- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1995
-------------------
RJR NABISCO HOLDINGS CORP.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 1-10215 13-3490602
(State or other jurisdiction of (Commission file number) (I.R.S. Employer Identification No.)
incorporation or organization)
</TABLE>
RJR NABISCO, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 1-6388 56-0950247
(State or other jurisdiction of (Commission file number) (I.R.S. Employer Identification No.)
incorporation or organization)
</TABLE>
1301 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019-6013
(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.)
-------------------
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 THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE REGISTANTS' CLASSES
OF COMMON STOCK AS OF THE LATEST PRACTICABLE DATE: SEPTEMBER 30, 1995:
RJR NABISCO HOLDINGS CORP.: 272,693,625 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
-------------------
RJR NABISCO, INC. MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION
H(1)(A) AND (B) OF FORM 10-Q AND IS THEREFORE FILING THIS FORM WITH THE
REDUCED DISCLOSURE FORMAT.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
INDEX
<TABLE>
<CAPTION>
PAGE
------
<S> <C> <C>
PART I--FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Statements of Income--Three Months Ended
September 30, 1995 and 1994.............................................. 1
Consolidated Condensed Statements of Income--Nine Months Ended
September 30, 1995 and 1994.............................................. 2
Consolidated Condensed Statements of Cash Flows--Nine Months Ended
September 30, 1995 and 1994.............................................. 3
Consolidated Condensed Balance Sheets--September 30, 1995 and
December 31, 1994........................................................ 4
Notes to Consolidated Condensed Financial Statements....................... 5-14
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.................................................... 15-25
PART II-- OTHER INFORMATION
Item 1. Legal Proceedings.......................................................... 26
Item 5. Other Information.......................................................... 26
Item 6. Exhibits and Reports on Form 8-K........................................... 27
Signatures........................................................................... 28
</TABLE>
<PAGE>
PART I
ITEM 1. FINANCIAL STATEMENTS
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
SEPTEMBER 30, 1995 SEPTEMBER 30, 1994
------------------- -------------------
RJRN RJRN
HOLDINGS RJRN HOLDINGS RJRN
-------- -------- -------- --------
<S> <C> <C> <C> <C>
NET SALES*............................................ $ 4,063 $ 4,063 $ 3,966 $ 3,966
-------- -------- -------- --------
Costs and expenses (Note 1)*:
Cost of products sold............................... 1,883 1,883 1,815 1,815
Selling, advertising, administrative and general
expenses.............................................. 1,380 1,380 1,316 1,313
Amortization of trademarks and goodwill............. 159 159 157 157
-------- -------- -------- --------
OPERATING INCOME................................ 641 641 678 681
Interest and debt expense (Note 6).................... (221) (217) (240) (240)
Other income (expense), net (Notes 1 and 6)........... 15 15 (38) (39)
-------- -------- -------- --------
Income before income taxes...................... 435 439 400 402
Provision for income taxes............................ 190 190 184 185
-------- -------- -------- --------
INCOME BEFORE MINORITY INTEREST IN INCOME OF
NABISCO....................................... 245 249 216 217
Minority interest in income of Nabisco................ 13 13 -- --
-------- -------- -------- --------
INCOME BEFORE EXTRAORDINARY ITEM................ 232 236 216 217
Extraordinary item--loss on early extinguishments of
debt, net of income taxes and minority interest
(Note 4).......................................... (16) (16) -- --
-------- -------- -------- --------
NET INCOME...................................... 216 220 216 217
Less preferred stock dividends........................ 34 -- 33 --
-------- -------- -------- --------
NET INCOME APPLICABLE TO COMMON STOCK........... $ 182 $ 220 $ 183 $ 217
-------- -------- -------- --------
-------- -------- -------- --------
Net income per common and common equivalent share
(Notes 1 and 2):
Income before extraordinary item.................... $ .61 $ .56
Extraordinary item.................................. (.05) --
-------- --------
NET INCOME...................................... $ .56 $ .56
-------- --------
-------- --------
Dividends per share of Series A Preferred Stock....... $ -- $ 0.835
-------- --------
-------- --------
Dividends per share of Series C Preferred Stock....... $ 1.503 $ 1.503
-------- --------
-------- --------
Dividends per share of common stock (Notes 1 and 9)... $ 0.375 $ --
-------- --------
-------- --------
Average number of common and common equivalent shares
outstanding (in thousands) (Notes 1 and 2)............ 326,529 326,518
-------- --------
-------- --------
</TABLE>
- -------------------
* Excludes excise taxes of $1.010 billion and $931 million for the three months
ended September 30, 1995 and 1994, respectively.
See Notes to Consolidated Condensed Financial Statements.
1
<PAGE>
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, 1995 SEPTEMBER 30, 1994
------------------ ------------------
RJRN RJRN
HOLDINGS RJRN HOLDINGS RJRN
-------- -------- -------- --------
<S> <C> <C> <C> <C>
NET SALES*.............................................. $ 11,684 $ 11,684 $ 11,322 $ 11,322
-------- -------- -------- --------
Costs and expenses (Note 1)*:
Cost of products sold................................. 5,379 5,379 5,079 5,079
Selling, advertising, administrative and general
expenses............................................ 3,923 3,916 3,789 3,780
Amortization of trademarks and goodwill............... 477 477 469 469
-------- -------- -------- --------
OPERATING INCOME.................................. 1,905 1,912 1,985 1,994
Interest and debt expense (Note 6)...................... (663) (659) (828) (828)
Other income (expense), net (Notes 1 and 6)............. (140) (142) (81) (92)
-------- -------- -------- --------
Income before income taxes........................ 1,102 1,111 1,076 1,074
Provision for income taxes.............................. 483 486 474 474
-------- -------- -------- --------
INCOME BEFORE MINORITY INTEREST IN INCOME OF
NABISCO................................................. 619 625 602 600
Minority interest in income of Nabisco.................. 36 36 -- --
-------- -------- -------- --------
INCOME BEFORE EXTRAORDINARY ITEM.................. 583 589 602 600
Extraordinary item--loss on early extinguishments of
debt, net of income taxes and minority interest (Note
4).................................................. (16) (16) (145) (145)
-------- -------- -------- --------
NET INCOME........................................ 567 573 457 455
Less preferred stock dividends.......................... 99 -- 98 --
-------- -------- -------- --------
NET INCOME APPLICABLE TO COMMON STOCK............. $ 468 $ 573 $ 359 $ 455
-------- -------- -------- --------
-------- -------- -------- --------
Net income per common and common equivalent share (Notes
1 and 2):
Income before extraordinary item...................... $ 1.48 $ 1.67
Extraordinary item.................................... (.05) (.48)
-------- --------
NET INCOME........................................ $ 1.43 $ 1.19
-------- --------
-------- --------
Dividends per share of Series A Preferred Stock......... $ -- $ 2.505
-------- --------
-------- --------
Dividends per share of Series C Preferred Stock......... $ 4.509 $ 2.438
-------- --------
-------- --------
Dividends per share of common stock (Notes 1 and 9)..... $ 1.125 $ --
-------- --------
-------- --------
Average number of common and common equivalent shares
outstanding (in thousands) (Notes 1 and 2)............ 326,388 301,168
-------- --------
-------- --------
</TABLE>
- -------------------
* Excludes excise taxes of $2.813 billion and $2.670 billion for the nine months
ended September 30, 1995 and 1994, respectively.
See Notes to Consolidated Condensed Financial Statements.
2
<PAGE>
<TABLE>
<CAPTION>
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(DOLLARS IN MILLIONS)
NINE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, 1995 SEPTEMBER 30, 1994
-------------------- --------------------
RJRN RJRN
HOLDINGS RJRN HOLDINGS RJRN
-------- ------- -------- -------
<S> <C> <C> <C> <C>
NET CASH FLOWS FROM OPERATING ACTIVITIES................ $ 980 $ 998 $ 1,410 $ 1,533
-------- ------- -------- -------
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES:
Capital expenditures.................................. (456) (456) (441) (441)
Divestitures of businesses............................ 162 162 -- --
Acquisitions of businesses............................ (76) (76) (418) (418)
Net proceeds from issuance of subsidiary common
stock............................................... 1,201 1,201 -- --
Other, net............................................ 56 56 14 14
-------- ------- -------- -------
Net cash flows from (used in) investing
activities........................................ 887 887 (845) (845)
-------- ------- -------- -------
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES:
Net borrowings (repayments) under the credit
agreements.......................................... (3,100) (3,100) 1,141 1,141
Net proceeds from issuance (repayments) of commercial
paper............................................... 764 764 (155) (155)
Proceeds from issuance of other long-term debt........ 2,327 2,327 15 15
Repayments of other long-term debt.................... (1,279) (1,279) (2,526) (2,526)
Financing and advisory fees paid...................... (95) (95) (57) (3)
Decrease in notes payable............................. (166) (166) (63) (63)
Proceeds from issuance of Common Stock................ 11 -- 29 --
Proceeds from issuance of Series C Preferred Stock.... -- -- 1,734 --
Issuance of common stock to parent.................... -- -- -- 1,680
ESOP preferred stock retirements...................... (5) -- -- --
Dividends paid on Series A Preferred Stock............ -- -- (131) --
Dividends paid on Series B Preferred Stock............ (87) -- (87) --
Dividends paid on Series C Preferred Stock............ (120) -- (45) --
Other preferred stock dividends paid.................. (19) -- (19) --
Dividends paid to parent.............................. -- (37) -- (39)
Dividends paid on Common Stock........................ (204) -- -- --
Dividends paid on Nabisco Holdings common stock....... (8) (8) -- --
Other, net............................................ 41 (351) 34 (297)
-------- ------- -------- -------
Net cash flows used in financing activities......... (1,940) (1,945) (130) (247)
-------- ------- -------- -------
Effect of exchange rate changes on cash and cash
equivalents........................................... 4 4 (3) (3)
-------- ------- -------- -------
Net change in cash and cash equivalents............. (69) (56) 432 438
Cash and cash equivalents at beginning of period........ 423 409 215 205
-------- ------- -------- -------
Cash and cash equivalents at end of period.............. $ 354 $ 353 $ 647 $ 643
-------- ------- -------- -------
-------- ------- -------- -------
</TABLE>
See Notes to Consolidated Condensed Financial Statements
3
<PAGE>
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
SEPTEMBER 30, 1995 DECEMBER 31, 1994
RJRN RJRN
HOLDINGS RJRN HOLDINGS RJRN
-------------- ------- -------------- -------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................ $ 354 $ 353 $ 423 $ 409
Accounts and notes receivable, net............... 1,271 1,271 934 934
Inventories (Note 3)............................. 2,495 2,495 2,580 2,580
Prepaid expenses and excise taxes................ 404 404 426 426
------- ------- ------- -------
TOTAL CURRENT ASSETS......................... 4,524 4,523 4,363 4,349
------- ------- ------- -------
Property, plant and equipment--at cost............. 8,106 8,106 7,767 7,767
Less accumulated depreciation...................... (2,618) (2,618) (2,333) (2,333)
------- ------- ------- -------
Net property, plant and equipment................ 5,488 5,488 5,434 5,434
------- ------- ------- -------
Trademarks, net.................................... 8,259 8,259 8,506 8,506
Goodwill, net...................................... 12,457 12,457 12,681 12,681
Other assets and deferred charges.................. 405 404 424 423
------- ------- ------- -------
$ 31,133 $31,131 $ 31,408 $31,393
------- ------- ------- -------
------- ------- ------- -------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable.................................... $ 137 $ 137 $ 296 $ 296
Accounts payable................................. 472 472 548 548
Accrued liabilities.............................. 2,380 2,222 2,532 2,488
Current maturities of long-term debt (Note 6).... 166 166 1,970 1,970
Income taxes accrued............................. 360 360 248 248
------- ------- ------- -------
TOTAL CURRENT LIABILITIES.................... 3,515 3,357 5,594 5,550
------- ------- ------- -------
Long-term debt (less current maturities) (Note
6)............................................... 9,524 9,524 8,883 8,883
Other noncurrent liabilities....................... 3,034 2,522 2,235 1,836
Deferred income taxes.............................. 3,683 3,613 3,788 3,714
Commitments and contingencies (Note 8)
RJRN Holdings' obligated mandatorily redeemable
preferred securities of subsidiary trust (Note
6)*.............................................. 954 -- -- --
Stockholders' equity (Note 9):.....................
ESOP convertible preferred stock (15,082,650
shares issued and outstanding at September 30,
1995)........................................ 241 -- 245 --
Series B preferred stock (12,044 shares issued
and outstanding at September 30, 1995)......... 301 -- 1,250 --
Series C convertible preferred stock (26,675,000
shares issued and outstanding at September 30,
1995)........................................ 3 -- 3 --
Common stock (272,693,625 shares issued and
outstanding at September 30, 1995)............. 3 -- 3 --
Paid-in capital.................................. 10,213 11,958 10,157 11,558
Retained earnings (accumulated deficit).......... -- 327 (364) 16
Receivable from ESOP............................. (150) -- (186) --
Other stockholders' equity....................... (188) (170) (200) (164)
------- ------- ------- -------
TOTAL STOCKHOLDERS' EQUITY................... 10,423 12,115 10,908 11,410
------- ------- ------- -------
$ 31,133 $31,131 $ 31,408 $31,393
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
- ------------
* The sole asset of the subsidiary trust is the junior subordinated debentures
of RJRN Holdings. Upon redemption of the junior subordinated debentures, which
have a final maturity of December 31, 2044, the preferred securities will be
mandatorily redeemed. The outstanding junior subordinated debentures have an
aggregate principal amount of $978 million and an annual interest rate of 10%.
See Notes to Consolidated Condensed Financial Statements
4
<PAGE>
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOTE 1--INTERIM REPORTING AND RESULTS OF OPERATIONS
For interim reporting purposes, certain costs and expenses are charged to
operations in proportion to the estimated total annual amount expected to be
incurred.
Certain prior year amounts have been reclassified to conform to the 1995
presentation. In addition, financial data of the prior year has been restated
and financial data of the current year presented to give effect to the
one-for-five reverse stock split discussed in Note 2 to the unaudited
consolidated condensed financial statements (the "Consolidated Condensed
Financial Statements") of RJR Nabisco Holdings Corp. ("RJRN Holdings") and RJR
Nabisco, Inc. ("RJRN" and collectively with RJRN Holdings, the "Registrants").
In management's opinion, the accompanying Consolidated Condensed Financial
Statements of RJRN Holdings and RJRN contain all adjustments, consisting only of
normal recurring adjustments, necessary for a fair statement of the results for
the interim periods presented.
During the second quarter of 1995, RJRN recognized a pre-tax charge of
approximately $103 million for fees and expenses incurred in connection with
certain debt refinancings by RJRN, Nabisco Holdings Corp. ("Nabisco Holdings")
and Nabisco, Inc. ("Nabisco"). Such amount has been reflected in "Other Income
(Expense), Net". See Note 6 to the Consolidated Condensed Financial Statements.
NOTE 2--EARNINGS PER SHARE
Earnings per share is based on income applicable to the consolidated group,
including the portion of Nabisco Holdings' income applicable to the consolidated
group based on RJRN's approximately 80.5% economic ownership interest in Nabisco
Holdings and Nabisco Holdings' primary earnings per share. Earnings per share is
also based on the weighted average number of shares of RJRN Holdings' common
stock, par value $.01 per share ("Common Stock"), and RJRN Holdings' depositary
shares outstanding during the period and Common Stock assumed to be outstanding
to reflect the effect of dilutive options. RJRN Holdings' other potentially
dilutive securities are not included in the earnings per share calculation
because the effect of excluding dividends on such securities for the period
would exceed the earnings allocable to the Common Stock into which such
securities would be converted. Accordingly, RJRN Holdings' earnings per share
and fully diluted earnings per share are the same.
Net income per common and common equivalent share, including the average
number of common and common equivalent shares outstanding, reflects a
one-for-five reverse stock split approved by RJRN Holdings' stockholders on
April 12, 1995.
NOTE 3--INVENTORIES
The major classes of inventory are shown in the table below:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1995 1994
------------- ------------
<S> <C> <C>
Finished products........................................ $ 786 $ 771
Leaf tobacco............................................. 1,115 1,299
Raw materials............................................ 245 206
Other.................................................... 349 304
------------- ------------
$ 2,495 $2,580
------------- ------------
------------- ------------
</TABLE>
5
<PAGE>
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 4--EXTRAORDINARY ITEM
The early extinguishments of debt resulted in the following extraordinary
losses:
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------- -----------------
1995 1994 1995 1994
------ ------ ------ ------
<S> <C> <C> <C> <C>
Cash paid in excess of net carrying amount (book value)
of debt extinguished.................................. $ 21 $ -- $ 21 $ 206
Write-off of debt issuance costs........................ 8 -- 8 17
------ ------ ------ ------
Extraordinary item--loss on early extinguishments of
debt before income taxes.............................. 29 -- 29 223
Benefit for income taxes................................ (10) -- (10) (78)
------ ------ ------ ------
Extraordinary item--loss on early extinguishment of
debt, net of income taxes, before minority interest... 19 -- 19 145
Minority interest....................................... (3) -- (3) --
------ ------ ------ ------
Extraordinary item--loss on early extinguishments of
debt, net of income taxes and minority interest....... $ 16 $ -- $ 16 $ 145
------ ------ ------ ------
------ ------ ------ ------
</TABLE>
NOTE 5--RESTRUCTURING AND REALIGNMENT RESERVE BALANCES
At September 30, 1995, the balance of prior restructuring and headquarters
realignment reserves aggregated $143 million, a decrease of $148 million from
the corresponding balance of $291 million at December 31, 1994. The majority of
the September 30, 1995 balance of severance pay and benefits reserves.
NOTE 6--LONG-TERM DEBT AND INTEREST AND DEBT EXPENSE
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1995 1994
------------- ------------
<S> <C> <C>
8.625% debentures with annual sinking fund payments................ $ 32 $1,034
5.09-9.25% notes and debentures.................................... 7,181 5,132
5.375-10% foreign currency debt.................................... 549 500
1991 RJRN Credit Agreement......................................... -- 1,750
1994 Nabisco Credit Agreement...................................... -- 1,350
1995 RJRN Credit Agreement......................................... -- --
1995 Nabisco Credit Agreement...................................... -- --
RJRN commercial paper.............................................. 286 864
Nabisco commercial paper........................................... 1,348 --
Other indebtedness................................................. 294 223
Less current maturities............................................ (166) (1,970)
------------- ------------
$ 9,524 $8,883
------------- ------------
------------- ------------
</TABLE>
6
<PAGE>
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 6--LONG-TERM DEBT AND INTEREST AND DEBT EXPENSE--(CONTINUED)
Consolidated interest and debt expense for RJRN Holdings consisted of the
following:
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------- -------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Cash interest.................................................. $216 $233 $648 $715
Non-cash interest and debt expense............................. 5 7 15 113
---- ---- ---- ----
$221 $240 $663 $828
---- ---- ---- ----
---- ---- ---- ----
</TABLE>
On January 26, 1995, Nabisco Holdings completed the initial public offering
of 51,750,000 shares of its Class A Common Stock, par value $.01 per share
("Class A Common Stock"), at an initial offering price of $24.50 per share. (See
Note 9 to the Consolidated Condensed Financial Statements.) Nabisco used all of
the approximately $1.2 billion of net proceeds from the initial public offering
to repay a portion of its borrowings under the credit agreement dated as of
December 6, 1994 between Nabisco and various financial institutions (the "1994
Nabisco Credit Agreement").
On April 28, 1995, the Registrants entered into (a) a new $2.75 billion
three year revolving credit agreement with various financial institutions (as
amended, the "1995 RJRN Credit Agreement") and (b) a new $750 million 364 day
credit agreement to support RJRN commercial paper (as amended, the "RJRN
Commercial Paper Facility," and together with the 1995 RJRN Credit Agreement,
the "New RJRN Credit Agreements"). Among other things, the New RJRN Credit
Agreements were designed to remove restrictions on the ability of Nabisco
Holdings and its subsidiaries to incur or prepay debt and to allow RJRN to
reduce the aggregate amount of commitments under its banking facilities from $6
billion to $3.5 billion by replacing its $5.0 billion revolving credit facility
dated December 1, 1991 (as amended, the "1991 RJRN Credit Agreement") and its
$1.0 billion commercial paper facility dated as of April 5, 1993 (as amended and
together with the 1991 RJRN Credit Agreement, the "Old RJRN Credit Agreements").
On April 28, 1995, Nabisco Holdings and Nabisco entered into a credit
agreement with various financial institutions (as amended, the "1995 Nabisco
Credit Agreement") to replace the 1994 Nabisco Credit Agreement. Among other
things, the 1995 Nabisco Credit Agreement was designed to permit Nabisco to
prepay intercompany debt and incur long-term debt, to increase Nabisco's
committed facility from $1.5 billion to $3.5 billion and to extend its term from
364 days to five years.
On June 5, 1995, RJRN and Nabisco consummated offers to exchange
approximately $1.8 billion aggregate principal amount of newly issued notes and
debentures (the "New Notes") of Nabisco for the same amount of notes and
debentures (the "Old Notes") issued by RJRN (the "Exchange Offers"). As part of
the transaction, RJRN returned to Nabisco approximately $1.8 billion of
intercompany notes that had been issued by Nabisco and were held by a
non-Nabisco affiliate of RJRN. The New Notes issued by Nabisco in the Exchange
Offers have interest rates, principal amounts, maturities and redemption
provisions identical to the corresponding Old Notes issued by RJRN. Nabisco
subsequently borrowed approximately $2.4 billion under the 1995 Nabisco Credit
Agreement to (a) repay or repurchase an additional $2.1 billion of intercompany
notes of Nabisco and its subsidiaries; (b) repay approximately $125 million of
outstanding borrowings under the 1994 Nabisco Credit Agreement; (c) repay
approximately $89 million of an intercompany note from Nabisco to Nabisco
Holdings; and (d) pay a $79 million dividend to Nabisco Holdings. Nabisco
Holdings used the payments it received to repay the balance of a $168 million
intercompany note to RJRN.
Concurrently with the Exchange Offers, RJRN also obtained consents to
certain indenture modifications from holders of the Old Notes and holders of
approximately $3.58 billion of its other
7
<PAGE>
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 6--LONG-TERM DEBT AND INTEREST AND DEBT EXPENSE--(CONTINUED)
outstanding debt securities (the "Consent Solicitations"). The Exchange Offers,
the Consent Solicitations and certain related transactions were designed, among
other things, to enable Nabisco to obtain long-term debt financing independent
of RJRN and to repay its intercompany debt to RJRN.
On June 5, 1995, RJRN applied the approximately $2.3 billion that it
received from Nabisco and Nabisco Holdings in repayment of the intercompany
notes to repay a portion of its borrowings under the 1991 RJRN Credit Agreement.
RJRN used an additional approximately $330 million of borrowings under the 1995
RJRN Credit Agreement to repay the balance of its obligations under the Old RJRN
Credit Agreements and to pay certain expenses associated with the Exchange
Offers, the Consent Solicitations and the related transactions.
On June 28, 1995, Nabisco issued $400 million principal amount of 6.70%
Notes Due 2002, $400 million principal amount of 6.85% Notes Due 2005 and $400
million principal amount of 7.55% Debentures Due 2015. The net proceeds from the
issuance of such debt securities were used to repay a portion of the borrowings
under the 1995 Nabisco Credit Agreement.
On July 14, 1995, Nabisco issued $400 million principal amount of 7.05%
Notes Due 2007. The net proceeds from the issuance of such debt securities were
used to repay borrowings under the 1995 Nabisco Credit Agreement. On July 17,
1995, Nabisco redeemed its outstanding 8 5/8% Sinking Fund Debentures Due 2017
at a price of $1,051.75 for each $1,000 principal amount of debentures, plus
accrued interest. The aggregate redemption price and accrued interest on these
debentures was approximately $442 million.
On July 24, 1995, RJRN issued $400 million aggregate principal amount of 8%
Notes Due 2001 and $250 million aggregate principal amount of 8 3/4% Notes Due
2007 under a $1.0 billion debt shelf registration statement. Accordingly, $350
million of debt securities remains unissued under the shelf as of September 30,
1995. The net proceeds from the issuance of these securities have been or will
be used to repay borrowings under the 1995 RJRN Credit Agreement, to retire RJRN
commercial paper and for general corporate purposes.
On September 21, 1995, RJRN Holdings issued $978,248,969 aggregate principal
amount of its 10% Junior Subordinated Debentures due 2044 (the "Junior
Subordinated Debentures") to a newly formed controlled affiliate, RJR Nabisco
Holdings Capital Trust I (the "Trust"). The Trust, in turn, exchanged
$948,901,500 principal amount of its preferred securities, representing
undivided interests in 97% of the assets of the Trust (the "Preferred
Securities"), for 37,956,060 Series B Depositary Shares (the "Series B
Depositary Shares") representing 37,956.06 of the 50,000 outstanding shares of
RJRN Holdings' Series B Cumulative Preferred Stock, par value $.01 per share
(the "Series B Preferred Stock") (approximately 76%). RJRN Holdings retired
these shares, leaving 12,043.94 shares outstanding. The transaction included a
charge of approximately $5 million to RJRN Holdings' paid in capital as the fair
value of the Preferred Securities issued exceeded the book carrying value of the
retired Series B Preferred Stock.
Based on RJRN's and Nabisco's intention and ability to continue to
refinance, for more than one year, the amount of their respective commercial
paper borrowings in the commercial paper market or with additional borrowings
under their respective credit agreements, domestic commercial paper borrowings
have been included under "Long-term debt".
At September 30, 1995, Nabisco had outstanding fixed interest rate swaps
with an aggregate notional principal amount of $1.0 billion and expiration dates
occurring within nine months. Nabisco entered into such agreements to
effectively fix a portion of its interest rate exposure on its floating rate
debt on a one for one basis.
8
<PAGE>
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 7--SUPPLEMENTAL CASH FLOWS INFORMATION
For information regarding non-cash components of certain debt and equity
transactions that occurred during 1995, see Note 6 to the Consolidated Condensed
Financial Statements.
NOTE 8--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. 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 October 11, 1995, 89 active cases were
pending against RJRT and/or its affiliates or indemnitees, 87 in the United
States and two in Canada. Four of the 87 active cases in the United States
involve alleged non-smokers claiming injuries resulting from exposure to
environmental tobacco smoke. Six cases, which are described more specifically
below, purport to be class actions on behalf of many thousands of individuals.
Purported classes include individuals claiming to be addicted to cigarettes and
flight attendants alleging personal injury from exposure to environmental
tobacco smoke in their workplace.
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 20 cases in addition to compensatory and
other damages. The defenses raised by RJRT and/or its affiliates, where
applicable, include: preemption by the Federal Cigarette Labeling and
Advertising Act, as amended (the "Cigarette Act"), of some or all such claims
arising after 1969; the lack of any defect in the product; assumption of the
risk; comparative fault; lack of proximate cause; and statutes of limitations or
repose. Juries have found for plaintiffs in two smoking and health cases 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 adequately to 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 (i) the class action lawsuits, (ii) a
suit in which plaintiffs seek to act as private attorneys general, (iii) actions
brought by state attorneys general in Minnesota,
9
<PAGE>
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 8--CONTINGENCIES--(CONTINUED)
Mississippi and West Virginia, (iv) an action brought by the State of Florida
and (v) certain 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 who claim to represent a class of 60,000 individuals and
allege 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 in February 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. In May 1995, the district court judge allowed the
defendants to appeal the class action determination to the Fifth Circuit Court
of Appeals which, on July 26, 1995, agreed to hear this appeal.
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 May 1994, Engle v. R.J. Reynolds Tobacco Company, et al., was filed in
Circuit Court, Eleventh Judicial District, Dade County, Florida against
manufacturers of tobacco products, 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 and who allegedly have suffered death or disease as a result of use of
the product. 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 where oral argument was
heard on September 27, 1995.
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
10
<PAGE>
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 8--CONTINGENCIES--(CONTINUED)
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; however, there has been no activity in this case since the
district court certification in Castano.
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 one million dollars for each of the four named
plaintiffs, punitive damages, funding of nicotine addiction rehabilitation
centers, interest and costs. On June 2, 1995, the plaintiffs, on consent, were
granted leave to file an amended statement of claim to remove Le Tourneau as a
representative plaintiff and add two additional representative plaintiffs. The
case has been recaptioned as Caputo et al. v. Imperial Tobacco Limited, et al.
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 an unfair business practice under the
California Business and Professions Code was not preempted by the Cigarette Act.
The suit is similar to one recently dismissed in Washington, except that the
plaintiffs 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. In September 1994, the defendants
filed a Petition for Certiorari to the United States Supreme Court, which was
denied in December 1994. The case has been remanded to the trial court.
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 in February 1995 and the case
is proceeding in Chancery Court. RJRN and other industry holding companies have
been dismissed from the case.
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 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. Motions by the defendants to dismiss all claims of Blue
Cross/Blue Shield and certain substantive claims of the State of Minnesota, and
by plaintiffs to strike certain of the defendants' defenses, were denied on May
19, 1995. An intermediate appeal court declined to hear the defendants' appeal
from the ruling denying the motion to dismiss all claims of Blue Cross/Blue
Shield
11
<PAGE>
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 8--CONTINGENCIES--(CONTINUED)
on the ground that it lacks standing to bring the action, but the Minnesota
Supreme Court has agreed to do so and, although no hearing date has been set,
briefing is in progress.
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
May 3, 1995, the judge granted defendants' motion to dismiss eight of the ten
causes of action pleaded. The defendants have filed motions to dismiss the
remaining two counts. On October 20, 1995, at a hearing on the defendants' joint
motion to prohibit prosecution of the action due to plaintiff's unlawful
retention of counsel under a contingent fee arrangement, in a ruling from the
bench, the contingent fee agreement between the West Virginia Attorney General
and private attorneys preparing the case was held to be void on the grounds that
the Attorney General has no constitutional, legislative, or statutory authority
for entering into such an agreement. An order incorporating this ruling has not
yet been entered.
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 and to require that defendants: 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. On defendants' motion, the case was stayed until July 7,
1995 and that stay has been extended pending appeals by the plaintiffs and the
defendants in connection with the constitutional challenge to the Florida
statute discussed below.
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 comparative negligence and assumption of risk
defenses. The Florida statute was 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 and on June 26, 1995 the trial court judge
granted in part the plaintiffs' motion for summary judgment finding portions of
the Act unconstitutional. Both plaintiffs and defendants have filed notices of
appeal from this decision which the Florida Supreme Court has accepted for a
direct appeal. Oral argument is scheduled for November 6, 1995.
The Florida House and Senate passed a bill that would repeal the Florida
statute retroactively which, on June 15, 1995, was vetoed by the Governor. The
Florida House and Senate have indicated that they are considering action to
override that veto. Similar legislation, without Florida's elimination
12
<PAGE>
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 8--CONTINGENCIES--(CONTINUED)
of defenses, has been introduced in the Massachusetts and New Jersey
legislatures. RJRT is unable to predict whether legislation will be enacted in
these states, whether other states will introduce and enact similar legislation,
whether lawsuits will be filed under statutes, if enacted, or the outcome of any
such lawsuits, if filed.
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.
-------------------
EPA PROCEEDINGS
In April 1995, RJRN Holdings was named a "potentially responsible party"
with certain third parties under the Comprehensive Environmental Response,
Compensation and Liability Act (CERCLA) with respect to a "superfund" site at
which a former subsidiary of RJRN had operations. The Registrants currently
cannot reasonably estimate the investigative or remedial costs, if any, for
which they may be liable in connection with this matter.
NOTE 9--STOCKHOLDERS' EQUITY
Retained earnings (accumulated deficit) at September 30, 1995 includes
non-cash expenses related to accumulated trademark and goodwill amortization of
approximately $4.1 billion.
13
<PAGE>
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 9--STOCKHOLDERS' EQUITY--(CONTINUED)
The completion on January 26, 1995 of Nabisco Holdings' initial public
offering of 51,750,000 shares of its Class A Common Stock and the corresponding
reduction in RJRN's proportionate economic interest in Nabisco Holdings from
100% to approximately 80.5% resulted in an adjustment of approximately $401
million to the carrying amount of RJRN's investment in Nabisco Holdings. Such
adjustment was reflected as additional paid-in capital by RJRN and RJRN
Holdings.
On April 1, July 1 and October 1, 1995, RJRN Holdings paid a quarterly
dividend on the Common Stock of $.375 per share. RJRN Holdings expects to
continue to pay a quarterly cash dividend on the Common Stock equal to $.375 per
share or $1.50 per share on an annualized basis.
On April 12, 1995, the stockholders of RJRN Holdings approved a one-for-five
reverse stock split and the corresponding reduction in the number of authorized
shares of Common Stock from 2,200,000,000 to 440,000,000. Accordingly, the rates
at which shares of ESOP Convertible Preferred Stock, par value $.01 per share,
and Series C Conversion Preferred Stock, par value $.01 per share, convert into
shares of Common Stock were proportionately adjusted.
On July 1 and October 1, 1995, Nabisco Holdings paid a quarterly dividend on
its common stock of $.1375 per share. Nabisco Holdings expects to continue to
pay a quarterly cash dividend on its common stock equal to $.1375 per share or
$.55 per share on an annualized basis (approximately $146 million). RJRN would
receive approximately $117 million of the annualized Nabisco Holdings dividend.
See Note 6 to the Consolidated Condensed Financial Statements for a
discussion of a preferred stock exchange completed on September 21, 1995.
NOTE 10--SUBSEQUENT EVENTS
On October 13, 1995, RJRN Holdings announced a plan to restructure its
domestic and international tobacco operations. The major components of the
restructuring program are a consolidation of the international tobacco
headquarters and two regional offices, currently based in Winston-Salem, North
Carolina and Geneva, Switzerland, into Geneva, Switzerland and a workforce
reduction at the domestic tobacco operations in Winston-Salem, North Carolina.
The costs and expenses associated with this plan are expected to result in an
approximate aggregate pre-tax charge of $240 million, a significant portion of
which will be a cash expense. Anticipated annual cash savings from the plan are
estimated to be in excess of approximately $230 million (approximately $150
million after-tax).
-------------------
14
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis of RJRN Holdings' financial condition
and results of operations should be read in conjunction with the historical
financial information included in the Consolidated Condensed Financial
Statements.
Results of Operations
Summarized financial data for RJRN Holdings is as follows:
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------------- ------------------------------
1995 1994 % CHANGE 1995 1994 % CHANGE
------ ------- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
(DOLLARS IN MILLIONS)
NET SALES:
RJRT............................. $1,156 $ 1,179 (2)% $ 3,355 $ 3,495 (4)%
Tobacco International............ 863 836 3 2,385 2,275 5
------ ------- ------- -------
Total Tobacco.................... 2,019 2,015 -- 5,740 5,770 (1)
------ ------- ------- -------
Domestic Food Group.............. 1,474 1,409 5 4,340 4,180 4
International Food Group......... 570 542 5 1,604 1,372 17
------ ------- ------- -------
Total Food....................... 2,044 1,951 5 5,944 5,552 7
------ ------- ------- -------
$4,063 $ 3,966 2 $11,684 $11,322 3
------ ------- ------- -------
------ ------- ------- -------
OPERATING COMPANY CONTRIBUTION*:
RJRT............................. $ 366 $ 375 (2)% $ 1,122 $ 1,156 (3)%
Tobacco International............ 197 205 (4) 523 557 (6)
------ ------- ------- -------
Total Tobacco.................... 563 580 (3) 1,645 1,713 (4)
------ ------- ------- -------
Domestic Food Group.............. 199 222 (10) 630 639 (1)
International Food Group......... 54 52 4 155 125 24
------ ------- ------- -------
Total Food....................... 253 274 (8) 785 764 3
------ ------- ------- -------
Corporate........................ (16) (19) 16 (48) (23) (109)
------ ------- ------- -------
$ 800 $ 835 (4) $ 2,382 $ 2,454 (3)
------ ------- ------- -------
------ ------- ------- -------
OPERATING INCOME:
RJRT............................. $ 274 $ 284 (4)% $ 847 $ 883 (4)%
Tobacco International............ 187 195 (4) 491 528 (7)
------ ------- ------- -------
Total Tobacco.................... 461 479 (4) 1,338 1,411 (5)
------ ------- ------- -------
Domestic Food Group.............. 148 172 (14) 477 486 (2)
International Food Group......... 48 46 4 138 111 24
------ ------- ------- -------
Total Food....................... 196 218 (10) 615 597 3
------ ------- ------- -------
Corporate........................ (16) (19) 16 (48) (23) (109)
------ ------- ------- -------
$ 641 $ 678 (5) $ 1,905 $ 1,985 (4)
------ ------- ------- -------
------ ------- ------- -------
</TABLE>
- ------------
* Operating income before amortization of trademarks and goodwill.
TOBACCO
The tobacco line of business is conducted by RJRT and R.J. Reynolds Tobacco
International, Inc. ("Tobacco International").
The worldwide tobacco business reported net sales of $2.02 billion in the
third quarter of 1995, approximately the same level as in the third quarter of
1994, and $5.74 billion in the first nine months of
15
<PAGE>
1995, a decline of 1% from the first nine months of 1994 level of $5.77 billion.
The third quarter comparison consisted of a higher proportion of domestic full
price sales, higher selling prices worldwide and favorable foreign currency
developments during 1995 that were offset by overall worldwide volume losses
during 1995. The net sales decline in the first nine months of 1995 resulted
primarily from the impact of overall worldwide volume losses that more than
offset a higher proportion of domestic full price sales, higher selling prices
worldwide, favorable international product mix and favorable foreign currency
developments. Overall worldwide tobacco volume for the third quarter of 1995
decreased 6% while overall worldwide tobacco volume for the first nine months
decreased 4% from the corresponding periods of the prior year. Operating company
contribution for the worldwide tobacco business of $563 million in the third
quarter of 1995 declined 3% from the third quarter of 1994 level of $580
million and operating company contribution for the worldwide tobacco business
of $1.65 billion in the first nine months of 1995 declined 4% from the first
nine months of 1994 level of $1.71 billion, reflecting lower operating company
contributions in both the domestic and international businesses. Operating
income for the worldwide tobacco business in the third quarter of 1995 of $461
million declined 4% from the third quarter of 1994 level of $479 million, and
operating income for the worldwide tobacco business in the first nine months of
1995 of $1.34 billion declined 5% from the first nine months of 1994 level of
$1.41 billion, reflecting the lower operating company contributions.
Net sales for RJRT amounted to $1.16 billion in the third quarter of 1995, a
decrease of 2% from the third quarter of 1994 level of $1.18 billion, and $3.36
billion in the first nine months of 1995, a decline of 4% from the first nine
months of 1994 level of $3.50 billion. The decrease in net sales in the third
quarter of 1995 resulted primarily from overall volume losses of less than 1% in
the full price segment (approximately $50 million) and volume losses of 15% in
the savings segment (approximately $22 million), partially offset by a higher
proportion of full price sales (approximately $14 million) and higher selling
prices in the full price and savings segments (approximately $30 million). The
decline in net sales in the first nine months of 1995 resulted primarily from
overall volume losses of 3% in the full price segment (approximately $174
million) and volume losses of 14% in the savings segment (approximately $75
million), partially offset by a higher proportion of full price sales
(approximately $48 million) and higher selling prices in both the full price and
savings segments (approximately $47 million). Although RJRT had a slight overall
volume loss in the full price segment during the third quarter of 1995, its
share of segment remained essentially the same as in the prior year as the
industry full price volume also declined by less than 1%. RJRT's volume
declined in the full price segment during the first nine months of 1995 despite
an industry average increase of approximately 1% due to the pattern of wholesale
purchases and the erosion of market share of certain brands during the first six
months of 1995. The 15% and 14% volume losses in the savings segment during the
third quarter of 1995 and the first nine months of 1995, respectively, exceeded
industry averages, reflecting an erosion of market share of certain brands in
the segment due to RJRT's decision to be more selective in its participation in
that segment. RJRT's full price volume as a percentage of total volume amounted
to 63% in the third quarter of 1995 and 62% in the first nine months of 1995
versus 70% and 70%, respectively, for the domestic cigarette market. Comparable
figures for RJRT for the prior year were 59% in the third quarter of 1994 and
59% in the first nine months of 1994 versus 68% and 67%, respectively, for the
domestic cigarette market. Overall RJRT tobacco volume declined 7% in both the
third quarter and the first nine months of 1995 compared to the corresponding
periods of the prior year.
RJRT's operating company contribution was $366 million in the third quarter
of 1995, a 2% decline from the third quarter of 1994 level of $375 million, as
higher pricing (approximately $30 million), the higher proportion of full price
sales (approximately $13 million), lower manufacturing costs (approximately $9
million) and reduced administrative expenses (approximately $19 million) were
more than offset by the impact of an increase in marketing expenses
(approximately $24 million) and overall lower volume (approximately $58
million). RJRT's operating company contribution was $1.12 billion in the first
nine months of 1995, a 3% decline from the first nine months of 1994 level of
$1.16 billion, as lower manufacturing costs (approximately $64 million), the
higher proportion of full price sales (approximately $44 million), reduced
merchandising (approximately $12 million), lower
16
<PAGE>
administrative expenses (approximately $14 million) and higher selling prices
(approximately $47 million) were more than offset by the decline in overall
volume (approximately $206 million) and an increase in marketing expenses
(approximately $49 million). RJRT's operating income was $274 million in the
third quarter of 1995, a decline of 4% from $284 million in the third quarter of
1994, and $847 million in the first nine months of 1995, a decline of 4% from
the first nine months of 1994 level of $883 million. The decline in operating
income for both the third quarter of 1995 and the first nine months of 1995
reflected the lower RJRT operating company contribution.
During the third quarter and first nine months of 1995, the pricing
stability that began in the fourth quarter of 1993 continued. In addition,
profit margins during each of the first three quarters of 1995 showed a slight
improvement compared to the fourth quarter of 1994. In May 1995, RJRT announced
increases in the list price of all of its brands by 3 cents per pack. RJRT's
major U.S. competitors thereafter announced similar price increases. RJRT is
unable to predict the impact of this price increase or whether the resulting
profit margins and pricing are sustainable.
In February 1994, the Commissioner of the U.S. Food and Drug Administration
(the "FDA"), which historically has asserted that it has no 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. In August 1995, the Commissioner of the FDA issued a notice and
solicitation of comments on the FDA's assertion that nicotine in cigarettes is a
drug and that cigarettes are drug delivery devices subject to regulation under
the Food, Drug and Cosmetic Act. The FDA also proposed regulations restricting
the sale, advertising and distribution of cigarettes to children and
adolescents. The comment period for each of these FDA proposals is scheduled to
close on January 2, 1996. In August 1995, RJRT and several other manufacturers
of cigarettes as well as an advertising agency filed suit in the United States
District Court for the Middle District of North Carolina against the FDA and its
Commissioner seeking a declaratory judgment that the FDA has no jurisdiction
over cigarettes and blocking FDA rulemaking or enforcement proceedings relating
to the manufacture, labeling or marketing of cigarettes. Similar suits have been
filed in the same court by manufacturers of smokeless tobacco products, by
operators of retail stores and by advertising interests. A motion for summary
judgment, filed by the plaintiff cigarette manufacturers and a motion to dismiss
filed by the FDA are pending. It is not possible to predict what actions, if
any, will result from the Congressional deliberations or the FDA proposals and
related litigation, and the effect thereof, if any, on RJRT or the cigarette
industry generally.
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.
Various states and local jurisdictions have enacted legislation imposing
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 have 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,
17
<PAGE>
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 8 to the Consolidated Condensed Financial Statements.
Tobacco International recorded net sales of $863 million in the third
quarter of 1995, an increase of 3% from the third quarter of 1994 level of $836
million, and $2.39 billion in the first nine months of 1995, an increase of 5%
from the first nine months of 1994 level of $2.28 billion. The increase in net
sales for the third quarter of 1995 resulted primarily from favorable foreign
currency developments (approximately $38 million) and higher pricing
(approximately $25 million), offset in part by the impact of overall volume
losses (approximately $33 million). The increase in net sales for the first nine
months of 1995 primarily resulted from favorable foreign currency developments
(approximately $104 million), higher pricing (approximately $32 million) and
favorable product mix (approximately $23 million), offset in part by overall
volume losses (approximately $49 million). Tobacco International's operating
company contribution of $197 million in the third quarter of 1995 decreased 4%
from the third quarter of 1994 level of $205 million due to lower overall volume
(approximately $17 million), higher promotional and selling expenses
(approximately $15 million), higher manufacturing costs (approximately $10
million) and higher administrative costs (approximately $8 million), which were
partially offset by higher pricing (approximately $25 million), favorable
product mix (approximately $4 million) and favorable currency developments
(approximately $3 million). Tobacco International's operating company
contribution of $523 million in the first nine months of 1995 decreased 6% from
the first nine months of 1994 level of $557 million due to lower overall volume
(approximately $32 million), higher administrative costs (approximately $32
million), higher promotional and selling expenses (approximately $23 million)
and higher manufacturing costs (approximately $8 million), which were partially
offset by higher pricing (approximately $32 million) and favorable product mix
(approximately $19 million). The decline in operating income for both the third
quarter of 1995 and the first nine months of 1995 reflected the lower Tobacco
International operating company contribution.
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 Company, the Specialty Products Company, the LifeSavers Company, the
Planters Company, the Food Service Company and the Fleischmann's Company
(collectively, the "Domestic Food Group"). Nabisco's businesses outside the
United States are conducted by Nabisco Ltd and Nabisco International, Inc.
("Nabisco International," and together with Nabisco Ltd, the "International Food
Group").
Nabisco Holdings increased net sales by 5% to $2.04 billion in the third
quarter of 1995 from $1.95 billion in the third quarter of 1994, and by 7% to
$5.94 billion in the first nine months of 1995 from $5.55 billion in the first
nine months of 1994, with the Domestic Food Group up 5% and 4%, respectively,
and the International Food Group up 5% and 17%, respectively. The Domestic Food
Group third quarter net sales increase was primarily attributable to volume
gains at the Nabisco Biscuit Company (approximately $64 million), reflecting the
introduction of breakfast snacks and new SnackWell's products, and volume gains
for Fleischmann's and Food Service Companies (approximately $25 million) which
were offset in part by lower volumes at Planters, Specialty Products and
LifeSavers Companies (approximately $24 million). The Domestic Food Group net
sales increase for the first nine months was primarily attributable to volume
gains at the Nabisco Biscuit Company (approximately $164 million), reflecting
new product introductions and product line extensions, together with volume
gains at the Food Service Company (approximately $24 million), which were offset
in part by volume declines at the Planters Company (approximately $22 million).
The International Food Group third quarter net sales increase was primarily the
result of increased net sales of biscuit and grocery products in Canada, volume
improvements in biscuits
18
<PAGE>
and dry desserts in Spain, the continued improvement of economic conditions in
Brazil and increases in biscuit volume in Colombia. The International Food
Group net sales increase for the first nine months was primarily the result of
improved results in Brazil (approximately $100 million) due in part to the
continuation of the country's economic recovery, the favorable impact of the
1994 acquisition of Establecimiento Modelo Terrabusi S.A. ("Terrabusi")
(approximately $64 million) and favorable performance from businesses in
Iberia, Canada and Venezuela (approximately $62 million) which were partially
offset by a decrease in net sales in Mexico (approximately $24 million) due to
the devaluation of the peso.
Nabisco Holdings' operating company contribution decreased $21 million to
$253 million in the third quarter of 1995 from $274 million in the third quarter
of 1994. For the nine month period, operating company contribution rose 3% to
$785 million in 1995 from $764 million in 1994, with the International Food
Group up 4% and 24%, respectively, and the Domestic Food Group down 10% and 1%,
respectively, for the third quarter and nine month periods. The third quarter
and nine month 1995 periods include a net gain of $11 million from the sale of
the Ortega Mexican food ($18 million gain in the Domestic Food Group) and New
York Style Bagel Chip ($7 million loss in the International Food Group) product
lines. Excluding this net gain, Nabisco Holdings' operating company contribution
was $242 million in the third quarter of 1995, a decrease of $32 million from
the third quarter of 1994, and $774 million in the first nine months of 1995, an
increase of 1% from the first nine months of 1994, with the International Food
Group up 17% and 30%, respectively, and the Domestic Food Group down 18% and
4%, respectively. The operating company contribution for the Domestic Food Group
during the third quarter of 1995 was lower due to significantly reduced profit
at the Planters Company caused by severe competition and increased marketing
expenses and higher marketing, selling and distribution expenses at Nabisco
Biscuit Company to support business building initiatives and respond to
competitive pressures. The Domestic Food Group's operating company contribution
decrease for the first nine months of 1995 reflects the competitive environment
in the biscuit and nut businesses. The International Food Group's increase in
operating company contribution for the third quarter of 1995 was primarily due
to the profit impact of increased sales in Brazil, Iberia, Canada and Colombia
(approximately $4 million). The International Food Group's increase in
operating company contribution for the first nine months of 1995 was primarily
due to the profit impact of increased sales in Brazil (approximately $14
million) and Iberia (approximately $7 million) and the impact of the Terrabusi
acquisition (approximately $8 million).
Nabisco Holdings' operating income declined 10% to $196 million in the third
quarter of 1995. For the nine month period, operating income increased 3% to
$615 million in 1995 from $597 million in 1994. The changes in operating income
were a result of the changes in operating company contribution discussed above.
On September 29, 1995, Nabisco acquired the assets of Avare, a Brazilian
milk products company, for $22 million including the assumption of $5 million in
liabilities.
Interest and Debt Expense
Consolidated interest and debt expense amounted to $221 million in the third
quarter of 1995 and $663 million in the first nine months of 1995, a decrease of
8% and 20%, respectively, from the corresponding periods in 1994, primarily as a
result of refinancings that were completed during 1994 and lower debt levels
from the application of proceeds from the issuance of preferred stock during
1994 and the issuance of Nabisco Holdings Class A Common Stock during the first
quarter of 1995. These factors more than offset the impact of higher market
interest rates.
19
<PAGE>
Other Income (Expense), Net
Consolidated other income (expense), net for the nine months of 1995
includes a pre-tax charge of approximately $103 million for fees and expenses
incurred in connection with the Exchange Offers and the Consent Solicitations.
See Note 1 to the Consolidated Condensed Financial Statements. Consolidated
other income (expense), net for the nine months of 1995 also includes higher
interest income related to the realization of interest on prior tax claims.
Net Income
RJRN Holdings reported net income of $216 million in the third quarter of
1995, the same amount as in the third quarter of 1994, and $567 million in the
first nine months of 1995, $110 million higher than the $457 million reported in
the first nine months of 1994. The flat result for the third quarter of 1995
compared with the third quarter of 1994 reflects lower interest and debt expense
and higher other income (expense), net during 1995 which more than offset the
decrease in operating income, the minority interest in income of Nabisco and the
extraordinary loss on early extinguishments of debt during 1995. The increase in
net income for the nine months of 1995 primarily reflects lower interest and
debt expense and the higher loss on early extinguishments of debt in 1994
compared with 1995 which more than offset the impact of the fees and expenses
incurred in connection with the Exchange Offers and the Consent Solicitations,
lower operating income and the minority interest in income of Nabisco during
1995.
Restructuring and Realignment Reserve Balances
As of September 30, 1995, the balance of prior restructuring and
headquarters realignment reserves aggregated $143 million, a decrease of $148
million from the corresponding balance of $291 million at December 31, 1994. The
amount of after tax cash savings for the nine months ended September 30, 1995
was approximately $153 million. Management expects future annual after tax cash
savings from the 1993 restructuring and the 1994 headquarters realignment to be
in the range of approximately $215 million to $240 million.
20
<PAGE>
Liquidity and Financial Condition
Net cash flows from operating activities for the first nine months of 1995
were $980 million, a decrease of $430 million from the first nine months of 1994
level of $1.41 billion. The decrease in net cash flows from operating activities
reflects lower income before extraordinary item, higher working capital
requirements (primarily lower accounts payable, lower accrued liabilities,
higher receivable levels and higher income taxes paid) and the impact of lower
non-cash interest and debt expense.
The components of net cash flows from operating activities are as follows:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30,
----------------
1995 1994
------ ------
(IN MILLIONS)
<S> <C> <C>
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES:
Net income............................................................... $ 567 $ 457
Adjustments to reconcile net income to cash flows from (used in)
operating activities:
Depreciation of property, plant and equipment........................ 360 332
Amortization (principally intangibles)............................... 516 521
Deferred income tax benefit.......................................... (143) (53)
Non-cash interest and debt expense................................... 15 113
Extraordinary item--loss on early extinguishments of debt before
income taxes....................................................... 29 223
Changes in working capital items, net................................ (369) (127)
Other, net........................................................... 5 (56)
------ ------
Total adjustments.................................................. 413 953
------ ------
NET CASH FLOWS FROM OPERATING ACTIVITIES................................... $ 980 $1,410
------ ------
------ ------
</TABLE>
Free cash flow, another measure used by management to evaluate liquidity and
financial condition and which represents cash available for the repayment of
debt and certain other corporate purposes before the consideration of debt and
equity financing transactions, acquisition expenditures and divestiture
proceeds, resulted in inflows of $84 million and $735 million for the first nine
months of 1995 and 1994, respectively. The decrease in free cash flow from 1994
to 1995 primarily reflects lower operating company contribution, higher
operating working capital requirements (primarily higher receivable levels,
lower accounts payable and lower accrued liabilities), higher capital
expenditures, higher tax and dividend payments and the payment of fees and
expenses for the Exchange Offers and the Consent Solicitations.
21
<PAGE>
The components of free cash flow are as follows:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30,
----------------
1995 1994
------ ------
(IN MILLIONS)
<S> <C> <C>
OPERATING INCOME........................................................... $1,905 $1,985
Amortization of intangibles.............................................. 477 469
------ ------
OPERATING COMPANY CONTRIBUTION............................................. 2,382 2,454
Depreciation and other amortization...................................... 399 383
Increase in operating working capital.................................... (486) (227)
Capital expenditures..................................................... (456) (441)
Change in other assets and liabilities................................... (38) 21
------ ------
OPERATING CASH FLOW*....................................................... 1,801 2,190
Taxes paid............................................................... (428) (372)
Interest paid............................................................ (591) (704)
Dividends paid........................................................... (438) (282)
Other, net............................................................... (260) (97)
------ ------
FREE CASH FLOW............................................................. $ 84 $ 735
------ ------
------ ------
</TABLE>
- ------------
* Operating cash flow, which is used internally to evaluate business
performance, includes, in addition to net cash flows from (used in) operating
activities as recorded in the Consolidated Condensed 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).
At September 30, 1995, RJRN Holdings' total debt level (notes payable and
long-term debt, including current maturities) and total capital (total debt,
redeemable preferred securities and stockholders' equity) were approximately
$9.8 billion and $21.2 billion, respectively, of which total debt and total
capital were approximately $1.3 billion and $853 million lower, respectively,
than the corresponding amounts at December 31, 1994. Approximately $5.1 billion
of the total debt was owed by RJRN and approximately $4.7 billion was owed by
its subsidiaries. RJRN Holdings' ratio of total debt to total stockholders'
equity was .94-to-1 at September 30, 1995 and 1.0-to-1 at December 31, 1994.
RJRN's ratio of total debt to common equity was .81-to-1 at September 30, 1995
and 1.0-to-1 at December 31, 1994.
The aggregate amount of consolidated indebtedness subject to floating
interest rates approximated $736 million at September 30, 1995. This represents
a decrease of $3.6 billion compared with the year-end 1994 level of $4.3 billion
and is primarily due to the application of approximately $1.2 billion of the net
proceeds from the Nabisco Holdings initial public offering to repay a portion of
Nabisco's borrowing
under the 1994 Nabisco Credit Agreement, Nabisco's interest rate derivative
transactions entered into during the second quarter of 1995 and the issuance of
$1.6 billion of fixed rate debt by Nabisco and $650 million of fixed rate debt
by RJRN in June and July, 1995 to refinance bank and commercial paper
borrowings.
RJRN Holdings' effective interest rate on its consolidated long-term debt
increased from 7.7% at December 31, 1994 to 8.0% at September 30, 1995,
primarily due to a lower proportion of consolidated indebtedness subject to
floating interest rates and higher market interest rates. Future effective
interest rates may vary as a result of RJRN's and Nabisco's ongoing management
of interest rate exposure, changing market interest rates, refinancing
activities and changes in the ratings assigned to RJRN's and Nabisco's debt
securities by independent rating agencies.
Currently, RJRN and its subsidiaries have three principal committed credit
facilities. The 1995 RJRN Credit Agreement is a $2.75 billion three year
revolving bank credit facility that provides for the issuance of up to $800
million of irrevocable letters of credit. Availability is reduced by the
aggregate amount of borrowings outstanding and letters of credit issued under
the 1995 RJRN Credit Agreement
22
<PAGE>
and by the amount of outstanding RJRN commercial paper in excess of $750
million. At September 30, 1995, approximately $501 million stated amount of
letters of credit were issued and no borrowings were outstanding under the 1995
RJRN Credit Agreement and approximately $286 million in RJRN commercial paper
was outstanding. Accordingly, the amount available under the 1995 RJRN Credit
Agreement at September 30, 1995 was approximately $2.25 billion.
The RJRN Commercial Paper Facility provides a 364 day back-up line of credit
to support RJRN commercial paper issuances of up to $750 million. Availability
is reduced by an amount equal to the aggregate amount of outstanding RJRN
commercial paper. At September 30, 1995, approximately $286 million of RJRN
commercial paper was outstanding, leaving approximately $464 million available
under the facility to support the issuance of additional RJRN commercial paper.
The 1995 Nabisco Credit Agreement is a five year, $3.5 billion revolving
bank credit facility that provides for the issuance of up to $300 million of
irrevocable letters of credit. Availability is reduced by the aggregate amount
of borrowings outstanding and letters of credit issued under the 1995 Nabisco
Credit Agreement and by the aggregate amount of outstanding Nabisco commercial
paper. At September 30, 1995, there were no borrowings outstanding or letters
of credit issued under the 1995 Nabisco Credit Agreement and approximately $1.3
billion in Nabisco commercial paper was outstanding. Accordingly, the amount
available under the 1995 Nabisco Credit Agreement at September 30, 1995 was
approximately $2.2 billion.
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. (See Note 9 to the Consolidated Condensed Financial
Statements.) Nabisco used all of the approximately $1.2 billion of net proceeds
from the initial public offering to repay a portion of its borrowings under the
1994 Nabisco Credit Agreement.
On April 1, July 1 and October 1 1995, RJRN Holdings paid a quarterly
dividend on the Common Stock of $.375 per share. RJRN Holdings expects to
continue to pay a quarterly cash dividend on the Common Stock equal to $.375 per
share or $1.50 per share on an annualized basis. RJRN Holdings believes that its
ability to pay these dividends will not be limited by the restrictions under the
New RJRN Credit Agreements and the 1995 Nabisco Credit Agreement described
below, or by the policies of its Board of Directors described in the
Registrants' Annual Report on Form 10-K for the fiscal year ended December 31,
1994.
On April 12, 1995, the stockholders of RJRN Holdings approved a one-for-five
reverse stock split and the corresponding reduction in the number of authorized
shares of Common Stock from 2,200,000,000 to 440,000,000. Accordingly, the rates
at which shares of ESOP Convertible Preferred Stock, par value $.01 per share,
and Series C Conversion Preferred Stock, par value $.01 per share, convert into
shares of Common Stock were proportionately adjusted.
On June 5, 1995, RJRN and Nabisco consummated the Exchange Offers. As part
of the transaction, RJRN returned to Nabisco approximately $1.8 billion of
intercompany notes that had been issued by Nabisco and were held by a
non-Nabisco affiliate of RJRN. The New Notes issued by Nabisco in the Exchange
Offers have interest rates, principal amounts, maturities and redemption
provisions identical to the corresponding Old Notes issued by RJRN. Nabisco
subsequently borrowed approximately $2.4 billion under the 1995 Nabisco Credit
Agreement to (a) repay or repurchase an additional $2.1 billion of intercompany
notes of Nabisco and its subsidiaries; (b) repay approximately $125 million of
outstanding borrowings under the 1994 Nabisco Credit Agreement; (c) repay
approximately $89 million of an intercompany note from Nabisco to Nabisco
Holdings; and (d) pay a $79 million dividend to Nabisco Holdings. Nabisco
Holdings used the payments it received to repay the balance of a $168 million
intercompany note to RJRN.
Concurrently with the Exchange Offers, RJRN consummated the Consent
Solicitations. The Exchange Offers, the Consent Solicitations and certain
related transactions were designed, among other
23
<PAGE>
things, to enable Nabisco to obtain long-term debt financing independent of RJRN
and to repay its intercompany debt to RJRN.
On June 5, 1995, RJRN applied the approximately $2.3 billion that it
received from Nabisco and Nabisco Holdings in repayment of the intercompany
notes to repay a portion of its borrowings under the 1991 RJRN Credit Agreement.
RJRN used an additional approximately $330 million of borrowings under the 1995
RJRN Credit Agreement to repay the balance of its obligations under the Old RJRN
Credit Agreements and to pay certain expenses associated with the Exchange
Offers, the Consent Solicitations and related transactions.
On June 28, 1995 Nabisco issued $400 million principal amount of 6.70% Notes
Due 2002, $400 million principal amount of 6.85% Notes Due 2005 and $400 million
principal amount of 7.55% Debentures Due 2015. The net proceeds from the
issuance of such debt securities were used to repay a portion of the borrowings
under the 1995 Nabisco Credit Agreement.
On July 1 and October 1, 1995, Nabisco Holdings paid a quarterly dividend on
its common stock of $.1375 per share. Nabisco Holdings expects to continue to
pay a quarterly cash dividend on its common stock equal to $.1375 per share or
$.55 per share on an annualized basis (approximately $146 million). RJRN would
receive approximately $117 million of the annualized Nabisco Holdings dividend.
On July 14, 1995, Nabisco issued $400 million principal amount of 7.05%
Notes Due 2007. The net proceeds from the issuance of such debt securities were
used to repay borrowings under the 1995 Nabisco Credit Agreement. On July 17,
1995, Nabisco redeemed its outstanding 8 5/8% Sinking Fund Debentures Due 2017
at a price of $1,051.75 for each $1,000 principal amount of debentures, plus
accrued interest. The aggregate redemption price and accrued interest on these
debentures was approximately $442 million.
On July 24, 1995, RJRN issued $400 million aggregate principal amount of 8%
Notes Due 2001 and $250 million aggregate principal amount of 8 3/4% Notes Due
2007 under a $1.0 billion debt shelf registration statement. Accordingly, $350
million of debt securities remains unissued under the shelf as of September 30,
1995. The net proceeds from the issuance of these securities have been or will
be used to repay borrowings under the 1995 RJRN Credit Agreement, to retire RJRN
commercial paper and for general corporate purposes.
On September 21, 1995, RJRN Holdings issued $978,248,969 aggregate principal
amount of its Junior Subordinated Debentures to the Trust. The Trust, in turn,
exchanged $948,901,500 principal amount of its Preferred Securities for
37,956,060 Series B Depositary Shares representing 37,956.06 of the 50,000
outstanding shares of Series B Preferred Stock (approximately 76%). RJRN
Holdings retired these shares, leaving 12,043.94 shares outstanding. The
transaction included a charge of approximately $5 million to RJRN Holdings' paid
in capital as the fair value of the Preferred Securities issued exceeded the
book carrying value of the retired Series B Preferred Stock.
At September 30, 1995, Nabisco had outstanding fixed interest rate swaps
with an aggregate notional principal amount of $1.0 billion and expiration dates
occurring within nine months. Nabisco entered into such agreements to
effectively fix a portion of its interest rate exposure on its floating rate
debt on a one for one basis.
The payment of dividends and the making of distributions by RJRN Holdings to
its stockholders are subject to direct and indirect restrictions under certain
financing agreements and debt instruments of the Registrants and their
subsidiaries. The New RJRN Credit Agreements generally restrict cumulative
common and preferred dividends and distributions by RJRN Holdings after April
28, 1995 to $1 billion, plus 50% of cumulative consolidated net income, as
defined, after January 1, 1995, plus the net cash proceeds of up to $250 million
in any twelve month period from issuances of equity securities. The New RJRN
Credit Agreements and certain other financing agreements also limit the ability
of RJRN Holdings and its subsidiaries to incur indebtedness, engage in
transactions with stockholders and
24
<PAGE>
affiliates, create liens, sell or dispose of certain assets and certain
subsidiaries' stock, issue certain equity securities and engage in certain
mergers or consolidations.
The 1995 Nabisco Credit Agreement generally restricts cumulative common and
preferred dividends and distributions after April 28, 1995 by Nabisco Holdings
to its stockholders, including RJRN, to $300 million plus 50% of Nabisco
Holdings' cumulative consolidated net income after January 1, 1995. In general,
loans and advances by Nabisco Holdings and its subsidiaries to RJRN are
effectively subject to a $100 million limit and may only be extended to RJRN's
foreign subsidaries. The 1995 Nabisco Credit Agreement also limits the ability
of Nabisco 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. These restrictions have not had and are not expected to have a
material effect on the ability of Nabisco Holdings to pay its anticipated
dividends, or on the ability of RJRN to meet its obligations.
RJRN Holdings obtained a consent on August 2, 1995 and an amendment dated
September 12, 1995 to the New RJRN Credit Agreements. The consent clarified
certain technical issues concerning the calculation of financial ratios. The
amendment was designed to provide RJRN Holdings with additional flexibility
under these ratios in response to competitive conditions in the cigarette
industry and to accommodate RJRT's plans to streamline its operations and
Tobacco International's plans to consolidate its headquarter operations in
Geneva, Switzerland. The Registrants believe that they and their subsidiaries
are currently in compliance with all restrictions imposed by the terms of their
indebtedness.
Management of RJRN Holdings and its subsidiaries are continuing to review
various strategic transactions, including but not limited to, acquisitions,
divestitures, mergers and joint ventures. No assurance may be given that any
such transactions will be announced or completed.
Capital expenditures were $456 million for the first nine months of 1995.
The current level of expenditures planned for all of 1995 is expected to be
approximately $750 million to $800 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
the Registrants' businesses.
The amount of cash outlays during the first nine months of 1995 for the
restructuring and realignment programs announced in 1993 and 1994 was primarily
offset by the after-tax cash savings realized from the restructuring and
realignment programs during the same period.
Subsequent Events
On October 13, 1995, RJRN Holdings announced a plan to restructure its
domestic and international tobacco operations. The major components of the
restructuring program are a consolidation of the international tobacco
headquarters and two regional offices, currently based in Winston-Salem, North
Carolina and Geneva, Switzerland, into Geneva, Switzerland and a workforce
reduction at the domestic tobacco operations in Winston-Salem, North Carolina.
The costs and expenses associated with this plan are expected to result in an
approximate aggregate pre-tax charge of $240 million, a significant portion of
which will be a cash expense. Anticipated annual cash savings from the plan are
estimated to be in excess of approximately $230 million (approximately $150
million after-tax).
On October 10, 1995, Nabisco purchased certain trademark and other assets of
Kraft Foods' U.S. and Canadian margarine and tablespreads business. On October
16, 1995, Nabisco purchased certain trademarks and other assets of Primo Foods
Limited, a Canadian manufacturer of dry pasta, canned tomatoes and pasta and
pizza sauces. On October 25, 1995, Nabisco purchased a 50% interest in Royal
Beech-Nut (pty) Ltd., a South African subsidiary of Del Monte Royal Foods Ltd.
Royal Beech-Nut brands include Beechies, Life Savers candy and Royal dessert
mixes. The total cost of these acquisitions approximated $220 million, subject
to post-closing adjustments.
-------------------
25
<PAGE>
PART II
ITEM 1. LEGAL PROCEEDINGS
TOBACCO-RELATED LITIGATION
During 1995 through October 11, 1995, 52 new actions have been filed or
served against RJRT and/or its affiliates or indemnitees, including one action
purporting to be a class action, and 18 actions, including two suits containing
class action allegations, have been dismissed or otherwise resolved in favor of
RJRT and or its affiliates or indemnitees without trial. As of October 11, 1995,
89 active cases were pending against RJRT and/or its affiliates or indemnitees,
87 in the United States, and two in Canada. The United States cases are in 22
states and are distributed as follows: thirty-five in Florida, eleven in
Louisiana, five in Texas, four in each of Kansas, Tennessee and Indiana, three
in each of California and Mississippi, two in each of Alabama, Colorado,
Minnesota, and Pennsylvania and one in each of New Jersey, Massachusetts,
Nevada, South Carolina, Rhode Island, New Hampshire, New York, Missouri, West
Virginia and North Carolina. Of the 87 active cases in the United States, 61 are
pending in state court and 26 in federal court.
Of the 89 active cases pending as of October 11, 1995 (i) six cases purport
to be class actions on behalf of many thousands of individuals; purported
classes include individuals claiming to be addicted to cigarettes and flight
attendants alleging personal injury from exposure to environmental tobacco smoke
in their workplace, (ii) one case involves plaintiffs purporting to act as
private attorneys general to claim that an RJRT advertising campaign constitutes
an unfair business practice under state law and (iii) three cases are suits
brought by individual states and a fourth by a state and health insurer on
various theories to recoup expenses incurred in the treatment of diseases
purportedly associated with cigarette smoking and to enjoin certain marketing
practices.
For additional information about tobacco-related litigation and legal
proceedings, see Note 8-- Contingencies--Tobacco-Related Litigation of Notes to
Consolidated Condensed Financial Statements.
-------------------
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.
-------------------
EPA PROCEEDING
In April 1995, RJRN Holdings was named a "potentially responsible party"
with certain third parties under the Comprehensive Environmental Response,
Compensation and Liability Act (CERCLA) with respect to a "superfund" site at
which a former subsidiary of RJRN had operations. The Registrants currently
cannot reasonably estimate the investigative or remedial costs, if any, for
which they may be liable in connection with this matter.
ITEM 5. OTHER INFORMATION
On October 11, 1995, the Board of RJRN Holdings elected Steven F. Goldstone,
the Registrants' General Counsel, to the office of President. Mr. Goldstone has
resigned as a partner in the law firm of Davis Polk & Wardwell. He joins Messrs.
Harper, Greeniaus and Johnston in the Office of the Chairman.
26
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
*3.1 Amended and Restated By-laws of RJR Nabisco Holdings Corp., as
amended effective August 21, 1995.
*3.2 Amended and Restated By-laws of RJR Nabisco, Inc., as amended
effective August 8, 1995.
*10.1 First Amendment, dated as of September 12, 1995, to the Credit
Agreement among RJR Nabisco Holdings Corp., RJR Nabisco, Inc.,
Bankers Trust Company, The Chase Manhattan Bank, N.A.,
Chemical Bank, Citibank, N.A. and the Fuji Bank, Limited as
Senior Managing Agents and various lending institutions, dated
as of April 28, 1995.
*10.2 Exchange and Indemnification Agreement among Nabisco, Inc.,
Nabisco Holdings Corp., and RJR Nabisco, Inc. dated as of
April 26, 1995
10.3 Form of Indenture, (the "Indenture") between RJR Nabisco Holdings
Corp. and The Bank of New York. (Incorporated by reference to
Exhibit 4.1 to the Registration Statement on Form S-4 of RJR
Nabisco Holdings Corp. and RJR Nabisco Holdings Capital Trust I,
Registration Nos. 33-60415 and 33-60415-01, filed June 20, 1995
(the "S-4 Registration Statement").)
10.4 Form of First Supplemental Indenture to Indenture. (Incorporated
by reference to Exhibit 4.2 to the S-4 Registration Statement.)
10.5 Form of Amended and Restated Declaration of Trust of RJR Nabisco
Holdings Capital Trust I, (Incorporated by reference to Exhibit 4.5
to the S-4 Registration Statement.)
10.6 Form of Preferred Security of RJR Nabisco Holdings Capital Trust I
(included in Exhibit 10.5 above).
10.7 Form of Junior Subordinated Debenture (included in Exhibit 10.3
above).
10.8 Form of Guarantee Agreement with respect to Preferred Securities
between RJR Nabisco Holdings Corp. and The Bank of New York as the
Guarantee Trustee. (Incorporated by reference to Exhibit 4.8 to
the S-4 Registration Statement.)
*10.9 Form of Amendment by and among RJR Nabisco, Inc., Nabisco, Inc.
and the executive named therein to Employment Agreement dated
October 31, 1988 by and between RJR Nabisco, Inc. and the executive.
*10.10 Form of Employment Agreement by and between Nabisco, Inc. and the
executive named therein.
*11.1 RJR Nabisco Holdings Corp. Computation of Earnings Per Share for
the three months ended September 30, 1995 and 1994.
*11.2 RJR Nabisco Holdings Corp. Computation of Earnings Per Share for
the nine months ended September 30, 1995 and 1994.
*12.1 RJR Nabisco Holdings Corp. Computation of Ratio of Earnings to
Combined Fixed Charges and Preferred Stock Dividends for the nine
months ended September 30, 1995.
*12.2 RJR Nabisco, Inc. Computation of Ratio of Earnings to Fixed Charges
for the nine months ended September 30, 1995.
*27.1 RJR Nabisco Holdings Corp. Financial Data Schedule.
*27.2 RJR Nabisco, Inc. Financial Data Schedule
- ------------
* Filed herewith.
(b) Reports on Form 8-K
None.
27
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, each
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
(Registrants)
Date: October 31, 1995 /s/ ROBERT S. ROATH
.............................................
Robert S. Roath,
Senior Vice President and
Chief Financial Officer
/s/ RICHARD G. RUSSELL
.............................................
Richard G. Russell,
Senior Vice President and Controller
28
<PAGE>
EXHIBIT INDEX
*3.1 Amended and Restated By-laws of RJR Nabisco Holdings Corp., as
amended effective August 21, 1995.
*3.2 Amended and Restated By-laws of RJR Nabisco, Inc., as amended
effective August 8, 1995.
*10.1 First Amendment, dated as of September 12, 1995, to the Credit
Agreement among RJR Nabisco Holdings Corp., RJR Nabisco, Inc.,
Bankers Trust Company, The Chase Manhattan Bank, N.A.,
Chemical Bank, Citibank, N.A. and the Fuji Bank, Limited as
Senior Managing Agents and various lending institutions, dated
as of April 28, 1995.
*10.2 Exchange and Indemnification Agreement among Nabisco, Inc.,
Nabisco Holdings Corp., and RJR Nabisco, Inc. dated as of
April 26, 1995
10.3 Form of Indenture, (the "Indenture") between RJR Nabisco Holdings
Corp. and The Bank of New York. (Incorporated by reference to
Exhibit 4.1 to the Registration Statement on Form S-4 of RJR
Nabisco Holdings Corp. and RJR Nabisco Holdings Capital Trust I,
Registration Nos. 33-60415 and 33-60415-01, filed June 20, 1995
(the "S-4 Registration Statement").)
10.4 Form of First Supplemental Indenture to Indenture. (Incorporated
by reference to Exhibit 4.2 to the S-4 Registration Statement.)
10.5 Form of Amended and Restated Declaration of Trust of RJR Nabisco
Holdings Capital Trust I, (Incorporated by reference to Exhibit 4.5
to the S-4 Registration Statement.)
10.6 Form of Preferred Security of RJR Nabisco Holdings Capital Trust I
(included in Exhibit 10.5 above).
10.7 Form of Junior Subordinated Debenture (included in Exhibit 10.3
above).
10.8 Form of Guarantee Agreement with respect to Preferred Securities
between RJR Nabisco Holdings Corp. and The Bank of New York as the
Guarantee Trustee. (Incorporated by reference to Exhibit 4.8 to
the S-4 Registration Statement.)
*10.9 Form of Amendment by and among RJR Nabisco, Inc., Nabisco, Inc.
and the executive named therein to Employment Agreement dated
October 31, 1988 by and between RJR Nabisco, Inc. and the executive.
*10.10 Form of Employment Agreement by and between Nabisco, Inc. and the
executive named therein.
*11.1 RJR Nabisco Holdings Corp. Computation of Earnings Per Share for
the three months ended September 30, 1995 and 1994.
*11.2 RJR Nabisco Holdings Corp. Computation of Earnings Per Share for
the nine months ended September 30, 1995 and 1994.
*12.1 RJR Nabisco Holdings Corp. Computation of Ratio of Earnings to
Combined Fixed Charges and Preferred Stock Dividends for the nine
months ended September 30, 1995.
*12.2 RJR Nabisco, Inc. Computation of Ratio of Earnings to Fixed Charges
for the nine months ended September 30, 1995.
*27.1 RJR Nabisco Holdings Corp. Financial Data Schedule.
*27.2 RJR Nabisco, Inc. Financial Data Schedule
- ------------
* Filed herewith.
EXHIBIT 3.1
RJR NABISCO HOLDINGS CORP.
BY-LAWS
As Amended Effective August 21, 1995
ARTICLE I
MEETINGS OF STOCKHOLDERS
------------------------
Section 1. Place of Meetings. Meetings of stockholders of the
-----------------
Corporation shall be held at such place either within or without the State of
Delaware as the Board of Directors may determine.
Section 2. Annual and Special Meetings. Annual meetings of
---------------------------
stockholders shall be held, at a date, time and place fixed by the Board of
Directors and stated in the notice of meeting, to elect a Board of Directors and
to transact such other business as may properly come before the meeting. Special
meetings of stockholders may be called by the Chairman for any purpose, shall be
called by the Chairman or the Secretary if directed by the Board of Directors,
and may not be called by or at the request of any other person.
Section 3. Notice. Except as otherwise provided by law or by the
------
Certificate of Incorporation, written notice shall be given to each stockholder
entitled to vote at least 10 and not more than 60 days before each meeting of
stockholders, such notice to include the time, date and place of the meeting
and, in the case of a special meeting, the purpose or purposes for which the
meeting is called.
Section 4. Quorum. At any meeting of stockholders, the holders
------
of record, present in person or by proxy, of a majority of the Corporation's
stock issued and outstanding and entitled to vote shall constitute a quorum for
the transaction of business, except as otherwise provided by law or by the
Certificate of Incorporation. In the absence of a quorum, any officer entitled
to preside at or to act as secretary of the meeting shall have power to adjourn
the meeting from time to time until a quorum is present.
<PAGE>
Section 5. Conduct of Meeting and Order of Business. The
----------------------------------------
Chairman or, in his absence, either Vice Chairman, or both of them, shall act as
chairman at all meetings of stockholders. The Secretary of the Corporation or,
in his or her absence, an Assistant Secretary shall act as secretary at all
meetings of stockholders. The chairman of the meeting shall have the right and
authority to determine and maintain the rules, regulations and procedures for
the proper conduct of the meeting, including but not limited to restricting
entry to the meeting after it has commenced, maintaining order and the safety of
those in attendance, opening and closing the polls for voting, dismissing
business not properly submitted, and limiting time allowed for discussion of the
business of the meeting.
Business to be conducted at annual meetings of stockholders
shall be limited to that properly submitted to the meeting either by or at the
direction of the Board of Directors or by any stockholder of the Corporation who
shall be entitled to vote at such meeting and who complies with the notice
requirements set forth in Section 6 of this Article I. If the chairman of the
meeting shall determine that any business was not properly submitted in
accordance with the terms of Section 6 of this Article I, he shall declare to
the meeting that such business was not properly submitted and would not be
transacted at that meeting.
Section 6. Advance Notice of Stockholder Proposals. In order to
---------------------------------------
properly submit any business to an annual meeting of stockholders, a stockholder
must give timely notice in writing to the Secretary of the Corporation. To be
considered timely, a stockholder's notice must be delivered either in person or
by United States certified mail, postage prepaid, and received at the principal
executive offices of the Corporation (a) not less than 120 days nor more than
150 days before the first anniversary date of the Corporation's proxy statement
in connection with the last annual meeting of stockholders or (b) if no annual
meeting was held in the previous year or the date of the applicable annual
meeting has been changed by more than 30 days from the date contemplated at the
time of the previous year's proxy statement, not less than a reasonable time, as
determined by the Board of Directors, prior to the date of the applicable annual
meeting.
Nomination of persons for election to the Board of Directors may
be made by the Board of Directors or any committee designated by the Board of
Directors or by any stockholder entitled to vote for the election of directors
at the applicable meeting of stockholders. However, nominations other than those
made by the Board of Directors or its designated committee must comply with the
procedures set forth in this Section 6, and no person shall be eligible for
election as a director unless nominated in accordance with the terms of this
Section 6.
<PAGE>
A stockholder may nominate a person or persons for election to
the Board of Directors by giving written notice to the Secretary of the
Corporation in accordance with the procedures set forth above. In addition to
the timeliness requirements set forth above for notice to the Corporation by a
stockholder of business to be submitted at an annual meeting of stockholders,
with respect to any special meeting of stockholders called for the election of
directors, written notice must be delivered in the manner specified above and
not later than the close of business on the seventh day following the date on
which notice of such meeting is first given to stockholders.
The Secretary of the Corporation shall deliver any stockholder
proposals and nominations received in a timely manner for review by the Board of
Directors or a committee designated by the Board of Directors.
A stockholder's notice to submit business to an annual meeting
of stockholders shall set forth (i) the name and address of the stockholder,
(ii) the class and number of shares of stock beneficially owned by such
stockholder, (iii) the name in which such shares are registered on the stock
transfer books of the Corporation, (iv) a representation that the stockholder
intends to appear at the meeting in person or by proxy to submit the business
specified in such notice, (v) any material interest of the stockholder in the
business to be submitted and (vi) a brief description of the business desired to
be submitted to the annual meeting, including the complete text of any
resolutions to be presented at the annual meeting, and the reasons for
conducting such business at the annual meeting. In addition, the stockholder
making such proposal shall promptly provide any other information reasonably
requested by the Corporation.
In addition to the information required above to be given by a
stockholder who intends to submit business to a meeting of stockholders, if the
business to be submitted is the nomination of a person or persons for election
to the Board of Directors then such stockholder's notice must also set forth, as
to each person whom the stockholder proposes to nominate for election as a
director, (a) the name, age, business address and, if known, residence address
of such person, (b) the principal occupation or employment of such person, (c)
the class and number of shares of stock of the Corporation which are
beneficially owned by such person, (d) any other information relating to such
person that is required to be disclosed in solicitations of proxies for election
of directors or is otherwise required by the rules and regulations of the
Securities and Exchange Commission promulgated under the Securities Exchange Act
of 1934, as amended, (e) the written consent of such person to be named in the
proxy statement as a nominee and to serve as a director if elected and (f) a
description of all arrangements or understandings between such stockholder and
each nominee and any other person
<PAGE>
or persons (naming such person or persons) pursuant to which the nomination or
nominations are to be made by such stockholder.
Any person nominated for election as director by the Board of
Directors or any committee designated by the Board of Directors shall, upon the
request of the Board of Directors or such committee, furnish to the Secretary of
the Corporation all such information pertaining to such person that is required
to be set forth in a stockholder's notice of nomination.
Notwithstanding the foregoing provisions of this Section 6, a
stockholder who seeks to have any proposal included in the Corporation's proxy
statement shall comply with the requirements of Regulation 14A under the
Securities Exchange Act of 1934, as amended.
Section 7. Voting. Except as otherwise provided by law or by the
------
Certificate of Incorporation, all matters submitted to a meeting of stockholders
shall be decided by vote of the holders of record, present in person or by
proxy, of a majority of the Corporation's stock issued and outstanding and
entitled to vote.
A proxy shall be executed in writing by the stockholder or by
his duly authorized attorney-in-fact and shall be delivered to the secretary of
the meeting at or prior to the time designated by the chairman of the meeting.
No stockholder may designate more than four persons to act on his behalf at a
meeting of stockholders.
Section 8. Inspectors of Election. Prior to any meeting of
----------------------
stockholders, the Board of Directors shall appoint one or more inspectors to act
at the meeting and make a written report thereof in accordance with the Delaware
General Corporation Law. The Board of Directors may designate one or more
persons as alternate inspectors to replace any inspector who fails to act. Each
inspector, before entering upon the discharge of his duties, shall take and sign
an oath to execute faithfully the duties of inspector with strict impartiality
and according to the best of his ability.
Section 9. Record Date for Action by Written Consent;
Inspectors and Effectiveness.
------------------------------------------
(a) In order that the Corporation may determine
the stockholders entitled to consent to corporate action in
writing without a meeting, the Board of Directors may fix a
record date, which record date shall not precede the date upon
which the resolution fixing the record date is adopted by the
Board of
<PAGE>
Directors, and which date shall not be more than 10
days after the date upon which the resolution fixing the
record date is adopted by the Board of Directors. Any
stockholder of record seeking to have the stockholders
authorize or take corporate action by written consent shall,
by written notice to the Secretary, request the Board of
Directors to fix a record date. The Board of Directors shall
promptly, but in all events within 10 days after the date on
which such a request is received, adopt a resolution fixing
the record date. If no record date has been fixed by the Board
of Directors within 10 days of the date on which such a
request is received, the record date for determining
stockholders entitled to consent to corporate action in
writing without a meeting, when no prior action by the Board
of Directors is required by applicable law, shall be the first
date on which a signed written consent setting forth the
action taken or proposed to be taken is delivered to the
Corporation by delivery to its registered office in the State
of Delaware, its principal place of business or to any officer
or agent of the Corporation having custody of the book in
which proceedings of meetings of stockholders are recorded, to
the attention of the Secretary of the Corporation. Delivery
made to the Corporation's registered office shall be by hand
or by certified or registered mail, return receipt requested.
If no record date has been fixed by the Board of Directors and
prior action by the Board of Directors is required by
applicable law, the record date for determining stockholders
entitled to consent to corporate action in writing without a
meeting shall be at the close of business on the date on which
the Board of Directors adopts the resolution taking such prior
action.
(b) In the event of the delivery, in the manner
provided by Section 9(a), to the Corporation of the requisite
written consent or consents to take corporate action and/or
any related revocation or revocations, the Corporation shall
engage nationally recognized independent inspectors of
elections for the purpose of promptly performing a ministerial
review of the validity of the consents and revocations. For
the purpose of permitting the inspectors to perform such
review, no action by written consent without a meeting shall
be effective until such date as the independent inspectors
certify to the Corporation that the consents delivered to the
Corporation in accordance with Section 9(a) represent at least
the minimum number of votes that would be necessary to take
the corporate action. Nothing contained in this paragraph
shall in any way be construed to suggest or imply that the
Board of Directors or any stockholder shall
<PAGE>
not be entitled to contest the validity of any consent
or revocation thereof, whether before or after such
certification by the independent inspectors, or to take
any other action (including, without limitation, the
commencement, prosecution or defense of any litigation with
respect thereto, and the seeking of injunctive relief in such
litigation).
(c) Every written consent shall bear the date of
signature of each stockholder who signs the consent and no
written consent shall be effective to take the corporate
action referred to therein unless, within 60 days of the
earliest dated written consent delivered in accordance with
Section 9(a), a written consent or consents signed by a
sufficient number of stockholders to take such action are
delivered to the Corporation in the manner prescribed in
Section 9(a).
ARTICLE II
DIRECTORS
---------
Section 1. Number, Election and Removal of Directors. The number
-----------------------------------------
of Directors that shall constitute the Board of Directors shall be not less than
one nor more than seventeen. The first Board of Directors shall consist of three
Directors. Thereafter, within the limits specified above, the number of
Directors shall be determined by the Board of Directors or by the stockholders.
The Directors shall be elected by the stockholders at their annual meeting and
shall serve until the next annual meeting of stockholders and until their
successors are elected and shall qualify. Vacancies and newly created
directorships resulting from any increase in the number of Directors may be
filled by a majority of the Directors then in office, although less than a
quorum, or by the sole remaining Director or by the stockholders, and any
Director so chosen shall serve until the next annual meeting of stockholders and
until his successor shall be elected and shall qualify. A Director may be
removed with or without cause by the stockholders.
Section 2. Meetings. Regular meetings of the Board of Directors
--------
shall be held at such times and places as may from time to time be fixed by the
Board of Directors or as may be specified in a notice of meeting. Special
meetings of the Board of Directors may be held at any time upon the call of the
Chairman and shall be called by the Chairman or the Secretary if directed by the
Board of
<PAGE>
Directors. A meeting of the Board of Directors may be held without
notice immediately after the annual meeting of stockholders. Notice need not be
given of regular or special meetings of the Board of Directors.
Section 3. Quorum. One-third of the total number of Directors
------
shall constitute a quorum for the transaction of business. If a quorum is not
present at any meeting of the Board of Directors, the Directors present may
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until such a quorum is present. Except as otherwise provided by
law, the Certificate of Incorporation of the Corporation, these By-Laws or any
contract or agreement to which the Corporation is a party, the act of a majority
of the Directors present at any meeting at which there is a quorum shall be the
act of the Board of Directors.
Section 4. Executive Committee. The Board of Directors, by
-------------------
resolution adopted by a majority of the entire Board, may appoint from among its
members an Executive Committee consisting of the Chairman and at least two other
Directors. Meetings of the Executive Committee shall be held without notice at
such dates, times and places as shall be determined by the Executive Committee.
The Executive Committee shall have and may exercise all the powers and authority
of the Board of Directors in the management of the business and affairs of the
Corporation that are permitted by law to be exercised by a committee of the
Board of Directors, including the power to declare dividends, to authorize the
issuance of stock and to adopt a certificate of ownership and merger of parent
corporation and subsidiary or subsidiaries; provided, however, that the
Executive Committee shall not have the power or authority of the Board of
Directors in reference to amending the Certificate of Incorporation, adopting an
agreement of merger or consolidation with respect to the Corporation,
recommending to the stockholders the sale, lease or exchange of all or
substantially all the Corporation's property and assets, recommending to the
stockholders a dissolution of the Corporation or a revocation of a dissolution,
amending the By-Laws of the Corporation or adopting a certificate of ownership
and merger of the Corporation (other than a certificate of ownership and merger
of parent corporation and subsidiary or subsidiaries). The majority of the
members of the Executive Committee shall constitute a quorum. Minutes shall be
kept of the proceedings of the Executive Committee, which shall be reported at
meetings of the Board of Directors. The Executive Committee may, to the extent
authorized in the resolution or resolutions providing for the issuance of shares
of stock adopted by the Board of Directors of the Corporation, fix any of the
preferences or rights of such shares relating to dividends, redemption,
dissolution, any distribution of assets of the Corporation or the conversion
into, or the exchange of such shares for, shares of any other class or classes
or any other series of the same or any other class or classes of stock of the
Corporation or fix the number of shares of any series of stock or authorize the
increase or decrease of the shares of any series.
Section 5. Other Committees of Directors. The Board of Directors
-----------------------------
may, by resolution adopted by a majority of the Board of Directors, designate
one or more other committees to have and exercise such power and authority as
the Board of Directors shall specify. In the absence or disqualification of a
member of a committee, the member or members thereof present at any meeting and
not disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another Director to act at the meeting in place of any such
absent or disqualified member.
ARTICLE III
OFFICERS
--------
Section 1. Description and Terms. The officers of the
---------------------
Corporation shall be the Chairman, who shall be the Chief Executive Officer of
the Corporation, two Vice Chairmen, a Secretary, a Treasurer and such other
additional officers with such titles as the Board of Directors shall determine,
all of whom shall be chosen by and serve at the pleasure of the Board of
Directors; provided that the Chairman may appoint Senior Vice Presidents, Vice
Presidents or Assistant Officers at his discretion. Subject to such limitations
as may be imposed by the Board of Directors, the Chairman shall have full
executive power and authority with respect to the Corporation and shall have all
the power and authority reserved to the office of President under Delaware Law.
Each Vice Chairman shall have such powers and authority as the Chairman may
determine. In addition, in the absence or incapacitation of the Chairman, each
Vice Chairman, acting singly, shall have all the power and authority of the
Chairman. Other officers shall have the usual powers and shall perform all the
usual duties incident to their respective offices. All officers shall be subject
to the supervision and direction of the Board of Directors. The authority,
duties or responsibilities of any officer of the Corporation may be suspended by
the Chairman with or without cause. Any officer elected or appointed by the
Board of Directors may be removed by the Board of Directors with or without
cause. Subject to such limitations as the Board of Directors may provide, each
officer may further delegate to any other officer or any employee or agent of
the Corporation such portions of their authority as the officer shall deem
appropriate, subject to such limitation as the officer shall specify, and may
revoke such authority at any time.
<PAGE>
Section 2. Stockholder Consents and Proxies. The Chairman, each
--------------------------------
Vice Chairman, the Secretary and the Treasurer, or any one of them, shall have
the power and authority on behalf of the Corporation to execute any
stockholders' consents or proxies and to attend and act and vote in person or by
proxy at any meetings of stockholders of any corporation in which the
Corporation may own stock, and at any such meetings shall possess and may
exercise any and all of the rights and powers incident to the ownership of such
stock which as the owner thereof the Corporation might have possessed and
executed if present. The Board of Directors by resolution from time to time may
confer like powers upon any other officer.
ARTICLE IV
INDEMNIFICATION
---------------
To the fullest extent permitted by the Delaware General
Corporation Law, the Corporation shall indemnify any current or former Director
or officer of the Corporation and may, at the discretion of the Board of
Directors, indemnify any current or former employee or agent of the Corporation
against all expenses (including attorneys' fees), judgments, fines and amounts
paid in settlement actually and reasonably incurred by him in connection with
any threatened, pending or completed action, suit or proceeding brought by or in
the right of the Corporation or otherwise, to which he was or is a party or is
threatened to be made a party by reason of his current or former position with
the Corporation or by reason of the fact that he is or was serving, at the
request of the Corporation, as a director, officer, partner, trustee, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise.
<PAGE>
ARTICLE V
GENERAL PROVISIONS
------------------
Section 1. Notices. Whenever any statute, the Certificate of
-------
Incorporation or these By-Laws require notice to be given to any Director or
stockholder, such notice to be given in writing by mail, addressed to such
Director or stockholder at his address as it appears on the records of the
Corporation, with postage thereon prepaid. Such notice shall be deemed to have
been given when it is deposited in the United States mail. Notice to Directors
may also be given by telegram or facsimile transmission or be delivered
personally or by telephone.
Section 2. Fiscal Year. The fiscal year of the Corporation
-----------
shall be fixed by the Board of Directors.
Section 3. Certificates of Stock. Certificates representing
---------------------
shares of the Corporation shall be signed by the Chairman and by the Secretary
or an Assistant Secretary. Any and all signatures on such certificates,
including signatures of officers, transfer agents and registrars, may be
facsimile.
EXHIBIT 3.2
RJR NABISCO, INC.
BY-LAWS
As Amended Effective August 8, 1995
ARTICLE I
MEETINGS OF STOCKHOLDERS
------------------------
Section 1. Place of Meetings. Meetings of the stockholders of
-----------------
the Corporation shall be held at such place either within or without the State
of Delaware as the Board of Directors may determine.
Section 2. Annual and Special Meetings. Annual meetings of
---------------------------
stockholders shall be held, at a date, time and place fixed by the Board of
Directors and stated in the notice of meeting, to elect a Board of Directors and
to transact such other business as may properly come before the meeting. Special
meetings of the stockholders may be called by the Chairman for any purpose and
shall be called by the Chairman or the Secretary if directed by the Board of
Directors or requested in writing by the holders of not less than 25% of the
common stock of the Corporation. Each such stockholder request shall state the
purpose of the proposed meeting.
Section 3. Notice. Except as otherwise provided by law or by the
------
Certificate of Incorporation, at least 10 and not more than 60 days before each
meeting of stockholders, written notice of the time, date and place of the
meeting, and, in the case of a special meeting, the purpose or purposes for
which the meeting is called, shall be given to each stockholder.
Section 4. Quorum. At any meeting of stockholders, the holders
------
of record, present in person or by proxy, of a majority of the Corporation's
issued and outstanding common stock shall constitute a quorum for the
transaction of business, except as otherwise provided by law or by the
Certificate of Incorporation. In the absence of a quorum, any officer entitled
to preside at or to act as secretary of the meeting shall have power to adjourn
the meeting from time to time until a quorum is present.
<PAGE>
Section 5. Voting. Except as otherwise provided by law or by the
------
Certificate of Incorporation, all matters submitted to a meeting of stockholders
shall be decided by vote of the holders of record, present in person or by
proxy, of a majority of the Corporation's issued and outstanding common stock.
The date and time of the opening and closing of the polls for each matter upon
which stockholders will vote shall be announced at the meeting.
Section 6. Inspectors of Election. Prior to any meeting of the
----------------------
stockholders, the Board of Directors shall appoint one or more inspectors to act
at the meeting and make a written report thereof in accordance with the Delaware
General Corporation Law. The Board of Directors may designate one or more
persons as alternate inspectors to replace any inspector who fails to act. Each
inspector, before entering upon the discharge of his duties, shall take and sign
an oath to execute faithfully the duties of inspector with strict impartiality
and according to the best of his ability.
ARTICLE II
DIRECTORS
---------
Section 1. Number, Election and Removal of Directors. The number
-----------------------------------------
of Directors that shall constitute the Board of Directors shall be not less than
one nor more than seventeen. The first Board of Directors shall consist of three
Directors. Thereafter, within the limits specified above, the number of
Directors shall be determined by the Board of Directors or by the stockholders.
The Directors shall be elected by the stockholders at their annual meeting and
shall serve until the next annual meeting of the stockholders and until their
successors are elected and shall qualify. Vacancies and newly created
directorships resulting from any increase in the number of Directors may be
filled by a majority of the Directors then in office, although less than a
quorum, or by the sole remaining Director or by the stockholders, and any
Director so chosen shall serve until the next annual meeting of the stockholders
and until his successor shall be elected and shall qualify. A Director may be
removed with or without cause by the stockholders.
Section 2. Meetings. Regular meetings of the Board of Directors
--------
shall be held at such times and places as may from time to time be fixed by the
Board of Directors or as may be specified in a notice of meeting. Special
meetings of the Board of Directors may be held at any time upon the call of the
Chairman and shall be called by the Chairman or the Secretary if directed by the
Board of Directors. A meeting of the Board of Directors may be held without
notice
<PAGE>
immediately after the annual meeting of the stockholders. Notice need not be
given of regular or special meetings of the Board of Directors.
Section 3. Quorum. One-third of the total number of Directors
------
shall constitute a quorum for the transaction of business. If a quorum is not
present at any meeting of the Board of Directors, the Directors present may
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until such a quorum is present. Except as otherwise provided by
law, the Certificate of Incorporation of the Corporation, these By-Laws or any
contract or agreement to which the Corporation is a party, the act of a majority
of the Directors present at any meeting at which there is a quorum shall be the
act of the Board of Directors.
Section 4. Executive Committee. The Board of Directors, by
-------------------
resolution adopted by a majority of the entire Board, may appoint from among its
members an Executive Committee consisting of the Chairman and at least two other
Directors. Meetings of the Executive Committee shall be held without notice as
such dates, times and places as shall be determined by the Executive Committee.
The Executive Committee shall have and may exercise all the powers and authority
of the Board of Directors in the management of the business and affairs of the
Corporation that are permitted by law to be exercised by a committee of the
Board of Directors, including the power to declare dividends, to authorize the
issuance of stock and to adopt a certificate of ownership and merger of parent
corporation and subsidiary or subsidiaries; provided, however, that the
Executive Committee shall not have the power or authority of the Board of
Directors in reference to amending the Certificate of Incorporation, adopting an
agreement of merger or consolidation with respect to the Corporation,
recommending to the stockholders the sale, lease or exchange of all or
substantially all of the Corporation's property and assets, recommending to the
stockholders a dissolution of the Corporation or a revocation of a dissolution,
amending the By-Laws of the Corporation or adopting a certificate of ownership
and merger of the Corporation (other than a certificate of ownership and merger
of parent corporation and subsidiary or subsidiaries). The majority of the
members of the Executive Committee shall constitute a quorum. Minutes shall be
kept of the proceedings of the Executive Committee, which shall be reported at
meetings of the Board of Directors. The Executive Committee may, to the extent
authorized in the resolution or resolutions providing for the issuance of shares
of stock adopted by the Board of Directors of the Corporation, fix any of the
preferences or rights of such shares relating to dividends, redemption,
dissolution, any distribution of assets of the Corporation or the conversion
into, or the exchange of such shares for, shares of any other class or classes
or any other series of the same or any other class or classes of stock of the
Corporation or fix the number of shares of any series of stock or authorized the
increase or decrease of the shares of any series.
<PAGE>
Section 5. Other Committees of Directors. The Board of Directors
-----------------------------
may, by resolution adopted by a majority of the Board of Directors, designate
one or more other committees to have and exercise such power and authority as
the Board of Directors shall specify. In the absence or disqualification of a
member of a committee, the member or members thereof present at any meeting and
not disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another Director to act at the meeting in place of any such
absent or disqualified member.
ARTICLE III
OFFICERS
--------
Section 1. Description and Terms. The officers of the
---------------------
Corporation shall be the Chairman, who shall be the Chief Executive Officer of
the Corporation, two Vice Chairmen, a Secretary, a Treasurer and other such
additional officers with such titles as the Board of Directors shall determine,
all of whom shall be chosen by and serve at the pleasure of the Board; provided
that the Chairman may appoint Senior Vice Presidents, Vice Presidents or
Assistant Officers at his discretion. Subject to such limitations as may be
imposed by the Board of Directors, the Chairman shall have full executive power
and authority with respect to the Company and shall have all of the power and
authority reserved to the office of President under Delaware Law. Each Vice
Chairman shall have such powers and authority as the Chairman may determine. In
addition, in the absence or incapacitation of the Chairman, each Vice Chairman,
acting singly, shall have all the power and authority of the Chairman. Other
officers shall have the usual powers and shall perform all the usual duties
incident to their respective offices. All officers shall be subject to the
supervision and direction of the Board of Directors. The authority, duties or
responsibilities of any officer of the Corporation may be suspended by the
Chairman with or without cause. Any officer elected or appointed by the Board of
Directors may be removed by the Board of Directors with or without cause.
Subject to such limitations as the Board of Directors may provide, each officer
may further delegate to any other officer or any employee or agent of the
Corporation such portions of his authority as the officer shall deem
appropriate, subject to such limitation as the officer shall specify, and may
revoke such authority at any time.
Section 2. Stockholder Consents and Proxies. The Chairman, each
--------------------------------
Vice Chairman, the Treasurer and the Secretary, or any one of them, shall have
the power and authority on behalf of the Corporation to execute any
stockholders' consents or proxies and to attend and act and vote in person or by
proxy at any meetings of the stockholders of any corporation in which the
Corporation may
<PAGE>
own stock, and at any such meetings shall possess and may exercise any and all
of the rights and powers incident to the ownership of such stock which as the
owner thereof the Corporation might have possessed and executed if present. The
Board of Directors, by resolutions from time to time, may confer like powers
upon any other officer.
ARTICLE IV
INDEMNIFICATION
---------------
To the fullest extent permitted by the Delaware General
Corporation Law, the Corporation shall indemnify any current or former Director
or officer of the Corporation and may, at the discretion of the Board of
Directors, indemnify any current or former employee or agent of the Corporation
against all expenses (including attorneys' fees), judgments, fines and amounts
paid in settlement actually and reasonably incurred by him in connection with
any threatened, pending or completed action, suit or proceeding brought by or in
the right of the Corporation or otherwise, to which he was or is a party or is
threatened to be made a party by reason of his current or former position with
the Corporation or by reason of the fact that he is or was serving, at the
request of the Corporation, as a director, officer, partner, trustee, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise.
ARTICLE V
GENERAL PROVISIONS
------------------
Section 1. Notices. Whenever any statute, the Certificate of
-------
Incorporation or these By-Laws require notice to be given to any Director or
stockholder, such notices may be given in writing by mail, addressed to such
Director or stockholder at his address as it appears on the records of the
Corporation, with postage thereon prepaid. Such notice shall be deemed to have
been given when it is deposited in the United States mail. Notice to Directors
may also be given by telegram or facsimile transmission or be delivered
personally or by telephone.
Section 2. Fiscal Year. The fiscal year of the Corporation
-----------
shall be fixed by the Board of Directors.
Exhibit 10.1
FIRST AMENDMENT TO THE 3 YEAR CREDIT AGREEMENT
----------------------------------------------
FIRST AMENDMENT TO THE 364 DAY CREDIT AGREEMENT
-----------------------------------------------
FIRST AMENDMENT (this "Amendment"), dated as of September 12, 1995,
among RJR NABISCO HOLDINGS CORP., a Delaware corporation ("Holdings"), RJR
NABISCO, INC., a Delaware corporation (the "Borrower"), and the lending
institutions party to the 3 Year Credit Agreement referred to below and the
364 Day Credit Agreement referred to below. All capitalized terms used herein
and not otherwise defined herein shall have the respective meanings provided
such terms in the 3 Year Credit Agreement.
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Holdings, the Borrower and various lending institutions
(the "3 Year Banks") are parties to a Credit Agreement, dated as of April 28,
1995 (the "3 Year Credit Agreement"); and
WHEREAS, Holdings, the Borrower and various lending institutions
(the "364 Day Banks"; and together with the 3 Year Banks, the "Banks") are
parties to a Credit Agreement, dated as of April 28, 1995 (the "364 Day Credit
Agreement" and, together with the 3 Year Credit Agreement, the "Credit
Agreements");
WHEREAS, Holdings, the Borrower and the 3 Year Banks wish to enter
into the agreements and waivers with respect to the 3 Year Credit Agreement as
herein provided;
WHEREAS, Holdings, the Borrower and the 364 Day Banks wish to enter
into the agreements and waivers with respect to the 364 Day Credit Agreement
as herein provided;
NOW, THEREFORE, it is agreed:
I. Amendments to the 3 Year Credit Agreement
-----------------------------------------
1. Section 8.07 of the 3 Year Credit Agreement is hereby amended by
deleting the table appearing therein in its entirety and by inserting the
following new table in lieu thereof:
"Period Amount
------- ------
Initial Borrowing Date $7,500,000,000
to and including
December 31, 1995
<PAGE>
January 1, 1996 $7,600,000,000
to and including
December 31, 1996
January 1, 1997 $7,700,000,000
to and including
December 31, 1997
Thereafter $8,000,000,000".
2. Section 8.08 of the 3 Year Credit Agreement is hereby amended by
deleting the table appearing therein in its entirety and by inserting the
following new table in lieu thereof:
"Period Ratio
------- -----
Initial Borrowing Date 1.60:1
to and including
December 31, 1995
January 1, 1996 1.50:1
to and including
December 31, 1996
January 1, 1997 1.70:1
to and including
December 31, 1997
Thereafter 1.80:1".
3. Section 8.09 of the 3 Year Credit Agreement is hereby amended by
deleting the table appearing therein in its entirety and by inserting the
following new table in lieu thereof:
"Period Ratio
------ -----
Initial Borrowing Date 2.60:1
to and including
December 31, 1995
-2-
<PAGE>
January 1, 1996 2.55:1
to and including
December 31, 1996
January 1, 1997 2.25:1
to and including
December 31, 1997
Thereafter 2.00:1".
4. Section 8.10 of the 3 Year Credit Agreement is hereby amended by
deleting the table appearing therein in its entirety and by inserting the
following new table in lieu thereof:
"Period Ratio
------- -----
Initial Borrowing Date 3.50:1
to and including
December 31, 1995
January 1, 1996 3.50:1
to and including
December 31, 1996
January 1, 1997 3.75:1
to and including
December 31, 1997
Thereafter 4.00:1".
5. The definition of "Adjusted Operating Income" appearing in
Section 10 of the 3 Year Credit Agreement shall be amended by (a) deleting
the word "and" appearing at the end of clause (ii) of the proviso contained
therein and inserting a comma in lieu thereof and (b) inserting at the end of
such definition, immediately following clause (iii) thereof, the following:
"and (iv) for all purposes, for any period which includes the
fourth quarter of Holdings' 1995 fiscal year, there shall be
excluded in determining Adjusted Operating Income any pre-tax
restructuring expense and related costs and expenses recorded or
accrued in the fourth quarter of Holdings' 1995 fiscal year which
serve to reduce operating income of Holdings and/or its
Subsidiaries in such fiscal
-3-
<PAGE>
quarter, provided that the aggregate amount attributable pursuant
--------
to this clause (iv) shall not exceed $250,000,000.".
II. Amendments to the 364 Day Credit Agreement
------------------------------------------
1. Section 8.07 of the 364 Day Credit Agreement is hereby amended
by deleting the table appearing therein in its entirety and by inserting the
following new table in lieu thereof:
"Period Amount
------- ------
Initial Borrowing Date $7,500,000,000
to and including
December 31, 1995
January 1, 1996 $7,600,000,000
to and including
December 31, 1996
January 1, 1997 $7,700,000,000
to and including
December 31, 1997
Thereafter $8,000,000,000".
2. Section 8.08 of the 364 Day Credit Agreement is hereby amended
by deleting the table appearing therein in its entirety and by inserting the
following new table in lieu thereof:
"Period Ratio
------- -----
Initial Borrowing Date 1.60:1
to and including
December 31, 1995
January 1, 1996 1.50:1
to and including
December 31, 1996
January 1, 1997 1.70:1
to and including
December 31, 1997
-4-
<PAGE>
Thereafter 1.80:1".
3. Section 8.09 of the 364 Day Credit Agreement is hereby amended by
deleting the table appearing therein in its entirety and by inserting the
following new table in lieu thereof:
"Period Ratio
------- -----
Initial Borrowing Date 2.60:1
to and including
December 31, 1995
January 1, 1996 2.55:1
to and including
December 31, 1996
January 1, 1997
to and including
December 31, 1997 2.25:1
Thereafter 2.00:1".
4. Section 8.10 of the 364 Day Credit Agreement is hereby amended
by deleting the table appearing therein in its entirety and by inserting the
following new table in lieu thereof:
"Period Ratio
------- -----
Initial Borrowing Date 3.50:1
to and including
December 31, 1995
January 1, 1996 3.50:1
to and including
December 31, 1996
January 1, 1997 3.75:1
to and including
December 31, 1997
Thereafter 4.00:1".
-5-
<PAGE>
5. The definition of "Adjusted Operating Income" appearing in
Section 10 of the 364 Day Credit Agreement shall be amended by (a) deleting
the word "and" appearing at the end of clause (ii) of the proviso contained
therein and inserting a comma in lieu thereof and (b) inserting at the end of
such definition, immediately following clause (iii) thereof, the following:
"and (iv) for all purposes, for any period which includes
the fourth quarter of Holdings' 1995 fiscal year, there
shall be excluded in determining Adjusted Operating
Income any pre-tax restructuring expense and related
costs and expenses recorded or accrued in the fourth
quarter of Holdings' 1995 fiscal year which serve to
reduce operating income of Holdings and/or its
Subsidiaries in such fiscal quarter, provided that the
--------
aggregate amount attributable pursuant to this clause
(iv) shall not exceed $250,000,000.".
III. Miscellaneous Provisions
------------------------
1. In order to induce the Banks to enter into this
Amendment, (a) the Borrower agrees to pay a fee to each 3 Year Bank which has
signed a copy of this Amendment and delivered by facsimile transmission an
executed signature page thereof to Chemical Bank Agency Services Corporation
("CBASC"), Attention: Janet Belden (140 East 45th Street, 29th Floor, New
York, New York 10017, Facsimile No.: (212) 622-0854) at or prior to 5:00 p.m.
(New York time) on September 27, 1995, equal to 0.05% of such 3 Year Bank's
Commitment (as defined in the 3 Year Credit Agreement), such fee to be
payable on or prior to the fifth Business Day following the later of (A)
September 27, 1995 and (B) the Amendment Date (as defined below), and (b)
each Credit Party hereby (i) makes each of the representations, warranties
and agreements contained in Section 6 of each Credit agreement and (ii)
represents and warrants that there exists no Default or Event of Default, in
each case on the Amendment Date (as defined below), after giving effect to
this Amendment.
2. This Amendment is limited as specified and shall not
constitute a modification, acceptance or waiver of any other provision of
either Credit Agreement or any other Credit Document (as defined in each
Credit Agreement).
3. This Amendment may be executed in any number of counterparts
and by the different parties hereto on separate counterparts, each of which
counterparts when executed and delivered shall be an original, but all of
which shall together constitute one and the same instrument. A complete set
of counterparts shall be lodged with Holdings and the Payments Administrator.
4. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF
THE STATE OF NEW YORK.
-6-
<PAGE>
5. This Amendment shall become effective as of the date first
written above on the date (the "Amendment Date") when (i) each of the Credit
Parties, (ii) 3 Year Banks constituting Required Banks under the 3 Year
Credit Agreement and (iii) 364 Day Banks constituting Required Banks under
the 364 Day Credit Agreement, shall have signed a copy hereof (whether the
same or different copies) and shall have (x) in the case of the Credit
Parties delivered (including by way of facsimile transmission) the same to
White & Case, 1155 Avenue of the Americas, New York, New York 10036,
Attention: Eric F. Leicht, Esq. (Facsimile No.: (212) 354-8113) or (y) in
the case of the Banks delivered by facsimile transmission the same to CBASC,
Attention: Janet Belden (140 East 45th Street, 29th Floor, New York, New
York 10017, Facsimile No.: (212) 622-0854). After transmitting its executed
signature page to CBASC as provided above, each of the Banks shall deliver
executed hard copies of this Amendment to White & Case, 1155 Avenue of the
Americas, New York, New York 10036, Attention: Eric F. Leicht, Esq.
* * *
-7-
EXHIBIT 10.2
EXECUTION COPY
EXCHANGE AND INDEMNIFICATION AGREEMENT
EXCHANGE AND INDEMNIFICATION AGREEMENT, dated as of April 26,
1995 among Nabisco, Inc., a New Jersey corporation ("Nabisco"), Nabisco
Holdings Corp., a Delaware corporation ("Holdings"), and RJR Nabisco, Inc.,
a Delaware Corporation ("RJRN").
WHEREAS, Nabisco has issued an aggregate of $3,506,000,000
principal amount of Intercompany Debt (as hereinafter defined) which is
held by RJRN or one of its wholly owned subsidiaries;
WHEREAS, Nabisco and Holdings desire to reduce the Intercompany
Debt;
WHEREAS, provisions in certain agreements and indentures under
which debt of RJRN has been or may be issued currently limit the ability of
Nabisco and Holdings to incur debt other than intercompany debt and debt
maturing in less than one year;
WHEREAS, in connection with the reduction of the Intercompany Debt,
RJRN is seeking the removal of such limitations through replacement of its
credit facilities, solicitations of consents to amendments to certain indentures
under which certain of its debt was issued, redemption or repayment of certain
of its debt and offers to exchange certain of its debt for debt which Nabisco
will deliver in exchange for a portion of the Intercompany Debt and a capital
contribution;
WHEREAS, pursuant to the terms of the Corporate Agreement between
Holdings and RJRN dated as of January 26, 1995 (the "Corporate Agreement"),
RJRN has the right to require the registration of the Intercompany Debt (or debt
issued in exchange for such debt) under the Securities Act of 1933, as amended
(the "Securities Act");
WHEREAS, Nabisco has filed with the Securities and Exchange Commission
(the "Commission") a registration statement on Form S-4 (Registration No.
33-90224) (as the same may be amended or supplemented from time to time, the
"Registration Statement") relating to the debt to be issued by Nabisco in
exchange for a portion of the Intercompany Debt, which newly-issued Nabisco debt
will be offered by RJRN in exchange offers (the "Exchange Offers") for certain
RJRN debt with the Securities and Exchange Commission (the "Commission");
<PAGE>
WHEREAS, pursuant to the requirements of Form S-4, information
concerning Nabisco and RJRN will be included or incorporated by reference
into the Registration Statement;
WHEREAS, the parties hereto acknowledge that the information
included or incorporated by reference in the Registration Statement, the
consent solicitation statement to be used in connection with the
solicitation of consents and in related materials approved by RJRN or
Nabisco has been furnished, in the case of information relating to Nabisco,
by Nabisco and, in the case of information relating to RJRN and the Exchange
Offers and related transactions described in the Registration Statement (the
consent solicitations, the Exchange Offers and the related transactions being
herein collectively referred to as the "Transactions"), by RJRN;
WHEREAS, Nabisco and RJRN have agreed to indemnify Merrill Lynch,
Pierce, Fenner, Smith Incorporated and Morgan Stanley & Co. Incorporated,
as co-dealer managers and co-solicitation agents (the "Co-Dealer
Managers"), against certain liabilities which may arise under the
Securities Act or otherwise in connection with the Transactions; and
WHEREAS, the parties hereto desire to set forth their agreement
with respect to the exchange of the Intercompany Debt and indemnification
of each other for information in the documents used in connection with the
Transactions in a manner consistent with the source of such information;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the parties hereby agree as follows:
Section 1. Definitions. As used herein, the following terms shall
-----------
have the following meanings:
"Agreement" means this Exchange and Indemnification Agreement, as
amended from time to time.
"Co-Dealer Managers" has the meaning ascribed to it in the ninth
recital to this Agreement.
"Commission" has the meaning ascribed to it in the sixth recital
to this Agreement.
"Consent Materials" has the meaning ascribed to it in Section
4(a)(iii) of this Agreement.
"Corporate Agreement" has the meaning ascribed to it in the fifth
recital to this Agreement.
2
<PAGE>
"Exchange Date" means the sixth business day after the Expiration
Date.
"Exchange Offers" has the meaning ascribed to it in the sixth
recital to this Agreement.
"Expiration Date" means May 25, 1995 or such later date to which
the Exchange Offers may be extended by RJRN as described in the
Registration Statement.
"Intercompany Debt" means, collectively, Nabisco's Floating Rate
Note due December 1, 1996 in the principal amount of $1.07 billion, the
8.375% Note and the 8.85% Note.
"Nabisco" has the meaning ascribed to it in the preamble to this
Agreement.
"Nabisco Holdings" has the meaning ascribed to it in the preamble
to this Agreement.
"Nabisco Information" has the meaning ascribed to it in Section
3(a) of this Agreement.
"New Notes" means, collectively, the notes listed on Annex I.
"Offering Materials" has the meaning ascribed to it in Section
4(a) of this Agreement.
"Registration Statement" has the meaning ascribed to it in the
sixth recital to this Agreement.
"RJRN" has the meaning ascribed to it in the preamble to this
Agreement.
"RJRN Information" has the meaning ascribed to it in Section
4(b) of this Agreement.
"Securities Act" has the meaning ascribed to it in the fifth
recital to this Agreement.
"Transactions" has the meaning ascribed to it in the eighth
recital to this Agreement.
"8.375% Note" means Nabisco's 8.375% Note due December 1, 2001 in
the principal amount of $1.47 billion.
"8.85% Note" means Nabisco's 8.85% Note due December 1, 2006 in
the principal amount of $966 million.
Section 2. Debt Exchange and Repayment. Subject to the terms
----------------------------
and conditions set forth herein:
3
<PAGE>
(a) On the Exchange Date, (x) Nabisco will deliver to RJRN up to
$1,917,650,000 aggregate principal amount of the series of New Notes set
forth on Annex I hereto, and (y) RJRN will deliver to Nabisco an aggregate
principal amount of the 8.375% Note and the 8.85% Note equal to the
aggregate principal amount of the New Notes delivered by Nabisco to RJRN
pursuant to clause (x). The principal amounts of the respective series of
New Notes to be delivered by Nabisco pursuant to clause (x) above will be
the amounts specified in writing by RJRN to Nabisco on or prior to the
Exchange Date, it being understood that the principal amounts of each
series of New Notes specified will be the principal amount of such series of
New Notes which RJRN is obligated to deliver to holders of existing RJRN debt
whose tenders in the Exchange Offers were accepted by RJRN. In satisfying its
obligation pursuant to clause (y) above, RJRN will deliver the 8.85% Note and a
principal amount of the 8.375% Note equal to the excess, if any, of the
aggregate principal amount of the New Notes delivered pursuant to clause (x)
above over the principal amount of the 8.85% Note. The deliveries contemplated
by this Section 2(a) will consist of the following two transactions:
(i) an exchange of the New Notes delivered pursuant to
clause (x) above for the 8.85% Note and a principal amount of the
8.375% Note with a fair market value as of the Expiration Date
(determined in the manner specified in Section 2(b) below) equal
to the excess of the fair market value as of the Expiration Date
of the New Notes delivered pursuant to clause (x) above over the
fair market value as of the Expiration Date (determined in the
manner specified in Section 2(b) below) of the 8.85% Note; and
(ii) a capital contribution by RJRN to Nabisco through
Nabisco Holdings of the portion of the 8.375% Note and the 8.85%
Note delivered pursuant to clause (y) above that is not exchanged
as provided in clause (i) above.
(b) The fair market value of the New Notes, the 8.375% Note and
the 8.85% Note as of the Expiration Date shall be determined by one or more
independent financial advisors jointly selected by Nabisco and RJRN prior
to the Expiration Date. Such financial advisors shall deliver their
valuation to Nabisco and RJRN in writing no later than the fifteenth
Business Day following the Expiration Date. In determining the value of the
New Notes, the value of any unpaid interest that is payable with respect to
periods prior to the Expiration Date shall be taken into account.
4
<PAGE>
(c) Concurrently with the deliveries, Nabisco will pay to RJRN
an amount equal to the interest accrued and unpaid on the principal amount
of Intercompany Debt delivered pursuant to Section 2(a) hereof through the
Expiration Date.
(d) On or after the date of such deliveries, in addition to
their other rights, each of Nabisco and its subsidiaries and Holdings may
(i) repay, at par plus accrued interest to the date of repayment, some or
all of its other debts to RJRN and its other subsidiaries, including the
balance of the Intercompany Debt not satisfied pursuant to Section 2(a)
hereof and (ii) purchase, at a price equal to par plus accrued interest to
the date of purchase, some or all of the debt described in clause (i) above
which has not been repaid. Payment shall be made by wire or intrabank
transfer of immediately available funds to a bank account designated by
RJRN. Such debt, including the Intercompany Debt shall be cancelled upon
repayment, and the notes and other instruments evidencing such debt shall be
annotated, endorsed, cancelled or replaced to reflect its repayment or
purchase.
Section 3. Conditions. The deliveries described in Section
----------
2(a) and the repayments described in Section 2(b) are subject to the
condition that all conditions to the consummation of the Transactions set
forth in the Registration Statement on the date of this Agreement have been
satisfied or waived by RJRN.
Section 4. Indemnification. (a) Nabisco agrees to indemnify and hold
---------------
RJRN harmless against any loss, damage, expense, liability or claim which,
(i) with respect to any registration statement or any amendment
thereto as Nabisco or RJRN may prepare, approve or authorize for
use in connection with the Transactions, is caused by any untrue
statement or alleged untrue statement of a material fact
contained in such registration statement or which is caused by
the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were
made, not misleading,
(ii) with respect to any registration statement, prospectus,
other offering materials or in any amendment or supplement to any
of the foregoing in each case as Nabisco or RJRN shall prepare,
approve or authorize for use in connection with the Transactions
or in any press release issued or authorized by Nabisco or RJRN
relating to the Transactions (all such
5
<PAGE>
materials referred to collectively herein as the "Offering
Materials"), is caused by any untrue statement or alleged untrue
statement of a material fact contained in such Offering Materials
or which is caused by the omission or alleged omission to state
therein a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were
made, not misleading or
(iii) with respect to any consent solicitation statement, other
consent materials or in any amendment or supplement to any of the
foregoing in each case as Nabisco or RJRN may prepare, approve or
authorize for use in connection with the Transactions or in any
press release issued or authorized by Nabisco or RJRN relating to
the Transactions (all such material referred to collectively
herein as the "Consent Materials"), is caused by any statement
which, at the time and in the light of the circumstances under
which it was made, was, or is alleged to have been, false or
misleading with respect to any material fact or is caused by the
omission or alleged omission to state therein a material fact
necessary in order to make the statements therein not false or
misleading or necessary to correct any statement in such Consent
Materials which has become false or misleading
to the extent, in each case that such statements are contained or
incorporated by reference in or omitted from the Nabisco Information (it
being understood that whether information is required to be included or
incorporated by reference or whether there has been an omission shall be
determined without reference to any other information in the Registration
Statement that is not Nabisco Information). Nabisco agrees to indemnify and
hold RJRN harmless against, and reimburse RJRN for, any and all reasonable
expenses (including reasonable legal fees and expenses) as such expenses are
incurred by RJRN in connection with investigating, preparing for or defending
against any such loss, damage, expense, liability or claim, whether or not
resulting in any liability, whether or not RJRN is a named party in
connection therewith and whether or not such loss, damage, expense,
liability or claim results from action initiated or brought by or on behalf
of Nabisco or Nabisco Holdings, and any amount paid in settlement of any
litigation, commenced or threatened, or of any claim whatsoever as set
forth in this Section 4(a) if such settlement is effected with the prior
written consent of Nabisco.
"Nabisco Information" means the information which is included or
incorporated by reference in the Registration Statement and is referred to
under the caption "Nabisco
6
<PAGE>
Information" on Schedule A hereto, as such Schedule may be amended,
supplemented or otherwise modified from time to time in accordance with
Section 5 hereof (the "Schedule").
(b) RJRN agrees to indemnify and hold Nabisco harmless against
any loss, damage, expense, liability or claim which,
(i) with respect to any registration statement or any amendment
thereto as Nabisco or RJRN may prepare, approve or authorize for
use in connection with the Transactions, is caused by any untrue
statement or alleged untrue statement of a material fact
contained in such or which is caused by the omission or alleged
omission to state therein a material fact required to be stated
therein or necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading,
(ii) with respect to any Offering Materials, is caused by any
untrue statement or alleged untrue statement of a material fact
contained in such Offering Materials or which is caused by the
omission or alleged omission to state therein a material fact
necessary in order to make the statements therein, in the light
of the circumstances under which they were made, not misleading
or
(iii) with respect to any Consent Materials, is caused by any
statement which, at the time and in the light of the
circumstances under which it was made, was, or is alleged to have
been, false or misleading with respect to any material fact or is
caused by the omission or alleged omission to state therein a
material fact necessary in order to make the statements therein
not false or misleading or necessary to correct any statement in
such Consent Materials which has become false or misleading
to the extent that such statements are contained or incorporated by reference
in or omitted from the RJRN Information (it being understood that whether
information is required to be included or incorporated by reference or whether
there has been an omission shall be determined without reference to any other
information in the Registration Statement that is not RJRN Information). RJRN
agrees to indemnify and hold Nabisco harmless against, and reimburse Nabisco
for, any and all reasonable expenses (including reasonable legal fees and
expenses) as such expenses are incurred in connection with investigating,
preparing for or defending against any such loss, damage, expense, liability
or claim, whether or not Nabisco is a named party in connection therewith and
whether or not such
7
<PAGE>
loss, damage, expense, liability or claim results from action initiated or
brought by or on behalf of RJRN, and any amount paid in settlement of any
litigation, commenced or threatened, or of any claim whatsoever as set
forth in this Section 4(b) if such settlement is effected with the prior
written consent of RJRN.
"RJRN Information" means the information which is included or
incorporated by reference in the Registration Statement and is referred to
under the caption "RJRN information" on the Schedule.
(c) RJRN agrees to indemnify and hold harmless Nabisco to the
same extent as the indemnity set forth in subsection (b) above in
connection with all other matters for which Nabisco has agreed to indemnify
and hold harmless the Co-Dealer Managers pursuant to the Fee Agreement.
(d) Promptly after receipt by a person indemnified under this
Section 4 of notice of any suit, action, proceeding or investigation with
respect to which an indemnified party may be entitled to indemnification
hereunder, such indemnified person shall notify the person against whom
such indemnity may be sought in writing of the commencement or the written
assertion thereof; but the omission so to notify such indemnifying person
shall not relieve such indemnifying person from any liability which it may
have to such indemnified person unless the indemnifying person has been
materially prejudiced by such omission. Following such notification, such
indemnifying person may elect in writing to assume the defense of such
suit, action, proceeding or investigation and, upon such election, such
indemnifying person shall not be liable for any legal costs subsequently
incurred by such indemnified person (other than reasonable costs of
investigation and providing evidence) in connection herewith, unless (i)
such indemnifying person has failed to provide counsel reasonably
satisfactory to such indemnified person in a timely manner, (ii) counsel
which has been provided by such indemnifying person reasonably determines
that its representation of such indemnified person would present it with a
conflict of interest or (iii) such indemnified person reasonably determines
that there may be legal defenses available to it which are different from
or in addition to those available to such indemnifying person. In the
event of a determination pursuant to clause (i), (ii) or (iii) above, such
indemnified person shall be entitled to retain separate counsel of their
choice and the fees and expenses of such separate counsel shall be borne by
such indemnifying person. Such indemnifying person shall not in any event
be liable for the fees and expenses of more than one separate firm of
attorneys (in addition to any local counsel) in any one action or group of
related actions, except as provided in the immediately preceding
8
<PAGE>
sentence. Whether or not such indemnifying person shall have assumed the
defense of any suit, action, proceeding or investigation, Nabisco and RJN
agree to cooperate in the defense thereof and shall furnish such records,
information, testimony, and attend such conferences, discovery proceedings,
hearings, trials and appeals, as may be reasonably requested in connection
therewith.
(e) If the indemnification provided for in this Section 4 is
unavailable to or insufficient to hold harmless an indemnified person to
the extent heretofore provided in this Section (4) in respect of any
losses, damages, expenses, liabilities or claims referred to therein, then
the indemnifying person shall contribute to the amount paid or payable by
such indemnified person as a result of such losses, damages, expenses,
liabilities or claims (i) in such proportion as is appropriate to reflect
the relative benefits received by Nabisco on the one hand and RJRN on the
other from the Transactions or (ii) if the allocation provided by
clause (e)(i) above is not permitted by applicable law, in such proportion
as is appropriate to reflect not only the relative benefits referred to in
clause (i) but also the relative fault of Nabisco on the one hand and RJRN on
the other in connection with any statements or omissions or any other matters
which resulted in such losses, damages, expenses, liabilities or claims, as well
as any other relevant equitable considerations. The relative benefits
received by Nabisco on the one hand and RJRN on the other shall be
determined by reference to the benefits received by each of them from the
Transactions. The relative fault of Nabisco on the one hand and RJRN on the
other (i) in the case of any untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material fact, shall be
determined by reference to, among other things, whether such statement or
omission relates to Nabisco Information or RJRN Information, and the parties'
relative intent, knowledge, access to information and opportunity to correct
or prevent such statement or omission and (ii) in the case of any other action
or omission, shall be determined by reference to, among other things, whether
such action or omission was taken or omitted to be taken by Nabisco or its
subsidiaries or by RJRN or its subsidiaries other than Nabisco Holdings and
its subsidiaries, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such action or omission.
Nabisco and RJRN agree that it would not be just and equitable if contribution
pursuant to this subsection (e) were determined by pro rata allocation or by
any other method of allocation which does not take account of the equitable
considerations referred to in this subsection (e). No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from
9
<PAGE>
any person who was not guilty of such fraudulent misrepresentation.
(f) The reimbursement, indemnity and contribution obligations of
Nabisco and RJRN under this Section 4 shall extend upon the same terms and
conditions to the partners, directors, employees and controlling persons
(if any) of Nabisco and RJRN and shall be binding upon and inure to the benefit
of any successors, assigns, heirs and personal representatives of Nabisco, RJRN
and any of such other persons referred to above.
Section 5. Amendments and Waivers. The parties hereto acknowledge
----------------------
that the Registration Statement as originally filed has been and may be
amended by one or more pre-effective or post-effective amendments thereto.
The parties hereto agree to amend the Schedule to reflect the scope of the
information for which each is providing indemnification hereunder in a manner
consistent with the intention of the parties set forth in the recitals hereto.
This Agreement may be otherwise amended and any party may take any action herein
prohibited, or omit to take any action herein required to be performed by it,
only if such party shall have obtained the written consent to such amendment,
action or omission to act of each of the other parties hereto.
Nabisco and RJRN shall be deemed to have consented to any
information included in or omitted from a particular caption designated as
its information on the Schedule unless, prior to the filing of the
Registration Statement (or a particular amendment or supplement thereto), such
party objects to the inclusion or omission of such information in writing (or
orally if promptly confirmed in writing). Information to the inclusion or
omission of which a party has timely objected in writing (the "Excluded
--------
Information") shall not be Nabisco Information or RJRN Information, as the case
- -----------
may be, for purposes of Section 4 hereof. Notwithstanding the foregoing
provisions of this Section 5, Excluded Information shall not include information
incorporated by reference or derived (without material modification) from
documents otherwise filed by the objecting party with the Commission.
Section 6. Rights Under Other Agreements. Except as expressly set
-----------------------------
forth herein with respect to rights to indemnification relating to the
Transactions, each party agrees that nothing herein will limit or otherwise
modify or affect any of its rights, duties or obligations under the
Corporate Agreement, the Fee Agreement or the Dealer Manager Agreement.
10
<PAGE>
Section 7. Notices. All notices and other Communications
-------
provided for hereunder shall be in writing and shall be by first class
mail, telecopier or hand delivery:
If to Nabisco or Holdings:
7 Campus Drive
Parsippany, New Jersey 07054
Attention: James A. Kirkman III
If to RJRN:
1301 Avenue of the Americas
New York, New York 10019
Attention: Jo-Ann Ford
With copies of such notices to:
Davis Polk & Wardwell
450 Lexington Avenue
New York, New York 10018
Attention: David W. Ferguson
All such notices and communications shall be deemed to have been given or
made (1) when delivered by hand, (2) five business days after being
deposited in the mail, postage prepaid, or (3) when telecopied, receipt
acknowledged.
Section 8. Governing Law. This Agreement shall be governed by
-------------
and construed in accordance with the laws of the State of New York
applicable to contracts made and to be performed therein.
Section 9. Descriptive Headings. The descriptive headings used
--------------------
herein are inserted for convenience of reference only and shall not limit
or otherwise affect the meaning of terms contained herein.
Section 10. Counterparts. This Agreement may be executed in two
--- ---------
or more counterparts, each of which shall be deemed to be an original, but
all of which shall constitute one and the same agreement.
Section 11. Severability. If any one or more of the provisions,
------------
paragraphs, words, clauses, phrases or sentences contained herein, or the
application thereof in any circumstances, is held invalid, illegal or
unenforceable in any respect for any reason, the validity, legality or
enforceability of any such provision, paragraph, word, clause, phrase or
sentence in every other respect and of the remaining provisions,
paragraphs, words, clauses, phrases or sentences hereof shall not be in any
way impaired, it being
11
<PAGE>
intended that all rights, powers and privileges of the parties hereto shall
be enforceable to the fullest extent permitted by law.
12
<PAGE>
IN WITNESS WHEREOF, each or the parties has caused this Agreement to be
executed on its behalf by its officers thereunto duly authorized, all as
of the day and year first above written.
NABISCO, INC.
By /s/ James A. Kirkman III
------------------------
Name: James A. Kirkman III
Title: Executive Vice President,
General Counsel and Secretary
NABISCO HOLDINGS CORP.
By /s/ John F. Manfredi
--------------------
Name: John F. Manfredi
Title: Executive Vice President,
Corporate Affairs
RJR NABISCO, INC.
By /s/
-----------------------------
Name:
Title:
13
<PAGE>
ANNEX I
Aggregate Principal
Title of Series Amount
--------------- -------------------
8.30% Notes due April 15, 1999 $600,000,000
8 5/8% Sinking Fund Debentures
due March 15, 2017 $440,650,000
8% Notes due January 15, 2000 $750,000,000
6.80% Notes due September 1, 2001 $100,000,000
6.11% Notes due August 19, 1996 $ 5,000,000
6.88% Notes due January 28, 1997 $ 5,000,000
6.77% Notes due August 11, 1997 $ 1,000,000
6.75% Notes due August 11, 1997 $ 1,000,000
7.20% Notes due January 22, 1998 $ 5,000,000
7.64% Notes due August 1, 2001 $ 1,500,000
7.375% Notes due August 1, 2001 $ 2,500,000
7.63% Notes due August 13, 2001 $ 1,000,000
7.86% Notes due September 4, 2001 $ 5,000,000
14
<PAGE>
SCHEDULE A
NABISCO INFORMATION
(a) The Registration Statement cover page.
(b) The information in the Prospectus and Consent Solicitation under
the captions:
"Available Information" (insofar as it relates to
Nabisco); "Summary-Nabisco Inc.; - Nabisco, Inc. Summary
Historical Consolidated Financial Data; -
Recent Developments; -Nabisco, Inc. Unaudited
Consolidated Condensed Statements of Income; - Summary
Pro Forma Consolidated Financial Data, Nabisco, Inc.; -
Nabisco, Inc. Capitalization"; "Significant
Considerations - Certain Effects of the Exchange Offers
on Tendering Holders of Old Notes - Financial
Considerations Relating to Nabisco (insofar as it
relates to Nabisco); - Certain Effects of the Exchange
Offers on Both Tendering and Non-Tendering Holders of
Old Notes - Liquidity of Trading (insofar as it relates
to Nabisco's New Notes); - Nabisco's Relationship with
Affiliates; - Exposure to Tobacco-Related Litigation";
"Description of the New Notes"; "Description of Credit
Agreements" (insofar as it relates to Nabisco's Credit
Agreement); "Selected Historical Consolidated Financial
Data of Nabisco, Inc."; "Management's Discussion and
Analysis of Financial Condition and Results of
Operations of Nabisco, Inc."; "Nabisco, Inc. Pro Forma
Consolidated Condensed Financial Statements";
"Description of Nabisco, Inc."; "Nabisco's Relationship with
Affiliates"; "Management of Nabisco, Inc."; "Legal Matters"
(insofar as it relates to Nabisco); "Experts"
(insofar as it relates to Nabisco) and "Nabisco
Holdings Corp., Nabisco, Inc. Index to Consolidated
Financial Statements - Financial Statements" (pages F-1
through F-23).
(c) Part II of the Registration Statement (other than
Exhibits 1, 4.9(a) through 4.9(d) and 12 and 23.1
(insofar as they relate to RJRN).
RJRN INFORMATION
The information in the Registration Statement and Consent Solicitation
Statement other than Nabisco Information.
15
Exhibit 10.9
AMENDMENT, as of this ____ day of [[month]], 1995, of the EMPLOYMENT
AGREEMENT dated October 12, 1988 by and between RJR Nabisco,Inc./
a Delaware
corporation ("RJRN") and [Executive] (the "Executive").
WHEREAS, the Executive and RJRN entered into the Employment Agreement;
and
WHEREAS, the Executive and RJRN executed a Special Addendum to the
Employment Agreement as of December 20, 1988; and
WHEREAS, the recent corporate restructuring of RJRN has resulted in a
modification of the operating relationship between Nabisco, Inc. ("Nabisco") and
RJRN, and as a result thereof, RJRN, Nabisco and the Executive agree that the
Employment Agreement should be further amended in order to more effectively
provide the Executive continued incentives to remain in the service of Nabisco
or its subsidiaries or affiliates;
NOW THEREFORE, in consideration of mutual incentives, it is hereby
agreed by and among RJRN, Nabisco and the Executive to amend the Employment
Agreement effective on the date first above written, as follows:
- - 1) All reference throughout the Employment Agreement to "the
Company" shall refer solely to Nabisco.
2) Section 4(a) is hereby amended by the addition of a new sentence
at the end thereof to read as follows:
The transfer of the Executive's employment to any company that
owns at least 50% of the voting power of the Company, or any
subsidiary of such company (an "Affiliated Company") shall not be
deemed an Involuntary Termination, if and only if such transfer
would not be deemed an Involuntary Termination under Section 4(b)
hereof and the obligations of the Company under this Agreement
are assigned to such employing Affiliated Company and the Company
agrees to guarantee the obligations of such Affiliated Company
under this Agreement.
3) Section 5(b)(v) is hereby amended in its entirety to read as
follows:
(v) For purposes of calculating Final Average Earnings for
pension benefits, to the extent permitted by law the Executive
will be deemed to be paid during the entire Compensation Period
at the annual rate of cash compensation equal to the sum of the
amounts determined pursuant to Sections 5(b)(i)(A) and (B).
4) Section 5(d) is hereby amended in its entirety to read as
follows:
(d) Long Term Incentive Plan Awards. The treatment of long term
-------------------------------
<PAGE>
incentive awards during the Compensation Period shall be
determined pursuant to the term of the appropriate long term
incentive award plan and the specific long term incentive award
agreement; provided, however, that for such purposes, the
Compensation Period shall be treated as a period of salary and
benefit continuance.
5) The final sentence of section 7(d) is hereby amended to read as
follows:
The Company, however, may assign its obligations hereunder in the
event of the transfer of the Executive's employment to an
Affiliated Company or the divestiture (whether by the sale of
shares or assets) of the Operating Company employing the
Executive.
6) In all other respects, the Employment Agreement continues in full
force and effect.
IN WITNESS WHEREOF, the RJRN, Nabisco and the Executive have executed
this amendment on the date first above written.
RJR Nabisco, Inc.
By: _____________________
Nabisco, Inc.
By: _____________________
__________________________
[[Executive]]
Exhibit 10.10
EMPLOYMENT AGREEMENT
THIS AGREEMENT, made as of this day of , by and
------ -----------------
between NABISCO, INC., a Delaware corporation (the "Company") and
--------------
(the "Executive").
RECITALS
--------
WHEREAS, in order to provide the Executive continued incentives to remain
in the services of the Company or its subsidiaries, the Company desires to
provide the Executive with compensation security under the conditions set forth
in this Agreement should his employment with the Company or its designated
subsidiaries for any reason be terminated without cause by the Company during
the term of this Agreement;
NOW, THEREFORE, it is hereby agreed by and between the parties as follows:
1. Employment. The Executive agrees to devote his working time exclusively to
----------
the performance of such services of the Company or its subsidiaries as may be
assigned to him from time to time and to perform such services faithfully and to
the best of his ability except as the provisions of subsection 4(b)(b) shall
apply.
2. Term of Agreement. This Agreement shall commence on the date hereof and
-----------------
shall remain in effect so long as the Executive remains employed by the Company,
any of its subsidiaries or any successor organization.
3. Termination of Employment Without Compensation Continuance.
------------------------
(a) Termination for Cause. This Agreement shall immediately be terminated
and neither party shall have any obligation hereunder if the Executive's
employment is terminated for "cause." Termination for cause shall arise where
termination results from (a) criminal dishonesty, (b) deliberate and continual
refusal to perform employment duties on substantially a full-time basis, (c)
deliberate and continual refusal to act in accordance with any specific lawful
instructions of a majority of the Board of Directors of the Company, or (d)
deliberate misconduct which could be materially damaging to the Company without
reasonable good faith belief by the Executive that such conduct was in the best
interests of the Company.
(b) Voluntary Termination of Employment by the Executive. The Executive
reserves the right to voluntarily terminate his employment at any time for any
reason; provided, he shall give the Company not less than three (3) months
written notice thereof, unless the Company consents to a shorter notice period.
Three (3) months after the Company receives such notice, this Agreement shall
cease, all obligations of the Company hereunder shall be cancelled
automatically, and the Executive shall not be entitled to any
<PAGE>
form of Compensation Continuance under this Agreement, including that described
in Section 5 below.
(c) Disability. The event of physical or mental disability of a nature
that entitles the Executive to benefits under the Company's Long-Term Disability
Plan is not a termination of employment under any section of this Agreement. As
such, disability shall not qualify the Executive for the Compensation
Continuance described herein unless the Executive is terminated under Section
4(a).
(d) Death. In the event of the Executive's death prior to involuntary
termination, this Agreement will be null and void.
4. Termination With Compensation Continuance.
-----------------------------------------
(a) Involuntary Termination Without Cause by the Company. The Company
reserves the right to terminate the employment of the Executive at any time for
any reason subject to providing the compensation and benefits described herein.
Except as provided in Section 6, the Company will provide the Executive with the
Compensation Continuance described in Section 5 hereof if the Executive is
involuntarily separated from active employment without cause by the Company
("Involuntary Termination"). Involuntary Termination shall not include the
divestiture of the Operating Company employing the Executive, and the
obligations of the Company under this Agreement shall be assigned to the
Operating Company, or its successors or acquiror, in connection with the
divestiture of either all, or substantially all, the shares or assets of such
Operating Company. Nor shall Involuntary Termination include transfer of the
Executive's employment to any company that owns at least 50% of the voting power
of the Company, or any subsidiary of such company (an "Affiliated Company");
provided, that the obligations of the Company under this Agreement are assigned
to such employing Affiliated Company. The transfer of the Executive's
employment to any company that owns at least 50% of the voting power of the
Company, or any subsidiary of such company (an "Affiliated Company") shall not
be deemed an Involuntary Termination, if and only if such transfer would not be
deemed an Involuntary Termination under Section 4(b) hereof and the obligations
of the Company under this Agreement are assigned to such employing Affiliated
Company and the Company agrees to guarantee the obligations of such Affiliated
Company under this Agreement.
(b) Deemed Involuntary Termination Without Cause by the Company.
Involuntary Termination shall be deemed to occur if the Executive voluntarily
terminates employment after: (a) the total amount of his base salary and
targeted awards under the Long-Term Incentive Plan and the Annual Incentive
Award Plan (or successors thereto) is at any time reduced by more than 20%
without the Executive's consent, provided, however, nothing herein shall be
construed to guarantee the Executive's target award if performance is below
target, (b) his job responsibilities are substantially reduced in importance
without the Executive's consent, or (c) he, without his consent, is at any time
required as a condition of continued employment to relocated from his then
current place of employment a distance equal to or greater than the mileage
threshold required by the IRS for a moving expense deduction. Unless the
Executive provides written notification of his non-consent to any of
<PAGE>
the events in (a) or (b) or (c) above within 90 days after the occurrence of
such events, the Executive shall be deemed to have consented to the occurrence
of such event or events and no deemed Involuntary Termination shall occur. If
the Executive provides written notice of his non-consent to any of the events in
(a) or (b) or (c) above within 90 days after the occurrence of such events, he
shall be deemed to have been Involuntarily Terminated ninety (90) days after
receipt of such written notice by the Company.
5. Compensation Continuance Under this Agreement.
---------------------------------------------
(a) Compensation Period. If at any time during the term of this Agreement
the Executive has an Involuntary Termination pursuant to Section 4, he will be
provided with Compensation Continuance as provided in this Section 5 for a
period of three (3) years commencing with the effective date of such Involuntary
Termination (the "Compensation Period").
(b) Cash Compensation.
(i) The Executive will be entitled to such compensation equal to two
(2) years pay, calculated as described below, payable in equal monthly
installments over the three (3) year Compensation Period, each installment
representing two-thirds (2/3) of the Executive's full pay for such period. The
aggregate cash compensation will be calculated as twice the sum of (A) plus (B),
where (A) is the Executive's highest annual rate of base salary in effect during
the twelve (12) month period prior to his involuntary termination and (B) is the
target amount of his award under the Company's Annual Incentive Award Plan (or
successor Short-Term Incentive Plan) for the calendar year in which his
employment terminated.
(ii) Cash compensation paid pursuant to this Section 5(b) shall be
payable in equal monthly installments over the Compensation Period, and shall be
subject to regular payroll deductions.
(iii) For purposes of calculating Average Final Compensation for
pension benefits, to the extent permitted by law the Executive will be deemed to
be paid during the entire Compensation Period at the annual rate of cash
compensation equal to the sum of the amounts determined pursuant to Sections
5(b)(i)(A) and (B).
(c) Short Term Incentive Plan Awards. The Executive will be paid at the
time of Involuntary Termination an award under the Annual Incentive Award Plan
(or successor thereto, if any) of the Company, based upon the target award for
the year in which the Executive's Involuntary Termination occurs, prorated for
the Executive's active employment during such year and adjusted for performance.
Except as stated in the foregoing sentence, all provisions of the Annual
Incentive Award Plan (or successor thereto) shall be applicable to the
Executive.
(d) Long Term Incentive Plan Awards. The treatment of long term incentive
awards during the Compensation period shall be determined pursuant to the term
of the
<PAGE>
appropriate long term incentive award plan and the specific long term incentive
award agreement; provided, however, that for such purposes, the Compensation
Period shall be treated as a period of salary and benefit continuance.
(e) Welfare Benefits. During the Compensation Period, the Executive will
be provided the welfare benefits afforded by the Employee Benefit Plans and
programs maintained by the Company in which he participated immediately prior to
his Involuntary Termination, except that he will not be eligible to participate
in the Company's short-term or long-term disability plans.
(f) Internal Revenue Code Qualified Defined Benefit Plans. If the
Executive was participating in an IRC Section 401(a) defined benefit plan prior
to Involuntary Termination, he will, to the extent permitted by law, continue to
accrue benefits under such plan during the Compensation Period.
(g) Internal Revenue Code Qualified Defined Contribution Plans. If the
Executive was participating in an IRC Section 401(a) defined contribution plan
prior to separation from active employment, he may, to the extent permitted by
law, continue to so participate pursuant to the terms of that plan during the
Compensation Period.
(h) ERISA Excess Plans. The Executive shall be eligible to participate
during the Compensation Period in any plan of the Company adopted for the
purpose of restoring benefits under the Qualified Defined Benefit and Defined
Contribution Plans of the Company which would otherwise be reduced by the
limitations so imposed by Section 415 and other sections of the IRC.
(i) Executive or Management Program. The Executive may continue to
participate in the Executive or Management Program, if a participant on the date
immediately prior to Involuntary Termination, pursuant to the terms of the
program governing inactive pay status as in effect on the date of this Agreement
or as each respective provision of the Program may be improved from time to time
or as additional provisions become effective.
(j) Outplacement. During the Compensation Period, the Executive will be
provided with outplacement counseling services at Company expense; provided,
however, this expense shall not exceed 18% of the amount of cash Compensation
Continuance paid in a single calendar year. This counseling shall include, but
is not limited to, skill assessment, job market analysis, resume preparation,
interviewing skills, job search techniques and negotiating.
6. Conditions on Compensation Continuance.
--------------------------------------
(a) Availability and Consulting. During the Compensation Period the
Executive shall provide consulting services to the Company on a reasonable basis
subject to appropriate notice and reimbursement of all travel and other
expenses. During the first six (6) months of the Compensation Period the
Executive may be required by the Company to provide up to fifteen (15) days of
consultation during normal business hours and business
<PAGE>
days. When and if the Executive becomes employed on a full-time basis, either
with another company or on a self-employed basis, his obligation to provide
consulting services shall be limited by the requirements of such employment, and
under appropriate circumstances, may be restricted to telephone conference.
(b) Confidentiality and Conduct. The Executive warrants that he will not
disclose to any other person any confidential information or trade secrets
concerning the Company or any of its subsidiaries at any time during or after
the Compensation Period. The Executive will at all times refrain from taking
any action or making any statements, written or oral, which are intended to and
do disparage the goodwill or reputation of the Company, its directors, officers
or executives or which could adversely affect the morale of Company employees.
(c) Breach of Conditions. In the event that the Executive unreasonably
refuses to provide consulting services in accordance with paragraph (a) above or
materially violates the terms and conditions of paragraph (b) above, the Company
may, at its election upon ten (10) days notice, terminate the Compensation
Period, discontinue cash compensation payments and employee benefits coverage
and cancel any outstanding Long Term Incentive Plan awards (if permitted under
the terms of such awards). The Company may also initiate any form of legal
action it may deem appropriate seeking damages or injunctive relief with respect
to any material violations of paragraph (b) above.
(d) Non-Competition. The Compensation Period shall be terminated if the
Executive, without the Company's written approval, accepts a substantially
similar or higher executive position, paying a substantially comparable or
greater level of cash compensation, with any other company conducting a business
which is substantially competitive with a business conducted by the Company.
Alternatively, the Company may, in its discretion, appropriately reduce the
Executive's cash compensation and employee benefits coverage for the balance of
the Compensation Period.
(e) Employment With Another Employer During Compensation Period. Except
as otherwise provided in this Section 6, if the Executive commences employment
with another employer during the Compensation Period, he will continue to
receive the compensation continuance provided under Section 5 for the balance of
the Compensation Period, except that, unless otherwise required by law, benefits
under the Company's Employee Benefits Plans, including the Executive or
Management Program, if applicable, shall be appropriately terminated or offset
to the extent provided by the other employer.
(f) Other Severance Benefits. The Executive is entitled to no other form
of severance benefits, including benefits otherwise payable under any of the
Company's regular severance policies, other than those set forth elsewhere in
this Agreement. The Executive will at the time of termination of employment be
eligible for any form of post-retirement benefit provided under the Company's
qualified Employee Benefits Plans, including retiree medical benefits, as any
other employee upon retirement with the same age and service. Nothing contained
in this Agreement shall adversely affect the Executive's rights to accrued
vested pension benefits or his right to receive previously deferred awards under
any of the
<PAGE>
Company's incentive award plans.
(g) Release and Waiver of Claims. In consideration of the compensation
and benefits continuance available pursuant to this Agreement, the Executive,
except as otherwise expressly provided in this Agreement, unconditionally
releases the Company and its subsidiaries, any Affiliated Companies, their
directors, officers, employees and stockholders, or any of them, from any and
all claims, liabilities, and obligations of any nature pertaining to termination
of employment including, but not limited to, (a) any claims under federal, state
or local laws prohibiting age discrimination, or (b) any claims growing out of
any alleged legal restrictions on the Company's right to terminate its
employees, such as any alleged implied contract of employment or termination
contrary to public policy.
(h) Death. In the event of the Executive's death subsequent to
commencement of this Compensation Period hereunder, the balance of Compensation
Continuance will be paid to his beneficiary in a lump sum. "Beneficiary" shall
mean the Executive's designated beneficiary under his Executive Program life
insurance, or, if not so eligible, his core life insurance benefit under the
Company's plans.
7. General Provisions.
------------------
(a) Limited Right of Appeal.
(i) If the Executive is advised in writing that he is being
terminated for cause and within fifteen (15) days thereafter submits to the
Chief Executive Officer of the Company a written objection to such a
determination, Section 3(a) will not be applicable unless the Compensation
Committee of the Board of Directors of the Company at or before its next
regularly scheduled meeting determines by majority vote that the Executive has
been terminated for cause.
(ii) If the Executive's Compensation Period is terminated pursuant to
Section 6, he may, within fifteen (15) days after mailing of notice thereof to
him, submit to the Chief Executive Officer of the Company a written objection to
such termination. In such event, the Compensation Committee of the Board of
Directors at or before its next regularly scheduled meeting must determine by
majority vote that termination of the Compensation Period was appropriate or,
failing that, the Compensation Period must be reinstated with full retroactive
effect.
(b) Notices. All notices hereunder shall be in writing and deemed
properly given if delivered by hand and receipted or if mailed by registered
mail, return receipt requested. Notices to the Company shall be directed to the
Corporate Secretary at the Company's headquarters offices. Notices to the
Executives shall be directed to his last known home address.
(c) Limited Waiver. The waiver by the Company of a violation of any of
the provisions of this Agreement, whether express or implied, shall not operate
or be construed as a waiver of any subsequent violation of any such provision.
<PAGE>
(d) No Assignment. No right, benefit or interest hereunder shall be
subject to assignment, encumbrance, charge, pledge, hypothecation or set off by
Executive in respect of any claim, debt or obligation, or similar process. The
Company, however, may assign its obligations hereunder in the event of the
transfer of the Executive's employment to an Affiliated Company or the
divestiture (whether by the sale of shares or assets) of the Operating Company
employing the Executive.
(e) Amendment. This Agreement may not be amended, modified or canceled
except by written agreement of the parties.
(f) Severability. In the event that any provision or portion of this
Agreement shall be determined to be invalid or unenforceable for any reason, the
remaining provisions of this Agreement shall remain in full force and effect to
the fullest extent permitted by law.
(g) Binding Effect. This Agreement shall be binding upon and inure to the
benefit of the Executive, the Company, its affiliates, and any successor
organization or organizations which shall succeed to substantially all of the
business and property of the Company, whether by means of merger, consolidation,
acquisition of substantially all of the assets of the Company or otherwise,
including by operation of law.
(h) Unsecured Promise. Unless otherwise stated herein, no benefit or
promise hereunder shall be secured by any specific assets of the Company.
Unless otherwise stated herein, the Executive shall have only the rights of an
unsecured general creditor of the Company in seeking satisfaction of such
benefits or promises.
(i) Governing Law. This Agreement has been made in and shall be governed
and construed in accordance with the laws of the State of Delaware.
(j) Entire Agreement. This Agreement sets forth the entire agreement and
understanding of the parties hereto with respect to the matters covered hereby.
This Agreement supersedes and replaces any prior agreement with respect to
employment, compensation continuation and the matters contained in this
Agreement which the Executive may have had with the Company or any affiliate.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
NABISCO, INC.
By:
---------------------------------
Executive Vice President
and Chief Personnel Officer
---------------------------------
[Executive]
EXHIBIT 11.1
RJR NABISCO HOLDINGS CORP.
COMPUTATION OF EARNINGS PER SHARE
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
SEPTEMBER 30, 1995 SEPTEMBER 30, 1994
---------------------------- ----------------------------
PRIMARY FULLY DILUTED(A) PRIMARY FULLY DILUTED(A)
--------- ---------------- --------- ----------------
<S> <C> <C> <C> <C>
Average number of common and common equivalent
shares outstanding during the period (in
thousands):
Common Stock and Series C Depositary Shares
issued and outstanding at beginning of
period...................................... 325,251 325,251 323,721 323,721
Average number of shares of common stock issued
during the period (including shares of common
stock issued during the period through the
exercise of options).......................... 165 165 230 230
Average number of shares related to value of
restricted stock earned during the period..... 264 264 244 244
Average number of stock options outstanding
during the period and shares issuable under
performance shares granted.................... 849 1,213 2,323 3,049
Shares issuable upon conversion of ESOP
convertible preferred stock................... -- 3,025 -- 3,090
--------- -------- --------- --------
Average number of common and common equivalent
shares outstanding during the period.......... 326,529 329,918 326,518 330,334
--------- -------- --------- --------
--------- -------- --------- --------
Income (loss) applicable to common stock:
Income before extraordinary item................ $ 232 $ 232 $ 216 $ 216
Preferred stock dividends(B).................... (34) (30) (33) (29)
Income tax benefit on ESOP preferred stock
dividends..................................... -- (1) -- --
--------- -------- --------- --------
Income before extraordinary item applicable to
common stock.................................. 198 201 183 187
Extraordinary item.............................. (16) (16) -- --
--------- -------- --------- --------
Net income applicable to common stock........... $ 182 $ 185 $ 183 $ 187
--------- -------- --------- --------
--------- -------- --------- --------
Income (loss) per common and common equivalent
share:
Income before extraordinary item................ $ 0.61 $ 0.61 $ 0.56 $ 0.57
Extraordinary item.............................. (.05) (.05) -- --
--------- -------- --------- --------
Net income...................................... $ 0.56 $ 0.56 $ 0.56 $ 0.57
--------- -------- --------- --------
--------- -------- --------- --------
</TABLE>
- ------------
(A) For purposes of this Exhibit, the calculations of fully diluted earnings per
share include common stock equivalents and other potentially dilutive
securities that produce an anti-dilutive result.
(B) The 1995 preferred stock dividend amounts include approximately $5 million
related to the exchange of RJRN Holdings' obligated mandatorily redeemable
preferred securities of subsidiary trust for Series B Preferred Stock. See
Note 6 to the Consolidated Condensed Financial Statements.
EXHIBIT 11.2
RJR NABISCO HOLDINGS CORP.
COMPUTATION OF EARNINGS PER SHARE
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1995 SEPTEMBER 30, 1994
------------------------------ ----------------------------
PRIMARY FULLY DILUTED(A) PRIMARY FULLY DILUTED(A)
---------- ---------------- -------- ----------------
<S> <C> <C> <C> <C>
Average number of common and common
equivalent shares outstanding during the
period (in thousands):
Common Stock and Series C Depositary
Shares issued and outstanding at
beginning of period................... 325,107 325,107 269,602 269,602
Average number of shares of common stock
issued during the period (including
shares of common stock issued during the
period through the exercise of
options).............................. 172 172 28,968 28,968
Average number of shares related to value
of restricted stock earned during the
period.................................. 92 92 81 81
Average number of stock options
outstanding during the period and shares
issuable under performance shares
granted............................... 1,017 1,191 2,517 2,841
Shares issuable upon conversion of ESOP
convertible preferred stock............. -- 3,041 -- 3,101
---------- ---------------- -------- --------
Average number of common and common
equivalent shares outstanding during the
period.................................. 326,388 329,603 301,168 304,593
---------- ---------------- -------- --------
---------- ---------------- -------- --------
Income (loss) applicable to common stock:
Income before extraordinary item.......... $ 583 $ 583 $ 602 $ 602
Preferred stock dividends(B).............. (99) (88) (98) (87)
Income tax benefit on ESOP preferred stock
dividends............................... -- (2) -- (1)
---------- ---------------- -------- --------
Income before extraordinary item
applicable to common stock.............. 484 493 504 514
Extraordinary item........................ (16) (16) (145) (145)
---------- ---------------- -------- --------
Net income applicable to common stock..... $ 468 $ 477 $ 359 $ 369
---------- ---------------- -------- --------
---------- ---------------- -------- --------
Income (loss) per common and common
equivalent share:
Income before extraordinary item.......... $ 1.48 $ 1.50 $ 1.67 $ 1.69
Extraordinary item........................ (.05) (.05) (0.48) (0.48)
---------- ---------------- -------- --------
Net income................................ $ 1.43 $ 1.45 $ 1.19 $ 1.21
---------- ---------------- -------- --------
---------- ---------------- -------- --------
</TABLE>
- ------------
(A) For purposes of this Exhibit, the calculations of fully diluted earnings per
share include common stock equivalents and other potentially dilutive
securities that produce an anti-dilutive result.
(B) The 1995 preferred stock dividend amounts include approximately $5 million
related to the exchange of RJRN Holdings' obligated mandatorily redeemable
preferred securities of subsidiary trust for Series B Preferred Stock. See
Note 6 to the Consolidated Condensed Financial Statements.
EXHIBIT 12.1
RJR NABISCO HOLDINGS CORP.
COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30, 1995
---------------------
<S> <C>
Earnings before fixed charges:
Income before minority interest in income of Nabisco..................... $ 619
Provision for income taxes............................................... 483
--------
Income before income taxes............................................... 1,102
Interest and debt expense................................................ 663
Interest portion of rental expense....................................... 38
--------
Earnings before fixed charges.............................................. $ 1,803
--------
--------
Combined fixed charges and preferred stock dividends:
Interest and debt expense................................................ $ 663
Interest portion of rental expense....................................... 38
Capitalized interest..................................................... 9
Preferred stock dividends*............................................... 326
--------
Combined fixed charges and preferred stock dividends................... $ 1,036
--------
--------
Ratio of Earnings to Combined Fixed Charges and Preferred Stock
Dividends.................................................................. 1.7
--------
--------
</TABLE>
- ------------
* Represents dividends of $14 million on ESOP Preferred Stock and pre-tax
equivalent amount on dividends of $83 million on the Series B Preferred
Stock and $120 million on the Series C PERCS.
EXHIBIT 12.2
RJR NABISCO, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30, 1995
------------------
<S> <C>
Earnings before fixed charges:
Income before minority interest in income of Nabisco..................... $ 625
Provision for income taxes............................................... 486
-------
Income before income taxes............................................... 1,111
Interest and debt expense................................................ 659
Interest portion of rental expense....................................... 38
-------
Earnings before fixed charges.............................................. $1,808
-------
-------
Fixed charges:
Interest and debt expense................................................ $ 659
Interest portion of rental expense....................................... 38
Capitalized interest..................................................... 9
-------
Total fixed charges.................................................... $ 706
-------
-------
Ratio of earnings to fixed charges......................................... 2.6
-------
-------
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM HOLDINGS'
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE BY REFERTENCE TO SUCH FINANCIAL STATEMENTS.
RJR NABISCO HOLDINGS CORP.
(In Millions)
</LEGEND>
<CIK> 0000847903
<NAME> RJR NABISCO HOLDINGS CORP.
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> SEP-30-1995
<CASH> 354
<SECURITIES> 0
<RECEIVABLES> 1,271
<ALLOWANCES> 0
<INVENTORY> 2,495
<CURRENT-ASSETS> 4,524
<PP&E> 8,106
<DEPRECIATION> (2,618)
<TOTAL-ASSETS> 31,133
<CURRENT-LIABILITIES> 3,515
<BONDS> 9,524
3
392
<COMMON> 3
<OTHER-SE> 10,025
<TOTAL-LIABILITY-AND-EQUITY> 31,133
<SALES> 11,684
<TOTAL-REVENUES> 11,684
<CGS> 5,379
<TOTAL-COSTS> 9,779
<OTHER-EXPENSES> (140)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (663)
<INCOME-PRETAX> 1,102
<INCOME-TAX> 483
<INCOME-CONTINUING> 619
<DISCONTINUED> 0
<EXTRAORDINARY> (16)
<CHANGES> 0
<NET-INCOME> 567
<EPS-PRIMARY> 1.43
<EPS-DILUTED> 1.45
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM RJRN'S
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENT
RJR NABISCO INC.
(In Millions)
</LEGEND>
<CIK> 0000083612
<NAME> RJR NABISCO, INC.
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> SEP-30-1995
<CASH> 353
<SECURITIES> 0
<RECEIVABLES> 1,271
<ALLOWANCES> 0
<INVENTORY> 2,495
<CURRENT-ASSETS> 4,523
<PP&E> 8,106
<DEPRECIATION> (2,618)
<TOTAL-ASSETS> 31,131
<CURRENT-LIABILITIES> 3,357
<BONDS> 9,524
<COMMON> 0
0
0
<OTHER-SE> 12,115
<TOTAL-LIABILITY-AND-EQUITY> 31,131
<SALES> 11,684
<TOTAL-REVENUES> 11,684
<CGS> 5,379
<TOTAL-COSTS> 9,772
<OTHER-EXPENSES> (142)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (659)
<INCOME-PRETAX> 1,111
<INCOME-TAX> 486
<INCOME-CONTINUING> 625
<DISCONTINUED> 0
<EXTRAORDINARY> (16)
<CHANGES> 0
<NET-INCOME> 573
<EPS-PRIMARY> 0.00
<EPS-DILUTED> 0.00
</TABLE>
