------ -------- ------ -------- ------
Pre-tax income......................... $1,375 $1,376 $ 111 $ 112 $1,456 $1,476
-------- ------ -------- ------ -------- ------
-------- ------ -------- ------ -------- ------
</TABLE>
F-10
<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,
1994 1993 1992
--------------- ---------------- ------------------
HOLDINGS RJRN HOLDINGS RJRN HOLDINGS RJRN
-------- ---- -------- ----- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Income taxes computed at statutory
U.S. federal income tax rates........ $481 $481 $ 39 $ 39 $ 495 $ 502
State taxes, net of federal
benefit.............................. 54 54 23 23 54 54
Goodwill amortization................ 124 124 125 125 122 122
Asset sale........................... -- -- -- -- 33 33
Federal rate change impact on
deferred income taxes.............. -- -- 86 86 -- --
Decrease in deferred tax amounts,
primarily for a change in the
functional currency relating to
foreign branch operations............ -- -- (108) (108) -- --
Taxes on foreign operations at rates
different than statutory U.S.
federal rate....................... (6) (6) (14) (14) 15 15
FSC income exclusion................. (14) (14) (14) (14) (10) (10)
Other items, net..................... (28) (25) (23) (21) (29) (23)
-------- ---- -------- ----- -------- -------
Provision for income taxes........... $611 $614 $ 114 $ 116 $ 680 $ 693
-------- ---- -------- ----- -------- -------
-------- ---- -------- ----- -------- -------
Effective tax rate................... 44.5% 44.7% 102.7% 103.8% 46.7% 47.0%
-------- ---- -------- ----- -------- -------
-------- ---- -------- ----- -------- -------
</TABLE>
At December 31, 1994, there was $1.444 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.
During 1994, $64 million of previously recognized deferred income tax
benefits for minimum tax credit carryforwards were realized for U.S. federal tax
purposes.
Effective January 1, 1993, Holdings and RJRN adopted Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes ("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 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
F-11
<PAGE>
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 3--INCOME TAXES--(CONTINUED)
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
primarily resulting from a change in the functional currency, for U.S. federal
income tax purposes, relating to foreign branch 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 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 YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1994 1993 1992
---------------- ---------------- ----------------
HOLDINGS RJRN HOLDINGS RJRN HOLDINGS RJRN
-------- ----- -------- ----- -------- -----
<S> <C> <C> <C> <C> <C> <C>
Cash paid in excess of net carrying amount (book
value) of debentures extinguished................. $ (348) $(348) $ (206) $(196) $ (636) $(616)
Write-off of debt issuance costs.................. (29) (29) (12) (12) (40) (40)
-------- ----- -------- ----- -------- -----
Extraordinary item--loss on early extinguishments
of debt before income taxes..................... (377) (377) (218) (208) (676) (656)
Benefit for income taxes.......................... 132 132 76 73 199 192
-------- ----- -------- ----- -------- -----
Extraordinary item--loss on early extinguishments
of debt, net of income taxes.................... $ (245) $(245) $ (142) $(135) $ (477) $(464)
-------- ----- -------- ----- -------- -----
-------- ----- -------- ----- -------- -----
</TABLE>
F-12
<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,
1994 1993 1992
------------------ ------------------ ------------------
HOLDINGS RJRN HOLDINGS RJRN HOLDINGS RJRN
-------- ------ -------- ------ -------- ------
<S> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM (USED IN) OPERATING
ACTIVITIES:
Net income (loss)..................... $ 519 $ 517 $ (145) $ (139) $ 299 $ 319
-------- ------ -------- ------ -------- ------
Adjustments to reconcile net income
(loss) to net cash flows from
operating activities:
Depreciation of property, plant and
equipment............................... 454 454 448 448 455 455
Amortization (principally
intangibles)............................ 698 698 701 701 691 691
Deferred income tax provision
(benefit)............................... (11) (73) (350) (419) 299 362
Non-cash interest and debt
expense................................. 119 119 295 273 454 375
Extraordinary item--loss on early
extinguishments of debt................. 377 377 218 208 676 656
Gain on sale of ready-to-eat cold
cereal business......................... -- -- -- -- (98) (98)
(Increase) decrease in accounts and
notes receivable........................ (69) (61) 75 84 (180) (180)
(Increase) decrease in
inventories............................. 111 111 80 80 (102) (102)
Increase in prepaid expenses and
excise taxes............................ (18) (18) (37) (37) (53) (53)
(Increase) decrease in other assets
and deferred charges.............. (55) (57) (4) 43 (186) (185)
Increase (decrease) in accounts
payable and accrued liabilities......... (363) (363) 308 312 70 84
Increase (decrease) in income taxes
accrued................................. 26 51 (53) 54 38 128
Increase (decrease) in other
noncurrent liabilities.................. (37) (37) 215 24 (110) (96)
Other, net.......................... 3 1 18 (28) 54 99
-------- ------ -------- ------ -------- ------
Total adjustments............... 1,235 1,202 1,914 1,743 2,008 2,136
-------- ------ -------- ------ -------- ------
Net cash flows from operating
activities.............................. $1,754 $1,719 $1,769 $1,604 $2,307 $2,455
-------- ------ -------- ------ -------- ------
-------- ------ -------- ------ -------- ------
</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,
1994 1993 1992
---------------- ---------------- ------------------
HOLDINGS RJRN HOLDINGS RJRN HOLDINGS RJRN
-------- ---- -------- ---- -------- ------
<S> <C> <C> <C> <C> <C> <C>
Income taxes paid, net of refunds.......... $496 $496 $408 $408 $ 116 $ 116
Interest paid.............................. $986 $986 $912 $912 $1,102 $1,102
</TABLE>
F-13
<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, 1994 and 1993, valued at cost (which
approximates market value), totaled $364 million and $215 million, respectively,
and consisted principally of domestic and Eurodollar time deposits and
certificates of deposit.
At December 31, 1994 and 1993, cash of $60 million and $62 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 subsidiaries' 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 1994,
1993, and 1992, total proceeds of approximately $7.9 billion, $8.2 billion and
$8.5 billion, respectively, were received by RJRN in connection with this
arrangement. At December 31, 1994 and 1993, the accounts receivable balance has
been reduced by approximately $524 million and $437 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,
1994 1993
------------ ------------
<S> <C> <C>
Finished products........................................ $ 771 $ 771
Leaf tobacco............................................. 1,299 1,458
Raw materials............................................ 206 208
Other.................................................... 304 263
------------ ------------
$2,580 $2,700
------------ ------------
------------ ------------
</TABLE>
At December 31, 1994 and 1993, approximately $1.2 billion and $1.4 billion,
respectively, of inventory was valued under the LIFO method. The current cost of
LIFO inventories at December 31, 1994 and 1993 was greater than the amount at
which these inventories were carried on the Consolidated Balance Sheets by $141
million and $284 million, respectively.
For the years ended December 31, 1994, 1993 and 1992, net income was
increased by $10 million, $6 million, and $4 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-14
<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,
1994 1993
------------ ------------
<S> <C> <C>
Land and land improvements.............................. $ 323 $ 308
Buildings and leasehold improvements.................... 1,856 1,771
Machinery and equipment................................. 5,056 4,624
Construction-in-process................................. 532 463
------------ ------------
7,767 7,166
Less accumulated depreciation........................... (2,333) (1,998)
------------ ------------
Net property, plant and equipment................... $ 5,434 $ 5,168
------------ ------------
------------ ------------
</TABLE>
NOTE 8--NOTES PAYABLE
Notes payable consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1994 1993
------------ ------------
<S> <C> <C>
Notes payable to foreign banks........................... $ 296 $ 301
------------ ------------
------------ ------------
</TABLE>
Weighted average interest rate for notes payable consisted of the following:
<TABLE>
<S> <C> <C>
Notes payable to foreign banks........................... 9.77% 8.37%
------------ ------------
------------ ------------
</TABLE>
NOTE 9--ACCRUED LIABILITIES
Accrued liabilities consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1994 1993
------------ ------------
<S> <C> <C>
Marketing and advertising................................ $ 553 $ 643
Payroll and employee benefits............................ 380 325
Excise taxes............................................. 260 226
Accrued interest......................................... 189 260
Restructuring............................................ 146 377
Other.................................................... 1,004 920
------------ ------------
$2,532 $2,751
------------ ------------
------------ ------------
</TABLE>
NOTE 10--LONG-TERM DEBT AND INTEREST EXPENSE
Interest and debt expense consisted of the following:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1994 1993 1992
------------ ------------ ------------
<S> <C> <C> <C>
Cash interest..................................... $ 946 $ 914 $ 995
Non-cash interest and debt expense................ 119 295 454
------ ------ ------
$1,065 $1,209 $1,449
------ ------ ------
------ ------ ------
</TABLE>
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)
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, 1994 DECEMBER 31, 1993
---------------------- -------------------
DUE DUE DUE DUE
WITHIN AFTER WITHIN AFTER
ONE YEAR ONE YEAR(1) ONE YEAR ONE YEAR
-------- ----------- -------- --------
<S> <C> <C> <C> <C>
Long-term Debt:
8.625-9.25% Debentures with annual sinking fund
payments through 2017 (net of $59 million and $160
million of such debentures held by RJRN on December
31, 1994 and 1993, respectively, for future sinking
fund requirements)................................. $ 400 $ 634 $ -- $ 1,464
5.09-9.25% Notes, due 1995 through 2013.............. 200 4,932 -- 6,631
5.375-10%, foreign currency debt, due 2000 to 2001... -- 500 123 472
1991 Credit Agreement, variable interest (varies with
prime rate and LIBOR--weighted average interest
rate of 6.68% at December 31, 1994), due December
31, 1997(2)........................................ -- 1,750 -- 328
Nabisco 1994 Credit Agreement, variable interest
(varies with prime rate and LIBOR--weighted average
interest rate of 6.55% at December 31, 1994), due
December 5, 1995(3)................................ 1,350 -- -- --
Commercial paper(4).................................. -- 864 -- 913
Other indebtedness................................... 20 203 19 247
Subordinated Debentures:
15% Subordinated Debentures, net of discount of $18
million at December 31, 1993........................... -- -- -- 280
Subordinated Discount Debentures, net of discount of
$133 million at December 31, 1993.................. -- -- -- 1,393
Other Subordinated Debentures, fixed rate of 13
1/2%................................................... -- -- -- 277
-------- ----------- -------- --------
Total long-term debt(5).......................... $1,970 $ 8,883 $142 $ 12,005
-------- ----------- -------- --------
-------- ----------- -------- --------
</TABLE>
- ------------
(1) The payment of debt through December 31, 1999 is due as follows (in
millions): 1996--$143; 1997--$1,826; 1998--$217 and 1999--$612.
(2) RJRN maintains a revolving credit facility of $6.0 billion, as amended (the
"1991 Credit Agreement"), of which $4.25 billion was unused at December 31,
1994. At December 31, 1994, availability of the unused portion is reduced by
$412 million for the extension of irrevocable letters of credit issued under
the 1991 Credit Agreement and by $1.35 billion for borrowings under the
Nabisco, Inc. credit agreement, dated as of December 6, 1994 (the "Nabisco
1994 Credit Agreement"). A commitment fee of 1/4% per annum is payable on
the unused portion of the facility.
(3) The Nabisco 1994 Credit Agreement provides a 364 day revolving credit
facility of $1.5 billion of which $150 million was unused at December 31,
1994. A commitment fee of 1/5% per annum is payable on the full amount of
the commitment.
(4) 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.
(5) As a result of certain activities associated with RJRN's interest rate
derivative instruments during 1994, the effective interest rate on certain
debt may differ from that disclosed in the table. See Note 11 to the
Consolidated Financial Statements.
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)
-------------------
On May 15, 1992, RJR Nabisco Capital Corp. ("Capital") merged with and into
its wholly-owned subsidiary, RJRN. As a result of the merger, RJR Nabisco
Holdings Group, Inc. ("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 due 1998 (the "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% 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
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)
(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 a participation in an employee stock ownership plan
established by Holdings (the "ESOP") 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
these debt securities and the Series B Preferred Stock Offering (as hereinafter
defined) were used for general corporate purposes, which included refinancings
of indebtedness, working capital, capital expenditures, acquisitions and
repurchases and redemptions of securities. Pending such uses, proceeds were used
to repay indebtedness under the 1991 Credit Agreement 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 May 15, 1994, RJRN redeemed substantially all of its approximately $2
billion in outstanding subordinated debentures. The subordinated debentures
redeemed consisted of the Subordinated Discount Debentures, the 15% Subordinated
Debentures and the 13 1/2% Subordinated Debentures at redemption prices of 107
1/2%, 107 1/2% and 106 3/4%, respectively, plus accrued interest. Approximately
$1.2 billion principal or accreted amount of such debentures was refinanced
with proceeds of debt securities maturing after 1998 that were issued during
1993. Such proceeds had been used to temporarily reduce indebtedness under the
1991 Credit Agreement. In addition, the redemption of such debentures was
funded with approximately $900 million of net proceeds from the sale of
266,750,000 Series C Depositary Shares
F-18
<PAGE>
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 10--LONG-TERM DEBT AND INTEREST EXPENSE--(CONTINUED)
completed on May 6, 1994 in connection with the issuance of 26,675,000 shares of
Series C Conversion Preferred Stock, par value $.01 per share ("Series C
Preferred Stock").
On November 30, 1994, RJRN redeemed $1.5 billion of 10 1/2% Senior Notes;
$373.5 million of 8 3/8% Sinking Fund Debentures due 2017 and approximately
$24.8 million of 7 3/8% Sinking Fund Debentures due 2001. On December 2, 1994,
RJRN redeemed $100 million of the 13 1/2% Subordinated Debentures. The
redemption price for the 10 1/2% Senior Notes was equal to $1,071 plus
accrued interest for each $1,000 principal amount of notes. The redemption price
for the 8 3/8% Sinking Fund Debentures due 2017 was equal to $1,054.44 plus
accrued interest for each $1,000 principal amount of debentures. The redemption
price for the 7 3/8% Sinking Fund Debentures due 2001 was equal to $1,005.60
plus accrued interest for each $1,000 principal amount of debentures. The
redemption price for the 13 1/2% Subordinated Debentures was equal to $1,067.50
plus accrued interest for each $1000 principal amount of debentures. These
redemptions were funded with borrowings under the 1991 Credit Agreement,
internally generated cash flow, and, in the case of the 8 3/8% Sinking Fund
Debentures due 2017, proceeds from Holdings' Series C Preferred Stock offering.
On December 7, 1994, Nabisco, Inc. borrowed $1.35 billion under the Nabisco
1994 Credit Agreement to repay a portion of Nabisco's intercompany indebtedness
to RJRN. RJRN used the proceeds of the repayment to reduce borrowings under the
1991 Credit Agreement.
The Registrants' credit agreement dated as of April 5, 1993, as amended (the
"1993 Credit Agreement" and, together with the 1991 Credit Agreement, the
"Credit Agreements"), under which commitments terminate on April 3, 1995,
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 domestic commercial paper outstanding. At December 31, 1994,
approximately $864 million of commercial paper was outstanding. Accordingly,
$136 million was available under the 1993 Credit Agreement at December 31, 1994.
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".
The payment of dividends and the making of distributions by Holdings to its
stockholders and by Nabisco to RJRN are subject to direct and indirect
restrictions under certain financing agreements and debt instruments of the
Registrants and their subsidiaries. With certain exceptions, the Nabisco 1994
Credit Agreement limits prepayments of Nabisco's indebtedness to RJRN and
restricts dividends and distributions by Nabisco to $300 million plus 50% of
Nabisco's cumulative consolidated net income since January 1, 1995. Loans and
advances by Nabisco to RJRN are generally subject to a $100 million limit. The
Nabisco 1994 Credit Agreement also limits the ability of Nabisco to incur
indebtedness, engage in transactions with stockholders and affiliates, create
liens, sell certain assets and securities and engage in certain mergers or
consolidations. These restrictions have not had and are not expected to have a
material effect on the ability of Nabisco Holdings Corp. to pay its anticipated
dividends to RJRN, or on the ability of RJRN to meet its obligations.
F-19
<PAGE>
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 10--LONG-TERM DEBT AND INTEREST EXPENSE--(CONTINUED)
The Credit Agreements limit the payment of dividends by Holdings.
Specifically, the Credit Areements generally restrict dividends and
distributions by Holdings to $1 billion, plus 50% of cumulative
consolidated net income since January 1, 1995, plus the net cash proceeds
of up to $250 million in any twelve month period from issuances of its
equity securities. The Credit Agreements and certain other financing
agreements limit the ability of Holdings and its subsidiaries to incur
indebtedness, engage in transactions with stockholders and affiliates, create
liens, sell or dispose of certain assets and certain subsidiaries' stock and
engage in certain mergers or consolidations. Holdings and RJRN believe that they
and their subsidiaries are currently in compliance with all convenants and
restrictions imposed by the terms of their indebtedness.
The estimated fair value of Holdings' consolidated long-term debt as of
December 31, 1994 and 1993 was approximately $10.7 billion and $12.4 billion,
respectively, based on available market quotes, discounted cash flows and book
values, as appropriate. The estimated fair value is lower by $444 million and
higher by $400 million than the carrying amounts of Holdings' long-term debt at
December 31, 1994 and 1993, respectively, as a result of the level of market
interest rates at December 31, 1994 and 1993 compared with the interest rates
associated with 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,
1994 and 1993 is not necessarily indicative of the amounts that Holdings could
realize in a current market exchange.
NOTE 11--COMMITMENTS AND CONTINGENCIES
TOBACCO-RELATED LITIGATION
Various legal actions, proceedings and claims are pending or may be
instituted against R. J. Reynolds Tobacco Company ("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 1994, 32
new actions were filed or served against RJRT and/or its affiliates or
indemnitees and 14 such actions were dismissed or otherwise resolved in favor of
RJRT and/or its affiliates or indemnitees without trial. A total of 54 such
actions in the United States and one against RJRT's Canadian subsidiary were
pending on December 31, 1994. As of February 17, 1995, 55 active cases were
pending against RJRT and/or its affiliates or indemnitees, 54 in the United
States and one in Canada. The United States cases are in 23 states and are
distributed as follows: thirteen in Louisiana, eight in Texas, three in each of
Indiana, Mississippi and Tennessee, two in each of Alabama, California, Florida,
Minnesota, New Jersey and West Virginia and one in each of Colorado, Ohio,
Illinois, Kansas, Washington, Oklahoma, Massachusetts, Nevada, South Carolina,
New Hampshire, New York and Pennsylvania. Of the 54 active cases in the United
States, 33 are pending in state court and 21 in federal court.
Five of the 54 active cases in the United States involve alleged non-smokers
claiming injuries resulting from exposure to environmental tobacco smoke. Seven
cases, which are described more specifically below, purport to be class actions
on behalf of thousands of individuals. Purported classes include individuals
claiming to be addicted to cigarettes, flight attendants alleging personal
injury from
F-20
<PAGE>
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 11--COMMITMENTS AND CONTINGENCIES--(CONTINUED)
exposure to environmental tobacco smoke in their workplace and, in one case,
parents claiming that an RJRT advertising campaign constitutes an unfair trade
practice.
The plaintiffs in these actions seek recovery on a variety of legal
theories, including strict liability in tort, design defect, negligence, breach
of warranty, failure to warn, fraud, misrepresentation, unfair trade practices,
conspiracy, unjust enrichment, indemnity and common law public nuisance.
Punitive damages, often in amounts ranging into the hundreds of millions of
dollars, are specifically pleaded in 27 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 Liability 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 in
which RJRT was not a defendant, 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 and, if so, in what form, or whether such legislation would be
intended by Congress to apply retroactively. The passage of such legislation
could increase the number of cases filed against cigarette manufacturers,
including RJRT.
Set forth below are descriptions of class action lawsuits, a suit in which
plaintiffs seek to act as private attorneys general, actions brought by state
attorneys general in Minnesota, Mississippi and West Virginia, an action
brought by the State of Florida and pending investigations relating to RJRT's
tobacco business.
In 1991, in Broin v. Philip Morris Company, Inc. et al., a purported class
action against certain tobacco industry defendants, including RJRT, was brought
by flight attendants, claiming to represent a class of 60,000 individuals,
alleging personal injury caused by exposure to environmental tobacco smoke in
their workplace. In December 1994, the Florida state court certified a class
consisting of "all non-smoking flight attendants who are or have been employed
by airlines based in the United States and are suffering from diseases and
disorders caused by their exposure to secondhand cigarette smoke in airline
cabins." The defendants have appealed the ruling to the Florida Third District
Court of Appeal.
In March 1994, Castano v. The American Tobacco Company, et. al., a purported
class action, was filed in the United States District Court for the Eastern
District of Louisiana against tobacco industry defendants, including RJRT,
seeking certification of a class action on behalf of all United States residents
who allegedly are or claim to be addicted, or are the legal survivors of persons
who allegedly
F-21
<PAGE>
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 11--COMMITMENTS AND CONTINGENCIES--(CONTINUED)
were addicted, to tobacco products manufactured by defendants. The complaint
alleges that cigarette manufacturers manipulated the levels of nicotine in their
tobacco products to induce addiction in smokers. Plaintiffs' motion for
certification of the class was granted in part on February 17, 1995. The
district court certified core liability issues (fraud, negligence, breach of
warranty, both express and implied, intentional tort, strict liability and
consumer protection statutes), and punitive damages. Not certified were issues
of injury-in-fact, proximate cause, reliance, affirmative defenses, and
compensatory damages. The defendants plan to pursue appellate remedies.
In March 1994, Lacey v. Lorillard Tobacco Company, Inc., et. al. a purported
class action, was filed in Circuit Court, Fayette County, Alabama against three
cigarette manufacturers, including RJRT. Plaintiff, who claims to represent all
smokers who have smoked or are smoking cigarettes manufactured and sold by
defendants in the state of Alabama, seeks compensatory and punitive damages not
to exceed $48,500 per class member and injunctive relief arising from
defendants' alleged failure to disclose additives used in their cigarettes. In
April 1994, defendants removed the case to the United States District Court for
the Northern District of Alabama.
In April 1994, Sparks v. R.J. Reynolds Tobacco Company, et al. was brought
in Washington state court on behalf of a purported class of "parents with a
conscience" alleging that an RJRT advertising campaign targets minors and
constitutes an unfair trade practice under Washington state law. In 1994, the
case was removed to the United States District Court for the Western District of
Washington. Defendants' motion to dismiss the case on preemption grounds was
granted on December 9, 1994. Plaintiffs have filed a notice of appeal.
In May 1994, Engle v. R.J. Reynolds Tobacco Company, et al., was filed in
Circuit Court, Eleventh Judicial District, Dade County, Florida against tobacco
manufacturers, including RJRT, and other members of the industry, by plaintiffs
who allege injury and purport to represent a class of all United States citizens
and residents who claim to be addicted, or who claim to be legal survivors of
persons who allegedly were addicted, to tobacco products. On October 28, 1994, a
state court judge in Miami granted plaintiffs' motion to certify the class. The
defendants have appealed that ruling to the Florida Third District Court of
Appeal.
In September 1994, Granier v. American Tobacco Company, et al., a purported
class action apparently patterned after the Castano case, was filed in the
United States District Court for the Eastern District of Louisiana against
tobacco industry defendants, including RJRT. Plaintiffs seek certification of a
class action on behalf of all residents of the United States who have used and
purportedly became addicted to tobacco products manufactured by defendants. The
complaint alleges that cigarette manufacturers manipulated the levels of
nicotine in tobacco products for the purpose of addicting consumers. By
agreement of the parties, all action in this case was stayed pending
determination of the motion for class certification in the Castano case.
In January 1995, a purported class action was filed in the Ontario Canada
Court of Justice against RJR-MacDonald, Inc. and two other Canadian cigarette
manufacturers. The lawsuit, Le Tourneau, et al. v. Imperial Tobacco Company,
Ltd., et al., seeks certification of a class of persons who have allegedly
become addicted to the nicotine in cigarettes or who had such alleged addiction
heightened or maintained through the use of cigarettes, and who have allegedly
suffered loss, injury, and damage in consequence, together with persons with
Family Law Act claims in respect to the claims of such allegedly addicted
persons, and the estates of such allegedly addicted persons. Theories of
recovery
F-22
<PAGE>
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 11--COMMITMENTS AND CONTINGENCIES--(CONTINUED)
pleaded include negligence, strict liability, failure to warn, deceit, negligent
misrepresentation, implied warranty, and conspiracy. The relief sought consists
of damages of three million dollars, punitive damages, funding of nicotine
addiction rehabilitation centers, interest and costs. As of February 21, 1995,
RJR-MacDonald, Inc. had not yet been served with a copy of the complaint.
In March 1994, Allman v. Philip Morris, Inc., et al. and Higley v. Philip
Morris, Inc., et al. were filed in the United States District Court for the
Southern District of California against industry members and others, including
RJRT, on behalf of a purported class of persons claiming to be addicted to
cigarettes who had been prescribed treatment using the nicotine transdermal
system. Plaintiffs assert a violation of the Racketeer Influenced and Corrupt
Organizations Act and claim unspecified actual and treble damages. In April
1994, the two cases were combined into a single amended complaint and
plaintiffs' counsel agreed to dismiss the Higley case. On September 28, 1994,
the court granted the defendants' motion to dismiss the remaining case with
prejudice. Plaintiffs filed a notice of appeal, but the parties later stipulated
to a dismissal. An order was entered on February 13, 1995 dismissing the case.
In June 1994, in Mangini v. R.J. Reynolds Tobacco Company, et al., the
California Supreme Court ruled that the plaintiffs' claim that an RJRT
advertising campaign constitutes unfair competition under the California
Business and Professions Code was not preempted by the Cigarette Act. The suit
is similar to the Sparks case pending in Washington, except that the plantiffs
here are acting as private attorneys general rather than on behalf of a
purported class. This opinion allows plaintiffs to pursue their lawsuit which
had been dismissed at the trial court level. On September 28, 1994, the
defendants in this case filed a Petition for Certiorari to the United States
Supreme Court, which was denied on December 28, 1994. The case has been remanded
to the trial court where additional defendants, including RJRN, have been added.
In June 1994, in Moore v. The American Tobacco Company, et al., RJRN and
RJRT were named along with other industry members as defendants in an action
brought by the Mississippi state attorney general on behalf of the state to
recover state funds paid for health care and medical and other assistance to
state citizens suffering from diseases and conditions allegedly related to
tobacco use. This suit, which was brought in Chancery (non-jury) Court, Jackson
County, Mississippi also seeks an injunction from "promoting" or "aiding and
abetting" the sale of cigarettes to minors. Both actual and punitive damages are
sought in unspecified amounts. Motions by the defendants to dismiss the case or
to transfer it to circuit (jury) court were denied on February 21, 1995 and the
case will proceed in Chancery Court. The defendants are considering their
options regarding appeal.
In August 1994, RJRT and other U.S. cigarette manufacturers were named as
defendants in an action instituted on behalf of the state of Minnesota and on
behalf of Blue Cross and Blue Shield of Minnesota to recover the costs of
medical expenses paid by the state and by Blue Cross/Blue Shield that were
incurred in the treatment of diseases allegedly caused by cigarette smoking. The
suit, Minnesota v. Philip Morris, et al., alleges consumer fraud, unlawful and
deceptive trade practices, false advertising and restraint of trade, and it
seeks injunctive relief and money damages, trebled for violations of the state
antitrust law.
In September 1994, the Attorney General of West Virginia filed suit against
RJRT, RJRN and twenty-one additional defendants in state court in West Virginia.
The lawsuit, McGraw v. American Tobacco Company, et al., is similar to those
previously filed in Mississippi and Minnesota. It seeks
F-23
<PAGE>
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 11--COMMITMENTS AND CONTINGENCIES--(CONTINUED)
recovery for medical expenses incurred by the state in the treatment of diseases
statistically associated with cigarette smoking and requests an injunction
against the promotion and sale of cigarettes and tobacco products to minors. The
lawsuit also seeks a declaration that the state of West Virginia, as plaintiff,
is not subject to the defenses of statute of repose, statute of limitations,
contributory negligence, comparative negligence, or assumption of the risk.
On February 21, 1995, the state of Florida filed a suit against RJRT and
RJRN, along with other industry members, their holding companies and other
entities. The state is seeking Medicaid reimbursement under various theories of
liability and injunctive relief to: prevent the defendants from engaging in
consumer fraud; disclose and publish all research conducted directly or
indirectly by the industry; fund a corrective public education campaign on the
issues of smoking and health in Florida; prevent the distribution and sale of
cigarettes to minors under the age of eighteen; fund clinical smoking cessation
programs in the state of Florida; dissolve the Council for Tobacco Research and
the Tobacco Institute or divest ownership, sponsorship, or membership in both;
and disgorge all profits from sales of cigarettes in Florida. Neither RJRT nor
RJRN has been served with a copy of the complaint as of February 21, 1995.
The suit by the state of Florida was brought under a statute which was
amended effective July 1994 to allow the state to bring an action in its own
name against the tobacco industry to recover amounts paid by the state under its
Medicaid program to treat illnesses statistically associated with cigarette
smoking. The amended statute does not require the state to identify the
individual who received medical care, permits a lawsuit to be filed as a class
action and eliminates the compartive negligence and assumption of risk defenses.
The Florida statute is being challenged on state and federal constitutional
grounds in a lawsuit brought by Philip Morris Companies Inc., Associated
Industries of Florida, Publix Supermarkets, and National Association of
Convenience Stores in June 1994. On February 20, 1995, RJRT and Philip Morris
Incorporated filed a petition with the Supreme Court of Florida to prohibit
Florida's Agency for Health Care Administration and the Department of Business
and Professional Regulation from filing and maintaining a lawsuit against the
tobacco industry under this statute.
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 received a civil investigative demand dated January 11, 1994 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 tobacco-related 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 or 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
F-24
<PAGE>
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 11--COMMITMENTS AND CONTINGENCIES--(CONTINUED)
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 the financial position of
either of the Registrants; however, it is possible that the results of
operations or cash flows of the Registrants in particular quarterly or annual
periods or the financial condition of the Registrants 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
any possible loss in any particular quarterly or annual period or in the
aggregate.
COMMITMENTS
At December 31, 1994, 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 RJRN to manage its interest rate and foreign currency exposures.
Interest Rate Arrangements
RJRN manages its interest rate exposure by adjusting its mix of floating
rate debt and fixed rate debt. As part of such management of interest rate
exposure, RJRN has entered into interest rate swaps, options, caps and other
interest rate arrangements, including written options and other financial
instruments having a risk profile substantially similar to written options.
As a result of the impact of higher market interest rates during 1994, RJRN
recognized additional interest expense of approximately $22 million associated
with its interest rate derivative instruments. However, such interest rate
derivative instruments resulted in lower interest expense during 1993 and 1992
of approximately $70 million and $15 million, respectively. Included in the
1994 additional interest expense is approximately $45 million related to RJRN'S
outstanding written options and interest rate derivatives with embedded
written optionality, all of which were canceled during 1994. Also as part of
RJRN's ongoing management of its interest rate exposure during 1994, RJRN
effectively neutralized the effects of any further changes in market interest
rates on the remainder of its outstanding derivative interest rate
instruments (approximately $1.8 billion notional amount at December 31, 1994)
through the purchase of offsetting positions (approximately $1.8 billion
notional amount at December 31, 1994). Accordingly, as a result of higher
interest rates on the above instruments, approximately $39 million, $28
million and $5 million of additional interest expense remains to be
recognized in 1995, 1996 and 1997, respectively. At December 31, 1994 and
1993, RJRN had outstanding interest rate swaps, options, caps and other
interest rate arrangements with financial institutions having a total gross
notional principal amount of $3.6 billion and $5.7 billion, respectively.
Although the
F-25
<PAGE>
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 11--COMMITMENTS AND CONTINGENCIES--(CONTINUED)
arrangements outstanding at December 31, 1994 have a net notional amount of $0,
these arrangements mature as follows:
<TABLE><CAPTION>
NOTIONAL PRINCIPAL AMOUNT
----------------------------------------------------
TYPE OF INSTRUMENT 1995 1996 1997 1998 TOTAL
- --------------------------------------- ---- ------ ------ ------ ------
(AMOUNTS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Variable rate pay swaps................ $400 $ 600 $ 750 $ 50 $1,800
Fixed rate pay swaps................... 400 600 750 50 1,800
---- ------ ------ ------ ------
$800 $1,200 $1,500 $ 100 $3,600
---- ------ ------ ------ ------
---- ------ ------ ------ ------
</TABLE>
In 1994, RJRN adopted a policy to utilize interest rate derivative
transactions that will adjust the mix of floating rate debt and fixed rate
debt on a one for one basis.
The estimated fair value of these arrangements as of December 31, 1994 and
1993 was unfavorable by approximately $72 million and favorable by approximately
$37 million, respectively, based on calculations from independent third parties
for similar arrangements.
When 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 and may change as
market interest rates change. If an arrangement is terminated or effectively
terminated prior to maturity, then the realized or unrealized gain or loss is
effectively 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 or
effectively 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 financial instruments
(or components thereof) having a risk profile substantially similar to written
options, changes in market value result in the current recognition of any
related gains or losses.
Foreign Currency Arrangements
At December 31, 1994 and 1993, RJRN had outstanding forward foreign exchange
contracts with banks to purchase or sell an aggregate notional principal amount
of $807 million and $476 million, respectively. Such contracts were primarily
entered into to hedge future commitments. The purpose of RJRN's foreign currency
hedging activities is to protect RJRN from risk that the eventual dollar cash
flows resulting from transactions with international parties will be adversely
affected by changes in exchange rates. The estimated fair value of these
arrangements as of December 31, 1994 and 1993 was unfavorable by approximately
$4 million and favorable by approximately $3 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.
F-26
<PAGE>
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 11--COMMITMENTS AND CONTINGENCIES--(CONTINUED)
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.
SUMMARY FINANCIAL INSTRUMENTS FAIR VALUE INFORMATION
At December 31, 1994, the carrying amounts and estimated fair values of
RJRN's financial instruments were as follows:
<TABLE>
<CAPTION>
ASSETS/(LIABILITIES)
----------------------------
FINANCIAL INSTRUMENTS CARRYING VALUE FAIR VALUE
- -------------------------------------------------------------------- -------------- ----------
(AMOUNTS IN MILLIONS)
<S> <C> <C>
Interest rate swaps:
Variable rate pay swaps........................................... $ (2) $ (76)
-------------- ----------
Fixed rate pay swaps.............................................. $ -- $ 4
-------------- ----------
Forward foreign exchange contracts.................................. $ (1) $ (4)
-------------- ----------
Total debt.......................................................... $(11,161) $ (10,717)
-------------- ----------
</TABLE>
F-27
<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>
1994 1993
------------------------- ------------------------
SHARES AMOUNT SHARES AMOUNT
------------- ------- ------------- ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Common Stock--$0.01 par value--authorized 2,200,000,000 shares at
December 31, 1994:
Balance at beginning of year.................................... 1,138,011,292 $ 11 1,134,648,542 $ 11
Shares issued during the period................................. 13,907,874 -- 3,692,911 --
Conversion of Series A Preferred Stock.......................... 210,000,000 2 -- --
Management shares repurchased and
cancelled..................................................... (262,283) -- (330,161) --
------------- ------- ------------- ------
Balance at end of year...................................... 1,361,656,883 $ 13 1,138,011,292 $ 11
------------- ------- ------------- ------
------------- ------- ------------- ------
Paid-in capital:
Balance at beginning of year.................................... $ 8,778 $9,048
Shares issued during the period, net of stock issuance costs.... 1,754 (16)
Tax benefits recorded on shares issued to management and ESOP
shares allocated................................................. 9 3
Management shares and stock options repurchased and cancelled... (1) (2)
Preferred stock dividends....................................... (393) (246)
Warrants repurchased and cancelled.............................. -- --
Other........................................................... -- (9)
------- ------
Balance at end of year...................................... $10,147 $8,778
------- ------
------- ------
<CAPTION>
1992
------------------------
SHARES AMOUNT
------------- ------
<S> <C> <C>
Common Stock--$0.01 par value--authorized 2,200,000,000 shares at
December 31, 1994:
Balance at beginning of year.................................... 1,121,658,569 $ 11
Shares issued during the period................................. 13,117,248 --
Conversion of Series A Preferred Stock.......................... -- --
Management shares repurchased and
cancelled..................................................... (127,275) --
------------- ------
Balance at end of year...................................... 1,134,648,542 $ 11
------------- ------
------------- ------
Paid-in capital:
Balance at beginning of year.................................... $9,352
Shares issued during the period, net of stock issuance costs.... (8 )
Tax benefits recorded on shares issued to management and ESOP
shares allocated................................................. 4
Management shares and stock options repurchased and cancelled... (6 )
Preferred stock dividends....................................... (207 )
Warrants repurchased and cancelled.............................. (87 )
Other........................................................... --
------
Balance at end of year...................................... $9,048
------
------
</TABLE>
The changes in stock options are shown as follows:
<TABLE>
<CAPTION>
1994 1993 1992
--------------------------- --------------------------- --------------------------
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
----------- ----------- ---------- ------------ ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at beginning of year:
Stock Option Plan...................... 23,240,112 $5.00-10.45 25,355,948 $ 5.00-10.45 25,814,648 $5.00- 5.75
Long Term Incentive Plan............... 64,632,634 4.52-11.56 19,654,600 7.50-11.56 12,990,600 7.50-11.63
Options granted to management investors
and directors:
Stock Option Plan...................... 160,800 6.88 2,400 5.00
Long Term Incentive Plan............... 1,777,000 5.50-7.44 49,213,100 4.52- 9.13 7,004,000 8.25-10.125
Management options exercised:
Stock Option Plan...................... (4,594,737) 5.00-5.75 (1,116,046) 5.00
Long Term Incentive Plan............... (35,855) 5.56
Management options repurchased and
cancelled:
Stock Option Plan...................... (32,813) 5.00-11.25 (999,790) 5.00- 8.55 (461,100) 5.00-10.45
Long Term Incentive Plan............... (4,315,524) 5.56-10.13 (4,235,066) 5.56-10.00 (340,000) 7.50-11.63
----------- ---------- ----------
Balance at end of year:
Stock Option Plan...................... 18,773,362 5.00-10.45 23,240,112 5.00-10.45 25,355,948 5.00-10.45
Long Term Incentive Plan............... 62,058,255 4.52-11.56 64,632,634 4.52-11.56 19,654,600 7.50-11.56
----------- ---------- ----------
80,831,617 4.52-11.56 87,872,746 4.52-11.56 45,010,548 5.00-11.56
----------- ---------- ----------
----------- ---------- ----------
</TABLE>
At December 31, 1994, options were exercisable as to 43,974,207 shares,
compared with 20,018,041 shares at December 31, 1993, and 15,590,909 shares at
December 31, 1992. As of December 31, 1994, options for 100,351,127 shares of
Common Stock were available for future grant.
F-28
<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.
Non-employee directors or key employees of Holdings or any subsidiary of
Holdings are 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 under the Stock Option Plan generally vest over
a five year period and the exercise price of such options is generally the fair
market value of the Common Stock on the date of grant. Each eligible director
is, upon becoming a director, granted an option under the Stock Option Plan to
purchase 30,000 shares of Common Stock. The options have an exercise price equal
to the fair market value of the Common Stock on the date of grant. They cannot
be exercised for six months following the date of grant but, thereafter, are
exercisable for ten years from the date of grant. In addition, each eligible
director receives an annual grant of stock options which, beginning in 1995,
will be made on the date of the director's election or re-election to the Board
of Directors. The annual grant is intended to deliver a predetermined value, and
the number of shares of Common Stock subject to the option is determined based
on an internal valuation methodology. In 1994, each eligible director received a
stock option to purchase 5,900 shares of Common Stock. The annually granted
stock options have a 15 year term and vest over three years (33% on the first
and second anniversaries of the date of grant and 34% on the third anniversary).
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 Internal Revenue 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, 1994,
purchase stock, stock options other than incentive stock options, restricted
stock, performance shares, performance units 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 1994 vest over a three year period beginning from the
date of grant. The exercise prices of such options are between $5.50 and $7.44
per share. In connection with the purchase stock grants awarded during 1994,
1993 and 1992, 0 shares, 622,222 shares and 495,000 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
F-29
<PAGE>
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 12--CAPITAL STOCK AND PAID-IN CAPITAL--(CONTINUED)
recognized in connection with such purchases. The current annual interest rate
on such arrangements, which was set in July 1994 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 1994, 4,420,500 shares of Common Stock were awarded in
connection with restricted stock grants made. These shares are subject to
restrictions that will lapse on July 15, 1997 (or earlier under certain
circumstances). Other stock-based awards were made in 1994 under the 1990 LTIP
to individuals who previously acquired certain purchase stock under the 1990
LTIP. Under this program, such individuals 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 connection with the initial public offering of shares of Nabisco in
January 1995, the board of directors of Nabisco adopted the Nabisco Holdings
Corp. 1994 Long Term Incentive Plan (the "Nabisco LTIP") which is substantially
similar to the LTIP except that stock-based awards are denominated in shares of
Class A Common Stock of Nabisco. On January 19, 1995 and on January 27, 1995,
employees of Nabisco with outstanding stock options under the LTIP were
permitted to elect to surrender 100% of their outstanding LTIP stock options in
exchange for the grant of options under the Nabisco LTIP. Charles M. Harper, as
chairman of the board of directors of Nabisco, was permitted to surrender 50% of
his outstanding LTIP options on January 19, 1995 in exchange for Nabisco LTIP
options. Options to purchase a total of 24,686,068 shares of Common Stock were
surrendered pursuant to this program. Also on January 19, 1995, Holdings
purchased one-half of Mr. Harper's restricted LTIP purchase shares (311,111
shares) at the then fair market value ($5.625 per share), and he used the
proceeds to acquire similarly restricted shares of Class A Common Stock of
Nabisco.
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 1993 or 1994. Unlike the shares sold under
the 1990 LTIP, a portion of these shares remain subject to significant
restrictions on transferability.
At December 31, 1994, Holdings' outstanding classes of capital stock
consisted of the following: the Common Stock, the Series B Cumulative Preferred
Stock, par value $.01 per share (the "Series B Preferred Stock"), and the ESOP
Convertible Preferred Stock, stated value of $16.00 per share and par value of
$.01 per share (the "ESOP Preferred Stock"). In addition, Holdings had its
Cumulative Convertible Preferred Stock, stated value of $25 per share and par
value of $.01 per share (the "Cumulative Convertible Preferred Stock"),
outstanding until the fourth quarter of 1993 and its Series A Conversion
Preferred Stock, par value $.01 per share (the "Series A Preferred Stock"),
outstanding until the fourth quarter of 1994. All of the classes of preferred
stock of Holdings rank senior to the Common Stock as to dividends and
preferences in liquidation. Holdings' charter authorized 150,000,000 preferred
shares at December 31, 1994 and 1993.
F-30
<PAGE>
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 12--CAPITAL STOCK AND PAID-IN CAPITAL--(CONTINUED)
On November 1, 1990, Holdings issued and/or registered 72,032,000 shares of
the Cumulative Convertible Preferred Stock. The Cumulative Convertible Preferred
Stock paid cash dividends at a rate of 11.5% of stated value per annum, payable
quarterly in arrears commencing January 15, 1991. The Cumulative Convertible
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. Holders of
the Cumulative Convertible Preferred Stock converted 379 shares of the stock
into 1,051 shares of Common Stock during 1992 and another 123,523 shares into
342,976 shares of Common Stock during 1993. On December 6, 1993, the outstanding
Cumulative Convertible Preferred Stock was redeemed at a redemption price of
$27.0125 per share plus accrued and unpaid dividends.
On November 8, 1991, Holdings issued 52,500,000 shares of Series A Preferred
Stock and sold 210,000,000 Series A Depositary Shares, each of which represented
one-quarter of a share of Series A Preferred Stock. Each share of Series A
Preferred Stock paid cash dividends at a rate of $3.34 per annum, payable
quarterly in arrears commencing February 18, 1992. On November 15, 1994, the
210,000,000 Series A Depository Shares converted automatically into 210,000,000
shares of Common Stock.
On August 18, 1993, Holdings issued 50,000 shares of Series B Preferred
Stock, and sold 50,000,000 depositary shares ("Series B Depositary Shares") at
$25 per Series B Depositary Share ($1.25 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. Holdings' ability to redeem the Series B Preferred
Stock is subject to certain restrictions in its credit agreements.
On May 6, 1994, Holdings completed the issuance of 26,675,000 shares of
Series C Preferred Stock in connection with the sale of 266,750,000 Series C
Depositary Shares at $6.50 per depositary share. Approximately $900 million of
the net proceeds from the sale of the Series C Depositary Shares was applied to
the redemption of RJRN's subordinated debentures on May 15, 1994. The remaining
proceeds from the sale of the Series C Depositary Shares were used to repay
indebtedness under the 1991 Credit Agreement and for short-term liquid
investments until they were applied to redeem certain of RJRN's sinking fund
debentures. Each share of Series C Preferred Stock bears cumulative cash
dividends at a rate of $6.012 per annum, or $.6012 per Series C Depositary
Share, payable quarterly in arrears. Each Series C Depositary Share represents a
one tenth ownership interest in a share of Series C Preferred Stock of Holdings.
Each share of Series C Preferred Stock will mandatorily convert into ten shares
of Holdings Common Stock on May 15, 1997, subject to adjustment in certain
events, plus accrued and unpaid dividends thereon. In addition, at Holdings'
option, Holdings may redeem shares of the Series C Preferred Stock (and the
Depositary will redeem the number of Series C Depositary Shares representing
such shares of Series C Preferred Stock) at a redemption price to be paid in
shares of Holdings Common Stock (or, following certain circumstances, other
consideration), plus accrued and
F-31
<PAGE>
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 12--CAPITAL STOCK AND PAID-IN CAPITAL--(CONTINUED)
unpaid dividends. The optional redemption price declines from $112.286 per share
by $.01656 per share on each day following May 6, 1994 to $95.246 per share on
March 15, 1997 and is $94.25 thereafter.
On April 10, 1991, the ESOP 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% of its stated value per annum. At December 31, 1994, the
ESOP Preferred Stock is convertible into 15,315,130 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 1994 and 1993, approximately $22 million and
$29 million, respectively, was contributed to the ESOP by RJRN or Holdings and
approximately $19 million and $20 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 Kohlberg Kravis Roberts & Co., L.P, is the sole general partner
and certain affiliates of Merrill Lynch & Co., Inc. 6,182,586 warrants of the
15,254,238 warrants issued 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.
The pro forma net income (loss) per common and common equivalent share for
each of the years within the three year period ended December 31, 1994 reflects
a one-for-five reverse split approved by the Board of Directors of Holdings
which will be submitted to Holdings' stockholders for approval at its Annual
Meeting in April 1995. (See Note 17 to the Consolidated Financial Statements).
F-32
<PAGE>
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 13--RETAINED EARNINGS AND CUMULATIVE TRANSLATION ADJUSTMENTS
Retained earnings (accumulated deficit) at December 31, 1994, 1993 and 1992
includes non-cash expenses related to accumulated trademark and goodwill
amortization of $3.644 billion, $3.015 billion and $2.390 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,
1994 1993 1992
------------ ------------ ------------
<S> <C> <C> <C>
Balance at beginning of period......................... $ (102) $ (47) $ 11
Translation and other adjustments.................... (62) (55) (58)
------ ------ -----
Balance at end of period............................... $ (164) $ (102) $(47)
------ ------ -----
------ ------ -----
</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 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 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,
1994 1993 1992
------------ ------------ ------------
<S> <C> <C> <C>
Defined benefit pension plans:
Service cost--benefits earned during the period......... $ 97 $ 76 $ 84
Interest cost on projected benefit obligation........... 256 255 251
Less actual return on plan assets....................... (260) (262) (259)
Net amortization and deferral........................... (2) (4) (4)
------ ------ ------
Total............................................... 91 65 72
Multi-employer and other defined contribution plans....... 36 32 31
------ ------ ------
Total pension expense............................... $ 127 $ 97 $ 103
------ ------ ------
------ ------ ------
</TABLE>
F-33
<PAGE>
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 14--RETIREMENT BENEFITS--(CONTINUED)
The principal plans used the following actuarial assumptions for accounting
purposes:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1994 1993
------------ ------------
<S> <C> <C>
Weighted average discount rate................. 8.75% 7.50%
Rate of increase in compensation levels........ 5.00% 5.00%
Expected long-term rate of return on assets.... 9.50% 9.50%
</TABLE>
The following table sets forth the funded status and amounts recognized in
the Consolidated Balance Sheets at December 31, 1994 and 1993 for RJRN's defined
benefit pension plans.
<TABLE>
<CAPTION>
U.S. PLANS FOREIGN PLANS
------------------------------------------------------------------------ --------------------------------
DECEMBER 31, 1994 DECEMBER 31, 1993 DECEMBER 31, 1994
----------------------------------- ----------------------------------- --------------------------------
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..... $ 2,318 $ 89 $ 2,252 $ 272 $ 143 $ 187
Non-vested
benefits..... 26 2 225 5 5 25
----- --- ----- --- --- ---
Accumulated
benefit
obligation... 2,344 91 2,477 277 148 212
Effect of
future
salary
increases.... 252 8 296 29 39 40
----- --- ----- --- --- ---
Projected
benefit
obligation... 2,596 99 2,773 306 187 252
Plan assets
at fair
market
value........ 2,542 40 2,529 204 170 106
----- --- ----- --- --- ---
Plan assets
in excess of
(less than)
projected
benefit
obligation... (54) (59) (244) (102) (17) (146)
Unrecognized
net (gain)
loss......... (256) (6) (68) 3 6 29
Unrecognized
prior
service
cost......... (30) (6) (31) (10) (7) 23
----- --- ----- --- --- ---
Net pension
liabilities
recognized
in the
Consolidated
Balance
Sheets....... $ (340) $(71) $ (343) $ (109) $ (18) $ (94)
----- --- ----- --- --- ---
----- --- ----- --- --- ---
<CAPTION>
<S> <C> <C>
DECEMBER 31, 1993
--------------------------------
PLANS WHOSE PLANS WHOSE
ASSETS EXCEEDED ACCUMULATED
ACCUMULATED BENEFITS
BENEFITS EXCEEDED ASSETS
--------------- ---------------
<S> <C> <C>
Actuarial
present
value of:
Vested
benefits..... $ 148 $ 186
Non-vested
benefits..... 6 23
--- ---
Accumulated
benefit
obligation... 154 209
Effect of
future
salary
increases.... 42 31
--- ---
Projected
benefit
obligation... 196 240
Plan assets
at fair
market
value........ 172 109
--- ---
Plan assets
in excess of
(less than)
projected
benefit
obligation... (24) (131)
Unrecognized
net (gain)
loss......... 17 26
Unrecognized
prior
service
cost......... (8) 14
--- ---
Net pension
liabilities
recognized
in the
Consolidated
Balance
Sheets....... $ (15) $ (91)
--- ---
--- ---
</TABLE>
- ------------
(1) Of the net pension liability, $(2) million and $34 million were related to
qualified plans at December 31, 1994 and 1993, respectively.
At December 31, 1994, 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.
F-34
<PAGE>
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 14--RETIREMENT BENEFITS--(CONTINUED)
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 Statement of Financial Accounting Standards No. 106, Employers'
Accounting for Postretirement Benefits Other Than Pensions ("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 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 consisted of the
following:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1994 1993 1992
------------ ------------ ------------
<S> <C> <C> <C>
Service cost--benefits earned during the period........ $ 17 $ 16 $ 12
Interest cost on accumulated postretirement benefit
obligation........................................... 62 60 58
--- --- ---
Net postretirement health care and life insurance
costs.............................................. $ 79 $ 76 $ 70
--- --- ---
--- --- ---
</TABLE>
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,
1994 1993
------------ ------------
<S> <C> <C>
Actuarial present value of accumulated postretirement benefit
obligation:
Retirees......................................................... $638 $693
Fully eligible active plan participants.......................... 95 88
Other active plan participants................................... 216 263
Unrecognized actuarial amounts..................................... 49 (58)
----- -----
Accrued postretirement health care and life insurance
costs............................................................ $998 $986
----- -----
----- -----
</TABLE>
The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligation was 9% in 1994, 8% in 1995 and 7% in 1996
gradually declining to 5% by the year 2000 and remaining at that level
thereafter. A one percentage point increase in the assumed health care cost
trend rate for each year would increase the accumulated postretirement benefit
obligation as of December 31, 1994 and the 1994 net postretirement health care
and life insurance costs by approximately 5.8% and 5.2%, respectively.
The assumed discount rate used in determining the accumulated postretirement
benefit obligation was 8.75% and 7.50% as of December 31, 1994 and 1993,
respectively.
Effective January 1, 1993, RJRN adopted Statement of Financial Accounting
Standards No. 112, Employers' Accounting for Postemployment Benefits ("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-35
<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,
1994 1993 1992
------------ ------------ ------------
<S> <C> <C> <C>
Net sales:
Tobacco.............................................. $ 7,667 $ 8,079 $ 9,027
Food................................................. 7,699 7,025 6,707
------------ ------------ ------------
Consolidated net sales............................. $ 15,366 $ 15,104 $ 15,734
------------ ------------ ------------
------------ ------------ ------------
Operating income:
Tobacco(1)(2)........................................ $ 1,826 $ 893 $ 2,241
Food(1)(2)........................................... 931 624 769
Headquarters (2)..................................... (207) (139) (112)
------------ ------------ ------------
Consolidated operating income...................... $ 2,550 $ 1,378 $ 2,898
------------ ------------ ------------
------------ ------------ ------------
Capital expenditures:
Tobacco.............................................. $ 215 $ 224 $ 189
Food................................................. 455 391 330
------------ ------------ ------------
Consolidated capital expenditures.................. $ 670 $ 615 $ 519
------------ ------------ ------------
------------ ------------ ------------
Depreciation expense:
Tobacco.............................................. $ 228 $ 237 $ 252
Food................................................. 218 207 197
Headquarters......................................... 8 4 6
------------ ------------ ------------
Consolidated depreciation expense.................. $ 454 $ 448 $ 455
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
<TABLE>
<CAPTION>
Assets: DECEMBER 31, 1994 DECEMBER 31, 1993
----------------- -----------------
<S> <C> <C>
Tobacco............................................... $19,420 $19,904
Food.................................................. 11,917 11,270
Headquarters(3)....................................... 71 121
-------- --------
Consolidated assets................................. $31,408 $31,295
-------- --------
-------- --------
</TABLE>
- ------------
(1) Includes amortization of trademarks and goodwill for Tobacco and Food,
respectively, for the year ended December 31, 1994, of $404 million and $225
million; for the year ended December 31, 1993, of $407 million and $218
million and for the year ended December 31, 1992, of $404 million and $212
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; 1992--$0), and the
1992 gain ($98 million) from 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-36
<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,
1994 1993 1992
------------ ------------ ------------
<S> <C> <C> <C>
Net sales:
United States (including U.S. export sales).......... $ 11,144 $ 11,570 $ 13,182
Europe............................................... 1,934 1,671 1,109
Other geographic areas............................... 3,039 2,794 1,855
Less transfers between geographic areas(1)........... (751) (931) (412)
------------ ------------ ------------
Consolidated net sales............................. $ 15,366 $ 15,104 $ 15,734
------------ ------------ ------------
------------ ------------ ------------
Operating income:(2)
United States........................................ $ 2,159 $ 1,284 $ 2,634
Europe............................................... 272 40 138
Other geographic areas............................... 326 193 238
Headquarters......................................... (207) (139) (112)
------------ ------------ ------------
Consolidated operating income(3)................... $ 2,550 $ 1,378 $ 2,898
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1994 DECEMBER 31, 1993
----------------- -----------------
<S> <C> <C>
Assets:
United States......................................... $26,447 $27,143
Europe................................................ 2,141 1,820
Other geographic areas................................ 2,749 2,211
Headquarters.......................................... 71 121
-------- --------
Consolidated assets................................. $31,408 $31,295
-------- --------
-------- --------
Liabilities of Holdings' continuing operations located
in foreign countries.................................. $ 1,725 $ 1,689
-------- --------
-------- --------
</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 1992 gain ($98
million) on the sale of Holdings' ready-to-eat cold cereal business (see
Note 1 to the Consolidated Financial Statements).
(3) Includes amortization of trademarks and goodwill of $629 million, $625
million and $616 million for the 1994, 1993 and 1992 periods, respectively.
F-37
<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 1994 and 1993:
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
------ ------ ------ ------
<S> <C> <C> <C> <C>
1994
Net sales................................................. $3,572 $3,784 $3,966 $4,044
Operating income.......................................... 632 675 678 565
Income before extraordinary item.......................... 194 192 216 162
Net income................................................ 195 46 216 62
Income before extraordinary item per common share(1)...... 0.12 0.11 0.11 0.08
Net income per common share(1)............................ 0.12 0.01 0.11 0.02
</TABLE>
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
------ ------ ------ ------
<S> <C> <C> <C> <C>
1993
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>
- ------------
(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.
NOTE 17--SUBSEQUENT EVENTS
----------------------------
On January 26, 1995, Nabisco Holdings completed the initial public offering
of 51,750,000 shares of its Class A Common Stock at an initial offering price of
$24.50 per share. Nabisco used all of the approximately $1.2 billion of net
proceeds from the initial public offering to repay a portion of its initial
borrowing under the Nabisco 1994 Credit Agreement. RJRN owns 100% of the
outstanding Class B Common Stock of Nabisco Holdings, which represents
approximately 80.5% of the economic interest in Nabisco Holdings and
approximately 97.6% of its voting power. In connection with the offering,
Holdings, RJRN and Nabisco Holdings entered into agreements to exchange certain
services, to establish tax sharing arrangements and to provide RJRN with certain
preemptive and registration rights with respect to Nabisco Holdings and Nabisco
securities.
Certain provisions in approximately $6 billion of RJRN's publicly held debt
limit the ability of Nabisco Holdings and Nabisco to incur long-term debt. RJRN
and Nabisco are currently considering a transaction in which they would seek
to obtain consents to remove such limitations in order to permit Nabisco to
establish long-term borrowing capacity independent of RJRN and to reduce its
intercompany debt to RJRN. It is anticipated that such consents would be sought
in connection with offers by Nabisco or RJRN to exchange debt of Nabisco for, or
to pay certain cash consent solicitation fees in respect of, all or a portion of
such RJRN debt. RJRN believes that any such transaction would not materially
change the amount of consolidated indebtedness of either RJRN or Nabisco,
although any newly issued debt of RJRN or Nabisco incurred in connection with
the transaction may have maturities, interest rates or other terms that are less
attractive to RJRN or Nabisco, respectively, than the terms of their existing
debt. No assurance can be given that any such restructuring will be pursued or
consummated or as to the timing of any such restructuring.
F-38
<PAGE>
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 17--SUBSEQUENT EVENTS --(CONTINUED)
The Board of Directors of Holdings has declared an initial quarterly
dividend of $.075 per share payable on April 1, 1995 to holders of record as of
March 10, 1995. Holdings expects to continue to pay a quarterly cash dividend on
the Common Stock of $.075 per share or $.30 per share on an annualized basis.
Holdings believes that its adopted policies concerning distributions to
stockholders and the provisions of its credit agreements will not limit its
ability to pay quarterly dividends.
The Board of Directors of Holdings approved a one-for-five reverse split of
the Common Stock, which will be submitted to Holdings' stockholders for approval
at its annual meeting in April 1995. If approved, the reverse stock split would
result in a dividend and earnings per share that are five times higher with a
corresponding reduction in the number of shares outstanding.
F-39
<PAGE>
SCHEDULE I
RJR NABISCO HOLDINGS CORP.
SCHEDULE I--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,
1994 1993 1992
------------ ------------ ------------
<S> <C> <C> <C>
Administrative expenses................................ $ (12) $ (8) $ (12)
Interest and debt expense.............................. -- (23) (90)
Other income (expense), net............................ 11 30 82
------------ ------------ ------------
Income (loss) before income taxes................ (1) (1) (20)
Provision (benefit) for income taxes................... (3) (2) (13)
------------ ------------ ------------
2 1 (7)
Equity in income (loss) of subsidiary, net of income
taxes.................................................. 762 (4) 783
------------ ------------ ------------
Income (loss) before extraordinary item.......... 764 (3) 776
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).................................. (245) (142) (477)
------------ ------------ ------------
Net income (loss)................................ 519 (145) 299
Less preferred stock dividends......................... 131 68 31
------------ ------------ ------------
Net income (loss) applicable to common stock..... 388 (213) 268
Retained earnings (accumulated deficit) at beginning of
period................................................. (883) (738) (1,037)
Add preferred stock dividends charged to paid-in
capital................................................ 131 68 31
------------ ------------ ------------
Retained earnings (accumulated deficit) at end of
period................................................. $ (364) $ (883) $ (738)
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
See Notes to Condensed Financial Information.
S-1
<PAGE>
SCHEDULE I
RJR NABISCO HOLDINGS CORP.
SCHEDULE I--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,
1994 1993 1992
----------------- ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES:
Net income (loss)................................. $ 519 $ (145) $ 299
------- ------------ ------------
Adjustments to reconcile net income (loss) to net
cash flows from (used in) operating activities:
Deferred income tax provision (benefit)......... 62 69 (63)
Non-cash interest and debt expense.............. -- 22 79
Extraordinary item--loss on early
extinguishments of debt....................... -- 10 20
Equity in (income) loss of subsidiary,
net of income taxes........................... (517) 139 (319)
Other, net...................................... (29) 70 (164)
------- ------------ ------------
Total adjustments........................... (484) 310 (447)
------- ------------ ------------
Net cash flows from (used in) operating
activities.......................................... 35 165 (148)
------- ------------ ------------
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES:
Dividends received from subsidiary................ 42 48 278
Investment in subsidiary.......................... (1,680) (1,214) --
------- ------------ ------------
Net cash flows from (used in) investing
activities.......................................... (1,638) (1,166) 278
------- ------------ ------------
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.................................. 54 9 1
Proceeds from issuance of Series B Preferred
Stock............................................... -- 1,250 --
Proceeds from issuance of Series C Preferred
Stock............................................... 1,734 -- --
Preferred stock dividends paid.................... (395) (241) (214)
Financing and advisory fees paid.................. (54) (39) (2)
Repurchase of preferred stock..................... (3) (105) --
Repurchases and cancellations of common stock,
stock options and warrants.......................... (1) (1) (89)
Other, net--including intercompany transfers...... 272 683 425
------- ------------ ------------
Net cash flows from (used in) financing
activities.......................................... 1,607 1,008 (130)
------- ------------ ------------
Net change in cash and cash equivalents......... 4 7 --
Cash and cash equivalents at beginning of period.... 10 3 3
------- ------------ ------------
Cash and cash equivalents at end of period.......... $ 14 $ 10 $ 3
------- ------------ ------------
------- ------------ ------------
</TABLE>
See Notes to Condensed Financial Information.
S-2
<PAGE>
SCHEDULE I
RJR NABISCO HOLDINGS CORP.
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED BALANCE SHEETS
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
DECEMBER 31, 1994 DECEMBER 31, 1993
----------------- -----------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................ $ 14 $ 10
Accounts and notes receivable............................ -- 9
-------- -------
TOTAL CURRENT ASSETS............................... 14 19
-------- -------
Investment in subsidiary................................... 11,410 9,316
Other assets and deferred charges.......................... 1 4
-------- -------
$11,425 $ 9,339
-------- -------
-------- -------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities................. $ 44 $ 46
-------- -------
TOTAL CURRENT LIABILITIES.......................... 44 46
-------- -------
Intercompany payable, net.................................. 399 150
Deferred income taxes...................................... 74 73
Commitments and contingencies (Note B).....................
Stockholders' equity (Note C):
ESOP convertible preferred stock--15,315,130 and
15,573,973 shares issued and outstanding at December
31, 1994 and 1993, respectively........................ 245 249
Series A convertible preferred stock--52,500,000 shares
issued and outstanding at December 31, 1993............ -- 2
Series B preferred stock--50,000 shares issued and
outstanding at December 31, 1994 and 1993.............. 1,250 1,250
Series C preferred stock--26,675,000 shares issued and
outstanding at December 31, 1994....................... 3 --
Common stock--1,361,656,883 and 1,138,011,292 shares
issued and outstanding at December 31, 1994 and 1993,
respectively........................................... 13 11
Paid-in capital.......................................... 10,147 8,778
Cumulative translation adjustments....................... (164) (102)
Retained earnings (accumulated deficit).................. (364) (883)
Receivable from ESOP..................................... (186) (211)
Loans receivable from employees.......................... (14) (18)
Unamortized value of restricted stock.................... (22) (6)
-------- -------
TOTAL STOCKHOLDERS' EQUITY......................... 10,908 9,070
-------- -------
$11,425 $ 9,339
-------- -------
-------- -------
</TABLE>
See Notes to Condensed Financial Information.
S-3
<PAGE>
SCHEDULE I
RJR NABISCO HOLDINGS CORP.
SCHEDULE I -- 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--COMMITMENTS AND CONTINGENCIES
Holdings has guaranteed the indebtedness of RJRN under the 1991 Credit
Agreement and the 1993 Credit Agreement. 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.
NOTE C--STOCKHOLDERS' EQUITY
The Board of Directors of Holdings approved a one-for-five reverse split
of the Common Stock which will be submitted to Holdings' stockholders for
approval at its Annual Meeting in April 1995. For additional information,
see Notes 2 and 17 to the Consolidated Financial Statements.
S-4
<PAGE>
SCHEDULE I
RJR NABISCO INC.
SCHEDULE I--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,
1994 1993 1992
------------ ------------ ------------
<S> <C> <C> <C>
Administrative expenses................................ $ (99) $ (7) $ 2
Restructuring expense.................................. -- (33) --
Interest and debt expense.............................. (1,009) (1,105) (1,265)
Other income (expense), net............................ 1,153 1,391 2,252
------------ ------------ ------------
Income (loss) before income taxes................ 45 246 989
Provision (benefit) for income taxes................... (17) 40 208
------------ ------------ ------------
62 206 781
Equity in income (loss) of subsidiary, net of income
taxes.................................................. 700 (210) 2
------------ ------------ ------------
Income (loss) before extraordinary item.......... 762 (4) 783
Extraordinary item-loss on early extinguishments of
debt, net of income taxes............................ (245) (135) (464)
------------ ------------ ------------
Net income (loss)...................................... 517 (139) 319
Retained earnings (accumulated deficit) at beginning of
period............................................... (459) (320) (639)
Dividend paid to Parent and charged to retained
earnings............................................. (42) -- --
------------ ------------ ------------
Retained earnings (accumulated deficit) at end of
period............................................... $ 16 $ (459) $ (320)
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
See Notes to Condensed Financial Information.
S-5
<PAGE>
SCHEDULE I
RJR NABISCO INC.
SCHEDULE I--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,
1994 1993 1992
----------------- ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES:
Net income (loss)................................. $ 517 $ (139) $ 319
------- ------------ ------------
Adjustments to reconcile net income (loss) to net
cash flows from (used in) operating activities:
Deferred income tax provision (benefit)......... (56) (154) 244
Non-cash interest and debt expense.............. 117 264 364
Extraordinary item-loss on early extinguishments
of debt............................................. 377 208 656
Equity in (income) loss of subsidiary,
net of income taxes........................... (700) 210 (2)
Other, net...................................... (375) (107) (454)
------- ------------ ------------
Total adjustments........................... (637) 421 808
------- ------------ ------------
Net cash flows from (used in) operating
activities.......................................... (120) 282 1127
------- ------------ ------------
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES:
Distribution to parent............................ (42) (48) (276)
Capital expenditures.............................. (1) (1) (1)
Investment in subsidiary.......................... -- -- --
------- ------------ ------------
Net cash flows used in investing activities..... (43) (49) (277)
------- ------------ ------------
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES (NOTE
A):
Net borrowings (repayments) under the credit
agreements.......................................... 1,561 (2,614) (620)
Net proceeds from the issuance (repayment) of
commercial paper.................................... (49) 342 571
Proceeds from issuance of other long-term debt.... -- 1,942 3,124
Repayments of long-term debt...................... (4,648) (1,376) (4,210)
Financing and advisory fees paid.................. (6) (9) (33)
Other, net--including intercompany transfers...... 3,294 1,518 45
------- ------------ ------------
Net cash flows from (used in) financing
activities.......................................... 152 (197) (1213)
------- ------------ ------------
Net change in cash and cash equivalents......... (11) 36 (363)
Cash and cash equivalents at beginning of period.... 51 15 378
------- ------------ ------------
Cash and cash equivalents at end of period.......... $ 40 $ 51 $ 15
------- ------------ ------------
------- ------------ ------------
</TABLE>
See Notes to Condensed Financial Information.
S-6
<PAGE>
SCHEDULE I
RJR NABISCO INC.
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED BALANCE SHEETS
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
DECEMBER 31, 1994 DECEMBER 31, 1993
----------------- -----------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................ $ 40 $ 51
Accounts and notes receivable............................ 13 45
Prepaid expenses......................................... 2 3
-------- -------
TOTAL CURRENT ASSETS............................... 55 99
-------- -------
Intercompany receivable, net............................... 12,875 13,392
Investment in subsidiary................................... 8,794 9,643
Property, plant and equipment, net......................... 11 18
Goodwill, net.............................................. -- 16
Other assets and deferred charges.......................... 147 177
-------- -------
21,882 23,345
-------- -------
-------- -------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities................. $ 346 $ 477
Current maturities of long-term debt..................... 600 226
Income taxes accrued..................................... 74 38
-------- -------
TOTAL CURRENT LIABILITIES.......................... 1,020 741
-------- -------
Long-term debt (less current maturities)................... 8,683 11,621
Other noncurrent liabilities............................... 62 1,375
Deferred income taxes...................................... 707 292
Commitments and contingencies (Note B).....................
Stockholders' equity:
Paid-in capital.......................................... 11,558 9,877
Cumulative translation adjustments....................... (164) (102)
Retained earnings (accumulated deficit).................. 16 (459)
-------- -------
TOTAL STOCKHOLDERS' EQUITY......................... 11,410 9,316
-------- -------
$21,882 $23,345
-------- -------
-------- -------
</TABLE>
See Notes to Condensed Financial Information.
S-7
<PAGE>
SCHEDULE I
RJR NABISCO INC.
SCHEDULE I -- 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--COMMITMENTS AND CONTINGENCIES
Holdings has guaranteed the indebtedness of RJRN under the 1991 Credit
Agreement and the 1993 Credit Agreement. 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-8
<PAGE>
SCHEDULE II
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(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, 1994:
For discounts and doubtful accounts...... $ 59 $ 16 $ 1 $(13) $ 63
Other assets............................. 46 34 8 (35) 53
----- --- --- ----- -----
$105 $ 50 $ 9 $(48) $116
----- --- --- ----- -----
----- --- --- ----- -----
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
----- --- --- ----- -----
----- --- --- ----- -----
</TABLE>
- ------------
(A) Miscellaneous adjustments.
(B) Principally charges against the accounts.
(C) Excludes valuation allowance accounts for deferred tax assets.
S-9
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
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,
filed August 16, 1993 (incorporated by reference to Exhibit 3.1(f) of
the Annual Report on Form 10-K of RJR Nabisco Holdings Corp. and RJR
Nabisco, Inc. for the fiscal year ended December 31, 1993, file numbers
1-10215 and 1-6388, filed on February 24, 1994 (the "1993 Form 10-K").
3.1(g) Certificate of Designation of Series C Conversion Preferred Stock
(incorporated by reference to Exhibit 4.1(h) to the Registration
Statement on Form S-3 of RJR Nabisco Holdings Corp., Registration No.
33-52381 filed on February 2, 1994, as amended ("Form S-3 Registration
No. 33-52381").
3.1(h) Certificate of Elimination of Cumulative Convertible Preferred Stock of
RJR Nabisco Holdings Corp., filed July 7, 1994 (incorporated by
reference to Exhibit 4.1 of the Quarterly Report on Form 10-Q of RJR
Nabisco Holdings Corp. and RJR Nabisco, Inc. for the fiscal quarter
ended June 30, 1994 (the "June 1994 Form 10-Q")).
3.1(i) Certificate of Retirement of Series A Conversion Preferred Stock of RJR
Nabisco Holdings Corp., filed effective November 21, 1994.
*3.1(j) A composite of the Amended and Restated Certificate of Incorporation of
RJR Nabisco Holdings Corp., as amended to November 21, 1994.
</TABLE>
<PAGE>
<TABLE> <CAPTION>
EXHIBIT
NO.
- ---------
<S> <C>
3.2 Amended and Restated By-Laws of RJR Nabisco Holdings Corp., as amended,
effective January 20, 1994 (incorporated by reference to Exhibit 3.2 to
the 1993 Form 10-K).
*3.2(a) Certificate of Retirement of Series A Conversion Preferred Stock of
Nabisco Holdings Corp. dated November 18, 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")).
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) Certificate of Amendment of the Amended and Restated Certificate of
Incorporation of RJR Nabisco, Inc., filed May 13, 1994 (incorporated
by reference to the June 30, 1994 Form 10-Q).
*3.3(d) A composite of the Certificate of Incorporation of RJR Nabisco, Inc.,
as amended to May 13, 1994.
3.4 Amended and Restated By-laws of RJR Nabisco, Inc., as amended,
effective January 20, 1994 (incorporated by reference to Exhibit 3.4 of
the 1993 Form 10-K).
4.1 Credit Agreement ("1991 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 1991 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 1991 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 1991 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")).
4.1(d) Fourth Amendment to 1991 Credit Agreement, dated as of November 2, 1994
(incorporated by reference to Exhibit 4.1(d) to Post-Effective
Amendment No. 2 filed February 1, 1995 to the Registration Statement on
Form S-4 of RJR Nabisco Holdings Corp., Registration Statement
No. 33-55767, filed October 5, 1994, as amended, (the "Form S-4,
Registration No. 33-55767").
4.1(e) Fifth Amendment to 1991 Credit Agreement, dated as of December 2, 1994
(incorporated by reference to Exhibit 4.1(e) to the Form S-4,
Registration No. 33-55767).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO.
- ---------
<S> <C>
4.2 Credit Agreement ("1993 Credit Agreement") dated as of April 5, 1993
among RJR Nabisco Holdings Corp., RJR Nabisco, Inc. and the lending
institutions party thereto (incorporated by reference to Exhibit 4.3 of
the March 1993 Form 10-Q).
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).
4.2(b) Second Amendment to the Credit Agreement dated as of , 1994
(incorporated by reference to Exhibit 4.2 of the March 1994 Form 10-Q).
4.2(c) Third Amendment to 1993 Credit Agreement, dated as of November 2, 1994
(incorporated by reference to Exhibit 4.1(d) hereof).
4.2(d) Fourth Amendment to 1993 Credit Agreement, dated as of December 2, 1994
(incorporated by reference to Exhibit 4.1(e) hereof).
4.4 Credit Agreement dated as of December 6, 1994 between Nabisco, Inc. and
the lending institutions party thereto.
4.6 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")).
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).
</TABLE>
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<TABLE>
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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(l)(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(l)(iv) to the 1988 Form 10-K).
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 (incorporated by reference to the 1993 Form 10-K).
10.16 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")).
</TABLE>
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<TABLE>
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10.17 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).
10.18 Non-Qualified Stock Option Agreement, dated December 31, 1993, between
RJR Nabisco Holdings Corp. and Charles M. Harper (incorporated by reference
to the 1993 Form 10-K).
*10.18(a) Non-Qualified Stock Option Agreement, dated December 31, 1994, between
RJR Nabisco Holdings Corp. and Charles M. Harper.
10.19 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")).
10.20 Amendment No. 1 dated March 8, 1994 to Employment Agreement dated May
27, 1993 by and among RJR Nabisco Holdings Corp., RJR Nabisco, Inc. and
Charles M. Harper dated as of March 1, 1994 (incorporated by reference
to Exhibit 10.2 of the Quarterly Report on Form 10-Q of RJR Nabisco Holdings
Corp. and RJR Nabisco, Inc. for the fiscal quarter ended March 31, 1994
filed May 12, 1994 (the "March 1994 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 January 20, 1994, between RJR Nabisco Holdings
Corp. and Lawrence R. Ricciardi (incorporated by reference to Exhibit
10.24 the 1993 Form 10-K).
*10.25 Letter Agreement, dated February 14, 1995, among RJR Nabisco Holdings
Corp., RJR Nabisco, Inc. and Lawrence R. Ricciardi.
*10.26 Consulting Agreement, dated February 14, 1995, among RJR Nabisco
Holdings Corp., R.J. Reynolds Tobacco Company, Nabisco Holdings Corp.
and Lawrence R. Ricciardi.
10.27 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).
10.28 Letter Agreement, dated March 30, 1993, between RJR Nabisco, Inc. and
Mr. Eugene R. Croisant (incorporated by reference to Exhibit 10.4 to
the March 1993 Form 10-Q).
10.29 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).
10.30 Letter Agreement dated June 10, 1994 among Eugene R. Croisant, RJR
Nabisco Holdings Corp. and RJR Nabisco, Inc. (incorporated by reference
to the June 1994 Form 10-Q).
*10.31 Letter Agreement, dated February 14, 1995, among RJR Nabisco Holdings
Corp., RJR Nabisco, Inc. and Eugene R. Croisant.
*10.32 Consulting Agreement, dated February 14, 1995, among RJR Nabisco Holdings
Corp., Nabisco Holdings Corp. and Eugene R. Croisant.
</TABLE>
<PAGE>
<TABLE>
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10.33 Registration Rights Agreement (Common Stock), dated as of July 15,
1990, between RJR Nabisco Holdings Corp. and Whitehall Associates, L.P.
(incorporated by reference to Exhibit 4.5 to the Form S-4, Registration
No. 33-36070).
10.34 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).
10.35 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").
10.36 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).
10.37 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).
10.38 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).
10.38(a) Form of Amendment and Exchange of Secured Promissory Note, dated July
1, 1993 (1991 Grant) (incorporated by reference to Exhibit 10.33(a) to
the 1993 Form 10-K).
10.39 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).
10.40 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).
10.41 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).
10.42 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).
10.43 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 (incorporated by reference to Exhibit 10.38 to
the 1993 Form 10-K).
10.44 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).
10.45 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).
10.46 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).
10.47 Restricted Stock Program under the 1990 Long Term Incentive Plan
(incorporated by reference to Exhibit 10.42 to the 1993 Form 10-K).
</TABLE>
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EXHIBIT
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10.48 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).
10.49 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) (incorporated
by reference to Exhibit 10.44 to the 1993 Form 10-K).
10.50 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) (incorporated
by reference to Exhibit 10.45 to the 1993 Form 10-K).
10.51 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).
10.52 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).
10.52(a) Form of Amendment and Exchange of Secured Promissory Note, dated July 1, 1993 (1992
Grant) (incorporated by reference to Exhibit 10.47(a) to the 1993 Form 10-K).
10.53 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).
10.54 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).
*10.55 Restated and Amended Stock Option Plan for Directors and Key Employees of RJR Nabisco
Holdings Corp. dated as of October 4, 1994.
10.56 Performance Unit Program under RJR Nabisco Holdings Corp. 1990 Long Term Incentive Plan
(incorporated by reference to Exhibit 10.3 to the March 1994 Form 10-Q).
10.57 Form of Performance Unit Agreement between RJR Nabisco Holdings Corp. and the grantee
named therein (1994 Grant--1 Year Period) (incorporated by reference to Exhibit 10.4 to
the March 1994 Form 10-Q).
10.58 Form of Performance Unit Agreement between RJR Nabisco Holdings Corp. and the grantee
named therein (1994 Grant--3 Year Period) (incorporated by reference to Exhibit 10.5 to
the March 1994 10-Q).
*11. RJR Nabisco Holdings Corp. Computation of Earnings Per Share for the years ended
December 31, 1994, 1993 and 1992.
*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, 1994.
*21. Subsidiaries of the Registrants.
*23. Consent of Independent Auditors.
*24. Powers of Attorney.
</TABLE>
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*Filed herewith.
EXHIBIT 3.1(j)
[Composite, as amended to and including November 21, 1994]
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,
<PAGE>
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 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
<PAGE>
3
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.
(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
<PAGE>
4
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
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.
<PAGE>
5
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
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
<PAGE>
6
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
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
<PAGE>
7
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 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
<PAGE>
8
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
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>
9
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>
10
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>
11
(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>
12
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>
13
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>
14
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>
15
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>
16
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>
17
( N x P )
-----
AC = C x O + ( M )
-------------
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>
18
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>
19
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>
20
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>
21
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>
22
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>
23
(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>
24
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>
25
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>
26
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>
27
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 Cumulative 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"), 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 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 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 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
<PAGE>
28
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
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
<PAGE>
29
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
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
<PAGE>
30
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
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
<PAGE>
31
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
such redemption date shall be repaid and released to the
<PAGE>
32
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
<PAGE>
33
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 (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
<PAGE>
34
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
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
<PAGE>
35
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.
(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
<PAGE>
36
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
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.
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 C Conversion Preferred Stock of the
Corporation:
(1) Designation. The designation of the series of
Preferred Stock authorized by this resolution shall be "Series C
Conversion Preferred Stock" (the "Series C Preferred Stock")
consisting of 26,675,000 shares.
<PAGE>
37
(2) Rank. The Series C 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 Series B Cumulative Preferred Stock, par
value $0.01 per share (the "Series B Cumulative 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 C 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 C Preferred
Stock ranks on a parity, including the Series B Cumulative
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 C 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 C Preferred
Stock shall be subject to the creation of Junior Securities,
Parity Securities and Senior Securities.
(3) Dividends. (a) The holders of outstanding shares
of the Series C 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
$1.503 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 August 15, 1994. 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 such dividends shall be paid on the next succeeding
day on which such banks shall be open. Each such 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 C
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 C Preferred Stock. Accrued and unpaid dividends shall not
bear interest. Dividends will cease to accrue in respect of the
Series C Preferred Stock on the Mandatory Conversion Date (as
defined in paragraph (4)(a)) or on the date of their earlier
redemption or conversion, unless the Corporation shall default in
delivering the shares of Common Stock or other kind of security
or other property 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)
<PAGE>
38
payable on the Series C 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.
(b) 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 C 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 C Preferred Stock and
any Parity Securities, all dividends declared upon the Series C
Preferred Stock and any Parity Securities shall be declared pro
rata so that the amount of dividends declared per share on the
Series C 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 C Preferred Stock and such Parity
Securities bear to each other. Unless full cumulative dividends,
if any, accrued on all outstanding shares of the Series C
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 acquired 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
its subsidiaries' directors, officers and key employees), except
by conversion into or exchange for Junior Securities. Except as
provided in paragraph 4(d), holders of the shares of the Series C
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).
(c) Subject to the foregoing provisions of this
paragraph (3) and paragraph (4)(d), 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
acquire out of funds legally available therefor any Junior
Securities, and the holders of the shares of the Series C
Preferred Stock shall not be entitled to share therein.
(d) Any dividend payment made on shares of the Series
C Preferred Stock shall first be credited against the earliest
<PAGE>
39
accrued but unpaid dividend due with respect to shares of the
Series C Preferred Stock.
(e) All dividends paid with respect to shares of the
Series C Preferred Stock pursuant to this paragraph (3) shall be
paid pro rata to the holders entitled thereto.
(f) Holders of shares of the Series C 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. (a) Conversion on
-------------
Mandatory Conversion Date. Unless earlier called for redemption
-------------------------
in accordance with the provisions hereof, on May 15, 1997 (the
"Mandatory Conversion Date"), each outstanding share of the
Series C Preferred Stock shall convert into:
(i) subject to paragraph (4)(b)(vii) and
(4)(d)(vi), shares of Common Stock at the Common Equivalent
Rate (determined as provided in this paragraph (4)) in
effect on the Mandatory Conversion Date; and
(ii) the right to receive an amount in cash equal
to all accrued and unpaid dividends on such share of Series
C 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).
Subject to paragraphs 4(b)(i)(D), 4(b)(vii) and
4(d)(vi), 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
conversion of the Series C Preferred Stock pursuant to this
paragraph 4(a), the full number of shares of Common Stock then
deliverable upon such conversion of all outstanding shares of
Series C Preferred Stock.
(b) Conversion Upon the Occurrence of Certain Events.
------------------------------------------------
(i) If there shall occur a merger or consolidation of the
Corporation (or following the application of the terms of
paragraph 4(b)(i)(D), the Issuing Entity) (other than a merger or
consolidation of the Corporation (or following the application of
the terms of paragraph 4(b)(i)(D), the Issuing Entity) with or
into a wholly owned subsidiary of the Corporation (or following
the application of the terms of paragraph 4(b)(i)(D), the Issuing
Entity)) 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)
("Merger Consideration") (any such merger or consolidation is
referred to herein as a "Merger or Consolidation"), then (subject
<PAGE>
40
to the following provisions of this paragraph (4)(b) and
paragraph 4(c)), each outstanding share of the Series C Preferred
Stock shall, at the option of the Corporation:
(A) (x) immediately prior to the Merger or
Consolidation, convert into, subject to paragraphs
(4)(b)(vii) and (4)(d)(vi), shares of Common Stock at the
Common Equivalent Rate in effect immediately prior to such
Merger or Consolidation; plus
(y) the right to receive an amount in cash
equal to all accrued and unpaid dividends on such share
of the Series C Preferred Stock to and including the
Settlement Date (as defined in paragraph 4(i)(v)),
whether or not declared, out of funds legally available
therefor (and dividends shall cease to accrue on such
share as of the Settlement Date); plus
(z) the right to receive an amount of cash
initially equal to $18.036, declining by $.01656 on each day
following the date of issuance of the Series C Preferred
Stock (computed on the basis of a 360-day year of twelve 30-
day months) to $.996 on March 15, 1997, and equal to zero
thereafter, in each case determined with reference to the
Settlement Date, out of funds legally available therefor;
provided, that if the Call Price (as defined in paragraph
--------
(4)(i)(ii)) on the Settlement Date is less than the sum of
(I) the product of (1) the Current Market Price (as defined
in paragraph (4)(d)(viii)) of a share of Common Stock on the
Settlement Date (which Current Market Price shall be
appropriately adjusted for the purposes of this proviso if
the Corporation has made any antidilution adjustment to the
Common Equivalent Rate pursuant to paragraph 4(d) with
respect to an event which has not occurred as of such
Settlement Date) and (2) the number of shares of Common
Stock issuable upon conversion of a share of Series C
Preferred Stock pursuant to clause 4(b)(i)(A)(x) above, and
(II) the amount of cash to be received with respect to an
outstanding share of Series C Preferred Stock pursuant to
clause 4(b)(i)(A)(z) above, then the number of shares of
Common Stock issuable pursuant to clause 4(b)(i)(A)(x) above
shall be reduced so that the sum referred to above in this
proviso equals the Call Price on the Settlement Date, and
provided, further, that the Corporation (or following the
-------- -------
application of the terms of paragraph 4(b)(i)(D), the
Issuing Entity) may, at its option, deliver on the
Settlement Date, in lieu of some or all of the cash
consideration described in clauses 4(b)(i)(A)(y) and (z)
above, a number of shares of Common Stock (subject to
paragraphs 4(b)(vii) and 4(d)(vi)) 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 of the Common Stock determined as of
<PAGE>
41
the Settlement Date (which Current Market Price shall be
appropriately adjusted, if necessary, for the purposes of
this proviso if (I) the Corporation has made any
antidilution adjustment to the Common Equivalent Rate
pursuant to paragraph 4(d) with respect to an event which
has not occurred as of such Settlement Date or (II) the
Corporation (or following the application of the terms of
paragraph 4(b)(i)(D), the Issuing Entity) has distributed
cash or other property pursuant to clause (2) of paragraph
4(d)(iii), shares or other units of securities or assets
pursuant to clause (2) of paragraph 4(d)(iv) or shares of
capital stock of the Spinoff Corporation (as defined in
paragraph 4(d)(v)) pursuant to clause (2) of paragraph
4(d)(v)). Notwithstanding the foregoing terms of this
paragraph 4(b)(i)(A), if there shall have occurred an
adjustment pursuant to paragraph (4)(d)(vi) as a result of a
conversion or exchange or merger or consolidation referred
to in such paragraph prior to the Settlement Date, then with
respect to the exercise of any such option referred to in
this paragraph 4(b)(i)(A) (including the exercise of the
option referred to in the foregoing proviso by the
Corporation (or its successor)), the Corporation shall
deliver out of funds legally available therefor on such
Settlement Date, in lieu of shares of Common Stock as
described in this paragraph 4(b)(i)(A), the kind of
securities or other property received by holders of Common
Stock as a result of such conversion or exchange or 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 (or its successor), whose
determination shall be conclusive), as of such Settlement
Date, equal to the amount of cash consideration that the
Corporation has elected to pay in such securities or other
property (the option set forth in this paragraph 4(b)(i)(A)
being hereinafter referred to as the "Common Conversion
Option"); or
(B) be converted into the right to receive (at the
time such Merger Consideration is distributed to holders of
shares of Common Stock) in such Merger or Consolidation
(subject to provision being made therefor in an applicable
agreement with respect to such Merger or Consolidation) in
exchange for such share of Series C Preferred Stock one
share or other unit of a security (whether debt or equity or
any depositary receipt representing such a security) (the
"Issuing Entity Preferred Stock") of the Issuing Entity (as
defined in paragraph 4(b)(ii)) having terms substantially
equivalent to the Series C Preferred Stock (except that upon
call or conversion such Issuing Entity Preferred Stock shall
<PAGE>
42
convert into Issuing Entity Common Equity (as defined in
paragraph 4(b)(ii)) (the option set forth in this paragraph
4(b)(i)(B) being hereinafter referred to as the "Issuing
Entity Preferred Stock Conversion Option"); or
(C) be converted into the right to receive (at the
time such Merger Consideration is distributed to holders of
Common Stock) in such Merger or Consolidation (subject to
provision being made therefor in an applicable agreement
with respect to such Merger or Consolidation) in exchange
for such share of Series C Preferred Stock one share of a
new series of Preferred Stock of the Corporation (or
depositary receipts representing such Preferred Stock) ("New
Preferred Stock") having terms substantially equivalent to
the Series C Preferred Stock, except that (A) upon call or
conversion such New Preferred Stock shall be exchanged
(either against the Corporation or the Issuing Entity as
provided in the agreement with respect to such Merger or
Consolidation) into Issuing Entity Common Equity, out of
funds legally available therefor, and (B) such New Preferred
Stock need not provide holders thereof with the right to
vote on all matters submitted to a vote of holders of Common
Stock as provided in paragraph 6(b) (the option set forth in
this paragraph 4(b)(i)(C) being hereinafter referred to as
the "Corporation Preferred Stock Conversion Option"); or
(D) remain outstanding after such Merger or
Consolidation, but only if the agreement with respect to
such Merger or Consolidation requires that following the
effective time of the Merger or Consolidation (a) upon call
or conversation of the Series C Preferred Stock, in lieu of
the Corporation delivering, out of funds legally available
therefor, shares of its Common Stock, the Issuing Entity
shall be obligated to deliver, out of legally available
funds, Issuing Entity Common Equity directly to holders of
the Series C Preferred Stock, (b) the Issuing Entity shall
at all times reserve and keep available, free from
preemptive rights, out of the aggregate of its authorized
but unissued Issuing Entity Common Equity and its issued
common equity held in its treasury, for the purpose of
effecting any conversion of the Series C Preferred Stock,
the full number of shares or other units of common equity
deliverable upon any such call or conversion of all
outstanding shares of Series C Preferred Stock, (c) the
Issuing Entity shall have the right to call the Series C
Preferred Stock and to cause the exchange of the Series C
Preferred Stock for its Issuing Entity Common Equity upon
such call and (d) the Corporation shall relinquish the right
to call the Series C Preferred Stock and its obligations
upon conversion of the Series C Preferred Stock. In such
event, from and after such effective time, (x) holders of
shares of Series C Preferred Stock will no longer have any
right to receive any consideration from the Corporation upon
call or conversion of the Series C Preferred Stock and (y)
<PAGE>
43
all references in this paragraph (4) and in paragraphs
(6)(d), (e) and (f) to Common Stock shall thereafter mean
Issuing Entity Common Equity and (z) the Corporation may,
without a vote of the holders of Series C Preferred Stock,
amend this Certificate of Designation to make any incidental
and conforming modifications to reflect the provisions
contained in this paragraph 4(b)(i)(D) (the option set forth
in this paragraph 4(b)(i)(D) being hereinafter referred to
as the "Existing Preferred Stock Option").
Whether the Issuing Entity Preferred Stock or the New
Preferred Stock has terms substantially equivalent to the Series
C Preferred Stock will be determined by the Board of Directors of
the Corporation (or its successor), whose determination shall be
conclusive; provided that if the Corporation elects the Issuing
--------
Entity Preferred Stock Conversion Option and the Issuing Entity
is not a corporation or other entity organized under the laws of
the United States or any State thereof or the District of
Columbia (a "non-U.S. entity"), the Issuing Entity Preferred
Stock may be considered substantially equivalent to the Series C
Preferred Stock notwithstanding that, among other things, (i) a
holder of Issuing Entity Preferred Stock is not entitled to the
dividends received deduction under Section 243 or Section 245 of
the Internal Revenue Code of 1986, as amended (the "Code"), (ii)
the tax treatment of a holder of Issuing Entity Preferred Stock
differs from the tax treatment of a holder of Series C Preferred
Stock, including by reason of a future change in U.S. law, (iii)
the Issuing Entity Preferred Stock does not provide voting rights
to the holders thereof to the same extent as the Series C
Preferred Stock, so long as the Issuing Entity Preferred Stock
provides voting rights to the fullest extent permitted by the law
applicable to such securities, (iv) the Issuing Entity Preferred
Stock does not provide that any or all cash payments will be made
in U.S. dollars so long as such payments may not be made in U.S.
dollars under applicable law, provided that the amount of
--------
currency other than U.S. dollars (the "Foreign Currency") payable
on any given date is adjusted (by reference to the noon U.S.
dollar buying rate for the Foreign Currency for cable transfers
quoted in the City of New York on the business day next preceding
such payment, as certified for customs purposes by the Federal
Reserve Bank of New York) to equal the number of U.S. dollars
which would have been payable on such date if payment had been
permitted to be made in U.S. dollars, (v) the Issuing Entity is
prohibited by its certificate of incorporation or by-laws (or
equivalent constituent documents) or by the laws of the
jurisdiction of its establishment from issuing Issuing Entity
Preferred Stock that automatically converts into Issuing Entity
Common Equity (or, upon the distribution of the capital stock of
the Spinoff Corporation (as defined in paragraph 4(d)(v)), into
Spinoff Corporation Preferred Stock (as defined in paragraph
4(d)(v)), so long as the terms of such Issuing Entity Preferred
Stock (or other agreements relating thereto) provide for
conversion into Issuing Entity Common Equity (or, upon the
distribution of the capital stock of the Spinoff Corporation,
<PAGE>
44
into Spinoff Corporation Preferred Stock) not later than the same
date as such automatic conversion would have occurred and in a
manner which gives a holder thereof substantially the same rights
as if such Issuing Entity Preferred Stock had automatically
converted or (vi) the Issuing Entity is prohibited by its
certificate of incorporation or by-laws (or equivalent
constituent documents) or by the laws of the jurisdiction of its
establishment from issuing such Issuing Entity Preferred Stock
with a liquidation preference subject to adjustment as set forth
in paragraph 5 hereof. The Corporation will not elect the
Issuing Entity Preferred Stock Conversion Option if the Issuing
Entity is a non-U.S. entity, unless provision is made in the
Issuing Entity Preferred Stock to gross up the amount paid to
U.S. persons (as defined in paragraph 4(i)(ix)) in respect of any
then existing or future tax, assessment or governmental charge
imposed by the laws of the jurisdiction in which the Issuing
Entity is established or organized or any political subdivision
or taxing authority thereof or therein with respect to, and
withheld on the making of, such payment; provided, however, that
-------- -------
no gross up shall be required (a) if such holder is liable for
such tax, assessment or governmental charge in respect of the
Series C Preferred Stock by reason of such holder's having some
connection with the jurisdiction in which the Issuing Entity is
established or organized other than being a holder of such Series
C Preferred Stock or (b) if the Corporation has notified such
holder of the obligation to withhold taxes and requested but not
received from such holder the appropriate documentation or
certification in support of any claim for exemption and such
withholding or deduction would not have been required had such
documentation or certification been received.
The Corporation's right to elect the Corporation
Preferred Stock Conversion Option and the Existing Preferred
Stock Option is subject to the conditions that (1) the
Corporation shall survive as a subsidiary of the Issuing Entity
and (2) the Issuing Entity shall have common equity which is
publicly traded immediately after the effectiveness of the Merger
or Consolidation (provided that the Issuing Entity Common Equity
--------
need not be publicly traded in the United States).
(ii) Notwithstanding the Corporation's election of the
Issuing Entity Preferred Stock Conversion Option, the Corporation
Preferred Stock Conversion Option or the Existing Preferred Stock
Option, if the Merger Consideration (excluding consideration in
connection with fractional shares or the exercise of appraisal
rights) consists of both common equity (or any depository
receipts representing such common equity) of the entity issuing
such Merger Consideration (which could be a U.S. or non-U.S.
entity) (the "Issuing Entity") in the Merger or Consolidation
("Issuing Entity Common Equity") and property which is not
Issuing Entity Common Equity ("Non-Common Equity Merger
Consideration"), then, in addition to having the rights arising
out of the Corporation's election of one of the foregoing
Options, such holder shall be entitled to receive, at the time
<PAGE>
45
such Merger Consideration is distributed to holders of Common
Stock, an amount of Non-Common Equity Merger Consideration equal
to the amount of Non-Common Equity Merger Consideration that such
holder would have been entitled to receive in the Merger or
Consolidation had (A) such holder's Series C Preferred Stock been
converted into shares of Common Stock at the Common Equivalent
Rate in effect immediately prior to the Merger or Consolidation
and (B) such shares of Common Stock been exchanged in the Merger
or Consolidation for the amount of Merger Consideration which
would have given a holder the maximum possible number of shares
of Issuing Entity Common Equity pursuant to the agreement
applicable to such Merger or Consolidation with respect to a
share of Common Stock; provided that if the Call Price on the
--------
Settlement Date is less than the fair value of such Non-Common
Equity Merger Consideration per share of Series C Preferred Stock
(as determined by the Board of Directors of the Corporation,
whose determination shall be conclusive) as of the Settlement
Date (the "Non-Common Equity Fair Value"), then the amount of
Non-Common Equity Merger Consideration that a holder of Series C
Preferred Stock shall be entitled to receive with respect to each
share of Series C Preferred Stock will be reduced so that the
Non-Common Equity Fair Value thereof equals the Call Price on the
Settlement Date. If the Merger Consideration consists solely of
Non-Common Equity Merger Consideration, the Corporation must
elect the Common Conversion Option.
(iii) If the Corporation elects the Issuing Entity
Preferred Stock Conversion Option or the Corporation Preferred
Stock Conversion Option, the initial common equivalent rate on
the Issuing Entity Preferred Stock or the New Preferred Stock, as
the case may be, shall be equal to the Common Equivalent Rate on
the Series C Preferred Stock in effect immediately prior to the
Merger or Consolidation adjusted to reflect the ratio by which
one share of Common Stock is exchanged for shares of Issuing
Entity Common Equity in the Merger or Consolidation, and if the
Corporation elects the Existing Preferred Stock Option, the
Common Equivalent Rate on the Series C Preferred Stock
immediately following the Merger or Consolidation shall be equal
to the Common Equivalent Rate on the Series C Preferred Stock in
effect immediately prior to the Merger or Consolidation adjusted
to reflect the ratio by which one share of Common Stock is
exchanged for shares of Issuing Entity Common Equity in the
Merger or Consolidation.
(iv) If the Corporation fails to make the election
set forth in paragraph 4(b)(i) prior to the date of effectiveness
of the Merger or Consolidation, then the Corporation shall be
deemed to have elected the Common Conversion Option.
(v) Notwithstanding the foregoing provisions of this
paragraph 4(b), if the Corporation elects any of the options set
forth in paragraph 4(b)(i)(B), (C) or (D) each holder of a share
of Series C Preferred Stock will have the right (the "Holder Opt-
Out Right") to elect that, in lieu of such holder's shares of
<PAGE>
46
Series C Preferred Stock being subject to the Issuing Entity
Preferred Stock Conversion Option, the Corporation Preferred
Stock Conversion Option or the Existing Preferred Stock Option,
as the case may be, each share of Series C Preferred Stock held
by such holder will convert, in whole (but not in part),
immediately prior to the effectiveness of the Merger or
Consolidation into (A) subject to paragraphs (4)(b)(vii) and
(4)(d)(vi), shares of Common Stock at the Common Equivalent Rate
in effect immediately prior to such Merger or Consolidation
(provided that if the Call Price on the Settlement Date is less
--------
than the product of (x) the Current Market Price of a share of
Common Stock on the Settlement Date (which Current Market Price
shall be appropriately adjusted for the purposes of this proviso
if the Corporation has made any antidilution adjustment to the
Common Equivalent Rate pursuant to paragraph 4(d) with respect to
an event which has not occurred as of such Settlement Date) and
(y) the number of shares of Common Stock issuable upon conversion
of a share of Series C Preferred Stock pursuant to the Holder
Opt-Out Right, then the number of shares of Common Stock issuable
pursuant to the Holder Opt-Out Right shall be reduced so that
product referred to above equals the Call Price on the Settlement
Date), plus (B) the right to receive an amount in cash equal to
all accrued and unpaid dividends on the Series C 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); provided that the Corporation (or following the
--------
application of the terms of paragraph 4(b)(i)(D), the Issuing
Entity) may, at its option, deliver on the Settlement Date, in
lieu of some or all of the cash consideration described in clause
(B), a number of shares of Common Stock (subject to paragraphs
4(b)(vii) and 4(d)(vi)) 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 of the Common Stock
determined as of the Settlement Date (which Current Market Price
shall be appropriately adjusted, if necessary, for the purposes
of this proviso if (x) the Corporation has made any antidilution
adjustment to the Common Equivalent Rate pursuant to paragraph
4(d) with respect to an event which has not occurred as of such
Settlement Date or (y) the Corporation (or following the
application of the terms of paragraph 4(b)(i)(D), the Issuing
Entity) has distributed cash or other property pursuant to clause
(2) of paragraph 4(d)(iii) or shares or other units of securities
or assets pursuant to clause (2) of paragraph 4(d)(iv) or shares
of capital stock of the Spinoff Corporation pursuant to clause
(2) of paragraph 4(d)(v)). Notwithstanding the foregoing terms
of this paragraph 4(b)(v), if there shall have occurred an
adjustment pursuant to paragraph 4(d)(vi) as a result of a
conversion or exchange or merger or consolidation referred to in
such paragraph prior to the Settlement Date, then with respect to
the exercise of any such option referred to in this paragraph
4(b)(v) (including the exercise of the option referred to in the
foregoing proviso by the Corporation (or its successor)), the
Corporation shall deliver out of funds legally available therefor
<PAGE>
47
on such Settlement Date, in lieu of shares of Common Stock as
described in this paragraph 4(b)(v), the kind of securities or
other property received by holders of Common Stock as a result of
such conversion or exchange or 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 (or its successor), whose
determination shall be conclusive), as of such Settlement Date,
equal to the amount of cash consideration that the Corporation
has elected to pay in such securities or other property.
(vi) In order to exercise the Holder Opt-Out Right, a
holder of Series C Preferred Stock shall (a) deliver a properly
completed and duly executed written notice of election to
convert, specifying the name or names in which such holder wishes
the certificate or certificates for shares of Common Stock
(subject to paragraphs 4(b)(vii) and 4(d)(vi)) 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") at least one business day prior to the effectiveness of
the Merger or Consolidation, (b) surrender the certificate for
such shares of Series C 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 4(n). Conversion shall be deemed to
have been effected immediately prior to the effective time of the
Merger or Consolidation. Immediately upon conversion, the rights
of the holders of converted shares of Series C Preferred Stock
shall cease and the persons entitled to receive the shares of
Common Stock (subject to paragraphs 4(b)(vii) and 4(d)(vi)) upon
the conversion of such shares of Series C Preferred Stock shall
be treated for all purposes as having become the beneficial
owners of such shares of Common Stock (subject to paragraphs
4(b)(vii) and 4(d)(vi)).
(vii) If there shall occur a Merger or Consolidation
of the Corporation and the Corporation elects the Existing
Preferred Stock Option, then (A) the Series C Preferred Stock
will, from and after the effective time of the Merger or
Consolidation, no longer be subject to conversion into shares of
Common Stock pursuant to paragraphs (4)(a), (4)(b), 4(c) and
4(e), but instead will be subject to conversion out of funds
legally available therefor into the Issuing Entity Common Equity
and (B) in such event, from and after the effective time of the
Merger or Consolidation, the number of such shares of Issuing
Entity Common Equity so issuable upon conversion of the shares of
Series C Preferred Stock shall be subject to adjustment from time
<PAGE>
48
to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to the shares of
Common Stock contained in paragraphs 4(b)(iii) and (4)(d).
(c) Right to Call for Redemption. At any time and
----------------------------
from time to time prior to the Mandatory Conversion Date, the
Corporation (or following the application of the terms of
paragraph 4(b)(i)(D), the Issuing Entity) shall have the right to
call, in whole or in part, the outstanding shares of the Series C
Preferred Stock for redemption (subject to the notice provisions
set forth in paragraph (4)(j)). Upon the redemption date, the
Corporation (or following the application of the terms of
paragraph 4(b)(i)(D), the Issuing Entity) shall deliver to the
holders thereof in exchange for each such share called for
redemption, (i) a number of shares of Common Stock (subject to
paragraphs 4(b)(vii) and 4(d)(vi)) equal to the Call Price in
effect on the redemption date divided by the Current Market Price
of the Common Stock determined as of the second Trading Date (as
defined in paragraph 4(i)(vi)) immediately preceding the Notice
Date (as defined in paragraph 4(i)(iv)) and (ii) an amount in
cash equal to all accrued and unpaid dividends on such share of
Series C 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
therefor; provided that if there shall have occurred an
adjustment pursuant to paragraph (4)(d)(vi) as a result of a
conversion or exchange or merger or consolidation referred to in
such paragraph prior to the redemption date, the Corporation (or
following the application of the terms of paragraph 4(b)(i)(D),
the Issuing Entity) shall deliver out of funds legally available
therefor on the redemption date to the holders of shares of
Series C Preferred Stock in exchange for each share thereof
called for redemption, in lieu of shares of Common Stock as
described in this paragraph (4)(c), the kind of securities or
other property received by holders of Common Stock as a result of
such conversion or exchange or 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 (or its successor), 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 C Preferred Stock are to be called for
redemption, shares to be redeemed shall be selected by the
Corporation (or following the application of the terms of
paragraph 4(b)(i)(D), the Issuing Entity) from outstanding shares
of Series C Preferred Stock not previously 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
<PAGE>
49
Directors of the Corporation in its sole discretion to be
equitable.
(d) 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 C
Preferred Stock into shares of Common Stock pursuant to paragraph
(4)(a) or (b) shall be initially ten shares of Common Stock for
each share of Series C Preferred Stock; provided, however, that
-------- -------
such Common Equivalent Rate shall be subject to adjustment from
time to time as provided in paragraph 4(b)(iii) and 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."
(i) If the Corporation (or following the application of
the terms of paragraph 4(b)(i)(D), the Issuing Entity) 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 (or following the application of the
terms of paragraph 4(b)(i)(D), the Issuing
Entity),
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 C Preferred Stock shall be entitled to
receive on the conversion of such share of the Series C Preferred
Stock, the number of shares of common stock of the Corporation
(or following the application of the terms of paragraph
4(b)(i)(D), the Issuing Entity) 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 C
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 as of
the close of business on 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
<PAGE>
50
subdivision, split, combination or reclassification; and any
shares of Common Stock issuable in 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), (iii), (iv) and (v) below. Such adjustment
shall be made successively.
(ii) If the Corporation (or following the application
of the terms of paragraph 4(b)(i)(D), the Issuing Entity) 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)(viii)) 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 as of the close
of business on 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.
(iii) If the Corporation (or following the application
of the terms of paragraph 4(b)(i)(D), the Issuing Entity) shall
distribute cash (other than any Permitted Quarterly Dividend (as
defined in this paragraph 4(d)(iii)), any cash distributed in
consideration of fractional shares of Common Stock, any cash
distributed in accordance with paragraph 4(d)(iii)(2) or
4(d)(iv)(2) and any cash distributed in a Merger or Consolidation
("Excluded Distributions")), by dividend or otherwise, to all
holders of its Common Stock or make an Excess Purchase Payment
<PAGE>
51
(as defined in this paragraph 4(d)(iii)) then, at the option of
the Corporation (or following the application of the terms of
paragraph 4(b)(i)(D), the Issuing Entity), the Corporation shall
make the adjustment set forth in clause (1) below if such option
is chosen by the Corporation (or the Issuing Entity) or shall
make the distribution (or following the application of the terms
of paragraph 4(b)(i)(D), the Issuing Entity shall make the
distribution) set forth in clause (2) below
if such option is chosen by the Corporation (or the Issuing
Entity):
(1) if the option set forth in this clause (1) is
chosen, the Common Equivalent Rate shall be adjusted by
multiplying the Common Equivalent Rate in effect on the
record date with respect to such distribution or the payment
date with respect to such Excess Purchase Payments by a
fraction, of which the numerator shall be the Current Market
Price per share of the Common Stock (determined pursuant to
paragraph 4(d)(viii)) on such record date or payment date
and of which the denominator shall be such Current Market
Price per share of Common Stock less the amount of such
distribution applicable to one share of Common Stock which
would not be a Permitted Quarterly Dividend (or in the case
of an Excess Purchase Payment, less the aggregate amount of
such Excess Purchase Payments divided by the number of
outstanding shares of Common Stock on the relevant payment
date) (provided that the Corporation (or following the
application of the terms of paragraph 4(b)(i)(D), the
Issuing Entity) shall not be permitted to elect the option
described in this clause (1) if (a) the amount of such
distribution applicable to one share of Common Stock which
would not be a Permitted Quarterly Dividend (or in the case
of an Excess Purchase Payment, the aggregate amount of such
Excess Purchase Payments divided by the number of
outstanding shares of Common Stock on the relevant payment
date) is greater than or equal to 95% of such Current Market
Price per share of Common Stock, in each case as of such
record date or payment date, or (b) with respect to such
cash distribution (other than an Excess Purchase Payment),
the day on which such record date is fixed by the Board of
Directors of the Corporation is less than twenty-one
consecutive Trading Days prior to such record date); or
(2) if the option set forth in this clause (2) is
chosen, there shall be distributed, out of legally available
funds, at the time such cash distribution or Excess Purchase
Payment is made to the holders of its Common Stock, to the
holders of Series C Preferred Stock (as of the record date
for the determination of holders of Common Stock entitled to
receive such dividend or distribution (or in the case of an
Excess Purchase Payment, as of the purchase date)) an amount
of cash or other assets per share of Series C Preferred
Stock as such holder would have been entitled to receive if
such Series C Preferred Stock had been converted into shares
<PAGE>
52
of Common Stock (and in the case of an Excess Purchase
Payment had participated on a pro rata basis (assuming the
participation of all outstanding shares of Common Stock) in
such tender offer or exchange offer) at the Common
Equivalent Rate in effect immediately prior to the record
date for such distribution or the payment date for such
Excess Purchase Payment less, in the case of a cash
distribution, the amount of such distribution which would
have been a Permitted Quarterly Dividend.
The adjustment provided in clause (1) above shall become
effective as of the close of business on the record date for the
determination of stockholders entitled to receive such dividend
or distribution or the payment date with respect to such Excess
Purchase Payment. If the amount of cash or, in the case of an
Excess Purchase Payment, the value of the assets (as determined
by the Board of Directors of the Corporation, whose determination
shall be conclusive) to be distributed in accordance with clause
(2) above exceeds the Call Price as of such record date or
payment date, the amount of cash or other assets to be
distributed with respect to each share of Series C Preferred
Stock shall be reduced so that the amount to be distributed
equals the Call Price on such record date or payment date. As
used in this paragraph 4(d)(iii), the term "Permitted Quarterly
Dividend" means any quarterly cash dividend in respect of the
Common Stock to the extent that the per share amount of such
dividend does not exceed the greater of (x) the amount per share
of Common Stock of the next preceding quarterly cash dividend on
the Common Stock which did not at the record date therefor
require an adjustment to the Common Equivalent Rate or a
distribution in accordance with clause (2) above and (y) 15% of
the Current Market Price per share of Common Stock, determined on
the record date for such quarterly dividend, less the sum of the
per share amounts (appropriately adjusted to account for any of
the events described in paragraph 4(d)(i)) of all quarterly
dividends, if any, in respect of the Common Stock with a record
date less than one year prior to the record date for such
quarterly dividend. As used in this paragraph 4(d)(iii), the
term "Excess Purchase Payment" means the excess, if any, of (A)
the cash and the value (as determined by the Board of Directors
of the Corporation, whose determination shall be conclusive) of
all other consideration paid by the Corporation (or following the
application of the terms of paragraph 4(b)(i)(D), the Issuing
Entity) with respect to one share of Common Stock acquired in a
tender offer or exchange offer by the Corporation (or following
the application of the terms of paragraph 4(b)(i)(D), the Issuing
Entity) over (B) the Current Market Price per share of Common
Stock on the payment date for such Excess Purchase Payment.
(iv) If the Corporation (or following the application
of the terms of paragraph 4(b)(i)(D), the Issuing Entity) shall
pay a dividend or make a distribution to all holders of its
Common Stock of evidence of its indebtedness, other securities or
other assets (including shares of capital stock of the
<PAGE>
53
Corporation (or following the application of the terms of
paragraph 4(b)(i)(D), the Issuing Entity) (other than Common
Stock) and shares of capital stock of any subsidiary of the
Corporation (or following the application of the terms of
paragraph 4(b)(i)(D), the Issuing Entity) (other than as set
forth in paragraph 4(d)(v)) but excluding any distributions and
dividends referred to in paragraphs 4(d)(i) and (iii) above or
any other cash dividends or distributions), or 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 paragraph 4(d)(ii) above), then in each such case at the
option of the Corporation (or following the application of the
terms of paragraph 4(b)(i)(D), the Issuing Entity), the
Corporation shall make the adjustment set forth in clause (1)
below if such option is chosen by the Corporation (or the Issuing
Entity) or shall make the distribution (or following the
application of the terms of paragraph 4(b)(i)(D), the Issuing
Entity shall make the distribution) set forth in clause (2) below
if such option is chosen by the Corporation (or the Issuing
Entity):
(1) if the option set forth in this clause (1) is
chosen, the Common Equivalent Rate shall be adjusted by
multiplying the Common Equivalent Rate in effect on the
record date for the distribution of the securities or assets
by a fraction, of which the numerator shall be the Current
Market Price per share of the Common Stock (determined
pursuant to paragraph (4)(d)(viii)) 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 securities or
assets so distributed, or of such rights or warrants,
applicable to one share of Common Stock (the "Distribution
Fair Value") (provided that the Corporation (or following
--------
the application of the terms of paragraph 4(b)(i)(D), the
Issuing Entity) shall not be permitted to elect the option
described in this clause (1) if (a) such determination of
fair value by the Board of Directors of the Corporation
applicable to one share of Common Stock is greater than or
equal to 95% of such Current Market Price per share of
Common Stock, in each case as of such record date, or (b)
the day on which such record date is fixed by the Board of
Directors of the Corporation is less than twenty-one
consecutive Trading Days prior to such record date; or
(2) if the option set forth in this clause (2) is
chosen, there shall be distributed, out of funds legally
available therefor, at the time such dividend, distribution
or issuance is made to the holders of its Common Stock, to
the holders of shares of Series C Preferred Stock (as of the
record date for the determination of holders of Common Stock
<PAGE>
54
entitled to receive such dividend, distribution or issuance)
the kind and amount of such securities or assets of the
Corporation (or following the application of the terms of
paragraph 4(b)(i)(D), the Issuing Entity) as such holder
would have been entitled to receive if such shares of Series
C Preferred Stock had been converted into shares of Common
Stock at the Common Equivalent Rate in effect immediately
prior to the record date for such dividend or distribution.
The adjustment provided in clause (1) shall become effective as
of the close of business on the record date for the determination
of stockholders entitled to receive such dividend or
distribution. If the Distribution Fair Value of the shares or
other units of securities or assets distributed with respect to
each share of Series C Preferred Stock in accordance with clause
(2) above would, as of the record date of such distribution,
exceed the Call Price as of such record date, the amount of
shares or other units of securities or assets to be distributed
with respect to each share of Series C Preferred Stock shall be
reduced so that the Distribution Fair Value thereof equals the
Call Price on such record date.
(v) If the Corporation (or following the application
of the terms of paragraph 4(b)(i)(D), the Issuing Entity) shall
pay a dividend or makes a distribution to all holders of its
Common Stock of shares of capital stock of any subsidiary of the
Corporation (the "Spinoff Corporation"), which Spinoff
Corporation represents all or substantially all of the
Corporation's interest in either of the two principal lines of
business of RJR Nabisco Holdings Corp. and its subsidiaries as of
May 6, 1994, then, at the option of the Corporation (or following
the application of the terms of paragraph 4(b)(i)(D), the Issuing
Entity), the Corporation shall, out of legally available funds,
effect the conversion set forth in clause (1) below if such
option is chosen by the Corporation (or the Issuing Entity) or
shall make the distribution (or following the application of the
terms of paragraph 4(b)(i)(D), the Issuing Entity shall make the
distribution) set forth in clause (2) below if such option is
chosen by the Corporation (or the Issuing Entity):
(1) if the option set forth in this clause (1) is
chosen, subject to the proviso set forth in clause (2)
below, each share of Series C Preferred Stock will be
converted into the right of the holder of such share of
Series C Preferred Stock as of the Common Stock Record Date
(as defined in this paragraph 4(d)(v)) to receive (at the
time such capital stock is distributed to holders of Common
Stock):
(a) one half of a share of a security (the "Spinoff
Corporation Preferred Stock") of the Spinoff
Corporation having terms substantially equivalent to
the Series C Preferred Stock (except that (i) upon call
<PAGE>
55
or conversion such Spinoff Corporation Preferred Stock
shall convert into common stock of Spinoff Corporation,
(ii) the initial common equivalent rate per share of
Spinoff Corporation Preferred Stock (as of the record
date for the determination of holders of Common Stock
entitled to receive such dividend or distribution (the
"Common Stock Record Date")) shall equal a fraction, of
which the numerator shall be the product of (A) the
Current Market Price per share of the Common Stock
(determined pursuant to paragraph 4(d)(viii)) on the
Common Stock Record Date and (B) the Common Equivalent
Rate on the Common Stock Record Date, and of which the
denominator shall be the Spinoff Fair Value (as defined
in this paragraph 4(d)(v)), (iii) all references to
Common Stock shall mean the common stock of the Spinoff
Corporation, (iv) all references to the Corporation (or
following the application of the terms of paragraph
4(b)(i)(D), the Issuing Entity) shall mean the Spinoff
Corporation, (v) any notice given to the holders of
record of shares of Series C Preferred Stock on the
Common Stock Record Date will be valid notice to the
record holders of the Spinoff Corporation Preferred
Stock for the purpose of giving notice required by the
terms of the Spinoff Corporation Preferred Stock to
such holders prior to the issuance thereof and (vi) the
liquidation preference per share of Spinoff Corporation
Preferred Stock shall be equal to the greater of (A)
the liquidation preference per share of the Series C
Preferred Stock prior to the date of conversion and (B)
the fair market value per share of Spinoff Corporation
Preferred Stock (as determined, on or within five
business days after the date of issuance of the Spinoff
Corporation Preferred Stock, by the board of directors
of the Spinoff Corporation, whose determination shall
be conclusive) as of the date of their issuance); and
(b) one half of a share of Series C Preferred Stock;
provided that following such conversion in accordance
with this paragraph 4(d)(v)(1)(b), (i) the Common
Equivalent Rate per share of Series C Preferred Stock
(as of the Common Stock Record Date) shall equal a
fraction, of which the numerator shall be the product
of (A) the Current Market Price per share of the Common
Stock on the Common Stock Record Date and (B) the
Common Equivalent Rate on the Common Stock Record Date,
and of which the denominator shall be the excess of (x)
the Current Market Price per share of the Common Stock
on the Common Stock Record Date over (y) the Spinoff
Fair Value and (ii) the liquidation preference per
share of Series C Preferred Stock from and after the
time of conversion shall be equal to the greater of (A)
the liquidation preference per share of the Series C
Preferred Stock prior to the date of conversion and (B)
the fair market value per share of the Series C
<PAGE>
56
Preferred Stock (as determined, on or within five
business days after the date of issuance of the Spinoff
Corporation Preferred Stock, by the board of directors
of the Corporation, whose determination shall be
conclusive) as of the date of issuance of the Spinoff
Corporation Preferred Stock; or
(2) if the option set forth in this clause (2) is
chosen, there shall be distributed, at the time such
dividend or distribution is made to the holders of its
Common Stock, to the holders of shares of Series C Preferred
Stock as of the Common Stock Record Date that number of
shares of capital stock of the Spinoff Corporation as such
holder would have been entitled to receive if such shares of
Series C Preferred Stock had been converted into shares of
Common Stock at the Common Equivalent Rate in effect
immediately prior to the record date for such dividend or
distribution; provided that the Corporation (or following
--------
the application of the terms of paragraph 4(b)(i)(D), the
Issuing Entity) shall elect the option described in this
clause (2) if (a) the fair value (as determined by the Board
of Directors of the Corporation, whose determination shall
be conclusive) as of the Common Stock Record Date of the
portion of the capital stock so distributed applicable to
one share of Common Stock (assuming the conversion of the
Series C Preferred Stock into Spinoff Corporation Preferred
Stock) (the "Spinoff Fair Value") is greater than or equal
to 95% of the Current Market Price per share of Common Stock
as of the Common Stock Record Date, or (b) the day on which
such record date is fixed by the Board of Directors of the
Corporation is less than twenty-one consecutive Trading Days
prior to such record date.
As of the Common Stock Record Date (or as of any date
thereafter until the distribution of the Spinoff Corporation
Preferred Stock), the holders of record of shares of Series C
Preferred Stock will be considered the holders of record of any
Spinoff Corporation Preferred Stock for purposes of the
Certificate of Designation and for purposes of the certificate of
designation with respect to the Spinoff Corporation Preferred
Stock, including the giving of notice or voting thereunder.
If the Spinoff Fair Value of the shares of capital
stock of the Spinoff Corporation distributed with respect to each
share of Series C Preferred Stock pursuant to clause (2) above
would, as of the Common Stock Record Date, exceed the Call Price
as of such record date, the number of shares of such capital
stock to be distributed with respect to each share of Series C
Preferred Stock shall be reduced so that the Spinoff Fair Value
thereof equals the Call Price on such record date.
Whether, after the distribution of the capital stock of
the Spinoff Company, the Spinoff Preferred Stock has terms
substantially equivalent to the Series C Preferred Stock prior to
<PAGE>
57
such distribution will be determined by the Board of Directors of
the Corporation (or its successor), whose determination shall be
conclusive. Such Spinoff Company Preferred Stock may be
considered substantially equivalent to the Series C Preferred
Stock notwithstanding that, among other things, the tax treatment
of a holder of Spinoff Company Preferred Stock differs from the
tax treatment of a holder of Series C Preferred Stock, including
by reason of a future change in U.S. law.
(vi) If there shall occur a conversion or exchange of
the Common Stock into, or the right to receive, other securities
or other property of the Corporation (or following the
application of the terms of paragraph 4(b)(i)(D), the Issuing
Entity) or a wholly owned subsidiary of the Corporation (or
following the application of the terms of paragraph 4(b)(i)(D),
the Issuing Entity) (in each case other than in connection with a
Merger or Consolidation) or if there shall occur a merger or
consolidation of the Corporation (or following the application of
the terms of paragraph 4(b)(i)(D), the Issuing Entity) with or
into a wholly owned subsidiary of the Corporation (or following
the application of the terms of paragraph 4(b)(i)(D), the Issuing
Entity) 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 following the
application of the terms of paragraph 4(b)(i)(D), the Issuing
Entity) or any other entity), then the Series C Preferred Stock
will thereafter no longer be subject to conversion or redemption
into shares of Common Stock pursuant to paragraphs (4)(a),
(4)(b), 4(c) and 4(e), but instead will be subject to conversion
or redemption into the kind and amount of securities or other
property which the holder of such shares of Series C Preferred
Stock would have owned immediately after such conversion or
exchange or merger or consolidation if such shares of Series C
Preferred Stock had been converted or redeemed into shares of
Common Stock immediately before the effective time of such
conversion or exchange or merger or consolidation. If this
paragraph (4)(d)(vi) applies, then no adjustment in respect of
the same conversion or exchange or 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)(vi), the Series
C Preferred Stock shall become subject to conversion or
redemption into any securities other than shares of Common Stock,
thereafter the number of such other securities so issuable upon
conversion or redemption of the shares of Series C 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 C Preferred Stock
contained in this paragraph (4)(d).
(vii) Anything in this paragraph (4) notwithstanding, the
Corporation shall be entitled to make such adjustments in the
Common Equivalent Rate, in addition to those required by this
paragraph (4), as the Corporation in its sole discretion may
<PAGE>
58
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 (or following the application of the
terms of paragraph 4(b)(i)(D), the Issuing Entity) or any other
entity) to its stockholders shall not be taxable. If the
Corporation determines that an adjustment to the Common
Equivalent Rate should be made pursuant to this paragraph
4(d)(vii), 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)(vii), 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.
(viii) As used in this paragraph (4), the "Current
Market Price" of a share of Common Stock on any date shall be,
except as otherwise specifically provided, the average of the
daily Closing Prices (as defined in paragraph 4(i)(iii)) for the
twenty consecutive Trading Dates ending on and including the date
of determination of the Current Market Price; provided, however,
that for purposes of paragraph 4(c), the Current Market Price
shall be the average of the daily Closing Prices for the five
consecutive Trading Days ending on and including the date of
determination of the Current Market Price unless 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, with respect to any redemption,
conversion or antidilution adjustment if any event that results
in an adjustment of the Common Equivalent Rate occurs during the
period beginning on the first day of the applicable determination
period and ending on the applicable redemption or conversion
date, the Current Market Price as determined pursuant to the
foregoing will be appropriately adjusted to reflect the
occurrence of such event.
(ix) In any case in which paragraph (4)(d) shall
require that an adjustment as a result of any event become
effective as of the close of business on the record date and the
date fixed for conversion pursuant to paragraph (4)(a), 4(b),
4(c) or 4(e) 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 C Preferred Stock the additional
shares of Common Stock issuable upon such conversion before
giving effect to such adjustment and (B) paying to such holder
<PAGE>
59
any amount in cash in lieu of a fractional share of Common Stock
pursuant to paragraph (4)(g).
(x) Before taking any action which would cause an
adjustment to the Common Equivalent Rate that would cause the
Corporation (or following the application of the terms of
paragraph 4(b)(i)(D), the Issuing Entity) to issue shares of
Common Stock for consideration below the then par value (if any)
of the Common Stock upon conversion of the Series C Preferred
Stock, the Corporation (or following the application of the terms
of paragraph 4(b)(i)(D), the Issuing Entity) will take any
corporate action which may, in the opinion of its counsel, be
necessary in order that the Corporation (or following the
application of the terms of paragraph 4(b)(i)(D), the Issuing
Entity) may validly and legally issue fully paid and
nonassessable shares of such Common Stock at such adjusted Common
Equivalent Rate.
(e) Optional Tender Offer Conversion. (i) If pursuant
--------------------------------
to the rules promulgated under the Securities Exchange Act of
1934, as amended, the Corporation (or following the application
of the terms of paragraph 4(b)(i)(D), the Issuing Entity) has
recommended acceptance of (or has expressed no opinion and is
remaining neutral toward) a tender offer which would result in
the ownership by the bidder (as defined in paragraph (i)(vii))
therein (or an affiliate (as defined in paragraph (i)(viii)) of
the bidder) of more than 50% of the then outstanding shares of
Common Stock of the Corporation (or following the application of
the terms of paragraph 4(b)(i)(D), the Issuing Entity) (a
"Recommended Tender Offer"), then prior to the expiration of such
Recommended Tender Offer the Corporation shall give notice to
each holder of record of Series C Preferred Stock that such
holder may, at its option, convert (an "Optional Tender Offer
Conversion") its shares of Series C Preferred Stock, in whole
(but not in part), (A) into shares of Common Stock at the Common
Equivalent Rate in effect at the close of business on the date
prior to the date of expiration or termination of such
Recommended Tender Offer (the "Tender Offer Measurement Date")
(provided that if the Call Price on the Tender Offer Measurement
--------
Date is less than the product of (x) the Current Market Price of
a share of Common Stock on the Tender Offer Measurement Date
(which Current Market Price shall be appropriately adjusted for
the purposes of this proviso if the Corporation has made any
antidilution adjustment to the Common Equivalent Rate pursuant to
paragraph 4(d) with respect to an event which has not occurred as
of such Tender Offer Measurement Date) and (y) the number of
shares of Common Stock issuable upon conversion of a share of
Series C Preferred Stock pursuant to the Optional Tender Offer
Conversion, then the number of shares of Common Stock with
respect to each share of Series C Preferred Stock issuable
pursuant to the Optional Tender Offer Conversion shall be reduced
so that the product referred to above in this proviso equals the
Call Price on the Tender Offer Measurement Date), plus (B) the
right to receive an amount of cash equal to all accrued and
<PAGE>
60
unpaid dividends on the Series C Preferred Stock to and including
the Tender Offer Measurement Date, whether or not declared, out
of funds legally available therefor (and dividends shall cease to
accrue on such share as of the Tender Offer Measurement Date);
provided that the Corporation (or following the application of
--------
the terms of paragraph 4(b)(i)(D), the Issuing Entity) may, at
its option, deliver on the Tender Offer Measurement Date, in lieu
of some or all of the cash consideration described in paragraph
4(e)(i)(B), a number of shares of Common Stock (subject to
paragraphs 4(b)(vii) and 4(d)(vi)) to be determined by dividing
the amount of cash consideration that the Corporation (or
following the application of the terms of paragraph 4(b)(i)(D),
the Issuing Entity) has elected to pay in Common Stock by the
Current Market Price of the Common Stock determined as of such
Tender Offer Measurement Date (which Current Market Price shall
be appropriately adjusted, if necessary, for the purposes of this
proviso if either (x) the Corporation has made any antidilution
adjustment to the Common Equivalent Rate pursuant to paragraph
4(d) with respect to an event which has not occurred as of such
Tender Offer Measurement Date or (y) the Corporation (or
following the application of the terms of paragraph 4(b)(i)(D),
the Issuing Entity) has distributed cash or other property
pursuant to clause (2) of paragraph 4(d)(iii), shares or other
units of securities or assets pursuant to clause (2) of paragraph
4(d)(iv) or shares of capital stock of the Spinoff Corporation
pursuant to clause (2) of paragraph 4(d)(v)). Notwithstanding
the foregoing terms of this paragraph 4(e), if there shall have
occurred an adjustment pursuant to paragraph 4(d)(vi) as a result
of a conversion or exchange or merger or consolidation referred
to in such paragraph prior to the Tender Offer Measurement Date,
then with respect to the exercise of any such option referred to
in the foregoing proviso by the Corporation (or its successor),
the Corporation (or following the application of the terms of
paragraph 4(b)(i)(D), the Issuing Entity) shall deliver out of
funds legally available therefor on such Settlement Date, in lieu
of shares of Common Stock as described in this paragraph 4(e),
the kind of securities or other property received by holders of
Common Stock as a result of such conversion or exchange or 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 Tender Offer
Measurement 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 (or its successor), whose determination shall be
conclusive), as of such Settlement Date, equal to the amount of
cash consideration that the Corporation (or following the
application of the terms of paragraph 4(b)(i)(D), the Issuing
Entity) has elected to pay in such securities or other property.
(ii) The Corporation will provide notice of a
Recommended Tender Offer to holders of record of the Series C
Preferred Stock not less than fifteen business days prior to the
<PAGE>
61
expiration of such tender offer. Such notice shall specify the
date of expiration or termination (as of the date of such notice)
of such Recommended Tender Offer and that if such holder elects
to convert its shares of Series C Preferred Stock into shares of
Common Stock, dividends on such Series C Preferred Stock will
cease to accrue dividends on the date they are converted. If the
date of expiration of the Recommended Tender Offer is extended,
the Corporation will be under no obligation to notify any holder
of Series C Preferred Stock of such extension.
(iii) In order to exercise the Optional Tender Offer
Conversion, a holder of Series C Preferred Stock shall (a)
deliver a properly completed and duly executed written notice of
election to convert on or prior to the Tender Offer Measurement
Date, specifying 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 to the
Conversion Agent, (b) surrender the certificate for such shares
of Series C 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 (4)(n).
(iv) (A) Conversion shall be deemed to have been
effected immediately prior to the termination or expiration of
the Recommended Tender Offer (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
Series C Preferred Stock shall cease and the persons entitled to
receive the shares of Common Stock upon the conversion of such
shares of Series C Preferred Stock shall be treated for all
purposes as having become the owners of such shares of Common
Stock.
(B) As promptly as practicable after the Conversion
Date, the Corporation (or following the application of the terms
of paragraph 4(b)(i)(D), the Issuing Entity) shall, unless
otherwise instructed by the holder, 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
Series C Preferred Stock, a certificate or certificates
representing the number of fully paid and nonassessable shares of
Common Stock into which such shares of Series C Preferred Stock
have been converted in accordance with the provisions of this
paragraph (4)(e), and any cash payable in respect of fractional
shares as provided in paragraph (4)(g).
<PAGE>
62
(f) Notice of Adjustments. Whenever the Common
---------------------
Equivalent Rate is adjusted as herein provided, the Corporation
shall:
(i) 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 C Preferred Stock
and the Common Stock; and
(ii) 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 C
Preferred Stock at or prior to the time the Corporation
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.
(g) No Fractional Shares. (i) No fractional shares or
--------------------
scrip representing fractional shares of Common Stock or other
kind of security (including upon a distribution of the capital
stock of the Spinoff Company, the Series C Preferred Stock and
the Spinoff Company Preferred Stock) shall be issued upon the
redemption or conversion of any shares of Series C Preferred
Stock. Instead of any fractional interest in a share of Common
Stock or such other security which would otherwise be deliverable
upon the redemption or conversion of a share of Series C
Preferred Stock, the Corporation (or following the application of
the terms of paragraph 4(b)(i)(D), the Issuing Entity) shall
either (A) pay to the holder of such share (a "Fractional
Shareholder") an amount in cash (computed to the nearest cent)
equal to (x) in the case of fractional shares of Common Stock,
the same fraction of the Current Market Price of the Common Stock
determined as of the Settlement Date, Conversion Date or the
second Trading Date immediately preceding the relevant Notice
Date, as the case may be, (y) in the case of fractional shares of
Spinoff Corporation Preferred Stock and Series C Preferred Stock
otherwise issuable upon a distribution of shares of capital stock
of the Spinoff Corporation, an amount in cash equal, with respect
to the Spinoff Corporation Preferred Stock, to the same fraction
of the product of the Spinoff Fair Value per share of Common
Stock and the common equivalent rate applicable to the Spinoff
Corporation Preferred Stock and an amount in the cash equal, with
respect to the Series C Preferred Stock, to the same fraction of
<PAGE>
63
the product of (A) the Current Market Price, as of the Common
Stock Record Date, less the Spinoff Fair Value, and (B) the
Common Equivalent Rate after giving effect to the issuance of the
Spinoff Corporation Preferred Stock and (z) in the case of
fractional shares of capital stock of the Spinoff Corporation, an
amount in cash equal to the same fraction of the Spinoff Fair
Value per share of Common Stock or (B) follow the procedures set
forth in paragraph (g)(ii). If more than one share of Series C
Preferred Stock 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 C Preferred Stock so
surrendered.
(ii) The Corporation (or following the application of
the terms of paragraph 4(b)(i)(D), the Issuing Entity) may, in
lieu of paying cash to Fractional Shareholders as provided in
paragraph (g)(i), issue, in full payment of the Corporation's (or
following the application of the terms of paragraph 4(b)(i)(D),
the Issuing Entity's) obligation with respect to such fractional
interests, shares of 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 (or following the
application of the terms of paragraph 4(b)(i)(D), the Issuing
Entity) 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.
(h) Cancellation. Shares of Series C 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 C 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.
(i) Definitions. As used in this paragraph (4):
-----------
(i) the term "business day" shall mean
any day other than a Saturday, Sunday, or a day on which
banking institutions in the State of New York are authorized
or obligated by law or executive order to close; provided
that, from and after the effective time of a Merger or
Consolidation in connection with which the Corporation
elects the Existing Preferred Stock Option, the term
"business day" shall mean any day other than a Saturday,
<PAGE>
64
Sunday or a day on which banking institutions in the State
of New York and in the place where the Issuing Entity has
its headquarters are authorized by law to close;
(ii) the term "Call Price" shall mean the per share
price (payable in shares of Common Stock) at which the
Corporation (or following the application of the terms of
paragraph 4(b)(i)(D), the Issuing Entity) may redeem shares
of Series C Preferred Stock, which shall be initially equal
to $112.286 declining by $.01656 on each day following the
date of issuance of the Series C Preferred Stock (computed
on the basis of a 360-day year of twelve 30-day months) to
$95.246 on March 15, 1997 and equal to $94.25 thereafter, if
not sooner redeemed; provided that if the Corporation (or
--------
following the application of the terms of paragraph
4(b)(i)(D), the Issuing Entity) distributes cash or other
property as provided in paragraph 4(d)(iii)(2), shares or
other units of securities or assets as provided in paragraph
4(d)(iv)(2), shares of capital stock of the Spinoff
Corporation as provided in paragraph 4(d)(v)(2) or if Non-
Common Equity Merger Consideration is distributed in
connection with a Merger or Consolidation, then (i) in the
case of a distribution described in paragraph 4(d)(iii)(2),
from and after the close of business on the record date
related to such distribution (or in the case of an Excess
Purchase Payment, from and after the close of business on
the payment date related to such Excess Purchase Payment)
the Call Price per share for any day shall be reduced by the
amount of cash or the value of other property (as determined
by the Board of Directors of the Corporation, whose
determination shall be conclusive) to be distributed
pursuant thereto, (ii) in the case of a distribution
described in paragraph 4(d)(iv)(2), from and after the close
of business on the record date related to such distribution,
the Call Price per share for any day shall be reduced by the
Distribution Fair Value of such shares or other units of
securities or assets, (iii) in the case of a distribution
described in paragraph 4(d)(v)(2), from and after the close
of business on the record date related to such distribution,
the Call Price per share for any day shall be reduced by the
Spinoff Fair Value of such shares of capital stock and (iv)
in the case of a distribution of Non-Common Equity Merger
Consideration, from and after the close of business on the
Settlement Date related to the Merger or Consolidation, the
Call Price per share shall be reduced by the Non-Common
Equity Fair Value of such Non-Common Equity Merger
Consideration; provided further that in no event shall the
--------
effect of the foregoing proviso be to reduce the Call Price
per share to an amount less than $0.01; the Corporation will
provide notice (subsequent to such reduction) of any
reduction in the Call Price as a result of the application
of the first proviso in this definition to each holder of
record of Series C Preferred Stock at such holder's address
as it appears on the stock register of the Corporation
<PAGE>
65
(provided, however, that no failure to give such notice nor
-------- -------
any defect therein shall affect the validity of the related
reduction in the Call Price);
(iii) the term "Closing Price" on any day shall mean
the closing sale price regular way (with any relevant due
bills attached) 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 (with any relevant due bills
attached), 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 regular way (with any relevant due
bills attached) 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
("NASDAQ"), 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.
Notwithstanding the foregoing, from and after the effective
time of a Merger or Consolidation in connection with which
the Corporation elects the Existing Preferred Stock Option,
if the Issuing Entity Common Equity is not trading on the
New York Stock Exchange (or other national securities
exchange or reported on NASDAQ as described above), "Closing
Price" shall be (i) determined by reference to the principal
trading market on which the Issuing Entity Common Equity is
traded and (ii) converted, if necessary, into U.S. dollars
by reference to the spot rate at noon local time in the
relevant market at which, in accordance with the normal
banking procedures, U.S. dollars could be purchased with the
currency in which the Closing Price is denominated from
major banks located in New York City or London, England;
(iv) the term "Notice Date" with respect to any notice
given by the Corporation (or following the application of
the terms of paragraph 4(b)(i)(D), the Issuing Entity) in
connection with a redemption or conversion of any of the
Series C Preferred Stock shall be the commencement of the
mailing of such notice to the holders of the Series C
Preferred Stock in accordance with paragraph (4)(j);
<PAGE>
66
(v) the term "Settlement Date" shall mean the business
day immediately prior to the effective date of a Merger or
Consolidation;
(vi) 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.
Notwithstanding the foregoing, from and after the effective
time of a Merger or Consolidation in connection with which
the Corporation elects the Existing Preferred Stock Option,
if the Issuing Entity Common Equity is not traded on the New
York Stock Exchange (or other national securities exchange
or reported on NASDAQ as described under paragraph
4(i)(ii)), "Trading Date" shall be determined by reference
to the principal trading market on which the Issuing Entity
Common Equity is traded;
(vii) the term "bidder" shall have the meaning set
forth in Rule 14d-1(b)(1) promulgated under the Securities
Exchange Act of 1934, as amended;
(viii) the term "affiliate" shall have the meaning set
forth in Rule 12b-2 promulgated under the Securities
Exchange Act of 1934, as amended; and
(ix) the term "U.S. person" shall mean any citizen or
resident of the United States and any domestic corporation,
partnership, estate or trust.
(j) Notice of Redemption or Conversion. The
----------------------------------
Corporation will provide notice of (i) any redemption or
conversion (other than an Optional Tender Offer Conversion, but
including any potential conversion upon the effectiveness of a
Merger or Consolidation) of shares of Series C Preferred Stock to
holders of record of the Series C 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,
and (ii) the election of any of the options set forth in
paragraph 4(b)(i) to the holders of record of the Series C
Preferred Stock at least 30 days prior to the anticipated
effective date of the Merger or Consolidation; provided, that the
Corporation shall be under no obligation to notify any holder of
any extension of such effective date. Such notice shall be
provided by mailing such notice first class postage prepaid, to
each holder of record of the Series C Preferred Stock, 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 C 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 and to the extent
determinable, the following:
<PAGE>
67
(A) the redemption, conversion or exchange date;
(B) that all outstanding shares of Series C 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 C 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 C 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)(i)(A)
or (4)(b)(v)), the method of calculating 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) whether the Corporation (or following the
application of the terms of paragraph 4(b)(i)(D), the
Issuing Entity) is electing to exercise the Common
Conversion Option, the Issuing Entity Preferred Stock
Conversion Option, the Corporation Preferred Stock
Conversion Option or the Existing Preferred Stock Option (in
the case of a conversion pursuant to paragraph (4)(b)), and
if the Corporation (or following the application of the
terms of paragraph 4(b)(i)(D), the Issuing Entity) elects
the Issuing Entity Preferred Stock Conversion Option, the
Corporation Preferred Stock Conversion Option or the
Existing Preferred Stock Option, that such holder shall be
entitled to exercise the Holder Opt-Out Right;
(F) the place or places where certificates for such
shares are to be surrendered for redemption or conversion;
and
(G) that dividends on the shares of Series C 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 (or following the
application of the terms of paragraph 4(b)(i)(D), the
Issuing Entity) shall default in delivering the shares of
<PAGE>
68
Common Stock and cash, if any, payable by the Corporation
(or following the application of the terms of paragraph
4(b)(i)(D), the Issuing Entity) pursuant to this paragraph
(4), at the time and place specified in such notice.
(k) Deposit of Shares and Funds. The Corporation's
---------------------------
(or following the application of the terms of paragraph
4(b)(i)(D), the Issuing Entity'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 (or following the application of
the terms of paragraph 4(b)(i)(D), the Issuing Entity) 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 (or following the application of the terms of
paragraph 4(b)(i)(D), the Issuing Entity) 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)(g)(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 C Preferred Stock so called for redemption or converted.
Any interest accrued on such funds shall be paid to the
Corporation (or following the application of the terms of
paragraph 4(b)(i)(D), the Issuing Entity) 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 (or following the
application of the terms of paragraph 4(b)(i)(D), the Issuing
Entity), after which the holder or holders of such shares of
Series C Preferred Stock so called for redemption or converted
shall look only to the Corporation (or following the application
of the terms of paragraph 4(b)(i)(D), the Issuing Entity) for
delivery of such shares of Common Stock or funds.
(l) Surrender of Certificates; Status. Each holder of
---------------------------------
shares of Series C 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
<PAGE>
69
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
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 (or following the application of the
terms of paragraph 4(b)(i)(D), the Issuing Entity) 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(k), then, notwithstanding that the certificates
evidencing any shares of Series C 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.
(m) Dividend Payments. The holders of shares of
-----------------
Series C 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 or on such Dividend Payment Date shall not be entitled to
receive such dividend on such Dividend Payment Date but instead
will receive an amount equal to 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.
(n) 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 C
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 C 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
<PAGE>
70
Corporation the amount of any such tax or has established, to the
satisfaction of the Corporation, that such tax has been paid.
(o) Notwithstanding any other provision of this
paragraph 4, no dividend, redemption, repurchase, exchange or
conversion or other distribution shall be made to or from the
holders of Series C Preferred Stock other than out of funds
legally available therefor.
(5) Liquidation Preference. (a) 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 C 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 C
Preferred Stock in cash equal to the sum of (i) $65.00 (or,
following any issuance of Spinoff Corporation Preferred Stock,
the greater of $65.00 and the fair market value per share of
Series C Preferred Stock (as determined, on or within five
business days after the date of issuance of the Spinoff
Corporation Preferred Stock, by the Board of Directors of the
Corporation, whose determination shall be conclusive) as of such
date of issuance), 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 C 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 C 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 C Preferred Stock shall not be entitled
to any distribution in the event of liquidation, dissolution or
winding up of the affairs of the Corporation.
The Corporation will provide notice to holder of record
of Series C Preferred Stock not more than thirty days after any
adjustment to the liquidation preference of the Series C
Preferred in connection with the issuance of the Spinoff
Corporation Preferred Stock.
(b) 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
<PAGE>
71
deemed to be a voluntary or involuntary liquidation, dissolution
or winding up.
(6) Voting Rights. (a) The holders of record of
shares of Series C Preferred Stock shall not be entitled to any
voting rights except as hereinafter provided in this paragraph
(6) or as otherwise provided by law.
(b) The holders of shares of Series C 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 C 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; and
provided further that in the event of a Merger or Consolidation
in which the Corporation elects the Existing Preferred Stock
Option, the holders of shares of Series C Preferred Stock will no
longer be entitled to vote on such matters submitted to a vote of
the holders of Common Stock, unless the Board of Directors of the
Corporation specifically provides otherwise. Each share of the
Series C Preferred Stock shall be entitled to a number of votes
equal to one-tenth of the Common Equivalent Rate; it being
understood that whenever the Common Equivalent Rate is adjusted
as provided in paragraph 4(d) hereof, the voting rights of the
Series C Preferred Stock shall also be similarly adjusted.
(c) (i) If at any time or times dividends payable on
all series of Preferred Stock, including the Series C 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 C Preferred Stock shall have the
right, together with the holders of all other outstanding series
of the Preferred Stock entitled to vote thereon, 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)(c)(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.
(ii) Whenever such voting right shall have vested,
such right may be exercised initially either at a special meeting
<PAGE>
72
of the holders of shares of Series C Preferred Stock together
with the holders of all other outstanding series of the Preferred
Stock entitled to vote thereon, 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.
(iii) At any time when such voting right shall have
vested in the holders of shares of Series C Preferred Stock
together with all other series of Preferred Stock entitled to
vote thereon 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
(6)(c)(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.
(iv) At any meeting held for the purpose of electing
directors at which the holders of shares of Series C Preferred
<PAGE>
73
Stock together with all other series of Preferred Stock entitled
to vote thereon 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 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.
(v) The term of office of all directors elected by the
holders of shares of Series C Preferred Stock together with all
other series of Preferred Stock entitled to vote thereon pursuant
to paragraph (6)(c)(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)(c)(ii), the term of
office of all directors elected by the holders of shares of such
series of Preferred Stock pursuant to paragraph (6)(c)(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)(c)(i) hereof), subject always to the increase of
the number of directors pursuant to paragraph (6)(c)(i) in case
of the future right of the holders of shares of such series of
Preferred Stock to elect directors as provided herein.
(vi) In case of any vacancy occurring among the
directors elected pursuant to paragraph (6)(c)(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 C Preferred Stock together with all other series
of Preferred Stock entitled to vote thereon 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
<PAGE>
74
successors to hold office for the unexpired terms of the
directors whose places shall be vacant.
(d) So long as any shares of the Series C Preferred
Stock are outstanding (except when notice of the redemption or
conversion of all outstanding shares of Series C Preferred Stock
has been given pursuant to paragraph (4)(j) and shares of Common
Stock and any necessary funds have been deposited in trust for
such redemption or conversion pursuant to paragraph (4)(k)), the
Corporation shall not, without the affirmative vote or consent of
the holders of at least a majority of the shares of Series C
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.
(e) So long as any shares of the Series C Preferred
Stock are outstanding (except when notice of the redemption or
conversion of all outstanding shares of Series C Preferred Stock
has been given pursuant to paragraph (4)(j) and shares of Common
Stock and any necessary funds have been deposited in trust for
such redemption or conversion pursuant to paragraph (4)(k)), the
Corporation shall not, without the affirmative vote or consent of
the holders of at least 66-2/3% of the shares of Series C
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.
(f) Except for the amendments contemplated by the
exercise of the Existing Preferred Stock Option, so long as any
shares of the Series C Preferred Stock are outstanding (except
when notice of the redemption or conversion of all outstanding
shares of Series C Preferred Stock has been given pursuant to
paragraph (4)(j) and shares of Common Stock and any necessary
funds have been deposited in trust for such redemption or
conversion pursuant to paragraph (4)(k)), the Corporation shall
not, without the affirmative vote or consent of the holders of at
least 66-2/3% of the shares of Series C 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.
(g) (i) Except as set forth in paragraphs (6)(d) and
(6)(e) above, the creation, authorization or issuance of any
<PAGE>
75
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 C
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 C Preferred Stock.
(7) Increase in Shares. The number of shares of
Series C 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 C 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.
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
<PAGE>
76
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>
77
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: __________________________
Jo-Ann Ford
Vice President and Secretary
[CORPORATE SEAL]
Attest:
By: __________________________
Suzanne P. Jenney
Assistant Secretary
EXHIBIT 3.2(a)
CERTIFICATE OF RETIREMENT
of
Series A Conversion Preferred Stock
of
RJR NABISCO HOLDINGS CORP.
(Pursuant to Section 243 of the
Delaware General Corporation Law)
In accordance with Section 243 of the General Corporation Law of the
State of Delaware, RJR Nabisco Holdings Corp., a Delaware corporation (the
"Corporation"), does hereby certify that the following resolutions respecting
its Series A Conversion Preferred Stock were duly adopted by the
Corporation's Board of Directors:
RESOLVED, that, following the conversion of all shares of the Company's
Series A Conversion Preferred Stock (the "Series A Conversion Preferred
Stock") into shares of Common Stock on November 15, 1994 (the "Conversion
Date"), all of the authorized shares of Series A Conversion Preferred Stock
will be retired and the reissuance of any shares of Series A Conversion
Preferred Stock as part of such series of Preferred Stock will be prohibited
under the Company's Amended and Restated Certificate of Incorporation (the
"Certificate of Incorporation"); and
RESOLVED, that, upon such retirement of all of the authorized shares of
Series A Conversion Preferred Stock effective on the Conversion Date, the
officers of the Company are hereby authorized, empowered and directed to file
with the Secretary of State of the State of Delaware a certificate pursuant
to Section 243 of the General Corporation Law of the State of Delaware
setting forth these resolutions in order to eliminate from the Certificate
of Incorporation all reference to the Series A Conversion Preferred Stock.
IN WITNESS WHEREOF, RJR Nabisco Holdings Corp. has caused this Certificate to
be signed by Jo-Ann Ford, its Vice President and Secretary, and attested by
Suzanne P. Jenney, its Assistant Secretary, this 18th day of November, 1994.
By: /s/ Jo-Ann Ford
--------------------------
Jo-Ann Ford
Vice President & Secretary
ATTEST:
/s/Suzanne P. Jenney
- --------------------
Suzanne P. Jenney
Assistant Secretary
EXHIBIT 3.3(d)
[Composite, as amended to and including May 13, 1994]
RESTATED
CERTIFICATE OF INCORPORATION
OF
RJR NABISCO, INC.
(Originally incorporated under
the name of R.J. Reynolds Industries, Inc. on March 4, 1970)
ARTICLE I
The name of the Corporation is RJR Nabisco, Inc. (the
"Corporation").
ARTICLE II
The address of the registered office of the Corporation in
the State of Delaware is 32 Loockerman Square, Suite L-100, in
the City of Dover 19901, County of Kent. The name of its
registered agent at that address is The Prentice-Hall Corporation
System, Inc.
ARTICLE III
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 IV
The total number of shares of capital stock that the
Corporation is authorized to issue is four thousand (4,000)
shares of Common Stock, par value $1,000.00 each.
ARTICLE V
The Board of Directors of the Corporation is expressly
authorized to make, alter, amend or repeal the By-Laws of the
Corporation.
<PAGE>
ARTICLE VI
1. A director of this Corporation shall not be personally
liable to the Corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director to the fullest
extent permitted by the Delaware General Corporation Law as the
same exists or may hereafter be amended. No repeal or
modification of the foregoing provisions of this Section 1 nor,
to the fullest extent permitted by law, any modifications of law,
shall adversely affect any right or protection of a director of
the Corporation existing at the time of such repeal or
modification.
2. Each person who is or was a director, officer, employee
or agent of the Corporation (and the heirs, executors or
administrators of such person) who was or is made a party to, or
is involved in any threatened, pending or completed action, suit
or proceeding, whether civil, criminal, administrative or
investigative (including an action by or in the right of the
Corporation) by reason of the fact that such person is or was a
director, officer, employee or agent of the Corporation or is or
was serving at the request of the Corporation as a director,
officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, shall be indemnified
and held harmless by the Corporation to the fullest extent
permitted by applicable law as the same exists or may hereafter
be amended. The right to indemnification conferred in this
Section 2 shall also include the right to be paid by the
Corporation the expenses incurred in defending any such
proceeding in advance of its final disposition to the fullest
extent authorized by applicable law as the same exists or may
hereafter be amended. The right to indemnification conferred in
this Section 2 shall be a contract right.
The Corporation may purchase and maintain insurance, at
its expense, to protect itself and any person who is or was a
director, officer, employee or agent of the Corporation, or who
is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against
any expense, liability or loss incurred by such person in any
such capacity, whether or not the Corporation would have the
power to indemnify such person in any such capacity and whether
or not the Corporation would have the power to indemnify such
person against such expense, liability or loss under applicable
law as the same exists or may hereafter be amended.
The rights and authority conferred in this Section 2
shall not be exclusive of any other right which any person may
have or hereafter acquire under any statue, provision of the
Certificate of Incorporation or By-Laws of the Corporation,
agreement, vote of stockholders or disinterested directors or
otherwise. No repeal or modification of the foregoing provisions
of this Section 2 nor, to the fullest extent permitted by law,
<PAGE>
any modification of law, shall adversely affect any right or
protection of a director, officer, employee or agent of the
Corporation or any other person existing at the time of such
repeal or modification.
EXHIBIT 10.18(a)
Name of the Optionee: Number of Shares for Which
Option may be Exercised:
Charles M. Harper 750,000
Grant Date: December 31, 1994
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 incorporated by reference 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 incorporated by reference 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 $5.50 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, 1995 0%
May 31, 1995 - May 30, 1996 33 1/3%
May 31, 1996 - May 30, 1997 66 2/3%
May 31, 1997 - thereafter 100%
2
<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.
3
<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
4
<PAGE>
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 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
6
<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.
7
<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
8
<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.
9
<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:
EXHIBIT 10.25
February 14, 1995
Lawrence R. Ricciardi
45 Vineyard Lane
Greenwich, CT 06831
Dear Larry:
This letter constitutes the entire agreement among RJR Nabisco Holdings
Corp., RJR NABISCO, INC., (collectively, the "Company"), its successors,
affiliates and/or assigns, and you regarding the termination of your
employment relationship with the Company, and implements the termination
provisions of your Employment Agreement dated July 19, 1993 with the
Company (the "Employment Agreement") together with additional provisions
under the 1995 Headquarters Continuing Excellence Recognition Program
(the "Protection Program").
1. a) The date of your termination is March 3, 1995 (your "SBC Date").
Your Compensation Continuance commences March 4, 1995 and continues
through March 3, 1998, which will be your official "Separation Date" for
Company records.
Your Compensation Continuance determined under your Employment Agreement
is as follows:
Annual rate of base salary $ 600,000
Highest Annual Bonus
(including special $300,000
additional 1994 bonus) $ 1,350,000
-----------
Total payable each 12 month period,
beginning March 4, 1995, during
Compensation Continuance total
period of 36 months $ 1,950,000
<PAGE>
Based on the foregoing, Compensation Continuance will be paid semi-
monthly at the rate of $81,250 for the period March 4, 1995 to March 3,
1998 and will be subject to deductions for income tax withholding, FICA,
employee benefit plan contributions and other authorized deductions.
b) Additionally, if you remain employed through March 3, 1995 (your "Job
Completion Date" under the Protection Program), you shall be paid in a
lump sum an amount equal to 6 months base salary ($300,000) on or about
July 1, 1995. This amount is subject to deductions for income tax
withholding and FICA, but shall not be includable for any benefit plan
or SERP calculations.
2. Compensation Continuance is provided in order to preserve the Company's
access to you although you will be relieved of all your normal duties
and responsibilities. You agree that you will personally provide
reasonable assistance and cooperation in locating or obtaining
information concerning the Company (past or present) about which you are
knowledgeable.
You acknowledge that as of March 3, 1995, your active employment with
the Company will end irrevocably and will not be resumed again at any
time in the future, except upon mutual agreement of the parties hereto.
Except as otherwise noted, Compensation Continuance and the other
benefits described herein continue through your Separation Date without
regard to whether or not you become employed by an employer not
affiliated with the Company.
3. If you become disabled for more than ten consecutive business days after
Compensation Continuance begins, and provide acceptable medical
documentation of a bonafide disability, your Compensation Continuance
will be suspended until you recover or could return to work if you were
an active employee, or until Long Term Disability benefits are denied or
cease. During the period of disability, you will receive the Short Term
and/or Long Term Disability benefits for which you otherwise qualify.
Compensation Continuance resumes for the balance of the period of
Compensation Continuance when the period of disability ends.
2
<PAGE>
If you die during Compensation Continuance, Compensation Continuance
payments will cease, but any amounts that would have been paid to you
had you lived until your Separation Date will be paid in a lump sum to
your spouse, or if you do not have a spouse at the time of death, to
your designated beneficiary under the Company's SELECT Core Life
Insurance plan.
4. As of your SBC Date, no further vacation will accrue. Unused vacation
plus vacation accrued during the calendar year in which your SBC Date
occurs will be paid in a lump sum at the end of Compensation
Continuance. Vacation accrues up to your SBC Date at 1/12 of your
vacation entitlement for each full or partial month of active
employment. Your vacation entitlement is determined as of the beginning
of the calendar year. Based on 24 days of such unused and accrued
vacation, you will be paid $55,384.62. Vacation taken prior to your SBC
Date will reduce this amount.
5. a) During Compensation Continuance, you may continue to participate in
the employee benefit programs in which you participated as of your SBC
Date except as otherwise provided in this letter agreement or by the
terms of the individual program. You may participate as though you were
an active employee, subject to the continuation of applicable payroll
deductions. "Employee benefit programs" do not include the Annual
Incentive Award Plan ("AIAP") or the Long Term Incentive Plan ("LTIP"),
the disposition of which are detailed by other provisions of this
Agreement.
Unless otherwise specified by the Company, changes in the employee
benefit programs after the date of this letter will not apply to you,
except as required by law. New benefit programs which replace or
supersede current programs will apply to you if the Company chooses not
to continue to make the current programs available to employees on
Compensation Continuance.
b) The following is a summary of benefit continuation:
Your participation in SELECT Flexible Benefits Program will continue
during Compensation Continuance until the end of the month in which your
Separation Date occurs. Since the Compensation Continuance period
extends into several new SELECT Plan Years, you will be required to re-
enroll each year in the same manner as active employees. Should you
become employed by an employer not affiliated with the Company, health
care coverage provided by your new employer will be coordinated with
health care benefits under SELECT. If you elect COBRA (Consolidated
Omnibus Budget Reconciliation Act of 1985) continuation coverage under
3
<PAGE>
SELECT after your Separation Date, the premium for the initial six
months will be the monthly equivalent of the active employee cost.
Thereafter, coverage may continue for up to an additional 12 months at a
monthly premium equal to the full 102% of actual plan cost. Specific
costs and details will be provided on a timely basis. If at the end of
Compensation Continuance, the Company provides retiree medical, dental
and life insurance for its retirees, you shall be eligible for such
insurance at the Company and retiree contribution rate for a retiree
with 25 years of service at retirement.
You are vested in the Retirement Plan for Employees of RJR Nabisco,
Inc., (the "Retirement Plan"). At your Separation Date you will have an
irrevocable choice of receiving your benefit as a lump sum or an
immediate annuity, or electing a deferred annuity which can commence no
earlier than age 65. Appropriate election forms will be provided to you
on or about your Separation Date.
During Compensation Continuance, you may continue to make contributions
to the RJR Nabisco Capital Investment Plan, and you retain all other
rights under the plan, including the right to transfer investments
between funds, change your contribution amount, and to request
withdrawals. However, no loan applications will be approved during
Compensation Continuance. Following your Separation Date, your account
balance will be distributed to you in accordance with the terms of the
Plan. You are fully vested in your account.
Until the end of the calendar year in which your SBC Date occurs, you
may utilize the Company's New York City Health Club arrangements if you
are a member on your SBC Date. Provision of this benefit is taxable to
you.
c) In addition to your benefit payable under the Retirement Plan, you
shall be paid a benefit at the end of Compensation Continuance under the
Supplemental Executive Retirement Plan ("SERP") which shall be the
maximum benefit payable under the SERP, and shall, upon final
calculation prior to payment, be without reduction for early
commencement. The SERP payment is in excess of the Retirement Plan
benefit and includes any amounts payable from the nonqualified defined
benefit plans of the Company, the Supplemental Benefits Plan and the
Additional Benefits Plan. The benefit payable from the SERP shall
include the amounts of Compensation Continuance detailed in paragraph 1
4
<PAGE>
herein; provided, however, only $260,000 of the $300,000 special
additional 1994 bonus referenced in paragraph 1 shall be included in the
SERP benefit calculation. The Protection Program Completion Bonus and
the Protection Program AIAP award of 6 months additional AIAP for 1995
shall not be included in the SERP benefit calculation. Funding for the
estimated SERP benefit accrued through December 31, 1994, except for
$260,000 of the $300,000 special 1994 bonus, and not reflecting a
reduction for early retirement, has already been secured through the
purchase of annuity contracts from John Hancock Mutual Life Insurance
Company, American International Life Assurance Company, and Metropolitan
Life Insurance Company. The estimated total after-tax annuity account,
including prior funding, as of your SBC Date is $7,228,000. This amount
may be subject to change due to changes in interest rates, tax rates,
retroactive changes in your tax status imposed by a state or local
taxing authority, and other actuarial factors as they may be in effect
on March 4, 1998. Therefore, a calculation will be done in March 4,
1998 to determine if any funding through the purchase of a annuity on a
tax grossed-up basis is required as of March 4, 1998 to deliver your
benefit; provided, however, if any funding is made prior to March 4,
1998 for other SERP participants on Compensation Continuance, you will
be included in any required funding. Nothing herein shall affect the
validity of SERP funding acknowledgment waivers previously executed by
you, and they are specifically incorporated by reference into this
Agreement. Additionally, you agree that a pre-condition to any funding
of your SERP benefit is the execution by you of any additional
acknowledgment waivers requested by the Company. The provisions of the
SERP shall govern the payment of your SERP benefit in the event of your
death; provided, however, if you should die prior to March 4, 1998, your
spouse shall receive the same lump sum you would have received if you
retired on your date of death and elected a lump sum.
d) Your Employment Agreement provides that in addition to any Employee
Benefit or Flexible Perquisite Program, the Company would provide you
with a $3,000,000 term life insurance benefit. In lieu of this term
insurance, you elected to be covered by a premium equivalent $1,000,000
variable premium whole life policy. The premium on this policy shall
continue to be paid by the Company on a taxed grossed-up basis during
Compensation Continuance. On or about March 3, 1998 you will be given
the option of continuing premiums on this policy at your own expense at
the premium rate then in effect.
5
<PAGE>
6. a) Except as indicated below, you will continue to receive the benefits
of the Flexible Perquisite Program during Compensation Continuance.
Your perquisite allowances during Compensation Continuance for calendar
years 1995, 1996, 1997 and 1998 shall be as follows:
1995 - $39,583 less any amount in excess of $7,917 paid
for the period January 1, 1995 to March 3,
1995.
1996 - $47,500
1997 - $47,500
1998 - $7,917
b) No new car or lease will be provided during Compensation Continuance;
provided, however, the car currently leased for you by the Company shall
have its title transferred to you at the end of Compensation Continuance
term on a tax grossed-up basis.
c) For security reasons, you were provided at Company expense, while
actively employed, a Company car, driver and a home security system.
The arrangement for a car and driver shall end as of your SBC date, but
due to continuing security concerns based on your extensive knowledge of
the Company, the Company will continue to pay for the maintenance of
your home security system during Compensation Continuance.
7. a) You will be paid a prorated award under the Annual Incentive Award
Plan for your 2 months of active employment during the 1995 Plan year,
scored at the higher of target or actual financial performance of the
Company. This award will be paid to you at the same time as other Plan
participants; cannot be deferred; and is the last AIAP award to be made
to you. Payment of any such award will be subject to appropriate taxes
and a CIP contribution, if applicable. As a participant in AIAP, you
will be paid your highest AIAP over the period of Compensation
Continuance, as set forth in paragraph 1 above. This was determined by
dividing your highest AIAP amount by the number of pay periods in a year
and including such amount with each Compensation Continuance payment.
Thus, there will be no lump sum AIAP award payment for the period of
Compensation Continuance.
6
<PAGE>
b) In addition, you shall be paid a Protection Program special award
equal to one half (6 months) your regular AIAP award for 1995, scored at
the higher of target or actual financial performance of the Company. At
target, this award is estimated to be $210,000 and shall be paid when
other 1995 AIAP awards are paid, which is scheduled to be in early 1996.
This award is subject to deductions for income tax withholding and FICA,
but is not includable for any benefit calculations.
8. Prior to your SBC Date, you are expected to submit Expense Reports for
all outstanding travel, entertainment and other business expenses cash
advances. If any expense report(s) reflect any amounts owing to the
Company, they will be deducted from Compensation Continuance payments,
as necessary. In addition, prior to your Separation Date you must
return all Company equipment such as personal computers.
9. a) Under the MEPP Non-Qualified Stock Option Agreement, your Non-
Qualified Stock Options are 100% vested and may be exercised anytime up
to May 1, 1999. The exercise of your stock options is governed by the
terms of your Non-Qualified Stock Option Agreement with Holdings. No
further MEPP stock option awards will be made to you.
b) Under the 1990 Long-Term Incentive Plan ("LTIP") Non-Qualified Stock
Option Agreements, your nonqualified stock options are 100% vested as of
March 3, 1995 and may be exercised anytime up to the exercise expiration
date as indicated in each individual stock option agreement. The
exercise of your stock options is governed by the terms of your Non-
Qualified Stock Option agreement with Holdings. No new LTIP Awards of
any kind will be made to you.
c) Your current Performance Shares and Performance Units granted under
the LTIP shall be scored at actual performance and prorated for your
service to March 3, 1995. Your Performance Unit payment shall be 14/36
of the award, scored at actual performance, and paid on or after
December 31, 1996 (14/36 of this award is estimated to be $661,111,
subject to actual performance). Your Performance Share award payment
shall be 26/36 of the award, subject to adjustment for actual
performance and share price, and shall be paid on or after January 1,
1996 (26/36 of this award is estimated to be $325,000, subject to actual
performance and share price). Determination of the actual payment
amount shall be in accordance with your respective Performance Share
Plan Agreement and Performance Unit Plan Agreement. No 1995 or other
new Performance Share Awards or Performance Unit Awards shall be made to
you.
7
<PAGE>
d) Under the Executive Equity Program as modified by the Protection
Program, all Common Stock pledged for payment of the Promissory Note
executed by you shall be sold on March 3, 1995. After application of
the proceeds of the foregoing sale, any outstanding balance, shall be
paid in cash by the Company to the Promissory Note holder to fully
extinguish the loan balance and completely satisfy the Promissory Note,
together with any gross-up to you for federal, state and local income
tax incurred by you as a result of the transaction.
10. Until March 3, 1996, you are entitled to use the outplacement counseling
service designated by the Company for which the Company will pay not
more than the normal and reasonable fee, which is not to exceed 18% of
the amount of your annual base salary. You are not obligated to use
this service, but the Company urges you to consider this service as one
of the avenues to finding new employment. In addition, you may, in the
sole discretion of the Company, apply the foregoing allowance to
organization membership fees which aid in job networking.
11. a) The Company shall hold you harmless from any golden parachute tax
imposed by any federal, state or local taxing authority as a result of
any of the payments made pursuant to this Agreement. Payment of such
golden parachute tax plus any additional taxes imposed as a result of
the payment by the Company of such golden parachute tax, shall be made
at the time you are required to pay such golden parachute tax. You
agree to cooperate fully with the Company in any protester appeal by the
Company in the event of the imposition of golden parachute tax.
b) You shall be covered by the same liability and indemnification
programs afforded to other officers and directors for acts that occurred
while you were an officer or director of the Company and/or its
affiliates.
12. If all the requirements of the Tuition Refund Plan are fulfilled, you
will continue to be eligible for tuition aid reimbursement during Salary
Continuation or for courses completed during Salary Continuation.
8
<PAGE>
13. You may continue to participate or newly enroll in the Medsave Retiree
Savings Plan and Scholastic Savings Plan during Salary Continuation.
Upon your Separation Date, no further contributions will be permitted;
however, your account(s) including any Company match will be maintained
with continued interest growth. Distribution of your accounts(s) will
be processed in accordance with program rules for active employees.
In addition, you may apply for any of the education loans available in
the RJR Nabisco Scholastic Loan Program during Salary Continuation. You
will continue to be eligible for the interest credit reimbursement
feature of the RJRN Plus loan for the life of the loans.
14. You shall maintain the terms and conditions of this Agreement in
confidence. In addition, you will not disclose to any other employer or
person any trade secrets or other proprietary or confidential
information pertaining to the Company. In accordance with normal
ethical and professional standards, you will refrain from taking actions
or making statements, written or oral, which defame or denigrate the
goodwill or reputation of the Company, its properties, products,
directors, officers, executives and employees or which constitute
willful conduct under circumstances where it is reasonable for you to
anticipate or to expect that the natural consequences of such conduct by
you will be to affect adversely the morale of other employees.
15. a) You agree that you will personally provide reasonable assistance and
cooperation to the Company in activities related to the prosecution or
defense of any pending or future lawsuits or claims involving the
Company. b) You will promptly notify the Company if you receive any
requests from anyone other than an employee or agent of the Company for
information regarding the Company or if you become aware of any
potential claim or proposed litigation against the Company. c) You
will refrain from providing any information related to any claim or
potential litigation against the Company to any non-Company
representatives without either the Company's written permission or being
required to provide information pursuant to legal process. d) If
required by law to provide sworn testimony regarding any Company-related
matter, you will consult with and have Company-designated legal counsel
present for such testimony. e) The Company will be responsible for the
costs of such designated counsel and you will bear no cost for same. f)
You will confine your testimony to items about which you have knowledge
rather than speculation, unless otherwise directed by legal process. g)
You will cooperate with the Company's attorneys to assist their efforts,
9
<PAGE>
especially on matters you have been privy to, holding all privileged
attorney-client matters in strictest confidence.
Nothing in sentences c-g of the above paragraph is intended to apply to
governmental or judicial investigations; provided, however, the Company
will reimburse you for legal expenses if you are compelled to appear in
a governmental or judicial investigation.
16. Except as otherwise stated herein, no benefits (other than those
provided by a tax-qualified plan or trust) or promise hereunder shall be
secured by any specific assets of the Company. The payments under this
Agreement shall not be assigned by you or anticipated in any way and any
such attempted assignment will be void.
17. You agree not to apply for unemployment insurance attributable to your
period of compensation continuance.
18. IN CONSIDERATION OF THE COMPENSATION AND BENEFITS SET FORTH IN THIS
AGREEMENT AND EXCEPT FOR THE COMPANY'S OBLIGATIONS TO HOLD YOU HARMLESS
AND INDEMNIFY UNDER PARAGRAPH 11 HEREIN, YOU VOLUNTARILY, KNOWINGLY AND
WILLINGLY RELEASE AND FOREVER DISCHARGE THE COMPANY, ITS PARENTS,
SUBSIDIARIES AND AFFILIATES, TOGETHER WITH THEIR RESPECTIVE OFFICERS,
DIRECTORS, SHAREHOLDERS, EMPLOYEES AND AGENTS, AND EACH OF THEIR
PREDECESSORS, SUCCESSORS AND ASSIGNS, FROM ANY AND ALL CHARGES,
COMPLAINTS, CLAIMS, PROMISES, AGREEMENTS, CONTROVERSIES, CAUSES OF
ACTION AND DEMANDS OF ANY NATURE WHATSOEVER WHICH AGAINST THEM YOU OR
YOUR EXECUTORS, ADMINISTRATORS, SUCCESSORS OR ASSIGNS EVER HAD, NOW HAVE
OR HEREAFTER CAN, SHALL OR MAY HAVE BY REASON OF ANY MATTER, CAUSE OR
THING WHATSOEVER ARISING TO THE TIME YOU SIGN THIS AGREEMENT. YOU
FURTHER AGREE THAT YOU WILL NOT SEEK OR BE ENTITLED TO ANY AWARD OF
EQUITABLE OR MONETARY RELIEF IN ANY PROCEEDING OF ANY NATURE BROUGHT ON
YOUR BEHALF ARISING OUT OF ANY OF THE MATTERS RELEASED BY THIS
PARAGRAPH. THIS RELEASE INCLUDES, BUT IS NOT LIMITED TO, ANY RIGHTS OR
10
<PAGE>
CLAIMS RELATING IN ANY WAY TO YOUR EMPLOYMENT RELATIONSHIP WITH THE
COMPANY, OR THE TERMINATION THEREOF, OR UNDER ANY STATUTE, INCLUDING THE
AGE DISCRIMINATION IN EMPLOYMENT ACT, TITLE VII OF THE CIVIL RIGHTS ACT,
THE AMERICANS WITH DISABILITIES ACT, THE NEW YORK STATE AND CITY HUMAN
RIGHTS LAWS OR ANY OTHER FEDERAL, STATE OR LOCAL LAW.
19. By signing this Agreement, you represent that you have not commenced any
proceeding against the Company in any forum (administrative or judicial)
concerning your employment or the termination thereof. You further
acknowledge that you were given sufficient notice under the Worker
Adjustment and Retraining Notification Act (the "WARN Act") and that the
termination of your employment does not give rise to any claim or right
to notice, or pay or benefits in lieu of notice under the WARN Act. In
the event any WARN Act issue does exist or arises in the future, you
agree and acknowledge that the payments and benefits set forth in this
Agreement shall be applied to any pay or benefits in lieu of notice
required by the WARN Act, provided that any such offset shall not impair
or affect the validity of any provision of this Agreement, including the
release set forth in paragraph 18.
20. The Company advises you that you may wish to consult with an attorney of
your choosing prior to signing this Agreement. You understand and agree
that you have the right and have been given the opportunity to review
this Agreement and, specifically, the release in paragraph 18, with an
attorney of your choice should you so desire. You also understand and
agree that the Company is under no obligation to offer you the
additional compensation and benefits of the Protection Program and that
you are under no obligation to consent to the release set forth in
paragraph 18 and that you have entered into this Agreement freely,
knowingly and voluntarily.
21. You will be reimbursed for travel, food, lodging or similar out-of-
pocket expense incurred at the Company's request in discharging any of
your obligations under this agreement. If the Company reasonably
determines that you have materially violated any of your obligations
under this Agreement, then the Company may, at its option, terminate the
Compensation Continuance and any other benefits hereunder. The Company
may demand the return of all Salary Continuation payments already made
11
<PAGE>
and you hereby agree to return such payments upon such demand. If after
such demand you fail to return said payments, the Company has the right
to commence judicial proceedings against you to recover said payments
and any and all of its attorney's fees and costs.
22. This Agreement may not be amended except in writing signed by you and
the Company and no amendments or modifications are contemplated at this
time. This Agreement shall not be construed to provide any rights to
anyone other than you and the Company.
23. If you have any questions about this Agreement, contact Gerald I.
Angowitz.
24. You have at least twenty-one (21) days to consider the terms of this
Agreement, although you may sign and return it sooner if you wish. This
Agreement may be revoked by you for a period of seven (7) consecutive
calendar days after you have signed and dated it, and after such seven
(7) days, it becomes final.
Please indicate your acceptance of the terms of this Agreement by signing this
letter and the attached duplicate and returning one signed original to me.
Sincerely,
RJR NABISCO, INC.
RJR NABISCO HOLDINGS CORP.
---------------------------------
Charles M. Harper,
Chairman and Chief Executive Officer
Understood and Agreed:
- ---------------------
Lawrence R. Ricciardi
Date:________________
12
EXHIBIT 10.26
CONSULTING AGREEMENT
This CONSULTING AGREEMENT, made as of the 14th day of February, 1995,
among RJR Nabisco Holdings Corp. ("RJR"), R. J. Reynolds Tobacco Company
("RJRT"), and Nabisco Holdings Corp. ("Nabisco"), (collectively, the "Company"),
and Lawrence R. Ricciardi, an individual ("Consultant").
RECITALS
--------
WHEREAS, Consultant has experience and insight into the business,
litigation and legal matters, and various projects of the Company; and
WHEREAS, the Company desires Consultant to perform consulting services
in connection with the aforesaid matters and projects of the Company, and
Consultant is willing to provide such services.
NOW, THEREFORE, in consideration of the promises contained in this
Agreement, the Company and Consultant agree as follows:
1. Consulting Services
-------------------
Consultant agrees to act as a consultant to the Company from time to
time at the request of the Company in connection with matters concerning the
worldwide business of the Company. Consultant will be notified of such requests
as they are assigned by the Chairman of RJR and/or Nabisco, the General Counsel
of RJR and the Chief Legal Officers of RJR, RJRT, and Nabisco. Except as
provided hereinafter, Consultant shall be available, on a mutually agreeable
basis, to render services for 50 days during the term of this Agreement.
If Consultant shall have other commitments, he shall, nevertheless,
give first priority to the services requested by the Company. Requests for the
services of Consultant is the sole discretion of the Chairman of RJR and/or
Nabisco, the General Counsel of RJR and the Chief Officers of RJR, RJRT and
<PAGE>
Nabisco and availability, in the sole discretion of the Company, shall be either
Consultant's actual presence at a designated site or availability by
telecommunication. Consultant shall, during the Term of this Agreement, keep
his location, address and telephone number consistently updated with the Company
so that he may be reached at any time.
2. Consulting Fees
---------------
a) The consulting fees hereunder are (i) a paid retainer for 50 days
availability during the Term of Agreement and (ii) actual payment for any
services.
b) As consideration for the services under Paragraph 1 that Consultant
will render, and for Consultant's availability during the term of this Agreement
to provide such services for 50 days, RJR agrees to pay to Consultant a fee at
the monthly rate of $16,667 ($200,000 per year) which shall be paid at the
beginning of each month during the Term of the Agreement.
c) Consultant shall be paid $4,000 per day for each day
services are performed in excess of 50 days during the Term of this Agreement.
d) If the Agreement is terminated pursuant to 3(b), payment at
a rate of $4,000 per day shall be made for the excess of actual days worked over
the number of days attributable to the retainer paid pursuant to 2(b) through
the date of cancellation.
e) Any election to defer consulting fees shall be made before a
consulting fee becomes payable and shall be on a form prescribed by the Company.
Any deferrals shall be by means of a cash credit, and the deferral shall be
payable January 1 of the calendar following the calendar year in which the last
consulting services are performed. The cash credit account shall be credited,
as of the date that payment of the award would otherwise have been made, with
the dollar amount of the portion of the award deferred by means of a cash
credit. In addition, the Consultant's cash credit account shall be credited as
of the last day of each calendar month with an interest equivalent in an amount
determined by applying to the current balance in the account the interest rate
for the immediately preceding month which, when annualized, shall be the average
prime rate of Morgan Guaranty Trust Company of New York during such immediately
preceding month. Interest shall be credited for the actual number of days in
the month and shall be calculated based upon a 365-day year.
2
<PAGE>
3. Term
----
(a) The Term of this Agreement shall be for 12 months commencing
March 4, 1995.
(b) Either party may cancel this Agreement on 30 days written
notice.
4. Billing and Reimbursement of Expenses
-------------------------------------
(a) The Company will reimburse Consultant for authorized travel,
living and other business expenses incurred by Consultant for services which
Consultant performs at the Company's request. Consultant will make monthly
billings to the Company for any travel, living and other business expenses
reimbursable to Consultant hereunder. Travel by air shall be at the first class
rate.
(b) In lieu of reimbursement for office and secretarial
services, the Company will provide Consultant with the use of the Company office
space and secretarial and support services when on site at RJR, RJRT or Nabisco.
5. Death Benefits
--------------
In the event of the death of Consultant during the Term of the
Agreement, the Company will pay to Consultant's designated beneficiary the fees
for the balance of the Term of the Agreement and the Agreement shall be
cancelled.
In the absence of a designated beneficiary, any amounts payable shall
be paid to Consultant's wife unless she predeceases Consultant, in which event
such amounts shall be paid to Consultant's estate.
6. Independent Contractor
----------------------
Consultant is an independent contractor in all respects. Consultant
shall not be entitled to any benefits afforded by the Company to its employees
or employees of its affiliates by reason of the services performed under this
Agreement. The Company shall not deduct from the consulting fees paid under
this Agreement any taxes, payments for unemployment compensation, social
security or other expense unless required by law.
3
<PAGE>
In connection with the performance of Consultant's services, the
Company shall provide Consultant with the same liability and indemnification
programs it affords to its' officers and directors.
7. Non-Disclosure and Non-Competition
----------------------------------
(a) During the term of this Agreement, Consultant will not,
without the prior written consent of the Company, perform advisory or consulting
services for, or become employed by, any person, firm or corporation that
competes directly or indirectly with the Company or its affiliates.
(b) Any information disclosed to Consultant by the Company or
any of its affiliates shall be regarded as confidential, and given the fact that
Consultant is an attorney, shall be subject to attorney-client privilege. Such
information will be used solely in connection with work performed by Consultant
for the Company, and Consultant shall not disclose such information to any third
party unrelated to the Company at any time during the term of this Agreement or
thereafter without the prior written approval of the Company.
8. Miscellaneous
-------------
(a) This is an agreement for the personal services of
Consultant. Consultant's rights and obligations hereunder may not be assigned
by Consultant without prior written consent of the Company.
(b) This Agreement constitutes the entire agreement of the
parties, and any amendments hereto shall be in writing, signed by both parties
hereto.
(c) This Agreement shall be governed by the laws of the State of
Delaware.
4
<PAGE>
(d) No benefit or promise hereunder shall be secured by any
specific assets of the Company. Consultant shall have only the right of an
unsecured general creditor in seeking satisfaction of such benefits or promises.
No benefit or promise hereunder may be assigned or anticipated in any way.
IN WITNESS WHEREOF, the parties have executed this Consulting
Agreement as of the date first written above.
RJR Nabisco Holdings, Inc.
Nabisco Holdings, Inc.
By:___________________________
Chairman
_______________________________
Lawrence R. Ricciardi
5
EXHIBIT 10.31
February 14, 1995
Eugene R. Croisant
475 Poplar Street
Winnetka, IL 60093
Dear Gene:
This letter constitutes the entire agreement among RJR Nabisco Holdings
Corp., RJR NABISCO, INC., (collectively, the "Company"), its successors,
affiliates and/or assigns, and you regarding the termination of your
employment relationship with the Company, and implements the termination
provisions of your Employment Agreement dated June 10, 1994 with the
Company (the "Employment Agreement") together with additional provisions
under the 1995 Headquarters Continuing Excellence Recognition Program
(the "Protection Program").
1. a) The date of your termination is March 3, 1995 (your "SBC Date").
Your Compensation Continuance commences March 4, 1995 and continues
through March 3, 1998, which will be your official "Separation Date" for
Company records.
Your Compensation Continuance determined under your Employment Agreement
is as follows:
Annual rate of base salary $ 475,000
Target Annual Bonus $ 333,000
------------
Total payable each 12 month period,
beginning March 4, 1995, during
Compensation Continuance total
period of 36 months $ 808,000
<PAGE>
Based on the foregoing, Compensation Continuance will be paid semi-
monthly at the rate of $33,666.67 for the period March 4, 1995 to March
3, 1998 and will be subject to deductions for income tax withholding,
FICA, employee benefit plan contributions and other authorized
deductions.
b) Additionally, if you remain employed through March 3, 1995 (your "Job
Completion Date" under the Protection Program), you shall be paid in a
lump sum an amount equal to 6 months base salary ($237,500) on or about
July 1, 1995. This amount is subject to deductions for income tax
withholding and FICA, but shall not be includable for any benefit plan
or SERP calculations.
2. Compensation Continuance is provided in order to preserve the Company's
access to you although you will be relieved of all your normal duties
and responsibilities. You agree that you will personally provide
reasonable assistance and cooperation in locating or obtaining
information concerning the Company (past or present) about which you are
knowledgeable.
You acknowledge that as of March 3, 1995, your active employment with
the Company will end irrevocably and will not be resumed again at any
time in the future, except upon mutual agreement of the parties hereto.
Except as otherwise noted, Compensation Continuance and the other
benefits described herein continue through your Separation Date without
regard to whether or not you become employed by an employer not
affiliated with the Company.
3. If you become disabled for more than ten consecutive business days after
Compensation Continuance begins, and provide acceptable medical
documentation of a bonafide disability, your Compensation Continuance
will be suspended until you recover or could return to work if you were
an active employee, or until Long Term Disability benefits are denied or
cease. During the period of disability, you will receive the Short Term
and/or Long Term Disability benefits for which you otherwise qualify.
Compensation Continuance resumes for the balance of the period of
Compensation Continuance when the period of disability ends.
2
<PAGE>
If you die during Compensation Continuance, Compensation Continuance
payments will cease, but any amounts that would have been paid to you
had you lived until your Separation Date will be paid in a lump sum to
your spouse, or if you do not have a spouse at the time of death, to
your designated beneficiary under the Company's SELECT Core Life
Insurance plan.
4. As of your SBC Date, no further vacation will accrue. Unused vacation
plus vacation accrued during the calendar year in which your SBC Date
occurs will be paid in a lump sum at the beginning of Compensation
Continuance. Vacation accrues up to your SBC Date at 1/12 of your
vacation entitlement for each full or partial month of active
employment. Your vacation entitlement is determined as of the beginning
of the calendar year. Based on 28 days of such unused and accrued
vacation, you will be paid $51,153.84. Vacation taken prior to your SBC
Date will reduce this amount.
5. a) During Compensation Continuance, you may continue to participate in
the employee benefit programs in which you participated as of your SBC
Date except as otherwise provided in this letter agreement or by the
terms of the individual program. You may participate as though you were
an active employee, subject to the continuation of applicable payroll
deductions. "Employee benefit programs" do not include the Annual
Incentive Award Plan ("AIAP") or the Long Term Incentive Plan ("LTIP"),
the disposition of which are detailed by other provisions of this
Agreement.
Unless otherwise specified by the Company, changes in the employee
benefit programs after the date of this letter will not apply to you,
except as required by law. New benefit programs which replace or
supersede current programs will apply to you if the Company chooses not
to continue to make the current programs available to employees on
Compensation Continuance.
b) The following is a summary of benefit continuation:
Your participation in SELECT Flexible Benefits Program will continue
during Compensation Continuance until the end of the month in which your
Separation Date occurs. Since the Compensation Continuance period
extends into several new SELECT Plan Years, you will be required to re-
enroll each year in the same manner as active employees. Should you
become employed by an employer not affiliated with the Company, health
care coverage provided by your new employer will be coordinated with
health care benefits under SELECT. If you elect COBRA (Consolidated
3
<PAGE>
Omnibus Budget Reconciliation Act of 1985) continuation coverage under
SELECT after your Separation Date, the premium for the initial six
months will be the monthly equivalent of the active employee cost.
Thereafter, coverage may continue for up to an additional 12 months at a
monthly premium equal to the full 102% of actual plan cost. Specific
costs and details will be provided on a timely basis. If at the end of
Compensation Continuance, the Company provides retiree medical, dental
and life insurance for its retirees, you shall be eligible for such
insurance at the Company and retiree contribution rate for a retiree
with 23 years of service at retirement.
You are vested in the Retirement Plan for Employees of RJR Nabisco,
Inc., (the "Retirement Plan"). At your retirement you will have an
irrevocable choice of receiving your benefit as a lump sum or an
immediate annuity, or electing a deferred annuity which can commence no
earlier than age 65. Appropriate election forms will be provided to you
on or about your Separation Date.
During Compensation Continuance unless you have retired, you may
continue to make contributions to the RJR Nabisco Capital Investment
Plan, and you retain all other rights under the plan, including the
right to transfer investments between funds, change your contribution
amount, and to request withdrawals. If you are not permitted to make
contributions during Compensation Continuance, the Company match will,
nevertheless, be made to the Additional Benefits Plan. No loan
applications will be approved during Compensation Continuance.
Following Compensation Continuance, your account balance will be
distributed to you in accordance with the terms of the Plan. You are
fully vested in your account.
Until the end of the first calendar year during Compensation
Continuance, you may utilize the Company's New York City health club
arrangements if you are a member of the Club on your SBC Date.
Provision of this benefit is taxable to you.
c) In addition to your benefit payable under the Retirement Plan, you
shall be paid a benefit at retirement under the Supplemental Executive
Retirement Plan ("SERP") which shall be the maximum benefit payable
under the SERP, and shall be without reduction for early commencement.
The SERP payment is in excess of the Retirement Plan benefit and
includes any amounts payable from the nonqualified defined benefit plans
of the Company, the Supplemental Benefits Plan and the Additional
Benefits Plan. The Protection Program Completion Bonus and the
4
<PAGE>
Protection Program AIAP award of 6 months additional AIAP for 1995 shall
not be included in the SERP benefit calculation. Funding for the
estimated SERP benefit accrued through December 31, 1994, and not
reflecting a reduction for early retirement, has already been secured
through the purchase of annuity contracts from John Hancock Mutual Life
Insurance Company, American International Life Assurance Company, and
Metropolitan Life Insurance Company. The estimated total after-tax
annuity account, including prior funding, as of your SBC Date is
$4,100,000. Nothing herein shall affect the validity of SERP funding
acknowledgment waivers previously executed by you, and they are
specifically incorporated by reference into this Agreement.
Additionally, you agree that a pre-condition to any funding of your SERP
benefit is the execution by you of any additional acknowledgment waivers
requested by the Company. The provisions of the SERP shall govern the
payment of your SERP benefit in the event of your death; provided,
however, if you should die prior to March 3, 1995, your spouse shall
receive the same lump sum you would have received if you retired on your
date of death and elected a lump sum.
6. a) Except as indicated below, you will continue to receive the benefits
of the Flexible Perquisite Program during Compensation Continuance.
Your perquisite allowances during Compensation Continuance for calendar
years 1995, 1996, 1997 and 1998 shall be as follows:
1995 - $39,583 less any amount in excess of $7,917 paid
for the period January 1, 1995
to March 3, 1995.
1996 - $47,500
1997 - $47,500
1998 - $7,917
b) No new car or lease will be provided during Compensation Continuance;
provided, however, the car currently leased for you by the Company shall
have its title transferred to you at the end of Compensation Continuance
term on a tax grossed-up basis.
5
<PAGE>
c) In consideration of the fact that, at the request of the Company, you
remained actively employed after the date you could have otherwise
retired, the Company shall reimburse, or otherwise hold you harmless, on
a tax grossed-up basis for lease payments on your New York City
residence and shall relocate your household goods from that residence to
your retirement residence.
7. a) You will be paid a prorated award under the Annual Incentive Award
Plan for your 2 months of active employment during the 1995 Plan year,
scored at the higher of target or actual financial performance of the
Company. This award will be paid to you at the same time as other Plan
participants; cannot be deferred; and is the last AIAP award to be made
to you. Payment of any such award will be subject to appropriate taxes
and a CIP contribution, if applicable. As a participant in AIAP, you
will be paid your target AIAP over the period of Compensation
Continuance, as set forth in paragraph 1 above. This was determined by
dividing your target AIAP amount by the number of pay periods in a year
and including such amount with each Compensation Continuance payment.
Thus, there will be no lump sum AIAP award payment for the period of
Compensation Continuance.
b) In addition, you shall be paid a Protection Program special award
equal to one half (6 months) your regular AIAP award for 1995, scored at
the higher of target or actual financial performance of the Company. At
target, this award is estimated to be $166,500 and shall be paid when
other 1995 AIAP awards are paid, which is scheduled to be in early 1996.
This award is subject to deductions for income tax withholding and FICA,
but is not includable for any benefit calculations.
8. Prior to your SBC Date, you are expected to submit Expense Reports for
all outstanding travel, entertainment and other business expenses cash
advances. If any expense report(s) reflect any amounts owing to the
Company, they will be deducted from Compensation Continuance payments,
as necessary. In order to preserve the Company's access to you, you may
retain Company equipment, such as the fax machine and cellular phone
until the end of Compensation Continuance, at which time such equipment
will be transferred to you at book value and a Form 1099 shall be issued
to you for such transfer.
6
<PAGE>
9. a) Under the MEPP Non-Qualified Stock Option Agreement, your Non-
Qualified Stock Options are 100% vested and may be exercised anytime up
to May 1, 1999. The exercise of your stock options is governed by the
terms of your Non-Qualified Stock Option Agreement with Holdings. No
further MEPP stock option awards will be made to you.
b) Under the 1990 Long-Term Incentive Plan ("LTIP") Non-Qualified Stock
Option Agreements, your nonqualified stock options are 100% vested as of
March 3, 1995 and may be exercised anytime up to the exercise expiration
date as indicated in each individual stock option agreement. The
exercise of your stock options is governed by the terms of your Non-
Qualified Stock Option agreement with Holdings. No new LTIP Awards of
any kind will be made to you.
c) Your current Performance Shares and Performance Units granted under
the LTIP shall be scored at actual performance and prorated for your
service to March 3, 1995. Your Performance Unit payment shall be 14/36
of the award, scored at actual performance, and paid on or after
December 31, 1996 (14/36 of this award is estimated to be $661,111,
subject to actual performance). Your Performance Share award payment
shall be 26/36 of the award, subject to adjustment for actual
performance and share price, and shall be paid on or after January 1,
1996 (26/36 of this award is estimated to be $227,500, subject to actual
performance and share price). Determination of the actual payment
amount shall be in accordance with your respective Performance Share
Plan Agreement and Performance Unit Plan Agreement. No 1995 or other
new Performance Share Awards or Performance Unit Awards shall be made to
you.
d) Under the Executive Equity Program as modified by the Protection
Program, all Common Stock pledged for payment of the Promissory Note
executed by you shall be sold on March 3, 1995. After application of
the proceeds of the foregoing sale, any outstanding balance, shall be
paid in cash by the Company to the Promissory Note holder to fully
extinguish the loan balance and completely satisfy the Promissory Note,
together with any gross-up to you for federal, state and local income
tax incurred by you as a result of the transaction.
7
<PAGE>
10. Until March 3, 1996, you are entitled to use the outplacement counseling
service designated by the Company for which the Company will pay not
more than the normal and reasonable fee, which is not to exceed 18% of
the amount of your annual base salary. You are not obligated to use
this service, but the Company urges you to consider this service as one
of the avenues to finding new employment. In addition, you may, in the
sole discretion of the Company, apply the foregoing allowance to
organization membership fees which aid in job networking.
11. a) The Company shall hold you harmless from any golden parachute tax
imposed by any federal, state or local taxing authority as a result of
any of the payments made pursuant to this Agreement. Payment of such
golden parachute tax plus any additional taxes imposed as a result of
the payment by the Company of such golden parachute tax, shall be made
at the time you are required to pay such golden parachute tax. You
agree to cooperate fully with the Company in any protester appeal by the
Company in the event of the imposition of golden parachute tax.
b) You shall be covered by the same liability and indemnification
programs afforded to other officers and directors for acts that occurred
while you were an officer or director of the Company and/or its
affiliates.
12. If all the requirements of the Tuition Refund Plan are fulfilled, you
will continue to be eligible for tuition aid reimbursement during Salary
Continuation or for courses completed during Salary Continuation.
13. You may continue to participate or newly enroll in the Medsave Retiree
Savings Plan and Scholastic Savings Plan during Salary Continuation.
Upon your Separation Date, no further contributions will be permitted;
however, your account(s) including any Company match will be maintained
with continued interest growth. Distribution of your accounts(s) will
be processed in accordance with program rules for active employees.
In addition, you may apply for any of the education loans available in
the RJR Nabisco Scholastic Loan Program during Salary Continuation. You
will continue to be eligible for the interest credit reimbursement
feature of the RJRN Plus loan for the life of the loans.
8
<PAGE>
14. You shall maintain the terms and conditions of this Agreement in
confidence. In addition, you will not disclose to any other employer or
person any trade secrets or other proprietary or confidential
information pertaining to the Company. In accordance with normal
ethical and professional standards, you will refrain from taking actions
or making statements, written or oral, which defame or denigrate the
goodwill or reputation of the Company, its properties, products,
directors, officers, executives and employees or which constitute
willful conduct under circumstances where it is reasonable for you to
anticipate or to expect that the natural consequences of such conduct by
you will be to affect adversely the morale of other employees.
15. a) You agree that you will personally provide reasonable assistance and
cooperation to the Company in activities related to the prosecution or
defense of any pending or future lawsuits or claims involving the
Company. b) You will promptly notify the Company if you receive any
requests from anyone other than an employee or agent of the Company for
information regarding the Company or if you become aware of any
potential claim or proposed litigation against the Company. c) You
will refrain from providing any information related to any claim or
potential litigation against the Company to any non-Company
representatives without either the Company's written permission or being
required to provide information pursuant to legal process. d) If
required by law to provide sworn testimony regarding any Company-related
matter, you will consult with and have Company-designated legal counsel
present for such testimony. e) The Company will be responsible for the
costs of such designated counsel and you will bear no cost for same. f)
You will confine your testimony to items about which you have knowledge
rather than speculation, unless otherwise directed by legal process. g)
You will cooperate with the Company's attorneys to assist their efforts,
especially on matters you have been privy to, holding all privileged
attorney-client matters in strictest confidence.
Nothing in sentences c-g of the above paragraph is intended to apply to
governmental or judicial investigations; provided, however, the Company
will reimburse you for legal expenses if you are compelled to appear in
a governmental or judicial investigation.
9
<PAGE>
16. Except as otherwise stated herein, no benefits (other than those
provided by a tax-qualified plan or trust) or promise hereunder shall be
secured by any specific assets of the Company. The payments under this
Agreement shall not be assigned by you or anticipated in any way and any
such attempted assignment will be void.
17. You agree not to apply for unemployment insurance attributable to your
period of compensation continuance.
18. IN CONSIDERATION OF THE COMPENSATION AND BENEFITS SET FORTH IN THIS
AGREEMENT AND EXCEPT FOR THE COMPANY'S OBLIGATIONS TO HOLD YOU HARMLESS
AND INDEMNIFY YOU UNDER PARAGRAPH 11 HEREIN, YOU VOLUNTARILY, KNOWINGLY
AND WILLINGLY RELEASE AND FOREVER DISCHARGE THE COMPANY, ITS PARENTS,
SUBSIDIARIES AND AFFILIATES, TOGETHER WITH THEIR RESPECTIVE OFFICERS,
DIRECTORS, SHAREHOLDERS, EMPLOYEES AND AGENTS, AND EACH OF THEIR
PREDECESSORS, SUCCESSORS AND ASSIGNS, FROM ANY AND ALL CHARGES,
COMPLAINTS, CLAIMS, PROMISES, AGREEMENTS, CONTROVERSIES, CAUSES OF
ACTION AND DEMANDS OF ANY NATURE WHATSOEVER WHICH AGAINST THEM YOU OR
YOUR EXECUTORS, ADMINISTRATORS, SUCCESSORS OR ASSIGNS EVER HAD, NOW HAVE
OR HEREAFTER CAN, SHALL OR MAY HAVE BY REASON OF ANY MATTER, CAUSE OR
THING WHATSOEVER ARISING TO THE TIME YOU SIGN THIS AGREEMENT. YOU
FURTHER AGREE THAT YOU WILL NOT SEEK OR BE ENTITLED TO ANY AWARD OF
EQUITABLE OR MONETARY RELIEF IN ANY PROCEEDING OF ANY NATURE BROUGHT ON
YOUR BEHALF ARISING OUT OF ANY OF THE MATTERS RELEASED BY THIS
PARAGRAPH. THIS RELEASE INCLUDES, BUT IS NOT LIMITED TO, ANY RIGHTS OR
CLAIMS RELATING IN ANY WAY TO YOUR EMPLOYMENT RELATIONSHIP WITH THE
COMPANY, OR THE TERMINATION THEREOF, OR UNDER ANY STATUTE, INCLUDING THE
AGE DISCRIMINATION IN EMPLOYMENT ACT, TITLE VII OF THE CIVIL RIGHTS ACT,
THE AMERICANS WITH DISABILITIES ACT, THE NEW YORK STATE AND CITY HUMAN
RIGHTS LAWS OR ANY OTHER FEDERAL, STATE OR LOCAL LAW.
10
<PAGE>
19. By signing this Agreement, you represent that you have not commenced any
proceeding against the Company in any forum (administrative or judicial)
concerning your employment or the termination thereof. You further
acknowledge that you were given sufficient notice under the Worker
Adjustment and Retraining Notification Act (the "WARN Act") and that the
termination of your employment does not give rise to any claim or right
to notice, or pay or benefits in lieu of notice under the WARN Act. In
the event any WARN Act issue does exist or arises in the future, you
agree and acknowledge that the payments and benefits set forth in this
Agreement shall be applied to any pay or benefits in lieu of notice
required by the WARN Act, provided that any such offset shall not impair
or affect the validity of any provision of this Agreement, including the
release set forth in paragraph 18.
20. The Company advises you that you may wish to consult with an attorney of
your choosing prior to signing this Agreement. You understand and agree
that you have the right and have been given the opportunity to review
this Agreement and, specifically, the release in paragraph 18, with an
attorney of your choice should you so desire. You also understand and
agree that the Company is under no obligation to offer you the
additional compensation and benefits of the Protection Program and that
you are under no obligation to consent to the release set forth in
paragraph 18 and that you have entered into this Agreement freely,
knowingly and voluntarily.
21. You will be reimbursed for travel, food, lodging or similar out-of-
pocket expense incurred at the Company's request in discharging any of
your obligations under this agreement. If the Company reasonably
determines that you have materially violated any of your obligations
under this Agreement, then the Company may, at its option, terminate the
Compensation Continuance and any other benefits hereunder. The Company
may demand the return of all Salary Continuation payments already made
and you hereby agree to return such payments upon such demand. If after
such demand you fail to return said payments, the Company has the right
to commence judicial proceedings against you to recover said payments
and any and all of its attorney's fees and costs.
11
<PAGE>
22. This Agreement may not be amended except in writing signed by you and
the Company and no amendments or modifications are contemplated at this
time. This Agreement shall not be construed to provide any rights to
anyone other than you and the Company.
23. If you have any questions about this Agreement, contact Gerald I.
Angowitz.
24. You have at least twenty-one (21) days to consider the terms of this
Agreement, although you may sign and return it sooner if you wish. This
Agreement may be revoked by you for a period of seven (7) consecutive
calendar days after you have signed and dated it, and after such seven
(7) days, it becomes final.
Please indicate your acceptance of the terms of this Agreement by signing this
letter and the attached duplicate and returning one signed original to me.
Sincerely,
RJR NABISCO, INC.
RJR NABISCO HOLDINGS CORP.
--------------------------
Charles M. Harper,
Chairman and Chief Executive Officer
Understood and Agreed:
- ----------------------
Eugene R. Croisant
Date:_________________
12
EXHIBIT 10.32
CONSULTING AGREEMENT
This CONSULTING AGREEMENT, made as of the 14th day of February, 1995,
among RJR Nabisco Holdings Corp. ("RJR") and Nabisco Holdings Corp. ("Nabisco"),
(collectively, the "Company"), and Eugene R. Croisant, an individual
("Consultant").
RECITALS
--------
WHEREAS, Consultant has experience and insight into the business and
various projects of the Company; and
WHEREAS, the Company desires Consultant to perform consulting services
in connection with the business of the Company, and Consultant is willing to
provide such services.
NOW, THEREFORE, in consideration of the promises contained in this
Agreement, the Company and Consultant agree as follows:
1. Consulting Services
-------------------
Consultant agrees to act as a consultant to the Company from time to
time at the request of the Company in connection with matters concerning the
worldwide business of the Company. Consultant will be notified of such requests
as they are assigned by the Chairman of RJR, and/or Nabisco. Except as provided
hereinafter, Consultant shall be available, on a mutually agreeable basis, to
render services for 100 days each Contract Period (as defined hereinafter)
during the term of this Agreement.
If Consultant shall have other commitments, he shall, nevertheless,
give first priority to the services requested by the Company. Requests for the
services of Consultant is the sole discretion of the Chairman of RJR and/or
Nabisco, and availability, in the sole discretion of the Company, may be either
Consultant's actual presence at a designated site or availability by
telecommunication. Consultant shall, during the term of this Agreement, keep
<PAGE>
his location, address and telephone number consistently updated with the Company
so that he may be reached at any time.
2. Consulting Fees
---------------
a) The consulting fees hereunder are (i) a paid retainer for 100 days
availability during each Contract Period in the Term of Agreement and (ii)
actual payment for any services rendered. All fees shall be paid by Nabisco.
For purposes of fee calculation, a full "day" is any day during which services
were actually performed or Consultant was available to perform services.
b) As consideration, in part, for the services under Paragraph 1
Consultant will render and for Consultant's availability to provide such
services for 100 days each Contract Period, RJR agrees to pay to Consultant a
fee at the monthly rate of $13,333 ($160,000 per year) which shall be paid at
the beginning of each month during each Contract Period.
c) In addition, at the beginning of each Contract Period, if the
Agreement has not been previously cancelled, Consultant shall receive a grant of
20,000 nonqualified stock options each from the RJR Long Term Incentive Plan and
the Nabisco Long Term Incentive Plan, respectively. Each option grant shall
have an exercise price equal to fair market value on the date of grant; shall be
100% vested on the day of grant, and shall be subject to the provisions of the
respective RJR and Nabisco Long Term Incentive Plans and individual stock option
agreements thereunder.
d) It is intended that the combination of cash in 2(b) and
stock options in 2(c) will deliver $400,000 in value as a consulting fee each
Contract Period. Consultant, within 24 months after the end the last Contract
Period, may request a cash adjustment from the Company should Consultant
reasonably believe that the stock option component has not delivered $240,000 in
value for the purposes of Section 2(a) above. Should the Company and Consultant
not agree on an adjustment, the issue of an adjustment shall be referred for
resolution to an arbitrator mutually acceptable to the Company and the
Consultant.
e) Consultant shall be paid $4,000 per day for each day
services are performed in excess of 100 days during a Contract Period.
2
<PAGE>
f) If the Agreement is terminated pursuant to 3(b), payment at
a rate of $4,000 per day shall be made for the excess of actual days worked over
the number of days attributable to the retainer paid pursuant to 2(b) and 2(c)
for the Contract Period through the date of cancellation.
g) Any election to defer cash consulting fees shall be made
before a consulting fee becomes payable and shall be on a form prescribed by the
Company. Any deferrals shall be by means of a cash credit, and the deferral
shall be payable by Nabisco January 1 of the calendar following the calendar
year in which the last consulting services are performed. The cash credit
account shall be credited, as of the date that payment of the award would
otherwise have been made, with the dollar amount of the portion of the award
deferred by means of a cash credit. In addition, the Consultant's cash credit
account shall be credited as of the last day of each calendar month with an
interest equivalent in an amount determined by applying to the current balance
in the account the interest rate for the immediately preceding month which, when
annualized, shall be the average prime rate of Morgan Guaranty Trust Company of
New York during such immediately preceding month. Interest shall be credited
for the actual number of days in the month and shall be calculated based upon a
365-day year.
3. Term
----
(a) The Term of this Agreement shall be two consecutive 12 month
periods ("Contract Periods") commencing March 4, 1995.
(b) Either party may cancel this Agreement on 30 days written
notice.
4. Billing and Reimbursement of Expenses
-------------------------------------
(a) The Company will reimburse Consultant for authorized travel,
living and other business expenses incurred by Consultant for services which
Consultant performs at the Company's request. Consultant will make monthly
billings to the Company for any travel, living and other business expenses
reimbursable to Consultant hereunder. Travel by air shall be at the first class
rate.
3
<PAGE>
(b) In lieu of reimbursement for office and secretarial
services, the Company will, as necessary from time to time, provide Consultant
with the use of the Company office space and secretarial and support services at
Nabisco.
5. Death Benefits
--------------
In the event of the death of Consultant during a Contract Period, the
Company will pay to Consultant's designated beneficiary the fees for the balance
of the Contract Period and the Agreement shall be cancelled.
In the absence of a designated beneficiary, any amounts payable shall
be paid to Consultant's wife unless she predeceases Consultant, in which event
such amounts shall be paid to Consultant's estate.
6. Independent Contractor
----------------------
Consultant is an independent contractor in all respects. Consultant
shall not be entitled to any benefits afforded by the Company to its employees
or employees of its affiliates by reason of the services performed under this
Agreement. The Company shall not deduct from the consulting fees paid under
this Agreement any taxes, payments for unemployment compensation, social
security or other expense unless required by law.
In connection with the performance of Consultant's services, the
Company shall provide Consultant with the same liability and indemnification
programs it affords to its' officers and directors.
7. Non-Disclosure and Non-Competition
----------------------------------
(a) During the term of this Agreement, Consultant will not,
without the prior written consent of the Company, perform advisory or consulting
services for, or become employed by, any person, firm or corporation that
competes directly or indirectly with the Company or its affiliates.
(b) Any information disclosed to Consultant by the Company or
any of its affiliates shall be regarded as confidential. Such information will
be used solely in connection with work performed by Consultant for the Company,
4
<PAGE>
and Consultant shall not disclose such information to any third party unrelated
to the Company at any time during the term of this Agreement or thereafter
without the prior written approval of the Company.
8. Miscellaneous
-------------
(a) This is an agreement for the personal services of
Consultant. Consultant's rights and obligations hereunder may not be assigned
by Consultant without prior written consent of the Company.
(b) This Agreement constitutes the entire agreement of the
parties, and any amendments hereto shall be in writing, signed by both parties
hereto.
(c) This Agreement shall be governed by the laws of the State of
Delaware.
(d) No benefit or promise hereunder shall be secured by any
specific assets of the Company. Consultant shall have only the right of an
unsecured general creditor in seeking satisfaction of such benefits or promises.
No benefit or promise hereunder may be assigned or anticipated in any way.
IN WITNESS WHEREOF, the parties have executed this Consulting
Agreement as of the date first written above.
RJR Nabisco Holdings, Inc.
Nabisco Holdings, Inc.
By:___________________________
Chairman
______________________________
Eugene R. Croisant
5
EXHIBIT 10.55
STOCK OPTION PLAN FOR DIRECTORS AND KEY EMPLOYEES
OF
RJR NABISCO HOLDINGS CORP. AND SUBSIDIARIES
(As Amended and Restated Effective October 4, 1994)
RJR Nabisco Holdings Corp., a Delaware corporation, hereby adopts this
amendment and restatement of the Stock Option Plan for Directors and Key
Employees of RJR Nabisco Holdings Corp. and Subsidiaries. The purposes of this
Plan are as follows:
(1) To further the growth, development and financial
success of Holdings by providing additional incentives to certain of its
Directors and Key Employees who have been or will have or be given
responsibility for the management or administration of Holdings' business
affairs by assisting them to become owners of capital stock of Holdings and thus
to benefit directly from its growth, development and financial success.
(2) To enable Holdings to obtain and retain the
services of, and business relationships with, the type of professional,
technical and managerial Employees and Directors considered essential to the
long range success of Holdings by providing and offering them an opportunity to
become owners of capital stock of Holdings under Options.
ARTICLE I
DEFINITIONS
-----------
Section 1.1 - General
- ----------- -------
Whenever the following terms are used in this Plan they
shall have the meaning specified below unless the context clearly indicates to
the contrary.
Section 1.2 - Affiliated Director
- ----------- -------------------
"Affiliated Director" shall mean a Director who is an
employee or officer of an entity which owns at least 25% of the outstanding
Common Stock, or any affiliate thereof (other than Holdings or any Subsidiary).
Section 1.3 - Board
- ----------- -----
"Board" shall mean the Board of Directors of Holdings.
<PAGE>
Section 1.4 - Code
- ----------- ----
"Code" shall mean the Internal Revenue Code of 1986, as
amended.
Section 1.5 - Committee
- ----------- ---------
"Committee" shall mean the Compensation Committee of the
Board or any other committee appointed by the Board pursuant to Section 7.1.
Section 1.6 - Common Stock
- ----------- ------------
"Common Stock" shall mean the Common Stock, par value $0.01
per share, of Holdings.
Section 1.7 - Director
- ----------- --------
"Director" shall mean a member of the Board.
Section 1.8 - Eligible Director
- ----------- -----------------
"Eligible Director" shall mean a Director who (i) has never
been an employee or officer of Holdings or any Subsidiary and (ii) has never
been an employee or officer of any entity which owns at least 25% of the
outstanding Common Stock, or any affiliate thereof.
Section 1.9 - Employee
- ----------- --------
"Employee" shall mean any employee (as defined in accordance
with the regulations and revenue rulings then applicable under Section 3401(c)
of the Code) of Holdings, or of any corporation which is then a Subsidiary,
whether such employee is so employed at the time this Plan is adopted or becomes
so employed subsequent to the adoption of this Plan or any other person
providing goods or services to Holdings or its subsidiaries, as the Committee
may determine in its discretion.
Section 1.10 - Holdings
- ------------ --------
"Holdings" shall mean RJR Nabisco Holdings Corp., a Delaware
Corporation.
2
<PAGE>
Section 1.11 - Option
- ------------ ------
"Option" shall mean an option granted under the Plan to
purchase Common Stock. Options include only options which are not intended to
be "incentive stock options" under Section 422 of the Code.
Section 1.12 - Option Price
- ------------ ------------
"Option Price" shall have the meaning given in Sections 4.2
and 5.2, as appropriate.
Section 1.13 - Optionee
- ------------ --------
"Optionee" shall mean an Employee or Director to whom an
Option is granted under the Plan.
Section 1.14 - Plan
- ------------ ----
"Plan" shall mean the Stock Option Plan for Directors and
Key Employees of RJR Nabisco Holdings Corp. and Subsidiaries.
Section 1.15 - Secretary
- ------------ ---------
"Secretary" shall mean the Secretary of Holdings.
Section 1.16 - Subsidiary
- ------------ ----------
"Subsidiary" shall mean any corporation in an unbroken chain
of corporations beginning with Holdings if each of the corporations, or if each
group of commonly controlled corporations, other than the last corporation in an
unbroken chain then owns stock possessing 50% or more of the total combined
voting power of all classes of stock in one of the other corporations in such
chain.
ARTICLE II
SHARES SUBJECT TO PLAN
----------------------
<PAGE>
Section 2.1 - Shares Subject to Plan
- ----------- ----------------------
The shares of stock subject to Options shall be shares of
Common Stock. The aggregate number of shares of Common Stock which may be
issued upon exercise of Options shall not exceed 30,000,000.
3
<PAGE>
Section 2.2 - Unexercised Options
- ----------- -------------------
If any Option expires or is canceled without having been
fully exercised, the number of shares subject to such Option but as to which
such Option was not exercised prior to its expiration or cancellation may again
be optioned hereunder, subject to the limitations of Section 2.1.
ARTICLE III
GRANTING OF OPTIONS
-------------------
Section 3.1 - Eligibility
- ----------- -----------
Any Eligible Director, Affiliated Director, or key Employee
of Holdings or of any Subsidiary shall be eligible to be granted Options as set
forth in this Article III.
Section 3.2 - Granting of Options to Directors
- ----------- --------------------------------
(a) Each Eligible Director who is elected to serve on the Board
on or after March 1, 1994 shall be granted an Option to purchase an aggregate of
30,000 shares of Common Stock. Such Option shall be granted only once to each
Eligible Director as soon as practicable following the Director's initial
election to serve on the Board and shall be subject to the terms and conditions
set forth in Article IV.
(b) In addition to Options granted pursuant to Section 3.2(a),
each Eligible Director and each Affiliated Director shall receive an annual
grant of an Option to purchase the number of shares of Common Stock determined
pursuant to the following formula (rounded up to the next multiple of 100):
15,000
-----------
(A x .37)
Where "A" equals the final closing price of Common Stock (as reported on the New
York Stock Exchange consolidated tape) on the date of grant, and the factor
".37" is derived from the growth model projection for the value of Common Stock.
Such Option shall be granted annually on the date of such Director's
election or re-election to serve on the Board; provided, however, that the grant
for 1994 shall be made on October 4, 1994.
4
<PAGE>
All Options granted pursuant to this Section 3.2(b) shall be subject
to the terms and conditions set forth in Article IV.
Section 3.3 - Granting of Options to Employees
- ----------- --------------------------------
The Committee shall from time to time, in its absolute
discretion:
(i) Determine which Employee are key Employees and
select from among the key Employees (including those to whom Options
have been previously granted under the Plan) such of them as in its
opinion shall be granted Options; and
(ii) Determine the number of shares to be subject to
such Options granted to such selected key Employees; and
(iii) Determine the terms and conditions of such
Options, consistent with the Plan; and
(iv) Establish such conditions as to the manner of
exercise of such Options as it may deem necessary, including but not
limited to requiring Optionees to enter into agreements regarding
transferability and other restrictions with respect to shares issuable
upon exercise of such Options.
<PAGE>
ARTICLE IV
TERMS OF OPTIONS FOR DIRECTORS
------------------------------
Section 4.1 - Formula Plan
- ----------- ------------
With respect to Options granted to Eligible
Directors and Affiliated Directors, the Plan is intended to qualify as a
nondiscretionary formula plan, within the meaning of Rule 16b-3 (and any other
applicable rule) promulgated by the Securities and Exchange Commission under
Section 16(b) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), as such rule or its equivalent or successor is then in effect ("Rule 16b-
3"). The terms of such Options shall be consistent with the terms of this
Article IV. To the extent that any provision of the Plan is not consistent with
the "formula plan" requirements of Rule 16b-3, then such provision shall not
apply to Options granted to Eligible Directors or Affiliated Directors. The
grant of such Options may be evidenced by a Stock Option Agreement, which shall
be executed by the Optionee and an authorized officer of Holdings and which
shall incorporate the terms and conditions of this Article IV.
5
<PAGE>
Section 4.2 - Option Price
- ----------- ------------
The exercise price of each share of Common Stock subject to an Option
granted pursuant to Section 3.2 shall be the final closing price of Common Stock
(as reported on the New York Stock Exchange consolidated tape) on the date of
grant.
Section 4.3 - Commencement of Exercisability
- ----------- -------------------------------
Options granted pursuant to Section 3.2(a) shall not be exercisable
prior to six months after the date of grant, and thereafter shall be exercisable
in full, subject to applicable securities regulations. Options granted pursuant
to Section 3.2(b) shall be exercisable in three installments. The first
installment shall be exercisable on the first anniversary of the date of grant
for 33% of the number of shares of Common Stock subject to the Option.
Thereafter, on each subsequent anniversary of the date of grant, an installment
shall become exercisable for 33% and 34%, respectively, of the number of shares
subject to the Option until the Option has become fully exercisable. To the
extent that any of the above installments is not exercised when it becomes
exercisable, it shall not expire, but shall continue to be exercisable at any
time thereafter until the Option shall terminate, expire or be surrendered. An
exercise shall be for whole shares only.
Section 4.4 - Expiration of Option
- ----------- --------------------
The Option shall expire and may not be exercised to any
extent after the expiration of ten years from the date the Option was granted.
ARTICLE V
<PAGE>
TERMS OF OPTIONS FOR KEY EMPLOYEES
----------------------------------
Section 5.1 - Option Agreement
- ----------- ----------------
Options granted to key Employees shall be evidenced by a
written Stock Option Agreement, which shall be executed by the Optionee and an
authorized officer of Holdings and which shall contain the terms and conditions
of this Article V and such other terms and conditions as the Committee shall
determine, consistent with the Plan.
6
<PAGE>
Section 5.2 - Option Price
- ----------- ------------
(a) The price per share of the Common Stock subject to
each Option granted pursuant to this Article V shall be set by the Committee.
The price per share may be less than the fair market value of such shares on the
date such Option is granted; provided that in no event shall the price per share
be less than fifty (50%) percent of the fair market value of such shares on the
date such Option is granted.
(b) For the purpose of Section 5.2(a), the fair market
value of a share of Common Stock on the date the Option is granted shall be the
fair market value established by the Committee acting in good faith.
Section 5.3 - Commencement of Exercisability
- ----------- ------------------------------
Subject to the provisions of Section 8.2, Options granted
pursuant to this Article V shall become exercisable at such times and in such
installments (which may be cumulative) as the Committee shall provide in the
terms of each individual Option; provided, however, that by a resolution adopted
after an Option is granted the Committee may, on such terms and conditions as it
may determine to be appropriate and subject to Section 8.2, accelerate the time
at which such Option or any portion thereof may be exercised.
Section 5.4 - Expiration of Options
- ----------- ---------------------
(a) No Option may be exercised to any extent by anyone
after, and every Option shall expire no later than, the expiration of ten (10)
years and one (1) day from the date the Option was granted.
(b) Subject to the provisions of Section 5.4(a), the
Committee shall provide, in the terms of each individual Option, when such
Option expires and becomes unexercisable.
Section 5.5 - No Right to Continue in Employment
- ----------- ----------------------------------
Nothing in this Plan or in any Stock Option Agreement
hereunder (i) shall confer upon any Optionee who is an Employee any right to
continue in the employ of Holdings or any of its Subsidiaries or (ii) shall
interfere with or restrict in any way the rights of Holdings and its
Subsidiaries, which are hereby expressly reserved, to terminate the employment
of any Optionee at any time for any reason whatsoever, with or without good
cause.
7
<PAGE>
Section 5.6 - Merger, Consolidation, Exchange,
Acquisition, Liquidation or Dissolution
---------------------------------------
In its absolute discretion, and on such terms and conditions as
it deems appropriate, coincident with or after the grant of any Option
pursuant to this Article V, the Committee may provide that such Option cannot be
exercised after the merger or consolidation of Holdings into another
corporation, the exchange of all or substantially all of the assets of Holdings
for the securities of another corporation, the acquisition by another person of
80% or more of Holdings' then outstanding shares of voting stock or the
recapitalization, reclassification, liquidation or dissolution of Holdings, 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
prior to such event, such Option shall be exercisable as to all shares subject
thereto, notwithstanding anything to the contrary in Section 5.3 and/or in any
installment provisions of such Option (but subject to the provisions of Section
5.4(a)) and that, upon the occurrence of such event, such Option shall terminate
and be of no further force or effect; 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 Option
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.
ARTICLE VI
EXERCISE OF OPTIONS
-------------------
Section 6.1 - Persons Eligible to Exercise
- ----------- ----------------------------
During the lifetime of the Optionee, only he or his guardian
may exercise an Option granted to him, or any portion thereof. After the death
of the Optionee, any exercisable portion of an Option may, prior to the time
when such portion becomes unexercisable under Section 4.4, 5.4 or 5.6, be
exercised by his personal representative or by any person empowered to do so
under the deceased Optionee's will or under the then applicable laws of descent
and distribution.
8
<PAGE>
Section 6.2 - Partial Exercise
- ----------- ----------------
At any time and from time to time prior to the time when any
exercisable Option or exercisable portion thereof expires or becomes
unexercisable under Section 4.4, 5.4, or 5.6, such Option or portion thereof may
be exercised in whole or in part; provided, however, that Holdings shall not be
required to issue fractional shares. With respect to Options granted to key
Employees, the Committee may, in the Stock Option Agreement, require any partial
exercise to be with respect to a specified minimum number of shares.
Section 6.3 - Manner of Exercise
- ----------- ------------------
An exercisable Option, or any exercisable portion thereof,
may be exercised solely by delivering to the Secretary or his office all of the
following prior to the time when such Option or such portion becomes
unexercisable:
(a) Notice in writing signed by the Optionee or other
person then entitled to exercise such Option or portion thereof,
stating that such Option or portion thereof is exercised;
(b) Full payment of the Option Price (in cash, by
check or by a combination thereof) for the shares with respect to
which such Option or portion thereof is thereby exercised, together
with payment or arrangement for payment of any federal income or other
tax required to be withheld by Holdings with respect to such shares;
(c) Such representations and documents as the
Committee reasonably deems necessary or advisable to effect compliance
with all applicable provisions of the Securities Act of 1933, as
amended and any other federal, state or foreign securities laws or
regulations. The Committee may, in its absolute discretion, also take
whatever additional actions it deems appropriate to effect such
compliance, including, without limitation, placing legends on share
certificates and issuing stop-transfer orders to transfer agents and
registrars; and
(d) In the event that the Option or portion thereof
shall be exercised pursuant to Section 6.1 by any person or persons
other than the Optionee, appropriate proof of the right of such person
or persons to exercise the Option or portion thereof.
9
<PAGE>
Section 6.4 - Rights as Stockholders
- ----------- ----------------------
The holders of Options shall not be, nor have any of the
rights or privileges of, stockholders of Holdings in respect of any shares
purchasable upon the exercise of any part of an Option unless and until
certificates representing such shares have been issued by Holdings to such
holders.
Section 6.5 - Transfer Restrictions
- ----------- ---------------------
The Committee, in its absolute discretion, may impose such
restrictions on the transferability of the shares purchasable upon the exercise
of an Option as it deems appropriate, and any such restriction shall be set
forth in the respective Stock Option Agreement and may be referred to on the
certificates evidencing such shares.
ARTICLE VII
ADMINISTRATION
--------------
Section 7.1 - Compensation Committee
- ----------- -----------------------
The Plan shall be administered by the Compensation Committee
of the Board. In its absolute discretion, the Board may appoint a different
committee comprised of two or more Directors to administer all or a portion of
the Plan. To the extent required to avoid liability under Section 16 of the
Exchange Act, no person shall be eligible to serve on the Committee unless he is
then a "disinterested person" within the meaning of Rule 16b-3. Appointment of
Committee members shall be effective upon acceptance of appointment. Committee
members may resign at any time by delivering written notice to the Board.
Vacancies in the Committee shall be filled by the Board.
Section 7.2 - Duties and Powers of Committee
- ----------- ------------------------------
It shall be the duty of the Committee to conduct the general
administration of the Plan in accordance with its provisions. The Committee
shall have the power to interpret the Plan and the Options and to adopt such
rules for the administration, interpretation, and application of the Plan as are
consistent therewith and to interpret, amend or revoke any such rules. Any such
interpretations and rules shall be consistent with the basic purpose of the Plan
to grant Options, including Incentive Stock Options and, with respect to Options
granted to Eligible Directors or Affiliated Directors, shall be consistent with
the designation of this Plan as a nondiscretionary formula plan within the
meaning of Rule 16b-3. 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. The Committee may act either by vote at a telephonic or other
meeting or by a memorandum or other written instrument signed by a majority of
the Committee.
10
<PAGE>
Section 7.3 - Compensation; Professional Assistance; Good Faith Actions
- ----------- ---------------------------------------------------------
Members of the Committee shall not receive compensation for
their services as members but all expenses and liabilities they incur in
connection with the administration of the Plan shall be borne by Holdings. The
Committee may employ attorneys, consultants, accountants, appraisers, brokers or
other persons. The Committee, Holdings and the Officers and Directors of
Holdings shall be entitled to rely upon the advice, opinions or valuations of
any such persons. All actions taken and all interpretations and determinations
made by the Committee in good faith shall be final and binding upon all
Optionees, Holdings 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 Options, and
all members of the Committee shall be fully protected by Holdings with respect
to any such action, determination or interpretation.
ARTICLE VIII
MISCELLANEOUS PROVISIONS
-------------------------
Section 8.1 - Options Not Transferable
- ----------- ------------------------
No Option or interest or right therein 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 or by judgment, levy, attachment, garnishment
or any other legal or equitable proceeding (including bankruptcy), and any
attempted disposition thereof shall be null and void and of no effect; provided,
however, that nothing in this Section 8.1 shall prevent transfers by will or by
the applicable laws of descent and distribution. Notwithstanding the foregoing,
the Committee, in its absolute discretion, may direct that a Stock Option
Agreement provide that Options granted thereunder may be transferred to a
"family member" of the Optionee or to a trust for the benefit of such family
member. For purposes of the preceding sentence, "family member" with respect to
an Optionee shall include the Optionee's parents, siblings, children or
grandchildren.
Section 8.2 - Amendment, Suspension or Termination of the Plan
- ----------- ------------------------------------------------
(a) The Plan may be wholly or partially amended or
otherwise modified, suspended or terminated at any time or from time to time by
the Board. However, without approval of Holdings' stockholders given within 12
months before or after the action by the Board or the Committee, no action of
the Committee or the Board may, except as provided in Section 8.3, increase any
limit imposed in Section 2.1 on the maximum number of shares which may be issued
11
<PAGE>
upon exercise of Options, reduce the minimum option price requirements in
Section 4.2 or 5.2(a) or extend the limit imposed in this Section 8.2 on the
period during which Options may be granted. Except as expressly permitted by
the terms of the Plan, neither the amendment, suspension nor termination of the
Plan shall, without the consent of the holder of the Option, alter or impair any
rights or obligations under any Option theretofore granted. No Option may be
granted during any period of suspension nor after termination of the Plan, and
in no event may any Option be granted under this Plan after the expiration of
ten years from the date the Plan is adopted or the date the stockholders of
Holdings approve this Plan, if earlier.
(b) Notwithstanding anything in Section 8.2(a) to the
contrary, in no event may the provisions of Section 3.2 or Article IV be amended
more frequently than once in six months, except as necessary to comport with
changes to the Code, the Employee Retirement Income Security Act of 1974, as
amended, or the rules thereunder.
Section 8.3 - Adjustments in Outstanding Options
- ----------- ----------------------------------
In the event that the outstanding shares of Common Stock
subject to Options are, from time to time, changed into or exchanged for a
different number or kind of shares of Holdings or other securities of Holdings
by reason of a merger, consolidation, recapitalization, reclassification, stock
split-up, stock dividend, combination of shares, or otherwise, the Committee
shall make an appropriate and equitable adjustment in the aggregate number of
shares which may be issued pursuant to Section 2.1 hereof and the number and
kind of shares or other consideration as to which all outstanding Options, or
portions thereof then unexercised, shall be exercisable. Any such adjustment
made by the Committee shall be final and binding upon all Optionees, Holdings
and all other interested persons.
Section 8.4 - Effect of Plan Upon Other Options and Compensation Plans
- ----------- --------------------------------------------------------
Nothing in this Plan shall be construed to limit the right
of Holdings or any of its Subsidiaries (a) to establish any other forms of
incentives or compensation for employees of Holdings or any of its Subsidiaries
or (b) to grant or assume options otherwise than under this Plan in connection
with any proper corporate purpose, including, but not by way of limitation, the
grant or assumption of options in connection with the acquisition by purchase,
lease, merger, consolidation or otherwise, of the business, stock or assets of
any corporation, firm or association.
Section 8.5 - Titles
- ----------- ------
Titles are provided herein for convenience only and are not
to serve as a basis for interpretation or construction of the Plan.
12
<PAGE>
Section 8.6 - Pronouns
- ----------- --------
The masculine pronoun shall include the feminine and neuter
and the singular shall include the plural, where the context so indicates.
I hereby certify that this amendment and restatement of the
Plan was duly adopted by the Board of Directors of RJR Nabisco Holdings Corp. on
October 4, 1994.
Executed as of this ____________ day of ____________ , 1994.
------------------------
Secretary
Corporate Seal
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,
1994(A) 1993(A) 1992(A)
------------------------- -------------------------- -------------------------
PRIMARY FULLY DILUTED PRIMARY(B) FULLY DILUTED PRIMARY FULLY 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............................ 1,348,011 1,348,011 1,344,649 1,344,649 1,331,659 1,331,659
Less: shares related to
unamortized value of restricted
stock............................. -- -- -- -- (120) (120)
--------- ------------- ---------- ------------- --------- -------------
1,348,011 1,348,011 1,344,649 1,344,649 1,331,539 1,331,539
Average number of shares of
common stock issued during the
period............................ 3,347 3,347 3,541 3,541 11,835 11,836
Average number of shares related
to value of restricted stock
earned during the period....... 676 676 1,006 1,006 60 60
Average number of stock options
outstanding during the period
and shares issuable under
performance shares granted..... 12,412 13,628 -- 6,217 20,115 20,167
Average number of shares issuable
on conversion of redeemable
convertible preferred stock....... -- -- -- 10,498 -- 11,203
Average number of shares issuable
on conversion of senior
converting debentures.......... -- -- -- 5,548 -- 20,203
ESOP convertible preferred
stock............................. -- 15,468 -- 15,610 -- 15,625
Average number of Series C
Depositary Shares issued during
the period(C).................. 173,681 173,681 -- -- -- --
--------- ------------- ---------- ------------- --------- -------------
Average number of common and
common equivalent shares
outstanding during the period
(in thousands)................. 1,538,127 1,554,811 1,349,196 1,387,069 1,363,549 1,410,633
--------- ------------- ---------- ------------- --------- -------------
--------- ------------- ---------- ------------- --------- -------------
Net income (loss) applicable to
common stock:
Income (loss) before
extraordinary item............. $ 764 $ 764 $ (3 ) $ (3) $ 776 $ 776
Interest on senior converting
debentures (net of income
taxes)............................ -- -- -- 17 -- 51
Preferred stock dividends........ (131) (116) (68 ) (43) (31) --
Income tax benefit on ESOP
convertible preferred stock
dividends......................... -- (2) -- (1) -- (6)
--------- ------------- ---------- ------------- --------- -------------
Income (loss) before
extraordinary item applicable
to common stock................... 633 646 (71 ) (30) 745 821
Extraordinary item--loss on early
extinguishments of debt, net of
income taxes...................... (245) (245) (142 ) (142) (477) (477)
--------- ------------- ---------- ------------- --------- -------------
Net income (loss) applicable to
common stock...................... $ 388 $ 401 $ (213 ) $ (172) $ 268 $ 344
--------- ------------- ---------- ------------- --------- -------------
--------- ------------- ---------- ------------- --------- -------------
Net income (loss) per common and
common equivalent share:
Income (loss) before
extraordinary item............. $ 0.41 $ 0.42 $ (0.05 ) $ (0.02) $ 0.55 $ 0.58
Extraordinary item............... (0.16) (0.16) (0.10 ) (0.10) (0.35) (0.34)
--------- ------------- ---------- ------------- --------- -------------
Net income (loss)................ $ 0.25 $ 0.26 $ (0.15 ) $ (0.12) $ 0.20 $ 0.24
--------- ------------- ---------- ------------- --------- -------------
--------- ------------- ---------- ------------- --------- -------------
</TABLE>
- ------------
(A) The calculations of fully diluted earnings per share are antidilutive;
therefore, primary earnings per share are used for financial statement
purposes. The Board of Directors of Holdings approved a one-for-five
reverse split of the Common Stock which will be submitted to Holdings'
stockholders for approval at its Annual Meeting in April 1995.
(B) The net loss per common and common equivalent share reported for the year
ended December 31, 1993 would have increased by $.19 per share if the
weighted average number of shares of Series A Depositary Shares outstanding
during the period had been excluded from the earnings per share calculation.
(C) Each Series C Depositary Share represents a one-tenth ownership interest in
a share of Series C 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,
------------------------------------------
1994 1993 1992 1991 1990
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Earnings before fixed charges:
Income (loss) from continuing operations.............. $ 762 $ (4) $ 783 $ 349 $ (283)
Provision for income taxes............................ 614 116 693 301 152
------ ------ ------ ------ ------
Income (loss) before income taxes..................... 1,376 112 1,476 650 (131)
Interest and debt expense............................. 1,065 1,186 1,359 2,140 2,899
Interest portion of rental expense.................... 51 52 49 56 49
------ ------ ------ ------ ------
Earnings before fixed charges(a)........................ $2,492 $1,350 $2,884 $2,846 $2,817
------ ------ ------ ------ ------
------ ------ ------ ------ ------
Fixed charges:
Interest expense...................................... $1,046 $1,167 $1,340 $2,030 $2,724
Amortization of debt issuance costs................... 19 19 19 110 175
Interest portion of rental expense.................... 51 52 49 56 49
Capitalized interest.................................. 11 9 5 10 12
------ ------ ------ ------ ------
Total fixed charges................................. $1,127 $1,247 $1,413 $2,206 $2,960
------ ------ ------ ------ ------
------ ------ ------ ------ ------
Deficiency in the coverage of fixed charges by earnings
before fixed charges.................................... $ -- $ -- $ -- $ -- $ (143)
------ ------ ------ ------ ------
------ ------ ------ ------ ------
Ratio of earnings to fixed charges...................... 2.2 1.1 2.0 1.3 --
------ ------ ------ ------ ------
------ ------ ------ ------ ------
</TABLE>
- ------------
(a) Includes non-cash amortization of trademarks and goodwill for each of the
years in the five-year period ended December 31, 1994 of $629 million, $625
million, $616 million, $609 million and $608 million respectively.
EXHIBIT 21
<TABLE><CAPTION>
RJR NABISCO HOLDINGS CORP.
Date of Place of
Name of Subsidiary Incorporation Incorporation
------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
RJR Nabisco Holdings Corp. Oct 25, 1988 Delaware
RJR Nabisco, Inc. Mar 04, 1970 Delaware
Airco IHC, Inc. Mar 22, 1989 Delaware
AO ISMA Nov 19, 1992 Russia
AO Kabisco Jun 28, 1994 Kazakhstan
A/O Nabisco Aug 16, 1994 Russia
AO Vostanovlenniy Tabak - Yelets Oct 26, 1994 Russia
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 Life Savers (Panama) S.A. Jul 12, 1963 Panama
Beijing Nabisco Food Company Limited (91%) ? 1995 China
Bisco Services B.V. Dec 22, 1988 Netherlands
Camel Racing Inc.* Jun 22, 1989 Canada
Carnes y Conservas Espanolas, S.A. (CARCESA) Dec 02, 1975 Spain
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
Cia. Arturo Field Y La Estrella Ltda., S.A. (94.64%) ? Peru
Club - Cigarettenfabrik GmbH **** Aug 27, 1990 Germany
Colophon Company Limited * Jul 09, 1981 Bermuda
Comercial Benut, S.A. de C.V. ** Mar 16, 1977 Mexico
Compania Venezolana de Conservas C.A. Jul 25, 1969 Venezuela
Consiber, S.A. Mar 31, 1979 Spain
Covenco Holding C.A. Nov 26, 1991 Venezuela
</TABLE>
<TABLE>
<S> <C>
* Inactive February 14, 1995
** In Liquidation Page 1
*** Partnership SUB-CURR
**** Nameholder
</TABLE>
<PAGE>
<TABLE><CAPTION>
RJR NABISCO HOLDINGS CORP.
Date of Place of
Name of Subsidiary Incorporation Incorporation
------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Dely, S.A. Dec 18, 1960 Guatemala
Distribuidora Pan Americana, S.A. Oct 22, 1974 Panama
Establecimiento Modelo Terrabusi S.A. (98.9%) ? Argentina
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 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
Galletas Artiach, S.A. Jul 23, 1932 Spain
Gelatinas Ecuatorianas S.A. (66.7%) Nov 21, 1978 Ecuador
GEM: Global Event Management, Ltd. Jun 27, 1991 England
Gemsbeek Holding B.V. Sep 02, 1963 Netherlands
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 Prnc Ed Is., Can.
Huntley & Palmer Foods Pensions Limited ? 1967 England
</TABLE>
<TABLE>
<S> <C>
* Inactive February 14, 1995
** In Liquidation Page 2
*** Partnership SUB-CURR
**** Nameholder
</TABLE>
<PAGE>
<TABLE><CAPTION>
RJR NABISCO HOLDINGS CORP.
Date of Place of
Name of Subsidiary Incorporation Incorporation
------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
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
Iracema Industrias de Caju S.A. Aug 08, 1978 Brazil
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.
Loste-McVitie's Distribution Service, S.A. (50%) Oct 28, 1992 Spain
Lowney Inc. Jan 01, 1983 Federal, Canada
Mahachai Holding Co. Ltd. (49%) Jan 07, 1986 Thailand
Marbu, S.A. Oct 26, 1967 Spain
MEX Holdings, Ltd. Nov 27, 1991 Delaware
Modi RJR Limited (50%) *** ? India
Mont Pelrin Inc. May 05, 1954 New Jersey
</TABLE>
<TABLE>
<S> <C>
* Inactive February 14, 1995
** In Liquidation Page 3
*** Partnership SUB-CURR
**** Nameholder
</TABLE>
<PAGE>
<TABLE><CAPTION>
RJR NABISCO HOLDINGS CORP.
Date of Place of
Name of Subsidiary Incorporation Incorporation
------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
NABEC, S.A. Nov 17, 1982 Ecuador
Nabisco * Dec 24, 1908 England
Nabisco Argentina S.A. Mar 14, 1994 Argentina
Nabisco B.V. ? 1994 Netherlands
Nabisco Biscuit Manufacturing (Midwest), Inc.* Dec 21, 1988 New York
Nabisco Biscuit Manufacturing (West), Inc.* Dec 21, 1988 New York
Nabisco Brands Holdings Denmark Limited ? 1989 Liberia
Nabisco Brands Ltd Jan 1, 1993 Federal, Canada
Nabisco Brands Nominees Limited * Aug 22, 1983 England
Nabisco Brands Trading Limited * 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 China Limited ? 1995 China
Nabisco Chongqing Food Co., Ltd. ? 1995 China
Nabisco de Nicaragua, S.A. (60%) Dec 10, 1965 Nicaragua
Nabisco de Puerto Rico, Inc. Sep 21, 1951 New York
Nabisco England IHC, Inc. Mar 29, 1989 Delaware
Nabisco Enterprises IHC, Inc. Mar 22, 1989 Delaware
Nabisco Espana, S.L. Jul 15, 1993 Spain
Nabisco Foods, Inc. Dec 30, 1991 New Jersey
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 Holdings Corp. Apr 21, 1981 Delaware
Nabisco Holdings IHC, Inc. Mar 22, 1989 Delaware
Nabisco Hong Kong Limited Apr 12, 1994 Hong Kong
Nabisco, Inc. Feb 03, 1898 New Jersey
Nabisco, Inc. Foreign Sales Corporation Dec 17, 1991 US Virgin Is.
</TABLE>
<TABLE>
<S> <C>
* Inactive February 14, 1995
** In Liquidation Page 4
*** Partnership SUB-CURR
**** Nameholder
</TABLE>
<PAGE>
<TABLE><CAPTION>
RJR NABISCO HOLDINGS CORP.
Date of Place of
Name of Subsidiary Incorporation Incorporation
------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Nabisco International, Inc. Jul 29, 1947 Delaware
Nabisco International Limited Dec 11, 1987 Nevada
Nabisco International M.E./Africa (49%) ? Dubai, U.A.E.
Nabisco International Market Development Group, Inc. Mar 22, 1989 Delaware
Nabisco International, S.A. Nov 26, 1953 Panama
Nabisco Investments S.A. Mar 14, 1994 Argentina
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 Chile Limitada Mar 22, 1978 Chile
Nabisco Royal Colombiana Inc. Jan 03, 1938 Delaware
Nabisco Royal de Honduras S.A. Jul 22, 1982 Honduras
Nabisco Royal del Ecuador, S.A. Sep 16, 1977 Ecuador
Nabisco Royal Inc. Sep 03, 1932 Delaware
Nabisco Royal Panama, S.A. Mar 07, 1979 Panama
Nabisco S.A. de C.V. (99.5%) Jun 15, 1992 Mexico
Nabisco (Thailand) Limited (50+%) ** Jan 07, 1986 Thailand
Nabisco Trading A.G. Aug 02, 1960 Switzerland
Nabisco Trading Limited* 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
Outdoor Traders International S.r.l. ** 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 Confitados Salvavidas de Guatemala, S.A. Jul 03, 1974 Guatemala
Productos Royal S.A.* Dec 27, 1977 Argentina
Produtos Alimenticios Fleischmann e Royal Ltda. Nov 28, 1964 Brazil
</TABLE>
<TABLE>
<S> <C>
* Inactive February 14, 1995
** In Liquidation Page 5
*** Partnership SUB-CURR
**** Nameholder
</TABLE>
<PAGE>
<TABLE><CAPTION>
RJR NABISCO HOLDINGS CORP.
Date of Place of
Name of Subsidiary Incorporation Incorporation
------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
R. J. Reynolds Berhad (60%) Jan 29, 1970 Malaysia
R. J. Reynolds (Cyprus) Limited Feb 20, 1990 Cyprus
R. J. Reynolds-Da Nang Tobacco Company Limited (70%)*** ? 1994 Vietnam
R. J. Reynolds Espana, S.L. (50%) ? Spain
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 Tabacos, 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 (Slovakia) Spol. s.r.o. ? 1994 Slovakia
R. J. Reynolds (Thailand) Inc. Aug 06, 1992 Delaware
R. J. Reynolds Tobacco A.G. Dagmersellen Mar 03, 1966 Switzerland
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 (Croatia) Ltd. * ? 1994 Croatia
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
</TABLE>
<TABLE>
<S> <C>
* Inactive February 14, 1995
** In Liquidation Page 6
*** Partnership SUB-CURR
**** Nameholder
</TABLE>
<PAGE>
<TABLE><CAPTION>
RJR NABISCO HOLDINGS CORP.
Date of Place of
Name of Subsidiary Incorporation Incorporation
------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
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 - Kazakhstan Jun 30, 1994 Kazakhstan
R. J. Reynolds Tobacco - Kremenchuk (70%) Jun 10, 1993 Ukraine
R. J. Reynolds Tobacco Limited * Jun 18, 1975 New Zealand
R. J. Reynolds Tobacco - Lviv JSC (70%) Oct 28, 1993 Ukraine
R. J. Reynolds Tobacco (MAK) ? 1994 Macedonia
R. J. Reynolds Tobacco (Poland) S.o.o. Jan 07, 1991 Poland
R. J. Reynolds Tobacco (Romania) Ltd. ? 1994 Romania
R. J. Reynolds Tobacco Rt Jul 28, 1992 Hungary
R. J. Reynolds Tobacco Spol. s.r.o. Apr 12, 1991 Czech.
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. Jan 21, 1992 Turkey
Reynolds Manufacturing (Bulgaria) Ltd. (67%) * ? 1994 Bulgaria
Reynolds Manufacturing (Romania) SRL (97%) ? 1994 Romania
Reynolds Technologies, Inc. Mar 01, 1994 Delaware
Ritz Biscuit Company Limited **** Sep 28, 1989 England
RJI Corporation Nov 06, 1970 Delaware
RJR-Armavirtabak Oct 24, 1994 Russia
RJR (Bulgaria) Ltd. * ? 1994 Bulgaria
RJR Comercial Ltda. * Aug 18, 1977 Brazil
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 Federal, Canada
RJR Mauritius Private Limited Sep 27, 1993 Mauritius
RJR Merchandise Marketing Company Aug 22, 1994 Delaware
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 (Kiev) JSC Apr 09, 1993 Ukraine
RJR Nabisco (Philippines) Inc. Apr 22, 1992 Philippines
RJR Nabisco Processing, Inc. Nov 21, 1994 Delaware
RJR Nabisco Securities Ltd. Sep 28, 1987 Federal, Canada
RJR Nabisco Washington, Inc. Dec 13, 1985 Delaware
</TABLE>
<TABLE>
<S> <C>
* Inactive February 14, 1995
** In Liquidation Page 7
*** Partnership SUB-CURR
**** Nameholder
</TABLE>
<PAGE>
<TABLE><CAPTION>
RJR NABISCO HOLDINGS CORP.
Date of Place of
Name of Subsidiary Incorporation Incorporation
------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
RJR-Petro (82%) *** 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 Eurasia, Inc. May 26, 1994 Delaware
RJR Tobacco Holdings IHC, Inc. Mar 22, 1989 Delaware
RJR Tobacco Russia Dec 05, 1991 Russia
RJR Trade Promotion Co. Feb 18, 1993 Delaware
RJRN Policy Institute, Inc. Dec 13, 1985 Delaware
Royal Brands Portugal Comercio e Industria Limitada Dec 23, 1916 Portugal
Royal Brands, S.A. (98.92%) May 20, 1952 Spain
Royal Food Products, S.A. Jul 02, 1976 Tunisia
Royal Holding C.A. Nov 26, 1991 Venezuela
Royal Productos Alimenticios, C.A. Jul 26, 1971 Venezuela
Salem Holidays Sdn. Bhd. Sep 18, 1993 Malaysia
Salem Power Station Sdn. Bhd. * ? Malaysia
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
S. F. Imports, Inc. May 26, 1994 Delaware
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
Stella D'oro Biscuit Co., Inc. Jan 02, 1948 New York
Sunrise Biosystems, Inc. (50%) *** Mar 01, 1994 Delaware
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. * Nov 22, 1988 Switzerland
West Indies Yeast Company Limited (72%) Nov 29, 1965 Jamaica
Worldwide Brands, Inc. Oct 18, 1983 Delaware
Worldwide Brands Inc. Sdn. Bhd. Mar 30, 1991 Malaysia
Worldwide Brands International (Hong Kong) Limited Jan 19, 1988 Hong Kong
Yili-Nabisco Biscuit & Food Company Limited (51%) *** Jan 29, 1985 China
</TABLE>
<TABLE>
<S> <C>
* Inactive February 14, 1995
** In Liquidation Page 8
*** Partnership SUB-CURR
**** Nameholder
</TABLE>
EXHIBIT 23
CONSENT OF DELOITTE & TOUCHE LLP, 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, 33-54397, 33-54399,
33-54393 and 33-40702 of RJR Nabisco Holdings Corp. ("Holdings") on Form S-8,
Registration Statement No. 33-57571 of Holdings on Form S-3, and Registration
Statement No. 33-55767 on Form S-4 of Holdings of our report dated January
30, 1995, (February 21, 1995 as to Notes 11 and 17), appearing in this Annual
Report on form 10-K of RJR Nabisco Holdings Corp. and RJR Nabisco, Inc. for
the year ended December 31, 1994.
DELOITTE & TOUCHE LLP
New York, New York
February 22, 1995
Exhibit 24
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, Joan E. Gmora and Francis
C. Marinelli, 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, 1994, 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 day of , 19 .
----- ---------- --
/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
<PAGE>
Page 2
-------------------------- Director
John T. Chain, Jr.
/s/ Julius L. Chambers Director
--------------------------
Julius L. Chambers
/s/ John L. Clendenin Director
--------------------------
John L. Clendenin
/s/ James H. Greene, Jr. Director
--------------------------
James H. Greene, Jr.
/s/ H. John Greeniaus Director
--------------------------
H. John Greeniaus
-------------------------- 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
-------------------------- Director
Clifton S. Robbins
-------------------------- Director
George R. Roberts
/s/ Scott M. Stuart Director
--------------------------
Scott M. Stuart
-------------------------- Director
Michael T. Tokarz
