<PAGE>
DRAFT
- --------------------------------------------------------------------------------
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, 1996
--------------
RJR NABISCO HOLDINGS CORP.
(Exact name of registrant as specified in its charter)
DELAWARE 1-10215 13-3490602
(State or other jurisdiction of (Commission file number) (I.R.S. Employer
incorporation or organization) Identification No.)
RJR NABISCO, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 1-6388 56-0950247
(State or other jurisdiction of (Commission file number) (I.R.S. Employer
incorporation or organization) Identification No.)
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 REGISTRANTS'
CLASSES OF COMMON STOCK AS OF THE LATEST PRACTICABLE DATE: SEPTEMBER 30, 1996:
RJR NABISCO HOLDINGS CORP.: 269,922,924 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
PAGE
----
PART I--FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Statements of Income--Three Months Ended
September 30, 1996 and 1995..................................... 1
Consolidated Condensed Statements of Income--Nine Months Ended
September 30, 1996 and 1995.................................... 2
Consolidated Condensed Statements of Cash Flows--Nine Months Ended
September 30, 1996 and 1995.................................... 3
Consolidated Condensed Balance Sheets--September 30,1996
and December 31, 1995.......................................... 4
Notes to Consolidated Condensed Financial Statements............. 5-10
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................11-17
PART II--OTHER INFORMATION
Item 1. Legal Proceedings............................................ 18
Item 6. Exhibits and Reports on Form 8-K............................. 19
Signatures............................................................... 20
<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, 1996 SEPTEMBER 30, 1995
----------------------- -----------------------
RJRN RJRN
HOLDINGS RJRN HOLDINGS RJRN
-------- ---- -------- ----
<S> <C> <C> <C> <C>
NET SALES* . . . . . . . . . . . . . . . . . . . $ 4,349 $ 4,349 $ 4,063 $ 4,063
-------- -------- -------- --------
Costs and expenses (Note 1)*:
Cost of products sold. . . . . . . . . . . . . 2,036 2,036 1,883 1,883
Selling, advertising, administrative and
general expenses . . . . . . . . . . . . . . 1,473 1,475 1,380 1,380
Amortization of trademarks and goodwill. . . . 157 157 159 159
-------- -------- -------- --------
OPERATING INCOME. . . . . . . . . . . . . . 683 681 641 641
Interest and debt expense. . . . . . . . . . . . (233) (209) (221) (217)
Other income (expense), net. . . . . . . . . . . (23) (23) 15 15
-------- -------- -------- --------
Income before income taxes. . . . . . . . . 427 449 435 439
Provision for income taxes . . . . . . . . . . . 188 198 190 190
-------- -------- -------- --------
INCOME BEFORE MINORITY INTEREST IN INCOME OF
NABISCO HOLDINGS . . . . . . . . . . . . . 239 251 245 249
Less minority interest in income of
Nabisco Holdings . . . . . . . . . . . . . . . 14 14 13 13
-------- -------- -------- --------
INCOME BEFORE EXTRAORDINARY ITEM. . . . . . 225 237 232 236
Extraordinary item-loss on early
extinguishments of debt, net of income
taxes and minority interest. . . . . . . . . . -- -- (16) (16)
-------- -------- -------- --------
NET INCOME. . . . . . . . . . . . . . . . . 225 237 216 220
Less preferred stock dividends . . . . . . . . . 11 -- 34 --
-------- -------- -------- --------
NET INCOME APPLICABLE TO COMMON STOCK . . . $ 214 $ 237 $ 182 $ 220
-------- -------- -------- --------
-------- -------- -------- --------
Net income (loss) per common and common equivalent share:
Income before extraordinary item . . . . . . . . $ .66 $ .61
Extraordinary item . . . . . . . . . . . . . . . -- (.05)
-------- --------
NET INCOME . . . . . . . . . . . . . . . . $ .66 $ .56
-------- --------
-------- --------
Dividends per share of Series C preferred stock. $ 1.503 $ 1.503
-------- --------
-------- --------
Dividends per share of Common Stock. . . . . . . $ 0.4625 $ 0.375
-------- --------
-------- --------
Weighted average number of common and
common equivalent shares outstanding
(in thousands) . . . . . . . . . . . . . . . . 324,762 326,529
-------- --------
-------- --------
</TABLE>
- ---------------
* Excludes excise taxes of $970 million and $1.010 billion for the three
months ended September 30, 1996 and 1995, 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, 1996 SEPTEMBER 30, 1995
----------------------- -----------------------
RJRN RJRN
HOLDINGS RJRN HOLDINGS RJRN
-------- ---- -------- ----
<S> <C> <C> <C> <C>
NET SALES* . . . . . . . . . . . . . . . . . . . $ 12,438 $ 12,438 $ 11,684 $ 11,684
-------- -------- -------- --------
Costs and expenses (Note 1)*:
Cost of products sold. . . . . . . . . . . . . 5,778 5,778 5,379 5,379
Selling, advertising, administrative and
general expenses . . . . . . . . . . . . . . 4,197 4,203 3,923 3,916
Amortization of trademarks and goodwill. . . . 475 475 477 477
Restructuring expense. . . . . . . . . . . . . 428 428 -- --
-------- -------- -------- --------
OPERATING INCOME. . . . . . . . . . . . . . 1,560 1,554 1,905 1,912
Interest and debt expense. . . . . . . . . . . . (697) (626) (663) (659)
Other income (expense), net. . . . . . . . . . . (81) (81) (140) (142)
-------- -------- -------- --------
Income before income taxes. . . . . . . . . 782 847 1,102 1,111
Provision for income taxes . . . . . . . . . . . 404 432 483 486
-------- -------- -------- --------
INCOME BEFORE MINORITY INTEREST IN INCOME (LOSS)
OF NABISCO HOLDINGS. . . . . . . . . . . . 378 415 619 625
Less minority interest in income (loss)
of Nabisco Holdings. . . . . . . . . . . . . . (18) (18) 36 36
-------- -------- -------- --------
INCOME BEFORE EXTRAORDINARY ITEM. . . . . . 396 433 583 589
Extraordinary item-loss on early
extinguishments of debt, net of income
taxes and minority interest. . . . . . . . . . -- -- (16) (16)
-------- -------- -------- --------
NET INCOME. . . . . . . . . . . . . . . . . 396 433 567 573
Less preferred stock dividends . . . . . . . . . 32 -- 99 --
-------- -------- -------- --------
NET INCOME APPLICABLE TO COMMON STOCK . . . $ 364 $ 433 $ 468 $ 573
-------- -------- -------- --------
-------- -------- -------- --------
Net income (loss) per common and common
equivalent share:
Income before extraordinary item . . . . . . . $ 1.11 $ 1.48
Extraordinary item . . . . . . . . . . . . . . -- (.05)
-------- --------
NET INCOME. . . . . . . . . . . . . . . . . $ 1.11 $ 1.43
-------- --------
-------- --------
Dividends per share of Series C preferred stock. $ 4.509 $ 4.509
-------- --------
-------- --------
Dividends per share of common stock. . . . . . . $ 1.3875 $ 1.125
-------- --------
-------- --------
Weighted average number of common and
common equivalent shares outstanding
(in thousands) . . . . . . . . . . . . . . . . 327,070 326,388
-------- --------
-------- --------
</TABLE>
- ---------------
* Excludes excise taxes of $2.825 billion and $2.813 billion for the nine
months ended September 30, 1996 and 1995, respectively.
SEE NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
2
<PAGE>
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, 1996 SEPTEMBER 30, 1995
----------------------- -----------------------
RJRN RJRN
HOLDINGS RJRN HOLDINGS RJRN
-------- ---- -------- ----
<S> <C> <C> <C> <C>
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES:
Net income . . . . . . . . . . . . . . . . . . $ 396 $ 433 $ 567 $ 573
-------- -------- -------- --------
Adjustments to reconcile net income to net cash flows
from operating activities:
Depreciation and other amortization. . . . 391 391 399 399
Amortization of intangibles. . . . . . . . 475 475 477 477
Deferred income tax benefit. . . . . . . . (197) (195) (143) (143)
Changes in working capital items, net. . . (440) (331) (248) (236)
Restructuring expense, net of cash
payments . . . . . . . . . . . . . . . . 317 317 (121) (121)
Extraordinary item - loss on early
extinguishments of debt before
income taxes . . . . . . . . . . . . . . -- -- 29 29
Other, net . . . . . . . . . . . . . . . . 8 2 20 20
-------- -------- -------- --------
Total adjustments. . . . . . . . . . . . 554 659 413 425
-------- -------- -------- --------
Net cash flows from operating activities . . . 950 1,092 980 998
-------- -------- -------- --------
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES:
Capital expenditures . . . . . . . . . . . . . (499) (499) (456) (456)
Acquisition of businesses. . . . . . . . . . . (187) (187) (76) (76)
Disposition of businesses and certain assets . 139 139 162 162
Net proceeds from issuance of Nabisco Holdings'
common stock to minority shareholders. . . . -- -- 1,201 1,201
Other, net . . . . . . . . . . . . . . . . . . (1) (1) 56 56
-------- -------- -------- --------
Net cash flows from (used in) investing
activities . . . . . . . . . . . . . . . . (548) (548) 887 887
-------- -------- -------- --------
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES:
Net borrowings (repayments) of long-term debt. 64 64 (1,288) (1,288)
Increase (decrease) in notes payable . . . . . 225 225 (166) (166)
Proceeds from issuance of Common Stock . . . . 11 -- 11 --
Repurchase of Common Stock . . . . . . . . . . (100) -- -- --
Dividends paid on Common Stock and Series C
preferred stock. . . . . . . . . . . . . . . (474) -- (324) --
Dividends paid on other preferred stock. . . . (40) -- (106) --
Dividends paid to Nabisco Holdings' minority
shareholders . . . . . . . . . . . . . . . . (22) (22) (8) (8)
Other, net-including intercompany transfers. . 38 (831) (59) (483)
-------- -------- -------- --------
Net cash flows used in financing activities. (298) (564) (1,940) (1,945)
-------- -------- -------- --------
Effect of exchange rate changes on cash and
cash equivalents . . . . . . . . . . . . . . . (7) (7) 4 4
-------- -------- -------- --------
Net change in cash and cash equivalents. . . 97 (27) (69) (56)
Cash and cash equivalents at beginning of period 234 232 423 409
-------- -------- -------- --------
Cash and cash equivalents at end of period . . . $ 331 $ 205 $ 354 $ 353
-------- -------- -------- --------
-------- -------- -------- --------
</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, 1996 DECEMBER 31, 1995
----------------------- -----------------------
RJRN RJRN
HOLDINGS RJRN HOLDINGS RJRN
-------- ---- -------- ----
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents. . . . . . . . . . . $ 331 $ 205 $ 234 $ 232
Accounts and notes receivable, net . . . . . . 1,434 1,432 1,334 1,327
Inventories (Note 2) . . . . . . . . . . . . . 2,576 2,576 2,489 2,489
Prepaid expenses and excise taxes. . . . . . . 426 426 503 503
-------- -------- -------- --------
TOTAL CURRENT ASSETS. . . . . . . . . . . . 4,767 4,639 4,560 4,551
-------- -------- -------- --------
Property, plant and equipment, net . . . . . . . 5,756 5,756 5,690 5,690
Trademarks, net. . . . . . . . . . . . . . . . . 8,080 8,080 8,265 8,265
Goodwill, net. . . . . . . . . . . . . . . . . . 12,347 12,347 12,536 12,536
Other assets and deferred charges. . . . . . . . 463 440 467 466
-------- -------- -------- --------
$ 31,413 $ 31,262 $ 31,518 $ 31,508
-------- -------- -------- --------
-------- -------- -------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable. . . . . . . . . . . . . . . . . $ 512 $ 512 $ 268 $ 268
Accounts payable and accrued liabilities . . . 3,311 3,158 3,404 3,245
Current maturities of long-term debt . . . . . 58 58 150 150
Income taxes accrued . . . . . . . . . . . . . 293 343 302 302
-------- -------- -------- --------
TOTAL CURRENT LIABILITIES . . . . . . . . . 4,174 4,071 4,124 3,965
-------- -------- -------- --------
Long-term debt (less current maturities) . . . . 9,595 9,595 9,429 9,429
Other noncurrent liabilities . . . . . . . . . . 3,029 2,390 3,016 2,365
Deferred income taxes. . . . . . . . . . . . . . 3,542 3,475 3,666 3,596
Contingencies (Note 3)
RJRN Holdings' obligated mandatorily redeemable
preferred securities of subsidiary trust
holding solely junior subordinated
debentures*. . . . . . . . . . . . . . . . . . 954 -- 954 --
Stockholders' equity:
ESOP convertible preferred stock (14,672,832
shares issued and outstanding at
September 30, 1996). . . . . . . . . . . . . 235 -- 240 --
Series B preferred stock (12,044 shares
issued and outstanding at
September 30, 1996). . . . . . . . . . . . . 301 -- 301 --
Series C convertible preferred stock
(26,675,000 shares issued and outstanding
at September 30, 1996) . . . . . . . . . . . 3 -- 3 --
Common stock (273,300,224 shares issued at
September 30, 1996). . . . . . . . . . . . . 3 -- 3 --
Paid-in capital. . . . . . . . . . . . . . . . 9,991 11,924 10,110 11,958
Retained earnings. . . . . . . . . . . . . . . -- -- -- 371
Treasury stock, at cost (3,377,300 shares
repurchased at September 30, 1996) . . . . . (100) -- -- --
Other stockholders' equity . . . . . . . . . . (314) (193) (328) (176)
-------- -------- -------- --------
TOTAL STOCKHOLDERS' EQUITY. . . . . . . . . 10,119 11,731 10,329 12,153
-------- -------- -------- --------
$ 31,413 $ 31,262 $ 31,518 $ 31,508
-------- -------- -------- --------
-------- -------- -------- --------
</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 approximately
$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 1996
presentation.
In management's opinion, the accompanying unaudited consolidated condensed
financial statements (the "Consolidated Condensed Financial Statements") of RJR
Nabisco Holdings Corp. ("RJRN Holdings") and RJR Nabisco, Inc. ("RJRN" and
together with RJRN Holdings, the "Registrants") contain all adjustments,
consisting only of normal recurring adjustments, necessary for a fair statement
of the results for the interim periods presented. The Consolidated Condensed
Financial Statements should be read in conjunction with the consolidated
financial statements and footnotes included in the Annual Report on Form 10-K of
RJRN Holdings and RJRN for the year ended December 31, 1995.
On January 1, 1996, RJRN Holdings and RJRN adopted Statement of Financial
Accounting Standards No. 121, Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed of ("SFAS No. 121"). The adoption of
SFAS No. 121 did not have a material impact on the financial position or results
of operations of RJRN Holdings and RJRN.
On January 1, 1996, RJRN Holdings and RJRN adopted Statement of Financial
Accounting Standards No. 123, Accounting for Stock-Based Compensation ("SFAS No.
123"). RJRN Holdings and RJRN elected to continue to apply the intrinsic value
based method for recognizing compensation expense for stock-based employee
compensation plans.
In the second quarter of 1996, Nabisco Holdings Corp. ("Nabisco Holdings")
recorded a restructuring expense of $428 million ($241 million after-tax, net of
minority interest) related to a program announced on June 24, 1996. The
restructuring program, which was undertaken to streamline operations and improve
profitability, commenced during the second quarter of 1996 and will be
substantially completed during 1997. Of the $428 million restructuring expense,
cash expenditures will approximate $230 million. In addition to the
restructuring expense, the program will require cash expenditures of
approximately $81 million, $27 million ($13 million after-tax, net of minority
interest) of which was recognized during the second and third quarters of 1996
for implementation and integration expenses, principally for relocation of
employees and equipment and training. After completion of the restructuring
program, pre-tax savings are expected to be approximately $200 million annually.
The major components of the $428 million restructuring expense are domestic
and international severance and related benefits associated with workforce
reductions totaling approximately 6,000 employees (approximately $194 million),
estimated losses from disposals of equipment and inventory related to product
line rationalizations (approximately $116 million), estimated losses to write
down the carrying value of several non-strategic product lines prior to sale
(approximately $51 million), estimated costs to terminate manufacturing supply
and distribution contracts (approximately $45 million) and estimated losses from
disposals of property related to international plant closures and domestic and
international facility reorganizations (approximately $22 million).
5
<PAGE>
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 2 - INVENTORIES
The major classes of inventory are shown in the table below:
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
Finished products. . . . . . . . . $ 856 $ 755
Leaf tobacco . . . . . . . . . . . 1,045 1,152
Raw materials. . . . . . . . . . . 226 231
Other. . . . . . . . . . . . . . . 449 351
------- -------
$ 2,576 $ 2,489
------- -------
------- -------
NOTE 3 -- CONTINGENCIES
TOBACCO-RELATED LITIGATION
OVERVIEW. Various legal actions, proceedings and claims are pending or may
be instituted against R.J. Reynolds Tobacco Company ("RJRT") or its affiliates
(including, with increasing frequency, RJRN) or indemnitees, including those
claiming that lung cancer and other diseases as well as addiction have resulted
from the use of or exposure to RJRT's tobacco products. During the third
quarter of 1996, 64 new actions were filed or served against RJRT and/or its
affiliates or indemnitees and 10 such actions were dismissed or otherwise
resolved in favor of RJRT and/or its affiliates or indemnitees without trial.
The number of these cases pending at any time has increased in all but one
fiscal quarter since December 1993. As of October 24, 1996, 279 active cases
were pending against RJRT and/or its affiliates or indemnitees, 277 in the
United States and two in Canada. In October of 1995, there were 89 active cases
pending and 50 such cases were pending in October of 1994.
The United States cases are in 29 states and are distributed as follows:
179 in Florida, 13 in Louisiana, 11 in New York, eight in California, seven in
Alabama, five in each of Indiana, Kansas, Mississippi and Texas, four in each of
New Jersey, Pennsylvania and Tennessee, three in each of Maryland, Massachusetts
and Minnesota, two in each of Colorado, Connecticut, Michigan and Ohio and one
in each of Arizona, the District of Columbia, Nevada, New Hampshire, North
Dakota, Oklahoma, Rhode Island, South Carolina, Washington and West Virginia.
Of the 277 active cases in the United States, 208 are pending in state court and
69 in federal court. Most of these cases are brought by individual plaintiffs,
but an increasing number, discussed above, seek recovery on behalf of states,
other governmental units or large classes of claimants.
THEORIES OF RECOVERY. The plaintiffs in these actions seek recovery on a
variety of legal theories, including, among others, strict liability in tort,
design defect, negligence, special duty, voluntary undertaking, breach of
warranty, failure to warn, fraud, misrepresentation, unfair trade practices,
conspiracy, aiding and abetting, unjust enrichment, anti-trust, Racketeer
Influenced and Corrupt Organizations Act ("RICO"), indemnity and common law
public nuisance. Punitive damages, often in amounts ranging into the hundreds
of millions or even billions of dollars, are specifically pleaded in a number of
cases in addition to compensatory and other damages. Eight of the 277 active
cases in the United States involve alleged non-smokers claiming injuries
resulting from exposure to environmental tobacco smoke. Fifteen cases purport
to
6
<PAGE>
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 3 -- CONTINGENCIES - (CONTINUED)
be class actions on behalf of 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. Twenty two of the active cases seek, INTER ALIA, recovery of the
cost of Medicaid funds paid for treatment of individuals suffering from diseases
or conditions allegedly related to tobacco.
DEFENSES. The defenses raised by RJRT and/or its affiliates, where
applicable, include preemption by the Federal Cigarette Labeling and Advertising
Act ("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; and, in the
attorneys general cases (discussed below), additional constitutional defenses.
RJRN has asserted additional defenses, including jurisdictional defenses, in
many of the cases in which it is named. Juries have found for plaintiffs in
three smoking and health cases in which RJRT was not a defendant, but in one
such case, no damages were awarded and the judgment was affirmed on appeal. The
jury awarded plaintiffs $400,000 in another such case, CIPOLLONE V. LIGGETT
GROUP, INC., but the award was overturned on appeal and the case was
subsequently dismissed. In the third such case, on August 9, 1996, a Florida
jury awarded damages of $750,000 to an individual plaintiff. It is expected
that defendants in that case, CARTER V. BROWN & WILLIAMSON, will seek to
reverse the judgment on appeal.
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 Supreme 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.
CERTAIN CLASS ACTION SUITS. In May 1996, there was an important ruling in
one of the purported class action cases, CASTANO V. THE AMERICAN TOBACCO
COMPANY, originally filed in March 1994 in the United States District Court for
the Eastern District of Louisiana against tobacco industry defendants, including
RJRT and RJRN. Plaintiffs sought to obtain 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 alleged that cigarette
manufacturers manipulated the levels of nicotine in their tobacco products to
induce addiction in smokers. Plaintiffs' motion for certification of the class
was granted in part on February 17, 1995 but, on May 23, 1996, the Fifth Circuit
Court of Appeals overturned the certification and ordered the case remanded to
the district court for decertification of the class on the grounds that a class
consisting of all "addicted" smokers failed to meet the standards and
requirements of Federal Rule 23 governing class actions.
7
<PAGE>
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 3 -- CONTINGENCIES -- (CONTINUED)
Since the federal appeals court decision in CASTANO, class action suits
based on similar claims have been brought in state courts in Alabama, the
District of Columbia (D.C. court), Louisiana, Maryland, Minnesota, Ohio,
Pennsylvania and New York. A similar suit had previously been filed in Indiana.
Similar suits are also expected to be filed in additional jurisdictions. Each
such suit asserts claims on behalf of residents of the particular state who
allegedly are or claim to be addicted, or are the legal survivors of such
persons. In addition, two earlier class action suits are still pending in
Florida. In one case, ENGLE V. R.J. REYNOLDS TOBACCO COMPANY, a class
consisting of Florida residents who claim to have been injured by an "addiction"
to cigarettes has been certified, and a petition to review the certification has
been denied. In a second case, BROIN V. PHILIP MORRIS COMPANY, a class
consisting of all non-smoking flight attendants who work or have worked for U.S.
airlines has been certified, and a mandamus petition to reverse this
certification was denied. Pre-CASTANO class action suits are also pending in
Alabama and Louisiana. A new class action filed in Tennessee seeks
reimbursement of Blue Cross/Blue Shield premiums paid by subscribers throughout
the United States.
THE ATTORNEYS GENERAL AND RELATED CASES. In June 1994, the Mississippi
attorney general brought an action, MOORE V. THE AMERICAN TOBACCO COMPANY,
against various industry members including RJRT. The case was brought 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 against
"promoting" or "aiding and abetting" the sale of cigarettes to minors. Both
actual and punitive damages are sought in unspecified amounts. Motions by the
defendants to dismiss the case or to transfer it to circuit (jury) court were
denied on February 21, 1995 and the case is proceeding in Chancery Court. RJRN
and other industry holding companies have been voluntarily dismissed from the
case.
Following the filing of the MOORE case referred to above, other states,
through their attorneys general and/or other state agencies, have sued RJRT and
other U.S. cigarette manufacturers as well as, in some instances, their parent
companies, in actions to recover the costs of medical expenses incurred by the
state or its agencies in the treatment of diseases allegedly caused by cigarette
smoking. Some of these cases also seek injunctive relief and treble damages for
state and/or federal antitrust law and RICO violations. On October, 24, 1996
there were 15 such cases pending in the following states: Arizona, Connecticut,
Florida, Kansas, Louisiana, Maryland, Massachusetts, Michigan, Minnesota,
Mississippi, New Jersey, Oklahoma, Texas, Washington and West Virginia. The
Mississippi case is the first such case currently scheduled for trial, with a
trial date set for March 24, 1997. The Florida attorney general's case is
scheduled for trial on August 4, 1997 and the Texas case is scheduled for
September 22, 1997.
The suit by the State of Florida raises special issues because it was
brought under a July 1994 amendment to a Florida statute which allows the state
to bring an action in its own name against the tobacco industry to recover the
state's Medicaid payments for the treatment of illnesses statistically
associated with cigarette smoking. The amendment did not require the state to
identify the individuals who received medical care, permitted claims to be filed
in the aggregate and eliminated the comparative negligence and assumption of
risk defenses. The amendment was challenged on state and federal constitutional
grounds in a lawsuit brought by Philip Morris Companies Inc., Associated
Industries of Florida and others in June 1994. The case was appealed to the
Florida Supreme Court which, on June 27, 1996, issued its opinion limiting the
amendment in several key respects.
8
<PAGE>
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 3 -- CONTINGENCIES -- (CONTINUED)
Significant holdings by the court included: that provisions abrogating
affirmative defenses available to tobacco companies if sued by individuals
could only be applied to claims brought by the state arising out of payments
made after July 1, 1994, the effective date of the amendment; that the state
must identify individual recipients of Medicaid payments; and that claims
previously barred by the statute of repose could not be revived. The
Florida Supreme Court, in a 4-3 decision, expressly stated that although it
found provisions of the statute to be "facially" constitutional, it was
specifically leaving open the right to challenge those provisions as applied in
any specific lawsuit.
In an order, dated September 16, 1996, the Florida trial court hearing the
attorney general's case applied the Florida Supreme Court decision to that case.
The order dismisses fifteen of plaintiff's eighteen causes of action, but leaves
standing the claims of negligence and/or products liability and one count of the
complaint which seeks to enjoin certain acts including the sale of cigarettes to
minors. It also requires the attorney general to identify the individual
Medicaid recipients for whom the state is seeking recovery within 30 days and
precludes recovery by the state on payments made prior to July, 1994, except by
subrogation and assignment. The initial production of identification data by
the plaintiff was unsuccessfully challenged by the defendants on sufficiency
grounds, although further challenges may be appropriate.
In addition to the 15 actions brought by the various state attorneys
general, seven actions advancing similar theories have been brought by private
attorneys and/or local officials purportedly on behalf of the citizens of
certain states, counties and/or cities.
RJRT and most other cigarette manufacturers are defending these attorney
general and related cases vigorously (as is RJRN in the cases where it is a
named defendant). In addition, these defendants have filed petitions for
declaratory judgment in several of the states in which the attorneys general
cases are pending or threatened, including Massachusetts (federal court), Texas
(state court), Maryland (state court), Connecticut (federal court), Utah (state
court), New Jersey (state court) and Hawaii (federal court).
RECENT AND SCHEDULED TRIALS. No cases against RJRT alleging injuries
relating to tobacco are scheduled for trial in the fourth quarter of 1996 but
several are scheduled for the first six months of 1997. Cases against other
tobacco company defendants are also scheduled for trial in 1997. Although trial
schedules are subject to change and many cases are dismissed before trial, it is
likely that there will be an increased number of tobacco cases coming to trial
over the next year as compared to prior years when trials in these cases were
infrequent.
OTHER DEVELOPMENTS. On March 12, 1996, defendants Brooke Group and Liggett
Group, Inc. stated they had reached agreement with the Castano plaintiffs to
settle that case. On April 4, 1996, Liggett Group, Liggett & Myers and Brooke
Group filed settlement statements in the Massachusetts, West Virginia,
Mississippi, Louisiana and Florida attorney general cases. The settlements
would be available to any other defendant whose share of the U.S. cigarette
market is less than 30% if it acquires or is acquired by Liggett, and Liggett
can terminate each settlement upon the occurrence of certain events including
the decertification of the Castano case, an event that has now occurred. All
other cigarette manufacturers, including RJRT, announced their intent to
continue to defend the cases.
9
<PAGE>
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 3 -- CONTINGENCIES -- (CONTINUED)
Legislation similar to the Florida legislation described above
(facilitating Medicaid recovery suits and stripping defendants of certain
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 such 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 has responded, and will continue to
respond to document subpoenas issued by this grand jury. On March 20, 1996,
RJRT and RJRN each received a subpoena from a Federal grand jury sitting in the
Southern District of New York. Each has produced documents in response to its
subpoena. In addition, on May 24, 1996, RJRT was served with a subpoena by a
grand jury sitting in the District of Columbia. RJRT is in the process of
responding to that subpoena. RJRN and RJRT are unable to predict the outcome of
these investigations.
RJRT has received civil investigative demands from the United States
Department of Justice requiring RJRT to produce documents and respond to
interrogatories relating to the possibility of joint activity to restrain
competition in the manufacture and sale of cigarettes, including possible joint
activity to restrict research and development or product innovations. RJRT has
responded to these civil investigative demands but 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 could encourage an
increase in the number of such claims. There have also been a number of
political, legislative, regulatory and other developments relating to the
tobacco industry and cigarette smoking that have received wide media attention.
Although it is impossible to predict the outcome of such events on pending
litigation and the rate at which new lawsuits are filed against RJRT and RJRN, 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 all such actions vigorously.
RJRN Holdings and RJRN also believe they have valid defenses for such actions
and intend to defend vigorously all such actions in which they are named
defendants.
RJRN Holdings and RJRN believe that the ultimate outcome of all pending
litigation matters should not have a material adverse effect on the financial
position of either RJRN Holdings or RJRN; however, it is possible that the
results of operations or cash flows of RJRN Holdings or RJRN in particular
quarterly or annual periods or the financial condition of RJRN Holdings and RJRN
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.
-------------
10
<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,
------------------------------------ ---------------------------------------
1996 1995 % CHANGE 1996 1995 % CHANGE
---- ---- -------- ---- ---- --------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
NET SALES:
RJRT . . . . . . . . . . . . . . . $1,191 $1,156 3% $ 3,421 $ 3,355 2%
Reynolds International . . . . . . 920 863 7 2,611 2,385 9
------ ------ -------- --------
Total Tobacco. . . . . . . . . . . 2,111 2,019 5 6,032 5,740 5
------ ------ -------- --------
Domestic Food Group. . . . . . . . 1,578 1,474 7 4,565 4,340 5
International Food Group . . . . . 660 570 16 1,841 1,604 15
------ ------ -------- --------
Total Food . . . . . . . . . . . . 2,238 2,044 9 6,406 5,944 8
------ ------ -------- --------
$4,349 $4,063 7 $ 12,438 $ 11,684 6
------ ------ -------- --------
------ ------ -------- --------
OPERATING COMPANY CONTRIBUTION(1):
RJRT . . . . . . . . . . . . . . . $ 375 $ 366 2% $ 1,145 $ 1,122 2%
Reynolds International . . . . . . 217 197 10 576 523 10
------ ------ -------- --------
Total Tobacco. . . . . . . . . . . 592 563 5 1,721 1,645 5
------ ------ -------- --------
Domestic Food Group. . . . . . . . 208 199 5 623 630 (1)
International Food Group . . . . . 56 54 4 169 155 9
------ ------ -------- --------
Total Food . . . . . . . . . . . . 264 253 4 792 785 1
------ ------ -------- --------
Headquarters . . . . . . . . . . . (16) (16) -- (50) (48) (4)
------ ------ -------- --------
$ 840 $ 800 5 $ 2,463 $ 2,382 3
------ ------ -------- --------
------ ------ -------- --------
OPERATING INCOME(2):
RJRT . . . . . . . . . . . . . . . $ 284 $ 274 4% $ 871 $ 847 3%
Reynolds International . . . . . . 207 187 11 545 491 11
------ ------ -------- --------
Total Tobacco. . . . . . . . . . . 491 461 7 1,416 1,338 6
------ ------ -------- --------
Domestic Food Group. . . . . . . . 158 148 7 118 477 (75)
International Food Group . . . . . 50 48 4 76 138 (45)
------ ------ -------- --------
Total Food . . . . . . . . . . . . 208 196 6 194 615 (68)
------ ------ -------- --------
Headquarters . . . . . . . . . . . (16) (16) -- (50) (48) (4)
------ ------ -------- --------
$ 683 $ 641 7 $ 1,560 $ 1,905 (18)
------ ------ -------- --------
------ ------ -------- --------
</TABLE>
- ---------------
(1) Operating company contribution represents operating income before
amortization of trademarks and goodwill and before restructuring expense.
(2) Operating income for the nine months ended September 30, 1996 includes a
$428 million restructuring expense for the food operations, consisting of
$353 million at the Domestic Food Group and $75 million at the
International Food Group.
RJRN Holdings reported net sales of $4.3 billion in the third quarter
of 1996, a 7% increase over the comparable period in 1995, and $12.4
billion in the first nine months of 1996, a 6% increase over the comparable
period in 1995. The increases in net sales for the third quarter and first
nine months were driven by improved performances by each of the operating
companies.
11
<PAGE>
TOBACCO
The tobacco line of business is conducted by RJRT and R.J. Reynolds
International ("Reynolds International").
The worldwide tobacco business reported net sales of $2.1 billion in the
third quarter of 1996, an increase of 5% compared to the third quarter of 1995,
and net sales of $6.0 billion for the first nine months of 1996, 5% higher than
the comparable 1995 period. Operating company contribution increased 5% for
both the third quarter and the first nine months of 1996 over the comparable
periods in 1995. Operating income for the worldwide tobacco businesses
increased 7% and 6% over the third quarter and first nine months of 1995,
respectively. Both revenues and earnings growth were fueled by strong
international volume growth and higher selling prices at both the domestic and
international businesses, somewhat offset by lower volume at domestic tobacco
and unfavorable currency translation. Also contributing to the earnings growth
was improved productivity somewhat offset by higher marketing spending.
RJRT reported net sales of $1.2 billion in the third quarter of 1996, an
increase of 3% compared to the third quarter of 1995, and net sales of $3.4
billion in the first nine months of 1996, an increase of 2% over the comparable
1995 period. The increases in net sales were due to higher selling prices and,
to a lesser extent, favorable mix, which more than offset the impact from lower
volume in the full price and savings segments. Full price volume decreased 3%
for both the third quarter and first nine months of 1996 as a result of heavy
competitive promotional activity. Nonetheless, Camel, RJRT's strongest brand
performer, recorded volume increases in the third quarter and the first nine
months of 1996 of 2% and 5%, respectively. On the other hand, overall Winston
declined 8% for the three and nine month periods while Salem declined 3% and
2%, respectively, for the comparable periods. Within the Winston family, base
Winston increased but not enough to offset the decline in Winston Select
given the Company's decision to reduce support of Winston Select. Full price
volume as a percentage of total volume amounted to 63% in the third quarter of
1996, the same as in the third quarter of 1995, and 63% in the first nine months
of 1996 compared to 62% in the first nine months of 1995. RJRT's performance
in the domestic full-price retail segment reflects slightly lower market
share on year-to-date comparisons driven principally by Winston Select decline.
Savings volume decreased 3% and 5% for the third quarter and first nine
months of 1996, respectively, due to the company's planned reduction of sales of
less profitable brands. Volume of RJRT's leading and most profitable savings
brand, Doral, increased 7% in the third quarter of 1996 and increased 4% in the
first nine months of 1996.
On the new product front, RJRT introduced Eclipse, a new cigarette which
features nearly 90% reduced second hand smoke, into a test market in
Chattanooga, Tennessee, during the second quarter of 1996. The Company is
monitoring Eclipse's performance and will decide on expansion into additional
markets based on the results of the initial test market. During the third
quarter, RJRT introduced a new Camel Menthol line into selected markets and is
also testing a new Winston positioning. Additionally, the company expanded
the Red Kamel and Kamel Menthe line extensions and Moonlight Tobacco brands
introductions in additional test markets.
Reynolds International reported net sales of $920 million in the third
quarter of 1996, an increase of 7% from the third quarter of 1995, while net
sales of $2.6 billion in the first nine months of 1996 increased 9% from the
first nine months of 1995. Both periods benefited from higher selling prices
and strong volume growth which more than offset unfavorable foreign currency
developments. Overall volume increased 9% for the third quarter and 10% in the
first nine months of 1996 compared with the corresponding periods in 1995.
Versus prior year, the volume increases for the quarter and nine months were
driven by strong growth in mid-priced local brands in the Former Soviet Union,
the successful introduction, in Japan, of Salem Pianissimo, a new menthol
12
<PAGE>
cigarette with less side stream smoke and improved aroma, the introduction of
Camel Lights throughout Western Europe and the Tanzanian business acquired at
the end of 1995. Partially offsetting these successes were lower volume in the
Ukraine due to border closings of exports to Russia and the declining full
flavor segment in Western Europe. Camel Lights continues to perform
impressively in all its markets, helping to abate the full flavor share
erosion. Winston, the company's leading international brand, recorded a 25%
worldwide volume gain for the third quarter and 7% for the nine months aided
by market share gains in France, Greece and a fast growing brand franchise in
the Former Soviet Union and Turkey.
GOVERNMENTAL ACTIVITY
In August 1996, the U.S. Food and Drug Administration (the "FDA"), asserted
jurisdiction over cigarettes and certain other tobacco products by declaring
such products medical devices and adopting regulations on the advertising,
promotion, manufacture and sale of cigarettes. The regulations prohibit or
impose stringent limits on a broad range of sales and marketing practices,
including bans on sampling, sponsorship by brand name and distribution of
non-tobacco items carrying brand names. Among other restrictions, the rule also
limits advertising in many magazines and on billboards to black and white text
and imposes new labeling language.
The purported purpose of the FDA's assertion of jurisdiction was to curb
the use of tobacco products by underage youth. RJRT believes that the assertion
of jurisdiction and the scope of the regulations, if implemented, would
materially restrict RJRT's and other tobacco companies' ability to market
and to make available its cigarette products to ADULT smokers. RJRT, together
with the other major domestic cigarette manufacturers and an advertising agency,
filed suit on the day the rules were first proposed, in the U.S. District Court
for the Middle District of North Carolina, seeking a ruling that, among
other things, the FDA's assertion of jurisdiction (COYNE BEAHM V. UNITED STATES
FOOD AND DRUG ADMINISTRATION) is without Congressional authority and that the
regulations unlawfully restrict constitutionally protected rights to free
speech. Plaintiffs have filed a motion for summary judgment and the court has
scheduled a hearing on the motion for February 10, 1997. Similar suits have
been filed in the same court by manufacturers of smokeless tobacco products,
by operators of retail stores and by advertising interests. RJRT is unable to
predict the outcome of the litigation seeking to enjoin the implementation of
the FDA's regulations.
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 or timing 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. RJRT submitted comments on the
proposed regulations during the comment period which closed in February, 1996.
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.
In July 1996, Massachusetts enacted legislation that would require
manufacturers of tobacco products sold in Massachusetts to report yearly
beginning in 1997, the ingredients of each brand sold. RJRT believes that the
disclosure of trade secrets required by this law could damage the competitive
position of its brands. The statute also requires the reporting of nicotine
yield ratings in accordance with procedures to be established. Together with
other cigarette manufacturers, RJRT has filed suit in the U.S. District Court
for
13
<PAGE>
the District of Massachusetts seeking to have the statute declared null and void
and to restrain Massachusetts officials from enforcing it. A similar suit has
been filed by manufacturers of smokeless tobacco products. RJRT is unable to
predict the outcome of this litigation.
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, Reynolds International or the
cigarette industry generally, but such legislation or regulations could have an
adverse effect on RJRT, Reynolds International or the cigarette industry
generally.
For a description of certain litigation affecting RJRT and its affiliates,
see Note 3 to the Consolidated Condensed Financial Statements.
FOOD
The food line of business is conducted through the operating subsidiaries
of Nabisco Holdings Corp. ("Nabisco Holdings"). Nabisco Holdings' businesses in
the United States are conducted by Nabisco, Inc. and consist of the Nabisco
Biscuit, Specialty Products, LifeSavers, Planters, Food Service and Refrigerated
Foods companies (collectively, the "Domestic Food Group"). Nabisco Holdings'
businesses outside the United States are conducted by Nabisco Ltd and Nabisco
International, Inc. (collectively, the "International Food Group").
Nabisco Holdings reported net sales of $2.2 billion in the third quarter
of 1996, an increase of 9% from the third quarter of 1995 level of $2.0
billion, and $6.4 billion in the first nine months of 1996, an increase of 8%
from the first nine months of 1995 level of $5.9 billion, with the Domestic
Food Group up 7% and 5%, respectively, and the International Food Group up 16%
and 15%, respectively. The Domestic Food Group's third quarter net sales
increase was attributable to volume increases, principally at Nabisco
Biscuit and Planters, accounting for 4 percentage points of the
increase, increased selling prices, principally at Nabisco Biscuit, accounting
for 2 percentage points of the increase, with the remaining percentage point
increase resulting from the impact of the Parkay acquisition, offset by the
impact of 1995 product line disposals. Nabisco Biscuit's volume increase
was primarily attributable to the Oreo, Ritz and Chips Ahoy! brands and the
continued success of the new Air Crisp line, partially offset by lower volume
for SnackWell's and Newtons. Planters' volume increase resulted from
gains in the warehouse club business, continued success with retailers in
establishing category management programs, and a stabilized competitive
environment. The Domestic Food Group's net sales increase for the current
nine months was attributable to higher selling prices which accounted
for 3 percentage points of the increase, 1 percentage point increase for higher
volume and 1 percentage point increase from the impact of the 1995 Parkay
acquisition, offset by the impact of the 1995 product line disposals. The
International Food Group's net sales increases for the third quarter and first
nine months were primarily driven by the fourth quarter 1995 business
acquisitions, principally Primo in Canada and Royal Beech-Nut in South
Africa, and 1996 acquisitions in Latin America.
Nabisco Holdings' operating company contribution was $264 million in the
third quarter of 1996, an increase of 4% from the third quarter 1995 level of
$253 million, and $792 million in the first nine months of 1996, an increase of
1% from the first nine months of 1995 of $785 million, with the International
Food Group up 4% and 9%, respectively, and the Domestic Food Group up 5% from
last year's third quarter and down 1% for the comparable nine month period.
Operating company contribution for the third quarter and first nine months of
1996 includes $16 million and $26 million, respectively, of restructuring
related expenses in the Domestic Food Group associated with the implementation
of the second quarter restructuring program. The International Food Group
includes similar expenses of $1 million for each 1996 period. The third quarter
and nine month 1995 periods include a net gain of $11 million from the sale of
the
14
<PAGE>
Ortega Mexican food business ($18 million gain in the Domestic Food Group)
and New York Style Bagel Chip business ($7 million loss in the International
Food Group).
Excluding the restructuring related expenses, Nabisco Holdings' and the
Domestic Food Group's operating company contributions were $281 million and $224
million in the third quarter of 1996, an increase of $28 million, or 11%, and
$25 million, or 13%, respectively, from the third quarter of 1995, and $819
million and $649 million in the first nine months of 1996, an increase of $34
million, or 4%, and $19 million, or 3%, respectively, from the first nine months
of 1995. The 13% increase for the Domestic Food Group for the third quarter
is attributable to the profit contribution from higher net sales, partially
offset by higher advertising and promotion expenses. The 3% increase for the
Domestic Food Group for the first nine months of 1996 is primarily due to the
profit impact from the higher net sales and lower advertising and promotion
expenses, partially offset by higher fixed manufacturing and distribution
expenses. The International Food Group's 6% increase in operating company
contribution for the third quarter of 1996 was primarily due to the profit
impact from business acquisitions, partially offset by lower results in
Latin America, principally Argentina, due to higher commodity costs. The
International Food Group's 10% increase in operating company contribution
for the first nine months of 1996 was primarily due to the profit impact from
business acquisitions and improved results in Brazil, Iberia and Columbia,
partially offset by lower results in Argentina.
Nabisco Holdings' operating income in the first nine months of 1996
includes $428 million of restructuring expense recorded in the second quarter in
addition to the implementation expenses recorded during the second and third
quarters. Excluding these expenses, operating income was $225 million for the
third quarter of 1996 and $649 million for the first nine months of 1996, an
increase of 15% and 6%, respectively, over the comparable 1995 periods,
reflecting the higher operating company contributions discussed above.
RESTRUCTURING AND REALIGNMENT RESERVE BALANCES
In the second quarter of 1996, Nabisco Holdings recorded a restructuring
expense of $428 million ($241 million after-tax, net of minority interest)
related to a program announced on June 24, 1996. The restructuring program,
which was undertaken to streamline operations and improve profitability,
commenced during the second quarter of 1996 and will be substantially completed
during 1997. Of the $428 million restructuring expense, cash expenditures will
approximate $230 million. In addition to the restructuring expnse, the program
will require cash expenditures of approximately $81 million, $27 million
($13 million after-tax, net of minority interest) of which was recognized during
the second and third quarters of 1996 for implementation and integration
expenses, principally for relocation of employees and equipment and training.
After completion of the restructuring program, pre-tax savings are expected to
be approximately $200 million annually. For information regarding the major
components of the $428 million restructuring expense, see Note 1 to the
Consolidated Condensed Financial Statements. As of September 30, 1996,
approximately $82 million of the restructuring accruals were utilized as
follows: $31 million for severance and related benefits; $37 million for
product line rationalizations; $10 million for contract terminations
and $4 million for plant closures.
As of September 30,1996, the amount to be paid under prior years'
restructuring and realignment programs aggregated $76 million, the majority of
which relates to the 1995 tobacco restructuring program for severance pay and
benefits.
NET INCOME APPLICABLE TO COMMON STOCK
Net income applicable to common stock of $214 million increased 18% over
1995 net income applicable to common stock for the three month period.
Excluding the 1996 after-tax restructuring expense of $241 million recorded in
the second quarter of 1996, a $67 million charge ($103 million before tax)
recorded in other income (expense), net in the second quarter of 1995 related
to certain
15
<PAGE>
debt refinancings by RJRN, Nabisco Holdings and Nabisco, Inc., and a $16 million
after tax extraordinary loss on the early extinguishment of debt at Nabisco
during the third quarter of 1995, 1996 net income applicable to common stock for
the nine month period would have been $605 million, a 10% increase over the
comparable 1995 amount of $551 million.
Comparisons to prior year were also affected by the exchange in September
1995 of preferred securities issued by RJRN Holdings' subsidiary trust (the
payments on which are tax-deductible) for a like amount of Series B Cumulative
Preferred Stock (the payments on which are not tax-deductible). The tax
benefit from the deductibility feature of the new securities issued in the
September 1995 exchange resulted in an increase to net income applicable to
common stock for the third quarter of 1996 and first nine months of 1996 of
$6 million and $24 million, respectively.
IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS
On January 1, 1996, RJRN Holdings and RJRN adopted SFAS No. 121 and SFAS
No. 123. See Note 1 to the Consolidated Condensed Financial Statements.
LIQUIDITY AND FINANCIAL CONDITION
Net cash flows from operating activities for the first nine months of 1996
as detailed in the Consolidated Condensed Statement of Cash Flows were
$950 million, a decrease of $30 million from the nine months of 1995 level.
The decrease in net cash flows from operating activities reflects higher working
capital requirements.
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 any debt
and equity financing transactions, acquisition expenditures and divestiture
proceeds, resulted in an inflow of $91 million for the first nine months of 1996
compared with an inflow of $84 million for the first nine months of 1995. The
increase in free cash flow from 1995 to 1996 primarily reflects higher operating
company contribution and lower financing fees which more than offset the impact
from higher income tax payments, Common Stock dividends paid, and higher
combined interest and preferred stock dividend payments.
The components of free cash flow are as follows:
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------
1996 1995
---- ----
(DOLLARS IN MILLIONS)
OPERATING INCOME . . . . . . . . . . . . . . . . $ 1,560 $ 1,905
Amortization of intangibles . . . . . . . . . . 475 477
Restructuring expense . . . . . . . . . . . . . 428 --
-------- --------
OPERATING COMPANY CONTRIBUTION . . . . . . . . . 2,463 2,382
Depreciation and other amortization. . . . . . 391 399
Increase in operating working capital. . . . . (360) (365)
Capital expenditures . . . . . . . . . . . . . (499) (456)
Change in other assets and liabilities . . . . 69 (38)
Restructuring cash payments. . . . . . . . . . (111) (121)
-------- --------
OPERATING CASH FLOW* . . . . . . . . . . . . . . 1,953 1,801
Taxes paid . . . . . . . . . . . . . . . . . . (521) (428)
Interest paid. . . . . . . . . . . . . . . . . (691) (591)
Dividends paid . . . . . . . . . . . . . . . . (536) (438)
Other, net . . . . . . . . . . . . . . . . . . (114) (260)
-------- --------
FREE CASH FLOW . . . . . . . . . . . . . . . . . $ 91 $ 84
-------- --------
-------- --------
* 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).
-----------------
16
<PAGE>
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.
On June 3, 1996, the Registrants renewed their 364 day commercial paper
liquidity facility through June 2, 1997 and extended the maturity of their three
year revolving bank credit facility to June 6, 1999. The 364 day facility
provides commitments of $650 million. The three year facility provides
commitments of $2.75 billion for the next two years and approximately $2.4
billion for the third year.
On June 20, 1996, Nabisco Holdings and Nabisco, Inc. amended certain terms
of their $2 billion five year credit facility and their $1.5 billion 364 day
commercial paper liquidity facility to accommodate their restructuring
initiative. Nabisco Holdings and Nabisco, Inc. are in the process of finalizing
a new five year $1.5 billion credit agreement and a new 364 day $1.5 billion
commercial paper liquidity facility to replace the existing credit facilities on
substantially similar terms.
The Registrants believe that they and their subsidiaries are in compliance
with all of the requirements imposed by the terms of their indebtedness.
At September 30, 1996, approximately $5.0 billion of total debt (notes
payable and long-term debt, including current maturities) was owed by RJRN and
approximately $5.2 billion was owed by its subsidiaries.
Capital expenditures were $499 million for the first nine months of 1996.
The current level of expenditures planned for 1996 is expected to be in the
range of approximately $750 million to $800 million (approximately 56% Food and
44% Tobacco), which will be funded primarily by cash flows from operating
activities. Management expects that its capital expenditures program will
continue at a level sufficient to support the strategic and operating needs of
RJRN Holdings' operating subsidiaries.
On March 5, 1996, RJRN Holdings announced a 23% increase in its annual
common dividend rate from $1.50 to $1.85 per share of Common Stock and adopted
as an objective the repurchase of approximately 10 million shares of Common
Stock over the next several years based on the achievement of performance
targets. RJRN Holdings' plan to repurchase up to $100 million of Common Stock
in 1996 was completed during the third quarter, resulting in the repurchase of
3,377,300 shares of Common Stock.
On June 5, 1996, Nabisco Holdings announced a 13% increase in its annual
common stock dividend from $.55 to $.62 per share. As a result, the Nabisco
Holdings dividends payable to RJRN are expected to increase from approximately
$117 million to approximately $132 million annually.
----------
The foregoing discussion in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" contains forward-looking
statements which reflect management's current views with respect to future
events and financial performance. These forward-looking statements are subject
to certain risks and uncertainties, including, but not limited to, the effect on
financial performance and future events of competitive pricing for products,
success of new product innovations and acquisitions, local economic conditions
and the effects of currency fluctuations in countries in which RJRN Holdings and
its subsidiaries do business, the effects of domestic and foreign government
regulation, ratings of RJRN Holdings' or its subsidiaries' securities and, in
the case of the tobacco business, litigation. Due to such uncertainties and
risks, readers are cautioned not to place undue reliance on such forward-looking
statements, which speak only as of the date hereof.
---------------
17
<PAGE>
PART II
ITEM 1. LEGAL PROCEEDINGS
TOBACCO-RELATED LITIGATION
OVERVIEW. Various legal actions, proceedings and claims are pending or may
be instituted against R.J. Reynolds Tobacco Company ("RJRT") or its affiliates
(including, with increasing frequency, RJRN) or indemnitees, including those
claiming that lung cancer and other diseases as well as addiction have resulted
from the use of or exposure to RJRT's tobacco products. During the third
quarter of 1996, 64 new actions were filed or served against RJRT and/or its
affiliates or indemnitees and 10 such actions were dismissed or otherwise
resolved in favor of RJRT and/or its affiliates or indemnitees without trial.
The number of these cases pending at any time has increased in all but one
fiscal quarter since December 1993. As of October 24, 1996, 279 active cases
were pending against RJRT and/or its affiliates or indemnitees, 277 in the
United States and two in Canada. In October of 1995, there were 89 active cases
pending and 50 such cases were pending in October of 1994.
The United States cases are in 29 states and are distributed as follows:
179 in Florida, 13 in Louisiana, 11 in New York, eight in California, seven in
Alabama, five in each of Indiana, Kansas, Mississippi and Texas, four in each of
New Jersey, Pennsylvania and Tennessee, three in each of Maryland, Massachusetts
and Minnesota, two in each of Colorado, Connecticut, Michigan and Ohio and one
in each of Arizona, the District of Columbia, Nevada, New Hampshire, North
Dakota, Oklahoma, Rhode Island, South Carolina, Washington and West Virginia.
Of the 277 active cases in the United States, 208 are pending in state court and
69 in federal court. Most of these cases are brought by individual plaintiffs,
but an increasing number, discussed above, seek recovery on behalf of states,
other governmental units or large classes of claimants.
For additional information about tobacco-related litigation and legal
proceedings, see Note 3-- 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. RJRN Holdings and RJRN also intend to defend
vigorously all such actions in which they are named defendants.
RJRN Holdings and RJRN believe that the ultimate outcome of all pending
litigation matters should not have a material adverse effect on the financial
position of either RJRN Holdings or RJRN; however, it is possible that the
results of operations or cash flows of RJRN Holdings or RJRN in particular
quarterly or annual periods or the financial condition of RJRN Holdings and RJRN
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.
---------------
18
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
4.1 Registrants agree to furnish copies of any instruments defining the
rights of holders of long- term debt of the Registrants and their
consolidated subsidiaries that does not exceed 10 percent of the total
assets of the Registrants and their consolidated subsidiaries to the
Securities and Exchange Commission upon request.
*10.1 Amended and Restated Employment Agreement (dated June 1, 1996) by and
between R.J. Reynolds International B.V. and Pierre de Labouchere.
*10.2 Amended and Restated Deferred Compensation Plan for RJR Directors
(dated as of September 1, 1996).
*10.3 Amended and Restated Equity Incentive Award Plan for Directors and Key
Employees of RJR Nabisco Holdings Corp. and Subsidiaries (dated as of
September 1, 1996).
*10.4 Amended and Restated RJR Nabisco Holdings Corp. 1990 Long Term
Incentive Plan (as amended and restated effective September 1, 1996).
*10.5 Form of Deferred Stock Unit Agreement between RJR Nabisco Holdings
Corp. and the grantee named therein dated as of May 31, 1996.
*10.6 Secured Promissory Note (dated May 15, 1996) of Steven F. Goldstone
in favor of Nabisco Holdings Corp.
*12.1 RJR Nabisco, Inc. Computation of Ratio of Earnings to Fixed Charges
for the nine months ended September 30,1996.
*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
19
<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: November 1, 1996 /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
20
<PAGE>
Exh 10.1
AMENDED
AND
RESTATED
EMPLOYMENT AGREEMENT
THIS AGREEMENT, between R.J. REYNOLDS INTERNATIONAL B.V (the "Company"),
and PIERRE DE LABOUCHERE ("Executive"), effective as of June 1, 1996, is an
amendment and restatement of employment agreements made as of May 26, 1994, June
24, 1994, March 5, 1996 and March 18, 1996, respectively.
RECITALS
In order to induce Executive to continue to serve as President and Chief
Executive Officer of the Company, the Company desires to provide Executive with
compensation and other additional benefits under the conditions set forth in
this Agreement.
Executive has had continuous employment with the Company and its
predecessors since September of 1980, and Executive is willing to continue
employment with the Company, on the terms and conditions hereinafter set forth.
It is therefore hereby agreed between the parties as follows:
1. EMPLOYMENT.
1.1 Subject to the terms and conditions of this Agreement, the Company
agrees to employ Executive during the term hereof as President and Chief
Executive Officer of the Company. Executive's principal office shall be at the
principal executive offices of the Company in Geneva, Switzerland. Executive
shall perform his duties hereunder subject only to the direction and control of
the Board of Directors of the Company.
1.2 The Company shall, during the term of this Agreement, use its best
efforts to insure the election and retention of Executive as President and Chief
Executive Officer of the Company.
<PAGE>
1.3 Subject to the terms and conditions of this Agreement, Executive
hereby accepts continued employment as President and Chief Executive Officer of
the Company and shall devote his full working time and efforts to the best of
his ability, experience and talent, to the performance of the services, duties
and responsibilities in connection therewith; and agrees to continue serving as
a member of the Board of Directors of the Company. Executive's authority and
duties shall include the exclusive right to hire, discharge and fix the terms
and conditions of employment of all employees of the Company and its
subsidiaries, subject only to the approval of the Board of Directors of the
Company with respect to senior level management employees. Nothing in this
Agreement shall preclude the Executive from engaging, consistent with his duties
and responsibilities hereunder, in charitable and community affairs, from
managing his personal investments, or from serving, subject to approval of the
Board of Directors of the Company, as a member of boards of directors of other
companies.
2. TERM OF EMPLOYMENT.
Executive's term of employment under this Agreement shall continue in
accordance with the terms hereof until a termination of Executive's employment;
provided, however, nothing herein obligates the Company to employ Executive for
any specific term.
3. COMPENSATION.
3.1 SALARY. The Company shall pay Executive a base salary ("Base Salary")
and certain other allowances as set forth in Exhibit I and attachments thereto.
Base Salary shall be payable in accordance with the ordinary payroll practices
of the Company and subject to the deductions set forth in Exhibit I and
attachments thereto. Executive's rate of Base Salary shall be reviewed for
increases by the Board of Directors of the Company at least annually, and once
2
<PAGE>
approved by the Board of Directors of the Company, such higher amount shall
constitute Executive's Base Salary.
3.2 ANNUAL BONUS. In addition to his Base Salary, Executive shall be
entitled, while he remains employed hereunder, to receive an annual bonus under
the Company's Annual Incentive Award Program, or alternative arrangement as may
be implemented from time to time, ("AIAP") in effect on the date of this
Agreement, as amended from time to time, a copy of which has been given to
Executive, or any successor thereto ("Annual Bonus Plan"), in accordance with
the terms thereof. Executive's annual bonus will be determined in accordance
with the Annual Bonus Plan available to Senior Executive Officers; such Annual
Bonus Plan, in any event, will provide an annual target bonus opportunity to
Executive no less favorable than that set forth in Exhibit I and attachments
thereto, subject to the attainment of the performance goals established from
time to time under such Annual Bonus Plan. Nothing herein obligates the Company
to pay Executive any specific annual bonus amount.
3.3 COMPENSATION PLANS AND PROGRAMS. Executive shall participate in any
compensation plan or program, whether annual or long term, maintained by the
Company on terms no less favorable than those set forth in Exhibit I.
4. EMPLOYEE BENEFITS.
4.1 EMPLOYEE BENEFIT PROGRAMS, PLANS AND PRACTICES. The Company shall
insure that Executive is provided during the term of his employment hereunder
with coverage under the employee benefit programs, plans and practices set forth
in Exhibit I, which is subject to amendment by the Company or its affiliates
from time to time.
4.2 VACATION AND FRINGE BENEFITS. Executive shall be entitled to the
number of vacation days and perquisites and fringe benefits as set forth in
Exhibit I.
3
<PAGE>
4.3 DIRECTORS AND OFFICERS LIABILITY COVERAGE. Executive shall be
entitled to the same level of coverage (as determined from time to time by the
Boards of Directors of the Company, and RJR Nabisco Holdings Corp. and/or RJR
Nabisco, Inc. (collectively, "Holdings")) under such directors' and officers'
liability insurance policies, if any, or other arrangements as are available to
senior executive officers and directors of the Company and Holdings, to the
fullest extent permitted by the existing By-laws of the Company and Holdings.
In any event, the Company and Holdings shall indemnify and hold Executive
harmless, to the fullest extent permitted by the laws of the State of Delaware,
United States of America, from and against all costs, charges and expenses
(including reasonable attorneys' fees) whatsoever incurred or sustained by him
or his legal representatives in connection with any action, suit or proceeding
to which he or his legal representatives may be made a party by reason of his
being or having been a director or officer of the Company or any of its
affiliates. This Section 4.3 shall survive the termination of the Agreement for
any reason.
4.4 GUARANTEE OF OBLIGATIONS. As long as the Company is an affiliate of
Holdings or their successors, the Company shall secure and maintain the written
guarantee by Holdings of the payment and performance of all the obligations of
the Company under this Agreement.
5. TERMINATION OF EMPLOYMENT.
5.1 TERMINATION NOT FOR CAUSE OR FOR GOOD REASON. (a) The Board of
Directors of the Company may terminate Executive's employment at any time for
any reason. If Executive's employment is terminated by the Company other than
for Cause (as defined in Section 5.4 hereof), or if Executive terminates his
employment for Good Reason (as defined in subsection 5.1(b) herein), Executive
shall, subject to Section 13 herein and the execution of a letter containing a
waiver and release, become entitled to receive compensation ("Compensation
4
<PAGE>
Continuance") until the third anniversary (the "Compensation Period") of the
date his employment terminated (or, if earlier, until his date of death), in
lieu of any other severance, payable monthly at an annual rate equal to
two-thirds the sum of (i) and (ii) where:
(i) is the Executive's annual base salary in effect during the twelve
(12) month period prior to termination; and
(ii) is the target award under the Annual Bonus Plan in respect of the
Plan Year in which termination occurs.
In addition, Executive shall be entitled to receive during the Compensation
Period under this Section 5.1(a):
(iii) all unpaid amounts, as of the date of such termination, in
respect of any bonus, for any fiscal year ending before such termination
which would have been payable had Executive remained in employment until
the date such amount would otherwise have been paid and, with respect to
the fiscal year in which such termination occurs, an amount equal to the
target annual bonus for such year (determined without regard to the
performance required thereunder), multiplied by a fraction, the numerator
of which is the number of days of the fiscal year prior to termination and
the denominator of which is 365;
(iv) any payment deferred by Executive, together with any applicable
interest or other accruals thereon:
(v) full coverage under the Company's and Holdings' employee benefit
programs, plans and practices described in Section 4.1 hereof for the
Compensation Period, or the Company or Holdings will provide for equivalent
coverage (on an equivalent tax basis); provided, however, that if Executive
is provided with benefit plan or executive perquisite program coverage
other than retirement plan coverage by an unaffiliated successor employer,
any such coverage by the Company or Holdings shall be reduced, with respect
to amounts payable hereunder, by the benefits actually provided to
Executive under any similar plan or coverage by any unaffiliated successor
employer; and
(vi) such rights to payments under applicable plans or programs as may
be appropriate to the terms of such plans or programs.
(vii) outplacement counseling services at Company expense;
provided, however, this expense shall not exceed 18% of the amount of
Compensation Continuance for any 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.
5
<PAGE>
If, subsequent to a termination of employment under this Section 5.1(a),
Executive shall die or suffer Permanent Disability (as hereinafter defined),
such death or Permanent Disability shall not diminish the rights of Executive or
his beneficiaries to the payments and benefits applicable to Executive or his
beneficiaries under this Section 5.1(a) less any amounts as may be paid to
Executive under 5.2.
(b) For purposes of this Agreement, "Good Reason" shall mean any of the
following:
(i) Executive's base salary from the Company and targeted awards
under Holdings' Long-Term Incentive Plan and the Company's Annual Incentive
Award Plan (or successors thereto) is at any time reduced without the
Executive's consent; provided, however, nothing herein shall be construed
to guarantee the Executive's target award if performance is below target;
or
(ii) Under the current corporate structure that exists between the
Company and its current affiliates, and if, and only if, prior to the event
contemplated in 5.1(b)(iii) herein, Executive's Grade Level is reduced
below Grade Level "A" without the Executive's consent; or
(iii) After a new business combination of the Company with an
entity not currently affiliated with the Company, Executive is not in one
of the top two positions of executive authority of such new business
combination; or
(iv) Executive, without his consent, is at any time required as a
condition of continued employment with the Company to relocate a distance
equal to or greater than 56 kilometers; or
(v) A breach by the Company of any material provision of this
Agreement.
Unless the Executive provides written notification of his non-consent to
the Company to any of the events in (i), (ii), (iii) or (iv) above within 30
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 "Good Reason" shall
continue to exist. If the Executive provides written notice of his non-consent
to any of the events in (i), (ii), (iii) or (iv) above within 30 days after the
occurrence of such events, he shall be deemed to have terminated his employment
for Good Reason thirty (30) days after receipt of such written notice by the
Company.
6
<PAGE>
(c) In the event of Executive's promotion with his consent, no "Good
Reason" under Section 5.1(b) shall be deemed to have occurred, and the parties
to this Agreement agree to amend and restate the Agreement to reflect the change
in status resulting from the promotion. If, however, Executive refuses a
promotion, the provisions of Section 5.1(b) shall continue to be applicable.
(d) In the event of a Change of Control of RJR Nabisco Holdings Corp. (as
such Change of Control is defined in the RJR Nabisco Holdings Corp. 1990
Long-Term Incentive Plan), the following shall occur:
(i) The Company shall hold Executive harmless from any golden parachute
tax imposed by any taxing authority as a result of any of the payments
made from the Company. In the event that it is determined that any
payment or distribution by the Company to or for Executive (a
"Payment") would be subject to the excise tax imposed by Section 4999
of the United States Internal Revenue Code, or similar law of any
other country, or any interest or penalties with respect to such
excise tax (such excise tax, together with any such interest and
penalties, are hereinafter collectively referred to as the "Excise
Tax"), then Executive shall be entitled to receive from the Company an
additional payment ("Excise Tax Adjustment Payment") in an amount such
that after payment by Executive of all applicable taxes (computed at
the maximum marginal rates and including any interest or penalties
imposed with respect to such taxes), including any Excise Tax, imposed
upon the Excise Tax Adjustment Payment, Executive retains an amount of
the Excise Tax Adjustment Payment equal to the Excise Tax imposed upon
the Payments. Executive agrees to cooperate fully with the Company in
any protester appeal by the Company in the event of the imposition of
golden parachute tax.
(ii) If Executive is terminated without Cause following a Change of
Control, the Company shall pay to Executive as incurred all legal and
accounting fees and expenses incurred by Executive as a result of such
termination (including all such fees and expenses, if any, in seeking
to obtain or enforce any right or benefit provided by any
compensation-related plan, agreement or arrangement of the Company)
unless Executive's claim is found by an arbitral tribunal of competent
jurisdiction to have been frivolous.
(iii) During the twenty-four month period following a Change of Control,
Executive shall be entitled to terminate Executive's employment for
Good Reason and receive the severance arrangements under Executive's
contractual arrangements with the Company as if Executive had been
terminated by the Company without Cause. For purposes of this
Agreement, "Good Reason" shall mean, without Executive's express
written consent, any of the following occurring following a Change of
Control:
7
<PAGE>
(A) A material reduction in your duties, a material diminution
in your position or a material adverse change in Executive's reporting
relationship from those in effect immediately prior to the Change of
Control;
(B) A reduction in Executive's pay, grade or bonus opportunity
as in effect immediately prior to the Change of Control or as the same
may thereafter be increased from time to time during the term of this
Agreement;
(C) The failure to continue in effect any compensation plan in
which Executive participates at the time of the Change of Control,
including but not limited to Holdings' Long Term Incentive Plan
("LTIP") and the Company's Annual Incentive Award Plan (the "AIAP"),
or any substitute plans adopted prior to the Change of Control, unless
an equitable arrangement (embodied in an ongoing substitute or
alternative plan providing Executive with substantially similar
benefits) has been made with respect to such plan in connection with
the Change of Control, or the failure to continue Executive's
participation therein on substantially the same basis, both in terms
of the amount of benefits provided and the level of Executive's
participation relative to other participants, as existed at the time
of the Change of Control;
(D) The taking of any action which would directly or indirectly
materially reduce any of the benefits to be provided under the
Retirement or Savings Plans of the Company and Holdings (unless such
reduction is required by law) or deprive Executive of any material
fringe benefit enjoyed by Executive at the time of the Change of
Control, or the failure to provide Executive with the number of paid
vacation days to which Executive is entitled on the basis of the
Company's practice with respect to Executive as in effect at the time
of the Change of Control;
(E) Any purported termination of Executive's employment which is
not effected pursuant to a written notice of termination given to
Executive not less than thirty (30) or more than sixty (60) days prior
to the date of termination; provided further that for purposes of this
Agreement, no such purported termination shall be effective;
(F) Any material breach by the Company of any provision of this
Agreement or any other of Executive's contractual arrangements with
the Company or Holdings; or
(G) Requiring Executive to be based at any office or location
more than 56 kilometers from the office or location at which Executive
was based immediately prior to such Change of Control, except for
travel reasonably required in the performance of Executive's
responsibilities.
8
<PAGE>
5.2 PERMANENT DISABILITY. The event of the Executive becoming eligible
for benefits under the Company's Long Term Disability Plan is not a termination
under Section 5.1(a) entitling Executive to Compensation Continuance under this
Agreement. If, however, Executive becomes eligible for benefits under the
Company's Long Term Disability Plan during his Compensation Period, the amount
of Compensation Continuance shall be reduced during the Compensation Period by
the amount of disability benefits payable to the Executive. All other
provisions of this Agreement shall remain in effect notwithstanding the
Executive's disability.
5.3 DEATH. In the event of Executive's death while actively employed, the
Company's obligations under this Agreement shall cease except for the
obligations under any program of the Company or Holdings' providing for a death
benefit. In the event of Executive's death subsequent to commencement of his
Compensation Period hereunder, the balance of Compensation Continuance will be
paid to his beneficiary in a lump sum. "Beneficiary" in the absence of a
designation under Section 14 herein shall mean the Executive's designated
beneficiary under his Executive Program life insurance.
5.4 VOLUNTARY RESIGNATION; DISCHARGE FOR CAUSE. If Executive resigns
voluntarily, other than for Good Reason or Permanent Disability, or the Company
terminates the employment of Executive at any time for Cause, the Company's
obligations under this Agreement to make any further payments to Executive,
including, but not limited to, the benefits under Section 3 or Section 5.1(a),
shall thereupon cease and terminate except with respect to any previously
deferred amounts, or accrued but unpaid salary; provided, however, that if
Executive resigns voluntarily, other than for Good Reason or Permanent
Disability, he shall give the Company not less than three (3) months notice
thereof, unless the Company consents to a shorter notice period. Termination
for "Cause" shall arise where termination results from (a) criminal dishonesty
under
9
<PAGE>
the laws of Switzerland, (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.
6. STOCK ARRANGEMENTS. Awards under the LTIP shall be governed by the
requirements of the individual grant agreements and the LTIP, including such
requirements in the event of a Change of Control. Nothing herein obligates the
Company or Holdings to grant Executive any specific awards under the LTIP.
7. EXPENSES. Upon submission of proper vouchers therefor, the Company
will pay or reimburse Executive for all transportation, hotel and living
expenses incurred by Executive on business trips outside Geneva, and for all
other business and entertainment expenses reasonably incurred by him in
connection with the business of the Company and its Affiliates during the term
of his employment hereunder, at a standard commensurate with chief executive
officers of the Company and its significant subsidiaries.
8. LEGAL FEES. The Company shall reimburse Executive for reasonable
legal fees incurred in connection with executing this Agreement, and shall pay
all reasonable legal fees and expenses which Executive may incur in respect of
obtaining any compensation or other benefits to which he is entitled under this
Agreement.
9. NOTICES. All notices or communications hereunder shall be in writing,
addressed as follows:
10
<PAGE>
To the Company:
Peter Van Every
c/o R.J. Reynolds International B.V.
14 Chemin Rieu
CH-1211, Geneva 17
Switzerland
To Executive:
Pierre de Labouchere
c/o R.J. Reynolds International B.V.
14 Chemin Rieu
CH-1211, Geneva 17
Switzerland
Any such notice or communication shall be sent registered mail, return receipt
requested, postage prepaid, addressed as above (or to such other address as such
party may designate in a notice duly delivered as described above), and three
days after the actual date of mailing shall be deemed the time at which notice
was given.
10. LIMITED WAIVER/SEPARABILITY. The waiver by the Company of a violation
by Executive of any of the provisions of this Agreement, whether expressed or
implied, shall not operate or be construed as a waiver of any subsequent
violation of any such provision. 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.
11. NO ASSIGNMENT. Except for actions taken providing for the
distribution of property at the time of Executive's death, 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.
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12. AMENDMENT. The Agreement may be amended at any time only by mutual
written agreement of the parties hereto.
13. NON-COMPETITION; NON-DISCLOSURE OF CONFIDENTIAL INFORMATION;
COMMITMENT TO PROVIDE ASSISTANCE.
13.1 NON-COMPETITION. During the period commencing on the date of
Executive's employment with the Company and ending three years after Executive's
date of termination for any reason from the Company, or any of its affiliates,
Executive covenants and agrees that (A) Executive will not directly or
indirectly (whether as owner, partner, consultant, employee, or otherwise),
engage in any of the "major businesses" in which the Company, or any of its
affiliates are engaged and (B) Executive will not, on Executive's own behalf or
on behalf of any person, firm or company, directly or indirectly for a period of
12 months following Executive's termination, offer employment to any person who
was, at the time of Executive's termination, employed by the Company, or any of
its affiliates. "Major businesses" for this purpose are the major business
segments of the Company, or any of its affiliates dealing in the manufacture,
distribution, sale or marketing of tobacco and smoking products. Executive and
the Company agree that this covenant not to compete is a reasonable covenant
under the circumstances, and further agree that if in the opinion of any court
of competent jurisdiction, such restraint is not reasonable in any respect, such
court shall have the right, power and authority to excise or modify such
provision or provisions of this covenant as to the court shall appear not
reasonable and to enforce the remainder of the covenant as so amended.
13.2 NON-DISCLOSURE OF CONFIDENTIAL INFORMATION. Executive will not,
without the prior written consent of the Company, use, divulge, disclose or make
accessible to any other person, firm, partnership or corporation or other entity
any confidential information pertaining to the
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businesses of the Company, or any of its affiliates, except (A) while employed
by the Company in the business of and for the benefit of the Company or (B) when
required to do so by a court of competent jurisdiction, by any governmental
agency having supervisory authority over the business of the Company, or by any
administrative body or legislative body (including a committee thereof) with
jurisdiction to order Executive to divulge, disclose or make accessible such
information. For purposes of this Agreement, "Confidential Information" shall
mean non-public information concerning the Company or any of its affiliate
companies' data, strategic business plans, product development data (or other
proprietary product data) customer lists, marketing plans and other proprietary
information, except for specific items which have become publicly available
information (other than such items which Executive knows have become publicly
available through a breach of fiduciary duty or any confidentiality agreement).
13.3 COMMITMENT TO PROVIDE ASSISTANCE. A) Executive will personally
provide reasonable assistance and cooperation to the Company in activities
related to the prosecution or defense of any pending or future lawsuits or
claims involving the Company. B) Executive will promptly notify the Company if
Executive receives any requests from anyone other than an employee or agent of
the Company for information regarding the Company which could reasonably be
construed as being proprietary, non-public or confidential or if Executive
becomes aware of any potential claim or proposed litigation against the Company.
C) Executive will refrain from providing any information related to any claim or
potential litigation against the Company to any non-Company representatives
without either the Company's written permission or being required to provide
information pursuant to legal process. D) If required by law to provide sworn
testimony regarding any Company-related matter, Executive will consult with and
have Company-designated legal counsel present for such testimony. The Company
will be
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responsible for the costs of such designated counsel and Executive will bear no
cost for same. E) If Executive is required by law to provide sworn testimony
regarding any Company-related matter and if Executive requires legal counsel to
represent and protect Executive's interests (in addition to the
Company-designated legal counsel provided for under subparagraph (D) herein),
the Company will reimburse Executive for any legal expenses (including, but not
limited to, the costs of any attorney reasonably acceptable to Executive and the
Company, which acceptance by the Company shall not be unreasonably withheld) and
other out-of-pocket expenses Executive may incur in relation to such testimony.
F) Executive will cooperate with the Company's attorneys to assist their
efforts, especially on matters Executive has been privy to, holding all
privileged attorney-client matters in strictest confidence unless ordered to do
otherwise by a court of competent jurisdiction or a committee of a legislature
with authority over the Company or any of its affiliates. Executive understands
that Executive will be reimbursed for travel, food, lodging or similar
out-of-pocket expenses incurred at the Company's request in discharging any of
Executive's obligations under this Agreement.
13.4 REMEDIES FOR VIOLATION. In the event that Executive materially
violates the terms and conditions of 13.1, 13.2 or 13.3, the Company may at its
election upon ten (10) days notice, terminate the Compensation Period,
discontinue cash compensation payments and employee benefit coverage, and cancel
any outstanding Long Term Incentive Plan Awards; provided, however, the Company
shall not cancel or suspend any tax qualified retirement benefits. The Company
may also initiate any form of legal action it may deem appropriate including
seeking damages or injunctive relief with respect to material violations of
Sections 13.1, 13.2 or 13.3. Executive and the Company agree that in any action
brought as a result of the terms of this
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Agreement, neither party shall make a demand for a jury trial, and as needed,
shall join the other party in a stipulation to a non-jury trial.
14. BENEFICIARIES/REFERENCES. Executive shall be entitled to select (and
change, to the extent permitted under any applicable law) a beneficiary or
beneficiaries to receive any compensation or benefit payable hereunder following
Executive's death, and may change such election, in either case by giving the
Company written notice thereof. In the event of Executive's death or a judicial
determination of his incompetence, reference in this Agreement to Executive
shall be deemed, where appropriate, to refer to his beneficiary, estate or other
legal representative. Any reference to the masculine gender in this Agreement
shall include, where appropriate, the feminine.
15. SURVIVORSHIP. The respective rights and obligations of the parties
hereunder shall survive any termination of this Agreement to the extent
necessary to the intended preservation of such rights and obligations. The
provisions of this Section are in addition to the survivorship provisions of any
other section of this Agreement.
16. GOVERNING LAW. This Agreement shall be construed, interpreted, and
governed in accordance with the laws of Switzerland.
17. WITHHOLDING & TAXES. The Company shall be entitled to withhold from
payment any amount of withholding required by law.
18. ENTIRE AGREEMENT.
(a) This Agreement sets forth the entire agreement and understanding of
the parties hereto with respect to the matters covered hereby. Except as
otherwise provided herein, this Agreement supersedes and replaces any prior
agreement with respect to employment,
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compensation continuation and the matters contained in this Agreement which the
Executive may have had with the Company or any of its affiliates.
(b) This Agreement shall be binding upon and inure to the benefit of the
Executive, the Company or any of 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.
(c) 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.
19. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which will be deemed an original.
20. PARAGRAPH HEADINGS. Paragraph headings are inserted for convenience
only and do not constitute a part and shall not affect the interpretation of
this Agreement.
IN WITNESS WHEREOF, the parties have executed this restated Agreement as of
June 1, 1996.
R.J. REYNOLDS INTERNATIONAL B.V.
By:
---------------------------------
Title:
------------------------------------
Executive
<PAGE>
Exh. 10.2
AS AMENDED SEPTEMBER 1, 1996
DEFERRED COMPENSATION PLAN FOR RJR DIRECTORS
ARTICLE I
1.1 NAME AND PURPOSE. The name of this plan is the "Deferred Compensation
Plan for RJR Directors" (the "Plan"). Its purpose is to provide non-employee
Directors of the Company with increased flexibility in timing the receipt of
board service fees and to assist the Company in attracting and retaining
qualified individuals to serve as Directors.
1.2 DEFINITIONS. Whenever used in the Plan, the following terms shall
have the meaning set forth below:
(a) "Closing Price" means the closing price of the Company's
Common Stock as reported in THE WALL STREET JOURNAL.
(b) "Common Stock" means the Common Stock, par value $.01 per
share, of RJR Nabisco Holdings Corp.
(c) "Company" means RJR Nabisco Holdings Corp. and each
Participating Company.
(d) "Compensation" means all remuneration paid to a Director for
service as a Director other than reimbursement for expenses
and shall include, but not be limited to, Board of Directors
retainer fees, Board of Directors committee chairmanship
and/or committee attendance fees, and any fees for
attendance at Board of Directors meetings.
(e) "Director" means any individual serving on the Board of
Directors of the Company who is not an employee of the
Company or any of its subsidiaries.
(f) "Participant" means a Director who has filed an election to
participate under Section 3.1(a) with regard to any Plan
Year or who otherwise participates under Section 3.1(b).
<PAGE>
(g) "Participating Company" means any corporation which is a
direct or indirect subsidiary of RJR Nabisco Holdings Corp.
which has, by action of its board of directors, adopted the
Plan and consented to being a Participating Company in the
Plan.
(h) "Plan Administrator" means a Committee consisting of the
senior executive in charge of personnel at the Company and
not less than two other employees of the Company designated
by Chief Executive Officer of the Company.
(i) "Plan Year" means the calendar year except the first Plan
year is the period October 1, 1989 through December 31,
1989.
(j) "Retirement Plan Benefit" means a Director's accrued benefit
under the Retirement Plan for Directors of RJR Nabisco, Inc.
on May 31, 1996, as determined by the Plan Administrator.
(k) "Retirement Plan Lump-Sum Amount" means the lump-sum present
value of a Director's Retirement Plan Benefit, as determined
by the Plan Administrator.
ARTICLE II
2.1 PARTICIPATION IN THE PLAN. Any individual who is a Director as
defined in Section 1.2(e) may participate in the Plan.
ARTICLE III
3.1 ELECTION TO PARTICIPATE. (a) Each Director may elect annually to have
payment of all or any increment of 25% of his or her Compensation for that Plan
Year deferred. An election to defer may also provide that the Compensation
deferred will be paid in January of a specified year in the future; provided
however, that if the Participant ceases to be a Director prior to such specified
year, the Participant's account will be paid as soon as practicable following
the end of the Plan Year during which the Participant ceased to be a Director.
No election to defer under this Plan may be made after December 31 of the year
preceding the Plan Year during which Compensation would otherwise be paid or, if
later, within thirty days after the date a Director becomes a Director. An
election to defer any
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Compensation shall be in writing and shall be delivered to the Plan
Administrator. An election to defer shall be irrevocable by the Director and
shall be effective only for the Plan Year immediately following the date on
which it was filed. In the absence of a written election to defer filed by a
Director with the Plan Administrator, any Compensation will be paid directly to
the Director.
(b) Notwithstanding anything to the contrary in this Article III, as of
May 31, 1996, each Director's Retirement Benefit shall be frozen. The Director
may elect prior to August 15, 1996, to either (i) defer the Retirement Plan
Lump-Sum Amount by means of a cash credit or a stock credit (in accordance with
Section 3.2) to be distributed in accordance with Section 3.3 following the
Participant's termination of service as a Director or (ii) defer the Retirement
Plan Lump-Sum Amount by means of a cash credit to be distributed in a single
lump sum payment in January 1997. The Lump-Sum Amount will be converted to
share units, if elected, by using the average of the closing price of Common
Stock on each business day in May 1996. In the absence of a written election
filed by a Director with the Plan Administrator prior to August 15, 1996, the
Director's Retirement Plan Lump-Sum Amount shall be deferred by means of a cash
credit in accordance with clause (i) above.
3.2 MODE OF DEFERRAL. Payment of a Participant's Compensation may be
deferred in 25% increments by means of a cash credit, a stock credit or a
combination of the two as the Participant shall elect in writing at the same
time as the election provided for in Section 3.1. If a Participant fails to
make an election as to mode of deferral, he or she shall be deemed to have
elected deferral by means of a cash credit. Cash credits and stock credits
shall be recorded in accounts established in Participants' names on the books of
the Company.
(a) CASH CREDITS. If the deferral is wholly or partly by means of a cash
credit, the Participant's cash credit account shall be credited, as of the last
day of the calendar quarter, with the dollar amount of Compensation deferred
during the quarter by means of a cash credit. As of the last day of each
calendar quarter, the Participant's cash credit account shall also be credited
with interest equivalent in an amount determined by applying to the balance in
the account as of the first day of the quarter (less any distributions during
the quarter) an interest rate for such quarter which, when annualized, shall be
the prime rate of Citibank, N.A. as of the first business day of the quarter.
Interest shall be calculated on the actual number of days in the quarter based
upon a 360-day year.
(b) STOCK CREDITS. If the deferral is wholly or partly by means of a
stock credit, the Participant's stock credit account shall be credited, as of
the last day of the calendar quarter, with a Common Stock equivalent equal to
the number of shares of Common Stock (including fractions of a share) that could
have been purchased at the average of the Closing Price of Common Stock on each
business
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day during the last month of the calendar quarter with the amount of the
Compensation deferred during the quarter by means of a stock credit. As of the
date any dividend is paid to shareholders of Common Stock, the Participant's
stock credit account shall also be credited with an additional Common Stock
equivalent equal to the number of shares of Common Stock (including fractions of
a share) that could have been purchased at the Closing Price of Common Stock on
such date with the dividend paid on the number of shares of Common Stock to
which the Participant's stock credit account is then equivalent. In case of
dividends paid in property, the dividend shall be deemed to be the fair market
value of the property at the time of distribution of the dividend, as determined
by the Plan Administrator.
(c) A Participant may elect in writing that all or any designated portion
of his stock credit account or his cash credit account be changed to, and such
Participant shall instead be credited with, the other type of account as of the
first day of the month following the month in which the election is received by
the Plan Administrator. For this purpose, the value of a participant's stock
credit account will be determined using the average of the Closing Price of
Common Stock on each business day during the month preceding the effective date
of the election. Notwithstanding the foregoing, any election to transfer
between accounts may be made no more frequently than once in any six-month
period and no such election may be made unless the transfer would be an exempt
transaction for purposes of Section 16(b) of the Securities Exchange Act of
1934.
3.3 DISTRIBUTION OF CREDITS. (a) Unless a Participant has elected to
receive installment payments as provided below, payment of a Participant's
accounts shall be made in one lump-sum as soon as practicable following the end
of the Plan Year in which the Participant ceases to be a Director.
At the election of the Participant made in writing and delivered to the
Plan Administrator at any time on or before December 1 of the year of
termination of the Participant's service as a Director, distribution of all of
his or her account, commencing as soon as practicable following the end of the
Plan Year in which the Participant ceases to be a Director, shall be made in any
number of annual installments not exceeding ten. Any such election, unless made
irrevocable by its terms, may be changed by written notice to the Plan
Administrator at any time prior to December 1 of the Plan Year of a
Participant's termination of service as a Director. If a Participant has
elected payment in a specified year under Section 3.1, distribution of his or
her account will only be made in a single sum payment.
(b) Distribution of a Participant's cash credit and stock credit accounts
shall be made in cash. For this purpose, the value of a Participant's stock
credit account shall be determined by multiplying the number of shares of Common
Stock attributable to the payment by the average of the Closing Price of Common
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Stock on each business day in the month of December immediately prior to the
Plan Year in which the payment is to be paid.
3.4 ADJUSTMENT. If at any time the number of outstanding shares of Common
Stock shall be increased as the result of any stock dividend, subdivision or
reclassification of shares, the number of shares of Common Stock to which each
Participant's stock credit account is equivalent shall be increased in the same
proportion as the outstanding number of shares of Common Stock is increased, or
if the number of outstanding shares of Common Stock shall at any time be
decreased as the result of any combination or reclassification of shares, the
number of shares of Common Stock to which each Participant's stock credit
account is equivalent shall be decreased in the same proportion as the
outstanding number of shares of Common Stock is decreased. In the event the
Company shall at any time be consolidated with or merged into any other
corporation and holders of the Company's Common Stock receive common shares of
the resulting or surviving corporation, there shall be credited to each
Participant's stock credit account, in place of the shares then credited
thereto, a stock equivalent determined by multiplying the number of common
shares of stock given in exchange for a share of Common Stock upon such
consolidation or merger, by the number of shares of Common Stock to which the
Participant's account is then equivalent. If in such a consolidation or merger,
holders of the Company's Common Stock shall receive any consideration other than
common shares of the resulting or surviving corporation, the Plan Administrator,
in its sole discretion, shall determine the appropriate change in Participants'
accounts.
3.5 INSTALLMENT AMOUNT. In the event a Participant has elected to receive
distribution of his or her accounts in more than one installment, the amount of
each installment shall be determined by multiplying the current balance
(denominated in cash units for the portion elected to be deferred as cash
credits and denominated in stock units for the portion elected to be deferred in
stock credits) in the accounts as determined under Section 3.2, by a fraction,
the numerator of which is one, and the denominator of which is the number of
installments yet to be paid.
3.6 DISTRIBUTION UPON DEATH. In the event of the death of a Participant,
whether before or after ceasing to serve as a Director, any cash credit account
and stock credit account to which he or she was entitled, shall be converted to
cash and distributed in a lump sum to such person or persons or the survivors
thereof, including corporations, unincorporated associations or trusts, as the
Participant may have designated. All such designations shall be made in writing
signed by the Participant and delivered to the Plan Administrator. A
Participant may from
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time to time revoke or change any such designation by written notice to the Plan
Administrator. If there is no unrevoked designation on file with the Plan
Administrator at the time of the Participant's death, or if the person or
persons designated therein shall have all predeceased the Participant or
otherwise ceased to exist, such distributions shall be made in accordance with
the Participant's will or in the absence of a will, to the administrator of the
Participant's estate. Any distribution under this Section 3.6 shall be made as
soon as practicable following the end of the fiscal quarter in which the Plan
Administrator is notified of the Participant's death. In this case, a
Participant's stock credit account shall be converted to cash by multiplying the
number of whole and fractional shares of Common Stock to which the Participant's
stock credit account is equivalent by the average of the Closing Price of Common
Stock on each business day during the last month of the calendar quarter prior
to the date of death.
3.7 WITHHOLDING TAXES. The Company shall deduct from all distributions
under the Plan any taxes required to be withheld by federal, state, or local
governments.
ARTICLE IV
4.1 PLAN ADMINISTRATOR. The Plan Administrator shall have full power and
authority to administer the Plan including the power to promulgate forms to be
used with regard to the Plan, the power to promulgate rules of Plan
administration, the power to settle any disputes as to rights or benefits
arising from the Plan, and the power to make such decisions or take such action
as the Plan Administrator, in its sole discretion, deems necessary or advisable
to aid in the proper maintenance of the Plan.
ARTICLE V
5.1 FUNDING. No promise hereunder shall be secured by any specific assets
of the Company, nor shall any assets of the Company be designated as
attributable or allocated to the satisfaction of such promises.
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<PAGE>
ARTICLE VI
6.1 NON-ALIENATION OF BENEFITS. No benefit under the Plan shall be
subject in any manner to anticipation, alienation, sale, transfer, assignment,
pledge, encumbrance, or charge; and any attempt to do so shall be void. No such
benefit shall, prior to receipt thereof by the Participant, be in any manner
liable for or subject to the debts, contracts, liabilities, engagements, or
torts of the Participant.
ARTICLE VII
7.1 DELEGATION OF ADMINISTRATIVE DUTIES. Administrative duties imposed by
this Plan may be delegated by the Plan Administrator or the individual charged
with such duties.
7.2 GOVERNING LAW. This Plan shall be governed by the laws of the State
of Delaware.
7.3 AMENDMENT, MODIFICATION AND TERMINATION OF THE PLAN. The Plan
Administrator at any time may terminate and in any respect, amend or modify the
Plan.
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Exh. 10.3
EQUITY INCENTIVE AWARD PLAN FOR DIRECTORS AND KEY EMPLOYEES
OF
RJR NABISCO HOLDINGS CORP. AND SUBSIDIARIES
(AS AMENDED AND RESTATED EFFECTIVE SEPTEMBER 1, 1996)
RJR Nabisco Holdings Corp., a Delaware corporation, hereby adopts this
Equity Incentive Award Plan for Directors and Key Employees of RJR Nabisco
Holdings Corp. and Subsidiaries, which is an amendment and restatement of the
Stock Option Plan for Directors and Key Employees of RJR Nabisco Holdings Corp.
and Subsidiaries. The purposes of this Plan are as follows:
(1) To further the growth, development and financial success of
Holdings by providing additional incentives to certain of its Directors and Key
Employees who have been or will have or be given responsibility for the
management or administration of Holdings' business affairs by assisting them to
become owners of capital stock of Holdings and thus to benefit directly from its
growth, development and financial success.
(2) To enable Holdings to obtain and retain the services of, and
business relationships with, the type of professional, technical and managerial
Employees and Directors considered essential to the long range success of
Holdings by providing and offering them an opportunity to become owners of
capital stock of Holdings.
ARTICLE I
DEFINITIONS
SECTION 1.1 - GENERAL
Whenever the following terms are used in this Plan they shall have the
meaning specified below unless the context clearly indicates to the contrary.
SECTION 1.2 - BOARD
"Board" shall mean the Board of Directors of Holdings.
<PAGE>
SECTION 1.3 - CODE
"Code" shall mean the Internal Revenue Code of 1986, as amended.
SECTION 1.4 - COMMITTEE
"Committee" shall mean the Compensation Committee of the Board or any
other committee appointed by the Board pursuant to Section 7.1.
SECTION 1.5 - COMMON STOCK
"Common Stock" shall mean the Common Stock, par value $0.01 per share,
of Holdings.
SECTION 1.6 - DIRECTOR
"Director" shall mean a member of the Board.
SECTION 1.7 - ELIGIBLE DIRECTOR
"Eligible Director" shall mean a Director who has never been an
employee or officer of Holdings or any Subsidiary.
SECTION 1.8 - EMPLOYEE
"Employee" shall mean any employee (as defined in accordance with the
regulations and revenue rulings then applicable under Section 3401(c) of the
Code) of Holdings, or of any corporation which is then a Subsidiary, whether
such employee is so employed at the time this Plan is adopted or becomes so
employed subsequent to the adoption of this Plan or any other person providing
goods or services to Holdings or its subsidiaries, as the Committee may
determine in its discretion.
SECTION 1.9 - GRANT
"Grant" shall mean an award made to a Participant pursuant to the
Plan.
SECTION 1.10 - HOLDINGS
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"Holdings" shall mean RJR Nabisco Holdings Corp., a Delaware
Corporation.
SECTION 1.11 - OPTION
"Option" shall mean an option granted under the Plan to purchase
Common Stock. Options include only options which are not intended to be
"incentive stock options" under Section 422 of the Code.
SECTION 1.12 - OPTION PRICE
"Option Price" shall have the meaning given in Sections 4.2 and 5.2,
as appropriate.
SECTION 1.13 - OPTIONEE
"Optionee" shall mean an Employee or Director to whom an Option is
granted under the Plan.
SECTION 1.14 - PARTICIPANT
"Participant" shall mean an Employee or Director to whom a Grant has
been made.
SECTION 1.15 - PLAN
"Plan" shall mean the Equity Incentive Award Plan for Directors and
Key Employees of RJR Nabisco Holdings Corp. and Subsidiaries.
SECTION 1.16 - SECRETARY
"Secretary" shall mean the Secretary of Holdings.
SECTION 1.17 - STOCK AWARD
"Stock Award" shall mean the annual award, either in the form of
deferred stock units or shares of Common Stock, made pursuant to ARTICLE VII.
SECTION 1.18 - SUBSIDIARY
"Subsidiary" shall mean any corporation in an unbroken chain of
corporations beginning with Holdings if each of the corporations, or if each
group
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of commonly controlled corporations, other than the last corporation in an
unbroken chain then owns stock possessing 50% or more of the total combined
voting power of all classes of stock in one of the other corporations in such
chain.
ARTICLE II
SHARES SUBJECT TO PLAN
SECTION 2.1 - SHARES SUBJECT TO PLAN
The shares of stock subject to Grant shall be shares of Common Stock.
The aggregate number of shares of Common Stock which are available for Grants
under the Plan shall not exceed 6,000,000. Shares related to Grants that are
forfeited, terminated, canceled, expire unexercised, settled in cash in lieu of
stock or in such manner that all or some of the shares of Common Stock covered
by a Grant are not issued to a Participant, shall immediately become available
for Grants.
ARTICLE III
GRANTING OF OPTIONS
SECTION 3.1 - ELIGIBILITY
Any Eligible Director or key Employee of Holdings or of any Subsidiary
shall be eligible to be granted Options as set forth in this Article III.
SECTION 3.2 - GRANTING OF OPTIONS TO DIRECTORS
(a) Each Eligible Director who is elected to serve on the Board on or
after March 1, 1994 shall be granted an Option to purchase an aggregate 6,000
shares of Common Stock. Such Option shall be granted only once to each Eligible
Director as soon as practicable following the Director's initial election to
serve on the Board and shall be subject to the terms and conditions set forth in
Article IV.
(b) In addition to Options granted pursuant to Section 3.2(a), each
Eligible Director shall receive an annual grant of an Option to purchase the
number of shares of Common Stock determined pursuant to the following formula
(rounded up to the next multiple of 100):
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15,000
---------
(A x .37)
Where "A" equals the final closing price of Common Stock (as reported on the New
York Stock Exchange consolidated tape) on the date of grant, and the factor
".37" is derived from the growth model projection for the value of Common Stock.
Such Option shall be granted annually on the date of such Director's
election or re-election to serve on the Board; provided, however, that the grant
for 1994 shall be made on October 4, 1994.
All Options granted pursuant to this Section 3.2(b) shall be subject to the
terms and conditions set forth in Article IV.
SECTION 3.3 - GRANTING OF OPTIONS TO EMPLOYEES
The Committee shall from time to time, in its absolute discretion:
(i) Determine which Employees are key Employees and select from among
the key Employees (including those to whom Options have been previously
granted under the Plan) such of them as in its opinion shall be granted
Options; and
(ii) Determine the number of shares to be subject to such Options
granted to such selected key Employees; and
(iii) Determine the terms and conditions of such Options,
consistent with the Plan; and
(iv) Establish such conditions as to the manner of exercise of such
Options as it may deem necessary, including but not limited to requiring
Optionees to enter into agreements regarding transferability and other
restrictions with respect to shares issuable upon exercise of such Options.
ARTICLE IV
TERMS OF OPTIONS FOR DIRECTORS
SECTION 4.1 - OPTION AGREEMENT
The grant of Options to Eligible Directors shall be evidenced by a
Stock Option Agreement, which shall be executed by the Optionee and an
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authorized officer of Holdings and which shall incorporate the terms and
conditions of this Article IV and such other terms and conditions as the
Committee shall determine, consistent with the Plan.
SECTION 4.2 - OPTION PRICE
The exercise price of each share of Common Stock subject to an Option
granted pursuant to Section 3.2 shall be the final closing price of Common Stock
(as reported on the New York Stock Exchange consolidated tape) on the date of
grant.
SECTION 4.3 - COMMENCEMENT OF EXERCISABILITY
Options granted pursuant to Section 3.2(a) shall not be exercisable prior
to six months after the date of grant, and thereafter shall be exercisable in
full, subject to applicable securities regulations. Options granted pursuant to
Section 3.2(b) shall be exercisable in three installments. The first
installment shall be exercisable on the first anniversary of the date of grant
for 33% of the number of shares of Common Stock subject to the Option.
Thereafter, on each subsequent anniversary of the date of grant, an installment
shall become exercisable for 33% and 34%, respectively, of the number of shares
subject to the Option until the Option has become fully exercisable. To the
extent that any of the above installments is not exercised when it becomes
exercisable, it shall not expire, but shall continue to be exercisable at any
time thereafter until the Option shall terminate, expire or be surrendered. An
exercise shall before whole shares only.
SECTION 4.4 - EXPIRATION OF OPTION
The Option shall expire and may not be exercised to any extent after the
expiration of ten years from the date the Option was granted.
ARTICLE V
TERMS OF OPTIONS FOR KEY EMPLOYEES
SECTION 5.1 - OPTION AGREEMENT
Options granted to key Employees shall be evidenced by a written Stock
Option Agreement, which shall be executed by the Optionee and an authorized
officer of Holdings and which shall contain the terms and conditions of
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this Article V and such other terms and conditions as the Committee shall
determine, consistent with the Plan.
SECTION 5.2 - OPTION PRICE
(a) The price per share of the Common Stock subject to each Option
granted pursuant to this Article V shall be set by the Committee. The price per
share may be less than the fair market value of such shares on the date such
Option is granted; provided that in no event shall the price per share be less
than fifty (50%) percent of the fair market value of such shares on the date
such Option is granted.
(b) For the purpose of Section 5.2(a), the fair market value of a
share of Common Stock on the date the Option is granted shall be the fair market
value established by the Committee acting in good faith.
SECTION 5.3 - COMMENCEMENT OF EXERCISABILITY
Subject to the provisions of Section 9.1, Options granted pursuant to
this Article V shall become exercisable at such times and in such installments
(which may be cumulative) as the Committee shall provide in the terms of each
individual Option; provided, however, that by a resolution adopted after an
Option is granted the Committee may, on such terms and conditions as it may
determine to be appropriate and subject to Section 9.1, accelerate the time at
which such Option or any portion thereof may be exercised.
SECTION 5.4 - EXPIRATION OF OPTIONS
(a) No Option may be exercised to any extent by anyone after, and every
Option shall expire no later than, the expiration of ten (10) years and one (1)
day from the date the Option was granted.
(b) Subject to the provisions of Section 5.4(a), the Committee shall
provide, in the terms of each individual Option, when such Option expires and
becomes unexercisable.
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ARTICLE VI
EXERCISE OF OPTIONS
SECTION 6.1 - PERSONS ELIGIBLE TO EXERCISE
During the lifetime of the Optionee, only he or his guardian may exercise
an Option granted to him, or any portion thereof. After the death of the
Optionee, any exercisable portion of an Option may, prior to the time when such
portion becomes unexercisable under Section 4.4 or 5.4, be exercised by his
personal representative or by any person empowered to do so under the deceased
Optionee's will or under the then applicable laws of descent and distribution.
SECTION 6.2 - PARTIAL EXERCISE
At any time and from time to time prior to the time when any exercisable
Option or exercisable portion thereof expires or becomes unexercisable under
Section 4.4 or 5.4, such Option or portion thereof may be exercised in whole or
in part; provided, however, that Holdings shall not be required to issue
fractional shares. With respect to Options granted to key Employees, the
Committee may, in the Stock Option Agreement, require any partial exercise to be
with respect to a specified minimum number of shares.
SECTION 6.3 - MANNER OF EXERCISE
An exercisable Option, or any exercisable portion thereof, may be exercised
solely by delivering to the Secretary or his office all of the following prior
to the time when such Option or such portion becomes unexercisable:
(a) Notice in writing signed by the Optionee or other person then
entitled to exercise such Option or portion thereof, stating that such
Option or portion thereof is exercised;
(b) Full payment of the Option Price (in cash, by check or by a
combination thereof) for the shares with respect to which such Option or
portion thereof is thereby exercised, together with payment or arrangement
for payment of any federal income or other tax required to be withheld by
Holdings with respect to such shares;
(c) Such representations and documents as the Committee reasonably
deems necessary or advisable to effect compliance with all
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applicable provisions of the Securities Act of 1933, as amended and any
other federal, state or foreign securities laws or regulations. The
Committee may, in its absolute discretion, also take whatever additional
actions it deems appropriate to effect such compliance, including, without
limitation, placing legends on share certificates and issuing stop-transfer
orders to transfer agents and registrars; and
(d) In the event that the Option or portion thereof shall be
exercised pursuant to Section 6.1 by any person or persons other than the
Optionee, appropriate proof of the right of such person or persons to
exercise the Option or portion thereof.
SECTION 6.4 - RIGHTS AS STOCKHOLDERS
The holders of Options shall not be, nor have any of the rights or
privileges of, stockholders of Holdings in respect of any shares purchasable
upon the exercise of any part of an Option unless and until certificates
representing such shares have been issued by Holdings to such holders.
SECTION 6.5 - TRANSFER RESTRICTIONS
The Committee, in its absolute discretion, may impose such
restrictions on the transferability of the shares purchasable upon the exercise
of an Option as it deems appropriate, and any such restriction shall be set
forth in the respective Stock Option Agreement and may be referred to on the
certificates evidencing such shares.
ARTICLE VII
STOCK AWARDS
SECTION 7.1 - ELIGIBILITY
Each Eligible Director shall receive an annual Stock Award as of the
date of such Director's election or re-election to serve on the Board;
provided, however, that the Stock Award for 1996 shall be made as of May 31,
1996 or, if later, the date of the Director's election or re-election to serve
on the Board. All Stock Awards shall be subject to the terms and conditions of
this Article VII and such other terms and conditions as the Committee shall
determine, consistent with the Plan.
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SECTION 7.2 - GRANTING OF STOCK AWARD
(a) Except as provided in Section 7.2(b) below, the annual Stock Award
shall be made in the form of deferred stock units, as described in Section 7.3.
Each Eligible Director shall receive an annual Stock Award of 1,000 deferred
stock units.
(b) Notwithstanding the foregoing, commencing with the annual Stock Award
for 1997, an Eligible Director may elect to receive the Stock Award in the form
of 1,000 shares of Common Stock. The election to receive shares of Common Stock
must be made in writing by December 31 of the year preceding the year during
which the Stock Award would otherwise be granted or, if later, within thirty
days after the date a Director becomes a Director. An election to receive
shares of Common Stock shall be irrevocable by the Director and shall be
effective only for the year immediately the date on which it was filed.
SECTION 7.3 - DEFERRED STOCK UNITS
Each deferred stock unit shall be equal in value to one share of
Common Stock. As of the date any dividend is paid to shareholders of Common
Stock, the Director shall be credited with additional deferred stock units equal
to the number of shares of Common Stock (including fractions of a share) that
could have been purchased at the closing price of Common Stock on such date with
the dividend paid on the number of shares of Common Stock to which the
Director's deferred stock units are then equivalent. In case of dividends paid
in property, the dividend shall be deemed to be the fair market value of the
property at the time of distribution of the dividend, as determined by the
Committee.
SECTION 7.4 - DISTRIBUTION OF DEFERRED STOCK UNITS
(a) Unless a Director has elected to receive installment payments as
provided below, payment of a Director's deferred stock units shall be made in
one lump-sum as soon as practicable following the end of the year in which the
Director ceases to be a Director.
At the election of the Director made in writing and delivered to the
Committee at any time on or before December 1 of the year of termination of the
Director's service as a Director, distribution of all of his or her deferred
stock units, commencing as soon as practicable following the end of the year in
which the Director ceases to be a Director, shall be made in any number of
annual installments not exceeding ten. Any such election, unless made
irrevocable by its
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terms, may be changed by written notice to the Committee at any time prior to
December 1 of the year of a Director's termination of service as a Director.
(b) Distribution of a Director's deferred stock units shall be made in
cash or stock. If distribution is made in cash, the amount of distribution
shall be determined by multiplying the number of deferred stock units
attributable to the installment by the average of the closing price in Common
Stock on each business day in the month of December immediately prior to the
year in which the installment is to be paid.
SECTION 7.5 - INSTALLMENT AMOUNT
In the event a Participant has elected to receive distribution of his or
her deferred stock units in more than one installment, the amount of each
installment shall be determined by multiplying the current number of deferred
stock units by a fraction, the numerator of which is one, and the denominator of
which is the number of installments yet to be paid.
SECTION 7.6 - DISTRIBUTION UPON DEATH
In the event of the death of a Participant, whether before or after ceasing
to serve as a Director, any deferred stock units to which he or she was
entitled, shall be converted to cash and distributed in a lump sum to such
person or persons or the survivors thereof, including corporations,
unincorporated associations or trusts, as the Participant may have designated.
All such designations shall be made in writing signed by the Participant and
delivered to the Committee. A Participant may from time to time revoke or
change any such designation by written notice to the Committee. If there is no
unrevoked designation on file with the Committee at the time of the
Participant's death, or if the person or persons designated therein shall have
all predeceased the Participant or otherwise ceased to exist, such distributions
shall be made in accordance with the Participant's will or in the absence of a
will, to the administrator of the Participant's estate. Any distribution under
this Section 7.6 shall be made as soon as practicable following the end of the
fiscal quarter in which the Committee is notified of the Participant's death.
In this case, a Participant's deferred stock units shall be converted to cash by
multiplying the number of whole and fractional shares of Common Stock to which
the Participant's deferred stock units are equivalent by the average of the
Closing Price of Common Stock on each business day during the last month of the
calendar quarter prior to the date of death.
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SECTION 7.7 - WITHHOLDING TAXES
The Company shall deduct from all distributions under the Plan any taxes
required to be withheld by federal, state, or local governments.
ARTICLE VIII
ADMINISTRATION
SECTION 8.1 - COMPENSATION COMMITTEE
The Plan shall be administered by the Compensation Committee of the Board.
In its absolute discretion, the Board may appoint a different committee
comprised of two or more Directors to administer all or a portion of the Plan.
Appointment of Committee members shall be effective upon acceptance of
appointment. Committee members may resign at any time by delivering written
notice to the Board. Vacancies in the Committee shall be filled by the Board.
SECTION 8.2 - DUTIES AND POWERS OF COMMITTEE
It shall be the duty of the Committee to conduct the general administration
of the Plan in accordance with its provisions. The Committee shall have the
power to interpret the Plan and the Grants and to adopt such rules for the
administration, interpretation, and application of the Plan as are consistent
therewith and to interpret, amend or revoke any such rules. Any such
interpretations and rules shall be consistent with the basic purpose of the Plan
to make Grants. In its absolute discretion, the Board may at any time and from
time to time exercise any and all rights and duties of the Committee under the
Plan. The Committee may act either by vote at a telephonic or other meeting or
by a memorandum or other written instrument signed by a majority of the
Committee.
SECTION 8.3 - COMPENSATION; PROFESSIONAL ASSISTANCE; GOOD FAITH ACTIONS
Members of the Committee shall not receive compensation for their services
as members but all expenses and liabilities they incur in connection with the
administration of the Plan shall be borne by Holdings. The Committee may employ
attorneys, consultants, accountants, appraisers, brokers or other persons. The
Committee, Holdings and the officers and Directors of Holdings shall be entitled
to rely upon the advice, opinions or valuations of any such persons. All
actions taken and all interpretations and determinations made by the Committee
in good faith shall be final and binding upon all Participants, Holdings and all
other
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interested persons. No member of the Committee shall be personally liable for
any action, determination or interpretation made in good faith with respect to
the Plan or the Grants, and all members of the Committee shall be fully
protected by Holdings with respect to any such action, determination or
interpretation.
ARTICLE IX
MISCELLANEOUS PROVISIONS
SECTION 9.1 - AMENDMENT, SUSPENSION OR TERMINATION OF THE PLAN
The Plan may be wholly or partially amended or otherwise modified,
suspended or terminated at any time or from time to time by the Board. Except as
expressly permitted by the terms of the Plan, neither the amendment, suspension
nor termination of the Plan shall, without the consent of the Participant alter
or impair any rights or obligations under any Grant theretofore granted. No
Grant may be made during any period of suspension nor after termination of the
Plan, and in no event may any Grant be made under this Plan after the expiration
of ten years from the date the Plan is adopted or the date the stockholders of
Holdings approve this Plan, if earlier.
SECTION 9.2 - ADJUSTMENTS IN OUTSTANDING GRANTS
In the event that the outstanding shares of Common Stock subject to Grants
are, from time to time, changed into or exchanged for a different number or kind
of shares of Holdings or other securities of Holdings by reason of a merger,
consolidation, recapitalization, reclassification, stock split-up, stock
dividend, combination of shares, or otherwise, the Committee shall make an
appropriate and equitable adjustment in the aggregate number of shares which may
be issued pursuant to Section 2.1 hereof and the number and kind of shares or
other consideration as to which all outstanding Grants shall be outstanding
and/or exercisable. Any such adjustment made by the Committee shall be final
and binding upon all Participants, Holdings and all other interested persons.
SECTION 9.3 - EFFECT OF PLAN UPON OTHER OPTIONS AND COMPENSATION PLANS
Nothing in this Plan shall be construed to limit the right of Holdings or
any of its Subsidiaries (a) to establish any other forms of incentives or
compensation for employees or Directors of Holdings or any of its Subsidiaries
or (b) to grant or assume options otherwise than under this Plan in connection
with any proper corporate purpose, including, but not by way of limitation, the
grant or
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assumption of options in connection with the acquisition by purchase, lease,
merger, consolidation or otherwise, of the business, stock or assets of any
corporation, firm or association.
SECTION 9.4 - NO RIGHT TO CONTINUE IN EMPLOYMENT
Nothing in this Plan or in any Stock Option Agreement hereunder (i)
shall confer upon any Optionee who is an Employee any right to continue in
the employ of Holdings or any of its Subsidiaries or (ii) shall interfere
with or restrict in any way the rights of Holdings and its Subsidiaries,
which are hereby expressly reserved, to terminate the employment of any
Optionee at any time for any reason whatsoever, with or without good cause.
SECTION 9.5 - ADJUSTMENTS
(a) In the event of any change in the outstanding Common Stock by reason
of a stock split, spin-off, stock dividend, stock combination or
reclassification, recapitalization or merger, change of control, or similar
event, the Committee may adjust appropriately the number of Shares subject to
the Plan and available for or covered by Grants and Share prices related to
outstanding Grants and make such other revisions to outstanding Grants as it
deems are equitably required.
(b) In the event of a Change of Control (as defined in paragraph 9.5(c)
hereof):
(i) Stock options granted pursuant to Section 5 hereof shall become
fully vested and exercisable; provided; however, that the Committee may
elect to make a cash payment to Participants in cancellation of such
options in such amount as the Committee in its sole discretion shall
determine, which amount shall not be less than the product of (x) and (y),
where (x) is the excess of the Fair Market Value of Common Stock on the
date of exercise over the exercise price, and (y) is the number of Shares
subject to the stock options being canceled.
(ii) The Committee shall have authority to revise the terms of any
such Grant or any other Grant as it, in its discretion, deems appropriate;
provided; however, that the Committee may not make revisions that are
adverse to the Participant without the Participant's consent unless such
revision is provided for or contemplated in the terms of the Grant.
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(c) For purposes of the Plan, a "Change of Control" shall mean the first
to occur of the following events:
(i) an individual, corporation, partnership, group, associate or
other entity or "person", as such term is defined inn Section 14(d) of the
Securities Exchange Act of 1934 (the "Exchange Act"), other than Holdings
or any employee benefit plans sponsored by Holdings or the Company, is or
becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of 30% or more of the combined voting power
of Holdings' outstanding securities ordinarily having the right to vote at
elections of directors.
(ii) individuals who constitute the Holdings Board on October 11, 1995
(the "Incumbent Board") cease for any reason to constitute at least a
majority thereof, provided that any person becoming a director subsequent
to such date whose election, or nomination for election by Holdings'
shareholders, was approved by a vote of at least three-quarters of the
directors comprising the Incumbent Board (either by a specific vote or by
approval of the proxy statement of Holdings in which such person is named
as a nominee of Holdings for director), but excluding for this purpose any
such individual whose initial assumption of office occurs as a result of
either an actual or threatened election contest (as such terms are used in
Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or other
actual or threatened solicitation of proxies or consents by or on behalf of
an individual, corporation, partnership, group, associate or other entity
or "person" other than the Holdings Board, shall be, for purposes of this
paragraph (ii), considered as though such person were a member of the
Incumbent Board;
(iii) the approval by the shareholders of Holdings of a plan or
agreement providing (1) for a merger or consolidation of Holdings other
than with a wholly-owned subsidiary and other than a merger or
consolidation that would result in the voting securities of Holdings
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) more than 50% of the combined voting power of the voting
securities of Holdings or such surviving entity outstanding immediately
after such merger or consolidation, or (2) for a sale, exchange or other
disposition of all or substantially all of the assets of Holdings. If any
of the events enumerated in this paragraph (iii) occur, the Holdings Board
shall determine the effective date of the Change of Control resulting
therefrom for purposes of the Program.
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SECTION 9.6 - TITLES
Titles are provided herein for convenience only and are not to serve as a
basis for interpretation or construction of the Plan.
SECTION 9.7 - PRONOUNS
The masculine pronoun shall include the feminine and neuter and the
singular shall include the plural, where the context so indicates.
<PAGE>
Exh. 10.4
PLAN DOCUMENT
RJR NABISCO HOLDINGS CORP.
1990 LONG TERM INCENTIVE PLAN
(AS AMENDED AND RESTATED EFFECTIVE SEPTEMBER 1, 1996)
1. PURPOSE OF PLAN
The RJR Nabisco Holdings Corp. 1990 Long Term Incentive Plan (the "Plan")
is designed:
(a) to promote the long term financial interests and growth of RJR Nabisco
Holdings Corp. and subsidiaries (the "Corporation") by attracting and retaining
management personnel with the training, experience and ability to enable them to
make a substantial contribution to the success of the Corporation's business;
(b) to motivate management personnel by means of growth-related incentives
to achieve long range goals; and
(c) to further the identity of interests of participants with those of the
stockholders of the Corporation through opportunities for increased stock, or
stock-based, ownership in the Corporation.
2. DEFINITIONS
As used in the Plan, the following words shall have the following meanings:
(a) "RJRN" means RJR Nabisco Holdings Corp.;
(b) "Grant" means an award made to a Participant pursuant to the Plan and
described in Paragraph 5, including, without limitation, an award of an
Incentive Stock Option, Stock Option, Stock Appreciation Right, Dividend
Equivalent Right, Restricted Stock, Purchase Stock, Performance Units,
Performance Shares or Other Stock-Based Grant, or any combination of the
foregoing;
(c) "Grant Agreement" means an agreement between RJRN and a Participant
that sets forth the terms, conditions and limitations applicable to a Grant;
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(d) "Board of Directors" means the Board of Directors of RJRN;
(e) "Committee" means the Compensation Committee of the Board of
Directors;
(f) "Common Stock" or "Share" means common stock of RJRN which may be
authorized but unissued, or issued and reacquired;
(g) "Exchange Act" means the Securities Exchange Act of 1934, as amended;
(h) "Key Employee" means a person, including an officer, in the regular
full-time employment of RJRN or one of its Subsidiaries who, in the opinion of
the Committee, is, or is expected, to be primarily responsible for the
management, growth or protection of some part or all of the business of the
Corporation;
(i) "Fair Market Value" means such value of a Share as reported for stock
exchange transactions and/or determined in accordance with any applicable
resolutions or regulations of the Committee in effect at the relevant time;
(j) "Participant" means a Key Employee, or other person having a unique
relationship with RJRN or one of its Subsidiaries, to whom one or more Grants
have been made and such Grants have not all been forfeited or terminated under
the Plan; provided, however, a non-employee director of RJRN or one of its
Subsidiaries may not be a Participant;
(k) "Subsidiary" means any corporation other than RJRN in an unbroken
chain of corporations beginning with RJRN if each of the corporations other than
the last corporation in the unbroken chain owns 50% or more of the voting stock
in one of the other corporations in such chain.
3. ADMINISTRATION OF PLAN
(a) The Plan shall be administered by the Committee, which shall be
composed solely of "non-employee directors" within the meaning of Rule 16b-3
(and any other applicable rule) promulgated under Section 16(b) of the Exchange
Act. The Committee may adopt its own rules of procedure, and the action of a
majority of the Committee, taken at a meeting or taken without a meeting by a
writing signed by such majority, shall constitute action by the Committee. The
Committee shall have the power and authority to administer, construe and
interpret the Plan, to make rules for carrying it out and to make
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changes in such rules. Any such interpretations, rules, and administration
shall be consistent with the basic purposes of the Plan.
(b) The Committee may delegate to the Chief Executive Officer and to other
senior officers of the Corporation its duties under the Plan subject to such
conditions and limitations as the Committee shall prescribe except that only the
Committee may designate and make Grants to Participants who are subject to
Section 16 of the Exchange Act.
(c) The Committee may employ attorneys, consultants, accountants,
appraisers, brokers or other persons. The Committee, RJRN, and the officers and
directors of RJRN shall be entitled to rely upon the advise, opinions or
valuations of any such persons. All actions taken and all interpretations and
determinations made by the Committee in good faith shall be final and binding
upon all Participants, RJRN and all other interested persons. No member of the
Committee shall be personally liable for any action, determination or
interpretation made in good faith with respect to the Plan or the Grants, and
all members of the Committee shall be fully protected by RJRN with respect to
any such action, determination or interpretation.
4. ELIGIBILITY
The Committee may from time to time make Grants under the Plan to such Key
Employees, or other persons having a unique relationship with RJRN or any of its
Subsidiaries, and in such form and having such terms, conditions and limitations
as the Committee may determine. No Grants may be made under this Plan to
non-employee directors of RJRN or any of its Subsidiaries. Grants may be
granted singly, in combination or in tandem. The terms, conditions and
limitations of each Grant under the Plan shall be set forth in a Grant
Agreement, in a form approved by the Committee, consistent, however, with the
terms of the Plan; provided, however, such Grant Agreement shall contain
provisions dealing with the treatment of Grants in the event of the termination,
death or disability of a Participant, and may also include provisions concerning
the treatment of Grants in the event of a change of control of RJRN.
5. GRANTS
From time to time, the Committee will determine the forms and amounts of
Grants for Participants. Such Grants may take the following forms in the
Committee's sole discretion:
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(a) INCENTIVE STOCK OPTIONS - These are stock options within the meaning
of Section 422 of the Internal Revenue Code of 1986, as amended ("Code"), to
purchase Common Stock. In addition to other restrictions contained in the Plan,
an option granted under this Section 5(a), (i) may not be exercised more than 10
years after the date it is granted, (ii) may not have an option price less than
the Fair Market Value of Common Stock on the date the option is granted, (iii)
must otherwise comply with Code Section 422, and (iv) must be designated as an
"Incentive Stock Option" by the Committee. The maximum aggregate Fair Market
Value of Common Stock (determined at the time of each Grant) with respect to
which any Participant may first exercise Incentive Stock Options under this Plan
and any Incentive Stock Options granted to the Participant for such year under
any plans of RJRN or any Subsidiary in any calendar year is $100,000. Payment
of the option price shall be made in cash or in shares of Common Stock, or a
combination thereof, in accordance with the terms of the Plan, the Grant
Agreement, and of any applicable guidelines of the Committee in effect at the
time.
(b) OTHER STOCK OPTIONS - These are options to purchase Common Stock which
are not designated by the Committee as "Incentive Stock Options". At the time
of the Grant the Committee shall determine, and shall have contained in the
Grant Agreement or other Plan rules, the option exercise period, the option
price, and such other conditions or restrictions on the grant or exercise of the
option as the Committee deems appropriate, which may include the requirement
that the grant of options is predicated on the acquisition of Purchase Stock
under Section 5(e) by the Optionee. In addition to other restrictions contained
in the Plan, an option granted under this Section 5(b), (i) may not be exercised
more than 15 years after the date it is granted and (ii) may not have an option
exercise price less than 50% of the Fair Market Value of Common Stock on the
date the option is granted. Payment of the option price shall be made in cash
or in shares of Common Stock, or a combination thereof, in accordance with the
terms of the Plan and of any applicable guidelines of the Committee in effect at
the time. Payment of the option price may also be made by tender of an amount
equal to the full exercise price which has been borrowed from RJRN or one of its
Subsidiaries if the Participant also authorizes the concurrent sale of the
exercised Common Stock by a broker (through an arrangement established by RJRN,
or one of its Subsidiaries, for Participants) and repays the borrowing, all in
accordance with any applicable guidelines of the Committee.
(c) STOCK APPRECIATION RIGHTS - These are rights that on exercise entitle
the holder to receive the excess of (i) the Fair Market Value of a share of
Common Stock on the date of exercise over (ii) the Fair Market Value on the date
of Grant (the "base value") multiplied by (iii) the number of rights exercised
in cash, stock or a combination thereof as determined by the Committee. Stock
Appreciation Rights granted under the Plan may, but need not be, granted in
conjunction with an option under Paragraphs 5(a) or 5(b). The Committee, in the
Grant Agreement or by other Plan rules, may impose such conditions
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or restrictions on the exercise of Stock Appreciation Rights as it deems
appropriate, and may terminate, amend, or suspend such Stock Appreciation Rights
any time. No Stock Appreciation Right granted under this Plan may be exercised
more than 15 years after the date it is granted. To the extent that any Stock
Appreciation Right that shall have become exercisable, but shall not have been
exercised or cancelled or, by reason of any termination of employment, shall
have become non-exercisable, it shall be deemed to have been exercised
automatically, without any notice of exercise, on the last day of which it is
exercisable, provided that any conditions or limitations on its exercise are
satisfied (other than (i) notice of exercise and (ii) exercise or election to
exercise during the period prescribed) and the Stock Appreciation Right shall
then have value. Such exercise shall be deemed to specify that, the holder
elects to receive cash and that such exercise of a Stock Appreciation Right
shall be effective as of the time of automatic exercise.
(d) RESTRICTED STOCK - Restricted Stock is Common Stock delivered to a
Participant with or without payment of consideration with restrictions or
conditions on the Participant's right to transfer or sell such stock; provided
that the price of any Restricted Stock delivered for consideration and not as
bonus stock may not be less than 50% of the Fair Market Value of Common Stock on
the date such Restricted Stock is granted or the price of such Restricted Stock
may be the par value. If a Participant irrevocably elects in writing in the
calendar year preceding a Grant of Restricted Stock, dividends paid on the
Restricted Stock granted may be paid in shares of Restricted Stock equal to the
cash dividend paid on Common Stock. The number of shares of Restricted Stock
and the restrictions or conditions on such shares shall be as the Committee
determines, in the Grant Agreement or by other Plan rules, and the certificate
for the Restricted Stock shall bear evidence of the restrictions or conditions.
(e) PURCHASE STOCK - Purchase Stock are shares of Common Stock offered to
a Participant at such price as determined by the Committee, the acquisition of
which may make him eligible to receive other grants under the Plan, including,
but not limited to, Stock Options; provided, however, that the price of such
Purchase Shares may not be less than 50% of the Fair Market Value of the Common
Stock on the date such shares of Purchase Stock are offered.
(f) DIVIDEND EQUIVALENT RIGHTS - These are rights to receive cash
payments from RJRN at the same time and in the same amount as any cash dividends
paid on an equal number of shares of Common Stock to shareholders of record
during the period such rights are effective. The Committee, in the Grant
Agreement or by other Plan rules, may impose such restrictions and conditions on
the Dividend Equivalent Rights, including the date such rights will terminate,
as it deems appropriate, and may terminate, amend, or suspend such Dividend
Equivalent Rights at any time.
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<PAGE>
(g) PERFORMANCE UNITS - These are rights to receive at a specified future
date, payment in cash of an amount equal to all or a portion of the value of a
unit granted by the Committee. At the time of the Grant, in the Grant Agreement
or by other Plan rules, the Committee must determine the base value of the unit,
the performance factors applicable to the determination of the ultimate payment
value of the unit and the period over which Corporation performance will be
measured. These factors must include a minimum performance standard for the
Corporation below which no payment will be made and a maximum performance level
above which no increased payment will be made. The term over which Corporation
performance will be measured shall be not less than six months.
(h) PERFORMANCE SHARES - These are rights to receive at a specified future
date, payment in cash or Common Stock, as determined by the Committee, of an
amount equal to all or a portion of the Fair Market Value for all days that the
Common Stock is traded during the last forty-five (45) days of the specified
period of performance of a specified number of shares of Common Stock at the end
of a specified period based on Corporation performance during the period. At
the time of the Grant, the Committee, in the Grant Agreement or by Plan rules,
will determine the factors which will govern the portion of the rights so
payable and the period over which Corporation performance will be measured. The
factors will be based on Corporation performance and must include a minimum
performance standard for the Corporation below which no payment will be made and
a maximum performance level above which no increased payment will be made. The
term over which Corporation performance will be measured shall be not less than
six months. Performance Shares will be granted for no consideration.
(i) OTHER STOCK-BASED GRANTS - The Committee may make other Grants under
the Plan pursuant to which shares of Common Stock (which may, but need not, be
shares of Restricted Stock pursuant to Paragraph 5(d)), are or may in the future
be acquired, or Grants denominated in stock units, including ones valued using
measures other than market value. Other Stock-Based Grants may be granted with
or without consideration; provided, however, that the price of any such Grant
made for consideration that provides for the acquisition of shares of Common
Stock or other equity securities of the Corporation may not be less than 50% of
the Fair Market Value of the Common Stock or such other equity securities on the
date of grant of such Grant. Such Other Stock-Based Grants may be made alone,
in addition to or in tandem with any Grant of any type made under the Plan and
must be consistent with the purposes of the Plan.
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<PAGE>
6. LIMITATIONS AND CONDITIONS
(a) The number of Shares available for Grants under this Plan shall be 21
million shares of the authorized Common Stock as of the effective date of the
Plan. The number of Shares subject to Grants under this Plan to any one
Participant shall not be more than 2 million shares. No more than 1% of the
authorized Common Stock as of the effective date of the Plan may be granted as
Incentive Stock Options as described in Paragraph 5(a). Shares related to
Grants that are forfeited, terminated, cancelled, expire unexercised, settled in
cash in lieu of stock or in such manner that all or some of the Shares covered
by a Grant are not issued to a Participant, shall immediately become available
for Grants.
(b) No Grants shall be made under the Plan beyond ten years after the
effective date of the Plan, but the terms of Grants made on or before the
expiration thereof may extend beyond such expiration. At the time a Grant is
made or amended or the terms or conditions of a Grant are changed, the Committee
may provide for limitations or conditions on such Grant.
(c) RJRN shall not be obligated to deliver any Shares until they have been
listed (or authorized for listing upon official notice of issuance) upon each
stock exchange upon which outstanding shares of the same class at the time are
listed nor until there has been compliance with such laws or regulations as RJRN
may deem applicable. RJRN shall use its best efforts to effect such listing and
compliance. No fractional Shares shall be delivered.
(d) Nothing contained herein shall affect the right of the Corporation to
terminate any Participant's employment at any time or for any reason.
(e) Deferrals of Grant payouts may be provided for, at the sole discretion
of the Committee, in the Grant Agreements.
(f) Except as otherwise prescribed by the Committee, the amounts of the
Grants for any employee of a Subsidiary, along with interest, dividend, and
other expenses accrued on deferred Grants shall be charged to the Participant's
employer during the period for which the Grant is made. If the Participant is
employed by more than one Subsidiary or by both RJRN and a Subsidiary during the
period for which the Grant is made, the Participant's Grant and related expenses
will be allocated between the companies employing the Participant in a manner
prescribed by the Committee.
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<PAGE>
(g) No benefit under the Plan shall, prior to receipt thereof by the
Participant, be in any manner liable for or subject to the debts, contracts,
liabilities, engagements, or torts of the Participant.
(h) Participants shall not be, and shall not have any of the rights or
privileges of, stockholders of RJRN in respect of any Shares purchaseable in
connection with any Grant unless and until certificates representing any such
Shares have been issued by RJRN to such Participants.
(i) Except to the extent otherwise provided in any other retirement or
benefit plan, any grant under this Plan shall not be deemed compensation for
purposes of computing benefits or contributions under any retirement plan of
RJRN or its Subsidiaries and shall not affect any benefits under any other
benefit plan of any kind or subsequently in effect under which the availability
or amount of benefits is related to level of compensation. This Plan is not a
"Retirement Plan" or "Welfare Plan" under the Employee Retirement Income
Security Act of 1974, as amended.
(j) Unless the Committee determines otherwise, no benefit or promise under
the Plan shall be secured by any specific assets of RJRN or any of its
Subsidiaries, nor shall any assets of RJRN or any of its Subsidiaries be
designated as attributable or allocated to the satisfaction of RJRN's
obligations under the Plan.
7. TRANSFERS AND LEAVES OF ABSENCE
For purposes of the Plan: (a) a transfer of a Participant's employment
without an intervening period of separation from RJRN to a Subsidiary or vice
versa, or from one Subsidiary to another, shall not be deemed a termination of
employment, and (b) a Participant who is granted in writing a leave of absence
shall be deemed to have remained in the employ of the Corporation during such
leave of absence.
8. ADJUSTMENTS
(a) In the event of any change in the outstanding Common Stock by reason
of a stock split, spin-off, stock dividend, stock combination or
reclassification, recapitalization or merger, change of control, or similar
event, the Committee may adjust appropriately the number of Shares subject to
the Plan and available for or covered by Grants and Share prices related to
outstanding Grants and make such other revisions to outstanding Grants as it
deems are equitably required.
(b) In the event of a Change of Control (as defined in paragraph 8(c)
hereof):
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<PAGE>
(i) Stock options granted pursuant to paragraphs 5(a) or 5(b) hereof shall
become fully vested and exercisable; provided; however, that the
Committee may make a cash payment to Participants (A) in cancellation
of such stock options as provided in the applicable Grant Agreements
or any amendments or deemed amendments thereto entered into by the
Corporation and the Participant in such amount shall be provided in
such Grant Agreements or amendments or (B) in lieu of the delivery of
shares upon exercise, equal to the product of (x) and (y), where (x)
is the excess of the Fair Market Value on the date of exercise over
the exercise price, and (y) is the number of Shares subject to the
stock options being exercised;
(ii) Stock Appreciation Rights granted pursuant to paragraph 5(c) hereof
shall become fully vested and exercisable;
(iii) Restricted Stock granted pursuant to paragraph 5(d) hereof shall have
all restrictions removed;
(iv) Performance Units granted pursuant to paragraph 5(g) hereof whose
performance period ends after the date of the Change of Control shall
become vested as to a percentage of performance units granted equal to
the number of months (including partial months) in the performance
period before the date of the Change of Control, divided by the total
number of months in the performance period. The value of the
performance units shall be equal to the greater of the target value of
the units or the value derived from the actual performance as of the
date of the Change of Control;
(v) Performance Shares granted pursuant to paragraph 5(h) hereof whose
performance period ends after the date of the Change of Control shall
become vested pro rata as to the number of performance shares granted
equal to the number of months (including partial months) in the
performance period before the date of Change of Control, divided by
the total number of months in the performance period. The prorated
number of shares derived from the preceding calculation shall be
further adjusted by applying the higher of target or actual
performance to the date of Change of Control;
(vi) All remaining Executive Equity Program awards which have not been made
on the date of Change of Control shall be made to the promissory
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<PAGE>
note holder together with any tax gross-up to the grantee for any
federal, state or local tax. Assuming that all previous awards and
elective sales of pledged stock have been applied to reduce the
promissory note loan balance, it is intended that any grant made as a
result of a Change of Control shall fully extinguish the loan balance
and satisfy the promissory note; and
(vii) The Committee shall have authority to revise the terms of any such
Grant or any other Grant as it, in its discretion, deems appropriate;
provided; however, that the Committee may not make revisions that are
adverse to the Participant without the Participant's consent unless
such revision is provided for or contemplated in the terms of the
Grant.
(c) For purposes of the Plan, a "Change of Control" shall mean the first
to occur of the following events:
(i) an individual, corporation, partnership, group, associate or other
entity or "person", as such term is defined inn Section 14(d) of the
Securities Exchange Act of 1934 (the "Exchange Act"), other than
Holdings or any employee benefit plans sponsored by Holdings or the
Company, is or becomes the "beneficial owner" (as defined in Rule
13d-3 under the Exchange Act), directly or indirectly, of 30% or more
of the combined voting power of Holdings' outstanding securities
ordinarily having the right to vote at elections of directors.
(ii) individuals who constitute the Holdings Board on October 11, 1995 (the
"Incumbent Board") cease for any reason to constitute at least a
majority thereof, provided that any person becoming a director
subsequent to such date whose election, or nomination for election by
Holdings' shareholders, was approved by a vote of at least
three-quarters of the directors comprising the Incumbent Board (either
by a specific vote or by approval of the proxy statement of Holdings
in which such person is named as a nominee of Holdings for director),
but excluding for this purpose any such individual whose initial
assumption of office occurs as a result of either an actual or
threatened election contest (as such terms are used in Rule 14a-11 of
Regulation 14A promulgated under the Exchange Act) or other actual or
threatened solicitation of proxies or consents by or on behalf of an
individual, corporation, partnership, group, associate or other entity
or "person" other than the Holdings Board, shall be, for purposes of
this paragraph (ii), considered as though such person were a member of
the Incumbent Board;
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<PAGE>
(iii) the approval by the shareholders of Holdings of a plan or agreement
providing (1) for a merger or consolidation of Holdings other than
with a wholly-owned subsidiary and other than a merger or
consolidation that would result in the voting securities of Holdings
outstanding immediately prior thereto continuing to represent (either
by remaining outstanding or by being converted into voting securities
of the surviving entity) more than 50% of the combined voting power of
the voting securities of Holdings or such surviving entity outstanding
immediately after such merger or consolidation, or (2) for a sale,
exchange or other disposition of all or substantially all of the
assets of Holdings. If any of the events enumerated in this paragraph
(iii) occur, the Holdings Board shall determine the effective date of
the Change of Control resulting therefrom for purposes of the Program.
9. AMENDMENT AND TERMINATION
The Committee shall have the authority to make such amendments to any terms
and conditions applicable to outstanding Grants as are consistent with this Plan
provided that, except for adjustments under Paragraph 8(a) hereof, no such
action shall
modify such Grant in a manner adverse to the Participant without the
Participant's consent except as such modification is provided for or
contemplated in the terms of the Grant.
The Board of Directors may amend, suspend or terminate the Plan.
10. FOREIGN OPTIONS AND RIGHTS
(a) The Committee may make Grants to Key Employees who are subject to the
tax laws of nations other than the United States, which Grants may have terms
and conditions that differ from the terms thereof as provided elsewhere in the
Plan for the purpose of complying with the foreign tax laws. Grants of Options
may have terms and conditions that differ from Incentive Stock Options and Other
Stock Options for the purposes of complying with the foreign tax laws.
(b) The terms and conditions of Options granted under Paragraph 10(a) may
differ from the terms and conditions which the Plan would require to be imposed
upon Incentive Stock Options and Other Stock Options if the Committee determines
that the Grants are desirable to promote the purposes of the Plan for the Key
Employees identified in
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<PAGE>
Paragraph 10(a); provided that the Committee may not grant such Options or Stock
Appreciation Rights that do not comply with the limitations of Paragraph 6.
11. WITHHOLDING TAXES
The Corporation shall have the right to deduct from any cash payment made
under the Plan any federal, state or local income or other taxes required by law
to be withheld with respect to such payment. It shall be a condition to the
obligation of the Corporation to deliver shares upon the exercise of an Option
or Stock Appreciation Right, upon payment of Performance units or shares, upon
delivery of Restricted
Stock or upon exercise, settlement or payment of any Other Stock-Based Grant
that the Participant pay to the Corporation such amount as may be requested by
the Corporation for the purpose of satisfying any liability for such withholding
taxes. Any Grant Agreement may provide that the Participant may elect, in
accordance with any conditions set forth in such Grant Agreement, to pay a
portion or all of such withholding taxes in shares of Common Stock.
12. EFFECTIVE DATE AND TERMINATION DATES
The Plan shall be effective on and as of the date of its approval by the
stockholders of RJRN and shall terminate ten years later, subject to earlier
termination by the Board of Directors pursuant to Paragraph 9.
<PAGE>
Exh. 10.5
Dir
DSU
1996
RJR NABISCO HOLDINGS CORP.
EQUITY INCENTIVE AWARD PLAN FOR
DIRECTORS AND KEY EMPLOYEES
OF RJR NABISCO HOLDINGS CORP.
AND SUBSIDIARIES
DEFERRED STOCK UNIT AGREEMENT
DATE OF GRANT: MAY 31, 1996
W I T N E S S E T H:
1. GRANT. Pursuant to the provisions of the Equity Incentive Award Plan
For Directors and Key Employees of RJR Nabisco Holdings Corp. and Subsidiaries
(the "Plan"), RJR Nabisco Holdings Corp. (the "Company") on the above date has
granted to
(THE "GRANTEE"),
subject to the terms and conditions which follow and the terms and conditions
of the Plan, a Grant of
DEFERRED STOCK UNITS.
A copy of the Plan is attached and made a part of this agreement with the same
effect as if set forth in the Agreement itself. All capitalized terms used
herein shall have the meaning set forth in the Plan, unless the context requires
a different meaning.
2. VALUE OF DEFERRED STOCK UNITS. Each Deferred Stock Unit shall be equal
in value to one share of Common Stock.
3. DIVIDENDS. As of the date any dividend is paid to shareholders of Common
Stock, the Grantee shall be credited with additional Deferred Stock Units equal
to the number of shares of Common Stock (including fractions of a share) that
could have been purchased at the closing price of Common Stock on such date with
the dividend paid on the number of shares of Common Stock to which the Grantee's
Deferred Stock Units are then equivalent. In case of dividends paid in
property, the dividend shall be deemed to be the fair market value of the
property at the time of distribution of the dividend, as determined by the
Committee.
<PAGE>
4. PAYMENT OF DEFERRED STOCK UNITS.
(a) Unless a Grantee has elected to receive installment payments as
provided below, payment of a Grantee's Deferred Stock Units shall be made in one
lump-sum as soon as practicable following the end of the year in which the
Grantee ceases to be a Director.
At the election of the Grantee made in writing and delivered to the
Committee at any time on or before December 1 of the year of termination of the
Grantee's service as a Director, distribution of all of his or her Deferred
Stock Units, commencing as soon as practicable following the end of the year in
which the Grantee ceases to be a Director, shall be made in any number of annual
installments not exceeding ten. Any such election, unless made irrevocable by
its terms, may be changed by written notice to the Committee at any time prior
to December 1 of the year of a Grantee's termination of service as a Director.
(b) Distribution of a Grantee's Deferred Stock Units shall be made in
cash. The amount of distribution shall be determined by multiplying the number
of Deferred Stock Units attributable to the installment by the average of the
closing price in Common Stock on each business day in the month of December
immediately prior to the year in which the installment is to be paid.
(c) In the event a Grantee has elected to receive distribution of his or
her Deferred Stock Units in more than one installment, the amount of each
installment shall be determined by multiplying the remaining number of Deferred
Stock Units by a fraction, the numerator of which is one, and the denominator of
which is the number of installments yet to be paid.
5. TRANSFERABILITY. Other than as specifically provided in the Plan with
regard to the death of the Grantee, this Agreement and any benefit provided or
accruing hereunder shall not be subject in any manner to anticipation,
alienation, sale, transfer, assignment, pledge, encumbrance, or charge; and any
attempt to do so shall be void. No such benefit shall, prior to receipt thereof
by the Grantee, be in any manner liable for or subject to the debts, contracts,
liabilities, engagements or torts of the Grantee.
6. CONSIDERATION TO THE COMPANY. In consideration of the Grant by the
Company, the Grantee agrees to render faithful and efficient services to the
Company, with such duties and responsibilities as the Company shall from time to
time prescribe. Nothing in this Agreement or in the Plan shall confer upon the
Grantee any right to continue in the service of the Company or any Subsidiary as
a director or in any other capacity or shall interfere with or restrict in any
way the rights of the Company and its Subsidiaries and their respective
shareholders, which are hereby expressly reserved, in connection with the
removal of the Grantee from the Board of Directors of the Company or any
Subsidiary at any time for any reason whatsoever, with or without cause, subject
to applicable law and the relevant certificate of incorporation and bylaws.
7. ADJUSTMENTS IN DEFERRED STOCK UNITS. In the event that the outstanding
shares of the Common Stock subject to the Grant are, from time to time, changed
into or exchanged for a
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<PAGE>
different number or kind of shares of the Company or other securities by reason
of a merger, consolidation, recapitalization, reclassification, stock split,
stock dividend, spinoff, combination of shares, or otherwise, the Committee
shall make an appropriate and equitable adjustment in the number and kind of
shares or other consideration as to which the Grant, shall be equivalent. Any
adjustment made by the Committee shall be final and binding upon the Grantee,
the Company and all other interested persons.
8. APPLICATION OF LAWS. The Grant and the obligations of the Company
hereunder shall be subject to all applicable laws, rules, and regulations and
to such approvals of any governmental agencies as may be required.
9. TAXES. Any taxes required by federal, state, or local laws to be
withheld by the Company on the grant or payment of Deferred Stock Units shall be
paid to the Company before payment of the Deferred Stock Units is made to the
Grantee.
10. NOTICES. Any notices required to be given hereunder to the Company
shall be addressed to The Secretary, RJR Nabisco Holdings Corp., 1301 Avenue of
the Americas, New York, NY 10019-6013 and any notice required to be given
hereunder to the Grantee shall be sent to the Grantee's address as shown on the
records of the Company.
11. GRANTEE. In consideration of the grant, the Grantee specifically
agrees that the Committee shall have the exclusive power to interpret the Plan
and this Agreement and to adopt such rules for the administration,
interpretation and application of the Plan and Agreement as are consistent
therewith and to interpret or revoke any such rules. All actions taken and all
interpretation and determinations made by the Committee shall be final,
conclusive, and binding upon the Grantee, the Company and all other interested
persons. No member of the Committee shall be personally liable for any action,
determination or interpretation made in good faith with respect to the Plan or
the Agreement. The Committee may delegate its interpretive authority to an
officer or officers of the Company.
12. OTHER PROVISIONS.
(a) Titles are provided herein for convenience only and are not to
serve as a basis for interpretation of the Agreement.
(b) This Agreement may be amended only by a writing executed by the
parties hereto which specifically states that it is amending this Agreement.
(c) THE LAWS OF THE STATE OF DELAWARE SHALL GOVERN THE
INTERPRETATION, VALIDITY AND PERFORMANCE OF THE TERMS OF THIS AGREEMENT
REGARDLESS OF THE LAW THAT MIGHT BE APPLIED UNDER PRINCIPLES OF CONFLICTS OF
LAWS.
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<PAGE>
IN WITNESS WHEREOF, the Company, by its duly authorized officer, and the
Grantee have executed this Agreement as of the Date of Grant first above
written.
RJR NABISCO HOLDINGS CORP.
By___________________________
Authorized Signatory
______________________________
GRANTEE
Grantee's Home Address
Date:_________________________
______________________________
Grantee's Taxpayer Identification Number:
______________________________
_____________________________________ ______________________________
<PAGE>
EXHIBIT 10.6
NA-LTIP
Name of Borrower: Steven F. Goldstone Principal of Loan: $499,991
Loan Date: May 15, 1996 Number of Shares Purchased: 14,981
SECURED PROMISSORY NOTE
FOR VALUE RECEIVED, the person named above (the "Borrower"), hereby
promises to pay to the order of NABISCO HOLDINGS CORP., a Delaware corporation
(the "Company"), at its office located at 7 Campus Drive, Parsippany, NJ
07054, or at such other place as the holder may hereafter designate, the
respective principal amount of the loan (the "Loan") specified above plus
accrued interest on the Repayment Date (as defined below) or on such other
dates specified in paragraphs 4 and 5 as the case may be.
1. INTEREST.
Except as otherwise provided in paragraphs 4 and 5, interest shall accrue
from and including the loan date specified above (the "Loan Date") at the
applicable Federal rate for long-term loans on the Loan Date determined in
accordance with Section 1274(d) of the Internal Revenue Code of 1986, as
amended (the "Code"), and interest on the unpaid principal amount of the Loan
shall be compounded semi-annually but shall not be payable until the Repayment
Date or such earlier date on which the Loan is repaid.
2. STOCK PURCHASE; USE OF PROCEEDS.
The Borrower hereby represents and covenants that the proceeds of the
Loan shall be used exclusively by the Borrower to pay for the above specified
number of shares (the "Stock") of Class A Common Stock of the Company, to be
purchased by the Borrower on the Loan Date from the Nabisco Holdings Corp.
1994 Long-Term Incentive Plan at a price equal to the final closing price
of Class A Common Stock (as reported on the New York Stock Exchange
consolidated tape) on the date of purchase.
3. PLEDGE.
(a) In consideration of the principal amount of the Loan loaned to
the Borrower by the Company, payment of which is hereby acknowledged, the
Borrower hereby grants a security interest to the Company in the Stock,
duly endorsed in blank and herewith delivered to the Company, together
with any other securities (including, without limitation, any notes, bonds,
debentures or other indebtedness, any shares of preferred or common stock
and any instruments evidencing such indebtedness or shares) or other non-
cash property distributed on or with respect to the Stock or such other
securities (collectively, the "Distributed Property") and any proceeds
from the sale or other disposition of all or any portion of the Stock or
the
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Distributed Property. The Borrower agrees that the Company shall hold the
Stock and any Distributed Property, which upon receipt by the Borrower
shall be pledged and delivered to the Company as security for the
repayment of the principal amount of and interest on the Loan, and shall
not encumber or dispose of the Stock or any Distributed Property except
in accordance with the provisions of Paragraph 4 hereof.
(b) The Borrower represents that there are no restrictions upon
the transfer of the Stock and that the Company has the right to
transfer such Stock free of any other encumbrances and without obtaining
the consent of other stockholders. The Borrower agrees that the Stock
may not be sold, tendered, assigned, transferred, pledged or otherwise
encumbered to any person or party other than the Company prior to the
repayment of the principal amount of and interest on the Loan.
(c) Immediately and without further notice, whenever the Loan becomes
immediately due and payable under Paragraph 4 or Paragraph 5, the Company or
its nominee shall have, with respect to the Stock and any Distributed
Property, the right to exercise all other corporate rights and all
conversion, exchange, subscription or other rights, privileges or options
pertaining thereto as if it were the absolute owner thereof, including,
without limitation, the right to exchange any or all of the Stock and any
Distributed Property upon the merger, consolidation, reorganization,
recapitalization or other readjustment of the issuer thereof, or upon the
exercise by such issuer of any right, privilege, or option pertaining to any
of the Stock and any Distributed Property, and, in connection therewith, to
deliver any of the Stock and any Distributed Property to any committee,
depository, transfer agent, registrar or other designated agency upon such
terms and conditions as it may determine, all without liability except to
account for property actually received by it; but the Company shall have no
duty to exercise any of the aforesaid rights, privileges or options and shall
not be responsible for any failure to do so or delay in so doing.
(d) Unless the Loan shall have become immediately due and payable, the
Borrower shall be entitled to receive for his own use cash dividends paid on
the Stock. After the Loan becomes due and payable, the Company may require any
cash dividends subsequently paid to be delivered to the Company as additional
security hereunder or applied toward the satisfaction of the obligations.
(c) The Borrower shall be the stockholder of record of the Stock and
shall have all voting rights as such.
(f) If the Company shall be reorganized, or consolidated or merged with
another corporation, any stock, securities or other property exchangeable for
the Stock pursuant to such reorganization, consolidation or merger shall be
deposited with the Company and shall become subject to the restrictions and
conditions hereof to the same extent as if it had been the original property
pledged hereby.
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<PAGE>
4. REPAYMENT AND WHEN LOAN IS DUE AND PAYABLE.
(a) Except as otherwise provided in paragraphs 4(a)(ii) and 5, the Loan
shall become due and payable, and the Borrower shall repay the principal
amount of and interest on the Loan on the date on which proceeds from the
sale of Stock are received or the date that is the thirtieth (30th)
anniversary of the Loan Date, whichever is earlier (the "Repayment Date").
Except as provided in paragraph 5, until the principal amount of and accrued
interest on the Loan are repaid in full, Stock shall only be sold by the
Company acting on behalf of the Borrower, on instructions from the Borrower,
and:
(i) if the proceeds from the sale of the Stock are GREATER than the
principal amount of and accrued interest on the Loan, the Company
shall remit the difference, less applicable taxes, to the Borrower;
or
(ii) if the proceeds from the first sale of any of the Stock are LESS
than the principal amount of and accrued interest on the Loan,
payment of the balance is due, and must be made with interest as
determined under Paragraph 1 by the earlier of the thirtieth (30th)
anniversary of the Loan Date or the 730th day after such sale of the
Stock. If the Borrower fails to repay the balance due plus interest
by such time, the balance of the principal amount of and accrued
interest on the Loan, will be immediately due and payable and will
thereafter accrue interest at the highest of 1) 120% of the
published applicable Federal rate on the Repayment Date, 2) 120% of
the published applicable Federal rate on the 730th day after the
sale of the Stock, or 3) the published applicable Federal rate on
the Loan Date, which interest shall be compounded semi-annually.
(b) In the event of the Borrower's termination of (i) services as a
director of the Company and (ii) employment with RJR Nabisco Holdings Corp.
or any of its subsidiaries, he shall, as of the date of termination, repay
the principal amount, accrued interest on the Loan and related taxes, if any.
Notwithstanding the foregoing, if and to the extent that the Borrower does
not repay such amounts as of the date of termination, he shall be deemed to
have instructed the Company to sell the Stock, pursuant to Paragraph (a)
above; provided, however that the Company shall sell such number of shares of
the Stock as the Company believes is necessary (together with the amount of
the Borrower's repayment, if any) to yield proceeds sufficient to pay the
principal, accrued interest on the Loan, and related taxes, and shall deliver
the balance of the shares of the Stock, if any, plus the balance of the
proceeds from the sale of the shares of the Stock, if any, to the Borrower or
the Borrower's estate. If the proceeds of the sale (together with the amount
of the Borrower's repayment, if any) are less than the principal amount of
and the accrued interest on the Loan, the obligations of sub-Paragraph
4(a)(ii) shall be the responsibility of the Borrower or the Borrower's estate.
(c) Upon receipt of instructions from the Borrower to sell the Stock,
the Company shall use its reasonable best efforts to sell such Stock in the
market or otherwise as promptly as practicable. Notwithstanding anything to
the contrary contained herein, the Borrower acknowledges and agrees that the
Company shall have no liability with respect to any such sale
-3-
<PAGE>
or purchase or the price obtained in connection therewith and the Borrower
agrees to indemnify and hold the Company harmless from any claims relating
thereto.
5. DEFAULT.
In the event that the Borrower defaults in the performance of any of the
terms of this Note, or in the payment when due of the principal of and
accrued interest on the Loan, the Company shall have the rights and
remedies provided in the Uniform Commercial Code then in force in the State
of Delaware and, in this connection, the Company may, upon five days' notice
to the Borrower, sent by registered mail, and without liability for any
diminution in price which may have occurred, sell any Stock and any
Distributed Property pledged hereby and not previously sold in such manner
and for such price as the Company may determine. At any bona fide public sale
the Company shall be free to purchase all or any part of such Stock or
Distributed Property. Out of the proceeds of any sale the Company may retain
an amount equal to the principal of and accrued interest on the Loan, plus
the amount of the expenses of the sale and any taxes due, and shall pay any
balance of such proceeds to the Borrower. In the event that the proceeds of
any sale are insufficient to cover the principal of and accrued interest on
the Loan plus the expenses of the sale and any taxes due, the Borrower shall
remain liable for any deficiency.
6. TAXES.
Any taxes of the Borrower required to be paid or withheld by the Company
by federal, state or local laws in relation to the ownership of the Stock,
the grant or sale of the Stock, or the Loan, or otherwise in connection
therewith shall be paid to the Company by the Borrower, or retained from the
proceeds of the Loan by the Company, on the date the Stock is granted.
7. NOTICES.
Any notices required to be given hereunder to the Company shall be
addressed to the Secretary, Nabisco Inc., 7 Campus Drive, Parsippany, NJ
07054 and any notice required to be given hereunder to the Borrower shall be
sent to the Borrower's address as shown on the records of the Company.
8. NO RETENTION OR EMPLOYMENT.
Nothing contained herein or in any other agreement entered into by the
Company and the Borrower contemporaneously with the execution of this Note,
(i) obligates the Company or any of its parents or subsidiaries to retain or
employ the Borrower in any capacity whatsoever or (ii) prohibits or restricts
the Company or any of its parents or subsidiaries from terminating its
relationship, if any, with the Borrower at any time or for any reason
whatsoever, with or without cause, and the Borrower hereby acknowledges and
agrees that neither the Company nor any of its parents or subsidiaries has
made any representations or promises whatsoever to the Borrower concerning
the Borrower's relationship with the Company or any of its parents or
subsidiaries. The provisions of this Note shall be interpreted
-4-
<PAGE>
independently of any other agreement, understanding or course of dealing
between the Borrower, on the one hand, and the Company and any of its parents
and subsidiaries, on the other.
9. BINDING EFFECT.
The provisions of this Note shall be binding upon and accrue to the
benefit of the Borrower and the Company and their respective heirs, legal
representatives, successors and assigns. Notwithstanding the foregoing, this
Note and the purchase of Stock contemplated herein are subject to
ratification by the RJR Nabisco Holdings Corp. Compensation Committee and
Board of Directors.
10. WAIVER.
The Borrower and all guarantors and endorsers of this Note severally
irrevocably waive diligence, demand, presentment, notice of nonpayment and
protest, and assent to extensions of the time of payment, surrender or other
indulgence, without notice. Any waiver by the Company of any default under
this Note or any other breach by the Borrower of any provision of this Note
shall be in writing and shall not operate as a waiver of any future default
or breach by the Borrower.
11. AMENDMENT.
This Note may be amended only by a written instrument signed by the
Company and the Borrower.
12. APPLICABLE LAW: JURISDICTION.
The laws of the State of Delaware shall govern the interpretation,
validity and performance of the terms of this Note, without reference to
rules relating to conflicts of law. Any suit, action or proceeding against
the Borrower with respect to this Note, or any judgment entered by any court
in respect of any hereof, may be brought in any court of competent
jurisdiction in the States of Delaware or New Jersey, as the Company may
elect in its sole discretion, and the Borrower hereby submits to the
nonexclusive jurisdiction of such courts for the purpose of any such suit,
action, proceeding or judgment. By the execution and delivery of this Note,
the borrower appoints The Prentice-Hall Corporation System, Inc., 150 W.
State Street, Trenton, NJ 08608 as his agent upon which process may be served
in any such suit, action or proceeding. Service of process upon such agent,
together with notice of such service given to the Borrower shall be deemed in
every respect effect service of process upon him in any suit, action or
proceeding. Nothing herein shall in way be deemed to limit the ability of the
Company to serve any such writs, process or summonses in any other manner
permitted by applicable law or to obtain jurisdiction over the Borrower, in
such other jurisdictions, and in such manner, as may be permitted by
applicable law. The Borrower hereby irrevocably waives any objections which
he many now or hereafter have to the laying of the venue of any suit, action
or proceeding arising out of or relating to this Note brought in any court of
competent
-5-
<PAGE>
jurisdiction in the States of Delaware or New Jersey, and hereby further
irrevocably waives any claim that any such suit, action or proceeding brought
in any such court has been brought in any inconvenient forum. No suit, action
or proceeding against the Company with respect to this Note may be brought in
any court, domestic or foreign, or before any similar domestic or foreign
authority other than in a court of competent jurisdiction in the States of
Delaware or New Jersey, and the Borrower hereby irrevocably waives any right
which he may otherwise have had to bring such an action in any other court,
domestic or foreign, or before any similar domestic or foreign authority.
/s/ illegible
----------------------------------
Borrower
-6-
<PAGE>
EXHIBIT 12.1
RJR NABISCO, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(DOLLARS IN MILLIONS)
NINE MONTHS
ENDED
SEPTEMBER 30, 1996
------------------
Earnings before fixed charges:
Income before income taxes . . . . . . . . . . . . . . . . . . $ 847
Less minority interest in pre-tax income of Nabisco Holdings*. --
-------
Adjusted income before income taxes. . . . . . . . . . . . . . 847
Interest and debt expense. . . . . . . . . . . . . . . . . . . 626
Interest portion of rental expense . . . . . . . . . . . . . . 41
-------
Earnings before fixed charges. . . . . . . . . . . . . . . . . . $ 1,514
-------
-------
Fixed charges:
Interest and debt expense. . . . . . . . . . . . . . . . . . . $ 626
Interest portion of rental expense . . . . . . . . . . . . . . 41
Capitalized interest . . . . . . . . . . . . . . . . . . . . . 11
-------
Total fixed charges. . . . . . . . . . . . . . . . . . . . . $ 678
-------
-------
Ratio of earnings to fixed charges . . . . . . . . . . . . . . . 2.2
-------
-------
- ---------------
* Because Nabisco Holdings reported a net loss for the nine months ended
September 30, 1996, the adjustment to reflect minority interest in Nabisco
Holdings' pre-tax income is not included.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM RJRN
HOLDINGS' CONSOLIDATED CONDENSED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000847903
<NAME> RJR NABISCO HOLDINGS CORP.
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 331
<SECURITIES> 0
<RECEIVABLES> 1,434
<ALLOWANCES> 0
<INVENTORY> 2,576
<CURRENT-ASSETS> 4,767
<PP&E> 8,670
<DEPRECIATION> (2,914)
<TOTAL-ASSETS> 31,413
<CURRENT-LIABILITIES> 4,174
<BONDS> 9,595
957
424
<COMMON> 3
<OTHER-SE> 9,689
<TOTAL-LIABILITY-AND-EQUITY> 31,413
<SALES> 12,438
<TOTAL-REVENUES> 12,438
<CGS> 5,778
<TOTAL-COSTS> 5,778
<OTHER-EXPENSES> 903
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 697
<INCOME-PRETAX> 782
<INCOME-TAX> 404
<INCOME-CONTINUING> 378
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 396
<EPS-PRIMARY> 1.11
<EPS-DILUTED> 1.13
</TABLE>
<TABLE> <S> <C>
<PAGE>
<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 STATEMENTS.
</LEGEND>
<CIK> 0000083612
<NAME> RJR NABISCO, INC.
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 205
<SECURITIES> 0
<RECEIVABLES> 1,432
<ALLOWANCES> 0
<INVENTORY> 2,576
<CURRENT-ASSETS> 4,639
<PP&E> 8,670
<DEPRECIATION> (2,914)
<TOTAL-ASSETS> 31,262
<CURRENT-LIABILITIES> 4,071
<BONDS> 9,595
0
0
<COMMON> 0
<OTHER-SE> 11,731
<TOTAL-LIABILITY-AND-EQUITY> 31,262
<SALES> 12,438
<TOTAL-REVENUES> 12,438
<CGS> 5,778
<TOTAL-COSTS> 5,778
<OTHER-EXPENSES> 903
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 626
<INCOME-PRETAX> 847
<INCOME-TAX> 432
<INCOME-CONTINUING> 415
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 433
<EPS-PRIMARY> 0.00
<EPS-DILUTED> 0.00
</TABLE>
