- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 MARCH 31, 1996
-------------------
RJR NABISCO HOLDINGS CORP.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 1-10215 13-3490602
(State or other jurisdiction of (Commission file number) (I.R.S. Employer Identification No.)
incorporation or organization)
</TABLE>
RJR NABISCO, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 1-6388 56-0950247
(State or other jurisdiction of (Commission file number) (I.R.S. Employer Identification No.)
incorporation or organization)
</TABLE>
1301 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019-6013
(212) 258-5600
(Address, including zip code, and telephone number, including area code,
of the principal executive offices of RJR Nabisco Holdings Corp. and RJR
Nabisco, Inc.)
-------------------
INDICATE BY CHECK MARK WHETHER THE REGISTRANTS (1) HAVE FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANTS WERE REQUIRED TO FILE SUCH REPORTS), AND (2) HAVE BEEN SUBJECT TO
SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES X, NO __.
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE REGISTANTS' CLASSES
OF COMMON STOCK AS OF THE LATEST PRACTICABLE DATE: MARCH 31, 1996:
RJR NABISCO HOLDINGS CORP.: 273,094,058 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.
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<PAGE>
INDEX
<TABLE>
<CAPTION>
PAGE
------
<S> <C> <C>
PART I--FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Statements of Income--Three Months Ended
March 31, 1996 and 1995.................................................. 1
Consolidated Condensed Statements of Cash Flows--Three Months Ended
March 31, 1996 and 1995.................................................. 2
Consolidated Condensed Balance Sheets--March 31, 1996 and
December 31, 1995........................................................ 3
Notes to Consolidated Condensed Financial Statements....................... 4-10
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.................................................... 11-15
PART II-- OTHER INFORMATION
Item 1. Legal Proceedings.......................................................... 16
Item 4. Submission of Matters to a Vote of Security Holders........................ 17
Item 6. Exhibits and Reports on Form 8-K........................................... 17
Signatures........................................................................... 18
</TABLE>
<PAGE>
PART I
ITEM 1. FINANCIAL STATEMENTS
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, 1996 MARCH 31, 1995
------------------ ------------------
RJRN RJRN
HOLDINGS RJRN HOLDINGS RJRN
-------- -------- -------- --------
<S> <C> <C> <C> <C>
NET SALES*.............................................. $ 3,886 $ 3,886 $ 3,540 $ 3,540
-------- -------- -------- --------
Costs and expenses (Note 1)*:
Cost of products sold................................. 1,801 1,801 1,625 1,625
Selling, advertising, administrative and general
expenses............................................ 1,287 1,287 1,136 1,135
Amortization of trademarks and goodwill............... 158 158 159 159
-------- -------- -------- --------
OPERATING INCOME.................................. 640 640 620 621
Interest and debt expense............................... (234) (210) (220) (220)
Other income (expense), net............................. (35) (35) (36) (34)
-------- -------- -------- --------
Income before income taxes........................ 371 395 364 367
Provision for income taxes.............................. 163 171 159 159
-------- -------- -------- --------
INCOME BEFORE MINORITY INTEREST IN INCOME OF
NABISCO HOLDINGS................................ 208 224 205 208
Minority interest in income of Nabisco Holdings......... (10) (10) (7) (7)
-------- -------- -------- --------
NET INCOME........................................ 198 214 198 201
Less preferred stock dividends.......................... 11 -- 33 --
-------- -------- -------- --------
NET INCOME APPLICABLE TO COMMON STOCK............. $ 187 $ 214 $ 165 $ 201
-------- -------- -------- --------
-------- -------- -------- --------
Net income per common and common equivalent share....... $ 0.57 $ 0.51
-------- --------
-------- --------
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)..................... 328,711 326,403
-------- --------
-------- --------
</TABLE>
- -------------------
* Excludes excise taxes of $895 million and $819 million for the three months
ended March 31, 1996 and 1995, respectively.
See Notes to Consolidated Condensed Financial Statements.
1
<PAGE>
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, 1996 MARCH 31, 1995
----------------- -------------------
<S> <C> <C> <C> <C>
RJRN RJRN
HOLDINGS RJRN HOLDINGS RJRN
-------- ----- -------- -------
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES:
Net income............................................. $ 198 $ 214 $ 198 $ 201
Adjustments to reconcile net income to net cash flows
from (used in) operating activities:
Depreciation of property, plant and equipment...... 133 133 130 130
Amortization of intangibles........................ 158 158 159 159
Deferred income tax provision (benefit)............ (24) (24) 2 2
Changes in working capital items, net.............. (333) (326) (583) (577)
Other, net......................................... (2) (2) (17) (17)
-------- ----- -------- -------
Total adjustments................................ (68) (61) (309) (303)
-------- ----- -------- -------
Net cash flows from (used in) operating activities... 130 153 (111) (102)
-------- ----- -------- -------
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES:
Capital expenditures................................... (149) (149) (146) (146)
Acquisition of businesses.............................. (54) (54) (52) (52)
Net proceeds from issuance of Nabisco Holdings' common
stock to minority shareholders....................... -- -- 1,201 1,201
Other, net............................................. 45 45 43 43
-------- ----- -------- -------
Net cash flows from (used in) investing activities... (158) (158) 1,046 1,046
-------- ----- -------- -------
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES:
Net borrowings (repayments) of long-term debt.......... 342 342 (1,046) (1,046)
Increase in notes payable.............................. 174 174 57 57
Proceeds from issuance of Common Stock................. 7 -- 5 --
Dividends paid on Common Stock and Series C preferred
stock................................................ (142) -- (40) --
Dividends paid on other preferred stock................ (17) -- (39) --
Dividends paid to Nabisco Holdings' minority
shareholders......................................... (7) (7) -- --
Other, net--including intercompany transfers........... 16 (162) 14 (56)
-------- ----- -------- -------
Net cash flows from (used in) financing activities... 373 347 (1,049) (1,045)
-------- ----- -------- -------
Effect of exchange rate changes on cash and cash
equivalents............................................ (5) (5) 3 3
-------- ----- -------- -------
Net change in cash and cash equivalents.............. 340 337 (111) (98)
Cash and cash equivalents at beginning of period......... 234 232 423 409
-------- ----- -------- -------
Cash and cash equivalents at end of period............... $ 574 $ 569 $ 312 $ 311
-------- ----- -------- -------
-------- ----- -------- -------
</TABLE>
See Notes to Consolidated Condensed Financial Statements
2
<PAGE>
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
MARCH 31, 1996 DECEMBER 31, 1995
-------------------- --------------------
RJRN RJRN
HOLDINGS RJRN HOLDINGS RJRN
--------- ------- --------- -------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................... $ 574 $ 569 $ 234 $ 232
Accounts and notes receivable, net.................. 1,361 1,361 1,334 1,327
Inventories (Note 2)................................ 2,501 2,501 2,489 2,489
Prepaid expenses and excise taxes................... 491 491 503 503
--------- ------- --------- -------
TOTAL CURRENT ASSETS............................ 4,927 4,922 4,560 4,551
--------- ------- --------- -------
Property, plant and equipment, net.................... 5,705 5,705 5,690 5,690
Trademarks, net....................................... 8,201 8,201 8,265 8,265
Goodwill, net......................................... 12,491 12,491 12,536 12,536
Other assets and deferred charges..................... 484 483 467 466
--------- ------- --------- -------
$ 31,808 $31,802 $ 31,518 $31,508
--------- ------- --------- -------
--------- ------- --------- -------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable....................................... $ 438 $ 438 $ 268 $ 268
Accounts payable and accrued liabilities............ 3,065 2,887 3,404 3,245
Current maturities of long-term debt................ 159 159 150 150
Income taxes accrued................................ 357 357 302 302
--------- ------- --------- -------
TOTAL CURRENT LIABILITIES....................... 4,019 3,841 4,124 3,965
--------- ------- --------- -------
Long-term debt (less current maturities).............. 9,785 9,785 9,429 9,429
Other noncurrent liabilities.......................... 3,034 2,231 3,016 2,365
Deferred income taxes................................. 3,657 3,587 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 (14,896,017 shares
issued and outstanding at March 31, 1996)......... 238 -- 240 --
Series B preferred stock (12,044 shares issued and
outstanding at March 31, 1996).................... 301 -- 301 --
Series C convertible preferred stock (26,675,000
shares issued and outstanding at March 31,
1996)............................................. 3 -- 3 --
Common stock (273,094,058 shares issued and
outstanding at March 31, 1996).................... 3 -- 3 --
Paid-in capital..................................... 10,120 11,958 10,110 11,958
Retained earnings................................... 20 585 -- 371
Other stockholders' equity.......................... (326) (185) (328) (176)
--------- ------- --------- -------
TOTAL STOCKHOLDERS' EQUITY...................... 10,359 12,358 10,329 12,153
--------- ------- --------- -------
$ 31,808 $31,802 $ 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
3
<PAGE>
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOTE 1--INTERIM REPORTING
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.
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.
NOTE 2--INVENTORIES
The major classes of inventory are shown in the table below:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
--------- ------------
<S> <C> <C>
Finished products........................................... $ 791 $ 755
Leaf tobacco................................................ 1,052 1,152
Raw materials............................................... 251 231
Other....................................................... 407 351
--------- ------------
$ 2,501 $2,489
--------- ------------
--------- ------------
</TABLE>
NOTE 3--CONTINGENCIES
TOBACCO-RELATED LITIGATION
Various legal actions, proceedings and claims are pending or may be
instituted against R.J. Reynolds Tobacco Company ("RJRT") or its affiliates or
indemnitees, including those claiming that lung cancer and other diseases have
resulted from the use of or exposure to RJRT's tobacco products. During the
first quarter of 1996, 41 new actions were filed or served against RJRT, and/or
its affiliates or indemnitees and five such actions were dismissed or otherwise
resolved in favor of RJRT and/or its affiliates or indemnitees without trial. As
of April 23, 1996, 183 active cases were pending against RJRT, and/or its
affiliates, or indemnitees, 181 in the United States, and two in Canada. The
United States cases are in 21 states and are distributed as follows: 128 in
Florida, ten in Louisiana, six in Texas, five in Tennessee, four in each of
Indiana and Kansas, three in each of Mississippi and California, two in each of
Alabama, Colorado, Massachusetts, Minnesota and Pennsylvania and one in each of
Connecticut, Nevada, New Hampshire, New Jersey, New York, Rhode Island, South
Carolina and West Virginia. Of the 181 active cases in the United States, 150
are pending in state court and 31 in federal court.
4
<PAGE>
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 3--CONTINGENCIES--(CONTINUED)
Five of the 181 active cases in the United States involve alleged
non-smokers claiming injuries resulting from exposure to environmental tobacco
smoke. Six cases, which are described more specifically below, purport to be
class actions on behalf of 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.
Six of the active cases were brought by state attorneys general seeking, inter
alia, recovery of the cost of Medicare funds paid by their states for treatment
of citizens allegedly suffering from tobacco related diseases or conditions. In
addition, one case was brought by the State of Florida seeking similar rulings
under a special state statute.
The plaintiffs in these actions seek recovery on a variety of legal
theories, including strict liability in tort, design defect, negligence, breach
of warranty, failure to warn, fraud, misrepresentation, unfair trade practices,
conspiracy, unjust enrichment, Racketeer Influenced and Corrupt Organizations
Act ("RICO"), indemnity and common law public nuisance. Punitive damages, often
in amounts ranging into the hundreds of millions of dollars, are specifically
pleaded in 19 cases in addition to compensatory and other damages. The defenses
raised by RJRT and/or its affiliates, where applicable, include preemption by
the Cigarette Act of some or all such claims arising after 1969; the lack of any
defect in the product; assumption of the risk; comparative fault; lack of
proximate cause; and statutes of limitations or repose. Juries have found for
plaintiffs in two smoking and health cases in which RJRT was not a defendant,
but in one such case, which has been appealed by both parties, no damages were
awarded. The jury awarded plaintiffs $400,000 in the other such case, Cipollone
v. Liggett Group, Inc., which award was overturned on appeal and the case was
subsequently dismissed.
On June 24, 1992, the United States Supreme Court in Cipollone held that
claims that tobacco companies failed to adequately warn of the risks of smoking
after 1969 and claims that their advertising and promotional practices
undermined the effect of warnings after that date were preempted by the
Cigarette Act. The 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.
Set forth below are descriptions of the class action lawsuits, a suit in
which plaintiffs seek to act as private attorneys general, actions brought by
state attorneys general in Louisiana, Massachusetts, Minnesota, Mississippi,
Texas and West Virginia, an action brought by the State of Florida and pending
investigations relating to RJRT's tobacco business.
In 1991, Broin v. Philip Morris Company, a purported class action against
certain tobacco industry defendants, including RJRT, was brought by flight
attendants claiming to represent a class of 60,000 individuals, alleging
personal injury caused by exposure to environmental tobacco smoke in their
workplace. In December 1994, the Florida state court certified a class
consisting of "all non-smoking flight attendants who are or have been employed
by airlines based in the United States and are suffering from diseases and
disorders caused by their exposure to secondhand cigarette smoke in airline
cabins." The defendants' appeal of this certification to the Florida Third
District Court of Appeal was denied on January 3, 1995. A motion for rehearing
has been filed.
5
<PAGE>
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 3--CONTINGENCIES--(CONTINUED)
In March 1994, Castano v. The American Tobacco Company, a purported class
action, was filed in the United States District Court for the Eastern District
of Louisiana against tobacco industry defendants, including RJRT, seeking
certification of a class action on behalf of all United States residents who
allegedly are or claim to be addicted, or are the legal survivors of persons who
allegedly were addicted, to tobacco products manufactured by defendants. The
complaint alleges that cigarette manufacturers manipulated the levels of
nicotine in their tobacco products to induce addiction in smokers. Plaintiffs'
motion for certification of the class was granted in part on February 17, 1995.
The district court certified core liability issues (fraud, negligence, breach of
warranty, both express and implied, intentional tort, strict liability and
consumer protection statutes), and punitive damages. Not certified were issues
of injury-in-fact, proximate cause, reliance, affirmative defenses, and
compensatory damages. In July 1995, the Fifth Circuit Court of Appeals agreed to
hear defendants' appeal of this class certification and oral argument was heard
on April 2, 1996. A decision is expected in 1996.
In March 1994, Lacey v. Lorillard Tobacco Company, a purported class action,
was filed in Circuit Court, Fayette County, Alabama against three cigarette
manufacturers, including RJRT. Plaintiff, who claims to represent all smokers
who have smoked or are smoking cigarettes manufactured and sold by defendants in
the state of Alabama, seeks compensatory and punitive damages not to exceed
$48,500 per class member and injunctive relief arising from defendants' alleged
failure to disclose additives used in their cigarettes. In April 1994,
defendants removed the case to the United States District Court for the Northern
District of Alabama.
In May 1994, Engle v. R.J. Reynolds Tobacco Company, was filed in Circuit
Court, Eleventh Judicial District, Dade County, Florida against tobacco
manufacturers, including RJRT, and other members of the industry, by plaintiffs
who allege injury and purport to represent a class of all United States citizens
and residents who claim to be addicted, or who claim to be legal survivors of
persons who allegedly were addicted, to tobacco products. On October 28, 1994, a
state court judge in Miami granted plaintiffs' motion to certify the class. The
defendants appealed that ruling to the Florida Third District Court of Appeal
which, on January 31, 1996, decided to certify a class limited to Florida
citizens or residents. A motion for rehearing has been filed.
In September 1994, Granier v. American Tobacco Company, a purported class
action apparently patterned after the Castano case, was filed in the United
States District Court for the Eastern District of Louisiana against tobacco
industry defendants, including RJRT. Plaintiffs seek certification of a class
action on behalf of all residents of the United States who have used and
purportedly became addicted to tobacco products manufactured by defendants. The
complaint alleges that cigarette manufacturers manipulated the levels of
nicotine in tobacco products for the purpose of addicting consumers. By
agreement of the parties, all action in this case is stayed pending
determination of the motion for class certification in the Castano case.
In January 1995, a purported class action was filed in the Ontario Canada
Court of Justice against RJR-MacDonald, Inc. and two other Canadian cigarette
manufacturers. The lawsuit, then captioned Le Tourneau, v. Imperial Tobacco
Company, seeks certification of a class of persons who have allegedly become
addicted to the nicotine in cigarettes or who had such alleged addiction
heightened or maintained through the use of cigarettes, and who have allegedly
suffered loss, injury, and damage in consequence, together with persons with
Family Law Act claims in respect to the claims of such allegedly addicted
persons, and the estates of such allegedly addicted persons. Theories of
recovery pleaded include negligence, strict liability, failure to warn, deceit,
negligent misrepresentation, implied warranty and conspiracy. The relief sought
consists of damages of one million dollars for each of the
6
<PAGE>
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 3--CONTINGENCIES--(CONTINUED)
three named plaintiffs, punitive damages, funding of nicotine addiction
rehabilitation centers, interest and costs. On June 2, 1995, the plaintiffs, on
consent, were granted leave to file an amended statement of claim to remove Le
Tourneau as representative plaintiff and add two additional representative
plaintiffs. The case is now captioned Caputo v. Imperial Tobacco Limited.
In June 1994, in Mangini v. R.J. Reynolds Tobacco Company, the California
Supreme Court ruled that the plaintiffs' claim that an RJRT advertising campaign
constitutes unfair competition under the California Business and Professions
Code was not preempted by the Cigarette Act. The plaintiffs are acting as
private attorneys general. This opinion allows the plaintiffs to pursue their
lawsuit which had been dismissed at the trial court level. The defendants'
Petition for Certiorari to the United States Supreme Court was denied in
December 1994. The case has been remanded to the trial court.
In June 1994, in Moore v. The American Tobacco Company, RJRN and RJRT were
named along with other industry members as defendants in an action brought by
the Mississippi state attorney general on behalf of the state to recover state
funds paid for health care and medical and other assistance to state citizens
suffering from diseases and conditions allegedly related to tobacco use. This
suit, which was brought in Chancery (non-jury) Court, Jackson County,
Mississippi also seeks an injunction from "promoting" or "aiding and abetting"
the sale of cigarettes to minors. Both actual and punitive damages are sought in
unspecified amounts. Motions by the defendants to dismiss the case or to
transfer it to circuit (jury) court were denied on February 21, 1995 and the
case will proceed in Chancery Court. RJRN and other industry holding companies
have been dismissed from the case.
In August 1994, RJRT and other U.S. cigarette manufacturers were named as
defendants in an action instituted on behalf of the state of Minnesota and of
Blue Cross and Blue Shield of Minnesota to recover the costs of medical expenses
paid by the state and by Blue Cross/Blue Shield that were incurred in the
treatment of diseases allegedly caused by cigarette smoking. The suit, Minnesota
v. Philip Morris, alleges consumer fraud, unlawful and deceptive trade
practices, false advertising and restraint of trade, and it seeks injunctive
relief and money damages, trebled for violations of the state antitrust law.
Motions by the defendants to dismiss all claims of Blue Cross/Blue Shield and
certain substantive claims of the State of Minnesota, and by plaintiffs to
strike certain of the defendants' defenses, were denied on May 19, 1995. An
intermediate appeals court declined to hear the defendants' appeal from the
ruling denying the motion to dismiss all claims of Blue Cross/Blue Shield on the
ground that it lacks standing to bring the action, but the Minnesota Supreme
Court has agreed to do so. Oral argument was heard January 29, 1996 and a
decision is pending.
In September 1994, the Attorney General of West Virginia filed suit against
RJRT, RJRN and twenty-one additional defendants in state court in West Virginia.
The lawsuit, McGraw v. American Tobacco Company, is similar to those previously
filed in Mississippi and Minnesota. It seeks recovery for medical expenses
incurred by the state in the treatment of diseases statistically associated with
cigarette smoking and requests an injunction against the promotion and sale of
cigarettes and tobacco products to minors. The lawsuit also seeks a declaration
that the state of West Virginia, as plaintiff, is not subject to the defenses of
statute of repose, statute of limitations, contributory negligence, comparative
negligence, or assumption of the risk. On May 3, 1995, the judge granted
defendants' motion to dismiss eight of the ten causes of action pleaded. The
defendants have filed motions to dismiss the remaining two counts. On October
20, 1995, at a hearing on the defendants' joint motion to prohibit prosecution
of the action due to plaintiff's unlawful retention of counsel under a
contingent fee arrangement, in a ruling from the bench, the contingent fee
agreement between the West Virginia Attorney General and private attorneys
preparing the case was held to be void on the grounds that the
7
<PAGE>
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 3--CONTINGENCIES--(CONTINUED)
Attorney General has no constitutional, legislative, or statutory authority for
entering into such an agreement. On April 19, 1996, plaintiffs made a motion for
leave to add the Public Employees Insurance Agency as a plaintiff in this case.
The motion is scheduled to be argued on May 13, 1996.
On February 21, 1995, the state of Florida filed a suit against RJRT and
RJRN, along with other industry members, their holding companies and other
entities. The state is seeking Medicaid reimbursement under various theories of
liability and injunctive relief to prevent the defendants from engaging in
consumer fraud and to require that defendants: disclose and publish all research
conducted directly or indirectly by the industry; fund a corrective public
education campaign on the issues of smoking and health in Florida; prevent the
distribution and sale of cigarettes to minors under the age of eighteen; fund
clinical smoking cessation programs in the state of Florida; dissolve the
Council for Tobacco Research ("CTR") and the Tobacco Institute or divest
ownership, sponsorship, or membership in both; and disgorge all profits from
sales of cigarettes in Florida. On defendants' motion, the case was stayed until
July 7, 1995 and that stay has been extended pending appeals by the plaintiffs
and the defendants in connection with the constitutional challenge to the
Florida statute discussed below. On March 12, 1996, the stay was modified to
allow the defendants to file dispositive motions. Individual motions to dismiss
were filed by the defendants on March 2, 1996 and are scheduled for argument on
May 29, 1996.
The suit by the state of Florida was brought under a statute which was
amended effective July 1994 to allow the state to bring an action in its own
name against the tobacco industry to recover amounts paid by the state under its
Medicaid program to treat illnesses statistically associated with cigarette
smoking. The amended statute does not require the state to identify the
individual who received medical care, permits a lawsuit to be filed as a class
action and eliminates the comparative negligence and assumption of risk
defenses. The Florida statute was challenged on state and federal constitutional
grounds in a lawsuit brought by Philip Morris Companies Inc., Associated
Industries of Florida, Publix Supermarkets and National Association of
Convenience Stores in June 1994. On June 26, 1995 the trial court judge granted
in part the plaintiffs' motion for summary judgment finding portions of the
statute unconstitutional. Both plaintiffs and defendants appealed this decision
which the Florida Supreme Court accepted for a direct appeal. Oral argument was
heard on November 6, 1995.
The Florida House and Senate passed a bill that would repeal the Florida
statute retroactively which, on June 15, 1995, was vetoed by the Governor. A
March 13, 1996 legislative vote to override that veto was unsuccessful, but
press reports have indicated that a second vote is expected prior to the May
1996 close of the legislative session. Similar legislation, without Florida's
elimination of defenses, has been introduced in the Massachusetts and New Jersey
legislatures. RJRT is unable to predict whether legislation will be enacted in
these states, whether other states will introduce and enact similar legislation,
whether lawsuits will be filed under statutes, if enacted, or the outcome of any
such lawsuits, if filed.
On November 28, 1995, RJRT and other domestic cigarette manufacturers filed
petitions for declaratory judgment in Massachusetts (federal court) and Texas
(state court, Austin Texas) as to potential Medicaid reimbursement suits that
had been threatened by the Attorneys General of those states. On January 22,
1996, a similar petition for declaratory judgment was filed in Maryland (state
court).
On December 19, 1995, the Commonwealth of Massachusetts filed suit against
cigarette manufacturers including RJRT and additional defendants including trade
associations and wholesalers, seeking reimbursement of Medicaid and other costs
incurred by the state in providing health care to citizens
8
<PAGE>
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 3--CONTINGENCIES--(CONTINUED)
allegedly suffering from diseases or conditions purportedly caused by cigarette
smoking. The complaint also seeks orders requiring the manufacturing defendants
to disclose and disseminate prior research; fund a corrective campaign and
smoking cessation program; disclose nicotine yields of their products; and pay
restitution. The defendants removed the case to federal court.
On March 13, 1996, the state of Louisiana filed suit in state court against
cigarette manufacturers and their parent companies, including RJRT and RJRN, a
trade association, CTR, an advertising agency and five local wholesalers,
seeking to recover the expenses the state has incurred in providing health care
and other assistance under various state programs to citizens allegedly
suffering from tobacco related injuries and illness. Although none of the
defendants had been served, they removed the case to the United States District
Court for the Western District of Louisiana on April 12, 1996.
On March 28, 1996, the state of Texas filed suit in the United States
District Court for the Eastern District of Texas against cigarette manufacturers
including RJRT, trade associations and an advertising company, seeking
reimbursement of health care and insurance expenses incurred by the state that
were purportedly caused by cigarette smoking. The complaint includes claims for
violation of federal and state antitrust laws, RICO, several equitable doctrines
and product liability laws. Relief requested by the state includes the
dissolution of the Tobacco Institute and CTR and a declaration that the
manufacturing defendants' advertising and marketing programs target children.
In April 1996, the press carried reports that other states are considering
bringing similar suits against cigarette manufacturers.
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 and Florida attorney
general cases, and are reported to have reached a similar agreement in the
Louisiana case. All other cigarette manufacturers, including RJRT, announced
their intent to continue to defend the cases.
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 to a document subpoena
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. 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 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
9
<PAGE>
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 3--CONTINGENCIES--(CONTINUED)
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 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
ENDED
MARCH 31,
----------------------------
1996 1995 % CHANGE
------ ------ --------
<S> <C> <C> <C>
(DOLLARS IN MILLIONS)
NET SALES:
RJRT........................................................... $1,057 $ 996 6%
Reynolds International......................................... 839 701 20
------ ------
Total Tobacco.................................................. 1,896 1,697 12
------ ------
Domestic Food Group............................................ 1,434 1,364 5
International Food Group....................................... 556 479 16
------ ------
Total Food..................................................... 1,990 1,843 8
------ ------
$3,886 $3,540 10
------ ------
------ ------
OPERATING COMPANY CONTRIBUTION*:
RJRT........................................................... $ 380 $ 370 3%
Reynolds International......................................... 197 179 10
------ ------
Total Tobacco.................................................. 577 549 5
------ ------
Domestic Food Group............................................ 188 201 (6)
International Food Group....................................... 50 44 14
------ ------
Total Food..................................................... 238 245 (3)
------ ------
Headquarters................................................... (17) (15) (13)
------ ------
$ 798 $ 779 3
------ ------
------ ------
OPERATING INCOME:
RJRT........................................................... $ 289 $ 278 4%
Reynolds International......................................... 187 169 11
------ ------
Total Tobacco.................................................. 476 447 6
------ ------
Domestic Food Group............................................ 137 149 (8)
International Food Group....................................... 44 39 13
------ ------
Total Food..................................................... 181 188 (4)
------ ------
Headquarters................................................... (17) (15) (13)
------ ------
$ 640 $ 620 3
------ ------
------ ------
</TABLE>
- ------------
* Operating Company Contribution represents operating income before amortization
of trademarks and goodwill.
RJRN Holdings reported net sales of $3.9 billion during the first quarter of
1996, a 10% increase over the comparable period in 1995, reflecting volume
growth in both the worldwide tobacco and food businesses and higher selling
prices in the worldwide tobacco business. Net income of $198 million was flat
compared to 1995 but was adversely impacted by $11 million ($7 million after
tax, $.02 per share) of costs incurred during the first quarter of 1996 in
connection with the recently ended proxy contest
11
<PAGE>
and consent solicitation. See Part II, Item 4--"Submission of Matters to a Vote
of Security Holders" for additional information regarding the proxy contest and
consent solicitation. Net income was also adversely impacted by the effect of
increased interest expense as a result of 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). After deducting preferred
stock dividends, net income applicable to common stock was up $22 million or
13% from the first quarter of 1995.
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 $1.9 billion in the
first quarter of 1996, a 12% increase from the first quarter of 1995. The
increase in net sales primarily reflects higher selling prices at both the
domestic and international tobacco operations and higher volume at the
international tobacco operation. Operating company contribution and operating
income for the worldwide tobacco businesses in the first quarter of 1996
increased 5% and 6%, respectively, from the corresponding period in 1995 driven
by the volume increases and higher selling prices.
Net sales for RJRT amounted to $1.1 billion in the first quarter of 1996, a
6% increase from the first quarter of 1995, fueled by prior year selling price
increases and favorable mix. Overall volume was down slightly due to the
intentional ceding of market share in the low-margin savings brands. Full price
volume was up slightly with Camel, RJRT's strongest brand performer, recording a
9% volume increase. Volume of RJRT's leading savings brand, Doral, grew 8% in
the quarter. Full price volume as a percentage of total volume amounted to 62%
in the first quarter of 1996 compared to 61% in 1995. RJRT's performance in the
domestic full-price retail segment reflects slightly increased market share on
quarter to quarter comparisons. Operating company contribution and operating
income increased 3% and 4%, respectively, driven by the favorable mix, higher
selling prices and lower manufacturing costs, partially offset by higher
marketing spending.
Volume comparisons for domestic tobacco are anticipated to be less favorable
in the second quarter of 1996, given last year's large volume gains during the
quarter associated with the product recalls of a major competitor and
the July 4th holiday shipping pattern. Additionally, volume may be impacted by
a recently announced 4% price increase across most RJRT brands.
Reynolds International recorded net sales of $839 million in the first
quarter of 1996, a 20% increase from the first quarter of 1995 due to an overall
volume increase of 23% (approximately $113 million), fueled by volume increases
in the Former Soviet Union as well as the Americas and Asia, and higher selling
prices (approximately $30 million). Operating company contribution of $197
million in the first quarter of 1996 increased 10% over the 1995 first quarter,
due to the volume increases and higher selling prices. First quarter volume in
the Former Soviet Union and Asian markets exceeded expectations. Volume
performance in Western Europe decreased slightly compared to the prior year's
quarter. Operating income of $187 million increased 11% from $169 million in
1995 as a result of the higher operating company contribution.
Governmental Activity
12
<PAGE>
In August 1995, the Commissioner of the U.S. Food and Drug Administration
(the "FDA"), with the support of the Clinton Administration, announced that he
was asserting jurisdiction over cigarettes and certain other tobacco products
and issued a notice and request for comments on proposed regulations. The
proposed regulations would 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. The
FDA's proposed rule would also limit advertising in print and on billboards to
black and white text, impose new labeling language, and require cigarette
manufacturers to fund a $150 million-a-year campaign to discourage minors from
using tobacco products. RJRT and other cigarette manufacturers have submitted
responses to the proposed rules. The FDA extended the comment period for these
rules, but the extended comment period closed on April 19, 1996.
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 proposed rules would materially restrict the
availability of cigarettes and RJRT's ability to market its cigarette products
to adult smokers. RJRT, together with the other four major domestic cigarette
manufacturers and an advertising agency, filed suit on the day of the
Commissioner's announcement in the U.S. District Court for the Middle District
of North Carolina seeking to enjoin the FDA's assertion of jurisdiction (Coyne
Beahm v. United States Food & Drug Administration). Plaintiffs have filed a
motion for summary judgment and defendants have filed a motion to dismiss.
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 whether the FDA will adopt final rules asserting
jurisdiction over cigarettes or the scope of such final rules, if adopted. It is
also unable to predict the outcome of the litigation seeking to enjoin the FDA's
rulemaking.
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.
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.
13
<PAGE>
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
(formerly Fleischmann's) 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 $2.0 billion in the first quarter of
1996, an increase of 8% from the first quarter 1995 level of $1.8 billion, with
the Domestic Food Group up 5% and the International Food Group up 16%. The
Domestic Food Group's sales increase was attributable principally to volume
gains from all non-biscuit businesses, which accounted for 4 percentage points
of the total increase from last year. The impact of the October, 1995 Parkay
margarine acquisition, offset by the impact of 1995 product line disposals,
principally Ortega, accounted for the other percentage point of growth. First
quarter net sales for the Nabisco Biscuit Company, Nabisco's largest domestic
business unit, were equal to last year's level. The International Food Group's
sales increase was primarily driven by the fourth quarter 1995 business
acquisitions, principally Primo in Canada and Royal Beech-Nut in South Africa,
and improved results in Argentina, Venezuela, Brazil, Colombia and Iberia,
principally due to volume gains.
Nabisco Holdings' operating company contribution was $238 million in the
first quarter of 1996, a decrease of 3% from the first quarter 1995 level of
$245 million, with the Domestic Food Group down 6% and the International Food
Group up 14%. The Domestic Food Group's operating company contribution decrease
for the first quarter of 1996 was primarily due to lower operating results at
the Nabisco Biscuit Company, resulting primarily from higher fixed manufacturing
and selling costs. The International Food Group's increase in operating company
contribution for the first quarter of 1996 was primarily due to the profit
impact of increased sales volumes in Argentina, Iberia and Venezuela and
productivity initiatives in Canada.
Nabisco Holdings' operating income was $181 million in the first quarter of
1996, a decrease of 4% from the first quarter 1995 level of $188 million, as a
result of the decrease in operating company contribution discussed above.
Nabisco Holdings is currently exploring opportunities to increase
efficiencies and productivity and to reduce the cost structures of the domestic
and international food operations which could favorably affect future results
but reduce net income in the short term.
Restructuring and Realignment Reserve Balances
As of March 31, 1996, the amount of severance pay and benefits to be paid
under prior years' restructuring and realignment programs aggregated $107
million, the majority of which related to the 1995 restructuring program. This
represents a decrease of $30 million from the corresponding amount of $137
million at December 31, 1995.
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 quarter of 1996 were
$130 million, an increase of $241 million from the first quarter of 1995 level.
The increase in net cash flows from operating
14
<PAGE>
activities reflects lower operating working capital requirements in 1996
primarily due to the timing of leaf inventory payments, offset in part by higher
1996 income tax payments.
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 outflow of $125 million and an outflow of $277 million
for the first three months of 1996 and 1995, respectively. The lower outflow
from 1995 to 1996 primarily reflects the higher net cash flows from operating
activities which more than offset the impact from the Common Stock dividends
paid, the payments of which commenced on April 1, 1995.
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.
RJRN Holdings has indicated that, under normal circumstances, it does not
plan to issue additional equity securities for purposes of balance sheet
improvement.
At March 31, 1996, approximately $5.3 billion of total debt (notes payable
and long-term debt, including current maturities) was owed by RJRN and
approximately $5.1 billion was owed by its subsidiaries.
Capital expenditures were $149 million for the first three months of 1996.
The current level of expenditures planned for 1996 is expected to be in the
range of approximately $700 million to $750 million (approximately 60% Food and
40% Tobacco), which will be funded primarily by cash flows from operating
activities. Management expects that its capital expenditure program will
continue at a level sufficient to support the strategic and operating needs of
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 plans to repurchase up to $100 million of Common Stock in
1996.
------------
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.
-------------------
15
<PAGE>
PART II
ITEM 1. LEGAL PROCEEDINGS
TOBACCO-RELATED LITIGATION
Various legal actions, proceedings and claims are pending or may be
instituted against R.J. Reynolds Tobacco Company ("RJRT") or its affiliates or
indemnitees, including those claiming that lung cancer and other diseases have
resulted from the use of or exposure to RJRT's tobacco products. During the
first quarter of 1996, 41 new actions were filed or served against RJRT, and/or
its affiliates or indemnitees and five such actions were dismissed or otherwise
resolved in favor of RJRT and/or its affiliates or indemnitees without trial. As
of April 23, 1996, 183 active cases were pending against RJRT, and/or its
affiliates, or indemnitees, 181 in the United States, and two in Canada. The
United States cases are in 21 states and are distributed as follows: 128 in
Florida, ten in Louisiana, six in Texas, five in Tennessee, four in each of
Indiana and Kansas, three in each of Mississippi and California, two in each of
Alabama, Colorado, Massachusetts, Minnesota and Pennsylvania and one in each of
Connecticut, Nevada, New Hampshire, New Jersey, New York, Rhode Island, South
Carolina and West Virginia. Of the 181 active cases in the United States, 150
are pending in state court and 31 in federal court.
Five of the 181 active cases in the United States involve alleged
non-smokers claiming injuries resulting from exposure to environmental tobacco
smoke. Six cases, which are described more specifically above, purport to 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.
Six of the active cases were brought by state attorneys general seeking, inter
alia, recovery of the cost of Medicare funds paid by their states for treatment
of citizens allegedly suffering from tobacco related diseases or conditions. In
addition, one case was brought by the State of Florida seeking similar rulings
under a special state statute.
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 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.
16
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
A consent solicitation was completed during the first quarter of 1996, the
results of which were certified to RJRN Holdings on March 22, 1996 and filed
with the Securities and Exchange Commission on a Form 8-K on the same date. See
Item 6--"Exhibits and Reports on Form 8-K" below.
At its annual meeting on April 17, 1996, RJRN Holdings announced, based on
preliminary estimates of voting results, that its current board of directors had
been reelected by a more than three-to-one majority over the slate proposed by
Brooke Group, and that all shareholder proposals had been defeated. The official
vote tabulation for all matters submitted to a vote of shareholders is not yet
available.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<C> <S>
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 Form of Performance Unit Agreement between RJR Nabisco Holdings Corp. and the
grantee named therein (1996; one-year period).
*10.2 Form of Performance Unit Agreement between RJR Nabisco Holdings Corp. and the
grantee named therein (1996; three-year period).
*10.3 Form of Non-Qualified Stock Option Agreement between RJR Nabisco Holdings Corp.
and the grantee named therein (1996 grant-regular).
*10.4 Form of Non-Qualified Stock Option Agreement between RJR Nabisco Holdings Corp.
and the grantee named therein (1996 grant-insider).
*10.5 Form of Non-Qualified Stock Option Agreement between RJR Nabisco Holdings Corp.
and the grantee named therein (1996 grant-executive).
*10.6 1996 Amendment to Employment Agreement dated December 5, 1995 by and among RJR
Nabisco Holdings Corp., RJR Nabisco, Inc. and Steven F. Goldstone.
*12.1 RJR Nabisco, Inc. Computation of Ratio of Earnings to Fixed Charges.
*27.1 RJR Nabisco Holdings Corp. Financial Data Schedule
*27.2 RJR Nabisco, Inc. Financial Data Schedule
</TABLE>
- ------------
* Filed herewith.
(b) Reports on Form 8-K
Report on Form 8-K dated March 22, 1996, filing notice of certain by-law
amendments and other results of a consent solicitation, which results were
certified to RJRN Holdings on March 22, 1996, and filing the amended by-laws as
an exhibit.
17
<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: May 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
18
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INDEX
Exhibit No. Description Page No.
- ----------- ----------- --------
<S> <C> <C>
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 Form of Performance Unit Agreement between RJR Nabisco Holdings Corp. and the
grantee named therein (1996; one-year period).
*10.2 Form of Performance Unit Agreement between RJR Nabisco Holdings Corp. and the
grantee named therein (1996; three-year period).
*10.3 Form of Non-Qualified Stock Option Agreement between RJR Nabisco Holdings Corp.
and the grantee named therein (1996 grant-regular).
*10.4 Form of Non-Qualified Stock Option Agreement between RJR Nabisco Holdings Corp.
and the grantee named therein (1996 grant-insider).
*10.5 Form of Non-Qualified Stock Option Agreement between RJR Nabisco Holdings Corp.
and the grantee named therein (1996 grant-executive).
*10.6 1996 Amendment to Employment Agreement dated December 5, 1995 by and among RJR
Nabisco Holdings Corp., RJR Nabisco, Inc. and Steven F. Goldstone.
*12.1 RJR Nabisco, Inc. Computation of Ratio of Earnings to Fixed Charges.
*27.1 RJR Nabisco Holdings Corp. Financial Data Schedule
*27.2 RJR Nabisco, Inc. Financial Data Schedule
</TABLE>
- ------------
* Filed herewith.
Exhibit 10.1
Performance Unit
1996
Special - One Year
RJR NABISCO HOLDINGS CORP.
1990 LONG TERM INCENTIVE PLAN
PERFORMANCE UNIT PROGRAM
PERFORMANCE UNIT AGREEMENT
DATE OF GRANT: MARCH 5, 1996
W I T N E S S E T H:
1. Grant. Pursuant to the provisions of the 1990 Long Term Incentive Plan
-----
and the Performance Unit Program thereunder (collectively, the "Plan"), RJR
Nabisco Holdings Corp. (the "Company") on the above date has granted to
FIRST NAME LAST NAME (THE "GRANTEE"),
subject to the terms and conditions which follow and the terms and conditions of
the Plan,
_______ PERFORMANCE 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. The Initial Grant Value of each
Performance Unit shall be one thousand dollars. All capitalized terms used
herein shall have the meaning set forth in the Plan, unless the context requires
a different meaning.
2. Adjustment of Value of Performance Units. For the Performance Period
-----------------------------------------
commencing on January 1, 1996 and ending December 31, 1996, the Committee has
determined that the Performance Measure shall be as determined in the grid
attached as Exhibit A during such Performance Period. The value of each
Performance Unit shall be as determined in the grid attached as Exhibit A;
provided, however, the Payment Value determined in Exhibit A may be reduced by
the Committee in its discretion. The Grantee specifically agrees that this
award of Performance Units is in lieu of any award under the Annual Incentive
Award Plan for the fiscal year ending December 31, 1996.
3. Adjustment of Number of Performance Units. In the event the Grantee's
-----------------------------------------
annual rate of base salary increases during the Performance Period, the number
of Performance Units granted pursuant to this agreement shall increase so that
the number of Performance Units granted
<PAGE>
multiplied by the Initial Grant Value equals [__%] of the Grantee's increased
annual rate of base salary. Notwithstanding the foregoing, in no event may the
number of Performance Units granted pursuant to this agreement exceed [twice the
initial #] Performance Units.
4. Payment of Performance Units. Unless deferred pursuant to the
-----------------------------
provisions of the Plan, or as otherwise determined by the Committee, units so
earned will be paid only in cash as soon as practicable following the close of
the Company's books at the end of the Performance Period. Payment Value for tax
and other calculations shall be determined in accordance with the provisions of
the Plan, Exhibit A and the discretion of the Committee to reduce the Payment
Value. Except as provided in the Plan, no units will be earned or paid unless
the Grantee has been a full-time employee of the Company throughout the
Performance Period.
5. Deferral. Deferral of a payment of Performance Units shall be pursuant
--------
to the provisions of the Plan; provided, however, in no event may a deferred
award be paid within six months of the date of deferral.
6. 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.
7. No Right to Employment. Neither the execution and delivery of this
-----------------------
Agreement nor the granting of the Performance Units evidenced hereby shall
constitute any agreement or understanding, express or implied, on the part of
the Company or its subsidiaries to employ the Grantee for any specific period or
in any specific capacity or shall prevent the Company or its subsidiaries from
terminating the Grantee's employment at any time with or without cause.
"Termination of employment" under the Plan and this Agreement means termination
from active employment; it does not mean the termination of pay and benefits at
the end of salary continuation (or other form of severance pay or pay in lieu of
salary).
8. 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.
9. 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
2
<PAGE>
respect to the Plan or the Agreement. The Committee may delegate its
interpretive authority to an officer or officers of the Company.
10. Obligations of Grantee
----------------------
(a) In consideration of the grant, the Grantee, while both actively
employed and in the event of the Grantee's Termination of Employment for any
reason, specifically agrees that within the Performance Period or within three
years following the payment of any amounts pursuant to the grant, if later: (i)
the Grantee 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; (ii) the Grantee will promptly
notify the Company upon receipt of any requests from anyone other than an
employee or agent of the Company for information regarding the Company, or if
the Grantee becomes aware of any potential claim or proposed litigation against
the Company; (iii) the Grantee 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; (iv) the Grantee will
not disclose or misuse any confidential information or material concerning the
Company; and (v) the Grantee will not engage in any activity contrary or harmful
to the interests of the Company. In further consideration of the grant, the
Grantee specifically agrees that if required by law to provide sworn testimony
regarding any Company-related matter: the Grantee will consult with and have
Company designated legal counsel present for such testimony (the Company will be
responsible for the costs of such designated counsel); the Grantee will confine
his testimony to items about which he has knowledge rather than speculation,
unless otherwise directed by legal process; and the Grantee will cooperate with
the Company's attorneys to assist their efforts, especially on matters the
Grantee has been privy to, holding all privileged attorney-client matters in
strictest confidence.
(b) If the Company reasonably determines that the Grantee has
materially violated any of his obligations under this agreement, then this Grant
shall terminate, effective the date on which such violation began (unless
otherwise terminated sooner) and the Company may demand the return of any
amounts paid to the Grantee pursuant to this grant and the Grantee hereby agrees
to return such amounts upon such demand. If after such demand the Grantee
fails to return said amounts, the Grantee acknowledges that the Company has the
right to deduct from any amounts the Company owes to the Grantee (including, but
not limited to, wages or other compensation), or to commence judicial
proceedings against the Grantee, to recover said amounts and any and all of its
attorney's fees and costs.
3
<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 Taxpayer Identification Number:
- -------------------------------------
Date:
--------------------------------
Grantee's Home Address:
- -------------------------------------
- -------------------------------------
- -------------------------------------
4
Exhibit 10.2
RJR Performance Unit
1996
RJR NABISCO HOLDINGS CORP.
1990 LONG TERM INCENTIVE PLAN
PERFORMANCE UNIT PROGRAM
PERFORMANCE UNIT AGREEMENT
DATE OF GRANT: MARCH 5, 1996
-------------
W I T N E S S E T H:
1. Grant. Pursuant to the provisions of the 1990 Long Term Incentive Plan
-----
and the Performance Unit Program thereunder (collectively, the "Plan"), RJR
Nabisco Holdings Corp. (the "Company") on the above date has granted to
<<FIRST_NAME>> <<LAST_NAME>> (THE "GRANTEE"),
subject to the terms and conditions which follow and the terms and conditions of
the Plan, a target of
<<PERFORMANCE_UNITS>> PERFORMANCE 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. The Initial Grant Value of each
Performance Unit shall be one dollar. All capitalized terms used herein shall
have the meaning set forth in the Plan, unless the context requires a different
meaning.
2. Adjustment of Value of Performance Units. For the three-year Performance
----------------------------------------
Period commencing on January 1, 1996, the Committee has determined that the
Performance Measure shall be as determined in the grid attached as Exhibit A
during such Performance Period. The value of each Performance Unit shall be as
determined in the attached grid; provided, however, the Payment Value may be
reduced by the Committee in its discretion.
3. Payment of Performance Units. Unless deferred pursuant to the provisions
----------------------------
of the Plan, or as otherwise determined by the Committee, units so earned will
be paid only in cash as soon as practicable following the close of the Company's
books at the end of the Performance Period. Payment Value for tax and other
calculations shall be determined in accordance with the provisions of the Plan,
Exhibit A and the discretion of the Committee to reduce the Payment
<PAGE>
Value. Except as provided in the Plan, no units will be earned or paid unless
the Grantee has been a full-time employee of the Company throughout the
Performance Period.
4. Deferral. Deferral of a payment of performance Units shall be pursuant
--------
to the provisions of the Plan; provided, however, in no event may a deferred
award be paid within six months of the date of deferral.
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. No Right to Employment. Neither the execution and delivery of this
----------------------
Agreement nor the granting of the Performance Units evidenced hereby shall
constitute any agreement or understanding, express or implied, on the part of
the Company or its subsidiaries to employ the Grantee for any specific period or
in any specific capacity or shall prevent the Company or its subsidiaries from
terminating the Grantee's employment at any time with or without cause.
"Termination of employment" under the Plan and this Agreement means termination
from active employment; it does not mean the termination of pay and benefits at
the end of salary continuation (or other form of severance pay or pay in lieu of
salary).
7. 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.
8. 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.
10. Obligations Of Grantee
----------------------
(a) In consideration of the grant, the Grantee, while both actively
employed and in the event of the Grantee' s Termination of Employment for any
reason, specifically agrees that within the Performance Period or within three
years following the payment of any amounts pursuant to the grant, if later: (i)
the Grantee 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; (ii) the Grantee will promptly
notify the
2
<PAGE>
Company upon receipt of any requests from anyone other than an employee or agent
of the Company for information regarding the Company, or if the Grantee becomes
aware of any potential claim or proposed litigation against the Company; (iii)
the Grantee 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; (iv) the Grantee will not disclose or
misuse any confidential information or material concerning the Company; and (v)
the Grantee will not engage in any activity contrary or harmful to the interests
of the Company. In further consideration of the grant, the Grantee specifically
agrees that if required by law to provide sworn testimony regarding any Company-
related matter: the Grantee will consult with and have Company designated legal
counsel present for such testimony (the Company will be responsible for the
costs of such designated counsel); the Grantee will confine his testimony to
items about which he has knowledge rather than speculation, unless otherwise
directed by legal process; and the Grantee will cooperate with the Company's
attorneys to assist their efforts, especially on matters the Grantee has been
privy to, holding all privileged attorney-client matters in strictest
confidence.
(b) If the Company reasonably determines that the Grantee has materially
violated any of his obligations under this agreement, then this Grant shall
terminate, effective the date on which such violation began (unless otherwise
terminated sooner) and the Company may demand the return of any amounts paid to
the Grantee pursuant to this grant and the Grantee hereby agrees to return such
amounts upon such demand. If after such demand the Grantee fails to return said
amounts, the Grantee acknowledges that the Company has the fight to deduct from
any amounts the Company owes to the Grantee (including, but not limited to,
wages or other compensation), or to commence judicial proceedings against the
Grantee, to recover said amounts and any and all of its attorney's fees and
costs.
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
Date:
----------------------------- Grantee's Home Address
Grantee's Taxpayer Identification Number:
-------------------------------
-------------------------------
- ------------------------------- -------------------------------
3
Exhibit 10.3
RN Option
1996
Reg.
RJR NABISCO HOLDINGS CORP.
1990 LONG TERM INCENTIVE PLAN
STOCK OPTION AGREEMENT
___________________________
DATE OF GRANT: March 5, 1996
W I T N E S S E T H :
1. Grant of Option. Pursuant to the provisions of the 1990 Long Term
---------------
Incentive Plan (the "Plan"), RJR Nabisco Holdings Corp. (the "Company") on the
above date has granted to
FIRST_NAME LAST_NAME (THE "OPTIONEE"),
subject to the terms and conditions which follow and the terms and conditions of
the Plan, the right and option to exercise from the Company a total of
STOCK_OPTIONS SHARES
of Common Stock of the Company, at the exercise price of $34.875 per share (the
"Option"). 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. Exercise of Option.
-------------------
(a) Shares may be purchased by giving the Corporate Secretary of the
Company written notice of exercise, on a form prescribed by the Company,
specifying the number of shares to be purchased. The notice of exercise shall
be accompanied by
(i) tender to the Company of cash for the full purchase price of the
shares with respect to which such Option or portion thereof is
exercised; or
--
(ii) the unsecured, demand borrowing by the Optionee from the Company on an
open account maintained solely for this purpose in the amount of the
full exercise price together with the instruction from the Optionee to
sell the shares exercised on the open market through a duly registered
broker-dealer with which the Company makes an arrangement for the sale
of such shares under the Plan. This method is known as the "broker-
dealer
<PAGE>
exercise method" and is subject to the terms and conditions set forth
herein, in the Plan and in guidelines established by the Committee.
The Option shall be deemed to be exercised simultaneously with the
sale of the shares by the broker-dealer. If the shares purchased upon
the exercise of an Option or a portion thereof cannot be sold for a
price equal to or greater than the full exercise price plus direct
costs of the sales, then there is no exercise of the Option. Election
of this method authorizes the Company to deliver shares to the broker-
dealer and authorizes the broker-dealer to sell said shares on the
open market. The broker-dealer will remit proceeds of the sale to the
Company which will remit net proceeds to the Optionee after repayment
of the borrowing, deduction of costs, if any, and withholding of
taxes. The Optionee's borrowing from the Company on an open account
shall be a personal obligation of the Optionee which shall bear
interest at the published Applicable Federal Rate (AFR) for short-term
loans and shall be payable upon demand by the Company. Such borrowing
may be authorized by telephone or other telecommunications acceptable
to the Company. Upon such borrowing and the exercise of the Option or
portion thereof, title to the shares shall pass to the Optionee whose
election hereunder shall constitute instruction to the Company to
register the shares in the name of the broker-dealer or its nominee.
The Company reserves the right to discontinue this broker-dealer
exercise method at any time for any reason whatsoever. The Optionee
agrees that if this broker-dealer exercise method under this paragraph
is used, the Optionee promises unconditionally to pay the Company the
full balance in his open account at any time upon demand. Optionee
also agrees to pay interest on the account balance at the AFR for
short-term loans from and after demand.
(b) This Option shall be exercisable in three installments. The first
installment shall be exercisable on the first anniversary following the Date of
Grant for 33% of the number of shares of Common Stock subject to this Option.
Thereafter, on each subsequent anniversary date an installment shall become
exercisable for 33% and 34%, respectively, of the number of shares subject to
this 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 this Option shall terminate, expire or be surrendered. An exercise shall
be for whole shares only.
(c) This Option shall not be exercised prior to six months after the Date
of Grant.
3. Termination of Employment
-------------------------
(a) The Option shall not become exercisable as to any additional shares
following the Termination of Employment of the Optionee for any reason including
a Termination of Employment because of Permanent Disability or Retirement of the
Optionee. Notwithstanding the foregoing, in the event of Termination of
Employment because of death, the Option shall immediately become exercisable as
to all shares.
2
<PAGE>
(b) "Termination of Employment" as used herein means termination from
active employment; it does not mean termination of payment of severance or
benefits at the end of salary continuation or other form of severance or pay in
lieu of salary.
4. Expiration of Option. The Option shall expire or terminate and may not
----------------------
be exercised to any extent by the Optionee after the first to occur of the
following events:
(a) The tenth anniversary of the Date of Grant, or such earlier time as
the Company may determine is necessary or appropriate in light of applicable
foreign tax laws; or
(b) Immediately upon the Optionee's Termination of Employment for Cause
(as defined in Section 11 herein).
5. Transferability. Other than as specifically provided with regard to
---------------
the death of the Optionee, this Option agreement and any benefit provided or
accruing hereunder shall not be subject in any manner to anticipation,
alienation, sale, transfer, assignment, pledge, encumbrance, or charge; and any
attempt to do so shall be void. No such benefit shall, prior to receipt thereof
by the Optionee, be in any manner liable for or subject to the debts, contracts,
liabilities, engagements or torts of the Optionee.
6. No Right to Employment. Neither the execution and delivery of this
----------------------
agreement nor the granting of the Option evidenced by this agreement shall
constitute or be evidence of any agreement or understanding, express or implied,
on the part of the Company or its subsidiaries to employ the Optionee for any
specific period or shall prevent the Company or its subsidiaries from
terminating the Optionee's employment at any time with or without "Cause" (as
defined in Section 11 herein).
7. Adjustments in Option. In the event that the outstanding shares of the
---------------------
Common Stock subject to the Option are, from time to time, changed into or
exchanged for a different number or kind of shares of the Company or other
securities by reason of a merger, consolidation, recapitalization,
reclassification, stock split, stock dividend, combination of shares, or
otherwise, the Committee shall make an appropriate and equitable adjustment in
the number and kind of shares or other consideration as to which the Option, or
portions thereof then unexercised, shall be exercisable. Any adjustment made by
the Committee shall be final and binding upon the Optionee, the Company and all
other interested persons.
8. Application of Laws. The granting and the exercise of this Option and
-------------------
the obligations of the Company to sell and deliver shares hereunder and to remit
cash under the broker-dealer exercise method shall be subject to all applicable
laws, rules, and regulations and to such approvals of any governmental agencies
as may be required.
9. Taxes. Any taxes required by federal, state, or local laws to be
-----
withheld by the Company (i) on exercise by the Optionee of the Option for Common
Stock, or (ii) at the time an election, if any, is made by the Optionee pursuant
to Section 83(b) of the Internal Revenue Code of 1986, as amended, shall be paid
to the Company before delivery of the Common Stock is made to the Optionee.
When the Option is exercised under the broker-
3
<PAGE>
dealer exercise method, the full amount of any taxes required to be withheld by
the Company on exercise of stock options shall be deducted by the Company from
the proceeds.
10. Notices. Any notices required to be given hereunder to the Company
-------
shall be addressed to The Secretary, RJR Nabisco Holdings Corp., 1301 Avenue of
the Americas, New York, NY 10019-6013, and any notice required to be given
hereunder to the Optionee shall be sent to the Optionee's address as shown on
the records of the Company.
11. Termination For "Cause." For purposes of this Agreement, if the
------------------------
Optionee has an employment or severance agreement with the Company, the
Optionee's employment shall be deemed to have been terminated for "Cause" only
as such term is defined in the Optionee's employment or severance agreement.
For purposes of this Agreement, if the Optionee does not have an employment
or severance agreement which defines the term "Cause", the Optionee's employment
shall be deemed to have been terminated for "Cause" if the termination results
from the Optionee's: (a) criminal conduct, (b) deliberate continual refusal to
perform employment duties on substantially a full time basis, (c) deliberate and
continual refusal to act in accordance with any specific lawful instructions of
an authorized officer or employee more senior than the Optionee, or (d)
deliberate misconduct which could be materially damaging to the Company or any
of its business operations without a reasonable good faith belief by the
Optionee that such conduct was in the best interests of the Company. A
termination of the Optionee's employment shall not be deemed for Cause hereunder
unless the senior personnel executive of the Company shall confirm that any such
termination is for Cause as defined hereunder.
Any voluntary termination by the Optionee in anticipation of an involuntary
termination of the Optionee's employment for Cause shall be deemed to be a
termination of Optionee's employment for Cause.
12. Administration and Interpretation. In consideration of the grant, the
----------------------------------
Optionee specifically agrees that the Committee shall have the exclusive power
to interpret the Plan and this Agreement and to adopt such rules for the
administration, interpretation and application of the Plan and Agreement as are
consistent therewith and to interpret or revoke any such rules. All actions
taken and all interpretations and determinations made by the Committee shall be
final, conclusive, and binding upon the Optionee, the Company and all other
interested persons. No member of the Committee shall be personally liable for
any action, determination or interpretation made in good faith with respect to
the Plan or the Agreement. The Committee may delegate its interpretive
authority to an officer or officers of the Company.
4
<PAGE>
13. Obligations of Optionee
-----------------------
(a) In consideration of the grant, the Optionee, while both actively
employed and in the event of Optionee's Termination of Employment for any
reason, specifically agrees that within the term of this grant or within three
years following the payment of any amounts pursuant to the grant, if later: (i)
the Optionee 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; (ii) the Optionee will
promptly notify the Company upon receipt of any requests from anyone other than
an employee or agent of the Company for information regarding the Company, or if
the Optionee becomes aware of any potential claim or proposed litigation against
the Company; (iii) the Optionee 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; (iv) the Optionee
will not disclose or misuse any confidential information or material concerning
the Company; and (v) the Optionee will not engage in any activity contrary or
harmful to the interests of the Company. In further consideration of the grant,
the Optionee specifically agrees that if required by law to provide sworn
testimony regarding any Company-related matter: the Optionee will consult with
and have Company designated legal counsel present for such testimony (the
Company will be responsible for the costs of such designated counsel); the
Optionee will confine his testimony to items about which he has knowledge rather
than speculation, unless otherwise directed by legal process; and the Optionee
will cooperate with the Company's attorneys to assist their efforts, especially
on matters the Optionee has been privy to, holding all privileged attorney-
client matters in strictest confidence.
(b) If the Company reasonably determines that the Optionee has
materially violated any of his obligations under this agreement, then this
Option shall terminate, effective the date on which such violation began (unless
otherwise terminated sooner) and the Company may demand the return of any gain
realized by the Optionee from the exercise of all or a portion of this Option
and the Optionee hereby agrees to return such amounts upon such demand. If
after such demand the Optionee fails to return said amounts, the Optionee
acknowledges that the Company has the right to deduct from any amounts the
Company owes to the Optionee (including, but not limited to, wages or other
compensation), or to commence judicial proceedings against the Optionee, to
recover said amounts and any and all of its attorney's fees and costs.
14. 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
5
<PAGE>
TERMS OF THIS AGREEMENT REGARDLESS OF THE LAW THAT MIGHT BE APPLIED UNDER
PRINCIPLES OF CONFLICTS OF LAWS.
IN WITNESS WHEREOF, the Company, by its duly authorized officer, and the
Optionee have executed this Agreement as of the date of Grant first above
written.
RJR NABISCO HOLDINGS CORP.
By:
----------------------------
Authorized Signatory
- --------------------------
Optionee
Optionee's Taxpayer Identification Number:
- ---------------------------------------
Optionee's Home Address:
- ---------------------------------------
- ---------------------------------------
- ---------------------------------------
6
Exhibit 10.4
RN Option
1996
R - Insider
RJR, NABISCO HOLDINGS CORP.
1990 LONG TERM INCENTIVE PLAN
STOCK OPTION AGREEMENT
___________________________
DATE OF GRANT: March 5, 1996
W I T N E S S E T H:
1. Grant of Option. Pursuant to the provisions of the 1990 Long Term
---------------
Incentive Plan (the "Plan"), RJR Nabisco Holdings Corp. (the "Company") on the
above date has granted to
<<FIRST_NAME>> <<LAST_NAME>> (THE "OPTIONEE")
subject to the terms and conditions which follow and the terms and conditions of
the Plan, the right and option to exercise from the Company a total of
<<STOCK_OPTIONS>> SHARES
of Common Stock of the Company, at the exercise price of $34.875 per share (the
"Option"). 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. Exercise of Option.
------------------
(a) Shares may be purchased by giving the Corporate Secretary of the Company
written notice of exercise, on a form prescribed by the Company, specifying the
number of shares to be purchased. The notice of exercise shall be accompanied by
(i) tender to the Company of cash for the full purchase price of the
shares with respect to which such Option or portion thereof is
exercised; or
(ii) the unsecured, demand borrowing by the Optionee from the Company on an
open account maintained solely for this purpose in the amount of the
full exercise price together with the instruction from the Optionee to
sell the shares exercised on the open market through a duly registered
broker-dealer with which the Company makes an arrangement for the sale
of such shares under the Plan. This method is known as the "broker-
dealer
<PAGE>
exercise method" and is subject to the terms and conditions set forth
herein, in the Plan and in guidelines established by the Committee.
The Option shall be deemed to be exercised simultaneously with the
sale of the shares by the broker-dealer. If the shares purchased upon
the exercise of an Option or a portion thereof cannot be sold for a
price equal to or greater than the full exercise price plus direct
costs of the sales, then there is no exercise of the Option. Election
of this method authorizes the Company to deliver shares to the broker-
dealer and authorizes the broker-dealer to sell said shares on the
open market. The broker-dealer will remit proceeds of the sale to the
Company which will remit net proceeds to the Optionee after repayment
of the borrowing, deduction of costs, if any, and withholding of
taxes. The Optionee's borrowing from the Company on an open account
shall be a personal obligation of the Optionee which shall bear
interest at the published Applicable Federal Rate (AFR) for short-term
loans and shall be payable upon demand by the Company. Such borrowing
may be authorized by telephone or other telecommunications acceptable
to the Company. Upon such borrowing and the exercise of the Option or
portion thereof, title to the shares shall pass to the Optionee whose
election hereunder shall constitute instruction to the Company to
register the shares in the name of the broker-dealer or its nominee.
The Company reserves the fight to discontinue this broker-dealer
exercise method at any time for any reason whatsoever. The Optionee
agrees that if this broker-dealer exercise method under this paragraph
is used, the Optionee promises unconditionally to pay the Company the
full balance in his open account at any time upon demand. Optionee
also agrees to pay interest on the account balance at the AFR for
short-term loans from and after demand.
(b) This Option shall be exercisable in three installments. The first
installment shall be exercisable on the first anniversary following the Date of
Grant for 33% of the number of shares of Common Stock subject to this Option.
Thereafter, on each subsequent anniversary date an installment shall become
exercisable for 33% and 34%, respectively, of the number of shares subject to
this 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 this Option shall terminate, expire or be surrendered. An exercise shall
be for whole shares only.
(c) This Option shall not be exercised prior to six months after the Date
of Grant.
3. Termination of Employment.
-------------------------
(a) The Option shall not become exercisable as to any additional shares
following the Termination of Employment of the Optionee for any reason including
a Termination of Employment because of Permanent Disability or Retirement of the
Optionee. Notwithstanding the foregoing, in the event of Termination of
Employment because of death, the Option shall immediately become exercisable as
to all shares.
2
<PAGE>
(b) "Termination of Employment" as used herein means termination from active
employment; it does not mean termination of payment of severance or benefits at
the end of salary continuation or other form of severance or pay in lieu of
salary.
4. Expiration of Option. The Option shall expire or terminate and may not
--------------------
be exercised to any extent by the Optionee after the first to occur of the
following events:
(a) The tenth anniversary of the Date of Grant, or such earlier time as the
Company may determine is necessary or appropriate in light of applicable foreign
tax laws; or
(b) Immediately upon the Optionee's Termination of Employment for Cause (as
defined in Section 11 herein).
5. Transferability. Other than as specifically provided with regard to the
---------------
death of the Optionee, this Option agreement and any benefit provided or
accruing hereunder shall not be subject in any manner to anticipation,
alienation, sale, transfer, assignment, pledge, encumbrance, or charge; and any
attempt to do so shall be void. No such benefit shall, prior to receipt thereof
by the Optionee, be in any manner liable for or subject to the debts, contracts,
liabilities, engagements or torts of the Optionee.
6. No Right to Employment. Neither the execution and delivery of this
----------------------
agreement nor the granting of the Option evidenced by this agreement shall
constitute or be evidence of any agreement or understanding, express or implied,
on the part of the Company or its subsidiaries to employ the Optionee for any
specific period or shall prevent the Company or its subsidiaries from
terminating the Optionee's employment at any time with or without "Cause" (as
defined in Section 11 herein).
7. Adjustments in Option. In the event that the outstanding shares of the
---------------------
Common Stock subject to the Option are, from time to time, changed into or
exchanged for a different number or kind of shares of the Company or other
securities by reason of a merger, consolidation, recapitalization,
reclassification, stock split, stock dividend, combination of shares, or
otherwise, the Committee shall make an appropriate and equitable adjustment in
the number and kind of shares or other consideration as to which the Option, or
portions thereof then unexercised, shall be exercisable. Any adjustment made by
the Committee shall be final and binding upon the Optionee, the Company and all
other interested persons.
8. Application of Laws. The granting and the exercise of this Option and
-------------------
the obligations of the Company to sell and deliver shares hereunder and to remit
cash under the broker-dealer exercise method shall be subject to all applicable
laws, rules, and regulations and to such approvals of any governmental agencies
as may be required.
9. Taxes. Any taxes required by federal, state, or local laws to be
-----
withheld by the Company (i) on exercise by the Optionee of the Option for Common
Stock, or (ii) at the time an election, if any, is made by the Optionee pursuant
to Section 83(b) of the Internal Revenue Code of 1986, as amended, shall be paid
to the Company before delivery of the Common Stock is made to the Optionee. When
the Option is exercised under the broker-
3
<PAGE>
dealer exercise method, the full amount of any taxes required to be withheld by
the Company on exercise of stock options shall be deducted by the Company from
the proceeds.
10. Notices. Any notices required to be given hereunder to the Company
-------
shall be addressed to The Secretary, RJR Nabisco Holdings Corp., 1301 Avenue of
the Americas, New York, NY 10019-6013, and any notice required to be given
hereunder to the Optionee shall be sent to the Optionee's address as shown on
the records of the Company.
11. Termination For "Cause." For purposes of this Agreement, if the
----------------------
Optionee has an employment or severance agreement with the Company, the
Optionee's employment shall be deemed to have been terminated for "Cause" only
as such term is defined in the Optionee's employment or severance agreement.
For purposes of this Agreement, if the Optionee does not have an employment
or severance agreement which defines the term "Cause", the Optionee's employment
shall be deemed to have been terminated for "Cause" if the termination results
from the Optionee's: (a) criminal conduct, (b) deliberate continual refusal to
perform employment duties on substantially a full time basis, (c) deliberate and
continual refusal to act in accordance with any specific lawful instructions of
an authorized officer or employee more senior than the Optionee, or (d)
deliberate misconduct which could be materially damaging to the Company or any
of its business operations without a reasonable good faith belief by the
Optionee that such conduct was in the best interests of the Company. A
termination of the Optionee's employment shall not be deemed for Cause hereunder
unless the senior personnel executive of the Company shall confirm that any such
termination is for Cause as defined hereunder.
Any voluntary termination by the Optionee in anticipation of an involuntary
termination of the Optionee's employment for Cause shall be deemed to be a
termination of Optionee's employment for Cause.
12. Administration and Interpretation. In consideration of the grant, the
---------------------------------
Optionee specifically agrees that the Committee shall have the exclusive power
to interpret the Plan and this Agreement and to adopt such rules for the
administration, interpretation and application of the Plan and Agreement as are
consistent therewith and to interpret or revoke any such rules. All actions
taken and all interpretations and determinations made by the Committee shall be
final, conclusive, and binding upon the Optionee, the Company and all other
interested persons. No member of the Committee shall be personally liable for
any action, determination or interpretation made in good faith with respect to
the Plan or the Agreement. The Committee may delegate its interpretive authority
to an officer or officers of the Company.
4
<PAGE>
13. Obligations of Optionee
-----------------------
(a) In consideration of the grant, the Optionee, while both actively
employed and in the event of Optionee's Termination of Employment for any
reason, specifically agrees that within the term of this grant or within three
years following the payment of any amounts pursuant to the grant, if later: (i)
the Optionee 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; (ii) the Optionee will
promptly notify the Company upon receipt of any requests from anyone other than
an employee or agent of the Company for information regarding the Company, or if
the Optionee becomes aware of any potential claim or proposed litigation against
the Company; (iii) the Optionee 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; (iv) the Optionee
will not disclose or misuse any confidential information or material concerning
the Company; and (v) the Optionee will not engage in any activity contrary or
harmful to the interests of the Company. In further consideration of the grant,
the Optionee specifically agrees that if required by law to provide sworn
testimony regarding any Company-related matter: the Optionee will consult with
and have Company designated legal counsel present for such testimony (the
Company will be responsible for the costs of such designated counsel); the
Optionee will confine his testimony to items about which he has knowledge rather
than speculation, unless otherwise directed by legal process; and the Optionee
will cooperate with the Company's attorneys to assist their efforts, especially
on matters the Optionee has been privy to, holding all privileged attorney-
client matters in strictest confidence.
(b) If the Company reasonably determines that the Optionee has materially
violated any of his obligations under this agreement, then this Option shall
terminate, effective the date on which such violation began (unless otherwise
terminated sooner) and the Company may demand the return of any gain realized by
the Optionee from the exercise of all or a portion of this Option and the
Optionee hereby agrees to return such amounts upon such demand. If after such
demand the Optionee fails to return said amounts, the Optionee acknowledges that
the Company has the right to deduct from any amounts the Company owes to the
Optionee (including, but not limited to, wages or other compensation), or to
commence judicial proceedings against the Optionee, to recover said amounts and
any and all of its attorney' s fees and costs.
14. 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) If, and only if, a Change of Control occurs on or after six months
from the date of grant but on or before October 11, 1996 (or such later date as
the Committee may from time to time designate), the Optionee shall receive in
cash in respect
5
<PAGE>
of the Option and in exchange for the cancellation of the Option, the higher of
(i) or (ii) where (i) is the excess, if any, of the Fair Market Value over the
exercise price, multiplied by the number of Shares subject to the Option and
(ii) is the value of the Option using the Black-Scholes method of valuing the
Option based on the following assumptions: Fair Market Value, a risk free factor
equal to the average rate for zero coupon United States government issues with a
remaining term equal to the expected term of the Option, a dividend yield
calculated by dividing the annual dividend by the Fair Market Value, and
volatility of 3 5.6% (the 4-1/2 year weighted average volatility of the Shares).
d) THE LAWS OF THE STATE OF DELAWARE SHALL GOVERN THE INTERPRETATION,
VALIDITY AND PERFORMANCE OF THE TERMS OF THIS AGREEMENT REGARDLESS OF THE LAW
THAT MIGHT BE APPLIED UNDER PRINCIPLES OF CONFLICTS OF LAWS.
IN WITNESS WHEREOF, the Company, by its duly authorized officer, and the
Optionee have executed this Agreement as of the date of Grant first above
written.
RJR NABISCO HOLDINGS CORP.
By:
--------------------------------
Authorized Signatory
- -----------------------------------
Optionee
Optionee's Taxpayer Identification Number:
- ------------------------------------
Optionee's Home Address:
- ------------------------------------
- ------------------------------------
- ------------------------------------
6
Exhibit 10.5
RN Option
1996
Exec.
RJR NABISCO HOLDINGS CORP.
1990 LONG TERM INCENTIVE PLAN
STOCK OPTION AGREEMENT
___________________________
DATE OF GRANT: March 5, 1996
W I T N E S S E T H :
1. Grant of Option. Pursuant to the provisions of the 1990 Long Term
---------------
Incentive Plan (the "Plan"), RJR Nabisco Holdings Corp. (the "Company") on the
above date has granted to
STEVEN F. GOLDSTONE (THE "OPTIONEE"),
subject to the terms and conditions which follow and the terms and conditions of
the Plan, the right and option to exercise from the Company a total of
400,000 SHARES
of Common Stock of the Company, at the exercise price of $34.875 per share (the
"Option"). 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. Exercise of Option.
-------------------
(a) Shares may be purchased by giving the Corporate Secretary of the
Company written notice of exercise, on a form prescribed by the Company,
specifying the number of shares to be purchased. The notice of exercise shall
be accompanied by
(i) tender to the Company of cash for the full purchase price of the
shares with respect to which such Option or portion thereof is
exercised; or
--
(ii) the unsecured, demand borrowing by the Optionee from the Company on an
open account maintained solely for this purpose in the amount of the
full
<PAGE>
exercise price together with the instruction from the Optionee to sell
the shares exercised on the open market through a duly registered
broker-dealer with which the Company makes an arrangement for the sale
of such shares under the Plan. This method is known as the "broker-
dealer exercise method" and is subject to the terms and conditions set
forth herein, in the Plan and in guidelines established by the
Committee. The Option shall be deemed to be exercised simultaneously
with the sale of the shares by the broker-dealer. If the shares
purchased upon the exercise of an Option or a portion thereof cannot
be sold for a price equal to or greater than the full exercise price
plus direct costs of the sales, then there is no exercise of the
Option. Election of this method authorizes the Company to deliver
shares to the broker-dealer and authorizes the broker-dealer to sell
said shares on the open market. The broker-dealer will remit proceeds
of the sale to the Company which will remit net proceeds to the
Optionee after repayment of the borrowing, deduction of costs, if any,
and withholding of taxes. The Optionee's borrowing from the Company
on an open account shall be a personal obligation of the Optionee
which shall bear interest at the published Applicable Federal Rate
(AFR) for short-term loans and shall be payable upon demand by the
Company. Such borrowing may be authorized by telephone or other
telecommunications acceptable to the Company. Upon such borrowing and
the exercise of the Option or portion thereof, title to the shares
shall pass to the Optionee whose election hereunder shall constitute
instruction to the Company to register the shares in the name of the
broker-dealer or its nominee. The Company reserves the right to
discontinue this broker-dealer exercise method at any time for any
reason whatsoever. The Optionee agrees that if this broker-dealer
exercise method under this paragraph is used, the Optionee promises
unconditionally to pay the Company the full balance in his open
account at any time upon demand. Optionee also agrees to pay interest
on the account balance at the AFR for short-term loans from and after
demand.
(b) This Option shall be exercisable in five installments. The first
installment shall be exercisable on the first anniversary following the Date of
Grant for 20% of the number of shares of Common Stock subject to this option.
Thereafter, on each subsequent anniversary date an installment shall become
exercisable for an additional 20% of the number of shares subject to this 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 this
Option shall terminate, expire or be surrendered. An exercise shall be for
whole shares only.
(c) This Option shall not be exercised prior to six months after the Date
of Grant.
2
<PAGE>
3. Termination of Employment
-------------------------
(a) The Option shall not become exercisable as to any additional shares
following the Termination of Employment of the Optionee for any reason including
a Termination of Employment because of Permanent Disability or Retirement of the
Optionee. Notwithstanding the foregoing, in the event of Termination of
Employment because of death, the Option shall immediately become exercisable as
to all shares.
(b) "Termination of Employment" as used herein means termination from
active employment; it does not mean termination of payment of severance or
benefits at the end of salary continuation or other form of severance or pay in
lieu of salary.
4. Expiration of Option. The Option shall expire or terminate and may not
----------------------
be exercised to any extent by the Optionee after the first to occur of the
following events:
(a) The tenth anniversary of the Date of Grant, or such earlier time as
the Company may determine is necessary or appropriate in light of applicable
foreign tax laws; or
(b) Immediately upon the Optionee's Termination of Employment for Cause
(as defined in Section 11 herein).
5. Transferability. Other than as specifically provided with regard to
---------------
the death of the Optionee, this option agreement and any benefit provided or
accruing hereunder shall not be subject in any manner to anticipation,
alienation, sale, transfer, assignment, pledge, encumbrance, or charge; and any
attempt to do so shall be void. No such benefit shall, prior to receipt thereof
by the Optionee, be in any manner liable for or subject to the debts, contracts,
liabilities, engagements or torts of the Optionee.
6. No Right to Employment. Neither the execution and delivery of this
----------------------
agreement nor the granting of the Option evidenced by this agreement shall
constitute or be evidence of any agreement or understanding, express or implied,
on the part of the Company or its subsidiaries to employ the Optionee for any
specific period or shall prevent the Company or its subsidiaries from
terminating the Optionee's employment at any time with or without "Cause" (as
defined in Section 11 herein).
7. Adjustments in Option.
---------------------
In the event that the outstanding shares of the Common Stock subject to the
Option are, from time to time, changed into or exchanged for a different number
or kind
of shares of the Company or other securities by reason of a merger,
consolidation, recapitalization, reclassification, stock split, stock dividend,
combination of shares, or otherwise, the Committee shall make an appropriate and
equitable adjustment in the number and kind of shares or other consideration as
to which the Option, or portions thereof then unexercised, shall be exercisable.
Any adjustment made by the Committee
3
<PAGE>
shall be final and binding upon the Optionee, the Company and all other
interested persons.
8. Application of Laws. The granting and the exercise of this Option and
-------------------
the obligations of the Company to sell and deliver shares hereunder and to remit
cash under the broker-dealer exercise method shall be subject to all applicable
laws, rules, and regulations and to such approvals of any governmental agencies
as may be required.
9. Taxes. Any taxes required by federal, state, or local laws to be
-----
withheld by the Company (i) on exercise by the Optionee of the Option for Common
Stock, or (ii) at the time an election, if any, is made by the Optionee pursuant
to Section 83(b) of the Internal Revenue Code, as amended, shall be paid to the
Company before delivery of the Common Stock is made to the Optionee. When the
Option is exercised under the broker-dealer exercise method, the full amount of
any taxes required to be withheld by the Company on exercise of stock options
shall be deducted by the Company from the proceeds.
10. Notices. Any notices required to be given hereunder to the Company
-------
shall be addressed to The Secretary, RJR Nabisco Holdings Corp., 1301 Avenue of
the Americas, New York, NY 10019-6013, and any notice required to be given
hereunder to the Optionee shall be sent to the Optionee's address as shown on
the records of the Company.
11. Termination For "Cause." For purposes of this Agreement, if the
------------------------
Optionee has an employment or severance agreement with the Company, the
Optionee's employment shall be deemed to have been terminated for "Cause" only
as such term is defined in the Optionee's employment or severance agreement.
For purposes of this Agreement, if the Optionee does not have an employment
or severance agreement which defines the term "Cause", the Optionee's employment
shall be deemed to have been terminated for "Cause" if the termination results
from the Optionee's: (a) criminal conduct, (b) deliberate continual refusal to
perform employment duties on substantially a full time basis, (c) deliberate and
continual refusal to act in accordance with any specific lawful instructions of
an authorized officer or employee more senior than the Optionee, or (d)
deliberate misconduct which could be materially damaging to the Company or any
of its business operations without a reasonable good faith belief by the
Optionee that such conduct was in the best interests of the Company. A
termination of the Optionee's employment shall not be deemed for Cause hereunder
unless the senior personnel executive of the Company shall confirm that any such
termination is for Cause as defined hereunder.
Any voluntary termination by the Optionee in anticipation of an involuntary
termination of the Optionee's employment for Cause shall be deemed to be a
termination of Optionee's employment for Cause.
4
<PAGE>
12. Administration and Interpretation. In consideration of the grant, the
----------------------------------
Optionee specifically agrees that the Committee shall have the exclusive power
to interpret the Plan and this Agreement and to adopt such rules for the
administration, interpretation and application of the Plan and Agreement as are
consistent therewith and to interpret or revoke any such rules. All actions
taken and all interpretations and determinations made by the Committee shall be
final, conclusive, and binding upon the Optionee, the Company and all other
interested persons. No member of the Committee shall be personally liable for
any action, determination or interpretation made in good faith with respect to
the Plan or the Agreement. The Committee may delegate its interpretive
authority to an officer or officers of the Company.
13. Obligations of Optionee
-----------------------
(a) In consideration of the grant, the Optionee, while both actively
employed and in the event of Optionee's Termination of Employment for any
reason, specifically agrees that within the ten year term of this Option or
within three years following the exercise of any portion of this Option, if
later: (i) the Optionee 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; (ii) the
Optionee will promptly notify the Company upon receipt of any requests from
anyone other than an employee or agent of the Company for information regarding
the Company, or if the Optionee becomes aware of any potential claim or proposed
litigation against the Company; (iii) the Optionee 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;
(iv) the Optionee will not disclose or misuse any confidential information or
material concerning the Company; and (v) the Optionee will not engage in any
activity contrary or harmful to the interests of the Company. In further
consideration of the grant, the Optionee specifically agrees that if required by
law to provide sworn testimony regarding any Company-related matter: the
Optionee will consult with and have Company designated legal counsel present for
such testimony (the Company will be responsible for the costs of such designated
counsel); the Optionee will confine his testimony to items about which he has
knowledge rather than speculation, unless otherwise directed by legal process;
and the Optionee will cooperate with the Company's attorneys to assist their
efforts, especially on matters the Optionee has been privy to, holding all
privileged attorney-client matters in strictest confidence.
(b) If the Company reasonably determines that the Optionee has
materially violated any of his obligations under this agreement, then this
Option shall terminate, effective the date on which such violation began (unless
otherwise terminated sooner) and the Company may demand the return of any gain
realized by the Optionee from the exercise of all or a portion of this Option
and the Optionee hereby agrees to return such amounts upon such demand. If
after such demand the Optionee fails to return said amounts, the Optionee
acknowledges that the Company has the right to deduct from any amounts the
Company owes to the Optionee (including, but not limited to, wages or
5
<PAGE>
other compensation), or to commence judicial proceedings against the Optionee,
to recover said amounts and any and all of its attorney's fees and costs.
14. 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) If, and only if, a Change of Control occurs on or after six
months from the date of grant but on or before October 11, 1996 (or such later
date as the Committee may from time to time designate), the Optionee shall
receive in cash in respect of the Option and in exchange for the cancellation of
the Option, the higher of (i) or (ii) where (i) is the excess, if any, of the
Fair Market Value over the exercise price, multiplied by the number of Shares
subject to the Option and (ii) is the value of the Option using the Black-
Scholes method of valuing the Option based on the following assumptions: Fair
Market Value, a risk free factor equal to the average rate for zero coupon
United States government issues with a remaining term equal to the expected term
of the Option, a dividend yield calculated by dividing the annual dividend by
the Fair Market Value, and volatility of 35.6% (the 4-1/2 year weighted average
volatility of the Shares).
d) THE LAWS OF THE STATE OF DELAWARE SHALL GOVERN THE
INTERPRETATION, VALIDITY AND PERFORMANCE OF THE TERMS OF THIS AGREEMENT
REGARDLESS OF THE LAW THAT MIGHT BE APPLIED UNDER PRINCIPLES OF CONFLICTS OF
LAWS.
IN WITNESS WHEREOF, the Company, by its duly authorized officer, and the
Optionee have executed this Agreement as of the date of Grant first above
written.
RJR NABISCO HOLDINGS CORP.
By:
--------------------------------
Authorized Signatory
- -----------------------------------
Optionee
Optionee's Taxpayer Identification Number: Optionee's Home Address:
___________________________
___________________________
___________________________
6
Exhibit 10.6
1996 AMENDMENT
TO
EMPLOYMENT AGREEMENT
This is an amendment, dated as entered below, to the Employment Agreement (the
"Agreement") which was made the 5th day of December 1995 by and among RJR
Nabisco Holdings Corp., a Delaware corporation ("Holdings"), RJR Nabisco, Inc.,
a Delaware corporation and an indirect subsidiary of Holdings (the "Company")
and Steven F. Goldstone ("Executive").
RECITALS
--------
In consideration of Executive being given the opportunity to receive an
increased amount of compensation for the fiscal year ending December 31, 1996
and Holdings and the Company being able to provide more effective incentives to
the performance of Executive, it is agreed by and between the parties as
follows:
I. a) The first sentence of Section 3.1 of the Agreement shall be amended
for the fiscal year ending December 31, 1996 as follows:
"3.1 Salary. The Company shall pay Executive a Base Salary at the
------
rate of $800,000 per annum for the period ending December 31, 1996;
provided; however, that for purposes of this Agreement (other than
Sections 3.1, 3.2 and 3.4) Executive's annual Base Salary shall be
deemed to be $1,100,000."
Nothing in this Amendment shall cause Section 3.1 of the Agreement to be
amended for the fiscal years ending December 31, 1997 or thereafter.
b) Section 3.2(a) of the Agreement shall be amended as follows:
"3.2 Annual Bonus.
------------
(a) In addition to his Base Salary, Executive shall be entitled for
the fiscal year ending December 31, 1996 to be granted Performance
Units pursuant to the Performance Unit Agreement appended hereto as
Attachment 1. The value of Performance Units shall be determined by
Cash Net Income for 1996, as specified in the Performance Unit
Agreement and attachments thereto. For this purpose, "Cash Net
Income" means Cash Net Income from continuing operations, determined
without regard to the effect of any unanticipated major financial or
corporate event or any change in accounting standards that may be
required or permitted by the Financial Accounting Standards Board.
This award shall be in lieu of any award under the Company's Annual
Incentive Award Plan for the fiscal year ending December 31, 1996.
This award is made pursuant and subject to the provisions of 3.2(c)
herein."
Nothing in this Amendment shall cause Section 3.2(a), (b) or (c) of the
Agreement to be amended for the fiscal years ending December 31, 1996 or
thereafter.
II. a) A new section 4.5 shall be added to the Agreement as follows:
"4.5 Life Insurance. In addition to any life insurance coverage which
---------------
Executive has under current programs of the Company, the Company
shall, at Company cost, make ten annual premium deposits of $73,400
each with an insurance company to provide Executive with life
insurance in the face amount of $3 million. The insurance policies
shall be owned by Executive, or his designee, and the Company shall
hold Executive harmless from taxes, if any, incurred as a result of
premiums paid by the Company on such life insurance. As long
<PAGE>
as Executive is (i) actively employed by the Company (ii) retires
pursuant to Section 5(d) herein or (iii) is terminated by the Company
and/or Holdings other than for Cause (as defined in Section 6.4) or
Executive terminates for Good Reason (as defined in Section 6.1(b)),
the Company shall continue to pay all remaining premiums when due for
such insurance as described in the first sentence of this Section 4.5.
Notwithstanding the foregoing, should Executive take any affirmative
action, such as a withdrawal from the policy providing such insurance,
which causes a diminution in coverage or a cancellation of the policy,
the Company shall have no further obligation to pay any premiums or
provide any coverage."
b) Remove the word "and" before 3.4(b), and add a new section 3.4(c) as
follows:
"; and (c) all remaining premium deposits not yet made under Section
4.5."
RJR NABISCO HOLDINGS CORP.
By:
-------------------------------
RJR NABISCO, INC.
By:
-------------------------------
---------------------------------
Steven F. Goldstone
2
EXHIBIT 12.1
RJR NABISCO, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31, 1996
--------------
<S> <C>
Earnings before fixed charges:
Net income................................................................. $214
Provision for income taxes................................................. 171
-----
Income before income taxes................................................. 385
Interest and debt expense.................................................. 210
Interest portion of rental expense......................................... 14
-----
Earnings before fixed charges................................................ $609
-----
-----
Fixed charges:
Interest and debt expense.................................................. $210
Interest portion of rental expense......................................... 14
Capitalized interest....................................................... 2
-----
Total fixed charges...................................................... $226
-----
-----
Ratio of earnings to fixed charges........................................... 2.7
-----
-----
</TABLE>
<TABLE> <S> <C>
<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.
RJR NABISCO HOLDINGS CORP.
(Dollars in Millions Except Per Share Amounts)
</LEGEND>
<CIK> 847903
<NAME> RJR NABISCO HOLDINGS CORP.
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 574
<SECURITIES> 0
<RECEIVABLES> 1,361
<ALLOWANCES> 0
<INVENTORY> 2,501
<CURRENT-ASSETS> 4,927
<PP&E> 8,475
<DEPRECIATION> (2,770)
<TOTAL-ASSETS> 31,808
<CURRENT-LIABILITIES> 4,019
<BONDS> 9,785
957
413
<COMMON> 3
<OTHER-SE> 9,941
<TOTAL-LIABILITY-AND-EQUITY> 31,808
<SALES> 3,886
<TOTAL-REVENUES> 3,886
<CGS> 1,801
<TOTAL-COSTS> 1,801
<OTHER-EXPENSES> 158
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 234
<INCOME-PRETAX> 371
<INCOME-TAX> 163
<INCOME-CONTINUING> 208
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 198
<EPS-PRIMARY> .57
<EPS-DILUTED> .57
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM RJRN'S
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
RJR NABISCO INC.
(Dollars in Millions Except Per Share Amounts)
</LEGEND>
<CIK> 083612
<NAME> RJR NABISCO, INC.
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 569
<SECURITIES> 0
<RECEIVABLES> 1,361
<ALLOWANCES> 0
<INVENTORY> 2,501
<CURRENT-ASSETS> 4,922
<PP&E> 8,475
<DEPRECIATION> (2,770)
<TOTAL-ASSETS> 31,802
<CURRENT-LIABILITIES> 3,841
<BONDS> 9,785
0
0
<COMMON> 0
<OTHER-SE> 12,358
<TOTAL-LIABILITY-AND-EQUITY> 31,802
<SALES> 3,886
<TOTAL-REVENUES> 3,886
<CGS> 1,801
<TOTAL-COSTS> 1,801
<OTHER-EXPENSES> 158
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 210
<INCOME-PRETAX> 395
<INCOME-TAX> 171
<INCOME-CONTINUING> 224
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 214
<EPS-PRIMARY> 0.00
<EPS-DILUTED> 0.00
</TABLE>
